Preliminary Results Announcement

RNS Number : 6573A

F&C Private Equity Trust PLC

03 April 2012

 



To: Stock Exchange	For immediate release:
	3 April 2012

F&C Private Equity Trust plc

Preliminary Announcement for the Year to 31 December 2011

 

F&C Private Equity Trust plc today announces its unaudited financial results for the year ended 31 December 2011.

Financial Highlights

 

·      NAV total return for the year of 8.5 per cent for the Ordinary Shares

·      NAV total return for the year of 8.4 per cent for the Restricted Voting Shares

·      Proposed dividend on the Ordinary Shares of 0.8p per share

·      Adoption of a new dividend policy

Chairman's Statement

Your Company made further substantial progress during the year under review. Its net assets as at 31 December 2011 were £182.7 million. The Ordinary Pool had net assets of £178.3 million, giving a diluted net asset value ('NAV') per share of 243.54p and a NAV total return for the year of 8.5 per cent. The net assets of the Restricted Voting Pool were £4.5 million, giving a NAV per share of 6.68p. Taking into account the special dividend of 1.3p per Restricted Voting Share paid on 7 January 2011, this gives a NAV total return for the year of 8.4 per cent. As previously announced, a further special dividend of 1.6p per Restricted Voting Share was paid on 27 January 2012. A final dividend of 0.8p per Ordinary Share is recommended for payment on 8 June 2012 to those shareholders on the register on 18 May 2012.

The Company experienced another strong year of realisations, with total distributions from its portfolio of £36.1 million, comfortably in excess of the combined total of drawdowns and co-investments of £30.1 million. The Company's outstanding undrawn commitments, after making several new commitments during the year, were £73.2 million as at 31 December 2011, representing an all time low as a proportion of its net assets. Outstanding undrawn commitments were £89.3 million a year ago having fallen from over £150 million at their peak in 2008. The outlook for future realisations is positive, with many of our investment partners working on advanced plans for selling companies during the current year.

Since the year end, the Company has announced the arrangement of a new four year £50 million unsecured committed revolving credit facility with The Royal Bank of Scotland plc. This replaces the previous £40 million facility which was due to expire, and should provide more than adequate banking facilities for the Company for the foreseeable future. At the year end, the Ordinary Pool had net debt of £6.5 million and, taking into account the liability for the Zero Dividend Preference Shares, gearing was 18.8%.

The recent modernisation of the investment trust tax rules and the imminent amendments to the Companies Act increase the flexibility for investment trusts to make distributions of realised capital profits.  As at 31 December 2011 the Company's capital reserve had in excess of £120 million of accumulated realised capital profits. Accordingly, taking into account the strength of the Company's portfolio and reflecting our confidence in the future, the Board is proposing to adopt a new distribution policy which will provide ordinary shareholders with greater and predictable dividend payments which will be funded from a combination of the Company's revenue and realised capital profits. Under the new policy, the Company will aim to return 4 per cent of its NAV per annum to ordinary shareholders, paid through two semi-annual dividends following the announcement of the Company's annual and interim results. This represents a dividend yield of 6.6 per cent based on the Ordinary Share price of 150.5p as at 30 March 2012.

In addition, the Board proposes to introduce a new performance fee arrangement for the Manager. This will take effect from the beginning of this year and will, subject to the annual NAV return achieving a net IRR of 8 per cent, pay 7.5 per cent of the total gains to the Manager. The performance fee, which will be subject to a high water mark and a cap, will be payable annually but will depend on achieving the hurdle rate IRR over the previous three year period (for the first two years, interim measures using one and two year periods will apply). The new performance fee, if approved by shareholders, will replace the existing performance fee.

The Board believes that these measures should improve the attractiveness of the shares to a wider range of investors and provide an appropriate market based incentive for the Company's Manager going forward. The necessary resolutions, which include amending the Company's Articles of Association to remove the prohibition on distributing realised capital profits as dividends and approving the new performance fee, will be included as special business at the Annual General Meeting on 23 May. A separate circular containing full details of the proposals will be sent to shareholders with the Annual Report and Accounts. All shareholders are welcome to attend the Annual General Meeting, which will be followed by a presentation by the Manager.

The Company's portfolio has performed well in recent years despite a challenging economic background, illustrating the benefits of this distinctive mode of investment, the diverse spread of investments and the strengths of our investment partners. We have every reason to be confident that this progress will continue.

Mark Tennant

Chairman

Manager's Review

The Company's portfolio made further substantial progress during 2011, with an improvement in value based on improved trading and successful exits across the breadth of the portfolio. The external environment changed adversely from late summer onwards as the problems of the Eurozone sovereign debt crisis came to the fore. The impact on the private equity sector derives mainly from the effects, actual and potential, on the banking sector and on business confidence more generally. Specifically, a disorderly default by Greece and potentially other Eurozone countries would be severe for the banking sector and, in particular, damaging for the balance sheets of a number of major Eurozone-based banks. The resulting precautionary measures have resulted in a contraction in the amount of debt available for private equity backed buy-outs. The impact has not been uniform with, for example, Southern Europe and France affected severely, the UK and Germany moderately and the Nordic Region mildly, if at all. The volume of buy-outs in Europe decreased by 50 per cent between the first and fourth quarters of 2011. The pattern of activity in the Company's portfolio was different, with the middle quarters strong for new investments and the shoulder quarters much quieter. Since the beginning of 2012, there has been an improvement in sentiment and investment activity is healthy. The Company has a well balanced portfolio and, based upon our discussions with our investment partners, we expect that several holdings will be realised over the course of 2012.

New Investments

The Company had outstanding undrawn commitments of £73.2 million at the end of 2011. Of this, £14.2 million is to funds where the investment period has ended and we would expect very little of this to be drawn. Of the £59.0 million of commitments remaining within their investment periods, we would expect that a significant amount will not be drawn before these periods expire. It is now commonplace for private equity funds to request extensions to their investment periods to enable the orderly deployment of committed but uninvested capital, however this is not a universal practice and depends on the situation of each fund and, in particular, the attitude of investors. In order to keep the spread by vintage, geography and manager, and to build the foundations of the future growth in asset value for the Company, it is necessary, not only for commitments to be largely invested, but also for us to back new private equity funds on a selective basis. In addition, we will look to add to the portfolio of co-investments which has been a good contributor to returns over many years.

During the year, the Company made four commitments to private equity funds and one co-investment. In each case the fund manager was well known to us and had already shown a good record of delivery.

In France, we committed to two funds. €4 million was committed to Chequers Capital XVI, the third fund managed by this leading mid market investor that F&C has backed since 2002. €3 million was committed to Ciclad 5, a very well established investor in the French small and lower mid market sector. Our relationship with Ciclad goes back almost twenty years and this is the fourth of their funds in which we have invested. In the UK, we have similarly recommitted to longstanding successful investment partners. In the small buy-out sector, we committed £2 million to the consumer brands specialist Piper Private Equity for their fifth fund. In venture capital, where we have decided to maintain a small exposure to only the strongest groups, we committed £2 million to Glasgow based SEP for their fourth fund. We made a new co-investment in May when €2 million (£1.75 million) was invested alongside leading Nordic investor FSN in HusCompagniet, the market leading standardised single-family residential housebuilder in Denmark. We have a stake of 2.7 per cent and the company is trading well in a recovering market.

Drawdowns

Our existing commitments to funds means that the portfolio is being constantly rejuvenated with new investments which will hopefully contribute to NAV growth in a few years' time. During the year, drawdowns from funds amounted to £28.9 million.

The portfolio remains exceedingly diverse in sectoral and geographic exposure. Some of the larger new investments illustrate this range. In the UK, the largest individual investment was made by TDR Capital II in Lowell Group (£1.5 million), the UK market leader in the purchase of 'bought debt'. Hutton Collins III invested in noodle restaurant chain Wagamama (£0.9 million), RJD Partners II invested in B2B communications and IT services provider Intrinsic Technology (£0.9 million) and August Equity II invested in a consolidator in the veterinary services sector Advanced Vet Care (£1.0 million).

In Germany, DBAG V invested in packaging machinery company Romaco (£0.7 million) and in airconditioning and heating systems for coaches company Spheros (£1.2 million). In the Nordic region, our investment partners have been active. Procuritas IV invested in private schooling company Sonans (£0.7 million Norway) and outdoor perimeter protection products and systems company Gunnebo (£0.7 million, Sweden). Herkules invested in railway infrastructure maintenance company Norsk Jernbanedrift (£0.1 million, Norway) and shopfitter New Store (£0.2 million, Norway). In Southern Europe, N+I invested in can maker Mivisa (£0.8 million, Spain) and also in a combined antenna and electronic components companies Rymsa and Teltronic (£0.9 million, Spain). Stirling Square Capital Partners Fund II invested in helicopter operator Omni (£0.8 million, Portugal) which services the international offshore energy market with an emphasis on Brazil.

Realisations

The flow of distributions from investments, mainly reflecting realisations, was strong during the year, totalling £36.1 million, 60 per cent more than during 2010.

The realisations were widely distributed across the portfolio by geography and type of deal.

There has been a notable improvement in the venture capital component of the portfolio and our principal investment partner in this sector, SEP, achieved three significant exits during the year; Gigle, a fabless semiconductor (£0.6 million, 2.2x cost+), Biovex, anticancer drugs (£0.4 million, 2.5x cost) and Zeus, software (£0.8 million, 7.8x cost, 41 per cent IRR). Significantly, all these exits were to trade buyers and further potential consideration may follow.

In the US, we have benefited from two significant sales by Blue Point Capital; PSSI, a provider of outsourced cleaning services to the food processing industry (£2.2 million, 6.0x cost, 54 per cent IRR) and drying and restoration company Legend Brands (£0.5 million, 2.5x cost, 22 per cent IRR).

The mezzanine funds have secured some good exits. These include three major ones by Mezzanine Management Fund IV; catering company WSH (£0.8 million, 2.2x cost, 27 per cent IRR), New York on course betting business, Yonkers (£1.0 million, 1.6x, 21 per cent IRR) and crane operator, TNT Crane & Rigging (£1.1 million, 2.9x, 39 per cent IRR). Growth Capital Partners achieved two exits; gas distribution company A Gas (£1.3 million, 2.3x cost, 24 per cent IRR) and confectionary business Tangerine (£1.1 million, 3.8x cost, 31 per cent IRR). These were both sold to private equity buyers, Lloyds Development Capital and Blackstone respectively. Hutton Collins sold French satellite services company Vizada, after just over one year, to trade buyer EADS (£1.2 million, 1.3x cost, 25 per cent IRR).

In the Europe focused buy-out funds there were also a number of good exits. The most significant was the sale by Stirling Square Capital Partners of Italian aerospace components manufacturer Microtecnica to Goodrich Corporation of the US, which yielded £5.6 million. This was an exceptionally successful investment where profits tripled during the ownership of Stirling Square.

In the UK focused funds, there were also some strong exits. August Equity sold CAM software company Planit Holdings (£1.6 million, 2.3x cost, 34 per cent IRR) and Inflexion sold staffing business Red Commerce (£1.4 million, 4.4x cost, 34 per cent IRR). RJD Partners sold local authority focused vehicle leasing company Senturion (operating as Translinc) to listed facilities services group May Gurney (£1.0 million, 2.7x cost, 28 per cent IRR). This company was also held within the portfolio as a co-investment and the sale yielded £2.8 million.

Lastly, one of the longstanding fund holdings, Hicks Muse Tate & Furst Fund IV, exited sports programming and production company Pan American Sports through a sale to Fox. Most of the £1.5 million proceeds (0.6x cost) accrued to the Restricted Voting Shares and facilitated the 1.6p special dividend paid on 27 January 2012.

Valuation Changes

Over the course of the year the principal influence on valuations was the trading performance of the underlying portfolios and the number and scale of exits. The largest individual uplift was for August Equity Partners I which was up by £2.1 million, reflecting the Planit Holdings sale noted above and continuing strong trading for supported living provider Lifeways. The direct holding in Lifeways similarly benefited and has been increased by £1.2 million. Other significant uplifts included Nordic fund Procuritas IV (+£1.9 million) whose portfolio is generally making strong progress, Stirling Square Capital Partners II (+£1.4 million) where the sale of Microtecnica and good trading in security company Axitea (formerly Sicurglobal) were the main influences, and Blue Point Capital Fund II (+£1.7 million). The co-investment component has made a notable contribution with the recovering trading of anti theft security company, 3SI, allowing an uplift of £1.9 million. Similar improvements at metal lockers and pallet racking company, Whittan, led to an uplift of £1.2 million. The successful sale of Senturion added £2.0 million to the portfolio valuation.

There were a small number of notable downgrades over the year. The Penta fund was down by £1.2 million, as some of its economically sensitive holdings have suffered. Hutton Collins Funds I and II were down by a cumulative £1.4 million and the struggling venture capital fund Alta Berkeley VI was reduced by £0.7 million. International Mezzanine Investment NV, a very mature fund, looks likely to sell its remaining holdings imminently but expectations have been revised down leading to a £0.7 million downgrade, mainly incurred by the Restricted Voting Pool. 

Financing

As referred to in the Chairman's Statement, since the year end the Company has successfully arranged a new unsecured committed revolving credit facility with its existing lenders, The Royal Bank of Scotland plc. The new £50 million facility replaces the previous £40 million facility and is for four years, expiring in February 2016. The Company experienced very healthy cash inflows of over £36 million during the year, comfortably in excess of drawdowns and co-investments of £30.1 million. At 31 December 2011 the Ordinary Pool had net debt of £6.5 million compared with £9.5 million a year earlier. Currently, net debt is £5.5 million, leaving the Company with £44.5 million of undrawn borrowing facilities to bridge any mismatch between drawdowns and distributions. The new distribution policy reflects our confidence in the Company's ability to generate cash which is more than sufficient to meet drawdowns, repay in due course the Zero Dividend Preference Shares and, importantly, to fund an ongoing programme of selective new investments.

Outlook

The funds and co-investments in the portfolio have fared well through the recession. The Company's longstanding focus on the mid market of private equity internationally, but particularly on Europe, has meant that activity levels have remained healthy throughout a severe contraction in the banking sector's ability to lend and therefore to facilitate private equity buy-outs. Our investment partners have had to concentrate on improving the financial performance and the longer term value of the companies in which they invest with little or no help from external market conditions. The opportunity and ability to add this value to companies is the distinguishing feature of private equity. This, and the close alignment of interest between management and owners of private equity backed companies, provides enduring reasons for investing in private equity. The last few years have seen challenging market conditions for private equity investors but the freedom of action that this mode of investment accords has allowed them to deliver excellent returns. The momentum of recovery in business confidence received a jolt last summer from the Eurozone worries and there remains a real possibility of future setbacks. However, there is good evidence that an upward trajectory has been maintained and we remain confident this company's NAV will make further strong progress in the year ahead. 

Hamish Mair

Investment Manager

F&C Investment Business Limited

F&C Private Equity Trust plc

Consolidated Statement of Comprehensive Income for the

year ended 31 December 2011

	Unaudited
	Revenue £'000	Capital £'000	Total £'000
Income
Gains on investments held at fair value	-	17,923	17,923
Exchange gains	-	911	911
Investment income	2,176	-	2,176
Other income	37	-	37
Total income	2,213	18,834	21,047
Expenditure
Investment management fee	(467)	(1,403)	(1,870)
Other expenses	(694)	-	(694)
Total expenditure	(1,161)	(1,403)	(2,564)
Profit before finance costs and taxation	1,052	17,431	18,483
Finance costs	(208)	(3,672)	(3,880)
Profit before taxation	844	13,759	14,603
Taxation	(223)	216	(7)
Profit for year/total comprehensive income	621	13,975	14,596
Return per Ordinary Share - Basic	0.80p	18.75p	19.55p
Return per Ordinary Share - Fully diluted	0.78p	18.26p	19.04p
Return per Restricted Voting Share - Basic	0.06p	0.63p	0.69p

F&C Private Equity Trust plc

Consolidated Statement of Comprehensive Income for the

year ended 31 December 2010

	Audited
	Revenue £'000	Capital £'000	Total £'000
Income
Gains on investments held at fair value	-	19,894	19,894
Exchange gains	-	44	44
Investment income	2,170	-	2,170
Other income	41	-	41
Total income	2,211	19,938	22,149
Expenditure
Investment management fee	(420)	(1,262)	(1,682)
Other expenses	(693)	-	(693)
Total expenditure	(1,113)	(1,262)	(2,375)
Profit before finance costs and taxation	1,098	18,676	19,774
Finance costs	(160)	(3,263)	(3,423)
Profit before taxation	938	15,413	16,351
Taxation	(239)	268	29
Profit for year/total comprehensive income	699	15,681	16,380
Return per Ordinary Share - Basic & Fully diluted	0.96p	21.02p	21.98p
Return per Restricted Voting Share - Basic	0.00p	0.73p	0.73p

F&C Private Equity Trust plc

Consolidated Balance Sheet

	As at 31 December 2011 (Unaudited)	As at 31 December 2010 (Audited)
	£'000	£'000
Non-current assets
Investments at fair value through profit or loss	223,388	210,914
	223,388	210,914
Current assets
Other receivables	23	19
Cash and short-term deposits	4,044	2,681
	4,067	2,700
Current liabilities
Other payables	(9,886)	(12,130)
Net current liabilities	(5,819)	(9,430)
Total assets less current liabilities	217,569	201,484
Non-current liabilities
Zero dividend preference shares	(34,822)	(31,774)
Net assets	182,747	169,710
Equity
Called-up ordinary share capital	1,394	1,394
Special distributable capital reserve	15,679	15,679
Special distributable revenue reserve	35,814	36,686
Capital redemption reserve	664	664
Capital reserve	128,470	114,495
Revenue reserve	726	792
Shareholders' funds	182,747	169,710
Net asset value per Ordinary Share - Basic	246.62p	228.02p
Net asset value per Ordinary Share - Fully diluted	243.54p	228.02p
Net asset value per Restricted Voting Share - Basic	6.68p	7.29p

F&C Private Equity Trust plc

Consolidated Statement of Changes in Equity

 

	Share Capital	Special Distributable Capital Reserve	Special Distributable Revenue Reserve	Capital Redemption Reserve	Capital Reserve	Revenue Reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
For the year ended 31 December 2011 (unaudited)
Net assets at 1 January 2011	1,394	15,679	36,686	664	114,495	792	169,710
Profit for the year/total comprehensive income	-	-	-	-	13,975	621	14,596
Dividends paid	-	-	(872)	-	-	(687)	(1,559)
Net assets at 31 December 2011	1,394	15,679	35,814	664	128,470	726	182,747
For the year ended 31 December 2010 (audited)
Net assets at 1 January 2010	1,394	15,679	37,357	664	98,814	671	154,579
Profit for the year/total comprehensive income	-	-	-	-	15,681	699	16,380
Dividends paid	-	-	(671)	-	-	(578)	(1,249)
Net assets at 31 December 2010	1,394	15,679	36,686	664	114,495	792	169,710

 

F&C Private Equity Trust plc

Consolidated Cash Flow Statement

	Year ended 31 December 2011 (Unaudited)	Year ended 31 December 2010 (Audited)
	£000	£000
Operating activities
Profit before taxation	14,603	16,351
Gains on disposals of investments	(5,732)	(7,373)
Decrease in holding losses	(12,191)	(12,521)
Exchange differences	(911)	912
Finance costs	3,880	3,423
Corporation tax refunded	-	137
(Increase)/decrease in other receivables	(4)	1
(Decrease)/increase in other payables	(424)	488
Net cash (outflow)/inflow from operating activities	(779)	1,418
Investing activities
Purchases of investments	(30,677)	(43,593)
Sales of investments	36,126	22,628
Net cash inflow/(outflow) from investing activities	5,449	(20,965)
Financing activities
Repayment of bank loans	(8,373)	-
Draw down of bank loans	7,385	11,000
Interest paid	(847)	(559)
Issue costs paid on 2009 ZDP Share issue	-	(517)
Equity dividends paid	(1,559)	(1,249)
Net cash (outflow)/inflow from financing activities	(3,394)	8,675
Net increase/(decrease) in cash and cash equivalents	1,276	(10,872)
Currency gains	87	44
Net increase/(decrease) in cash and cash equivalents	1,363	(10,828)
Opening cash and cash equivalents	2,681	13,509
Closing cash and cash equivalents	4,044	2,681

Notes (unaudited)

1.         The unaudited financial results, which were approved by the Board on 2 April 2012, have been prepared in accordance with the Companies Act 2006 and International Financial Reporting Standards ('IFRS') as adopted by the European Union. Where presentation guidance set out in the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" ('SORP') issued  by the Association of Investment Companies in January 2009 is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP. 

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

In May 2010, the IASB issued improvements to IFRS for 2010 which became effective for periods commencing on or after 1 January 2011.  These covered 11 amendments to six standards, none of which materially affected the Group.

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

Basic:               72,282,273 (2010: 72,282,273)

Diluted:              74,241,429 (2010: 72,282,273)

Returns per Restricted Voting Share are based on the weighted average number of shares in issue during the year of 67,084,807 (2010: 67,084,807).

Basic net asset value per Ordinary Share is based on 72,282,273 (2010: 72,282,273) shares in issue at the year end.  Diluted net asset value per Ordinary Share is based on 74,241,429 (2010: 72,282,273) shares in issue at the year end.

Net asset value per Restricted Voting Share is based on 67,084,807 (2010: 67,084,807) shares in issue at the year end.

3.         The Board has proposed a final dividend of 0.80p per Ordinary Share, payable on 8 June 2012 to those shareholders on the register on 18 May 2012.

4.         This results announcement is based on the Group's unaudited financial statements for the year ended 31 December 2011 which have been prepared in accordance with International Financial Reporting Standards as adopted by the EU ('IFRS').             

5.         This announcement is not the Group's statutory accounts.  The full audited accounts for the year ended 31 December 2010, which were unqualified, have been lodged with the Registrar of Companies.  The statutory accounts for the year to 31 December 2011 (on which the audit report has not been signed) will be delivered to the Registrar of Companies following the Company's Annual General Meeting which will be held at the offices of F&C Asset Management plc, Exchange House, Primrose Street, London, EC2A 2NY on 23 May 2012 at 12 noon.

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

For more information, please contact:

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

 

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