Interim Results

RNS Number : 9374B

F&C Private Equity Trust PLC

26 August 2008

 



To: Stock Exchange	For immediate release:
	26 August 2008

F&C Private Equity Trust plc

Interim results for the six months to 30 June 2008 

• NAV total return for the six months of 9.4 per cent for the Ordinary shares;

• NAV total return for the six months of 0.6 per cent for the Restricted Voting shares;

• Ordinary share revenue dividend of 0.5 pence declared;

• Restricted Voting share special dividend of 1.0 pence paid;

• Realisation of private equity assets of £17.5 million;

• New investment in private equity assets of £34.5 million.

Chairman's Statement

Your Company has continued to make good progress during the first half of 2008. The net asset value ('NAV') of the Ordinary share (formerly B Share) pool had increased to £184.5 million at 30 June 2008, giving a fully diluted asset value per Ordinary share of 251.86p, and a total return of 9.4 per cent for the year to date. The Board has declared an interim dividend of 0.5 pence per Ordinary share. 

The net assets of the Restricted Voting Share (formerly A Share) pool had decreased to £5.0 million at the same date, following the declaration and payment of a special dividend of 1.0 pence during the half year. The total return for the Restricted Voting Shares was 0.6 per cent.

Share price performance did not reflect the fundamental progress, with the price per ordinary share decreasing by 3.7 per cent to 180.0 pence at 30 June 2008, as the discount at which the shares trade widened from 19.1 per cent to 28.5 per cent.

The Restricted Voting Share price was 15.25 pence at 30 June, a premium of 103.3 per cent to net asset value. This premium in large part reflects a value being placed by the Market on potential payment from the Dakota, Minnesota and Eastern Railroad (now part of the Canadian Pacific Railway) relating to the future construction of the Powder River Basin extension. In line with our valuation methodology no value has been placed on these contingent payments in either the Ordinary or Restricted Voting Share net asset value.

The Company had outstanding undrawn commitments of £168 million at 30 June. We had not drawn upon our £40 million revolving credit facility at that date, although we have since drawn down £15 million.  The Company is now geared by 8% which we expect will contribute to shareholder returns over the long term.

The single biggest contributor to the increase in net asset value was Viking Moorings, a market leader in oil rig mooring systems which had traded very strongly, and we expect to see this investment, valued at £12.1 million at 30 June, realised during the second half of the year.

More details of both realisations and new commitments can be found in the Manager's Review. I would emphasise the range of new commitments; Spain, Switzerland, the Nordic region and the United States all featured prominently, while our £5 million commitment to Environmental Technologies Fund, with its 'clean tech' remit and our £4 million investment into the Inflexion-led buy-out of SMD Hydrovision are examples of our increasing sectoral diversity.

Against the backdrop of continued volatility in financial markets the resilience of our portfolio is encouraging. Although some sales processes may have been delayed by the challenging funding environment our experience demonstrates that good quality companies remain in demand. The robust and responsive disciplines of the Private Equity Market provide us with a measure of protection against economic slowdown, especially when combined with the strength and depth of an investment portfolio of marked diversity.

David Simpson

Chairman

  Manager's Review

Investment Strategy

The Company's investment strategy of focusing on mid market managers and co-investments in this segment has been relatively undisturbed by the effects of the credit crunch. As we describe below there has been considerable investment and realisation activity, albeit at lower levels than last year, and our managers in this category have been well occupied. In most new deals there is a smaller debt component than in previous years and there is some evidence of prices beginning to decline. We have always tended to back managers who favour companies with strong growth prospects and to avoid those who focus on narrow economically sensitive sectors. Given the spreading evidence of economic slowdown we will continue to adhere to that strategy. The great majority of our investment partners regard the current conditions as conducive to good investments without being too adverse for existing portfolios. We will monitor how these assessments change as the remainder of 2008 unfolds. 

New Investments

New investment activity has continued strongly into 2008 with total new investments of £34.5m. This included £4m invested directly into the Inflexion led buy-out of SMD Hydrovision. This company is the world's leading privately owned designer and manufacturer of specialised systems for laying subsea cables and pipelines in trenches as well as the world's second largest supplier of Workclass Remotely Operated Vehicles 'WROVs', electrically powered unmanned submarines that are able to work in depths and conditions that would otherwise be inaccessible for human divers. SMD Hydrovision primarily supplies the oil and gas sector as well as providing equipment for the telecoms, renewable energy, mining and defence industries. F&C Private Equity Trust ('F&C PET') acquired 9.6% of SMD Hydrovision in the £70m buy-out. A further £1m was invested in SMD Hydrovision through the Inflexion 2006 Buy-out Fund. 

Another co-investment was F&CPET's £3.2m into Italian security company Sicurglobal where we have invested alongside Stirling Square Capital Partners in this €186m buy-out. Our €4m gives us 6.5% of the company. It is a prime beneficiary of imminent deregulation in the Italian security market which will allow the company to grow both organically and by acquisition across the regions of Italy. The acquisition multiple is below 8x EBITDA.

There was a wide range of other new investments from our funds. Some of the larger ones include £1.6m by Candover 2005 into Dutch engineering conglomerate Stork NV; £0.5m by AIG New Europe fund into Orzel Bialy, a Polish waste management company specializing in recycling car batteries; £0.86m by TDR Capital into Algeco/ Scotsman, the modular buildings manufacturer; £0.4m by DBAG V in ICTS, a leading company in aviation security systems; £0.4m by Gilde Buy-out fund III in Hofmann Menu, a market leading provider of frozen food products; £0.4m in Veinsur , a Spanish truck dealer by Ibersuizas II and £0.7m into the 'take private' of Biffa plc the market leader in industrial and commercial waste collection through the Montagu III fund. These diverse companies have the common characteristics of strong positions in growing niche markets. In all cases these have involved debt as the majority of the consideration illustrating that not withstanding the 'credit crunch' well connected private equity groups in the mid market remain capable of executing transactions in their traditional fashion.

Realisations

The first half has seen considerable exit activity and this has lead to distributions of £17.5m. Notable examples include the sale of Algeco/Scotsman by TDR I yielding £2.3m, a 3.5x investment multiple and 90% IRR. As mentioned above we have rolled forward part of the proceeds of the sale as part of a larger deal in TDR fund II. The sale of dental company IDH by LGV Fund 5 achieved an investment multiple of 4.3x, an IRR of 127% and an inflow of £1.9m to F&CPET. The earlier LGV Fund 4 also had a realisation in the healthcare sector with the sale of Classic Hospitals which yielded £0.86m with an investment multiple of 2.7x and IRR of 50%. Candover 2005 fund has sold Norwegian cable company GET returning £0.7m for F&CPET, a multiple of 2.2x and IRR of 50%. Healthcare Homes was sold by August Equity I for an investment multiple of 2.4x and an IRR of 34% returning £4.9m to F&C PET. Inflexion sold Tekton for a multiple of 1.75x cost, achieving an IRR of 53% and a £0.7m inflow. CF Holdings (Continental Foods) a longstanding holding of International Mezzanine Investments NV, was sold at a multiple of 1.8x. Allen & Heath, the professional DJ equipment manufacturer was sold by Close Brothers Growth Capital for a 1.9x multiple and 40% IRR, returning £0.7m. In the venture capital area, Life Science Partners have sold German portfolio company U3 Pharma to Daiichi Sankyo of Japan achieving an IRR of over 100% and £0.7m inflow. Once again these realisations are being achieved across diverse industries and benefiting from varying trends and evidence a level of activity which belies the feel of market slowdown.

New Commitments

We continue to broaden and strengthen the portfolio with commitments to new funds. F&CPET made seven new commitments during the first half of the year; €9m to Spanish fund N+1 Fund II, €9m to Swiss based fund Capvis III and £5m to Environmental Technologies Fund, our first investment in the 'cleantech' area. We have broadened the portfolio through the addition of two Nordic region oriented buy-out funds. In Norway we have committed 60m NOK (£6m) to Herkules (formerly known as Ferd) and in Sweden we have committed €7m to the well known mid market firm Procuritas. In addition we have made a follow on commitment to Hutton Collins of €10m for their third mezzanine fund building on a successful experience in two previous funds. Similarly we have continued our support of Baltimore-based Camden Partners by committing $10m to their Strategic Fund IV.

 Valuation Changes

There were many small valuation changes over the first half of the year reflecting the trading performance and progress towards exit of underlying companies. On a fundamental basis our investment in metal shelving and locker manufacturer Whittan has performed well and there is an uplift of £0.8m over the period. F&CPET received a small escrow payment relating to the sale of Dakota, Minnesota and Eastern Railroad and this added £0.5m to the Company's valuation. The most significant valuation change has been the increase in value of our Inflexion co-investment, Viking Moorings, which has been uplifted by £8.7m and has also largely contributed to a £2m uplift in each of the Inflexion 2003 Fund and Hickory Fund Portfolio, also managed by Inflexion. Viking, the market leader in oil rig mooring systems in the North Sea, has traded very strongly. Inflexion are exploring exit possibilities and there is scope for further value improvement should an exit be achieved. Other movements in valuation include uplifts of £0.7m from DBAG V and some notable improvement in the venture capital area with an uplift of £0.4m for Life Science Partners III. There have been no material downgrades to reflect adverse trading or adoption of reduced valuation multiples but several funds have slight declines to reflect their early stage 'J Curve' status. In order to build future value it is necessary to incur this upfront 'cost'.

Outlook

The two related features of the current investment environment are the 'credit crunch' and the resulting parallel economic slowdown which is becoming manifest across the world to varying degrees. There are some signs that the consumer related sectors are feeling the adverse effects of these but this is a fairly lightly represented sector in our portfolio. It is very clear to us that capable management operating with the support of experienced value-adding private equity investors will cope better in the downturn and should still in most cases deliver good long term returns. The private equity investor who is customarily in receipt of timely and detailed information on his investee companies and who has the ability to respond to this information by virtue of a controlling shareholding is arguably much better placed to respond to these challenging conditions than investors in public companies. In the stockmarket company information, whilst more widely disseminated, is not as timely or as detailed and investors are generally unable to instigate management or strategic change. The motivated and focused ownership which is the heart of private equity is most critical in challenging conditions. Our investment partners have been selected on their proven ability to respond well to such conditions and for many of them the adjustment in the value of companies is much more of an opportunity than a threat. Through our ongoing commitments and our substantial co-investment capacity F&CPET is well placed and its broad portfolio can to some extent act as a protective shield against the inevitable jolts of economic slowdown.

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 

six months ended 30 June 2008

			Unaudited
			Revenue £'000	Capital £'000	Total £'000
Gains on investments			-	18,174	18,174
Currency gains			-	19	19
Income	- franked		-	-	-
	- unfranked		1,153	-	1,153
Investment management fee			(208)	(2,386)	(2,594)
Other expenses			(322)	-	(322)
			_______	_______	_______
Net return before finance costs and taxation			623	15,807	16,430
Interest payable and similar charges			(15)	(45)	(60)
			_______	_______	_______
Return on ordinary activities before taxation			608	15,762	16,370
Taxation on ordinary activities			(184)	184	-
			_______	_______	_______
Return on ordinary activities after taxation			424	15,946	16,370
			_______	_______	_______
Returns per Ordinary share - Basic			0.52p	21.67p	22.19p
			_______	_______	_______
Returns per Ordinary share - Fully diluted			0.50p	21.10p	21.60p
			_______	_______	_______
Returns per Restricted Voting share - Basic			0.08p	0.42p	0.50p
			_______	_______	_______

  F&C PRIVATE EQUITY TRUST plc

Income Statement for 

six months ended 30 June 2007

			Unaudited
			Revenue £'000	Capital £'000	Total £'000
Gains on investments			-	30,316	30,316
Currency losses			-	(243)	(243)
Income	- franked		103	-	103
	- unfranked		1,222	-	1,222
Investment management fee			(176)	(529)	(705)
Other expenses			(445)	-	(445)
			_______	_______	_______
Net return before finance costs and taxation			704	29,544	30,248
Interest payable and similar charges			(1)	(4)	(5)
			_______	_______	_______
Return on ordinary activities before taxation			703	29,540	30,243
Taxation on ordinary activities			(135)	81	(54)
			_______	_______	_______
Return on ordinary activities after taxation			568	29,621	30,189
			_______	_______	_______
Returns per Ordinary share - Basic			0.51p	31.55p	32.06p
			_______	_______	_______
Returns per Ordinary share - Fully diluted			0.50p	30.72p	31.22p
			_______	_______	_______
Returns per Restricted Voting share - Basic			0.29p	10.16p	10.45p
			_______	_______	_______

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 June 2008 (unaudited)		As at 30 June 2007 (unaudited)		As at 31 December 2007  (audited)
	£000	£000	£000	£000	£000	£000
Investments at market value
Listed on recognised exchanges	2,951		3,553		43,984
Unlisted at directors' valuation	185,930		157,466		150,597
	_______		_______		_______
		188,881		161,019		194,581
Current assets
Debtors	1,157		450		789
Cash at bank	3,426		13,744		5,822
	_______		_______		_______
	4,583		14,194		6,611
Creditors
Amounts falling due within one year	(1,408)		(1,269)		(1,462)
	_______		_______		_______
Net current assets		3,175		12,925		5,149
		_______		_______		_______
Total assets less current liabilities		192,056		173,944		199,730
		_______		_______		_______
Creditors
Amounts falling due after more than one year		(2,587)		-		(822)
		_______		_______		_______
Net assets		189,469		173,944		198,908
		_______		_______		_______

                F&C PRIVATE EQUITY TRUST plc

BALANCE SHEET (CTD)

		As at 30 June 2008     (unaudited)		As at 30 June 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		38,363		38,363		38,363
Capital redemption reserve		664		664		664
Capital reserve		133,416		92,767		117,470
Revenue reserve		(47)		756		1,017
		_______		_______		_______
Total shareholders' funds		189,469		173,944		198,908
		_______		_______		_______
Net asset value per Ordinary share - Basic		255.16p		208.27p		233.82p
Net asset value per Ordinary share - Fully diluted		251.86p		206.21p		231.08p
Net asset value per Restricted Voting share - Basic		7.50p		34.88p		44.56p

  F&C PRIVATE EQUITY TRUST plc

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

	Six months ended 30 June 2008 (unaudited)	Six months ended 30 June 2007 (unaudited)	Year  ended  31 December 2007 (audited)
Opening equity shareholders' funds	198,908	146,233	146,233
Return on ordinary activities after taxation	16,370	30,189	55,716
Dividends paid	(1,488)	(2,478)	(3,041)
Return of capital paid	(24,321)	-	-
	_______	_______	_______
Closing equity shareholders' funds	189,469	173,944	198,908
	_______	_______	_______

  F&C PRIVATE EQUITY TRUST plc

SUMMARISED STATEMENT OF CASH FLOWS 

		Six months to 30 June 2008  (unaudited)		Six months to 30 June 2007 (unaudited)		Year to 31 December 2007  (audited)
		£000		£000		£000
Net cash (outflow)/inflow from operating activities		(287)		446		1,103
Servicing of finance		(60)		-		(53)
Taxation		-		(423)		(550)
Capital expenditure and financial investment		23,741		9,678		2,942
Equity dividends paid		(1,488)		(2,478)		(3,041)
Return of capital paid		(24,321)		-		-
		_______		_______		_______
(Decrease)/increase in cash		(2,415)		7,223		401
		_______		_______		_______

Reconciliation of net cash flow to movement in net funds

(Decrease)/increase in cash in the year		(2,415)		7,223		401
Currency gains/(losses)		19		(243)		(1,343)
		_______		_______		_______
Movement in net funds in the year		(2,396)		6,980		(942)
		_______		_______		_______
Opening net funds		5,822		6,764		6,764
		_______		_______		_______
Closing net funds		3,426		13,744		5,822
		_______		_______		_______

Reconciliation of net return before finance costs and taxation to net cash flow from operating activities

Net return before finance costs and taxation		16,430		30,248		55,800
Gains on investments		(18,174)		(30,316)		(57,141)
Currency gains/(losses)		(19)		243		1,343
Changes in working capital and other non-cash items		1,476		271		1,101
		_______		_______		_______
Net cash flow from operating activities		(287)		446		1,103
		_______		_______		_______

  PRINCIPAL RISKS AND UNCERTAINTIES

The Director believes that the principal risks faced by the Company include investment and strategic, external, regulatory, operational, financial and funding risks. These risks, and the way in which they are managed, are described in more detail under the heading Principal Risks and Risk Management within the Business Review in the Company's Annual Report for the year ended 31 December 2007. 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 INTERIM REPORT

We confirm that to the best of our knowledge:

• the condensed set of financial statements have been prepared in accordance with the Statement 'Half-Yearly Financial Reports' issued by the UK Accounting Standards Board and give a true and fair view of the assets, liabilities, financial position and return 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 the 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.

David Simpson

Director

  Notes

1.   The unaudited interim 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. A full interim report will be sent to shareholders in September 2008, and will be available for inspection at 80 George Street, Edinburgh, the registered office of the Company.

 

3.       The Board has proposed an interim Ordinary share dividend of 0.50 pence payable on 17 October 2008 to shareholders on the Register on 12 September 2008. The ex dividend date is 10 September 2008.

 

4.       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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