Interim Results
Electra Investment Trust PLC
24 May 2005
EMBARGOED UNTIL 07:00 AM, TUESDAY 24 MAY 2005
ELECTRA INVESTMENT TRUST PLC
Announcement of Interim Results for six months ended 31 March 2005
• Very significant progress continued over last six months with strong net
asset value growth and good share price performance
• Net asset value of 1054p per share at 31 March 2005, up 15.5% since 30
September 2004 (30 September 2004: 913p per share)
• Over six months to 31 March 2005 Electra's share price increased by
17.8% versus FTSE All-Share Index which increased by 8.2%
• Over 10 years to 31 March 2005 Electra's share price increased by 183%
versus FTSE All-Share Index which increased by 60%
• Unaudited net asset value per share at 17 May 2005 of 1056p
Commenting on the Interim Results, Sir Brian Williamson, Chairman, said:
'The very significant progress achieved during the year ended 30 September 2004
continued for the six months to 31 March 2005 resulting in strong net asset
value growth and good share price performance.
With the return of substantial amounts to shareholders over the last six years
Electra is within reach of the commitment to deliver value made to shareholders
in March 1999.
Electra's structure, together with the investment skills of Electra Partners,
means that Electra is well positioned to continue making successful investments
and delivering an attractive rate of return to investors.'
For further information:
Sir Brian Williamson, Chairman, Electra Investment Trust PLC 020 7831 6464
Hugh Mumford, Chief Executive, Electra Partners Limited 020 7831 6464
Nick Miles, M: Communications 020 7153 1535
Net Asset Value Per Share
31 March 2005 30 September 2004 17 May 2005
----------------------- ----------- ------------- ----------
Net asset value per share 1053.92p 912.86p 1056p
Increase since 30 September
2004 15.45%
Increase in FTSE All-Share
Index since 8.19%
30 September 2004
The unaudited net asset value per share at 17 May 2005 was calculated on the
basis of the net asset value at 31 March 2005 adjusted to reflect the purchases
and sales of investments, currency movements and mid market values on that day
in respect of listed investments and unlisted investments where these are valued
by reference to quoted prices.
A copy of the Chairman's Statement, Investment Manager's Review and the Interim
Announcement are attached.
Note to Editors:
Electra - Background to Recent Changes
Since listing in 1976, Electra has specialised in investing in the private
equity market and, through the adoption of a flexible investment policy, has
achieved returns substantially in excess of the FTSE All-Share Index over the
last ten years. As an investment trust, Electra has a number of advantages over
limited partnership funds which invest in private equity.
Between 1976 and 2005 Electra invested over £3,000 million in private equity
investments. Inclusive of a capital injection of £32 million, Electra's assets
grew from £58 million in 1976 to £1,145 million by 30 September 1998, the
financial year end immediately preceding the hostile takeover bid for Electra by
3i plc in 1999. This bid failed when shareholders voted in favour of a scheme
which involved the controlled realisation of the portfolio over a five year
period under which new investment was restricted to existing portfolio
companies.
Since the start of the realisation programme in March 1999, Electra has returned
£1,113 million to shareholders leaving a gross portfolio valued at £588 million
at 31 March 2005. This compares with the stock market value of Electra of £975
million immediately before the announcement of the takeover bid. Over the six
years to 31 March 2005, £500 million has been invested in portfolio companies
and £1,800 million has been realised from the portfolio.
Shareholders approved proposals in June 2001 which retained the emphasis on
realising the investment portfolio but made provision for Electra to continue as
an investment vehicle.
In June 2004, the Board, with input from its advisers and Electra Partners,
reviewed Electra's investment strategy and concluded that, in the short term, it
should continue unchanged from the investment strategy approved by shareholders
in June 2001.
Chairman's Statement
The very significant progress achieved by Electra during the year ended
30 September 2004 continued in the six months to 31 March 2005, with strong
growth in net asset value and a good share price performance. It is now clear
that, with the return of substantial amounts to shareholders over the last six
years, Electra is within reach of the commitment to deliver value made to
shareholders in March 1999 when a hostile bid was made for the Company by 3i
plc.
In the last six months net asset value per share grew by 15.5% to 1054p and the
share price increased by 17.8% in a period when the FTSE All-Share Index
increased by 8.2%.
Taking the period from just prior to the bid, when Electra's stock market value
was £975 million, up to 31 March 2005, over £1.1 billion has been returned to
shareholders by way of tender offers or on-market buy-backs. At 31 March 2005
Electra had a market capitalisation of £416 million and this aggregate increase
in shareholder value of 57% compares with a decrease in the FTSE All-Share Index
of 7.7% over the six years.
Realisations from the unlisted equity portfolio amounted to £82 million in the
last six months and a further £40 million has been received since 31 March. Over
the last 18 months the scale of the realisations made is such that Electra has
been able to not only maintain the pace of returning capital to shareholders but
also to reduce debt. This has transformed Electra's financial position and
enhanced the Company's future prospects.
In the last six months £34 million has been invested in new unlisted equity
investments and details of these are set out in the Investment Manager's Review.
Electra made further on-market purchases and cancelled 2.2 million shares in
January 2005 leaving 44.5 million shares in issue at 31 March 2005. The Board
expects to continue making on-market buy-backs of Electra's shares in the
future.
Policy
Electra's investment policy, which remains unchanged, is to invest in private
equity assets and certain other assets where added value can be achieved through
the use of private equity techniques. These other assets include investment in
real estate and listed companies. The emphasis is on direct leveraged equity
investments in the UK and Continental Europe. Electra also invests in private
equity funds where direct co-investment opportunities are likely to be available
or there exists some other added value potential.
Electra's investments are primarily concentrated on achieving capital
appreciation. Prior to 1999 Electra paid dividends from revenue received from
its quoted portfolio and other revenue generating investments. The timing of
revenue receipts is now more difficult to predict and the Board does not expect
to be proposing dividend payments on a regular basis in future. The Board
believes that Electra's performance should be judged on a total return basis and
that it is more appropriate for Electra to return cash to shareholders through
buy-backs than attempt to achieve regular dividend payments.
Board of Directors
Electra's Board substantially comprises the same Directors who received
shareholder approval for the strategy originally formulated in 1999 and varied
in 2001. I believe that the Directors who backed this policy should remain in
place until its completion.
The major portion of the programme has now been delivered and Electra is in a
position to build up its investments in those areas where its Investment
Manager, Electra Partners, has proven expertise.
For these reasons the Board has decided that it is now appropriate to consider
its future composition. As a first step, we will be aiming to attract additional
Directors. As we get closer to the completion of the realisation strategy some
existing Directors will retire from the Board.
Outlook
The market for realising investments continues to be favourable. The Board
believes that the concept of an investment trust investing in private equity is
an attractive one and provides cost effective and liquid access to private
equity for both institutional and private investors. This differs from limited
partnership funds investing in private equity, which are typically only
available to larger institutions and for which there is limited liquidity.
Additionally, Electra is able to take a longer term view in the acquisition and
disposal of investments, unlike limited partnership funds, which have fixed
investment periods irrespective of the economic cycle and a realisation policy
driven by the terms of the limited partnership.
Over the 10 years to 31 March 2005 Electra's share price increased by 183% by
comparison with the FTSE All-Share Index which increased by 60%. Electra's
structure, together with the investment skills of Electra Partners, means that
Electra is well positioned to continue making successful investments and
delivering an attractive rate of return to investors.
Sir Brian Williamson
23 May 2005
Portfolio Analysis
Summary of Changes to Overall Portfolio
Six months ended 31 March 2005 2004
£'000 £'000
Opening valuation 413,088 679,611
Investments 33,584 22,042
Realisations (82,201) (200,517)
Changes in valuation 58,562 41,465
Closing valuation * 423,033 542,601
* The above valuations at 31 March exclude accrued income (2005: £16,106,000;
2004: £15,238,000) and investments in floating rate notes (2005: £165,026,000;
2004: £164,997,000).
In the six months to 31 March 2005, Electra's net asset value per share
increased from 913p per share to 1,054p per share, an increase of 15.5%. This
strong performance resulted from a further substantial improvement in the
investment portfolio which, over the six month period, recorded £59 million of
net capital gains. Net realisations from the portfolio amounted to £49 million
but, due to the level of capital appreciation, the overall value of the
investment portfolio increased by £10 million to £423 million at 31 March 2005.
Currency changes continued to impact the portfolio valuation reducing the value
of the portfolio by £3.9 million in the six month period. The impact of currency
changes on the net asset value was however minimal as a result of the existing
strategy of hedging non sterling assets through appropriate currency borrowings.
Geographically 79% of the total portfolio is in the UK and Europe, 11% in the
USA, 8% in Asia and 2% in South America.
Current Operations and Outlook
The level of realisations achieved over the past 18 months of £475 million has
transformed Electra's financial position. By 31 March 2005 cash and floating
rate notes exceeded bank debt by £43 million compared with a net debt position
of £187 million at 1 October 2003.
Under the current investment strategy up to one third of the proceeds of
realisations from the portfolio existing at June 2001 can be applied in making
new investments together with all the proceeds from investments made post June
2001. With the level of realisations and the prospects of future realisations it
is likely that, for the first time since 2001, funds available for investment
will reach a material level.
The recent high level of realisations has reduced the number of investments in
the existing portfolio which now consists of a relatively small number of larger
investments which have been held for several years, together with a number of
recent investments principally in former portfolio companies and a number of
other investments which may need to be held for the longer term in order to
create the maximum value. With fewer investments in the portfolio opportunities
for realisations are correspondingly reduced although, given the current
favourable market for selling investments and the availability of premium
prices, further realisations could take place during the balance of the current
financial year.
New Investments
In the six month period, investments totalled £34 million compared to £22
million in the corresponding period of the previous year. This increase reflects
the fact that more funds are becoming available for investment as a result of
the high level of realisations achieved in recent periods. Investments included
£24.4 million in the buy-out of Freightliner, £4.2 million for the purchase of a
further minority interest in the Energy Power Resources Group and £3.3 million
under commitments to private equity funds.
One of the advantages of an investment trust investing in private equity is
that, because of the continuing nature of the vehicle, re-investment can be made
in companies which are sold from the portfolio or where there is a substantial
change in equity ownership. This is clearly advantageous when further value can
be achieved from the investment in the future. In the case of Freightliner,
offers received for the company as a result of a sale process were considered to
be unsatisfactory. In order to capture further value the company was refinanced
and restructured through the buy-out of a substantial minority interest. As a
result of this transaction, Electra received cash proceeds of £28.6 million and
reinvested £24.4 million in the new buy-out vehicle. The process increased
Electra's equity interest in the underlying business from 28% to 40%.
The investment in Energy Power Resources was made to further rationalise the
group with a view to facilitating the sale of the business. Also during the
period Electra made a commitment of £17 million to Sinergia, an Italian private
equity fund where it is believed there will be attractive coinvestment
opportunities.
Realisations
Realisations from the portfolio for the six month period amounted to £82
million. In addition, the sale of Electra's interest in Energy Power Resources
had reached the final stages at the half year end with proceeds of over £38
million received in April 2005. Realisations thus continued at a substantial
level in the period reflecting the continuing strength of the market.
The largest disposal completed in the period related to Freightliner where the
restructuring and recapitalisation gave rise to proceeds of £28.6 million
compared to a book value of £21.6 million at 30 September 2004. In the case of
Energy Power Resources, the proceeds of £38 million received shortly after the
half year end compared to a book value at 30 September 2004 adjusted for
subsequent purchases of £15.6 million. Sale proceeds thus represented 2.4 times
book value. This exceptional increase was due to a well executed sale process
combined with the fact that the nature of Energy Power Resources' business made
the investment difficult to value on any basis other than a conservative one. In
addition to the proceeds received from the sale of Energy Power Resources
Electra also received £14.4 million from the investment in Fibrothetford, one of
the renewable energy plants in the Energy Power Resources' portfolio. This
investment was acquired for £9.3 million in September 2004. Most of the proceeds
of the sale of Energy Power Resources related to investments made over the last
two years.
One other significant realisation in the period related to Amtico where the
company redeemed the loan element of Electra's investment resulting in the early
repayment of £15.6 million. As a result of this transaction, almost the entire
original cost of the investment has now been repaid.
Performance
During the six month period, the investment portfolio gave rise to net capital
appreciation of £59 million, an increase of 14.2%. This strong performance was
driven mainly by gains realised on the sale of investments. Of the total gains
of £59 million, including the gain on the sale of Energy Power Resources and
Gower, realised gains accounted for £41 million or almost 70% of the total net
increase. Net gains due to movement in listed prices added £7.9 million to the
value of the portfolio of which Zensar, an Indian quoted investment, accounted
for £4.2 million.
Unrealised increases in value made in the period added £25 million to the
portfolio, offset by provisions totalling £15 million. The net contribution of
£10 million from unrealised gains was thus relatively small and accounted for
only 17% of the overall performance. In terms of individual investments the only
significant increases related to Bezier (£9.2 million) and Allflex (£5.8
million) both of which were made to reflect improvements in underlying earnings.
Consolidated Statement of Total Return (unaudited)
(incorporating the Revenue Account)
--------------------- ------- ------- ------- ------- ------ ------
For the six months
ended 31 March Revenue Capital 2005 Revenue Capital 2004
£'000 £'000 Total £'000 £'000 Total
£'000 £'000
--------------------- ------- ------- ------- ------- ------ ------
Gains on investments:
Realised - 16,880 16,880 - 32,226 32,226
Unrealised - 41,071 41,071 - 13,985 13,985
Losses on revaluation
of foreign
currencies:
Realised - (2) (2) - (49) (49)
Unrealised - 4,587 4,587 - 13,788 13,788
--------------------- ------- ------- ------- ------- ------ ------
- 62,536 62,536 - 59,950 59,950
Income of the
investment trust 9,378 - 9,378 12,404 - 12,404
Net income of
subsidiary
undertakings 570 - 570 - - -
Priority profit share
paid to general
partners (4,353) - (4,353) (4,970) - (4,970)
Other expenses (233) - (233) (681) - (681)
--------------------- ------- ------- ------- ------- ------ ------
Net Return before
Finance Costs and
Taxation 5,362 62,536 67,898 6,753 59,950 66,703
Interest payable and
similar charges (2,772) - (2,772) (2,141) - (2,141)
Return on Ordinary
Activities before 2,590 62,536 65,126 4,612 59,950 64,562
Taxation
Taxation on Ordinary
Activities (750) - (750) - - -
--------------------- ------- ------- ------- ------- ------ ------
Return on Ordinary
Activities after
Taxation 1,840 62,536 64,376 4,612 59,950 64,562
Exchange differences
arising on
consolidation (301) (2,266) (2,567) (715) (9,937) (10,652)
--------------------- ------- ------- ------- ------- ------ ------
Net Transfers to
Reserves for the
Period 1,539 60,270 61,809 3,897 50,013 53,910
--------------------- ------- ------- ------- ------- ------ ------
Return to
Shareholders per 3.35p 131.18p 134.53p 5.98p 76.76p 82.74p
Ordinary Share
--------------------- ------- ------- ------- ------- ------ ------
The amounts dealt with in the Consolidated Statement of Total Return are all
derived from continuing activities.
2005 2004
Number of Ordinary Shares in issue at 31 March 44,507,687 65,109,533
Reconciliation of Total Shareholders' Funds (unaudited)
----------------------- --------------- ---------------
For the six months ended 31 March 2005 2004
£'000 £'000
----------------------- --------------- ---------------
Total Return 64,376 64,562
Exchange differences arising on consolidation (2,567) (10,652)
Repurchase of own shares (18,896) (764)
Nominal value of own shares repurchased (559) (31)
----------------------- --------------- ---------------
Movements in Total Shareholders' Funds 42,354 53,115
Total Equity Shareholders' Funds at 1 October 426,723 495,498
----------------------- --------------- ---------------
Total Shareholders' Funds at 31 March 469,077 548,613
----------------------- --------------- ---------------
Consolidated Balance Sheet
As at 31 March 2005 As at 30 Sept 2004 As at 31 March 2004
(Unaudited) (Audited) (Unaudited)
£'000 £'000 £'000 £'000 £'000 £'000
--------------------- ------ ------ ------ ------ ------ ------
Fixed Assets
Investments:
Unlisted 401,015 391,760 522,993
Floating rate notes 165,026 164,997 164,997
Listed 22,018 21,328 19,608
--------------------- ------ ------ ------ ------ ------ ------
588,059 578,085 707,598
--------------------- ------ ------ ------ ------ ------ ------
Current Assets
Debtors 24,633 25,550 19,353
Cash at bank and in 28,863 12,880 14,370
hand ------ ------ ------ ------ ------ ------
---------------------
53,496 38,430 33,723
--------------------- ------ ------ ------ ------ ------ ------
Current Liabilities
Creditors: amounts
falling due 4,522 12,749 3,477
within one year ------ ------ ------ ------ ------ ------
---------------------
Net Current Assets 48,974 25,681 30,246
--------------------- ------ ------ ------ ------ ------ ------
Total Assets less
Current 637,033 603,766 737,844
Liabilities
Creditors: amounts
falling due (150,447) (160,034) (165,677)
after more than
one year
Provision for
liabilities and (17,509) (17,009) (23,554)
charges ------ ------ ------ ------ ------ ------
---------------------
Net Assets 469,077 426,723 548,613
--------------------- ------ ------ ------ ------ ------ ------
Capital and
Reserves
Called-up share 11,127 11,686 16,277
capital
Share premium 24,147 24,147 24,147
Capital redemption 32,148 31,589 26,998
reserve
Realised capital 529,134 567,693 624,313
profits
Unrealised capital (123,298) (202,672) (137,742)
losses
Revenue reserves (4,181) (5,720) (5,380)
--------------------- ------ ------ ------ ------ ------ ------
457,950 415,037 532,336
--------------------- ------ ------ ------ ------ ------ ------
Total Equity
Shareholders' 469,077 426,723 548,613
Funds ------ ------ ------ ------ ------ ------
---------------------
Net asset value per
ordinary 1053.92p 912.86p 842.60p
share of 25p ------ ------ ------ ------ ------ ------
---------------------
Consolidated Cash Flow Statement (unaudited)
----------------------- -------- -------- -------- --------
For the six months ended 31 March £'000 2005 £'000 2004
£'000 £'000
----------------------- -------- -------- -------- --------
Operating Activities
UK dividend income 1,339 457
Unfranked investment income 7,609 27,601
Interest income 501 544
Other income 148 223
Expenses (5,332) (6,004)
----------------------- -------- -------- -------- --------
Net Cash Inflow from Operating
Activities 4,265 22,821
Returns on Investments and Servicing
of (2,886) (2,141)
Finance
Interest paid
----------------------- -------- -------- -------- --------
Net Cash Outflow from Returns on
Investments and Servicing of Finance (2,886) (2,141)
----------------------- -------- -------- -------- --------
Capital Expenditure and Financial
Investment
Purchases of investments (158,614) (187,039)
Sales of investments 205,827 190,703
----------------------- -------- -------- -------- --------
Net Cash Inflow from Capital
Expenditure 47,213 3,664
and Financial Investment -------- -------- -------- --------
-----------------------
Net Cash Inflow before Management of
Liquid Resources and Financing 48,592 24,344
----------------------- -------- -------- -------- --------
Management of Liquid Resources 17,000 (7,407) 13,617 (6,600)
Financing (22,000) (26,772)
Bank loans drawn (1,019) (1,365)
Bank loans repaid (28,626) (795)
Loans paid
Repurchase of own shares
----------------------- -------- -------- -------- --------
Net Cash Outflow from Financing (32,607) (15,315)
----------------------- -------- -------- -------- --------
Increase in Cash in the Period 8,578 2,429
----------------------- -------- -------- -------- --------
----------------------- -------- -------- -------- --------
For the six months ended 31 March £'000 2005 £'000 2004
£'000 £'000
----------------------- -------- -------- -------- --------
Reconciliation of Net Cash Flow to
Movement in Net Debt
Decrease in cash in the period 8,578 2,429
Cash outflow from debt financing 5,000 13,155
Cash outflow from change in liquid 7,407 6,600
resources -------- -------- -------- --------
-----------------------
12,407 19,755
----------------------- -------- -------- -------- --------
Change in Net Debt Resulting from Cash 20,985 22,184
Flows
Translations difference 4,585 13,725
----------------------- -------- -------- -------- --------
Movement in Net Debt 25,570 35,909
Net debt brought forward (147,154) (187,216)
----------------------- -------- -------- -------- --------
Net Debt Carried Forward (121,584) (151,307)
----------------------- -------- -------- -------- --------
END
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