Final Results

RNS Number : 8563D

F&C Private Equity Trust PLC

30 March 2011

 



To: Stock Exchange	For immediate release:
	30 March 2011

F&C Private Equity Trust plc

Preliminary Announcement for the Year to 31 December 2010

 

F&C Private Equity Trust plc today announces its unaudited financial results for the year ended 31 December 2010.

Financial Highlights

 

·      NAV total return for the year of 10.5 per cent for the Ordinary Shares

·      NAV total return for the year of 10.0 per cent for the Restricted Voting Shares

Chairman's Statement

2010 was a year of steady recovery in the fortunes of your Company. The net assets of the Company as at 31 December were £169.7 million. The Ordinary Share Pool had net assets of £164.8 million giving a fully diluted net asset value ('NAV') per share of 225.43p and an NAV total return for the year of 10.5 per cent. The net assets of the Restricted Voting Pool were £4.9 million giving an NAV per share of 7.29p which, together with the special dividend of 1.0p per share paid on 7 May 2010, gives an NAV total return for the year of 10.0 per cent. As previously intimated, another special dividend of 1.3p per Restricted Voting Share was paid on 11 January 2011. A final dividend of 0.95p per Ordinary Share is recommended for payment on 10 June 2011 to those shareholders on the register on 20 May 2011.

The measures which the Company undertook during 2009, including a limited sale of some positions in funds as well as the £30 million issue of Zero Dividend Preference Shares, have allowed it to build value for shareholders during 2010. Specifically, we have continued to meet all obligations as commitments are drawn down by private equity funds without putting any strain on the Company's financial resources.  Additionally, as envisaged, we have also been able to make selective new investments whilst reducing the total of outstanding commitments in both absolute and relative terms. At the end of 2010 the Company had outstanding undrawn commitments of £89.3 million. Given the rate of investment, we expect a significant proportion of this to remain uncalled. It is also likely that the period over which this sum can be called will be extended as funds which are underinvested approach investors with proposals to extend investment periods. Both factors improve the manageability of what is a quickly diminishing 'burden' of commitments.

The Company had total investment assets of £210.9 million as at 31 December 2010. Many of these investments are maturing and we expect significant realisations during 2011. To the extent that drawdowns are not fully funded by realisations from the portfolio we have the ability to use the Company's revolving credit facility. At 31 December 2010 £29 million of the £40 million facility was available. The Ordinary Share Pool had net debt of £9.5 million at the year end. Including the accrued liability of the Zero Dividend Preference Shares of £31.8 million the Company's gearing stood at 20.0 per cent. As recovery in the value of the portfolio continues, shareholders should benefit from this moderate level of gearing.

The Company's positioning in the mid market of international private equity, with most of its investments in Europe, has been of considerable benefit. Specifically, throughout the recession there has been ongoing activity in the mid market, albeit at much lower levels than before the financial crisis, and this has allowed the managers that we are backing to initiate new investments and to realise mature ones. The maximum size of management buy-outs, the main medium for private equity investment, has been effectively capped by the banks' limitations on their exposure to individual private companies and also to the private equity asset class as a whole, although this situation appears to be improving as indicated by the steady recovery in the volume of deals. There is now a greater appreciation of the benefits of the mid market from those who had previously preferred larger deals.

Because of the breadth of the Company's portfolio, it has been exposed to a number of companies operating in niche markets where strong growth has persisted through the recession. Although the portfolio has significant exposure to Euro zone countries, the intermittent turbulence in national economies struggling with deficits has not offset the growth characteristics of the overall portfolio.

The Board considers that the Company's progress over the last year has been creditable and that both the short and longer term asset value growth ranks the Company highly amongst comparable listed private equity fund of funds. It is therefore a source of puzzlement that the discount is barely changed on the situation one year ago when we were emerging from a severe financial crisis. We are confident that the Company's strong fundamentals will in due course be accorded a more appropriate share price rating. The private equity team at F&C has managed the Company for 12 years and has been, and remains, integral to sustaining its strong track record.

Mark Tennant

Chairman

Manager's Review

2010 saw substantial progress in the Company's portfolio against a background of considerable challenges for many businesses and investors. The overall portfolio is almost entirely invested in the European mid market with a small number of additional investments in venture capital and global and US focused funds. The portfolio has therefore been a good exemplar of the benefits of the European mid market, namely that it is extremely broad with thousands of companies which could benefit from private equity and that, relative to the size of the opportunity, the number and size of specialist funds is small creating a favourable dynamic for investment. This innate inefficiency has led the mid market to offer companies more cheaply. In addition there has been a preference to use more moderate levels of debt than is usual for larger buy-outs. There are also large numbers of emerging managers spread across Europe which provide new highly focused means of participating in this opportunity. Since its inception, F&C Private Equity Trust has focused on the mid market tier and this underpins its relatively strong performance.

The current portfolio is well balanced, covering a range of funds that encompass most of the European private equity geographies and styles. The underlying companies cover many different sectors and business models. The unifying theme is that these companies are capable of supernormal growth in profits and that they have management and owners whose interests are as closely aligned as it is possible to be. As the portfolio matures it will be necessary to redeploy realised funds into fresh investments so that there is a foundation for net asset value growth and cash inflow for the period perhaps three to five years in the future. We must perform a balancing act managing the level of outstanding commitments such that they give the Company ongoing involvement in fresh deals but also do not impose too much of a liability. Since the Company's inception 12 years ago we have managed this balance successfully by having some periods where there were many new investments and others where we have been highly selective. Presently we are in a period where we are concentrating primarily on proven strong managers from within our existing cohort, although there will always be room for outstanding new managers. We are also looking to build up the component of the portfolio invested in co-investments, which has been a source of strong returns. Currently only 13 per cent of the portfolio is invested directly in private companies, well below the Company's stated limit of 33 per cent. Dealflow in co-investments has been good in recent months.

New Investments

Only three new investments were made during 2010. In June we invested £2.1 million into the convertible loan stock of Norway based helicopter operator Blueway. We invested alongside the leading Norwegian private equity group, Reiten. Our investment has a coupon of 12.0 per cent and carries the right to convert into 2.9 per cent of the equity. The company is ahead of budget and has won major new contracts for Norwegian electricity grid infrastructure projects and has successfully implemented its major Shell Nigeria contract. In July we committed €4.6 million to the Aurora Fund, a secondaries fund focusing on the European mid market, managed by the same team as F&C Private Equity Trust. The original portfolio of the Aurora Fund was acquired at a 63 per cent discount to asset value. Since then the underlying companies have performed well and we have been able to value the portfolio in line with IPEV guidelines, giving an uplift to 2.3x cost.

During the year we made a fresh commitment of £7.0 million to the Inflexion 2010 Buy-out Fund. Inflexion has been one of our more significant managers since we backed  its first fund in 2003. This is the fourth Inflexion fund in which we have invested. We have also co-invested with them on four occasions, including two strong realisations; Viking Moorings and ICS.

Drawdowns

Total drawdowns over the course of 2010 were £43.6 million. This compares with £20.6 million in 2009. The new investments are, as usual, extremely diverse. A number of the larger investments illustrate the portfolio's breadth.

In the UK, drawdowns totalled £15.1 million. Reflecting the balance of the economy, a number of the larger investments were into service companies. Examples include VPS  (£0.6 million TDR Capital II), protection services for vacant properties, 2e2 (£1.2 million Hutton Collins II & III), IT services, Chemigraphic (£1.1 million RJD II), services to electronics manufacturers, and City Sprint (£0.7 million Dunedin II), same day courier and logistics. There were also a number of investments with a retail or consumer aspect; Paperchase (£0.8 million Primary Capital III), stationery and greeting card retailer with 65 stores, Café Nero  (£0.9 million Hutton Collins Capital III), a chain of 400 coffee shops, Verdant Leisure (£0.6 million RJD II), caravan parks, and Stonegate (£0.9 million TDR Capital II), a chain of 333 managed pubs. Healthcare, which has been a strong sector for new deals in recent years, was represented by Active Assistance (£1.1 million August Equity II), a company providing live in care for people with spinal cord injuries.

The European part of the portfolio called £22.9 million. These again were a mixture of consumer oriented investments but also included some services and manufacturers. The largest investment was Vizada  (£1.5 million Hutton Collins II & III), the French based satellite services company formed from the merger of subsidiaries of France Telecom and Telenor. In the consumer area investments were made in Odlo (£1 million Herkules, Norway), thermal sports underwear, and in Kaffee Partner (£0.7 million Capvis III, Germany), coffee and water dispensers. In the manufacturing sector a significant investment was made in Wittur (£0.7 million Capvis III, Germany), components for the lift industry.

The US and global funds part of the portfolio was fairly active with drawdowns totalling £5.6 million. Notable among the larger investments were Indian generics pharmaceutical company Famy (£0.3 million) and Buchang Pharmaceutical (£0.3 million), the largest producer of traditional Chinese medicine in China. Both were made by AIF Asia Capital III.

Realisations

Total realisations in 2010 were £22.6 million. This is slightly below the £27.8 million achieved in both 2009 and 2008. The average total realisations for the recessionary years has therefore been £26.1 million. We expect that the flow of realisations will improve from here as confidence picks up and the recovery becomes firmly established in all markets.

There were two realisations from our co-investment portfolio. In March, Growth Capital Partners sold environmental consultancy Entec to Amec. This returned £3.0 million, achieving an investment multiple of 2.0x and an IRR of 30 per cent. In June, Inflexion sold nursing and doctors agency ICS to Blackstone. This returned £6.4 million, achieving an overall investment multiple of 2.5x and an IRR of 70 per cent. Both of these investments were relatively short holds, spanning the recessionary period and providing proof that value creation is possible even with a challenging macro-economic background.

There were several other individual realisations from a broad range of funds. The larger exits included Teaching Personnel, sold by RJD II to Graphite, returning £1.4 million. This teacher agency achieved an investment multiple of 3.1x and an IRR of 49 per cent. In the pharmaceutical sector, Life Science Partners III sold GI specialist Movetis to Shire Pharmaceuticals. The return was £1.4 million giving an investment multiple of 4.0x and an IRR of 50 per cent. August Equity I sold publishing company Imagine back to its management. The final stage of this yielded £0.7 million giving a total investment multiple of 2.0x and an IRR of 31 per cent.

Valuation Changes

The uplift in valuation over the year was £23.5 million, raising the total value of the portfolio to £210.9 million at the year end. The influence of foreign exchange movements was minor, with an adverse impact of £1.3 million or 0.75 per cent over the year.

The major movements in valuation came from a variety of sources. The sale of ICS boosted the valuation by £2.4 million, the Aurora Fund's strong start added £2.2 million and the revaluation of co-investment Lifeways, our supported living investment, contributed £1.5 million. Substantial fund uplifts included Chequers Capital XV (£1.6 million), Warburg Pincus IX (£1.3 million), Blue Point Capital Partners II (£1.1 million), and Argan Capital (£1.0 million). Of particular note was our venture capital fund investment in SEP III, which increased in value  by £1.3 million. This reflects the recently announced sale of Biovex, the anti-cancer company, to Amgen.

It was not, however, all one way traffic and there have been some downgrades. Our remnant holding in Viking Moorings has been written down to zero, a downgrade over the year of £2.6 million, to reflect challenging trading conditions. Encouragingly, recent news from the company is better and we would expect to recover some of this investment in due course. Our position in Penta Co-investment fund has been reduced by £1.0 million for a variety of recession related difficulties in the portfolio. Whittan, the metal locker and pallet racking system company, has felt some late cycle impact and has been reduced by £1.0 million. Nmas1, one of our Spanish investments is down by £0.5 million and Pinebridge Global Emerging Markets Fund III is down by £0.4 million. These adjustments reflect both the travails of the Spanish economy and the considerable difficulty of implementing private equity successfully in emerging markets.

Financing 

The Company's long term policy of financing the drawdown of commitments from the proceeds of realised investments and, when necessary, the use of borrowing has worked well through a challenging period. Exits have held up well and we expect that 2011 will yield significantly more than the average of the previous three years. The outstanding commitments total appears superficially large at £89.3 million but it is unlikely that all of this amount will be drawn as the rate of deployment of funds has been slower than expected and not all funds will be able to extend their investment periods if they have not invested all commitments. Considering commitments, in absolute terms the total is lower than at any time for five years and relative to the net assets of the Company lower than at any time in the Company's history. The Company's £40 million revolving credit facility is due for renewal in April next year. The banking environment has shown some recent signs of improvement and we are hopeful that we will be able to arrange a new facility of similar size and on similar terms. The Company has a portfolio of unusual breadth and good quality in the mid market of Europe and consequently we periodically attract unsolicited approaches to buy selected positions. There is no need to contemplate any sales to the secondary market but it is a perfectly viable source of capital or means of effecting a portfolio reorganisation should conditions require it.

Outlook

The international private equity market has experienced a significant shift in focus towards the mid market. Much of the current activity is centred on this segment and, given the preference of the major banks to reduce their exposures to the asset class and to limit their hold level for an individual credit, we would expect the mid market to continue to be relatively more important. This new found fashionability could lead to extra competition for new deals but it could also provide numerous exits for many of the mature holdings held within our funds and as direct positions. Confidence within the wider business community is on a rising trend but conditions vary from sector to sector. Generalising this, current trends appear to favour export oriented companies and provide substantial challenges to many companies with a consumer exposure.

Interest rates remain at exceptionally low levels but, with rising inflation and economic recovery becoming more established quarter by quarter, this cannot be expected to persist for the long term although significant increases seem unlikely in the short term. Management buy-outs factor in higher interest rates for the future and the main constraint is the availability rather than the price of credit. Dealflow for the funds in the portfolio and for co-investments is steadily improving. The combination of this and the expertise of our investment partners provide a good foundation for a significant and enduring recovery in asset value in 2011.

Hamish Mair

Investment Manager

F&C Investment Business Limted

For more information, please contact:

Hamish Mair	0131 718 1184
Gordon Hay Smith	0131 718 1018
[e-mail]  / [e-mail]

F&C Private Equity Trust plc

Consolidated Statement of Comprehensive Income for the

year ended 31 December 2010

	Unaudited
	Revenue £'000	Capital £'000	Total £'000
Capital gains on investments
Gains on investments held at fair value	-	18,938	18,938
Currency gains	-	1,000	1,000
	-	19,938	19,938
Revenue
Investment income	2,170	-	2,170
Other income	41	-	41
Total income	2,211	19,938	22,149
Expenditure
Investment management fee	(420)	(1,262)	(1,682)
Other expenses	(693)	-	(693)
Total expenditure	(1,113)	(1,262)	(2,375)
Profit before finance costs and taxation	1,098	18,676	19,774
Finance costs	(160)	(3,263)	(3,423)
Profit before taxation	938	15,413	16,351
Taxation	(239)	268	29
Profit for year/total comprehensive income	699	15,681	16,380
Return per Ordinary Share - Basic & Diluted	0.96p	21.02p	21.98p
Return per Restricted Voting Share - Basic	0.00p	0.73p	0.73p

F&C Private Equity Trust plc

Consolidated Statement of Comprehensive Income for the

year ended 31 December 2009

	Audited
	Revenue £'000	Capital £'000	Total £'000
Capital losses on investments
Losses on investments held at fair value	-	(12,896)	(12,896)
Currency gains	-	3,767	3,767
	-	(9,129)	(9,129)
Revenue
Investment income	1,813	-	1,813
Other income	42	-	42
Total income	1,855	(9,129)	(7,274)
Expenditure
Investment management fee	(356)	(1,067)	(1,423)
Other expenses	(720)	-	(720)
Total expenditure	(1,076)	(1,067)	(2,143)
Profit/(loss) before finance costs and taxation	779	(10,196)	(9,417)
Finance costs	(195)	(709)	(904)
Profit/(loss) before taxation	584	(10,905)	(10,321)
Taxation	(164)	164	-
Profit for year/total comprehensive income	420	(10,741)	(10,321)
Return/(loss) per Ordinary Share - Basic & Diluted	0.58p	(14.89)p	(14.31)p
Return per Restricted Voting Share - Basic	0.00p	0.03p	0.03p

F&C Private Equity Trust plc

Balance Sheets

	As at 31 December 2010 (Unaudited)		As at 31 December 2009 (Audited)
	Group	Company	Group	Company
	£'000	£'000	£'000	£'000
Non-current assets
Investments at fair value through profit or loss	210,914	210,864	171,011	170,961
Subsidiary undertaking	-	53	-	50
	210,914	210,917	171,011	171,011
Current assets
Other receivables	19	18	157	195
Cash and cash equivalents	2,681	2,679	13,509	13,471
	2,700	2,697	13,666	13,666
Current liabilities
Other payables	(12,130)	(12,130)	(1,106)	(1,106)
Amounts due to subsidiary	-	(31,774)	-	(28,992)
Net current (liabilities)/assets	(9,430)	(41,207)	12,560	(16,432)
Total assets less current liabilities	201,484	169,710	183,571	154,579
Non-current liabilities
Zero dividend preference shares	(31,774)	-	(28,992)	-
Net assets	169,710	169,710	154,579	154,579
Equity
Called-up ordinary share capital	1,394	1,394	1,394	1,394
Special distributable capital reserve	15,679	15,679	15,679	15,679
Special distributable revenue reserve	36,686	36,686	37,357	37,357
Capital redemption reserve	664	664	664	664
Capital reserve	114,495	114,497	98,814	98,813
Revenue reserve	792	790	671	672
Shareholders' funds	169,710	169,710	154,579	154,579
Net asset value per Ordinary Share - Basic & Diluted	228.02p		206.84p
Net asset value per Restricted Voting Share - Basic	7.29p		7.56p

F&C Private Equity Trust plc

Statements of Changes in Equity

For the year ended 31 December 2010

Group

	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 2010 (unaudited)
Net assets at 1 January 2010	1,394	15,679	37,357	664	98,814	671	154,579
Profit for the year/total comprehensive income	-	-	-	-	15,681	699	16,380
Dividends paid	-	-	(671)	-	-	(578)	(1,249)
Net assets at 31 December 2010	1,394	15,679	36,686	664	114,495	792	169,710
For the year ended 31 December 2009 (audited)
Net assets at 1 January 2009	1,394	15,679	37,692	664	109,555	587	165,571
Loss for the year/total comprehensive income	-	-	-	-	(10,741)	420	(10,321)
Dividends paid	-	-	(335)	-	-	(336)	(671)
Net assets at 31 December 2009	1,394	15,679	37,357	664	98,814	671	154,579

 

 

Company

	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 2010 (unaudited)
Net assets at 1 January 2010	1,394	15,679	37,357	664	98,813	672	154,579
Profit for the year/total comprehensive income	-	-	-	-	15,684	696	16,380
Dividends paid	-	-	(671)	-	-	(578)	(1,249)
Net assets at 31 December 2010	1,394	15,679	36,686	664	114,497	790	169,710
For the year ended 31 December 2009 (audited)
Net assets at 1 January 2009	1,394	15,679	37,692	664	109,555	587		165,571
Loss for the year/total comprehensive income	-	-	-	-	(10,742)	421		(10,321)
Dividends paid	-	-	(335)	-	-	(336)		(671)
Net assets at 31 December 2009	1,394	15,679	37,357	664	98,813	672		154,579

F&C Private Equity Trust plc

Cash Flow Statement

	Year ended 31 December 2010 (Unaudited)		Year ended 31 December 2009 (Audited)
	Group	Company	Group	Company
	£000	£000	£000	£000
Operating activities
Profit/(loss) before taxation	16,351	16,351	(10,321)	(10,321)
Gains on disposals of investments	(7,373)	(7,373)	(10,914)	(10,914)
(Decrease)/increase in holding losses	(11,565)	(11,568)	23,810	23,811
Exchange differences	(1,000)	(1,000)	(3,767)	(3,767)
Finance costs	3,423	3,423	904	904
Corporation tax refunded/(paid)	137	137	(72)	(72)
Decrease in other receivables	1	40	493	455
Increase/(decrease) in other payables	488	488	(366)	(366)
Net cash inflow/(outflow) from operating activities	462	498	(233)	(270)
Investing activities
Purchases of investments	(43,593)	(43,593)	(20,652)	(20,653)
Sales of investments	22,628	22,628	32,083	32,083
Net cash (outflow)/inflow from investing activities	(20,965)	(20,965)	11,431	11,430
Financing activities
Repayment of bank loans	-	-	(32,898)	(32,898)
Draw down of bank loans	11,000	11,000	1,800	1,800
Interest paid	(559)	(559)	(769)	(769)
Proceeds from ZDP Share issue	-	-	30,000	-
Loan proceeds from subsidiary	-	-	-	30,000
Issue costs paid	(517)	(517)	(614)	(614)
Equity dividends paid	(1,249)	(1,249)	(671)	(671)
Net cash inflow/(outflow) from financing activities	8,675	8,675	(3,152)	(3,152)
Net (decrease)/increase in cash and cash equivalents	(11,828)	(11,792)	8,046	8,008
Currency gains	1,000	1,000	1,027	1,027
Net (decrease)/increase in cash and cash equivalents	(10,828)	(10,792)	9,073	9,035
Opening cash and cash equivalents	13,509	13,471	4,436	4,436
Closing cash and cash equivalents	2,681	2,679	13,509	13,471

Notes (unaudited)

1.         The unaudited financial results, which were approved by the Board on 30 March 2011, have been prepared in accordance with 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 standards have been adopted in the current year:

IFRS 3, Business Combinations (Revised)

IFRS 3 (Revised) introduces significant changes in the accounting for business combinations occurring after becoming effective. Changes affect the valuation of non-controlling interests, the accounting for transaction costs, the initial recognition and subsequent measurement of a contingent consideration and business combinations achieved in stages. The changes will impact the amount of goodwill recognised, the reported results period that an acquisition occurs and future reported results.

IAS 27, Consolidated and Separate Financial Statements (Amended)

IAS 27 (Amended) requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as a transaction with owners in their capacity as owners. Therefore, such a transaction will no longer give rise to goodwill, nor will it give rise to a gain or loss. Furthermore, the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary.

The changes by IFRS 3 (Revised) and IAS 27 (Amended) affect acquisitions or loss of control of subsidiaries and transactions with non-controlling interests after 1 January 2010.

The change in accounting policy was applied prospectively and had no material impact on earnings per share.

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

Basic & Diluted:             72,282,273 (2009: 72,282,273)

Returns per Restricted Voting Share are based on the average number of shares in issue during the period of 67,084,807 (2009: 67,084,807).

Basic & Diluted net asset value per Ordinary Share is based on 72,282,273 (2009: 72,282,273) shares in issue at the end of the period.

Net asset value per Restricted Voting Share is based on 67,084,807 (2009: 67,084,807) shares in issue at the end of the period.

3.         The Board has proposed a final dividend of 0.95p per Ordinary Share, payable on 10 June 2011 to those shareholders on the register on 20 May 2011.

4.         This results announcement is based on the Group's unaudited financial statements for the year ended 31 December 2010 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 2009, which were unqualified, have been lodged with the Registrar of Companies.  The statutory accounts for the year to 31 December 2010 (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 26 May 2011 at 12 noon.

6.         The 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

 

END

 

 

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