BCAP.L Regulatory News (BCAP)

17 February 2014

Better Capital PCC Limited

Interim Management Statement

Better Capital PCC Limited (the "Company"), including its two cells, the Better Capital 2009 Cell (the "2009 Cell") and the Better Capital 2012 Cell (the "2012 Cell"), today issues its Interim Management Statement in accordance with FCA Disclosure and Transparency Rule 4.3 and relates to the period from 1 October 2013 to 17 February 2014.

1 Trading Statement

On 4 February 2014, the Company issued a Trading Statement stating that:

"Trading conditions at two of the more material portfolio companies in BECAP Fund LP ("Fund I") have been significantly below expectations in recent months. Both companies remain profitable but, based upon current trading levels and the impact these recent issues have on the multiple-based valuations, it is anticipated that a significant write-down in the value of these companies will be recorded as at the 31 March 2014 valuation date and consequently it is probable that the net asset value of the 2009 Cell will decline by a material amount as at that date.

All three of the portfolio companies in BECAP12 Fund LP ("Fund II") continue to show demonstrable progress and consequently it is probable that the net asset value of the 2012 Cell will be maintained or increased as at the 31 March 2014 valuation date."

The Board shares the frustrations expressed by Shareholders at the recent developments in Fund I and has received reassurances that the key issues are being firmly addressed. Further resources have been added to Better Capital LLP ("the Consultant") to bolster the Operating team. Thierry Bouzac joined in January 2014 and has considerable experience of undertaking operational turnarounds in the UK and Continental Europe. Further strengthening of the Operating team in the Consultant is in process.

2 BECAP Fund LP ("Fund I") portfolio

The Board of the Company has received a detailed de-briefing from the General Partner of Fund I whose views are set out below.

The performance of certain Fund I portfolio companies in the recent months has been below expectation. It is worth reflecting that these businesses have been acquired, often in conditions of great distress and have undergone extensive structural changes in the time of Fund I's ownership. There remains good expectation of a satisfactory outcome for Fund I.

Gardner posted unaudited revenues of £113.9 million (prior year audited £79.3 million) and unaudited underlying EBITDA profitability of £13.0 million (prior year audited £8.4 million) in the year to 31 August 2013. Trading in the Gardner Group in the four months to 31 December 2013 has been broadly on plan; however, current year profitability is significantly dependent upon the increasing ramp up of deliveries to its key customer on a new product programme. The current rate and near term expected rate of deliveries are below the business's expectations and, therefore, Gardner is not expected to reach the level of prior year profitability with a consequent write down on the earnings driven valuation at 31 March 2014. However, the long term prospect for this investment remains encouraging.

Spicers' traditional selling channels continue, as expected, to decline in line with the general market for office products, reflecting a shift away from intermediation. New routes to market such as contract sales and direct selling via e-commerce platforms are gaining good traction but are, as yet, insufficient to arrest the decline in sales. The relocation of Spicers' central distribution facility to Birmingham and the consequent closure of the Cambridge facility were completed in the period; however, the business incurred, and is still incurring, substantial additional costs and disruption in getting the highly automated Birmingham operations to function correctly. In addition, the business had not optimised product pricing or its inventory controls. Management strengthening is in progress. The business generated audited sales of £251.3 million and audited underlying profitability of £9.2 million in the year ended 30 April 2013. At the half year, the unaudited sales were £112.0 million (prior year £133.1 million). Current year revenues and profits are expected to be below prior year and budget with consequent effects on the largely earnings driven valuation at 31 March 2014. Significant resources are being devoted to the business to manage these issues. Matters are improving. The valuable surplus property assets are for sale and are attracting interest. Fund I's total investment in Spicers now stands at £4.4 million.

m-hance Group Limited, together with Calyx Managed Services make up the Calyx Group.

As reported in the Interims, m-hance Group Limited has suffered from poor sales performance and problems resulting partly from the integration of the acquisition of certain trade and assets from Maxima plc. As a result, m-hance Group Limited closed its financial year ended 31 December 2013 with unaudited revenues of £18.9 million (prior year audited revenues £20.7 million), well below budget and in modest loss. A new senior management team is being installed. Cost reduction measures are underway to restore profitability whilst the new management team drives revenue growth in its core offerings, in particular the Great Plains product, and improves operations across the business. The business expects a return to steady profitability.

The refocusing of the sales team in mid-2013 in Calyx Managed Services is showing encouraging early signs. At the time of writing, the pipeline has improved for the third month running with good prospects of delivering a solid first quarter for the year ending December 2014. The recapitalisation of the business's balance sheet was completed in December 2013. This will provide improved access to public sector tenders and credit facilities. The business posted unaudited revenues in the year to 31 December 2013 of £23.9 million. Cost reductions have also been completed with the business generating steady monthly profits.

Fairline faced a difficult period of trading in the year ended 31 December 2013 with revenues significantly below expectation. As reported in the Interims, Fairline was affected by the restriction on the availability of dealer finance in a weak market, leading to dealers selling boats from their stock and not making replacement orders. Issues in production and the introduction of new models using new production methods have also adversely affected short term performance. Although it is still very early days, the current year starts with an improving retail sales rate that is significantly higher than both the prior year and the current production rate. The belief is that dealer de-stocking is largely complete and the retail rate is beginning to be reflected in higher order levels. The production issues have been largely addressed, enabling a substantial improvement in efficiency and product quality. The new models introduced have been well received by both the press and potential customers.

Santia closed its financial year ended 31 January 2014 with unaudited revenues of £28.9 million (prior year audited £29.4 million) and with an underlying profitability significantly higher than prior year (prior year audited £0.9 million) across most of the divisions. The First Order Red acquisition continues to perform to the investment case. The Training business is rolling out e-learning modules enabled by an innovative learning management system which will enable further profit enhancement. Occupational Health has successfully launched a new absence management product which is already securing significant new contracts. Safecontractor maintains its position as the UK's leading safety accreditation service and continues to grow its membership base. Key for the business in the coming financial year is to take advantage of further cross-selling opportunities and to improve operational efficiency to drive incremental profitable growth. Santia has acquired the freehold of its main facility on terms which are considerably earnings enhancing.

Progress at Omnico is encouraging. The business is gaining market traction with its Omni-Basket solution which is now in operation with customers across Europe, America and Asia. Of particular note in the period are the significant mobile Point of Sale contracts with a global luxury retailer, a UK High Street retailer and a global theme park conglomerate. In addition, Omnico is supplying hardware to a large gaming software developer to support a substantial European national lottery rollout. The business has made further headway centralising its procurement function to improve product availability and reduce costs. It is anticipated that further modest investment from Fund I will be required to enable the implementation of a new Enterprise Resource Planning system. The business posted unaudited revenues of £54.9 million in the year ended 30 September 2013.

The investment in Vivat Direct Limited, trading as Reader's Digest in the UK was disposed of by Fund I on 14 February to a strategic trade buyer for a nominal sum.

Fund I, together with cash held in the holding vehicles of its investments, has sufficient liquidity to cover all current anticipated requirements.

2.1 Recent Fund I transactions

In the period from 1 October 2013 to 17 February 2014, significant transactions in Fund I were the repayment from Santia to Fund I of £1.0 million and the further funding to Fairline, Omnico and Calyx.

Macsco 30 Limited, the acquisition vehicle for Fairline, received cash injections totalling £3.0 million (being £1.9 million from Fund I and £1.1 million from a wholly owned subsidiary of the Royal Bank of Scotland plc) to fund the development of new routes to market and working capital.

Omnico received an investment of £1.3 million to fund on-going product development and working capital.

Calyx Managed Services received £1.0 million to fund its working capital.

3 BECAP12 Fund LP ("Fund II") portfolio

The Board of the Company has received a detailed de-briefing from the General Partner of Fund II.

Everest closed its financial year ended 31 December 2013 with a solid finish. The underlying profitability was very considerably better than prior year (prior year audited EBITDA loss £1.3 million). New products including triple glazing and the Elite range were rolled out during the January sales and have been well received by customers. The conversion rate for conservatories is improving, albeit from a low base. The business is strongly cash generative and will be seeking to return £5.0 million of the short term loan from Fund II in the coming months. A significant competitor has recently had a successful IPO and on 12 February, it traded at a current EBITDA valuation multiple of some 8 times based on 2013 EBITDA which would result in a sizeable valuation increase if applied to the current year's profitability.

Jaeger enjoyed a strong Christmas trade with the business reporting total sales growth of 20% in the 13 weeks to 28 December 2013, with like-for-like sales growth of 23%. Year-to-date total sales growth (49 weeks to 1 February 2014) was 12.6%. Margins were 4.4% below budget as a result of lower full price sell through. The influence of the new management team on the strategic direction of the business and the new clothing collections has been marked and has attracted positive press comments. Jaeger expects to close its financial year ending 1 March 2014 with a loss but with a material improvement on prior year (prior year audited EBITDA loss before exceptional items of £4.4 million). Further investment is planned to accelerate the upgrade of some stores.

City Link completed its crucial Christmas trading (the first under Fund II's ownership) with positive feedback across its customer pool. Two of the three major IT projects ('Seal the Pipeline' and 'Estimated Time of Arrival') have completed, with the latter being launched to customers in stages. The third IT project, being the transfer from the prior owner's service agreement is expected to complete by the end of April 2014. A streamlining programme involving the closure of four depots and one regional hub was recently announced. The business closed its financial year ended 31 December 2013 with losses substantially lower than prior year. The key challenge for City Link in the current year is to further improve service delivery and to improve its cost to serve. The pay and conditions negotiations are fully completed.

3.1 Recent Fund II transactions

There have been no significant Fund II transactions in the period from 1 October 2013 to 17 February 2014.

4 Financial

In accordance with the guidance set out in the Prospectus dated 19 December 2011, fair market valuations of Fund I and Fund II's investments are carried out on a six-monthly basis as at 31 March and 30 September. Consequently, the net asset value has not been subject to a revaluation of the underlying carrying value of investments from those reported in the Interim Report. Follow-on investment made into existing investee companies during the period from 1 October 2013 to 31 December 2013 has been added at cost to the carrying values brought forward from the last valuation as at 30 September 2013.

At market close on 14 February 2014, Better Capital's shares, BCAP.L and BC12.L, had a mid-market price on the London Stock Exchange of 115.50 pence and 107.50 pence respectively.

4.1 2009 Cell Portfolio Summary & Reconciliation as at 31 December 2013

For the avoidance of doubt, the Fund I fair value investment in SPVs reported below is based on the fair market valuations as at 30 September 2013, as amended by any follow-on investments or repayments during the period from 1 October to 31 December 2013, and has not been revalued to reflect the contents of the Trading Statement published on 4 February 2014.

4.2 2012 Cell Portfolio Summary & Reconciliation as at 31 December 2013

 For the avoidance of doubt, the Fund II fair value investment in SPVs reported below is based on the fair market valuations as at 30 September 2013 and has not been revalued to reflect the contents of the Trading Statement published on 4 February 2014.

5 Outlook

The anticipated write-down in the valuation of the portfolio in the 2009 Cell at 31 March 2014 will give rise to a lesser reduction in the Cell's NAV due to the offset of accrued carried interest which stood at £8.6m at 30th September 2013.

Deal flow continues to track at a rate consistent with previous periods; however, a higher proportion of attractive opportunities are originating from Western Europe. In the period from 1 October to 17 February, seven offers were submitted on behalf of Fund II. Two were deals in the UK, three from Germany and two from Ireland. Several of these deals have been progressed to a reasonably advanced stage.

The General Partners of Funds I and II are mindful of generating distributions that can be passed onto the Shareholders in both Cells, and will seek to generate such distributions later in the year if this can be sensibly achieved.

6 General information

Better Capital PCC Limited (the "Company") is a limited liability, Closed-ended Investment Company, which was incorporated on 24 November 2009 in Guernsey and which, by special resolution of its members, converted to a protected cell company on 12 January 2012 and on that same date changed its name from Better Capital Limited to Better Capital PCC Limited. It has an unlimited life and is registered with the Guernsey Financial Services Company as a Registered Closed-ended Collective Investment Scheme. The registered office of the Company is Heritage Hall, PO Box 225, Le Marchant Street, St Peter Port, Guernsey, GY1 4HY.

Upon conversion, the Company established the 2009 Cell to which it attributed its investment in Fund I which has a portfolio of investments in distressed businesses. It also established a new protected cell, the 2012 Cell, which issued new shares for investment through the 2012 Cell into Fund II which will invest in a portfolio of distressed businesses.

The 2009 and 2012 Cells have the investment objective of generating attractive total returns from investing (through Fund I and Fund II respectively) in portfolios of businesses which have significant operating issues and may have associated financial distress, with a primary focus on businesses which have significant activities within the United Kingdom and Ireland; such returns being expected to be largely derived from capital growth.

The 2009 Cell has committed an aggregate of £203.8 million in Fund I and the 2012 Cell has committed an aggregate of £347.4 million in Fund II.

For further information, please contact:

Better Capital PCC Limited +44 (0)1481 716 000

Jon Moulton (Director)

Laurence McNairn (Administrator and Company Secretary)

Powerscourt +44 (0)20 7250 1446

Justin Griffith

Carmen Murray

Numis Securities Limited +44 (0)20 7260 1000

Nathan Brown

Oliver Hardy

This statement is a general description of the financial position and performance of the Company for the period from 1 October 2013 to 17 February 2014. It does not contain any profit forecast or net asset value forecast. 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 portfolios.