Half-year Report

RNS Number : 9471O

F&C Private Equity Trust PLC

25 August 2017

 

To: Stock Exchange	For immediate release:
	25 August 2017

F&C Private Equity Trust plc

LEI: 2138009FW98WZFCGRN66

Unaudited results for the half year to 30 June 2017

Financial Highlights

·      Share price total return for the six months of 18.2 per cent for the Ordinary Shares.

·      NAV total return for the six months of 3.5 per cent for the Ordinary Shares.

 

·      Semi-annual dividend of 6.92p per Ordinary Share.

·      Annualised dividend yield of 4.0 per cent at the period end.

Chairman's Statement

With a net asset value ("NAV") total return for the six-month period ended 30 June of 2017 of 3.5%, I am pleased to report a further period of good investment performance for the Company.    In addition, with the share price discount having fallen to 3.9% at 30 June 2017 from 15.8% at 31 December 2016, the share price total return for the period is an impressive 18.2%.  This compares to a total return of 5.5% for the FTSE All Share Index for the same period. 

As at 30 June 2017, the Company had cash of £34.2 million. With borrowings of £25.9 million under the Company's loan facility, net cash was £8.3 million, equivalent to a gearing level of -3.2 per cent. The total of outstanding undrawn commitments at 30 June 2017 was £126.7 million and, of this, approximately £17 million is to funds where the investment period has expired.

In accordance with the Company's stated dividend policy, the Board declares a semi-annual dividend of 6.92p per ordinary share, payable on 3 November 2017 to shareholders on the register on 13 October 2017. For illustrative purposes only, this dividend represents an annualised yield of 4.0 per cent based on the share price as at 30 June 2017. I would like to remind shareholders of our dividend re-investment plan, which can be a convenient and easy way to build up an existing holding.

Since 2012 your company has paid a substantial dividend from realised capital profits allowing shareholders to participate, to some degree, directly in the proceeds of the steady stream of private equity realisations which the Company achieves. This policy has been well received by shareholders and we are fully committed to maintaining this general approach for the foreseeable future. One further enhancement which the Board has decided to implement is for the Company to move from a semi-annual dividend to a quarterly dividend. This innovation will act to regularise the flow of income to shareholders for whom this is important.

The level of the annual dividend under the current dividend policy will be maintained and, until such time as a bigger quarterly dividend is paid based on the Company's net asset value, the minimum quarterly dividend will be 3.46p (being 50 per cent of the highest semi-annual dividend previously paid).  In order to be able to pay dividends every three months all quarterly dividends will be paid as interim dividends. The quarterly dividends will be payable in respect of the quarters ended 31 March, 30 June, 30 September and 31 December and are expected to be paid in the following July, October, January and April respectively. The first quarterly dividend will be in respect of the three months ending 30 September 2017 and is expected to be paid in January 2018. As shareholders will no longer have an opportunity to approve a final dividend at each Annual General Meeting, shareholders will be asked to approve the Company's dividend policy at the AGM.

Your Company has begun the year well with an impressive total of realisations at £26.8 million. New investment either through funds drawing down or co-investments totalled £31.6 million and this is refreshing the portfolio and redeploying the proceeds of realisations building a foundation for future value growth.

Mark Tennant

Chairman

Manager's Review

Introduction

2017 continues the trend of recent years with healthy levels of portfolio turnover and in general good fundamental progress in the trading of underlying companies.  Investor confidence is good but there is a background concern, in certain quarters, about the price of some new private equity deals with those who maintain traditional required returns for private equity finding it difficult to be fully competitive. However, the mid-market, in which we invest, is very broad and investors with deal sources which are largely proprietary seem capable of acquiring companies at prices, where we are confident that there are excellent prospects of returns commensurate with the substantial risks which private equity naturally entails.

New Investments

In the first half we have made commitments to five new private equity funds. One fund has been added after the end of the period. There have been three new co-investments with one more after the half-year end.

All the new commitments so far this year have been to funds in Europe or North America. After carefully reviewing a large number of opportunities we have augmented our modest but enduring exposure to the US market through two new fund commitments. $6 million has been committed to Graycliff Private Equity Partners III, managed by a team which was formerly part of HSBC's private equity business and which specialises in lower mid-market US buyouts. Secondly we have committed $4 million to Stellex, a US focused fund, which invests in distressed and operational turnaround situations. The team managing this fund were formerly part of the Carlyle Group. We have made one US based co-investment with £4 million ($5 million) invested in Sigma Electric Manufacturing. Headquartered in North Carolina but with most of its manufacturing facilities in India it supplies components and sub-assemblies to the US low voltage electrical products market.

We have refreshed our large and important European portfolio with a mixture of new and long established relationships. In the Nordic region, we have committed €6 million to Vaaka III. This fund focuses on mid-market buy-outs in Finland, a distinctive and attractive market. This is the second fund from this manager which we have backed. In France, we have committed €6 million to the leading French mid-market specialist Chequers Capital for their fund XVII. We have invested with Chequers since 2002. After a period of careful review of the Central and Eastern European private equity market we have committed €5 million to ARX CEE IV, a Czech Republic based mid-market investor, which was originally a spin out from DBAG.

Two UK based co-investments have been added. £6.2 million was invested for 62.7% of Weird Fish in a deal led by Total Capital Partners. Weird Fish is a premium lifestyle clothing brand focusing on the 35 - 55 age group in the 'stable and affluent' category. This investment was previously owned by Piper Private Equity who have positioned the company for growth. In the oil services sector we have invested £5 million for 15.9% of TWMA. This Aberdeen based company is involved in drilling waste management services. The company mainly operates offshore where its thermomechanical cylindrical mills extract and separate the oil, water and solid from drill cuttings before reuse or safe discharge into the sea. Using these facilities can make a major contribution towards lowering the overall cost of production for oil companies which remains a key focus for them.

After the quarter end we have committed £6 million to the UK based healthcare specialist fund Apposite Capital II. We have been tracking this management team for some time and after an extensive review of healthcare opportunities across Europe have chosen to back them. In addition to the fund commitment we have co-invested with Apposite in Swanton, a specialist residential care and supported living provider. We have invested £3 million initially for 6.9%, (5.9% fully diluted), but as part of the investment thesis is to acquire additional businesses it is likely that our equity commitment will ultimately be up to double this amount. In Swanton we are already acquainted with some of the senior management through a previous successful co-investment in this sector; Lifeways.

The funds in our portfolio have been active making new investments across the breadth of the European mid market. Some of the larger and more recent ones are noted below.

Earlier in the year Agilitas 2015 Private Equity Fund called £0.7 million for Exemplar, a north of England based high acuity nursing care provider. Lyceum Capital III called £0.5 million for Timico, a provider of IT hosting, network connectivity and mobile solutions focused on medium sized companies. Piper Private Equity VI called £0.5 million for Flat Iron Steak Ltd, a restaurant chain.

 In the last quarter, in the UK, August Equity Partners IV called £0.7 million for Genesis Dental, its initial platform of 11 dental practices from which a rollup is planned. FPE II called £0.6 million for the combined acquisition of Maastech and SGL which will create a platform in the digital media workflow automation, video asset management and archiving area. The main customers are broadcasters. In the venture capital area SEP V has called £0.7 million for its first investment in Lovecrafts, an online retailer of crafting materials.

In France Astorg VI has invested £0.8 million in Autoform, a software company with applications in automotive design. In the Nordic region Procuritas V has called £0.4 million for the acquisition of Danish design furniture companies Scandinavian Design International and Sofakompagniet ApS.  Procuritas Capital VI has called £0.4 million for investment in DSI, a Danish company which designs and manufactures plate freezers which are used for the rapid freezing of, for example, fish and dog food. In German speaking Europe Capvis IV called £0.4 million for Wer liefert Was, a B2B trading platform.

During the second quarter our US exposure was augmented with the first drawdowns of Graycliff Private Equity Partners III where £1.6 million was invested in the fund's first five companies and Stellex, where £0.8 million was invested in their first three platforms.

The total capital invested through drawdowns from funds and by co-investments in the first six months is £31.6 million.

Realisations

The largest realisation in the first half was the previously announced sale of Park Holidays UK. This Caledonia Investments led deal completed in February and returned £7.6 million, which including earlier distributions, represented 2.8x cost and an IRR of 48%. From the funds there have been a number of notable exits. Stirling Square Capital Partners II's sale of Netherlands based waste container company ESE which was sold to UK listed company RPC returned £3.3 million (2.8x cost, 17% IRR). Chequers Capital XV sold Accelya, a French based IT services provider in the air transport sector to strategic buyer Mercator. The final stage of this sale returned £1.5 million giving a very strong overall result (11.7x cost, 36% IRR). In Italy Progressio II sold Duplomatic, maker of hydraulic valves, pumps and oil pressure activated systems returning £0.8 million (2.3x cost, 25% IRR).

The realisations have continued into the second quarter. There were several small and medium sized exits covering a wide variety of sectors and geographies. Our longstanding holding in the Candover 2005 fund distributed £0.8 million in cash and £0.4 million in shares in Spanish water and amusement parks company Parques Reunidos. These shares will be sold down in due course. This effectively brings to an end the Candover 2005 Fund. Capvis III made a further distribution of £0.7 million as more of its residual holding in Swiss vacuum valves business VAT was sold down. To date this investment has made 5.3x cost with three quarters realised. DBAG V sold FDG, a supplier of non-food consumer goods to French supermarkets, to a French financial buyer. This returned £0.5 million, equivalent to 2.3x cost. Portobello Fund III has exited most of their holding in Vitalia, its elderly care home company, through a sale to CVC, and £0.6 million has been distributed. There were a number of other smaller realisations including the sale of Weird Fish by Piper Private Equity IV where the Company, through Total Capital Partners, was the buyer as noted above. £0.4 million came in from Piper.

Valuation Changes

There were a number of noteworthy changes in valuation over the first half of the year. Our co-investment portfolio has contributed significantly. Avalon, the funeral plans business where Lonsdale Partners are in the lead, has performed well and has been uplifted by £3.8 million based upon a modest multiple of embedded value. Our co-investment in Ambio Holdings, the peptide oriented manufacturer of Active Pharmaceutical Ingredient for the generic and patented drug sector has traded strongly and is uplifted by £2.1 million. There were also uplifts for our co-investments in 3Si (security products) and Collingwood Insurance Group of £0.8 million and £0.2 million respectively.

 DBAG V is up by £2.0 million reflecting not only the completed exit of FDG noted above but also the agreed sales of three other holdings. Formel D (documentation and services for the automotive sector) was sold to 3i achieving 5.5x cost. ProXES (process machinery) was sold to Capvis also achieving 5.5x cost. Romaco (packaging machinery for the pharmaceutical industry) has agreed a staged exit to Chinese listed company Truking which will result in a return of 2.4x cost.  DBAG VI is up by £0.5 million continuing an extraordinary run of successes for this manager with the agreed sale of school tutoring company Schulerhilfe as the main contributor.

Our new investment in US fund Graycliff Private Equity Partners III comes with an immediate uplift of £0.6 million reflecting the strong trading of its initial portfolio. Blue Point Capital III is up by £0.6 million reflecting strong trading of various holdings and the imminent sale of shoe insole company Ortholite.

There were some downgrades in the first half. The most serious is £1.7 million for Burgess Marine, the south coast based marine engineering business where the deal is led by RJD Partners. The company's core market of commercial ship repairs has proved difficult, in part, due to competition from east coast yards where there has been a dearth of oil related work and who have deployed their capacity in Burgess' traditional ferry and mainstream commercial markets. The anticipated naval work is also moderately late. A major restructuring facilitated by a refinancing is now underway. There was a downgrade of £0.6 million for Argan Capital, mainly due to a weaker share price of its now listed holding in Swedish assisted living business Humana. Lastly Byron Burger, which has traded weakly, has been the main contributor to a downgrade of £0.3 million for Hutton Collins III.

Financing

The Company ended the half year with a net cash position of £8.3 million. There is ample capacity for new investments and we expect a number of co-investments and a couple of medium sized secondary deals to complete over the next few months.  There are a handful of co-investments which look likely to be sold in the short term and this will boost the company's resources. Effectively all of the borrowing facility of £70 million is available. The proportion of co-investments has increased to over 30% for the first time.

Outlook

The first half of the year has been encouraging in that the fundamental performance of companies in the portfolio has been generally good and there remain healthy levels of activity across all our main markets. There is no doubt that experienced private equity managers with mature portfolios are taking advantage of current conditions to secure exits and many of the recently raised private equity funds, aided by a liquid banking sector, as well as trade buyers have facilitated this objective. It is pertinent to question whether in these circumstances it remains possible for private equity managers to find new deals at attractive prices. The perils of buying through a highly competitive auction process are well known to our investment partners and increasingly mid-market players source deals outside auctions through their own carefully created networks. In many of the European countries the private equity market is remarkably deep as the adoption of private equity for financing the growth of smaller and medium sized companies increases and accordingly the new deals entering our portfolio appear to be at historically reasonable prices, as are our new co-investments. Notwithstanding some unpredicted events in the political arena in the developed markets, confidence levels amongst investors and business people remain high. On this basis we expect that the portfolio will deliver more growth for shareholders in the second half of the year.

Hamish Mair

Investment Manager

F&C Investment Business Limited

F&C Private Equity Trust plc

Statement of Comprehensive Income for the

half year ended 30 June 2017

	Unaudited
	Revenue £'000	Capital £'000	Total £'000
Income
Gains on investments held at fair value	-	14,509	14,509
Exchange losses	-	(761)	(761)
Investment income	151	-	151
Other income	23	-	23
Total income	174	13,748	13,922
Expenditure
Investment management fee - basic fee	(317)	(951)	(1,268)
Investment management fee - performance fee	-	(2,325)	(2,325)
Other expenses	(388)	-	(388)
Total expenditure	(705)	(3,276)	(3,981)
(Loss)/profit before finance costs and taxation	(531)	10,472	9,941
Finance costs	(211)	(632)	(843)
(Loss)/profit before taxation	(742)	9,840	9,098
Taxation	-	-	-
(Loss)/profit for period/total comprehensive income	(742)	9,840	9,098
Return per Ordinary Share - Basic	(1.01)p	13.31p	12.30p
Return per Ordinary Share - Fully diluted	(1.01)p	13.31p	12.30p

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.

F&C Private Equity Trust plc

Statement of Comprehensive Income for the

half year ended 30 June 2016

Unaudited Revenue £'000 Capital £'000 Total £'000 Income Gains on investments held at fair value - 23,983 23,983 Exchange losses - (2,928) (2,928) Investment income 345 - 345 Other income 32 - 32 Total income 377 21,055 21,432 Expenditure Investment management fee - basic fee (277) (832) (1,109) Investment management fee - performance fee - (1,331) (1,331) Other expenses (355) - (355) Total expenditure (632) (2,163) (2,795) (Loss)/profit before finance costs and taxation (255) 18,892 18,637 Finance costs (206) (618) (824) (Loss)/profit before taxation (461) 18,274 17,813 Taxation - - - (Loss)/profit for period/total comprehensive income (461) 18,274 17,813 Return per Ordinary Share - Basic (0.64)p 25.19p 24.55p Return per Ordinary Share - Fully diluted (0.62)p 24.71p 24.09p 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.

F&C Private Equity Trust plc

Statement of Comprehensive Income for the

year ended 31 December 2016

	Audited
	Revenue £'000	Capital £'000	Total £'000
Income
Gains on investments held at fair value	-	58,538	58,538
Exchange losses	-	(3,584)	(3,584)
Investment income	1,386	-	1,386
Other income	54	-	54
Total income	1,440	54,954	56,394
Expenditure
Investment management fee - basic fee	(582)	(1,745)	(2,327)
Investment management fee - performance fee	-	(2,024)	(2,024)
Other expenses	(739)	-	(739)
Total expenditure	(1,321)	(3,769)	(5,090)
Profit before finance costs and taxation	119	51,185	51,304
Finance costs	(419)	(1,257)	(1,676)
(Loss)/profit before taxation	(300)	49,928	49,628
Taxation	-	-	-
(Loss)/profit for year/total comprehensive income	(300)	49,928	49,628
Return per Ordinary Share - Basic	(0.41)p	68.16p	67.75p
Return per Ordinary Share - Fully diluted	(0.41)p	67.53p	67.12p

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.

F&C Private Equity Trust plc

Amounts Recognised as Dividends

	Six months ended 30 June 2017 (unaudited) £'000	Six months ended 30 June 2016 (unaudited) £'000	Year ended 31 December 2016 (audited) £'000
Final Ordinary Share dividend of 5.83p per share for the year ended 31 December 2015	-	4,251	4,251
Interim Ordinary Share dividend of 6.12p per share for the year ended 31 December 2016	-	-	4,525
Final Ordinary Share dividend of 6.48p per share for the year ended 31 December 2016	4,791	-	-
	4,791	4,251	8,776

F&C Private Equity Trust plc

Balance Sheet

	As at 30 June 2017 (unaudited)	As at 30 June 2016 (unaudited)	As at 31 December 2016 (audited)
	£'000	£'000	£'000
Non-current assets
Investments at fair value through profit or loss	258,801	240,194	239,049
Current assets
Other receivables	88	13	26
Cash and cash equivalents	34,195	18,596	48,575
	34,283	18,609	48,601
Current liabilities
Other payables	(3,342)	(2,285)	(3,057)
Net current assets	30,941	16,324	45,544
Total assets less current liabilities	289,742	256,518	284,593
Non-current liabilities
Interest-bearing bank loan	(25,912)	(24,285)	(25,070)
Net assets	263,830	232,233	259,523
Equity
Called-up ordinary share capital	739	739	739
Share premium account	2,527	-	2,527
Special distributable capital reserve	15,040	17,567	15,040
Special distributable revenue reserve	31,403	31,403	31,403
Capital redemption reserve	1,335	1,335	1,335
Capital reserve	212,786	172,025	203,679
Revenue reserve	-	9,164	4,800
Shareholders' funds	263,830	232,233	259,523
Net asset value per Ordinary Share	356.81p	314.08p	350.98p

F&C 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 2017 (unaudited)

Net assets at 1 January 2017	739	2,527	15,040	31,403	1,335	203,679	4,800	259,523
Profit/(loss) for the period/total comprehensive income	-	-	-	-	-	9,840	(742)	9,098
Dividends paid	-	-	-	-	-	(733)	(4,058)	(4,791)

Net assets at 30 June 2017	739	2,527	15,040	31,403	1,335	212,786	-	263,830

For the six months ended 30 June 2016 (unaudited)

Net assets at 1 January 2016	720	-	15,040	31,403	1,335	158,002	9,625	216,125
Issue of Ordinary Shares	19	-	2,527	-	-	-	-	2,546
Profit/(loss) for the period/total comprehensive income	-	-	-	-	-	18,274	(461)	17,813
Dividends paid	-	-	-	-	-	(4,251)	-	(4,251)

Net assets at 30 June 2016	739	-	17,567	31,403	1,335	172,025	9,164	232,233

For the year ended 31 December 2016 (audited)

Net assets at 1 January 2016	720	-	15,040	31,403	1,335	158,002	9,625	216,125
Issue of Ordinary Shares	19	2,527	-	-	-	-	-	2,546
Profit/(loss) for the year/total comprehensive income	-	-	-	-	-	49,928	(300)	49,628
Dividends paid	-	-	-	-	-	(4,251)	(4,525)	(8,776)

Net assets at 31 December 2016	739	2,527	15,040	31,403	1,335	203,679	4,800	259,523

F&C Private Equity Trust plc

Cash Flow Statement

	Six months ended 30 June 2017 (unaudited)	Six months ended 30 June 2016 (unaudited)	Year ended 31 December 2016 (audited)
	£000	£000	£000
Operating activities
Profit before taxation	9,098	17,813	49,628
Gains on disposals of investments	(12,756)	(4,479)	(33,421)
Increase in holding gains	(1,753)	(19,504)	(25,117)
Exchange differences	761	2,928	3,584
Interest income	(23)	(32)	(54)
Interest received	23	32	54
Investment income	(151)	(345)	(1,386)
Dividends received	151	345	1,386
Finance costs	843	824	1,676
(Increase)/decrease in other receivables	(62)	13	-
Increase in other payables	285	11	778
Net cash outflow from operating activities	(3,584)	(2,394)	(2,872)
Investing activities
Purchases of investments	(31,622)	(19,257)	(32,797)
Sales of investments	26,379	18,757	67,997
Net cash (outflow)/inflow from investing activities	(5,243)	(500)	35,200
Financing activities
Shares issued	-	2,546	2,546
Interest paid	(735)	(720)	(1,459)
Equity dividends paid	(4,791)	(4,251)	(8,776)
Net cash outflow from financing activities	(5,526)	(2,425)	(7,689)
Net (decrease)/increase in cash and cash equivalents	(14,353)	(5,319)	24,639
Currency losses	(27)	(108)	(87)
Net (decrease)/increase in cash and cash equivalents	(14,380)	(5,427)	24,552
Opening cash and cash equivalents	48,575	24,023	24,023
Closing cash and cash equivalents	34,195	18,596	48,575

Statement of Principal Risks and Uncertainties

The Directors believe that the principal risks and uncertainties faced by the Company include investment, strategic, external, regulatory, operational, financial and funding. The Company is also exposed to risks in relation to its financial instruments. These risks, and the way in which they are managed, are described in more detail under the heading Principal Risks and Uncertainties and Risk Management within the Business Model, Strategy and Policies Section in the Annual Report for the year ended 31 December 2016.  The Company's principal risks and uncertainties have not changed materially since the date of that report and are not expected to change materially for the remaining six months of the Company's financial year. 

Statement of Directors' Responsibilities in Respect of the Half Year Report

We confirm that to the best of our knowledge:

·      the condensed set of financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting' and give a true and fair view of the assets, liabilities, financial position and profit of the Company;

·      the Chairman's Statement and Manager's Review (together constituting the Interim Management Report) include a fair review of the information required by the Disclosure and Transparency Rules ('DTR') 4.2.7R, being an indication of important events that have occurred during the first six months of the financial year and their impact on the financial statements;

·      the Statement of Principal Risks and Uncertainties shown above is a fair review of the information required by DTR 4.2.7R; and

·      the condensed set of financial statements include a fair review of the information required by DTR 4.2.8R, being related party transactions that have taken place in the first six months of the financial year and that have materially affected the financial position or performance of the Company during the period, and any changes in the related party transactions described in the last Annual Report that could do so.

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, except as described below, the accounting policies set out in the statutory accounts for the year ended 31 December 2016. 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 2016, which were prepared under full IFRS requirements.

2.   Earnings for the six months to 30 June 2017 should not be taken as a guide to the results for the year to 31 December 2017.

3.   Investment management fee:

	Six months to 30 June 2017                              (unaudited)			Six months to 30 June 2016                               (unaudited)			Year ended 31 December 2016                               (audited)
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Investment management fee - basic fee	317	951	1,268	277	832	1,109	582	1,745	2,327
Investment management fee - performance fee	-	2,325	2,325	-	1,331	1,331	-	2,024	2,024
	317	3,276	3,593	277	2,163	2,440	582	3,769	4,351

4.   Finance costs:

	Six months to 30 June 2017                             (unaudited)			Six months to 30 June 2016                              (unaudited)			Year ended 31 December 2016                               (audited)
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Interest payable on bank loans	211	632	843	206	618	824	419	1,257	1,676

5.   The basic return per Ordinary Share is based on a net profit on ordinary activities after taxation of £9,098,000 (30 June 2016 - £17,813,000; 31 December 2016 - £49,628,000) and on 73,941,429 (30 June 2016 - 72,550,643; 31 December 2016 - 73,249,836) shares, being the weighted average number of Ordinary Shares in issue during the period.

The fully diluted return per Ordinary Share is based on a net profit on ordinary activities after taxation of £9,098,000 (30 June 2016 - £17,813,000; 31 December 2016 - £49,628,000) and on 73,941,429 (30 June 2016 - 73,941,429; 31 December 2016 - 73,941,429) shares, being the weighted average number of Ordinary Shares in issue during the period after conversion of the Ordinary Share warrants.

During the year ended 31 December 2016, the Company issued 1,959,156 Ordinary Shares of 1p each in the capital of the Company, following the exercise of subscription rights by holders of a corresponding number of management warrants previously issued by the Company in the capital of the Company.  As at 30 June 2017, no warrants remain in issue (30 June 2016 - nil; 31 December 2016 - nil).

6. The net asset value per Ordinary Share is based on net assets at the period end of £263,830,000 (30 June 2016 - £232,233,000; 31 December 2016 - £259,523,000) and on 73,941,429 (30 June 2016 - 73,941,429; 31 December 2016 - 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.

	Level 1	Level 2	Level 3	Total
	£'000	£'000	£'000	£'000
30 June 2017
Financial assets	1,083	-	257,718	258,801
Investments Financial liabilities Interest-bearing bank loan	-	(26,405)	-	(26,405)
30 June 2016
Financial assets	231	-	239,963	240,194
Investments Financial liabilities Interest-bearing bank loan	-	(24,990)	-	(24,990)
31 December 2016
Financial assets
Investments Financial liabilities Interest-bearing bank loan	544 -	- (25,674)	238,505 -	239,049 (25,674)

There were no transfers between levels in the fair value hierarchy in the period ended 30 June 2017. 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 F&C private equity team has access to the underlying valuations used by the lead private equity managers including multiples and any adjustments. The F&C 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 F&C 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 loan is recognised in the Balance Sheet at amortised cost in accordance with IFRS.  The fair value of the loan is based on indicative break costs. 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 2017 was 8.0 times EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) (30 June 2016: 7.9 times EBITDA; 31 December 2016: 8.4 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 2017	Weighted average earnings multiple	1x	49,561
30 June 2016	Weighted average earnings multiple	1x	46,147
31 December 2016	Weighted average earnings multiple	1x	43,365

* 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 are 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 2017	30 June 2016	31 December 2016
	£'000	£'000	£'000
Balance at beginning of period	238,505	215,405	215,405
Purchases	31,052	19,257	32,797
Sales	(25,809)	(18,757)	(67,997)
Gains on disposal	12,756	4,479	33,421
In specie distribution	(570)	(88)	(418)
Increase in holding gains	1,784	19,667	25,297
Balance at end of period	257,718	239,963	238,505

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 covenants.  They have also considered forecast cash flows, especially those relating to capital commitments and realisations.

As at 30 June 2017, the Company had outstanding undrawn commitments of £126.7 million.  Of this amount, approximately £17.0 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.

Based on this information the Directors believe 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 the accounts.  Accordingly, the accounts 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 2016 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 2016 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.fcpet.co.uk.

For more information, please contact:

Hamish Mair (Fund Manager)	0131 718 1184 [e-mail]
Scott McEllen (Company Secretary)	0131 718 1137 [e-mail]

 

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