Interim results and Quarterly Dividend
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To: Stock Exchange |
For immediate release: |
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27 August 2021 |
BMO Private Equity Trust PLC
LEI: 2138009FW98WZFCGRN66
Unaudited results for the half year ended 30 June 2021
Financial Highlights
· Share price total return for the six-month period ended 30 June 2021 of 39.1%.
· NAV of 552.46p per Ordinary Share as at 30 June 2021 reflecting a total return for the six-month period of 15.4%.
· Total quarterly dividends of 9.12p per Ordinary Share year to date.
· Quarterly dividend of 4.35p paid on 30 July 2021
· Quarterly dividend of 4.77p to be paid on 29 October 2021
· Dividend yield of 4.4% based on the period end share price (1).
· Realisations in the six-month period ended 30 June 2021 were £69.5 million.
(1) Calculated as dividends of 4.35p paid on 30 July 2021 and 4.77p payable on 29 October 2021 annualised and divided by the Company's share price of 418.00p as at 30 June 2021.
Chairman's Statement
Introduction
I would first wish to convey that the thoughts of myself and the Board are with you, our fellow Shareholders. Social and economic conditions have remained challenging, but the vaccination programme provides hope that a return to more normal conditions is underway.
This report is for the six-month period ended 30 June 2021. At the period end the Net Asset Value ("NAV") of BMO Private Equity Trust PLC ("the Company") was £408.5 million giving a NAV per share of 552.46p. Taking account of dividends paid the NAV total return for the six-month period was an impressive 15.4%. With the share price discount having reduced from 36.8% at 31 December 2020 to 24.3% at 30 June 2021, the share price total return for the period was 39.1%.
This has been an exceptionally strong period with the Company benefitting from uplifts in valuation driven by improved trading as the recovery from the worst phase of the pandemic takes root. There have also been some improvements in valuation multiples reflecting generally buoyant markets and there have been some significant realisations at above the most recent carrying values. There has been considerable activity in the underlying portfolio with new deals and realisations. After a quieter period last year, when we held back from making many new investments, we have resumed a more normal pace of investment with several new commitments to funds and co-investments being made, mainly just after the period end.
Dividends
In accordance with the Company's stated dividend policy, the Board declares a quarterly dividend of 4.77p per ordinary share, payable on 29 October 2021 to Shareholders on the register on 8 October 2021 with an ex-dividend date of 7 October 2021. For illustrative purposes only, this dividend and that paid on 30 July 2021 represent an annualised yield of 4.4% based on the share price of 418.00p as at 30 June 2021.
Financing
In March 2021 the Company increased its multi-currency revolving credit facility from £75 million to £95 million. In addition, the Company has a term loan of €25 million. At 30 June 2021 exchange rates this results in a total borrowing capacity of approximately £116 million.
As at 30 June 2021, the Company had cash of £19.5 million. With borrowings of £44.2 million under the loan facility, net debt was £24.7 million, equivalent to a gearing level of 5.7%. This is considerably lower than the 14.9% recorded at 31 December 2020. The total of outstanding undrawn commitments at 30 June 2021 was £110 million and, of this, approximately £26 million is to funds where the investment period has expired.
Operations
Since the onset of the pandemic the Board has monitored actively its impact upon the investment and operational performance of the Company. I am pleased to report that the home working arrangements implemented by the Manager and many of our service providers have worked well with no impact upon service delivery and operations.
The Annual General Meeting of the Company was held on 27 May 2021. Due to travel and gathering restrictions arising from the pandemic, Shareholders were not able to attend physically. However, Shareholders were able to view online a presentation by Hamish Mair and participate in a live question and answers session with him and me. I would like to thank those Shareholders who participated, and I look forward to a resumption of our normal practices in 2022 and, if possible, with the additional facility of online attendance for those Shareholders unable to travel.
Since March 2020 the Board has met by videoconference. This has worked well; however, I am pleased to report that at our most recent Board meeting, most Directors were able to attend physically which I consider an important step towards a return to our pre-pandemic practices. In addition, the London and Edinburgh offices of the Manager have reopened, initially on a limited basis.
Ownership of the Manager
On 12 April 2021 BMO announced that it had reached an agreement to sell its asset management business in Europe, the Middle East and Africa. This sale would include the Manager of this Company. Subject to completion, it will become part of Columbia Threadneedle Investments, the global asset management business of Ameriprise Financial, Inc. Details have not yet been finalised and published but both firms have confirmed the importance of maintaining the stability and continuity of the teams which presently support this Company.
The Board is monitoring this situation closely and welcomes this assurance of stability and continuity. We will ensure that Shareholders are kept informed of developments.
Outlook
The private equity market has recovered strongly from the worst effects of the pandemic and there has been a very active market since the final quarter of last year. The appetite of the private equity investors for resilient, often tech enabled businesses, has clearly been sharpened. There is also interest in more prosaic but nonetheless robust businesses which have traded well despite the challenges. Fortunately, our portfolio is represented in both categories as shown by the recent strong realisations. The international diversification has also served us well with many of our European and North American holdings trading strongly and several of them achieving or planning exits. Amongst a number of positive features, the increased use of the public markets as an exit route for private equity is noticeable over the course of this year. The combination of the post pandemic recovery, a switch in appetite towards tech enabled and other resilient businesses and the accessibility of the public markets bodes well for the remainder of this year. Confidence amongst our investment partners and their company management teams is high and this in turn gives us confidence that we can deliver further growth for our Shareholders.
Mark Tennant
Chairman
Manager's Review
Introduction
The first six months of 2021 has witnessed a remarkably strong private equity market internationally. The pandemic remains a challenge in all markets but as the vaccination programmes have advanced many of the major economies have resumed a substantial degree of normality. Even where restrictions remain most companies have been able to adapt and operate reasonably well. There are sectors, including travel and hospitality, where big difficulties persist. Over the next two months government support, such as the furlough scheme, will come to an end and there is a risk that this could prove disruptive in the most vulnerable sectors. As noted before, the private equity sector has proved resilient through the pandemic with the managers' ability to intervene and support companies having proved highly constructive. Private Equity investors are showing a distinct preference for companies which have coped well over the last year and a half with technology enabled and healthcare linked businesses attracting interest. In addition, companies which held up well or indeed benefitted from the pandemic are also in demand. The recovering economies coupled with a new appreciation of private equity's strengths is resulting in a very supportive background which we could scarcely have contemplated a year ago.
New Investments
In the first half of the year two new investments were completed. €5 million was committed to the Agilitas 2020 Private Equity Fund, a mid-market buyout fund specialising in North West Europe. 5 million was also committed to Apposite Healthcare Fund III, a European focused lower mid-market healthcare and life sciences fund. In both cases we have a strong prior relationship with the managers which includes successful experience of co-investing.
The deal flow in the year so far has been excellent and much of this came to fruition shortly after the period end when several new investments were completed. These included four funds, four co-investments and one secondary.
Of the new fund investments all the commitments were to funds where we have an existing relationship. In Europe we have committed €5 million to ArchiMed MED III, a €650 million France based mid cap healthcare buy-out fund. ArchiMed invest into well-established profitable companies across six core healthcare sectors internationally; Medtech, Biopharma, Healthcare IT, Diagnostics, Life Sciences and Consumer Health. In the UK we have made a commitment of £7.5 million to FPE Fund III, a mid-market growth equity fund specialising in the B2B software and services sectors. Also, in the growth equity area we have committed £10 million to SEP VI, the latest fund from one of our longest standing investment partners. We have backed another longstanding partner again through Inflexion Buyout Fund VI (£10 million). This fund continues Inflexion's focus on UK mid-market buy-outs.
The co-investments made shortly after the period end are diverse by sector and geography.
£5 million has been invested in JT IoT, the Jersey based 'internet of things' infrastructure provider. The company, which is a spin out of the state owned Jersey Telecom, provides SIMs to a wide range of devices together with a platform that allows connectivity and subscription management services as well as securely connecting IoT devices and controlling SIMs anywhere in the world. The deal is led by the specialist family office backed private equity firm Perwyn.
€5 million has been invested in Prollenium Medical Technologies, a Canadian aesthetic company that develops, produces and distributes injectable hyaluronic acid dermal fillers. The deal is led by ArchiMed. This is a high growth sector internationally which has proved resilient through the pandemic.
£3.0 million has been invested into Habitus, a Denmark based leading private provider of complex social care services for high acuity citizens. The deal is led by Apposite.
£3.4 million has been invested in Contained Air Solutions, the UK market leading producer of clean air containment products for the healthcare, research and pharma sectors. Based in Manchester it manufactures and services biological safety cabinets, fume cupboards, robotic enclosures and filter consumables. The deal is led by the new private equity manager Accord. Lastly, we added £4 million to our position in Capvis III through a secondary transaction.
The funds in our portfolio were active in making new investments during the first half and a total of £22.9 million was called.
Of the underlying new investments, the larger ones give an indication of the sectors that have been attracting private equity investment recently.
The Inflexion funds made several new investments. Inflexion Buyout Fund V and the Inflexion Supplemental Fund V together invested £1.9 million in BES (British Engineering Services), which was a partial reinvestment of a hugely successful exit from the Inflexion 2010 Fund, and in Medik8, a premium skincare brand committed to ethical manufacturing and sustainability. Selling online and through professional channels such as dermatology clinics, spas and beauty salons, Medik8 produces science based anti-ageing products. Inflexion Supplemental Fund V also called £0.6 million for Digital Wholesale Solutions (DWS) an IT and Cloud services wholesaler which provides a wide range of digital communications, IT and cloud services to its 6,000 SME focused reseller partners via its proprietary software platform.
SEP V invested £2.1 million in three software companies; Glasgow based company AutoRek (financial and regulatory data management software), Basis Technologies (software provider of DevOps solutions for SAP systems) and Fund Apps (risk and reporting software for asset managers). FPE II invested £0.6 million in Codestone (ERP and hosting services). ARX CEE IV also followed a technology theme investing £0.5 million in Instrumentation Technologies, a Slovenia based company making components for particle accelerators.
A number of new investments were made in the healthcare sector. Apposite Healthcare III called a total of £2.7 million, some of which was for Habitus, the Danish complex social care business noted above but also for 1MED, a specialist Clinical Research Organisation that supports the commercialisation of new medical technologies and products by providing regulatory strategy and clinical trial management. MED II, the ArchiMed healthcare fund called £0.4 million for Ad-Tech, a niche US manufacturer of electrodes used in neurodiagnostic and neurosurgery applications. In Sweden, Summa II invested £0.4 million in Sengenics, a proteomics company which produces full length correctly folded functional proteins which are used in the pharma industries and in academic research.
In the consumer sector Piper Private Equity VI was drawn £0.8 million for two investments. The Thinking Traveller is a villa rental business specialising in the Mediterranean. Wattbike is the UK's leading indoor bicycle brand. In the US Blue Point Capital IV invested £0.6 million in Transtar, a distributor of automotive aftermarket products for the driveline and transmission repair market.
Realisations
This has been a very active six months for realisations with total distributions and associated income reaching £69.5 million. This is almost double the total for realisations for the whole of 2020.
As previously reported SEP exited the bulk of their holding in scientific software company Dotmatics through its sale in May to US based Insightful Science. 12% of the value has been retained in Insightful Science which plans a listing in due course. Our co-investment in Dotmatics yielded £30.6 million and our share of the proceeds from SEP V was an additional £3.3 million. The exit represented 8.7x cost and an IRR of 85%, a spectacular outcome over three and a half years.
In addition to Dotmatics there were several other significant exits during the first half originating from many different sectors and geographies. Many of the realisations were in the UK. Inflexion have continued their impressive run of exits. Builders Merchant chain Huws Gray was sold by Inflexion returning £1.4 million across two funds. Shortly after the quarter end we received £18.4 million for our co-investment in Huws Gray, an excellent result after three years and nearly £10 million above the latest carrying value.
BES (British Engineering Services), the engineering testing, inspection and certification services provider has been an exceptional performer and Inflexion's 2010 Fund returned £2.1 million achieving 14.8x cost and an IRR of 60%. As noted above, Inflexion have partially reinvested through their Supplemental Fund V. Inflexion Fund IV returned £2.0 million principally from the sale of Bollington Wilson (insurance brokers) (5.1x, 50% IRR) and Kynetec (agricultural and animal data provider) (3.3x, 28% IRR). Investment consultancy LCP (3.4x, 34% IRR) was sold by Inflexion Partnership Capital I and Inflexion Supplemental Fund IV returning £0.9 million across both funds.
£2.5 million came from our Silverfleet led co-investment in cleanroom consumables company STAXS where there has been a refinancing enabled by the very strong trading resulting from the huge demand for PPE created by the pandemic. This investment has now returned 90% of cost within two years.
FPE II had three exits; IWSR, the data provider for the drinks industry returned £1.0 million (3.6x, 56% IRR), Masstech, the video storage management company for the media and broadcast sector, returned £0.6 million (2.7x including partial reinvestment in the stock of acquirer Telestream) and Questionmark, a SaaS testing and assessment provider, returned £1.1 million (3.5x, 28% IRR).
A significant inflow of £1.5 million came from Pentech Fund II where there has been a partial realisation of sports betting company FanDuel. FanDuel has merged with the US operations of Flutter Entertainment to form a new entity FanDuel Group (FDG), which is listed in the US. Pentech have made over 10x cost so far with further upside possible as the remaining shares in FDG are sold down.
Piper Private Equity achieved a partial exit of online flower company Bloom & Wild which has attracted additional private equity backers from the USA. £0.9 million was returned representing 2.0x cost, with the whole investment achieving 3.6x so far. Piper also achieved an exit for Proper Snacks (£0.2 million, 2.0x, 17% IRR).
The Kester managed fund GCP Europe II returned £1.0 million (3.4x, 30% IRR) following the sale of Frontier Medical, a medical products business based in Wales, to another of our fund holdings Agilitas 2020. Agilitas 2015 Fund returned £2.3 million as the second part of the exit of Exemplar which was sold in November 2020.
The Nordic region has produced some good exits recently. Procuritas V had two exits. £2.1 million came in from Sofaco (6.1x and 54% IRR), an upmarket furniture seller operating through third party online retailers such as Made.com and Wayfair. The fund also distributed £1.3 million from the partial sell down of its shares in vehicle spare parts company Pierce which listed recently on the Stockholm NASDAQ. Summa I returned £1.1 million (8.1x and 82% IRR) from the sale of Sortera, the waste management company, to Nordic Capital plus £0.4m (4.6x and 54% IRR) from the IPO of EcoOnline, the chemical management software provider.
In Iberia, Corpfin IV distributed £1.5 million, most of which relates to the sale of Secna Natural Ingredients (4.4x, 35% IRR). In France Montefiore IV returned £0.8 million from the sale of Groupe Premium, the life and pension insurance broker (7.0x, 87% IRR).
Further afield our longstanding Asian fund holding in AIF III has now sold its final portfolio company CNI, a manufacturer of glass panels and surface metal components for smartphones. Our proceeds were £0.9 million (4.6x, 14% IRR).
There were a number of other smaller distributions reflecting a buoyant exit market internationally.
Valuation Changes
There were many uplifts recorded in the first half. These reflect both improved trading in the wake of the pandemic and a number of the exits noted above or which have occurred since the quarter end.
The largest uplift was £10.6 million from clothing company Weird Fish. This company has experienced a transformation in its fortunes over the last year from a precarious situation at the start of the pandemic to considerably strengthened trading with a substantial and very successful shift to e-commerce boosting profits over the last twelve months. Total Capital Partners, the deal lead, have used a higher, although still modest, multiple of 7.0x EBITDA to revalue the holding. We hold 63% of this company and should make a good return eventually which is excellent given that this was one of our most vulnerable companies at the start of the pandemic.
Another large uplift is for the co-investment in the Inflexion led builders' merchant company Huws Gray, which as noted above was exited with the proceeds from the co-investment being received just after the period end. The exit price represented an uplift of £9.8 million for this quarter.
Another major uplift was recorded for Pet Network (TRG Pluto) which is up by £6.1 million reflecting the exit which was agreed after the half year end and which is expected to complete in September. This is expected to represent 4.2x cost and an IRR of over 50%, an excellent outcome after just three years.
Other large uplifts include Inflexion Strategic Partners (+£3.6 million) which has so far significantly exceeded the original plan, Summa II (+£3.1 million) principally reflecting the IPO and partial exit of Olink, the Swedish proteomics company, which was listed at the equivalent of 6.3x cost, an excellent outcome since the holding is only two years old. Summa I was uplifted by £1.4 million reflecting good portfolio progress including the Sortera exit noted above and the IPO on the Euronext Growth in Oslo of EcoOnline, the chemical management software provider. Also, in the Nordics Procuritas V was up by £2.1 million following the exits noted above. In the US our Argand led co-investment Sigma (electrical motors) was up by £1.3 million reflecting rebounding profits. Kester Capital II is up by £1.4 million mainly due to the good progress its e-commerce retailer of horticultural products, YouGarden, has made. STAXS, the Belgium based, Silverfleet led co-investment in cleanroom consumables company which makes PPE amongst other hygiene products continues to trade strongly and is up by £1.2 million.
There were very few downgrades. Our co-investment in Norwegian software company Safran agreed a disappointing exit at just 1.0x cost resulting in a downgrade of £0.5 million. Procuritas IV was down by £0.7 million which is a result of a reduction in value of its large remaining holding in Swedish care company Olivia. Coretrax, the wellbore plug and abandonment co-investment, is down by £0.2 million because of lower growth rates than originally planned for this year.
Financing
At 30 June the Company had net debt of £24.7 million, which represents gearing of 5.7%. This is in comparison to 14.9% as at 31 December 2020. The revolving credit facility and term loan gives overall borrowing capacity of around £116 million, depending on exchange rates, so there is plenty of headroom for new investments. Even after the series of new investments noted above, which were completed after the quarter end, the net debt of the Company is only around £29 million.
Outlook
The Company's portfolio has made an excellent start to 2021. The combination of the ongoing recovery from the pandemic and the strengthening confidence of private equity investors and company managers is providing a remarkably supportive background. Our investment partners have in general excelled themselves in achieving exits after a uniquely challenging period. New deal activity has also been substantial and much of this is focused on companies where technology plays a large part in the investment thesis. If this momentum is maintained in the second half, then there is a good prospect that 2021 will be another successful year for the Company and its Shareholders.
Hamish Mair
Investment Manager
BMO Investment Business Limited
BMO Private Equity Trust PLC
Statement of Comprehensive Income for the
half year ended 30 June 2021
| Unaudited
| ||
| Revenue £'000 | Capital £'000 | Total £'000 |
Income |
|
|
|
Gains on investments held at fair value | - | 58,112 | 58,112 |
Exchange gains | - | 2,979 | 2,979 |
Investment income | 1,762 | - | 1,762 |
Other income | 1 | - | 1 |
Total income | 1,763 | 61,091 | 62,854 |
|
|
|
|
Expenditure |
|
|
|
Investment management fee - basic fee | (181) | (1,631) | (1,812) |
Investment management fee - performance fee | - | (4,225) | (4,225) |
Other expenses | (479) | - | (479) |
Total expenditure | (660) | (5,856) | (6,516) |
|
|
|
|
Profit before finance costs and taxation | 1,103 | 55,235 | 56,338 |
|
|
|
|
Finance costs | (130) | (1,168) | (1,298) |
|
|
|
|
Profit before taxation | 973 | 54,067 | 55,040 |
|
|
|
|
Taxation | - | - | - |
|
|
|
|
Profit for period/total comprehensive income | 973 | 54,067 | 55,040 |
|
|
|
|
Return per Ordinary Share | 1.32p | 73.12p | 74.44p |
The total column is the profit and loss account of the Company.
All revenue and capital items in the above statement derive from continuing operations.
BMO Private Equity Trust PLC
Statement of Comprehensive Income for the
half year ended 30 June 2020
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The total column is the profit and loss account of the Company.
All revenue and capital items in the above statement derive from continuing operations.
BMO Private Equity Trust PLC
Statement of Comprehensive Income for the
year ended 31 December 2020
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The total column is the profit and loss account of the Company.
All revenue and capital items in the above statement derive from continuing operations.
BMO Private Equity Trust PLC
Amounts Recognised as Dividends
| Six months ended 30 June 2021 (unaudited) £'000 | Six months ended 30 June 2020 (unaudited) £'000 |
Year ended 31 December 2020 (audited) £'000 |
Quarterly Ordinary Share dividend of 3.87p per share for the quarter ended 30 September 2019 | - | 2,862 | 2,862 |
Quarterly Ordinary Share dividend of 3.92p per share for the quarter ended 31 December 2019 | - | 2,899 | 2,899 |
Quarterly Ordinary Share dividend of 3.99p per share for the quarter ended 31 March 2020 | - | - | 2,950 |
Quarterly Ordinary Share dividend of 3.99p per share for the quarter ended 30 June 2020 | - | - | 2,950 |
Quarterly Ordinary Share dividend of 3.99p per share for the quarter ended 30 September 2020 | 2,950 | -
| - |
Quarterly Ordinary Share dividend of 4.16p per share for the quarter ended 31 December 2020 | 3,077 | - | - |
| 6,027 | 5,761 | 11,661 |
BMO Private Equity Trust PLC
Balance Sheet
| As at 30 June 2021(unaudited) | As at 30 June 2020(unaudited) | As at 31 December 2020(audited) |
| £'000 | £'000 | '000 |
Non-current assets |
|
|
|
Investments at fair value through profit or loss | 439,507 | 348,106 | 426,249 |
|
|
|
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Current assets |
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Other receivables | 213 | 31 | 562 |
Cash and cash equivalents | 19,500 | 2,173 | 8,344 |
| 19,713 | 2,204 | 8,906 |
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Current liabilities |
|
|
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Other payables | (6,490) | (1,148) | (4,492) |
Interest-bearing bank loan | (23,728) | (43,166) | (49,666) |
| (30,218) | (44,314) | (54,158) |
Net current liabilities | (10,505) | (42,110) | (45,252) |
Non-current liabilities |
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|
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Interest-bearing bank loan | (20,506) | (21,737) | (21,514) |
Net assets | 408,496 | 284,259 | 359,483 |
|
|
|
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Equity |
|
|
|
Called-up ordinary share capital | 739 | 739 | 739 |
Share premium account | 2,527 | 2,527 | 2,527 |
Special distributable capital reserve | 15,040 | 15,040 | 15,040 |
Special distributable revenue reserve | 31,403 | 31,403 | 31,403 |
Capital redemption reserve | 1,335 | 1,335 | 1,335 |
Capital reserve | 357,452 | 233,215 | 308,439 |
Shareholders' funds | 408,496 | 284,259 | 359,483 |
|
|
|
|
Net asset value per Ordinary Share | 552.46p | 384.44p | 486.17p |
BMO Private Equity Trust PLC
Statement of Changes in Equity
Share Capital | Share Premium Account | Special Distributable Capital Reserve | Special Distributable Revenue Reserve | Capital Redemption Reserve | Capital Reserve | Revenue Reserve | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
For the six months ended 30 June 2021 (unaudited) |
Net assets at 1 January 2021 | 739 | 2,527 | 15,040 | 31,403 | 1,335 | 308,439 | - | 359,483 |
Profit for the period/total comprehensive income | - | - | - | - |
- |
54,067 | 973 |
55,040 |
Dividends paid | - | - | - | - | - | (5,054) | (973) | (6,027) |
Net assets at 30 June 2021 | 739 | 2,527 | 15,040 | 31,403 | 1,335 | 357,452 | - | 408,496 |
For the six months ended 30 June 2020 (unaudited) | |||||||
Net assets at 1 January 2020 | 739 | 2,527 | 15,040 | 31,403 | 1,335 | 253,233 | - | 304,277 |
(Loss)/profit for the period/total comprehensive income | - | - | - | - |
- |
(15,252) | 994 |
(14,258) |
Dividends paid | - | - | - | - | - | (4,766) | (994) | (5,760) |
Net assets at 30 June 2020 | 739 | 2,527 | 15,040 | 31,403 | 1,335 | 233,215 | - | 284,259 |
For the year ended 31 December 2020 (audited) |
Net assets at 1 January 2020 | 739 | 2,527 | 15,040 | 31,403 | 1,335 | 253,233 | - | 304,277 |
Profit for the period/total comprehensive income | - | - | - | - |
- |
63,377 | 3,490 |
66,867 |
Dividends paid | - | - | - | - | - | (8,171) | (3,490) | (11,661) |
Net assets at 31 December 2020 | 739 | 2,527 | 15,040 | 31,403 | 1,335 | 308,439 | - | 359,483 |
BMO Private Equity Trust PLC
Cash Flow Statement
| Six months ended 30 June 2021 (unaudited) | Six months ended 30 June 2020 (unaudited) | Year ended 31 December 2020 (audited) |
| £'000 | £'000 | £'000 |
|
|
|
|
Operating activities |
|
|
|
Profit / (loss) before taxation | 55,040 | (14,258) | 66,867 |
(Gain) / loss on disposals of investments | (44,485) | 1,129 | (8,954) |
(Increase) / Decrease in holding gains | (13,627) | 8,089 | (65,122) |
Exchange differences | (2,979) | 3,730 | 2,705 |
Interest income | (1) | (7) | (8) |
Interest received | 1 | 7 | 8 |
Investment income | (1,762) | (1,714) | (4,988) |
Investment income received | 1,762 | 1,714 | 4,988 |
Finance costs | 1,298 | 1,160 | 2,597 |
Decrease / (increase) in other receivables | 349 | (5) | (536) |
Increase / (decrease) in other payables | 2,346 | (1,951) | 1,299 |
Net cash outflow from operating activities |
(2,058) |
(2,106) |
(1,144) |
|
|
|
|
Investing activities |
|
|
|
Purchases of investments | (22,900) | (21,440) | (36,117) |
Sales of investments | 67,754 | 12,850 | 32,588 |
Net cash inflow / (outflow) from investing activities |
44,854 |
(8,590) |
(3,529) |
Financing activities |
|
|
|
Drawdown of bank loans, net of costs | - | 13,028 | 20,208 |
Repayment of bank loans | (23,721) | - | - |
Arrangement cost of additional loan facility | (236) | - | - |
Interest paid | (1,501) | (1,065) | (2,194) |
Equity dividends paid | (6,027) | (5,760) | (11,661) |
Net cash (outflow) / inflow from financing activities | (31,485) | 6,203 |
6,353 |
Net decrease in cash and cash equivalents |
11,311 |
(4,493) |
1,680 |
Currency (losses) / gains | (155) | 157 | 155 |
Net increase / (decrease) in cash and cash equivalents |
11,156 |
(4,336) |
1,835 |
Opening cash and cash equivalents | 8,344 | 6,509 | 6,509 |
Closing cash and cash equivalents |
19,500 |
2,173 |
8,344 |
|
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Directors' Statement of Principal Risks and Uncertainties
The principal risks identified in the Annual Report and Accounts for the year ended 31 December 2020 were:
• Economic, macro and political risks;
• Liquidity and capital structure risks;
• Regulatory risks;
• Service delivery failure at the manager;
• Poor long term investment performance relative to the peer group or other asset classes;
• Share price discount; and
• Fraud and cyber risks
These risks are described in more detail under the heading "Principal Risks" within the Strategic Report in the Company's Annual Report and Accounts for the year ended 31 December 2020.
Since the beginning of 2020 the global economy has suffered considerable disruption due to the effects of the COVID-19 pandemic. The Directors have reviewed and amended, where appropriate, the key risk matrix for the Company which identifies the risks that the Company is exposed to, the controls in place and the actions being taken to mitigate them.
It is also noted that:
·An analysis of the performance of the Company since 1 January 2021 is included within the Chairman's Statement and the Investment Manager's Review.
· In addition, the Board has noted that home working arrangements have been implemented at the Manager and many of the Company's key suppliers without any impact upon service delivery and operations.
· The Company's borrowing facility was revised during March 2021. The revised five-year facility is composed of a €25 million term loan and a £95 million multi-currency revolving credit facility. As at 30 June 2021 borrowings were £44.2 million. The interest rate payable is variable.
·Note 8 details the Board's consideration for the continued applicability of the principle of Going Concern when preparing this report.
Statement of Directors' Responsibilities in Respect of the Half Yearly Financial Report
In accordance with Chapter 4 of the Disclosure Guidance and Transparency Rules, the Directors confirm that to the best of their knowledge:
• the condensed set of financial statements has been prepared in accordance with applicable International Financial Reporting Standards on a going concern basis, and gives a true and fair view of the assets, liabilities, financial position and net return of the Company;
• the half-yearly report includes a fair review of the development and performance of the Company and important events that have occurred during the first six months of the financial year and their impact on the financial statements;
• 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 a fair review of the related party transactions that have taken place in the first six months of the financial year.
On behalf of the Board
Mark Tennant
Chairman
Notes (unaudited)
1. The condensed company financial statements have been prepared on a going concern basis in accordance with International Financial Reporting Standard ('IFRS') IAS 34 'Interim Financial Reporting' and the accounting policies set out in the statutory accounts for the year ended 31 December 2020. The condensed financial statements do not include all of the information and disclosures required for a complete set of IFRS financial statements and should be read in conjunction with the financial statements for the year ended 31 December 2020, which were prepared under full IFRS requirements.
2. Earnings for the six months to 30 June 2021 should not be taken as a guide to the results for the year to 31 December 2021.
3. Investment management fee:
Six months to30 June 2021(unaudited) | Six months to30 June 2020(unaudited) | Year ended31 December 2020(audited) | |||||||
Revenue£'000 | Capital£'000 | Total£'000 | Revenue£'000 | Capital£'000 | Total£'000 | Revenue£'000 | Capital£'000 | Total£'000 | |
Investment management fee - basic fee | 181 | 1,631 | 1,812 | 140 | 1,260 | 1,400 | 294 | 2,650 | 2,944 |
Investment management fee - performance fee | - | 4,225 | 4,225 | - | - | - | - | 3,007 | 3,007 |
181 | 5,856 | 6,037 | 140 | 1,260 | 1,400 | 294 | 5,657 | 5,951 | |
4. Finance costs:
Six months to30 June 2021(unaudited) | Six months to30 June 2020(unaudited) | Year ended31 December 2020(audited) | |||||||
Revenue£'000 | Capital£'000 | Total£'000 | Revenue£'000 | Capital£'000 | Total£'000 | Revenue£'000 | Capital£'000 | Total£'000 | |
Interest payable on bank loans | 130 | 1,168 | 1,298 | 116 | 1,044 | 1,160 | 260 | 2,337 | 2,597 |
5. The return per Ordinary Share is based on a net profit on ordinary activities after taxation of £55,040,000 (30 June 2020 - loss £14,258,000; 31 December 2020 - profit £66,867,000) and on 73,941,429 (30 June 2020-73,941,429; 31 December 2020 -73,941,429) shares, being the weighted average number of Ordinary Shares in issue during the period.
6. The net asset value per Ordinary Share is based on net assets at the period end of £408,496,000 (30 June 2020 - £284,259,000; 31 December 2020 - £359,483,000) and on 73,941,429 (30 June 2020 - 73,941,429; 31 December 2020 - 73,941,429) shares, being the number of Ordinary Shares in issue at the period end.
7. The fair value measurements for financial assets and liabilities are categorised into different levels in the fair value hierarchy based on inputs to valuation techniques used. The different levels are defined as follows:
Level 1 reflects financial instruments quoted in an active market.
Level 2 reflects financial instruments whose fair value is evidenced by comparison with other observable current market transactions in the same instrument or based on a valuation technique whose variables includes only data from observable markets.
Level 3 reflects financial instruments whose fair value is determined in whole or in part using a valuation technique based on assumptions that are not supported by prices from observable market transactions in the same instrument and not based on available observable market data.
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| Level 1 | Level 2 | Level 3 | Total |
| £'000 | £'000 | £'000 | £'000 |
30 June 2021 |
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|
|
Financial assets |
|
|
|
|
Investments
Financial liabilities Multi-currency revolving credit facility Term loan | 269
- - | -
(23,728) (21,454) | 439,238
- - | 439,507
(23,728) (21,454) |
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|
30 June 2020 |
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|
|
|
|
|
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|
Financial assets |
|
|
|
|
Investments
Financial liabilities Multi-currency revolving credit facility Term loan | 50
- - | -
(43,166) (22,739) | 348,056
- - | 348,106
(43,166) (22,739) |
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|
31 December 2020 |
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Financial assets |
|
|
|
|
Investments
Financial liabilities Multi-currency revolving credit facility Term loan | 93
- - | -
(49,666) (22,371) | 426,156
- - | 426,249
(49,666) (22,371) |
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There were no transfers between levels in the fair value hierarchy in the period ended 30 June 2021. Transfers between levels of the fair value hierarchy are deemed to have occurred at the date of the event that caused the transfer.
Valuation techniques
Quoted fixed asset investments held are valued at bid prices which equate to their fair values. When fair values of publicly traded equities are based on quoted market prices in an active market without any adjustments, the investments are included within Level 1 of the hierarchy. The Company invests primarily in private equity funds and co-investments via limited partnerships or similar fund structures. Such vehicles are mostly unquoted and in turn invest in unquoted securities. The fair value of a holding is based on the Company's share of the total net asset value of the fund or share of the valuation of the co-investment calculated by the lead private equity manager on a quarterly basis. The lead private equity manager derives the net asset value of a fund from the fair value of underlying investments. The fair value of these underlying investments and the Company's co-investments is calculated using methodology which is consistent with the International Private Equity and Venture Capital Valuation Guidelines ('IPEG'). In accordance with IPEG these investments are generally valued using an appropriate multiple of maintainable earnings, which has been derived from comparable multiples of quoted companies or recent transactions. The BMO private equity team has access to the underlying valuations used by the lead private equity managers including multiples and any adjustments. The BMO private equity team generally values the Company's holdings in line with the lead managers but may make adjustments where they do not believe the underlying managers' valuations represent fair value. On a quarterly basis, the BMO private equity team present the valuations to the Board. This includes a discussion of the major assumptions used in the valuations, which focuses on significant investments and significant changes in the fair value of investments. If considered appropriate, the Board will approve the valuations.
The interest-bearing bank loans are recognised in the Balance Sheet at amortised cost in accordance with IFRS. The fair value of the term loan is based on a marked to market basis. The fair value is calculated using a discounted cash flow technique based on relevant interest rates. The fair value of the multi-currency revolving credit facility is not materially different to the carrying value. The fair values of all of the Company's other financial assets and liabilities are not materially different from their carrying values in the balance sheet.
Significant unobservable inputs for Level 3 valuations
The Company's unlisted investments are all classified as Level 3 investments. The fair values of the unlisted investments have been determined principally by reference to earnings multiples, with adjustments made as appropriate to reflect matters such as the sizes of the holdings and liquidity. The weighted average earnings multiple for the portfolio as at 30 June 2021 was 9.9 times EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) (30 June 2020: 9.2 times EBITDA; 31 December 2020: 10.0 times EBITDA).
The significant unobservable input used in the fair value measurement categorised within Level 3 of the fair value hierarchy together with a quantitative sensitivity analysis are shown below:
Period ended | Input | Sensitivity used* | Effect on fair value £'000 |
30 June 2021 | Weighted average earnings multiple | 1x | 61,712 |
30 June 2020 | Weighted average earnings multiple | 1x | 53,547 |
31 December 2020 | Weighted average earnings multiple | 1x | 59,874 |
* The sensitivity analysis refers to an amount added or deducted from the input and the effect this has on the fair value.
The fair value of the Company's unlisted investments is sensitive to changes in the assumed earnings multiples. The managers of the underlying funds assume an earnings multiple for each holding. An increase in the weighted average earnings multiple would lead to an increase in the fair value of the investment portfolio and a decrease in the multiple would lead to a decrease in the fair value.
The following table shows a reconciliation of all movements in the fair value of financial instruments categorised within Level 3 between the beginning and the end of the period:
| 30 June 2021 | 30 June 2020 | 31 December 2020 |
| £'000 | £'000 | £'000 |
Balance at beginning of period | 426,156 | 348,574 | 348,574 |
Purchases | 22,900 | 21,531 | 36,117 |
Sales | (67,754) | (12,850) | (32,588) |
Gains on disposal | 44,485 | 743 | 10,826 |
Holding gains / (losses) | 13,451 | (9,942) | 63,227 |
Balance at end of period | 439,238 | 348,056 | 426,156 |
8. In assessing the going concern basis of accounting the Directors have had regard to the guidance issued by the Financial Reporting Council. They have considered the current cash position of the Company, the availability of the Company's loan facility and compliance with its banking covenants. They have also considered forecast cashflows, the operational resilience of the Company and its service providers and the annual dividend.
As at 30 June 2021, the Company had outstanding undrawn commitments of £110.3 million. Of this amount, approximately £26.1 million is to funds where the investment period has expired and the Manager would expect very little of this to be drawn. Of the outstanding undrawn commitments remaining within their investment periods, the Manager would expect that a significant amount will not be drawn before these periods expire. The Company has a committed borrowing facility comprising a term loan of €25 million and a revolving credit facility of £95 million. This facility is due to expire on 19 June 2024 when its five-year term concludes.
At 30 June 2021 the Company had fully drawn the term loan of €25 million and had drawn £23.7 million of the revolving credit facility, leaving £71.3 million of the revolving credit facility available. This available proportion of the facility can be used to fund any shortfall between the proceeds received from realisations and drawdowns made from funds in the Company's portfolio or funds required for co-investments. Under normal circumstances this amount of 'headroom' in the facility would be more than adequate to meet any such shortfall.
At present the global economy is suffering considerable disruption due to the effects of the COVID-19 pandemic and the Directors have given serious consideration to the consequences of this for the private equity market in general and for the cashflows and asset values of the Company specifically over the next twelve months. The Company has a number of loan covenants and at present the Company's financial situation does not suggest that any of these covenants are close to being breached.
The primary risk is that there is a very substantial decrease in the asset value of the Company in the short or medium term. Given prior experience in the last financial crisis of 2008/2009 and allowing for the breadth of the Company's portfolio and the valuation methodologies of the Company's investment managers and their investment partners, the Directors do not expect that the possible reduction in asset value arising from the shock of the pandemic will be of sufficient magnitude to give rise to a covenant breach.
Furthermore, being aware of the possible risks the Directors have considered in detail a number of remedial measures that are open to the Company which it may take if such a covenant breach appears possible. These include reducing commitments and raising cash through engaging with the private equity secondaries market. The Managers have considerable experience in the private equity secondaries market through the activities of the Company and through the management of other private equity funds. The Directors have considered other actions which the Company may take in the event that a covenant breach was imminent including taking measures to increase the Company's asset base through an issuance of equity either for cash or pursuant to the acquisition of other private equity assets. The Directors have also considered the likelihood of the Company making alternative banking arrangements with its current lender or another lender. Having considered the likelihood of the events which could cause a covenant breach and the remedies available to the Company, the Directors are of the view that Company is well placed to manage such an eventuality satisfactorily.
The Company operates within a robust regulatory environment. The Directors have noted that home working arrangements have been implemented at the Manager and many of the Company's key suppliers without any impact upon service delivery and operations.
Based on this information the Directors believe that the Company has the ability to meet its financial obligations as they fall due for a period of at least twelve months from the date of approval of these financial statements. Accordingly, these financial statements have been prepared on a going concern basis.
9. These are not statutory accounts in terms of Section 434 of the Companies Act 2006 and have not been audited or reviewed by the Company's auditors. The information for the year ended 31 December 2020 has been extracted from the latest published financial statements which received an unqualified audit report and have been filed with the Registrar of Companies. No statutory accounts in respect of any period after 31 December 2020 have been reported on by the Company's auditors or delivered to the Registrar of Companies. The Half-Year Report is available at the Company's website address, www.bmoprivateequitytrust.com.
For more information, please contact:
Hamish Mair (Fund Manager) | 0131 718 1184 |
Scott McEllen (Company Secretary) |
0131 718 1137
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