Half Yearly Report

RNS Number : 9975X

F&C Private Equity Trust PLC

26 August 2009

 



To: Stock Exchange	For immediate release:
	26 August 2009

F&C Private Equity Trust plc

Interim results for the six months to 30 June 2009 

• NAV total return for the six months of -10.8 per cent for the Ordinary shares;

• NAV total return for the six months of -5.4 per cent for the Restricted Voting shares;

• Share price total return of +20.9 per cent for the Ordinary shares;

• Share price total return of +5.4 per cent for the Restricted Voting shares;

• Net cash out-flow before secondary sales of £4.6 million.

Chairman's Statement

Results

At 30 June the Company's net asset value ('NAV') was £147.1 million. This comprised £142.4 million for the ordinary share pool and £4.7 million for the restricted voting share pool. The NAV per ordinary share was 195.23p on a fully diluted basis (taking into account the warrants mentioned below) and the NAV per restricted voting share was 7.07p, decreases of 10.8 per cent and 17.1per cent over the six months respectively. There was an adverse impact of currency over the half year equating to approximately 5.7per cent for the ordinary share pool and 8.6 per cent for the restricted voting share pool. 

The net debt of the ordinary share pool at 30 June was £29.5 million, giving gearing of 16.2 per cent. This has significantly reduced following the period end with realisations, notably Viking Moorings, reducing net debt to £18 million representing gearing of 10.9 per cent. 

Earnings per ordinary share were 0.34 pence for the six months (2008 - 0.52 pence), and earnings per restricted voting share 0.0 pence (2008 - 0.42 pence). No interim dividends are proposed.

The Internal Rate of Return achieved from on the ordinary shares over the relevant five year calculation period was 15.4 per cent, and it is expected that 1,959,156 warrants will be issued under the terms of the Management Warrant Agreement dated 26 July 2001. These warrants will be capable of exercise at any time after 20 September 2009 at a warrant exercise price of 129.94 pence per ordinary share.

The most striking features of the first half of the year have been the impact of the recession on portfolio company valuations and the marked lack of new deal activity. This latter factor reflects the highly uncertain conditions which have prevailed throughout most of the period, as well as the continuing dearth of bank finance for the management buy-outs which are the principal method through which the great majority of our funds are invested. During the six months the net cash outflow, before secondary sales, was a relatively modest £4.6 million. 

Following Robert Legget's retirement at the conclusion of the Annual General Meeting on 26 May 2009, I am pleased to report that Elizabeth Kennedy has been appointed as Chairman of the Audit Committee.

The Company has a well diversified portfolio which is largely focused on the mid market of European private equity and this appears to be helping the Company to weather the recession fairly well. The underlying companies are realistically valued and by comparison to the management buy-out sector as a whole are not excessively geared. Whilst there have been numerous reductions in value over the half year there are also examples of realisations where companies have been sold above the latest valuation, a feature which lends credence to portfolio valuation levels 

The main challenge for the Company is a direct result of the banking sector's difficulties. The outstanding undrawn commitments of the Company, which are entirely within the ordinary share pool, stand at £139 million at 30 June. These commitments are to a wide range of funds and may be drawn down over the next five years.  

The Company has historically funded drawdowns of commitments with the proceeds of realisations and we expect that this will continue. Where drawdowns exceed realisations bank borrowing has been used. We closely monitor the balance between commitments, likely drawdowns and immediately available cash and borrowings of the Company. We have over £20 million headroom available within our existing borrowing facility, which has over two years to run and is on attractive terms. On this basis we expect that the Company will be able to meet its outstanding commitments as they are drawn for the foreseeable future. However we are continuing to explore a number of options to provide longer term finance in light of changing market conditions. A key requirement is that the cost of capital is appropriate in relation to the returns which we can reasonably expect to achieve over the medium to long term. The Board has also asked the Manager to explore opportunities to realise positions in non-core assets where to do so would achieve a satisfactory balance between cash inflow, impact on asset value and commitments relieved. We are familiar with the secondary market but have so far used this route sparingly, but usefully, to help meet commitments whilst not greatly impacting asset value. The Board is satisfied that, given the inherent strength and maturity of the underlying portfolio, it remains reasonable to expect outstanding commitments to be substantially funded from realisations. The progress of the Company's portfolio and cash flows in the current year to date is entirely consistent with our expectations.

David Simpson

Chairman

Manager's Review

Introduction

Following several strong years for the private equity industry 2009 has so far witnessed a significant reversal. This reflects the recessionary economic background, which is challenging all sectors and geographies, and the acute impact of the difficulties in the banking sector. Bank borrowing is a key component in the business model of all buy-out funds. The absence of this and the accompanying uncertainty over future demand for products and services has led to a dramatic decrease in the number and magnitude of private equity deals. Whilst all companies face significant challenges, the impact of the recession is uneven. In these circumstances a well diversified portfolio assumes particular importance.

New Investments

The total of new investments completed during the first half was £9.6 million. In the UK, which accounts for nearly 40 per cent of the portfolio, there was very little new deal activity with drawdowns of only £1.9 million. The only significant new investment was made by Close Brothers Growth Capital which drew £0.45 million for investment in Armor Group, the largest independent IT services group based in Scotland. This company which has revenues of £30 million was formed from the merger of two businesses which were acquired from the French listed company Sword Group. Our funds focusing on continental Europe were relatively more active, accounting for nearly £6 million of drawdowns. These included a number of interesting new investments: AIG New Europe Fund invested £0.5 million for us in Sowiniec, a provider of roll-out services to the Polish retail sector; Mezzanine Management IV drew £0.4 million for investment in UK based healthcare company, Vanguard Healthcare, which operates a fleet of 36 mobile operating theatres and diagnostic vehicles; Gilde Buy-out Fund III called £0.4 million for investment in electricity company, Powerlines; Chequers Capital XV invested £0.5 million, mainly in Artois Sante, a group of medical laboratories in the Paris area; and Swedish fund Procuritas IV called £0.5 million for Dackia, a tire service station chain. In the US component of the portfolio drawdowns totalled £1.7 million and this was mainly for follow on investments in the Warburg Pincus funds' portfolios.

Realisations

Activity levels remained low throughout the half year. There were a small number of notable realisations, mainly in the UK element of the portfolio. Dunedin Buy-out Fund II sold aviation navigation company Fernau, achieving a 3x money multiple in little over one year and yielding £0.4 million for F&C Private Equity Trust. Inflexion 2003 Fund sold its healthcare information company, HKI, in two parts. The UK part was sold in April yielding £0.3 million and the Spanish part was sold in July after the period end yielding another £0.2 million. The total investment multiple was 2.7x and IRR was 24 per cent. The most influential realisation for the Company in recent years was also an Inflexion deal. After the period end our largest individual holding, the co-investment with Inflexion in Viking Moorings, was sold to HSBC Private Equity for an enterprise value of £170 million. This was not a total exit as we have rolled over part of the proceeds alongside Inflexion into the new deal; however, including the other positions held in the two other Inflexion funds, Inflexion 2003 and HFP, we have received total cash of £12.2 million. The exit price represented an investment multiple for our co-investment of 11x and an IRR of over 100 per cent. since the investment of £1 million was made in December 2005. The Viking sale was one of very few buy-out deals to have been completed in the UK so far this year. Viking, the market leader in oil rig moorings in the North Sea, has performed exceptionally under Inflexion's tenure, growing profits sevenfold.

In addition to realisations in the normal course of events we have taken the opportunity to reduce our large position in the Inflexion 2006 Fund. We sold, in a secondary transaction, £8 million of our £10 million commitment. This yielded £2.4 million in cash and reduced our outstanding commitments by £3.8 million. The price represented a 21 per cent. discount to NAV and the consequent adverse impact on our asset value was £0.65 million. This was an opportunistic means of boosting our cash resources at small cost to shareholders.

Valuations

Given the state of the stockmarket, which was extremely volatile albeit ending the period little changed, the deepening recession and significant adverse currency movements over the six months, it is unsurprising that many of the funds in our portfolio have recorded decreases in valuation. The adverse impact of the partial recovery in the level of Sterling was £10.0 million after taking into account the partial hedge which we have through most of our revolving credit facility being drawn in Euros. There were some notable uplifts. The Alchemy Special Opportunities Fund has performed well and our valuation was increased by £1.6 million. Our Viking Moorings Co-investment is valued at its exit valuation, adding £1.0 million. Aggregating all the underlying valuations of the portfolio companies indicates that the EV:EBITDA multiple of the portfolio is approximately 6x, which we believe is conservative compared with other similar funds. Considerable scrutiny has been applied to private equity valuations in recent months and as these are essentially interim estimates of value under certain reasonable circumstances taking into account the nature of the company, its sector and the unlisted nature of its securities, these contain an inevitable degree of subjectivity. The final proof of the efficacy of a valuation policy is the exit price paid by the next buyer. Our record in this regard has been good.

Outlook

We expect that there will be some pick up in activity in the second half of the year, but that 2009 will prove to be an exceptionally quiet period for the private equity sector internationally. There are some signs in the stockmarket of better confidence levels. This is not immediately apparent in the fundamental trading of the underlying companies in the portfolio, although the exceptionally negative outlook of earlier in 2009 has lifted somewhat. Many of our investment partners are both working hard on existing portfolio companies and searching for new and cheaper deals, but as private equity investment is illiquid and difficult to reverse, few will be pushing money to work without real visibility of future growth which they can acquire at a compellingly low price. For the buy-out sector to resume activity levels anywhere near the norm of recent years the bank finance issue requires resolution through increased lending to the private equity sector or by the banks' role being filled by new lenders.

Hamish Mair  

For more information, please contact:

Hamish Mair	0131 718 1184
Martin Cassels	0131 718 1095
[e-mail]  / [e-mail]

 F&C PRIVATE EQUITY TRUST plc

Income Statement for the 

six months ended 30 June 2009

	Unaudited
	Revenue £'000	Capital £'000	Total £'000
Gains on investments	-	(21,685)	(21,685)
Currency gains	-	4,453	4,453
Income	979	-	979
Investment management fee	(169)	(506)	(675)
Other expenses	(339)	-	(339)
	_______	_______	_______
Net return before finance costs and taxation	471	(17,738)	(17,267)
Interest payable and similar charges	(123)	(369)	(492)
	_______	_______	_______
Return on ordinary activities before taxation	348	(18,107)	(17,759)
Taxation on ordinary activities	(101)	101	-
	_______	_______	_______
Return on ordinary activities after taxation	247	(18,006)	(17,759)
	_______	_______	_______
Returns per Ordinary share - Basic	0.34p	(24.48)p	(24.14)p
	_______	_______	_______
Returns per Ordinary share - Fully diluted	0.33p	(23.84)p	(23.51)p
	_______	_______	_______
Returns per Restricted Voting share - Basic	0.00p	(0.46)p	(0.46)p
	_______	_______	_______

  F&C PRIVATE EQUITY TRUST plc

Income Statement for 

six months ended 30 June 2008

	Unaudited
	Revenue £'000	Capital £'000	Total £'000
Gains on investments	-	18,174	18,174
Currency gains	-	19	19
Income	1,153	-	1,153
Investment management fee	(208)	(2,386)	(2,594)
Other expenses	(322)	-	(322)
	_______	_______	_______
Net return before finance costs and taxation	623	15,807	16,430
Interest payable and similar charges	(15)	(45)	(60)
	_______	_______	_______
Return on ordinary activities before taxation	608	15,762	16,370
Taxation on ordinary activities	(184)	184	-
	_______	_______	_______
Return on ordinary activities after taxation	424	15,946	16,370
	_______	_______	_______
Returns per Ordinary share - Basic	0.52p	21.67p	22.19p
	_______	_______	_______
Returns per Ordinary share - Fully diluted	0.50p	21.10p	21.60p
	_______	_______	_______
Returns per Restricted Voting share - Basic	0.08p	0.42p	0.50p
	_______	_______	_______

                      F&C PRIVATE EQUITY TRUST plc

Income Statement for 

year ended 31 December 2008

	Audited
	Revenue £'000	Capital £'000	Total £'000
Gains on investments	-	(2,825)	(2,825)
Currency losses	-	(4,903)	(4,903)
Income	2,043	-	2,043
Investment management fee	(202)	216	14
Other expenses	(669)	-	(669)
	_______	_______	_______
Net return before finance costs and taxation	1,172	(7,512)	(6,340)
Interest payable and similar charges	(159)	(477)	(636)
	_______	_______	_______
Return on ordinary activities before taxation	1,013	(7,989)	(6,976)
Taxation on ordinary activities	(265)	74	(191)
	_______	_______	_______
Return on ordinary activities after taxation	748	(7,915)	(7,167)
	_______	_______	_______
Returns per Ordinary share - Basic	0.66p	(11.98)p	(11.32)p
	_______	_______	_______
Returns per Ordinary share - Fully diluted	0.64p	(11.66)p	(11.02)p
	_______	_______	_______
Returns per Restricted Voting share - Basic	0.41p	1.11p	1.52p
	_______	_______	_______

F&C PRIVATE EQUITY TRUST plc

BALANCE SHEET

	As at 30 June 2009 (unaudited)		As at 30 June 2008 (unaudited)		As at 31 December 2007  (audited)
	£000	£000	£000	£000	£000	£000
Investments at market value
Listed on recognised exchanges	740		2,951		1,329
Unlisted	176,332		185,930		194,009
	_______		_______		_______
		177,072		188,881		195,338
Current assets
Debtors	647		1,157		740
Cash at bank	2,405		3,426		4,436
	_______		_______		_______
	3,052		4,583		5,176
Creditors
Amounts falling due within one year	(32,983)		(1,408)		(34,943)
	_______		_______		_______
Net current (liabilities)/assets		(29,931)		3,175		(29,767)
		_______		_______		_______
Total assets less current liabilities		147,141		192,056		165,571
		_______		_______		_______
Creditors
Amounts falling due after more than one year		-		(2,587)		-
		_______		_______		_______
Net assets		147,141		189,469		165,571
		_______		_______		_______

  F&C PRIVATE EQUITY TRUST plc

BALANCE SHEET (CTD)

		As at 30 June 2009     (unaudited)		As at 30 June 2008 (unaudited)		As at 31 December 2008 (audited)
		£000		£000		£000
Capital and reserves
Called up ordinary capital		1,394		1,394		1,394
Special distributable capital reserve		15,679		15,679		15,679
Special distributable revenue reserve		37,357		37,692		37,692
Capital redemption reserve		664		664		664
Capital reserve		91,549		133,416		109,555
Revenue reserve		498		624		587
		_______		_______		_______
Total shareholders' funds		147,141		189,469		165,571
		_______		_______		_______
Net asset value per Ordinary share - Basic		197.00p		255.16p		221.15p
Net asset value per Ordinary share - Fully diluted		195.23p		251.86p		218.74p
Net asset value per Restricted Voting share - Basic		7.07p		7.50p		8.53p

  F&C PRIVATE EQUITY TRUST plc

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

	Six months ended 30 June 2009 (unaudited)	Six months ended 30 June 2008 (unaudited)	Year  ended  31 December 2008 (audited)
Opening equity shareholders' funds	165,571	198,908	198,908
Return on ordinary activities after taxation	(17,759)	16,370	(7,167)
Dividends paid	(336)	(817)	(1,178)
Special dividend paid	(335)	(671)	(671)
Return of capital paid	-	(24,321)	(24,321)
	_______	_______	_______
Closing equity shareholders' funds	147,141	189,469	165,571
	_______	_______	_______

  F&C PRIVATE EQUITY TRUST plc

SUMMARISED STATEMENT OF CASH FLOWS 

		Six months to 30 June 2009  (unaudited)		Six months to 30 June 2008 (unaudited)		Year to 31 December 2008  (audited)
		£000		£000		£000
Net cash inflow/(outflow) from operating activities		318		(287)		220
Servicing of finance		(473)		(60)		(655)
Taxation		90		-		(134)
Capital expenditure and financial investment		(3,423)		23,741		(3,582)
Equity dividends paid		(671)		(25,809)		(26,170)
Financing		1,800		-		27,644
		_______		_______		_______
Decrease in cash		(2,359)		(2,415)		(2,677)
		_______		_______		_______

Reconciliation of net cash flow to movement in net funds

(Decrease)/increase in cash in the year		(2,359)		(2,415)		(2,677)
Financing		(1,800)		-		(27,644)
Currency gains/(losses)		4,453		19		(4,903)
		_______		_______		_______
Movement in net funds in the year		294		(2,396)		(35,224)
		_______		_______		_______
Opening net (debt)/funds		(29,402)		5,822		5,822
		_______		_______		_______
Closing net (debt)/funds		(29,108)		3,426		(29,402)
		_______		_______		_______

Reconciliation of net return before finance costs and taxation to net cash flow from operating activities

Net return before finance costs and taxation		(17,267)		16,430		(6,340)
Losses/(gains) on investments		21,685		(18,174)		2,825
Currency (gains)/losses		(4,453)		(19)		4,903
Changes in working capital and other non-cash items		353		1,476		(1,168)
		_______		_______		_______
Net cash flow from operating activities		318		(287)		220
		_______		_______		_______

  PRINCIPAL RISKS AND UNCERTAINTIES

The Directors believe that the principal risks faced by the Company include investment and strategic, external, regulatory, operational, financial and funding risks. These risks, and the way in which they are managed, are described in more detail under the heading Principal Risks and Risk Management within the Business Review in the Company's Annual Report for the year ended 31 December 2007. The Company's principal risks and uncertainties have not changed materially since the date of that report and are not expected to change materially for the remaining six months of the Company's financial year.

STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE INTERIM REPORT

We confirm that to the best of our knowledge:

• the condensed set of financial statements have been prepared in accordance with the Statement 'Half-Yearly Financial Reports' issued by the UK Accounting Standards Board and give a true and fair view of the assets, liabilities, financial position and return of the Company;

• the Chairman's Statement and Manager's Review (together constituting the Interim Management Report) include a fair review of the information required by the Disclosure and Transparency Rules ('DTR') 4.2.7R, being an indication of important events that have occurred during the first six months of the financial year and their impact on the financial statements;

• the Statement of Principal Risks and Uncertainties shown above is a fair review of the information required by DTR 4.2.7R; and

• the condensed set of financial statements include a fair review of the information required by the DTR 4.2.8R, being related party transactions that have taken place in the first six months of the financial year and that have materially affected the financial position or performance of the Company during the period, and any changes in the related party transactions described in the last Annual Report that could do so.

On behalf of the Board

David Simpson

Chairman

  Notes

1.    The unaudited interim results have been prepared in accordance with United Kingdom 
       Generally Acceptable Accounting Practice and on the basis of the accounting policies set out 
        in the statutory accounts of the Company for the year ended 31 December 2008.  

            2.     These are not full statutory accounts in terms of Section 240 of the Companies Act 1985. The 
                     full audited accounts for the year to 31 December 2008, which were unqualified, have been 
                     lodged with the Registrar of Companies. A full interim report will be sent to shareholders in 
                     September 2009, and will be available for inspection at 80 George Street, Edinburgh, the 
                     registered office of the Company.

          3.       Returns per Restricted Voting share are based on the average number of shares in issue 
                    during the period of 67,084,807.

Returns per Ordinary share are based on the following average number of shares in issue during the period:-

Basic              72,282,273

Fully diluted    74,241,429

Basic net asset value per Restricted Voting share is based on 67,084,807 shares in issue at the end of the period.

Basic net asset value per Ordinary share is based on 72,282,273 shares in issue at the end of the period.

Fully diluted net asset value per Ordinary share is based on 74,241,429 shares in issue at the end of the period.

 

END

 

 

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