Half Yearly Report

RNS Number : 4279R

F&C Private Equity Trust PLC

23 August 2010

 



To: Stock Exchange	For immediate release:
	23 August 2010

F&C Private Equity Trust plc

Unaudited results for the half year to 30 June 2010

 

·      Share price total return for the six months of +18.3 per cent for the ordinary shares;

·      NAV total return for the six months of -1.1 per cent for the ordinary shares;

·      Excellent realisations from ICS and Entec;

·      Outstanding commitments decrease by £21 million to £94 million;

·      New investments in Aurora Fund and Blueway.

Chairman's Statement

This is my first Chairman's statement and I would firstly like to thank my predecessor David Simpson who led your Company so ably for 11 years.

At the 30 June the Company's net asset value (NAV) was £152m. The ordinary share pool NAV was £147.2m giving a fully diluted NAV per share of 201.71p, a decrease over the first half of 1.5%. Taking into account the final dividend of 0.8p per ordinary share paid on 7^th May the NAV total return has been -1.1%. The restricted voting share pool had an NAV of £4.8m giving an NAV per share of 7.11p, a decrease over the first half of 6.0%. Taking into account the 1p special dividend paid on 7 May the NAV total return for the restricted voting shares over the first half is +7.3%. The five year NAV total return for the ordinary shares is 58.9%, ranking the Company at the top of its peer group.

Currency weakness relative to sterling, particularly in the Euro area, has reduced the Company's overall portfolio by approximately 2% in the first half and therefore on a constant currency basis the ordinary share NAV would have increased slightly. The ordinary share pool had cash of £6.8m and £3m of debt under the revolving credit facility at 30 June. The accrued liability for the zero dividend preference shares was £31.4m. The ordinary share pool had outstanding undrawn commitments to private equity funds of £94.4m at 30 June. Since 30June a number of new investments have been made and the Company's net debt currently stands at £6m.

The first half of this year has seen a continuation in the increase in activity that began late last year with a significant pick up in the volume of new investments and realisations. New investment for the first half was £21m and realisations were £12m. In each case this is more than double the amount at the same point last year.

The economic outlook across Europe and North America is challenging with at best a moderately paced recovery evident in some sectors and geographies. This and their ongoing preoccupation with struggling companies makes private equity investors cautious and highly selective in acquiring companies. The recent season of annual meetings indicates a number of reasons to be hopeful but also that many companies continue to face considerable challenges both on the trading front and also from their capital structures. The availability of debt for management buy-outs does appear to have improved from the low point last year but it remains very difficult to secure substantial debt packages - for example over £100m. There is some variability by country but the general picture is that in the mid market the private equity groups with a record of success will continue to be able to find bank finance, albeit that it will be expensive in terms of margin and arrangement fees.  The same principle applies to private equity funds which are raising new equity capital. Relatively few funds are being raised at present and only those groups with a strong record and demonstrably successful process will reach target. Your Company will commit to the strongest performers within our cohort of existing relationships and will consider backing others only on a very selective basis. As described in the Manager's Report we are seeing an improving flow of deal opportunities particularly in co-investments and will continue to build this portfolio as an important contributor to our future growth.

The portfolio is well positioned on account of its breadth and also because of its focus on mid market and lower mid market funds and co-investments mainly in Europe. These companies are generally less highly geared and were acquired on lower prices. Many of the companies in the portfolio are focused on niche sectors and sub-sectors where there is a growth dynamic which can persist despite the overall economic situation. These companies continue to be sought after. During the first six months this has been illustrated by two realisations from our co-investment portfolio. The sale of the Environmental consultancy Entec by Growth Capital Partners to Amec plc on 31^st March yielded £3m and achieved an investment multiple of 2.0x and an IRR of 30%. The recent sale of Nursing Agency ICS by Inflexion to Blackstone on 16 June yielded £6.35m and achieved an investment multiple of 2.5x and an IRR of 73%. These are excellent examples of the quality of our underlying portfolio and looking forward we expect that there will be further realisations as the level of confidence in the recovery rises.

Mark Tennant

20 August 2010

Manager's Review

The first half of the year has seen an improvement in private equity sector sentiment and activity levels. However the environment remains very challenging. Some investee companies are requiring intensive care as they pull through the worst effects of the recession. Companies are affected at different times with later cycle companies feeling the recessionary effects now whilst early cycle industries have been recovering for months. A number of companies in both the co-investment portfolio and in the underlying fund portfolios have been refinanced. These have typically been small amounts relative to the original investment and have only been undertaken where there is a realistic chance of both recovering the original investment and of making an excellent return on the new money. Fortunately our portfolio has been weathering the recession well with relatively few casualties and a number of winners and emerging winners in the portfolio.

New Investments

During the six months there were no new commitments to private equity funds nor to co-investments. After the period end we made two new investments. We have invested £2m into Blueway, a Norway based helicopter operator. This is an investment led by leading Norwegian Private Equity group Reiten. The investment is via a convertible loan stock with a 12% coupon and a short life. Our investment will give us a 2.9% stake in the company once the loan stock converts into equity which is expected to be within the next 18 months. Blueway services a number of sectors including the oil and gas sectors, both offshore and onshore, and our capital is part of a larger issue which will enable the company to secure lucrative new contracts in this sector.

We have also committed to a small secondary private equity fund; The Aurora Fund LP. This fund is managed by the same team as F&C Private Equity Trust and gives additional complementary exposure to 24 mid market European private equity funds. The initial portfolio of the Aurora Fund was acquired from Icelandic Bank Landsbanki in October 2009 at a very large discount to asset value. The investments have performed well since acquisition and F&C Private Equity Trust came in alongside other investors at the final close with a commitment of €4.6m to bring total commitments to €45m. The fund was initially 36% drawn so €1.7m has been invested with the remaining €2.9m expected to be drawn over the next three years. Given the terms of its acquisition and the subsequent performance of the portfolio we expect a significant uplift in this investment to come through almost immediately.

As investor confidence and visibility of recovery improves an increasing number of co-investment opportunities have been introduced to us. These are in all cases led by experienced private equity managers who are well known to us. Pricing is in many cases attractive and we expect to selectively invest over the remainder of this year.

The existing commitments to private equity funds are keeping us fully exposed to new investments and this year has continued to see the broadening and refreshing of the portfolio as our investment partners invest. Total new investment in the first half was £21m.

As usual the new companies are diverse in sector and geography. There were two re-financings of co-investments. £1.7m was invested into 3si (anti-theft systems) and £0.8m into Whittan (metal lockers and pallet racking). In both companies the capital structure has been strengthened and the equity investors' position has been improved relative to the bank.

In the UK August Equity II invested £1.1m into Active Assistance a company providing live in care for people with spinal cord injuries. August have considerable expertise in the health and homecare markets. Primary Capital III invested £0.5m in Amtech (software for engineers), Piper Private Equity IV invested £0.5m in Weird Fish (wholesaler of outdoor clothing) and £0.2m into Diet Chef (home delivery of diet meals), TDR Capital invested £0.6m in VPS (protection of vacant properties) and Hutton Collins, through funds II and III, invested a total of £1.4m in 2e2 (IT services provider which acquired Morse plc).

In the Nordic region Herkules called £1.0m for investment in Odlo (thermal sports underwear). In Germany CapVis III invested £0.7m in Kaffee Partner (coffee and water dispensers). In France Chequers Capital XV invested £0.3m in Thermocoax (sensors and cables for high temperature environments). Chequers also made an investment of £0.3m in Italian oil and gas industry valves company Valvitalia.

In the emerging markets area AIF Asia III has made an investment of £0.3m in Famy, a generic pharmaceuticals company. There have also been a number of new investments for our US funds with Blue Point Capital II calling £0.5m and Camden Partners IV £0.8m during the first half.

Realisations

As the Chairman noted, the portfolio has continued to achieve good realisations with the excellent sales of Entec and ICS. In the remainder of the portfolio there have also been exits. Notable ones include the recent sale of US company American Tire Distributors by 1818 Mezzanine Fund II to the Texas Pacific Group. We received £0.4m and the investment multiple was 2.7x and the IRR 26%. Total realisations in the first half amounted to £12m.

Valuation Changes

There have been relatively few major changes in valuation over the six months. Partly this reflects the timing of valuations with the majority of private equity funds yet to publish interim valuations. Secondly there has been a natural caution about revaluing when the economic outlook remains uncertain. In our portfolio the largest contributor has been ICS which as a result of its sale boosted valuation by £2.4m. 3si, following its refinancing, has added £1.0m. On the negative side we have reduced Viking Moorings by 50% to reflect difficult trading and this has reduced valuation by £1.3m. Looking at all the portfolio approximately 40% increased valuation over the first half, 40% decreased and 20% were unchanged. This explains the minimal movement.

Looking forward we expect that the new higher level of activity will continue into the second half. The news from underlying companies is that trading conditions are stable or improving and this should feed through into higher valuations in due course. There are no major investments which are giving cause for concern and several where there is a realistic prospect of exit within the medium term.

Hamish Mair

20 August 2010

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

Consolidated Statement of Comprehensive Income for the

half year ended 30 June 2010

	Unaudited
	Revenue £'000	Capital £'000	Total £'000
Capital (losses)/gains on investments
Losses on investments held at fair value	-	(633)	(633)
Currency gains	-	340	340
	-	(293)	(293)
Revenue
Investment income	1,743	-	1,743
Other income	30	-	30
Total income	1,773	(293)	1,480
Expenditure
Investment management fee	(205)	(615)	(820)
Other expenses	(381)	-	(381)
Total expenditure	(586)	(615)	(1,201)
Profit/(loss) before finance costs and taxation	1,187	(908)	279
Finance costs	(72)	(1,564)	(1,636)
Profit/(loss) before taxation	1,115	(2,472)	(1,357)
Taxation	(315)	315	-
Total comprehensive income	800	(2,157)	(1,357)
Return/(loss) per ordinary share - Basic	1.12p	(3.50)p	(2.38)p
Return/(loss) per ordinary share - Fully diluted	1.09p	(3.41)p	(2.32)p
Return/(loss) per restricted voting share - Basic	(0.02)p	0.56p	0.54p

F&C PRIVATE EQUITY TRUST PLC

Consolidated Statement of Comprehensive Income for the

half year ended 30 June 2009

	Unaudited
	Revenue £'000	Capital £'000	Total £'000
Capital (losses)/gains on investments
Losses on investments held at fair value	-	(21,685)	(21,685)
Currency gains	-	4,453	4,453
	-	(17,232)	(17,232)
Revenue
Investment income	965	-	965
Other income	14	-	14
Total income	979	(17,232)	(16,253)
Expenditure
Investment management fee	(169)	(506)	(675)
Other expenses	(339)	-	(339)
Total expenditure	(508)	(506)	(1,014)
Profit/(loss) before finance costs and taxation	471	(17,738)	(17,267)
Finance costs	(123)	(369)	(492)
Profit/(loss) before taxation	348	(18,107)	(17,759)
Taxation	(101)	101	-
Total comprehensive income	247	(18,006)	(17,759)
Return/(loss) per ordinary share - Basic	0.34p	(24.48)p	(24.14)p
Return/(loss) per ordinary share - Fully diluted	0.33p	(23.84)p	(23.51)p
Return/(loss) per restricted voting share - Basic	0.00p	(0.46)p	(0.46)p

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)/gains 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	-
Total comprehensive income	420	(10,741)	(10,321)
Return/(loss) per ordinary share - Basic	0.58p	(14.89)p	(14.31)p
Return/(loss) per ordinary share - Fully diluted	0.56p	(14.49)p	(13.93)p
Return/(loss) per restricted voting share - Basic	0.00p	0.03p	0.03p

F&C PRIVATE EQUITY TRUST PLC

Consolidated Balance Sheet

	As at 30 June 2010 (unaudited)	As at 30 June 2009 (unaudited)	As at 31 December 2009 (audited)
	£'000	£'000	£'000
Non-current assets
Investments at fair value through profit or loss	179,449	177,072	171,011
	179,449	177,072	171,011
Current assets
Other receivables	149	647	157
Cash and cash equivalents	6,873	2,405	13,509
	7,022	3,052	13,666
Current liabilities
Other payables	(4,158)	(32,983)	(1,106)
Net current assets/(liabilities)	2,864	(29,931)	12,560
Total assets less current liabilities	182,313	147,141	183,571
Non-current liabilities
Zero dividend preference shares	(30,340)	-	(28,992)
Net assets	151,973	147,141	154,579
Equity
Called-up ordinary share capital	1,394	1,394	1,394
Special distributable capital reserve	15,679	15,679	15,679
Special distributable revenue reserve	36,686	37,357	37,357
Capital redemption reserve	664	664	664
Capital reserve	96,657	91,549	98,814
Revenue reserve	893	498	671
Shareholders' funds	151,973	147,141	154,579
Net asset value per ordinary share - Basic	203.66p	197.00p	206.84p
Net asset value per ordinary share - Fully diluted	201.71p	195.23p	204.81p
Net asset value per restricted voting share - Basic	7.11p	7.07p	7.56p

F&C PRIVATE EQUITY TRUST PLC

Consolidated Statement of Changes in Equity

For the half year ended 30 June 2010

		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 period ended 30 June 2010 (unaudited)
Net assets at 1 January 2010		1,394	15,679	37,357		664		98,814		671	154,579
Total comprehensive income		-	-	-		-		(2,157)		800	(1,357)
Dividends paid		-	-	(671)		-		-		(578)	(1,249)
Net assets at 30 June 2010		1,394	15,679	36,686		664		96,657		893	151,973
For the period ended 30 June 2009 (unaudited)
Net assets at 1 January 2009		1,394	15,679	37,692		664		109,555		587	165,571
Total comprehensive income		-	-	-		-		(18,006)		247	(17,759)
Dividends paid		-	-	(335)		-		-		(336)	(671)
Net assets at 30 June 2009		1,394	15,679	37,357		664		91,549		498	147,141
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
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

F&C PRIVATE EQUITY TRUST PLC

Consolidated Cash Flow Statement

	Six months to 30 June 2010 (unaudited)	Six months to 30 June 2009 (unaudited)	Year to 31 December 2009 (audited)
	Group	Company	Company
	£000	£000	£000
Operating activities
Profit/(loss) before finance costs and taxation	279	(17,267)	(9,417)
Losses on investments	633	21,685	12,896
Exchange differences	(340)	(4,453)	(3,767)
Corporation tax refunded/(paid)	-	90	(72)
Decrease in other receivables	8	10	493
Increase/(decrease) in other payables	459	343	(366)
Net cash inflow/(outflow) from operating activities	1,039	408	(233)
Investing activities
Purchases of investments	(21,042)	(9,602)	(20,652)
Sales of investments	11,973	6,179	32,083
Net cash (outflow)/inflow from investing activities	(9,069)	(3,423)	11,431
Financing Activities
Repayment of bank loans	-	-	(32,898)
Draw down of bank loans	3,000	1,800	1,800
Interest paid	(179)	(473)	(769)
Proceeds from ZDP share issue	-	-	30,000
Issue costs paid	(518)	-	(614)
Equity dividends paid	(1,249)	(671)	(671)
Net cash inflow/(outflow) from financing activities	1,054	656	(3,152)
Net (decrease)/increase in cash and cash equivalents	(6,976)	(2,359)	8,046
Currency gains	340	328	1,027
Net (decrease)/increse in cash and cash equivalents	(6,636)	(2,031)	9,073
Opening cash and cash equivalents	13,509	4,436	4,436
Closing cash and cash equivalents	6,873	2,405	13,509

DIRECTORS' STATEMENT OF 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 2009.  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 HALF YEAR REPORT

In accordance with Chapter 4 of the Disclosure and Transparency Rules the Directors confirm, in respect of the report and accounts for the half-year ended 30 June 2010 of which this statement is an extract, that to the best of their knowledge:

·      the condensed set of financial statements have been prepared in accordance with IAS 34 as adopted by the European Union;

·      the Chairman's Statement and Manager's Review (together constituting the Half Year Management Report) include a fair review of the assets, liabilities, financial position and return of the Company;

·      the Directors' Statement of Principal Risks and Uncertainties shown above is a fair review of the principal risks and uncertainties for the remainder of the financial year; and

·      the half-yearly report includes details on related party transactions.

On behalf of the Board

Mark Tennant

Chairman

Notes (unaudited)

1.   These financial statements have been prepared on the basis of the accounting policies set out in the Company's financial statements at 31 December 2009.  These accounting policies are expected to be followed throughout the year ending 31 December 2010.

2.   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.

3.   The Half Year Report is unaudited and does not constitute financial statements within the meaning of Section 434 of the Companies Act 2006.

The statutory accounts for 2009, which were prepared in accordance with International Financial Reporting Standards, as endorsed by the European Union ("IFRS") and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS, have been delivered to the Registrar of Companies. The Auditor's opinion on those accounts was unqualified and did not contain a statement made under Section 498(2) or Section 498(3) of the Companies Act 2006. The financial information comprises the Consolidated Balance Sheets as at 30 June 2010, 30 June 2009 and 31 December 2009 and for the periods ended 30 June 2010, 30 June 2009 and 31 December 2009, the related Consolidated Statement of Comprehensive Income, Consolidated Statement of Changes in Equity, Consolidated Cashflow Statement and the related notes hereinafter referred to as "financial information".

The financial information has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and the principal accounting policies set out in the Annual Report for the year ended 31 December 2009 which is available on the Company's website (www.fcpet.co.uk). The financial statements are prepared in accordance with IAS 34.

 

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