BPET.L Regulatory News (BPET)

18 Sep 2007 10:39

F&C Private Equity Trust PLC18 September 2007 To: Stock Exchange For immediate release: 18 September 2007 F&C Private Equity Trust plc Interim results for the six months to 30 June 2007 • NAV total return for the six months of 42.8 per cent for the A shares; • NAV total return for the six months of 17.4 per cent for the B shares; • Realisation of private equity assets of £22.1 million; • New investment in private equity assets of £ 26.3 million; • A share revenue dividends of 0.30 pence declared; • B share revenue dividends of 0.50 pence declared; Chairman's Statement The year has begun well for your Company with considerable portfolio activityand excellent growth in the net asset values ("NAV") of both classes of share.This growth was broadly based, and has been driven by a combination ofrealisations and valuation uplifts. During the period the Company has announcedsales of Academy Music Group, Global Design Technologies and, most recently, theDakota, Minnesota and Eastern Railroad ("DM&E"). The portfolio, which consistsof 57 fund investments and 9 co-investments directly in private companies, hasincreased in value by over £30m in the year to date. The NAV per A share at the 30th June was 34.88p, an increase of 37.2% since thestart of the year. The NAV total return for the six month period was 42.8% andthe share price total return 39.2 %. The net assets of the A pool now stand at £23.4m, of which £1.8m was in cash atthe 30th June. Since this date there have been some significant realisations,most notably the sale of the Company's longstanding holding in DM&E, and oncethe proceeds of these are received the cash proportion of the A pool will riseconsiderably. The remaining non cash element of the A pool will be small andundiversified. The Board therefore plan to bring forward proposals to merge theA pool with the B pool and to allow A shareholders to receive cash if they wish.Your Board believes that the move to one class of shares will improve themarket's understanding of the Company and should have a beneficial effect on theshare price rating. The NAV per B share, after full dilution for management warrants, was 206.21p,an increase of 15.8% since 31st December 2006. The NAV and share price totalreturns were 17.4% and 12.7% respectively. The B pool at 30th June 2007 had netassets of £150.5m and, with its well diversified international portfolio ofprivate equity assets, should prove attractive to a wide range of investors. The Board is declaring interim dividends of 0.3 per A share and 0.5p per B shareto be paid on the 19th October. Whilst this report records another highly successful period for the Company, theinfluence of current uncertainty in financial markets on its portfolio cannot beignored. Our portfolio is not insulated from events in the wider financialmarkets, but it is well diversified and is not obviously vulnerable to thedirect or indirect consequences of the difficulties in the US sub-prime mortgagemarket, nor the associated difficulties in the short term interbank market.Potential consequences of the change in the banking environment might be thatbanks are more reluctant to advance debt to private equity backed companies forthe purposes of refinancing or recapitalisations or that banks will lend asmaller proportion of the transaction value to new MBOs. Through discussionswith our investment partners we are still assessing the impact of the summer'sevents. At the level of the individual private equity funds and underlyingportfolio companies there are many encouraging developments and we would expectthese to continue to build value for our shareholders over the medium and longerterm. Apart from the strengths inherent in its portfolio your Company hassubstantial resources available to it which we may use to benefit from thecurrent situation. The B pool currently has cash or near cash resources of£12.0 million, and the gross proceeds of DM&E and GDT are expected to add afurther £18 million. In addition the Company entered into a five year £40million revolving credit facility with The Royal Bank of Scotland on 30 April2007 and may borrow up to 30 per cent of total assets. With total outstandingcommitments in excess of £150 million, which may be drawn down over periods ofup to five years, the Company, through its investment partners, is wellpositioned to take advantage of buying opportunities should these arise. Elizabeth Kennedy joined the Board on 1 July 2007. Elizabeth is a corporatefinance director with Brewin Dolphin Securities and her considerable experiencewill be valuable to the Board. I am pleased to report that June's final judgement from the European Court ofJustice was supportive of the Association of Investment Companies' contentionthat VAT has been wrongly claimed from investment trusts domiciled in the UK.We remain some way from the resolution of this issue, but it appearsincreasingly likely that your Company will benefit from a reduction in itsrunning costs as well as receiving a one off benefit from the recovery of VATalready paid. Private Equity is essentially a long term asset class which, if professionallymanaged, has the potential to deliver excellent returns to investors. Thediversified international fund of funds structure is increasingly seen as anattractive and appropriate way for investors to access these high returns. Ourstructure as an investment trust combines the benefits of liquidity, strongcorporate governance and low costs and distinguishes us from many other privateequity fund of funds. In uncertain times we believe these well establishedstrengths should prove reassuring to investors. David Simpson Chairman Manager's Review Investment Strategy The portfolio has performed strongly in the first half of the year. Thisreflects a benign economic environment which has enabled many of our investeecompanies to successfully advance business plans. There has also been continuingstrong demand for growing private companies leading to a number of good exits.The private equity sector has shown growth in assets invested and funds raisedof 10 - 20% pa over recent years and many categories of investor now have someexposure to the asset class. Much of this growth has been stimulated by stronghistoric returns and the reinvestment of gains. The increased size of the sectorand the consequent additional reach of the larger private equity funds, whichhas been augmented by a highly liquid banking sector, has raised the profile ofthe sector. Amongst experienced investors the value creating techniques ofprivate equity are well known, but in recent years these have come to be morewidely recognized and appreciated. It still remains the case that privateequity holds considerable risks as well as opportunities and consequently therange of returns between the best and the worst practitioners is exceptionallywide when compared with almost any other widely investable asset class. Ourapproach is to seek to invest with the strongest private equity managers whohave a proven ability to make excellent absolute returns over the medium andlonger term and who have the necessary disciplines and processes to replicatethis strong performance going forward. This requires us to assess a wide rangeof factors, including but not limited to the track record, the skills,experience and motivation of the investment teams as well as the opportunitieswithin the particular geographic or sectoral markets being targeted. We haveinvested most of the Company's capital in mid market buy outs or mezzanine fundsinvesting in Europe and North America. The remainder of the portfolio has beeninvested in venture capital funds and generalist private equity funds focusingon a small number of attractive new markets. We have backed many established groups but retain a willingness to backpromising private equity managers who are at an earlier stage in theirdevelopment. At this point the alignment of interest between us and them isespecially close and experience suggests that there are numerous positivefeedbacks which act to improve our decision-making. Our principal objectivesremain to make excellent returns for our shareholders whilst effectivelymanaging risk through diversification. New Investments The portfolio has continued to broaden with £26.3m of new investments completedin the first half. These have been into a very wide range of companies,predominantly in Europe. We regard the mid market of European private equity asa highly attractive area for investment. It comprises thousands of companies.Whilst there are more private equity funds focusing on this area, private equityis rapidly becoming an accepted means of financing smaller growth companies inEurope. Consequently there remains a favourable balance between the supply ofcompanies and the number of funds. Reflecting this market inefficiency pricesare generally lower in the mid market. Examples of new investments made by our investment partners include £0.7m inSpanish IT consultancy, Everis (Hutton Collins), £0.7m in French travel luggagecompany Delsey (Argan Capital), £0.6m in French clothes and shoes retailerVivarte (Chequers Capital), £0.4m in Austrian industrial services company MCE(DBAG) and £0.4m in Spanish civil explosives company Maxam (Ibersuizas). In theUK £0.3m was invested in the manufacturer of fall arrest equipment CapitalSafety Group (Candover) , £0.3m in elderflower cordials producer Bottlegreen(Piper) and £0.3m in insurance broker Ostrakan (Hutton Collins). Most of thefunds in which we invest are generalists with some preferred sectors. This leadsus to have a broadly diversified underlying portfolio. We have completed twoco-investments in the period. £1.2m in Blues Clothing, a market leadingsupplier of character licensed clothing. This was in a £23m deal led by PentaCapital. £2.5m was invested in Lifeways Community Care, one of the leadingproviders of care for disabled adults. This was a £52m deal led by August EquityPartners. Realisations The portfolio has seen considerable exit activity with distributions receivedtotaling £22.1m. In January £6.8m came in from the sale of our holding inGondola , the holding company of Pizza Express, when the company was takenprivate by Cinven. This concluded a highly successful investment led by TDRCapital where we achieved 4.2x our original investment and an IRR of 65%. InMarch £2.5m came from Academy Music Group which was acquired by LN - Gaiety.This investment was led by RJD Partners and achieved an investment multiple of2.5x and an IRR of 53%. In May Stirling Square Capital Partners announced thesale of aerospace components company Global Design Technologies to Bridgepointfor $343m. As a co-investor we will receive £10m, over 4x our originalinvestment and an IRR of over 100%. After the half year end our largest and longest standing direct investment,Dakota, Minnesota and Eastern Railroad ("DM&E") was sold to Canadian PacificRailway for US $1.48bn with a deferred contingent consideration of up toanother US $1.0bn. The initial gross proceeds, expected to be received inOctober, will total $68m (£34m). Beyond that there are potential furtherproceeds of a similar amount payable over several years dependent on thesuccessful development by Canadian Pacific of the Powder River Basin extensionproject. This investment was made by our predecessor company, Scottish Eastern,in 1986 and despite the exceptionally long holding period has achieved, on theinitial gross consideration alone, over 35x the original investment and an IRRof 28%. This investment spectacularly demonstrates the benefits of patience. In our wide range of funds there were many realisations. Of these the mostindividually significant were £1.2m from Tragus (restaurants LGV), £0.9m fromIntermed (medical equipment August Equity), £0.7m from GAM (machinery Nmas1),£0.7m from Wellstream (Oil services Candover), and £0.7m from Kingfield Heath(office supplies wholesaler LGV). New Commitments The longer term growth in asset value can only be maintained if new commitmentsare made for the future. Two secondary investments have been made; CloseBrothers Growth Capital II B (£4m) and Pentech (£2.5m). We have backed a numberof successful teams again with new commitments ; €7m to Mezzanine Management IVand €7m to Accession Mezzanine Capital II. Also in Eastern Europe €7m to AIGNew Europe II. After the end of the period we backed August Equity II with£10m. Using our flexibility to invest outside Europe or North America we onceagain backed the accomplished AIG emerging markets team in their Brazil SpecialSituations fund with a $5m commitment. Valuation Changes Given the strength of the portfolio and the supportive environment most of thevaluation changes in the first half were uplifts. These came from premiumsachieved on exit as well as uplifts reflecting strong progress in underlyingprofits and balance sheets. Collectively the net gain to the portfolio was £30m.Of this £25m was for the benefit of the B pool. Large uplifts were attributed tothe following holdings; DM&E £10.8m, Global Design Technologies £5.2m, VikingMoorings £2.5m, Argan Capital £2.0m, Candover 2001 £1.7m and Academy MusicGroup £1.1m. Outlook Given the excellent progress made in the first half of the year and thevolatility occurring in financial markets since August, it is sensible toapproach the second half with some caution. Much will depend on the degree ofcontagion and whether there is a loss of confidence which spreads to the realeconomy. The investments in our portfolio are made and managed by experiencedprofessionals deploying money carefully to make returns over years and notmonths. Importantly they have the ability to change the plans of theirunderlying companies should market conditions change. We keep closely in touchwith our investment partners and to date there is no sense of unease and in somecases we would expect the current volatility to provide opportunity rather thanhazard. Hamish Mair For more information, please contact: Hamish Mair 0131 465 1184Martin Cassels 0131 465 1095hamish.mair@fandc.com / martin.cassels@fandc.com Alastair Moreton, Arbuthnot Securities Ltd 0207 012 2000Gordon Neilly, Intelli Corporate Finance 0207 653 6300 F&C PRIVATE EQUITY TRUST plc Income Statement for the six months ended 30 June 2007 Unaudited Revenue Capital Total £'000 £'000 £'000 Gains on investments - 30,316 30,316Currency losses - (243) (243)Income - franked 108 - 108 - unfranked 1,217 - 1,217Investment 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 A share - Basic 0.29p 10.16p 10.45p _______ _______ _______Returns per B share - Basic 0.51p 31.55p 32.06p _______ _______ _______Returns per B share - Fully diluted 0.50p 30.72p 31.22p _______ _______ _______ F&C PRIVATE EQUITY TRUST plc Income Statement for six months ended 31 January 2006 Unaudited Revenue Capital Total £'000 £'000 £'000 Gains on investments - 11,708 11,708Currency gains - 37 37Income - franked 324 - 324 - unfranked 871 - 871Investment management fee (187) (561) (748)Other expenses (198) (655) (853) _______ _______ _______Net return before finance costs and taxation 810 10,529 11,339 Interest payable and similar charges (17) (51) (68) _______ _______ _______Return on ordinary activities before taxation 793 10,478 11,271 Taxation on ordinary activities (148) 117 (31) _______ _______ _______Return on ordinary activities after taxation 645 10,595 11,240 _______ _______ _______Returns per A share 0.23p 1.12p 1.35p _______ _______ _______Returns per B share 0.42p 24.77p 25.19p _______ _______ _______Returns per C share 0.71p (1.76p) (1.05p) _______ _______ _______ F&C PRIVATE EQUITY TRUST plc Income Statement for seventeen months ended 31 December 2006 Audited Revenue Capital Total £'000 £'000 £'000 Gains on investments - 34,622 34,622Currency losses - (58) (58)Income - franked 527 - 527 - unfranked 4,344 - 4,344Investment management fee (509) (1,532) (2,041)Other expenses (857) (505) (1,362) _______ _______ _______Net return before finance costs and taxation 3,505 32,527 36,032 Interest payable and similar charges (31) (93) (124) _______ _______ _______Return on ordinary activities before taxation 3,474 32,434 35,908 Taxation on ordinary activities (941) 483 (458) _______ _______ _______Return on ordinary activities after taxation 2,533 32,917 35,450 _______ _______ _______Returns per A share - Basic 1.05p 9.31p 10.36p _______ _______ _______Returns per B share - Basic 3.21p 46.85p 50.06p _______ _______ _______Returns per B share - Fully diluted 3.20p 46.70p 49.90p _______ _______ _______ F&C PRIVATE EQUITY TRUST plc BALANCE SHEET As at 30 June 2007 As at 31 January 2006 As at 31 December 2006 (unaudited) (unaudited) (audited) £000 £000 £000 £000 £000 Investments at market valueListed on recognised 3,553 53,167 23,922exchangesUnlisted at directors' 157,466 76,801 116,354valuation _______ _______ _______ 161,019 129,968 140,276 Current assetsDebtors 450 2,454 416Cash at bank 13,744 5,797 6,764 _______ _______ _______ 14,194 8,251 7,180CreditorsAmounts falling due within (1,269) (767) (1,223)one year _______ _______ _______Net current assets 12,925 7,484 5,957 _______ _______ _______Net assets 173,944 137,452 146,233 _______ _______ _______ Capital and reservesCalled up ordinary capital 1,394 1,821 1,394Share premium account - 48,763 -Special distributable 40,000 40,000 40,000capital reserveSpecial distributable 38,363 5,030 38,363revenue reserveCapital redemption reserve 664 664Capital reserve 92,767 41,060 63,146Revenue reserve 756 778 2,666 _______ _______ _______Total shareholders' funds 173,944 137,452 146,233 _______ _______ _______Net asset value per A share- Basic 34.88p 39.41p 25.43pNet asset value per B share- Basic 208.27p 153.77p 178.71pNet asset value per B share- Fully diluted 206.21p - 178.06pNet asset value per C share- Basic - 99.41p - F&C PRIVATE EQUITY TRUST plc RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS Six months ended Six months ended Seventeen months ended 30 June 2007 31 January 2006 31 December 2006 (unaudited) (unaudited) (audited) Opening equity shareholders' funds 146,233 82,839 82,839 Return on ordinary activities after 30,189 35,450taxation 11,240Dividends paid (2,478) (6,384) (21,813)Issue of C shares - 49,757 49,757 _______ _______ _______Closing equity shareholders' funds 173,944 137,452 146,233 _______ _______ _______ F&C PRIVATE EQUITY TRUST plc STATEMENT OF CASH FLOW Six months to Six months to Seventeen months to 30 June 2007 31 January 2006 31 December 2006 (unaudited) (unaudited) (audited) £000 £000 £000 £000 £000 £000 Operating activitiesNet dividends and interestreceived from investments 1,058 260 3,919Interest received from 354 376 819depositsInvestment management fee (498) (478) (1,507)Other cash payments (468) (884) (1,402) _______ _______ _______Net cash inflow from 446 (726) 1,829operating activities Servicing of finance Interest paid - (69) (124) _______ _______ _______Net cash outflow from - (69) (124)servicing of finance TaxationCorporation tax paid (423) (298) (312) _______ _______ _______Net cash outflow from (423) (298) (312)taxation Capital expenditure andfinancial investmentPayments to acquire (42,045) (37,836) (135,888)investments Receipts from disposal of 51,480 38,342 150,304investmentsCash transferred fromacquisition of DiscoveryTrust - 3,558 3,558 _______ _______ _______Net cash inflow from capital 9,435 4,064 17,974expenditure and financialinvestment Equity dividends paid (2,478) (6,384) (21,813) _______ _______ _______ Net cash inflow/(outflow) 6,980 (3,413) (2,446)before financing _______ _______ _______ Increase/(decrease) in cash 6,980 (3,413) (2,446) _______ _______ _______ Notes 1. The unaudited interim results have been prepared on the basis of theaccounting policies set out in the statutory accounts of the Company for theseventeen month period ended 31 December 2006. 2. These are not full statutory accounts in terms of Section 240 of theCompanies Act 1985. The full audited accounts for the seventeen month period to31 December 2006, which were unqualified, have been lodged with the Registrar ofCompanies. A full interim report will be sent to shareholders in September2007, and will be available for inspection at 80 George Street, Edinburgh, theregistered office of the Company. 3. The Board has proposed an interim A dividend of 0.30 pence and aninterim B dividend of 0.50 pence payable on 19 October 2007 to shareholders onthe Register on 28 September 2007. The ex dividend date is 26 September 2007. 4. Returns per A share are based on the average number of shares in issueduring the period of 67,084,807. Returns per B share are based on the following number of shares in issue duringthe period:- Basic 72,282,273 Fully diluted 74,241,429 Basic net asset value per A share is based on 67,084,807 shares in issue at theend of the period. Basic net asset value per B share is based on 72,282,273 shares in issue at theend of the period. Fully diluted net asset value per B share is based on 74,241,429 shares in issueat the end of the period. This information is provided by RNS The company news service from the London Stock Exchange