11 Feb 2011 07:00
11 February 2011
Better Capital Limited
Interim Management Statement
This statement is made in accordance with the UK Listing Authority's Disclosure Rules and Transparency Rules and relates to the period from 1 October 2010 to 11 February 2011.
Overview
Better Capital Limited ("Better Capital") is a limited liability, closed-ended investment company, which has been incorporated in Guernsey with an unlimited life and registered with the Guernsey Financial Services Commission as a Registered Closed-ended Collective Investment Scheme.
Better Capital has the investment objective of generating attractive total returns from investing through BECAP Fund LP ("BECAP") in a portfolio of distressed businesses, such returns being expected to be largely from capital growth.
To date Better Capital Limited has committed an aggregate of £203.8 million to BECAP. BECAP has made four investments and one of its investments has made a further two acquisitions, details on each are provided in the following section.
Investments
New and further investments
From 1 October 2010 to 11 February 2011, BECAP has made two follow-on investments related to the existing portfolio and one new investment.
·; October 2010 - An additional £5.5 million was committed and invested in the existing Calyx business in order to fund additional working capital requirements, taking the funds committed and invested in Calyx to £22.5 million and £21.8 million respectively as at 11 February 2011;
·; January 2011 - The trade and assets of Blade Tooling Company Limited (in administration) and Blade Technology (a partnership, in administration) (together "Blade") were acquired by Gardner. The acquisition was funded in part by Gardner together with £2.5 million of additional funding in Gardner from BECAP, taking the funds committed and invested in Gardner Group Limited to £21.0 million as at 11 February 2011; and
·; February 2011 - The trade and assets of the Santia group of companies (wholly owned subsidiaries of Connaught plc, in administration) and related subsidiaries ("Santia"); £15.0 million was committed and invested as at 11 February 2011.
Current trading
Gardner
Gardner, which now includes RD Precision, is a supplier to the aerospace industry and provides a range of components to aero structure and engine manufacturers. Since the last Interim Management Statement, the company has bolstered its service offering with the acquisition of Blade (together the "Gardner Group of Companies").
The Gardner Group of Companies continues to trade on plan, with the change programmes progressing well and delivering value. A new CEO (Phil Lewis) was recently appointed who is well-placed to drive growth.
Reader's Digest
Reader's Digest is a publishing and direct marketing business selling magazines, books, music CDs, DVDs and other products to its customer base of over 500,000 individuals.
In the period from acquisition to December 2010, the company has traded marginally ahead of expectations. Audited circulation of the magazine has grown by 8% over the last six months which is the first increase in 17 years. The operational restructuring for Reader's Digest is on-track to deliver savings in the current year.
Calyx
Calyx is a provider of IT services, software and hardware, which was acquired from insolvency processes in the UK and Ireland in September 2010.
In the period following acquisition, management's key priority has been to stabilise the business, in particular the customers, suppliers and employees. This is now essentially completed and revenues have remained largely unaffected by the insolvency processes.
Whilst still early days, the Calyx change programme is progressing well with significant benefits envisaged in the current year.
Santia
Santia provides health and safety consultancy, training services, occupational health, asbestos management, food safety, information services and supplier and vendor accreditation, predominantly to the private sector.
At the date of this Interim Management Statement, Santia's management is focused on stabilising its core business activities and working on the separation issues arising from its disposal from the enlarged Connaught Plc (in administration).
Financial
The unaudited net asset value of Better Capital as at 31 December 2010 was £208.6 million, representing a net asset value per share of 100.9 pence. In accordance with the guidance set out in the Prospectus, fair market valuations of BECAP's investments are carried out on a six-monthly basis as at 31 March and 30 September. Consequently, the above net asset value has not been subject to a revaluation of the underlying carrying value of investments from those reported in the Interim Results.
At 11 February 2011, BECAP had cash balances of £130.4 million, placed with maturity dates ranging from instant access to four months.
At market close on 10 February 2011, Better Capital's shares had a mid-market price on the London Stock Exchange of 118.5 pence.
Portfolio Summary & Reconciliation as at 31 December 2010
Sector | BECAP Project cost* | SPV cost of investee company | Investee company fair value | SPV other net assets | BECAP fair value investment in SPV's** | Valuation percentage of NAV | Valuation methodology | |||||||
£m | £m | £m | £m | £m | ||||||||||
Gardner | Aerospace | 18.5 | 18.9 | 24.0 | 1.0 | 25.0 | 11.98% | Earnings | ||||||
Readers Digest | Direct Marketing | 13.0 | 13.0 | 13.0 | - | 13.0 | 6.23% | Cost | ||||||
Calyx | Information Systems | 21.8 | 18.9 | 18.9 | 2.0 | 20.9 | 10.02% | Cost | ||||||
53.3 | 50.8 | 55.9 | 3.0 | 58.9 | 28.23% | |||||||||
Fund cash on deposit | 148.5 | 71.19% | ||||||||||||
Fund other net assets | 0.5 | 0.24% | ||||||||||||
Company fair value of investment in Fund | 207.9 | 99.66% | ||||||||||||
Company cash on deposit | 0.8 | 0.38% | ||||||||||||
Company other net assets | (0.1) | (0.04)% | ||||||||||||
Company NAV | 208.6 | 100.00% | ||||||||||||
* BECAP holds its investments at cost in accordance with the terms of the Limited Partnership Agreement | ||||||||||||||
** The Company fair values its investment in the Better Capital Fund in accordance with the accounting policies as set out in Note 2 of the Interim Financial Report. | ||||||||||||||
Outlook
Early indications are that a number of major high street banks in the UK and Ireland are starting to harvest their underperforming loans and that the advisory community is experiencing an increase in activity; which should further accelerate when interest rates increase. As Consultant to Becap GP Limited, Better Capital LLP continues to receive information regarding a variety of investment opportunities and is confident that deal flow will remain strong for the coming year.
Better Capital believes that the market conditions in the sectors in which its portfolio companies operate in are demonstrating improving trends.
Commenting on the Interim Management Statement, Richard Crowder, Chairman of Better Capital said, "Good progress has been made to date on the investment of funds and the operational turnaround of companies in the portfolio. Market conditions in the sectors in which portfolio companies operate also appear to be improving. Accordingly the board is increasingly optimistic that the Company's strategy will deliver good value growth to shareholders".
For further information, please contact:
Better Capital Limited +44 (0)1481 716 000
Mark Huntley (Director)
Laurence McNairn (Administrator and Company Secretary)
Powerscourt +44 (0)20 7250 1446
Roddy Cameron
Jon Earl
Numis Securities Limited +44 (0)20 7260 1000
Nathan Brown
Simon Blank
This statement is a general description of the financial position and performance of the Company for the period from 1 October 2010 to 11 February 2011. It does not contain any profit forecast or forward looking information. Future performance and share price are likely to be affected by a number of factors, including (but not limited to) general economic and market conditions and specific factors affecting the financial performance or prospects of individual investments within the Company's portfolio.