3rd Quarter Results

RNS Number : 0273J

F&C Private Equity Trust PLC

27 November 2008

 



To: Stock Exchange	For immediate release:
	27 November 2008

F&C Private Equity Trust plc

Quarterly results for the three months to 30 September 2008 

• NAV total return for the three months to 30 September of -3.5%

• Mid market focus and well diversified portfolio

• New Investment of £3.3m in nursing agency ICS

• Strong new investments

• Realisations continuing

Manager's Review

Introduction

The fully diluted net asset value per ordinary share at 30th September 2008 was 243.15p, a decrease over the quarter of 3.5%. The NAV per restricted voting share was 7.86p, an increase over the quarter of 4.8%. The net assets attributable to the ordinary shares stood at £178m and those of the restricted voting shares at £5.3m. 

The ordinary share pool had total assets of £201m and net debt at 30th September 2008 of £21m, giving gearing of 10.4%. At 25 November 2008 net debt stood at £24m.

This robust net asset value performance has not been reflected in the Company's share price.  An 11.1% fall in the ordinary share price to 172.0 p during the quarter meant that the discount to net asset value at which the shares stood at 30 September 2008 was 29.3%. October and November's traumas in the financial markets were the catalyst for a fundamental re-rating of the entire private equity sector, and the Company's ordinary shares currently stand at 94.75 pence, a 61.0% discount to their 30 September 2008 net asset value.  The market appears to be concerned at the ability of private equity companies to fund and meet their future commitments, while a question mark also hangs over some of the underlying valuation levels.  I address both of these issues in this review.

Given the absence of a market in the securities of private companies there is usually a time lag before we receive up to date valuation information from the private equity and mezzanine funds in which we are invested. Where there are significant movements in the value of comparable quoted companies and changes in the economic environment this time lag can mean that valuations are out of date when they are published. Conscious of the significance of this effect on valuations in the current quarter we have used up to date information wherever possible. We have asked for, and received, advance information on valuations from our funds with the result that over 80% of the portfolio by value is based on 30th September 2008 valuations. Whilst there have been a number of downgrades in valuations this is not a universal feature, and in a small number of cases there have been upgrades reflecting realisations, strong trading or debt reduction in the underlying companies. It is also the case that this quarter has seen a significant strengthening of the US dollar against sterling and this has given a benefit equivalent to 1.5% of the portfolio. If the economic environment internationally deteriorates further and stockmarkets remain depressed or fall further it is likely that the valuations of more companies in the portfolios of our funds and some of our co-investments will be reduced further. At this stage it is impossible precisely to quantify this but it is clear that certain companies and funds will fare better than others and that a future indiscriminate severe mark-down in valuations is unlikely to be appropriate given the diversity of our investment portfolio, our current knowledge of comparable quoted valuations, profits progress and debt levels of underlying companies. I return to the subject of valuations below.

New Investments

During the quarter several new investments were made through our investee funds and also directly by us in co-investments alongside these funds. The aggregate level of investment was unusually high, with over £29m invested during the quarter. The current quarter has seen a return to more normal levels, with drawdowns of £6m to date.

Co-investments

£ 4.3m was invested directly in private companies alongside our investment partners. £3.3m was invested by us alongside Inflexion in ICS (Independent Clinical Services) a provider of temporary nurses and doctors to hospitals, clinics and surgeries. This company shows strong growth characteristics in a robust market where it has a significant share. We have also invested £0.9m into the international modular buildings company Algeco/Scotsman through the TDR led rollover and through an addition to our existing investment via the TDR Capital I fund. Having worked with Algeco over the last four years TDR believes that this company has both growth potential and strong defensive characteristics. After the quarter end we made an investment of €1.5m in Bartec, a Frankfurt based provider of safety devices for a wide range of industries. This investment, led by the leading Swiss private equity group Capvis, gives us exposure to a well managed business with a growing market share whose products are critical to a wide range of companies worldwide.

UK Funds

In addition to the ICS co-investment we have invested £6.6m through UK focused funds this quarter in several diverse companies. Examples include £1.6m by RJD Partners II for two companies, IPES and Raphael Healthcare. IPES provides outsourced fund administration and management services for private equity funds. Raphael Healthcare is an independent provider of low secure hospital services to NHS patients. Other significant investments include £1.3m by Penta for investment in IDSS, a provider of CCTV and air conditioning services and £0.27m drawn by Environmental Technologies Fund for investment in Industrial Origami, a company which has a novel technology with applications in sheet metal manufacture.

European Funds  

In European funds the drawdowns this quarter amounted to £16.8m. The largest investments were for funds that have been building a portfolio of deals before achieving a closing. For example Stirling Square Capital II called £3.6m for three deals and Capvis III called £2.1m for their first two deals. These drawdowns represented 38% and 30% of our total commitments to these funds respectively. We also had a large drawdown from Candover 2008 of 15% of our commitment for their first investment in oil services company Expro. Another notable trend is that the mezzanine funds in our portfolio have been active. This is a direct result of the scarcity of bank finance and the consequent increase in demand for mezzanine. Mezzanine Management IV called £1.4m, Accession Mezzanine II called £2.1m over the quarter and Hutton Collins called a total of £0.7m from its three funds. Other large investments included £0.9m by Argan Capital for investment in Humana, the leading provider of assistance to disabled people in Sweden and £0.6m by Candover 2005 into Technogym, the leading fitness equipment manufacturer and £0.4m by Chequers Capital XV into Cenexi, the manufacturer of pharmaceutical products. Continuing with the healthcare theme, which is popular across Europe, N+1 invested £0.7m in MBA group, a distributor of orthopaedic devices.

US Funds

In funds managed from the US we have invested £2.5m this quarter in a range of investments made by the Blue Point, Camden, Warburg Pincus and RCP funds. This also included small investments by the AIG Global Emerging Markets Fund II, AIG Brazil Special Situations fund and AIF Capital Asia fund.

Realisations

Realisations during the quarter amounted to £4.8m. Much of this came through a few notable exits.£1.8m was received from the Italian fund Alto Capital following the sale of engineering company Metalcastello to Indian investors ICICI and Mahindra & Mahindra. £0.8m was received from Gilde Buy-out fund following the sale of Walter Services to German private equity group Odewald. There were two sales from the portfolio of Accession Mezzanine Capital; ERA (aircraft surveillance equipment) which was sold to a trade buyer (£0.35m to F&CPET) and Euromedic (health clinics) which was sold to Montagu (£0.34m to F&CPET). Part of this last sale was effectively re-invested by us when Montagu III drew £0.1m for its acquisition of Euromedic, their first Central European deal. Since the quarter end there have been further realisations of £4m in the mid market and we expect more exits of mature holdings over the coming weeks and months.

New Commitments

The only new commitment made this quarter was one of €12m to the Candover 2008 Fund. After the quarter end we agreed to invest €1.5m in the Capvis led co-investment Bartec.  This is a strongly growing business with considerable upside potential and some defensive characteristics. Between now and the year end we do not expect to make any fresh commitments.

Valuations

There is considerable discussion in the market concerning the realism of private equity valuations. We have maintained a consistent approach to valuation for over 15 years and, with few exceptions, this has proved conservative.  

Our portfolio is very diverse but some idea of the valuation parameters can be gained from our co-investment portfolio which accounts for approximately 21% of the portfolio by value. As significant shareholders in these companies we have regular access to management and this keeps us fully aware of developments that have a bearing on valuations. Our portfolio is generally performing strongly but, given the weakness of markets this quarter, we have made a number of reductions in valuations. Following these adjustments our co-investment portfolio has an aggregate weighted valuation equivalent to an Enterprise Value to EBITDA ratio of 6.7X for the current year. The debt to EBITDA multiple is 3.0X with net debt representing 48% of enterprise value. Our assessment is that this portfolio of 15 private companies is conservatively valued. 

The majority of our total portfolio, approximately 80% by value, is in mid market funds or co-investments. The bulk of the remainder is in venture capital funds or funds focusing on emerging economies. We have exposure through over 70 funds to 400 underlying companies in almost all the economic regions where private equity is undertaken. We expect that this mid market focus and significant diversification combined with the strengths of our key investment partners will stand us in good stead during the current difficult economic situation.

Commitments and Capacity

For several years F&C Private Equity Trust has successfully managed an over commitment policy where our outstanding commitments to private equity funds exceeds our liquid assets or borrowing facilities. Such a policy is a common feature in the sector. This has been pursued in order to keep the portfolio fully invested in private equity with the objective of building value for shareholders over the long term.   In relation to funding these commitments, we have headroom on our existing borrowings and scope to add to our existing committed facility. The Company currently has £140m of outstanding undrawn commitments. Our investment partners, in normal circumstances, would expect to call down the bulk of these commitments over periods of up to 5 years. It is usual for them to reserve a proportion for follow on investments later in the life of a fund. The weighted average unexpired investment period of the funds to which we have commitments is 3 years 6 months. As a matter of routine we keep in close touch with our investment partners to gauge the rate of drawdown and realisation for each fund. After taking all these factors into account we expect to be able to meet our outstanding commitments as they are drawn down over the next few years.

Outlook

Given the reduced availability of bank debt for buy-outs and the depressed stockmarkets it seems likely that the number and size of drawdowns and realisations in the private equity market will fall off sharply as we go into 2009. Whilst we anticipate a sharp reduction in investment activity we expect our investment partners to make some new investments and also to achieve exits for certain of their stronger mature investments. The private equity investors whom we are backing are experienced in assessing risk and opportunity. They are cautiously assessing the balance between these factors at present with a view to long term value creation. 2009 could be a quiet period for buying and selling companies but this will provide time for private equity managers and management teams to adjust strategies to safeguard and grow equity value during the more challenging economic conditions which are now prevailing.

Hamish Mair

For more information, please contact:

Hamish Mair	0131 718 1184
Martin Cassels	0131 718 1095
[e-mail]  / [e-mail]

  F&C PRIVATE EQUITY TRUST plc

Income Statement for the 

nine months ended 30 September 2008

			Unaudited
			Revenue £'000	Capital £'000	Total £'000
Gains on investments			-	11,136	11,136
Currency gains			-	647	647
Income	- franked		55	-	55
	- unfranked		1,329	-	1,329
Investment management fee			(304)	(1,986)	(2,290)
Other expenses			(504)	-	(504)
			_______	_______	_______
Net return before finance costs and taxation			576	9,797	10,373
Interest payable and similar charges			(57)	(172)	(229)
			_______	_______	_______
Return on ordinary activities before taxation			519	9,625	10,144
Taxation on ordinary activities			(140)	140	-
			_______	_______	_______
Return on ordinary activities after taxation			379	9,765	10,144
			_______	_______	_______
Returns per Ordinary share - Basic			0.43p	12.82p	13.25p
			_______	_______	_______
Returns per Ordinary share - Fully diluted			0.42p	12.48p	12.90p
			_______	_______	_______
Returns per Restricted Voting share - Basic			0.10p	0.74p	0.84p
			_______	_______	_______

  F&C PRIVATE EQUITY TRUST plc

Income Statement for 

nine months ended 30 September 2007

			Unaudited
			Revenue £'000	Capital £'000	Total £'000
Gains on investments			-	46,594	46,594
Currency losses			-	(749)	(749)
Income	- franked		75	-	75
	- unfranked		2,014	-	2,014
Investment management fee			(282)	(845)	(1,127)
Other expenses			(463)	-	(463)
			_______	_______	_______
Net return before finance costs and taxation			1,344	45,000	46,344
Interest payable and similar charges			(35)	(27)	(62)
			_______	_______	_______
Return on ordinary activities before taxation			1,309	44,973	46,282
Taxation on ordinary activities			(370)	261	(109)
			_______	_______	_______
Return on ordinary activities after taxation			939	45,234	46,173
			_______	_______	_______
Returns per Ordinary share - Basic			0.98p	44.03p	45.01p
			_______	_______	_______
Returns per Ordinary share - Fully diluted			0.96p	42.86p	43.82p
			_______	_______	_______
Returns per Restricted Voting share - Basic			0.34p	19.99p	20.33p
			_______	_______	_______

F&C PRIVATE EQUITY TRUST plc

Income Statement for 

year ended 31 December 2007

			Audited
			Revenue £'000	Capital £'000	Total £'000
Gains on investments			-	57,141	57,141
Currency losses			-	(1,343)	(1,343)
Income	- franked		103	-	103
	- unfranked		2,915	-	2,915
Investment management fee			(391)	(1,994)	(2,385)
Other expenses			(631)	-	(631)
			_______	_______	_______
Net return before finance costs and taxation			1,996	53,804	55,800
Interest payable and similar charges			(17)	(49)	(66)
			_______	_______	_______
Return on ordinary activities before taxation			1,979	53,755	55,734
Taxation on ordinary activities			(587)	569	(18)
			_______	_______	_______
Return on ordinary activities after taxation			1,392	54,324	55,716
			_______	_______	_______
Returns per Ordinary share - Basic			1.37p	56.74p	58.11p
			_______	_______	_______
Returns per Ordinary share - Fully diluted			1.34p	55.52p	56.86p
			_______	_______	_______
Returns per Restricted Voting share - Basic			0.60p	19.84p	20.44p
			_______	_______	_______

  F&C PRIVATE EQUITY TRUST plc

BALANCE SHEET

	As at 30 September 2008 (unaudited)		As at 30 September 2007 (unaudited)		As at 31 December 2007  (audited)
	£000	£000	£000	£000	£000	£000
Investments at market value
Listed on recognised exchanges	2,880		8,531		43,984
Unlisted at directors' valuation	203,691		172,149		150,597
	_______		_______		_______
		206,571		180,680		194,581
Current assets
Debtors	474		167		789
Cash at bank	2,895		10,235		5,822
	_______		_______		_______
	3,369		10,402		6,611
Creditors
Amounts falling due within one year	(24,799)		(1,154)		(1,462)
	_______		_______		_______
Net current (liabilities)/assets		(21,430)		9,248		5,149
		_______		_______		_______
Total assets less current liabilities		185,141		189,928		199,730
		_______		_______		_______
Creditors
Amounts falling due after more than one year		(1,898)		-		(822)
		_______		_______		_______
Net assets		183,243		189,928		198,908
		_______		_______		_______

  F&C PRIVATE EQUITY TRUST plc

BALANCE SHEET (CTD)

		As at 30 September 2008     (unaudited)		As at 30 September 2007 (unaudited)		As at 31 December 2007 (audited)
		£000		£000		£000
Capital and reserves
Called up ordinary capital		1,394		1,394		1,394
Special distributable capital reserve		15,679		40,000		40,000
Special distributable revenue reserve		37,692		38,363		38,363
Capital redemption reserve		664		664		664
Capital reserve		127,235		108,380		117,470
Revenue reserve		579		1,127		1,017
		_______		_______		_______
Total shareholders' funds		183,243		189,928		198,908
		_______		_______		_______
Net asset value per Ordinary share - Basic		246.22p		221.22p		233.82p
Net asset value per Ordinary share - Fully diluted		243.15p		218.81p		231.08p
Net asset value per Restricted Voting share - Basic		7.86p		44.76p		44.56p

  F&C PRIVATE EQUITY TRUST plc

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

	Nine months ended 30 September 2008 (unaudited)	Nine months ended 30 September 2007 (unaudited)	Year  ended  31 December 2007 (audited)
Opening equity shareholders' funds	198,908	146,233	146,233
Return on ordinary activities after taxation	10,144	46,173	55,716
Dividends paid	(817)	(2,478)	(3,041)
Special dividends paid	(671)	-	-
Return of capital paid	(24,321)	-	-
	_______	_______	_______
Closing equity shareholders' funds	183,243	189,928	198,908
	_______	_______	_______

Notes

1.    The unaudited quarterly results have been prepared on the basis of the accounting policies set out in 
        the statutory accounts of the Company for the year ended 31 December 2007.  

2.    These are not full statutory accounts in terms of Section 240 of the Companies Act 1985. The full 
        audited accounts for the year to 31 December 2007, which were unqualified, have been lodged with
        the Registrar of Companies.  The quarterly report will be available on the Company's website.

3.    Returns per Restricted Voting share are based on the average number of shares in issue during the 
       period of 67,084,807.

        Returns per Ordinary share are based on the following average number of shares in issue during the 
        period:-
        Basic              72,282,273
        Fully diluted    74,241,429

        Basic net asset value per Restricted Voting share is based on 67,084,807 shares in issue at the end 
        of the period.

        Basic net asset value per Ordinary share is based on 72,282,273 shares in issue at the end of the 
        period.
        Fully diluted net asset value per Ordinary share is based on 74,241,429 shares in issue at the end of 
        the period.

 

END

 

 

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