Interim Results
EMBARGOED UNTIL 07:00 AM, WEDNESDAY 16 JUNE 2004
ELECTRA INVESTMENT TRUST PLC
Announcement of Interim Results for six months ended 31 March 2004
and Capital Return
Interim Results
Net asset value per share of 843p as at 31 March 2004 (30 September 2003: 760p
per share)
NAV outperformance relative to FTSE All Share Index (Electra +10.9% versus
Index +8.3%) in the six months to 31 March 2004
Total realisations (inclusive of deferred income) of £222 million over the six
months to 31 March 2004, a significant increase from the £21 million achieved
in the six month period ended 30 September 2003
Net asset value per share at 31 May 2004 of 831p *
Capital Return
Confirmation that a Tender Offer for £100 million is to be proposed to
Shareholders
A programme of further share buy-backs will take place during the second half
of 2004
Shares will be acquired at the Tender Price, being the unaudited net asset
value per share as at 31 March 2004 as adjusted to the calculation date **
Shareholders will be entitled to have a percentage of their holdings (the
'basic entitlement') repurchased under the Tender Offer. Shareholders will also
be able to request the repurchase of additional shares, but such requests will
only be satisfied on a pro rata basis, to the extent that other Shareholders do
not tender for their full basic entitlement
Commenting on the Interim Results and proposed capital return, Sir Brian
Williamson, Chairman, said:
'Electra has made significant progress in the current financial year and has
moved into a position where, as at 31 March 2004, cash and short-term bonds
exceeded bank debt by £14 million. The Board believes that the outlook for
future realisations continues to be favourable and that additional realisations
during 2004 will lead to further returns of capital which will be executed
principally by way of on-market share buy-backs.
Following a review of its investment strategy, the Board has concluded that, in
the short term, Electra's investment strategy should continue unchanged from
the investment strategy that was approved by Shareholders in June 2001.
Under this investment strategy, the realisation of the portfolio as at June
2001 will continue with at least two-thirds of future cash flow from such
realisations returned to Shareholders. Subject to maintaining appropriate
levels of gearing, the balance of the cash flow from realisations will be
available for follow-on investments, investment in funds managed by Electra
Partners and other private equity investment opportunities generated by Electra
Partners.
The Board continues to believe that there is a role for investment vehicles
such as Electra, which provide cost effective and liquid access to private
equity. The Board is committed to assessing its investment strategy on a
regular basis to ensure that maximum value is being created for Shareholders in
the light of prevailing market conditions and available investment
opportunities.
In the short term, the Board remains committed to its existing investment
strategy with a focus on realisations and capital returns.'
Tender Offer - Expected Timetable:
Latest time and date for receipt of Forms of Proxy 11am on 13 July
Extraordinary General Meeting 11am on 15 July
Latest time and date for receipt of tender forms 11am on 17 July
Record date for Tender Offer close of business on 17 July
Calculation date for Tender Price 17 July
Tender Price announced 19 July
Tender Offer trade date and result of Tender
Offer announced 26 July
Settlement date, cheques despatched and assured payments
through CREST made by 2 August
*The unaudited net asset value at 31 May 2004 is calculated on the basis of the
net asset value at 31 March 2004 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.
** The Tender Price will be the unaudited net asset value per share as at 31
March 2004 adjusted to the calculation date for the Tender Offer (which is
expected to be 17 July 2004) 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 and further adjusted to take account of the costs and expenses of
the Tender Offer.
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
Jon Hack, Lazard 020 7187 2000
Christopher Smith, Cazenove 020 7588 2828
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 2003 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 February 1976 to £1,145 million by 30 September 1998,
the financial year end immediately preceding the hostile takeover bid for
Electra 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 £946 million to Shareholders leaving a residual portfolio valued at £
708 million at 31 March 2004. This compares with the stock market value of
Electra of £975 million immediately before the announcement of the takeover
bid. Over the five years to 31 March 2004, £462 million has been invested in
portfolio companies and £1,515 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 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.
In March 2004, the Board announced its intention to return at least £100
million of capital to Shareholders. The Board has now confirmed that it is
proposing a Tender Offer for £100 million and bringing forward a programme of
further share buy-backs during the second half of 2004.
Chairman's Statement
Review
At 31 March 2004Electra's net asset value was 843p per share, an increase of
10.9% over the net asset value of 760p per share at 30 September 2003. The FTSE
All-Share Index increased by 8.3% over the same period.
Portfolio
As anticipated in the statement made at the Annual General Meeting in March
2004, prospects for realisations have improved. As a closed-ended investment
vehicle, Electra has the flexibility to time realisations to ensure that value
is maximised. Over the six months to 31 March 2004, total realisations,
inclusive of deferred income in respect of the sale of Baxi, amounted to £222
million. This is a significant increase from the £21 million achieved in the
previous six months. The largest realisations were of Baxi and Vendcrown and
details of these, and other portfolio activity over the six months, are given
in the Portfolio Review.
Electra Partners, the Investment Manager, considers that the climate for
realisations is likely to continue to be favourable for the balance of the
financial year and that further realisations and refinancings are probable in
the coming months.
Financial Position
The realisation proceeds received in the period have resulted in an improved
financial position and, at 31 March 2004, cash and short term bonds exceeded
bank debt by £14 million.
Further Return of Capital
At the Annual General Meeting held in March 2004, the Board announced its
intention for Electra to return at least £100 million to Shareholders by way of
a Tender Offer. The Board has now confirmed that it is proposing a Tender Offer
for £100 million and bringing forward a programme of further share buy-backs
during the second half of 2004. Full details will be set out in a circular
which is expected to be despatched shortly.
Investment Strategy
Following a review of Electra's investment strategy with input from its
advisers and Electra Partners, the Board has concluded that, in the short term,
this strategy should continue unchanged from the investment strategy approved
by Shareholders at the Extraordinary General Meeting on 11 June 2001.
Under this investment strategy, the realisation of the portfolio as at June
2001 will continue with at least two-thirds of future cash flow from such
realisations returned to Shareholders. Subject to maintaining appropriate
levels of gearing, the balance of the cash flow from realisations will be
available for follow-on investments, investment in funds managed by Electra
Partners and other private equity investment opportunities generated by Electra
Partners.
The Board believes that this investment strategy has provided Electra with
increased investment flexibility, which has allowed superior value creation
since its introduction despite unforeseen difficult market conditions. This
flexibility has, in the cases of Baxi and Vendcrown in particular, allowed
Electra to time portfolio realisations appropriately to maximise value and also
to make selected reinvestments on what the Board believes to be attractive
terms.
The Board continues to believe that there is a role for investment vehicles
such as Electra in providing cost effective and liquid access to private
equity.
The Board is committed to assessing its investment strategy on a regular basis
to ensure that maximum value is being created for Shareholders in the light of
prevailing market conditions and available investment opportunities.
New Combined Code
As indicated last year, a sub-committee of the Board is reviewing the new
Combined Code and its application to Electra from 1 October 2004. Under the
Code it will be necessary for the Board to identify and explain why it
considers non-executive Directors to be independent. Accordingly the next
Report and Accounts will explain why all Directors of Electra are considered by
the Board to be independent.
Outlook
The team at Electra Partners, led by Hugh Mumford, has a successful record of
creating value through investing in private equity over a number of investment
cycles. The Board believes that the team can continue to generate above average
returns, from both realisations and new investments, for Electra's Shareholders
in the future. In the short term, the Board remains committed to its existing
investment strategy with a focus on realisations and capital returns.
Sir Brian Williamson, Chairman 15 June 2004
Portfolio Analysis
Summary of Changes to Overall Portfolio
Six months ended 31 March
2004 2003
£'000 £'000
Opening valuation 679,611 691,727
Investments 22,042 23,102
Realisations (200,517) (33,066)
Changes in valuation 41,465 (34,494)
Closing valuation 542,601 647,269
In the six months to 31 March 2004, Electra's net asset value per share
increased from 760p to 843p per share, an increase of 10.9%. However, over the
same period, Electra's investment portfolio declined from £680 million to an
overall valuation of £543 million. This decrease in value of £137 million was
due to net realisations from the portfolio of £178 million, offset by net
portfolio gains of £41 million. Currency changes, mainly the weakening of the
US Dollar against Sterling, had a significant impact in the period, reducing
the valuation of non-sterling assets by £18 million. The impact of currency
depreciation on the net asset value at 31 March 2004 was, however, hedged to a
significant extent through currency borrowings.
At 31 March 2004, 73% of the portfolio was invested in the UKand Continental
Europe, 20% in the USAand 7% in the Far Eastand India.
Current Operations and Outlook
As forecast in the last annual report, the improvement in market conditions led
to significant changes in Electra's financial position over the six month
period and realisations from the portfolio increased substantially. Thus, in
the six month period, new investment amounted to £22 million whereas
realisations from the portfolio were £201 million, equivalent to approximately
30% of the opening valuation of the portfolio. Realisations of £201 million
compared to £33 million in the corresponding period of the previous financial
year. Following receipt of the cash flow from these realisations and after
reflecting the £165 million bond portfolio as cash, Electra had a net cash
balance of £14 million at 31 March 2004 compared to net borrowings of £187
million at the beginning of the period.
The combination of market conditions and the level of realisations allowed
Electra to record substantial capital gains in the period although these were
partially offset by provisions which were necessary to reflect changes
occurring in a number of investments in the portfolio. We anticipate that the
favourable environment will continue for the remainder of the financial year
leading to further realisations from Electra's portfolio. As Electra's
portfolio reduces in size however, it will include an increasing proportion of
longer-term assets with the result that the timing of future sales may become
less predictable.
Investments
During the period, investments totalled £22.0 million of which £14.9 million
represented an investment in the successor company to Baxi and £4.1 million
represented further drawdowns under Electra's outstanding commitment to private
equity funds.
Electra's investment in Baxi has proved to be a highly successful investment.
While Electra's original investment in Baxi was realised during the period, a
decision was made to reinvest a portion of the proceeds in the successor
company in view of Electra's knowledge of the company, the future prospects for
the business and the quality of the incumbent management team. Electra's
investment of £14.9 million represented 15% of the proceeds from the sale of
the company.
Realisations
Realisations from the portfolio for the six month period amounted to £201
million. In addition, £21 million was received in respect of income previously
accrued since December 2000.
This level of realisation represented a substantial increase over the
corresponding period of the previous financial year. The increase in
realisations was due to an improvement in market conditions leading to the sale
of Electra's two largest investments, Baxi and Vendcrown. In the case of Baxi,
Electra received £100 million including £21 million of previously accrued
income which compared to a total cost of £54.6 million. The majority of the
proceeds however, resulted from the investment of £23.8 million made by Electra
in December 2000 which facilitated a restructuring of the company. In the case
of Vendcrown, Electra sold its residual interest for £72 million bringing the
total proceeds from the investment to £90 million. This compared to a total
cost of £24.7 million, comprising the original investment in 1986 of £16
million, and the purchase of additional shares in the company in 2002 for £8.7
million. Proceeds attributable to the investment in 2002 were £14.3 million.
During the period, Electra also disposed of its investment in Gower for £19.4
million and 40% of its holding in Moser Baer for £13.7 million. The cost of
these investments was £2.4 million and £1.3 million respectively. Three other
portfolio companies were sold during the six month period.
In May 2004 Electra received $71.5 million from the recapitalisation of Leiner
Health Products. Of this amount $15.75 million was reinvested in the successor
company.
Largest Disposals
Company Valuation at Valuation at Proceeds from
31 March 2003 30 September 2003 Disposal
£'m £'m £'m
Baxi 49.5 61.8 73.4
Vendcrown 46.1 57.0 72.3
Gower 10.0 17.1 19.4
Moser Baer 6.1 11.5 13.7
Performance
During the six month period the capital value of the portfolio increased by £41
million or 6.1%. This amount includes the negative impact of currency changes
which reduced the value of the portfolio over the period by £18 million or
2.7%. Over 65% of the gain of £41 million resulted from profits realised on the
sale of Baxi and Vendcrown.
Largest Valuation Changes
Increase/(decrease)
Company £'000 %
Safety-Kleen Europe 20,145 42
Vendcrown 15,276 27
Freightliner 14,257 102
Baxi 11,523 19
Moser Baer 9,051 31
Leiner 7,198 23
Capital Safety 5,030 16
Leisure Parcs (5,525) (100)
Deutsche Woolworth (13,696) (100)
Many of the larger investments in the portfolio continued to make good
progress. This enabled significant unrealised value increases to be recognised,
particularly in the case of Safety-Kleen Europe, Freightliner, Leiner and
Capital Safety. Over the period, total gains in excess of £106 million were
added to portfolio valuations. However, the net gain recognised was impacted by
reductions in the value of portfolio companies of £65 million. The largest
decrease related to Deutsche Woolworth where full provision was made against
the investment in the light of the continuing weak retail environment in
Germany. Provisions were also made to reflect profit reductions and other
specific events arising in respect of a number of further portfolio companies.
Consolidated Statement of Total Return (unaudited)
(incorporating the Revenue Account)
For the six months ended 31 March 2004 2003
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains /(losses) on investments:
Realised - 32,226 32,226 - 4,133 4,133
Unrealised - 13,985 13,985 - (38,645) (38,645)
Losses on revaluation of
foreign currencies:
Realised - (49) (49) - (71) (71)
Unrealised - 13,788 13,788 - (3,625) (3,625)
- 59,950 59,950 - (38,208) (38,208)
Income of the investment 12,404 - 12,404 9.875 - 9,875
trust
Net expenses of subsidiary - - - (335) - (335)
undertakings
Priority profit share paid (4,970) - (4,970) (4,910) - (4,910)
to general partners
Other expenses (681) - (681) (895) - (895)
Reversal of income accruals - - - (2,431) - (2,431)
Net Return before Finance
Costs and Taxation 6,753 59,950 66,703 1,304 (38,208) (36,904)
Interest payable and similar (2,141) - (2,141) (3,214) - (3,214)
charges
Return on Ordinary
Activities before 4,612 59,950 64,562 (1,910) (38,208) (40,118)
Taxation and Return to
Shareholders
Exchange differences arising (715) (9,937) (10,652) (37) (509) (546)
on consolidation
Net Transfers (from)/to
Reserves for the Period 3,897 50,013 53,910 (1,947) (38,717) (40,664)
Return to Shareholders per
Ordinary Share 5.98p 76.76p 82.74p (2.99p) (59.35p) (62.34p)
The amounts dealt with in the Consolidated Statement of Total Return are all
derived from continuing activities.
2004 2003
Number of Ordinary Shares in
issue at 31 March 65,109,533 65,231,533
Consolidated Balance Sheet
As at 31 March 2004 As at 30 Sept 2003 As at 31 March 2003
(Unaudited) (Audited) (Unaudited)
£'000 £'000 £'000 £'000 £'000 £'000
Fixed Assets
Investments:
Unlisted 522,993 659,376 632,806
Floating rate 164,997 - -
notes
Listed 19,608 20,235 14,463
707,598 679,611 647,269
Current Assets
Debtors 19,353 36,585 29,664
Investments - - 830
Cash at bank and in 14,370 6,055 10,566
hand
33,723 42,640 41,060
Current Liabilities
Creditors: amounts 3,477 6,497 6,437
falling due within
one year
Net Current Assets 30,246 36,143 34,623
Total Assets less 737,844 715,754 681,892
Current Liabilities
Creditors: amounts
falling due after (165,677) (193,271) (202,466)
more than one year
Provision for (23,554) (26,985) (21,760)
liabilities and
charges
Net Assets 548,613 495,498 457,666
Capital and
Reserves
Called-up share 16,277 16,308 16,308
capital
Share premium 24,147 24,147 24,147
Capital redemption 26,998 26,967 26,967
reserve
Realised capital 624,313 538,914 540,559
profits
Unrealised capital (137,742) (101,561) (140,751)
losses
Revenue reserves (5,380) (9,277) (9,564)
532,336 479,190 441,358
Total Equity 548,613 495,498 457,666
Shareholders' Funds
Net asset value per 842.60p 759.60p 701.60p
ordinary share of 25p
Reconciliation of Total Shareholders' Funds (unaudited)
For the six months ended 31 March 2004 2003
£'000 £'000
Total Return 64,562 (40,118)
Exchange differences arising on consolidation (10,652) (546)
Repurchase of own shares (764) -
Nominal value of own shares purchased (31) -
Movements in Total Shareholders' Funds 53,115 (40,664)
Total Equity Shareholders' Funds at 1 October 495,498 498,330
Total Shareholders' Funds at 31 March 548,613 457,666
Consolidated Cash Flow Statement (unaudited)
For the six months ended 31 March 2004 2003
£'000 £'000 £'000 £'000
Operating Activities
UK dividend income 457 358
Unfranked investment income 27,601 6,525
Interest income 544 102
Other income 223 148
Expenses (6,004) (8,494)
Net Cash Inflow/(Outflow) from Operating
Activities
22,821 (1,361)
Returns on Investments and Servicing of
Finance
Interest paid
(2,141) (3,667)
Net Cash Outflow from Returns on
Investments and Servicing of Finance
(2,141) (3,667)
Capital Expenditure and Financial
Investment
Purchases of investments (187,039) (23,102)
Sales of investments 190,703 33,065
Net Cash Inflow from Capital Expenditure
and Financial Investment
3,664 9,963
Net Cash Inflow before Management of
Liquid Resources and Financing
24,344 4,935
Management of Liquid Resources (6,600) 5,715
Financing
Bank loans drawn 13,617 27,000
Bank loans repaid (26,772) (37,528)
Loans paid (1,365) (213)
Repurchase of own shares (795) -
Net Cash Outflow from Financing (15,315) (10,741)
Increase/(Decrease) in Cash in the 2,429 (91)
Period
Reconciliation of Net Cash Flow to
Movement in Net Debt
(Decrease)/Increase in cash in the 2,429 (91)
period
Cash outflow from debt financing 13,155 10,528
Cash (inflow)/outflow from change in
liquid resources
6,600 (5,715)
19,755 4,813
Change in Net Debt Resulting from Cash 22,184 4,722
Flows
Translations difference 13,725 (3,695)
Movement in Net Debt 35,909 1,027
Net debt brought forward (187,216) (192,927)
Net Debt Carried Forward (151,307) (191,900)
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