Annual Financial Report

RNS Number : 3837D

F&C Private Equity Trust PLC

28 March 2014

 



To: Stock Exchange	For immediate release:
	28 March 2014

F&C Private Equity Trust plc

Preliminary Announcement for the Year to 31 December 2013

 

F&C Private Equity Trust plc today announces its unaudited financial results for the year ended 31 December 2013.

Financial Highlights

·      Share price total return for the year of 17.4 per cent for the Ordinary Shares.

·      NAV total return for the year of 9.9 per cent for the Ordinary Shares.

·      Total dividends of 10.58p per Ordinary Share.

·      Dividend yield of 5.1 per cent based on the year-end share price.

Chairman's Statement

Introduction

Your Company performed strongly during the year ended 31 December 2013.  Its net assets at the year end  were £197.2 million, giving a diluted net asset value ('NAV') per Ordinary Share of 269.07p. Taking into account dividends paid during the year, which total 10.29p per share, the NAV total return of the shares was 9.9 per cent. The Ordinary Share price total return over the year was 17.4 per cent. At the end of the year the Ordinary Share price was 207.50p, representing a discount to the NAV of 22.9 per cent. Since the year end the share price has increased further and the current discount to NAV is approximately 16 per cent.

The Company has been active in making and realising investments. New investments during the year, covering both drawdowns by funds and co-investments made directly into private companies, totalled £39.6 million. Realisations and associated income totalled £42.5 million. At the year end the Company had net cash of £3.7 million. Taking into account the accrued liability for the Zero Dividend Preference Shares ('ZDPs') of £41.8 million, total net debt was £38.1 million, equivalent to gearing of 16.2 per cent.  Currently the Company has cash of approximately £9 million and an unutilised borrowing facility of £50 million. Outstanding undrawn commitments at the year end were £61.1 million and, of this amount, approximately £20 million is to funds whose investment period has expired and is therefore only eligible to be drawn under limited circumstances.

The performance fee has a hurdle rate, calculated over two years, of an IRR of 8.0 per cent. The IRR of the NAV for the two year period ended 31 December 2013 was 8.7 per cent and therefore a performance fee of £1.175 million is payable to the Manager, F&C Investment Business Limited, in respect of 2013.

Dividends

In accordance with the Company's stated dividend policy, a semi-annual dividend of 5.22p per Ordinary Share was paid on 1 November 2013. The Board recommends payment of a final dividend of 5.36p per Ordinary Share payable on 30 May 2014 to shareholders on the register on 2 May 2014. The total dividend for the year amounts to 10.58p per Ordinary Share, equivalent to a dividend yield of 5.1 per cent at the year end.

Financing

As stated above, the Company currently has cash of approximately £9 million and a completely unutilised borrowing facility of £50 million. On 15 December 2014 it is due to redeem its 2009 issue of ZDPs. Whilst it would be possible to use accumulated cash and borrowing to do this, there remains market demand for ZDPs. As the gross redemption yields on ZDPs are significantly lower than they were when the existing ZDPs were issued in 2009, we are currently exploring with the Company's advisers whether to take advantage of this demand by offering new ZDPs with a much lower gross redemption yield than the 8.75 per cent on the existing ZDPs. If the Company proceeds with a new issue, existing ZDP Shareholders will be offered the opportunity to roll over at least part of their existing investment into the new issue. We are also considering taking advantage of an improved banking environment to extend and rearrange the Company's banking facilities.

Alternative Investment Fund Managers' Directive ('AIFMD')

The AIFMD is European legislation which creates a European-wide framework for regulating managers of alternative investment funds ('AIFs'). Investment trusts fall within the remit of these new regulations. The legislation came into force in July 2013 but there is a twelve month transitional period which means that the Company has until July 2014 to comply. The Board has reviewed the impact of the directive on the Company's operations and decided that it will appoint a subsidiary of F&C Asset Management plc as the Company's AIFM, at no additional cost to the Company. Under the directive the Company is also required to appoint a depository, and although this will result in an additional cost to the Company the Board does not expect this cost to be significant. Both appointments will become effective before the end of the transitional period.

Scottish Independence Referendum

The Company is registered in Scotland, its management is based in Scotland and all of its Directors and members of the investment management team are based in Scotland. The referendum on Scottish independence due to be held on 18 September this year is of direct interest to the Company. Shareholders are entitled to know the opinion of the Company's officers on this important issue.

At present, the Company, along with many other investment trusts, investment companies and other financial institutions, benefits from being fully integrated within the United Kingdom's financial system. These benefits include access to a significant reservoir of management expertise based in Edinburgh, a common system of taxation and benefits across the UK providing for the free movement of human capital and supervision by a common financial regulator (the Financial Conduct Authority) with access to the UK and EU savings and investment markets that this ensures. It also benefits from having the Bank of England as issuer of a single national currency, experienced manager of the nation's stock of debt and robust lender of last resort to financial institutions located within the nation state. Specifically, the investment trust sector, to which Scotland has contributed immensely, relies on a particular status within the British tax system as detailed within section 1158 of the Corporation Tax Act 2010. Additionally, many of the Company's retail investors, who are based around the UK, rely on the specific provisions within the UK taxation system which govern ISAs and SIPPs. 

All of this provides a combination of consistency, stability, familiarity and economies of scale which would be put at risk in the event that Scotland became a fully independent nation state. Such a profound change in the constitutional status of Scotland would be likely to lead to a significant period of uncertainty, while we wait and see whether and to what extent these provisions are replicated, altered or abandoned within a newly independent country. The debate on whether Scottish independence will bring economic benefits will continue, but the scope for uncertainty and disruption in the event of a drastic change in Scotland's relationship with the remainder of Great Britain and Northern Ireland is clear. Whatever the outcome of the referendum, your Board and management team will continue to manage the Company's affairs to the best of their respective abilities in the interests of shareholders.

Annual General Meeting

The Annual General Meeting will be held on Thursday 29 May 2014 at 12 noon at the offices of F&C Asset Management plc, Exchange House, Primrose Street, London EC2A 2NY. This will be followed by a presentation by Hamish Mair, the Company's lead fund manager. This is a good opportunity for shareholders to meet the Manager and the Board and we would encourage you to attend.

Outlook

As discussed in the Manager's Review, the Company's portfolio is well positioned to benefit from the strengthening economic recovery across Europe and further afield and from the continued diligence and judgement of our investment partners. Dealflow in funds, and the opportunities for attractive co-investments and secondary investments are as good as they have been for several years, and coupled with attractive pricing this should provide the foundation for good returns for shareholders in the medium and longer term.

Mark Tennant

Chairman

Manager's Review

Your Company recorded a net asset value ('NAV') total return of 9.9 per cent for the year. This represents an acceleration in growth from the previous year. The environment in which private equity deals are done and in which companies make business decisions improved throughout the year. Deal activity increased in Europe reflecting greater confidence, a stronger banking sector and a number of successful private equity fundraisings. Together with these factors there is now a noticeable tail wind of an improving economic background across most of Europe, in contrast to the previous year when growth was more sluggish. The price of new private equity deals remains attractive, especially in the mid-market where, typically, companies can be acquired on between 6 and 8X EBITDA. A typical capital structure would be 50 per cent debt and 50 per cent equity. The provision of debt for buy-outs has improved in recent months. Banks are more willing to lend and, increasingly, unitranche debt packages from specialist funds are being considered as a credible alternative. Whilst there are significant differences across the different European markets the overall picture is one of a strengthening recovery.

New Investments

Five new commitments to private equity funds were made during the year. As noted in previous reports we have made two commitments in the mid-market to two European countries where we had previously only invested as part of a wider regional fund. €3 million was committed to Finland focused Vaaka Partners Buyout II. This team came out of Pohjola Bank in 2010. Finland is a small, but attractive, private equity market which is peculiarly difficult for outsiders to penetrate. In a larger, but also attractive, market we committed €3 million to Avallon MBO II, a Poland focused fund. Poland has a maturing private equity market within an economy which has shown robust momentum through the recession. €4 million was committed to Zurich based Capvis IV. We have previously invested with this specialist in German Speaking Europe, particularly in the Alpine Rim. Closer to home, we committed £3 million to August Equity Partners III. This lower mid-market fund is managed by one of our longstanding and successful investment partners. Lastly we committed £3.5 million to GCP Capital Partners Europe II, whose managers are now renamed as Kester Capital. This latter deal was a secondary investment where the Company immediately gained exposure to a pre-existing portfolio at an attractive price.  Each of these funds was active during the year, adding companies to their respective portfolios.

In addition to new fund commitments we have consciously been adding to the portfolio of co-investments, with a total of £13.4 million invested in six companies during the year. This brings the co-investment component of the portfolio up to 15.4 per cent. We aim to add another 10 per cent or so to this element of the portfolio over the next year or two, subject to securing enough attractive opportunities. The dealflow at present is good.

The new co-investments cover a diverse range of sectors and countries. This is deliberate, as a key attribute of a private equity fund of funds is that the high risks of private equity are reduced to moderate levels through diversification.

In the Nordic Region, where we have accessed good dealflow, we made two investments during the year. £1.3 million was invested in Safran, a Stavanger based specialist software company which provides planning software to the oil and gas and aerospace and defence industries. The Company's stake is 20 per cent and the investment was led by Progressus, a boutique private equity manager based in Stavanger. At a larger scale we invested alongside emerging manager Agilitas, investing £2.2 million for a 7 per cent stake in Recover Nordic, a provider of damage control services, mainly to insurance companies.

In Switzerland, we invested £1.7 million alongside Zurmont Madison, in Schaetti, a chemical company principally involved in the manufacture of customised thermoplastic and thermo-fusible powders with a range of applications including in the apparel, footwear and automotive sectors.

In the UK, we completed three new co-investments during the year. £2.1 million was invested alongside Fleming Family and Partners for a 15 per cent stake in David Phillips Limited, the UK's largest specialist supplier of furniture and other accessories to the residential property market, providing a B2B furniture service to landlords, agents, developers and local authorities. Trading appears to have gone well in the first year following this investment. £3 million was invested alongside RJD Partners II in Harrington Brooks, the Manchester based provider of debt advice, debt management plans and individual voluntary arrangements. The Company has a holding of 6 per cent in this company where there is strong growth momentum. Lastly,  £3 million was invested for an 11 per cent stake in Meter Provida Limited, the UK market leading distributor of gas meters to the energy industry. This deal provided both debt and equity and was led by emerging manager Total Capital Partners.

Drawdowns

Fund drawdowns for the year amounted to £26.2 million. These have gone into a diverse range of companies. The more notable and the most recent, which have not been previously reported to shareholders are described below.

In the UK,  new investments  included £0.7 million by August Equity Partners III into schools group Minerva, £0.4 million by Lyceum Capital III into vehicle telematics company Isotrak and, most recently, £1.3 million by Hutton Collins III into burger restaurant chain Byron Burgers. In addition, GCP Capital Partners Europe II invested £0.5 million in medical products company Frontier Medical.

In Germany, Stirling Square Capital Partners II called £1.4 million for an investment in Cartonplast, the European market leader in plastic layer pads (PLPs) which are used in the packaging industry in transporting glass containers. Also, in German speaking Europe, DBAG VI invested £0.8 million in Schulerhilfe, a chain of school tutoring centres in Germany and Austria. In Norway, Herkules III invested £0.5 million in the combination of two companies in the marine life saving market, Schat-Harding, which is one of the world's largest companies in the life saving appliance market for lifeboats, and Noreq, which is a supplier of marine life saving systems. The plan is to merge the companies to create a global market leader. In Spain, N+1 Private Equity II invested £0.9 million in Probos, a global manufacturer of thermoplastic edgebanding for the furniture industry.

In North America, Camden Partners IV invested £0.4 million in Collections Marketing Center, a provider of a SaaS solution for the collection of consumer debt by a range of lenders. Blue Point Capital II called £0.4 million for investment in Shnier, the largest distributor of floor coverings in Canada.

Realisations

Although none of the co-investment portfolio was fully exited during the year, the total of realisations and associated income was £42.5 million. Although this was below the level in 2012, when the Company had two co-investment exits with combined proceeds of £20.5 million boosting the total to £60.6 million, the amount coming from funds alone was slightly up. The more significant and more recent ones are noted below.

In the UK, the largest individual exit was Napier Turbochargers, which was sold by Primary Capital III to Wabtec Corporation, yielding £2.5 million (multiple 5.5x, IRR 44 per cent). In its earlier fund, Primary Capital II, Primary exited specialist rail travel business Amber to ECI yielding £1.2 million (multiple 3.2x, IRR 17 per cent). RJD Partners II sold fund administration company IPES to Silverfleet with proceeds for the Company of £1.9 million (multiple 3.1x, IRR 26 per cent). Growth Capital Partners exited Glasgow based software and services company Amor to Lockheed Martin returning £1.0 million. During the final quarter, SEP III returned £0.6 million, representing the Company's share of the sale of part of the fund's holding in flight search engine Skyscanner to US venture firm Sequoia. TDR Capital I continued to sell down life assurance company Phoenix, returning a further £1.0 million. Alchemy Special Opportunities Fund made its final distributions, realising, amongst other residual holdings, its remaining interest in estate agency Countrywide and returning £1.0 million.

In Europe, major exits included the sale by Herkules III of Norwegian debt collection agency Gothia to Arvator Infoscore Gmbh of Germany yielding £1.6 million (multiple 2.2x, IRR 20 per cent), the sale of Polish medical clinics company Lux Med to BUPA, returning £1.5 million (multiple 2.0x, IRR 16 per cent) and sell down of some of the preference shares in Danish housebuilder Huscompagniet, with proceeds of £1.3 million. Recently, Alto Capital II exited Italian coffee machine manufacturer Rancilio bringing in £0.5 million (multiple 3.0x, IRR 20 per cent). Lastly, with some signs of recovery now apparent in France, Ciclad 4 exited LTI telecom to Numericable - Completel returning £0.5 million (multiple 5.7x, IRR 28 per cent).

In the US, the principal exits were the sale by Warburg Pincus IX of ophthalmic products company Bausch and Lomb yielding £0.9 million (multiple 3.5x, IRR 17 per cent) and recently the sale by both Camden Partners III and IV of outsourced car valeting company Towne Park to TA Associates which gave combined proceeds to the Company of £2.5 million (multiple 3.6x, IRR 26 per cent).

Valuation Changes

In a portfolio of some 80 fund positions and 15 co-investments there were many significant valuation changes over the year. The net effect was upwards. Key contributors and detractors are noted below.

The main venture capital holding through SEP III was uplifted over the year, principally to reflect the good progress of Skyscanner, by £7.7 million. Stirling Square Capital Partners II was uplifted by £1.8 million following good trading in several holdings. Primary Capital III benefited from strong trading in several holdings and was up by £1.7 million. Life Science Partners III was up by £1.3 million largely because of the successful exit of Okairos (T- cell vaccines) to GlaxoSmithKline. 3SI is trading well and was up by £1.0 million as was Harrington Brooks. Each of Warburg Pincus IX, RJD Partners II and N+1 Private Equity II were up by £1.0 million, in each case reflecting a number of individual uplifts and exits.

However, not all the investments had a good year. Axitea, the Italian security company, continues to face trading difficulties occasioned, at least in part, by poor payment practices of municipal authorities and this holding has been reduced to nil, a downgrade of £3.5 million. Whittan, the pallet racking systems company, has been hit by slowing orders from major customers and this has been reduced by £1.8 million.

Over the year currency movements added approximately 0.5 per cent to the value of the portfolio.

Outlook

The current outlook is the most encouraging for some years. As we have noted often, the private equity investment model has not only survived the recession but has added to returns all the way through. The valuation of mid-market private companies, particularly in Europe, is attractive and our investment partners are finding many good opportunities to invest. As can be seen from this report the portfolio continues to be renewed and refreshed with a diverse range of new investments. This diversification is the main means by which the strong returns which private equity seeks are achieved whilst taking only moderate levels of risk.

Hamish Mair

Investment Manager

F&C Investment Business Limited

F&C Private Equity Trust plc

Consolidated Statement of Comprehensive Income for the

year ended 31 December 2013

	(Unaudited)
	Revenue £'000	Capital £'000	Total £'000
Income
Gains on investments held at fair value	-	24,606	24,606
Exchange gains	-	48	48
Investment income	2,331	-	2,331
Other income	53	-	53
Total income	2,384	24,654	27,038
Expenditure
Investment management fee - basic fee	(515)	(1,544)	(2,059)
Investment management fee - performance fee	-	(1,175)	(1,175)
Other expenses	(681)	-	(681)
Total expenditure	(1,196)	(2,719)	(3,915)
Profit before finance costs and taxation	1,188	21,935	23,123
Finance costs	(278)	(4,497)	(4,775)
Profit before taxation	910	17,438	18,348
Taxation	(215)	215	-
Profit for year/total comprehensive income	695	17,653	18,348
Return per Ordinary Share - Basic	0.97p	24.41p	25.38p
Return per Ordinary Share - Fully diluted	0.94p	23.77p	24.71p
Return per Restricted Voting Share - Basic	(0.01)p	0.01p	-p

F&C Private Equity Trust plc

Consolidated Statement of Comprehensive Income for the

year ended 31 December 2012

	(Audited)
	Revenue £'000	Capital £'000	Total £'000
Income
Gains on investments held at fair value	-	15,178	15,178
Exchange gains	-	176	176
Investment income	4,044	-	4,044
Other income	25	-	25
Total income	4,069	15,354	19,423
Expenditure
Investment management fee - basic fee	(487)	(1,462)	(1,949)
Investment management fee - performance fee Other expenses	- (866)	- -	- (866)
Total expenditure	(1,353)	(1,462)	(2,815)
Profit before finance costs and taxation	2,716	13,892	16,608
Finance costs	(283)	(4,198)	(4,481)
Profit before taxation	2,433	9,694	12,127
Taxation	(615)	622	7
Profit for year/total comprehensive income	1,818	10,316	12,134
Return per Ordinary Share - Basic	1.81p	15.08p	16.89p
Return per Ordinary Share - Fully diluted	1.76p	14.68p	16.44p
Return per Restricted Voting Share - Basic	0.76p	(0.87)p	(0.11)p

F&C Private Equity Trust plc

Consolidated Balance Sheet

	As at 31 December 2013 (Unaudited)	As at 31 December 2012 (Audited)
	£'000	£'000
Non-current assets
Investments at fair value through profit or loss	237,657	213,662
	237,657	213,662
Current assets
Other receivables	321	464
Cash and short-term deposits	7,018	12,931
	7,339	13,395
Current liabilities
Other payables	(5,944)	(1,453)
Zero dividend preference shares	(41,835)	-
Net current (liabilities)/assets	(40,440)	11,942
Total assets less current liabilities	197,217	225,604
Non-current liabilities
Zero dividend preference shares	-	(38,173)
Net assets	197,217	187,431
Equity
Called-up ordinary share capital	723	1,394
Special distributable capital reserve	15,679	15,679
Special distributable revenue reserve	31,403	32,527
Capital redemption reserve	1,335	664
Capital reserve	145,416	135,201
Revenue reserve	2,661	1,966
Shareholders' funds	197,217	187,431
Net asset value per Ordinary Share - Basic	272.84p	257.75p
Net asset value per Ordinary Share - Fully diluted	269.07p	254.38p
Net asset value per Restricted Voting Share - Basic	n/a	1.67p

F&C Private Equity Trust plc

Consolidated Statement of Changes in Equity

 

	Share Capital	Special Distributable Capital Reserve	Special Distributable Revenue Reserve	Capital Redemption Reserve	Capital Reserve	Revenue Reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
For the year ended 31 December 2013 (unaudited)
Net assets at 1 January 2013	1,394	15,679	32,527	664	135,201	1,966	187,431
Cancellation of Restricted Voting Shares	(671)	-	-	671	-	-	-
Profit for the year/total comprehensive income	-	-	-	-	17,653	695	18,348
Dividends paid	-	-	(1,124)	-	(7,438)	-	(8,562)
Net assets at 31 December 2013	723	15,679	31,403	1,335	145,416	2,661	197,217
For the year ended 31 December 2012 (audited)
Net assets at 1 January 2012	1,394	15,679	35,814	664	128,470	726	182,747
Profit for the year/total comprehensive income	-	-	-	-	10,316	1,818	12,134
Dividends paid	-	-	(3,287)	-	(3,585)	(578)	(7,450)
Net assets at 31 December 2012	1,394	15,679	32,527	664	135,201	1,966	187,431

 

F&C Private Equity Trust plc

Consolidated Cash Flow Statement

	Year ended 31 December 2013 (Unaudited)	Year ended 31 December 2012 (Audited)
	£000	£000
Operating activities
Profit before taxation	18,348	12,127
Gains on disposals of investments	(11,147)	(15,165)
Increase in holding gains	(13,459)	(13)
Exchange differences	(48)	(176)
Finance costs	4,775	4,481
Corporation tax reclaimed/(paid)	15	(15)
Increase in other receivables	(8)	(426)
Increase in other payables	1,148	625
Net cash (outflow)/inflow from operating activities	(376)	1,438
Investing activities
Purchases of investments	(39,587)	(31,653)
Sales of investments	40,198	56,557
Net cash inflow from investing activities	611	24,904
Financing activities
Repayment of bank loans	-	(13,019)
Draw down of bank loans	3,398	4,021
Interest paid	(962)	(993)
Equity dividends paid	(8,562)	(7,450)
Net cash outflow from financing activities	(6,126)	(17,441)
Net (decrease)/increase in cash and cash equivalents	(5,891)	8,901
Currency losses	(22)	(14)
Net (decrease)/increase in cash and cash equivalents	(5,913)	8,887
Opening cash and cash equivalents	12,931	4,044
Closing cash and cash equivalents	7,018	12,931

Notes (unaudited)

1.         The unaudited financial results, which were approved by the Board on 28 March 2014, have been prepared in accordance with the Companies Act 2006 and International Financial Reporting Standards ('IFRS') as adopted by the European Union. Where presentation guidance set out in the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" ('SORP') issued  by the Association of Investment Companies in January 2009 is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP. 

The accounting policies adopted are consistent with those of the previous financial year, except that the following new standard has been adopted in the current year:

·    In May 2011, the IASB issued IFRS 13 'Fair Value Measurement'. IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements.  IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted.  In particular, it unifies the definition of fair value as the price at which an ordinary transaction to sell an asset or to transfer a liability would take place between investor participants at the measurement date.  It also replaces and expands the disclosure requirements about fair value measurements in other IFRSs, including IFRS 7 'Financial Instruments: Disclosures'.  This standard became effective for accounting periods beginning on or after 1 January 2013 and requires specific disclosures on fair value but has not materially affected the fair value measurements made by the Company.

2.         Returns per Ordinary Share are based on the following weighted average number of shares in issue during the year:

Basic:                72,282,273 (2012: 72,282,273)

Diluted:              74,241,429 (2012: 74,241,429)

Returns per Restricted Voting Share are based on the weighted average number of shares in issue during the year of 67,084,807 (2012: 67,084,807).

3.         The Board has proposed a final dividend of 5.36p per Ordinary Share, payable on 30 May 2014 to those shareholders on the register on 2 May 2014.

4.         This results announcement is based on the Group's unaudited financial statements for the year ended 31 December 2013 which have been prepared in accordance with International Financial Reporting Standards as adopted by the EU ('IFRS').             

5.         This announcement is not the Group's statutory accounts.  The full audited accounts for the year ended 31 December 2012, which were unqualified, have been lodged with the Registrar of Companies.  The statutory accounts for the year to 31 December 2013 (on which the audit report has not been signed) will be delivered to the Registrar of Companies following the Company's Annual General Meeting which will be held at the offices of F&C Asset Management plc, Exchange House, Primrose Street, London, EC2A 2NY on 29 May 2014 at 12 noon.

6.         The Annual Report and Accounts for the year will be sent to shareholders and will be available for inspection at the Company's registered office, 80 George Street, Edinburgh EH2 3BU and the Company's website www.fcpet.co.uk

For more information, please contact:

Hamish Mair (Investment Manager)	0131 718 1184
Gordon Hay Smith (Company Secretary)	0131 718 1018
[e-mail]  / [e-mail]

 

END

 

 

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