Final Results

RNS Number : 0606I

Electra Private Equity PLC

13 November 2008

 



ELECTRA PRIVATE EQUITY PLC

Unaudited Preliminary Results for Year ended 30 September 2008

·        Net asset value – down 10.0% over the year to 1,801p per share at 30 September 2008; Unaudited net asset value per share at 10 November 2008 of 1,763p

·         Share price performance – decreased by 26.5% versus a FTSE All-Share Index decrease of 25.1% over the year

·         Share price up 105.5% over five years to 30 September 2008 versus an Index increase of 22.5%

·         Return on equity of 18.5% on an annualised basis for the five years

·        Quieter year of investment activity - £114 million invested (2007: £322 million) and £192 million realised (2007: £303 million)

·        Net liquid resources at 30 September 2008 of £159 million after share buy backs of £26 million and the £9 million cost of the Special Dividend paid in March 2008

 

 

Commenting on the Annual Results, Sir Brian Williamson, Chairman, said: 

'Electra has again had a solid year including the successful realisation of a number of existing investments. This was achieved in a particularly difficult year for financial markets with a worsening of the credit crisis and highly volatile stock markets. Whilst the Board anticipates difficult times ahead for the economy, the majority of larger investments within Electra's portfolio were, at 30 September, performing better than in their previous year. Valuations as at 30 September 2008 were affected by the reduction in comparable stock market multiples.

Looking ahead, the Board believes that Electra's strong cash position and flexible and long term investment approach will lead to interesting investment opportunities.'

For further information:

Sir Brian Williamson, Chairman, Electra Private Equity PLC	020 7306 3883
Sir Brian Williamson, Chairman, Electra Private Equity PLC	020 7214 4200
Nick Miles, M: Communications	020 7153 1521

Net Asset Value Per Share

	30 September 2008	30 September 2007	10 November 2008
Net asset value per share	1,801p	2,001p	1,763p
Decrease since 30 September 2007	(10.0%)
Decrease in FTSE All-Share Index since 30 September 2007	(25.1%)

Return on Equity comprises Total 'Profit on Ordinary Activities after Taxation' divided by opening 'Total Equity Shareholders' Funds' calculated on an annualised basis.

The unaudited net asset value per share at 10 November 2008 was calculated on the basis of the net asset value at 30 September 2008 adjusted to reflect the purchases and sales of investments, currency movements and bid values on that day in respect of listed investments.

The figures and financial information for the year ended 30 September 2008 do not constitute the statutory financial statements for that year. Those financial statements have not yet been delivered to the Registrar, nor have the Auditors yet reported on them. The figures and financial information for the year ended 30 September 2007 do not constitute the statutory financial statements for that year. The financial statements in respect of the year ended 30 September 2007 have been delivered to the Registrar and included the Auditors' Report which was unqualified and did not contain a statement under either section 237(2) or section 237(3) of the Companies Act 1985.

A copy of the Chairman's Statement, Manager's Review and Primary Statements are attached.

The Report and Accounts will be sent to shareholders in December 2008 and will thereafter be available from the Company's registered office at Paternoster House, 65 St Paul's Churchyard, London EC4M 8AB. The Annual General Meeting will be held on Tuesday 3 February 2009 at the Barber-Surgeons' Hall, Monkwell Square, London EC2 at 12 Noon.

CHAIRMAN'S STATEMENT

Overview

The year to 30 September 2008 was a particularly difficult one for financial markets with highly volatile stock markets, a worsening of the credit crisis and, towards the end of the year, a widespread loss of confidence driven by the prospects of recession not only in the UK but also globally.

Against this background Electra has again had a solid year including the successful realisation of a number of existing investments. Investment activity was less than the previous year and Electra ended the year with slightly increased net liquid resources of £159 million after share buy-backs of £26 million and the £9 million cost of the Special Dividend paid in March 2008. Together with borrowing facilities, Electra had £409 million of resources available for existing commitments and new investment at 30 September 2008, a position which the Board and Electra Partners consider to be advantageous in view of the buying opportunities which are expected to occur as the downturn progresses. 

Results

At 30 September 2008 the net asset value per share was 1,801p compared to 2,001p at the beginning of the financial year, a decline of 10%. Together with the Special Dividend of 25p per share paid in March 2008, this represents a negative return of 8.3% for the year. Over the same period the share price decreased by 26.5% while the FTSE All-Share Index decreased by 25.1%. Over the five years to 30 September 2008 Electra's net asset value per share, inclusive of dividends totalling 62p per share, increased by 145.2% and Electra achieved a return on equity of 18.5% on an annualised basis. Over the same five year period the share price increased by 105.5% and the FTSE All-Share Index increased by 22.5%.

Investment Activity

For most of the year the mid-market buyout sector was reasonably buoyant and our Manager, Electra Partners, bid on 19 investment opportunities out of 186 considered in the year. However, its cautious pricing stance meant that it was frequently outbid by competitors and, as a result, new investment amounted to £114 million in aggregate for the year compared to £322 million in the previous year. £24 million was invested in Labco, a French business involved in the consolidation of medical laboratories in Europe and £20 million was invested in London & Stamford Property, an AIM listed company established to take advantage of the corrections expected in the industrial and commercial property market.

Part of our investment policy over the two years since shareholders approved the revised investment strategy has involved investment in funds by building relationships through our Manager with other private equity groups as a co-investor and as a fund investor. This has yielded substantial deal flow and we believe this is an important way of providing increased diversification and accessing overseas and niche markets as a key part of the strategy going forward. Such activity is complementary to Electra's direct investment activity and an important part in providing a greater diversity of deal flow.

During the year £192 million was received from the sale of investments including £36 million in respect of Dakota, Minnesota & Eastern Railroad, details of which were included in the last Annual Report and the 2008 Half-Yearly Report. The major realisation in the second half of the year was Electra's investment in Freightliner, which was sold to Arcapita and resulted in proceeds to Electra of £85 million. These sales were very satisfactory conclusions to investments which had been held for some time.

The Board and Committees of the Board

Following the retirement of Lord King of Bridgwater and Professor Sir George Bain from the Board at the last Annual General Meeting, the Board now comprises six Directors. At the forthcoming Annual General Meeting Ron Armstrong, Peter Williams and I will retire and seek re-election.

Towards the end of the year the Board decided to combine the separately established Remuneration and Nomination Committees into one committee which is chaired by Peter Williams.

Further Authority to Buy Back Shares

Your Board continues to pursue an active share buy back policy and during the year ended 
30 September 2008, Electra made on-market purchases at a cost of £26 million and cancelled 
1.66 million shares. The Company currently has the ability to buy back and cancel up to a further 
4.5 million shares during the remaining period of this authority, which will cease at the Annual General Meeting when Directors will seek to renew this general authority.

Dividend

I would like to remind shareholders that the Company will only pay a dividend when required to do so in order to maintain its investment trust status. Accordingly, no dividend is proposed for the year (year ended 30 September 2007 - 25p per share).

Outlook

Your Board believes that Electra is positioned to make good investments assisted by:

·       A strong cash position;

·       Flexibility with regard to type of investment: including minority holdings and mezzanine investments;

·       Our Manager’s reputation as a mid-market buy-out player as deals in the larger buy-out category become harder to finance.

 

Relative to the Company's position at the half-year stage, whilst the investment strategy remains the same, the timescales for making and realising investments have lengthened and a cautious approach will continue to be taken towards new investment whilst the economic outlook continues to be uncertain. The Board believes that the investment approach adopted by Electra Partners continues to be sound and that it will provide a solid basis for delivering attractive returns from private equity investments over the long term, in particular from the opportunities that may become available as a result of an economic downturn.

Sir Brian Williamson

Chairman

12 November 2008

OBJECTIVE AND INVESTMENT POLICY

In 2006 shareholders approved Electra's revised investment strategy and policy which is set out below.

The business and affairs of Electra are managed on an exclusive and fully discretionary basis by Electra Partners, an independent private equity fund manager, whose senior management team has worked together since 1992. Electra is managed as an HM Revenue and Customs approved investment trust.

Electra's objective is to achieve a rate of return on equity of between 10-15% per annum over the long-term by investing in a portfolio of private equity assets. Unless required to do so as an investment trust, Electra's Directors would not recommend the payment of dividends on a regular basis.

Electra Partners, on behalf of Electra, will aim to achieve this target rate of return by:

 

·      Exploiting a track record of successful private equity investment;

·      Utilising the proven skills of its senior management team with a strong record of dealflow generation and long-term presence in the private equity market;

·      Investing in a number of value creating transactions with a balanced risk profile across a broad range of investment sectors through a variety of financial instruments;

·      Actively managing its total capital position and levels of gearing in light of prevailing economic conditions. Total bank borrowings by Electra will always be less than 40% of its total assets.

 

Additionally, an on-market share buyback programme will be managed to generate shareholder value.

Electra Partners will target private equity opportunities (including direct investment, fund investment and secondary buyouts of portfolios and funds) so that the perceived risks associated with such investments are justified by expected returns. These investments will be made across a broad range of sectors and types of financial instrument such as equity, senior equity, convertibles and mezzanine debt.

The investment focus will be principally on Western Europe, with the majority of investments expected to be made in the United Kingdom, where historically Electra Partners has been most active. Electra Partners would expect there to be an emphasis on areas where its senior management team has specific knowledge and expertise. In circumstances where Electra Partners feels that there is merit in gaining exposure to countries and sectors outside Electra Partners' network and expertise, consideration will be given to investing in specific funds managed by third parties or co-investing with private equity managers with whom it has developed a relationship.

In implementing Electra's investment strategy, Electra Partners typically targets investments at a cost of £25-70 million in companies with an enterprise value of £70-200 million.

Electra will not invest more than 15% of its total assets at the time of investment in any other listed closed-ended investment funds.

MANAGER'S REVIEW

THE PORTFOLIO

Electra's portfolio consists of holdings of securities in a number of companies (the investment portfolio) together with cash or near cash offset by borrowings (net liquid resources). The investment portfolio consists primarily of direct investments in portfolio companies together with investments in funds where investments are held in limited partnerships managed by other private equity managers. Investments in funds are made primarily for the purpose of generating co-investment opportunities and gaining exposure to other geographic areas.

As at 30 September			2008	2007
			£m	£m
Investment Portfolio
	Direct investments		403	525
	Funds		102	95
			505	620
Net Liquid Resources			159	156
Investment Portfolio and Net Liquid Resources *			664	776

 

 *  Excludes accrued income on the investment portfolio and floating rate notes. 2008: £11,248,000 (2007: £13,419,000).

At 30 September 2008 Electra had direct investments in 66 companies with an aggregate value of £403 million and investments in 32 private equity funds with an aggregate value of £102 million. The top 10 and 20 direct investments accounted for 61% and 88% respectively of the total direct investments.

Excluding investments in funds approximately 40% of the value of the investment portfolio was derived from UK operations, 33% from Continental Europe, 11% from the USA and 16% from Asia and elsewhere.

INVESTMENT PORTFOLIO ANALYSIS

In the year to 30 September 2008, Electra's net asset value per share fell from 2,001p per share at the beginning of the period to 1,801p per share at 30 September 2008, a decline of 10%.

Electra's performance in terms of net asset value movement must be viewed against the background of falling stock markets and other negative factors. In the year under review, the FTSE All-Share Index fell by more than 25% and significant problems emerged in the financial system which affected many banks and other institutions. Under these circumstances Electra's performance was relatively good. This performance resulted from the fact that the significant reductions in value recognised in respect of the retained portfolio were substantially offset by gains either realised on the sale of investments or recognised in relation to specific events. The reduction in value of the retained portfolio mainly reflected lower multiples of comparable companies quoted on a recognised stock exchange.

Apart from the reduction in value of investments retained at the end of the year, the turbulent conditions in the financial markets impacted other aspects of Electra's investment activities. These effects primarily related to the rate of new investment and the rate of realisations. New investment fell significantly from the previous year with £114 million invested compared to £322 million, while the number of realisations fell sharply, only two realisations being completed in the year compared to 11 in 2007.

Year ended 30 September	2008	2007	2006
	£m	£m	£m
Opening portfolio	620	380	353
Investments	114	322	131
Realisations	(192)	(303)	(257)
Net capital (decrease)/increase	(37)	221	153
Closing portfolio *	505	620	380

 

 

*    Excludes accrued income on the investment portfolio and floating rate notes: 2008: £11,248,000; (2007: £13,419,000),
      (2006: £5,874,000).

Prospects

The crises in the financial markets which have prevailed throughout the past year have made it a difficult period in which to make tangible progress. As previously mentioned, the level of additions to and realisations from the investment portfolio has reduced significantly as a result of the uncertainties of the past year, so that changes to the composition of the portfolio have been well below those experienced in recent years. The underlying trading performance of the retained portfolio has, however, continued to be sound with many individual investments performing both ahead of the previous year and in line with or above budget for the current year. This augurs well for future value creation when markets return to more stable conditions. A key part of our present strategy is, therefore, to protect the existing portfolio from the current financial turbulence in order to ensure that these value creating opportunities are maximised when conditions improve.

Looking forward, it is likely that current market conditions will give rise to exceptional buying opportunities as potential vendors seek to raise cash to overcome the difficulties caused by the reductions in available credit. With a high level of liquid resources, Electra is in a good position to take advantage of these opportunities which will be taken to augment the existing portfolio and further enhance value growth in the future.

INVESTMENT PORTFOLIO REVIEW

Investments

In the year to 30 September 2008 investments totalled £114 million compared to £322 million in the previous year. This significant fall in investment rate reflected the change in conditions in the private equity market which prevailed throughout the year. Dealflow has remained strong and Electra has continued to bid on a variety of potential transactions at pricing levels considered to be realistic given the change in market conditions. In almost every transaction, however, there were one or two offers at much higher levels with the result that only one new unlisted investment was added to the portfolio during the year. We continue to believe that current conditions demand the exercise of caution in acquiring new investments. Going forward we believe that prices will eventually adjust to more appropriate levels reflecting the uncertainties in future profitability and the reduced availability of lending from the banking sector.

Company	Activity	Cost
		£m
New Investment
Labco	Medical diagnostics	24
London & Stamford Property	Property investment	20
Funds	MBO investments	46
Other Investments	Various	24
		114

 

 

The investment of £114 million made by Electra included £68 million in direct investments and 
£46 million drawn down under commitments to third party funds. The most significant direct investments included £24 million in Labco and £20 million in London & Stamford Property. In addition to these investments and in accordance with the policy to support the existing portfolio, Electra invested a further £7.9 million in SAV Credit to facilitate the purchase of the Marbles credit card portfolio from HSBC and invested a further £7.5 million in Baxi as part of a £40 million additional financing for the company.

Labco is one of the top three participants in the European medical diagnostics market and the leading company in the €7 billion clinical laboratory blood testing market. With the largest network of private clinical laboratories in Europe, the group has some 3,000 employees and over 200 biologists in 153 laboratories. The investment made by Electra to support a significant refinancing of Labco is thought to be attractive in view of the fact that healthcare spending is not directly related to consumer/GDP growth and the company has many further consolidation opportunities. London & Stamford Property is an AIM listed company set up to take advantage of opportunities in the property investment market. Electra invested £20 million as part of a £285 million capital raising to back a management team who on two previous investments have made excellent returns for Electra.

In another transaction, Forthpanel acquired an equity interest in Promontoria in exchange for all its existing properties. In this complex transaction Electra disposed of its interests in Deutsche Woolworth and Forthpanel acquired an equity investment in Promontoria with an initial value of £26 million. Promontoria itself acquired 110 freehold properties for a total consideration of €385 million, all of which were leased to Deutsche Woolworth at a yield in excess of 10%. Since the deal was completed the underlying operations of Deutsche Woolworth have been significantly restructured. In the event that this restructuring is successful, Promontoria will benefit from an option under which it can acquire 75% of Deutsche Woolworth for nominal consideration.

Realisations

The total proceeds realised from the investment portfolio during the year amounted to £192 million. This compares to a valuation of the investment portfolio at the beginning of the year of £620 million. The proceeds thus represented some 31% of the opening value of the investment portfolio. While the proceeds were well down on the previous year it still represented a more than satisfactory result in view of the financial crisis which persisted throughout the financial year. Realisations in the private equity market have generally been at a much reduced level primarily as a result of the lack of availability of adequate bank finance.

Largest Investment Realisations

Company	Valuation at 30 September 2007	Proceeds from Disposal
	£m	£m
Freightliner	10	85
Dakota, Minnesota & Eastern Railroad	35	36
Vasanta (Kingfield Heath) †	21	22
	66	143

 

 

† Valuation and proceeds in respect of partial disposal

The most significant realisation during the year was that of Freightliner which was sold in July 2008 for an amount which gave rise to proceeds to Electra of £85 million. Electra originally invested
£2.5 million in the management buy-out of Freightliner in May 1996, a transaction which involved total financing of £22 million. At the time of purchase Freightliner had a turnover of £90 million and was making pre-tax losses of £22 million. Following purchase the company greatly improved service reliability, expanded into heavy load, changed the delivery systems and developed internationally. By 2007 turnover had increased to £244 million and the company was recording an EBITDA in excess of £31 million. Additionally in the 12 years of ownership, the company invested circa £350 million in new equipment. These developments enabled Freightliner to be sold to Arcapita for a debt free price in excess of £250 million.

In October 2007 Electra also completed the sale of the investment in the Dakota, Minnesota & Eastern Railroad ('DM&E'), receiving proceeds of £36 million. This sale was largely anticipated in the 2007 financial year so that the uplift in the current year was minimal. The sale of DM&E represented an excellent result for an investment held for a period in excess of 20 years. Any further contingent consideration now seems unlikely as the Powder River Basin project has been postponed in view of the crisis in the US financial markets.

Other disposals included partial realisations of Vasanta (previously called Kingfield Heath) 
(£21.5 million) and Nuaire (£12.0 million) which were sold to institutional investors in Electra Partners Club 2007. Realisations from private equity funds amounted to £13 million, a significant reduction from the previous year when such proceeds amounted to £49 million.

Performance

Over the year to 30 September 2008 the investment portfolio declined in value by £37 million or 6%. The performance was made up of two elements, firstly gains realised on the sale of investments and secondly the changes in value of the investments retained at the end of the year. Realised gains for the year, including the increase in value of Forthpanel, amounted to £97 million while the net reduction in value of the investment portfolio remaining at 30 September 2008 amounted to 
£134 million, a reduction in the investments of 26%. This compared to the decline in the FTSE All-Share Index over the period of 25%. Of the decline in value of the portfolio, £39 million was due to a reduction in listed prices, where investments had a market listing, and the balance of £95 million related to a decline in the value of the unlisted portfolio. Only one unlisted investment, Allflex, was written up during the year in view of continued good progress, while most of the remaining investments were written down primarily to reflect the fall in multiples of comparable companies.

Largest Valuation Changes

Company	Valuation at	Valuation
	30 September 2008	Decrease
	£m	£m	%
Premier Asset Management	10	(23)	(68)
Moser Baer	13	(15)	(54)
Baxi	11	(12)	(77)
Vasanta (Kingfield Heath)	29	(11)	(18)

 

             

Electra Partners LLP

12 November 2008

Consolidated Income Statement (unaudited)

For the year ended 30 September	Revenue £'000	Capital £'000	2008 Total £'000	Revenue £'000	Capital £'000	*Restated 2007 Total £'000
Net (Loss)/profit on investments held at fair value	26,188	(46,538)	(20,350)	34,420	227,389	261,809
(Loss)/profit on revaluation of foreign currencies	-	(18,384)	(18,384)	-	7,637	7,637
	26,188	(64,922)	(38,734)	34,420	235,026	269,446
Other Income	2,857	9,556	12,413	2,394	-	2,394
Incentive schemes	-	(9,496)	(9,496)	-	(57,306)	(57,306)
Priority profit share paid to general partners	(13,435)	-	(13,435)	(12,350)	-	(12,350)
Other expenses	(8,381)	-	(8,381)	(2,702)	(5,538)	(8,240)
Net (Loss)/Profit before Finance Costs and Taxation	7,229	(64,862)	(57,633)	21,762	172,182	193,944
Finance costs	(7,921)	-	(7,921)	(8,859)	-	( 8,859)
(Loss)/Profit on Ordinary Activities before Taxation	(692)	(64,862)	(65,554)	12,903	172,182	185,085
Taxation Expenses	(4,366)	567	(3,799)	(3,624)	(7,132)	(10,756)
(Loss)/Profit on Ordinary Activities after Taxation	(5,058)	(64,295)	(69,353)	9,279	165,050	174,329
Attributable to Equity Shareholders	(5,058)	(64,295)	(69,353)	9,279	165,050	174,329
Basic and Diluted Earnings per Ordinary Share	(13.98p)	(177.69p)	(191.67p)	24.60p	437.49p	462.09p

The Total column of this statement represents the Group's Income Statement prepared in accordance with International Financial Reporting Standards adopted by the EU ('IFRS'). The supplementary Revenue and Capital columns are both prepared under guidance published by the Association of Investment Companies.

The amounts dealt with in the Consolidated Income Statement are all derived from continuing activities.

* Electra has historically deducted amounts due under incentive schemes in calculating net gains on investments. These amounts have now been reclassified and disclosed separately in the Consolidated Income Statement, in order to be consistent with the gross presentation in the Consolidated Balance Sheet. This reclassification is presentational only and has no effect on net profit on ordinary activity before taxation, return attributable to equity shareholders or the net assets of Electra.

 

			2008			2007
Number of Ordinary Shares in issue at 30 September			35,595,687			37,252,687

Special Dividends Paid Total paid (£'000) Per share

9,149 25p

6,375 17p

Consolidated Statement of Changes in Equity (unaudited)

For the year ended 30 September for the Group	2008	2007
	£’000	£’000
Total equity at 1 October	745,506	598,292
(Loss)/Profit after taxation	(69,353)	174,329
Foreign currency translation differences	437	1,564
Total Recognised Income and Expense	676,590	774,185
Special dividend to equity shareholders	(9,149)	(6,375)
Purchase of own shares	(26,492)	(22,304)
Total Equity Shareholders’ Funds at 30 September	640,949	745,506

 

 

Unaudited Consolidated Balance Sheet

                                                                                                                    As at 30 Sept 2008                 As at 30 Sept 2007

	£'000	£'000	£'000	£'000
Non-Current Assets
Investments held at fair value:
Unlisted and listed		514,249		633,311
Floating rate notes		276,467		299,437
		790,716		932,748
Current Assets
Trade and other receivables	3,043		16,189
Cash and cash equivalents	43,791		16,948
		46,834		33,137
Current Liabilities
Trade and other payables	8,424		19,584
Net Current Assets		38,410		13,553
Total Assets less Current Liabilities		829,126		946,301
Bank loans		158,870		160,699
		670,256		785,602
Deferred tax	12,317		12,701
Provision for liabilities and charges	16,990		27,395
Non-current Liabilities		29,307		40,096
Net Assets		640,949		745,506
Net asset value per Ordinary Share		1,800.64p		2,001.21p

Unaudited Consolidated Cash Flow Statement

For the year ended 30 September	£'000	2008 £'000	£'000	2007 £'000
Operating Activities
Purchases of investments	(345,270)		(353,116)
Amounts paid under incentive schemes	(31,808)		(28,641)
Sales of investments	459,825		415,782
Dividends and distributions received	2,514		2,221
Other investment income received	22,376		26,073
Interest income received	2,559		2,098
Other income received	297		297
Expenses paid	(16,579)		(14,638)
Taxation paid	(3,295)		(6,574)
Net Cash Inflow from Operating Activities		90,618		43,502
Financing Activities Bank loans drawn Bank loans repaid Purchase of own shares Loans received Finance costs Other finance costs Dividend paid	55,466 (75,599) (26,492) - (7,583) (338) (9,149)		126,932 (123,109) (22,304) - (9,792) (471) (6,375)
Net Cash Outflow from Financing Activities		(63,695)		(35,119)
Changes in cash and cash equivalents		26,923		8,383
Cash and cash equivalents at 1 October		16,948		9,875
Translation difference		(80)		(1,310)
Cash and Cash Equivalents at 30 September		43,791		16,948

END

 

END

 

 

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