BPET.L Regulatory News (BPET)

F&C Private Equity Trust plc

· Share price total return for the three months of 10.4 per cent for the Ordinary Shares.

· NAV total return for the three months of -0.7 per cent for the Ordinary Shares.

Manager's Review

Introduction

The net asset value ('NAV') of the Company was £195.8 million as at 31 March 2014. The fully diluted NAV per Ordinary Share was 267.18p, a decrease over the three months of 0.7 per cent. As announced with the full year results, the Company will pay a final dividend in respect of the year ended 31 December 2013 of 5.36p per share on 30 May 2014 to shareholders on the register on 2 May 2014.

The Company had net cash at 31 March of £9.5 million. Taking into account the accrued liability for the Zero Dividend Preference Shares of £42.8 million, the Company's total debt was £33.3 million giving gearing of 14.5 per cent. At the end of the period the Company had outstanding undrawn commitments to private equity funds of £59.7 million. Of this amount, £18 million is to funds whose investment period has expired and therefore only a small amount of this is likely to be drawn for follow-on investments.

At this time of year there is a short interval between reports and accordingly there have been relatively few valuation changes of note. The private equity investment environment within the European mid-market has been characterised by increased confidence with healthy levels of deal activity and prices rising, but not to levels that preclude establishing excellent deals. There are many good quality fund proposals in the market and a strong flow of quality co-investments and secondary opportunities as well. All geographies in Europe are witnessing both fund raising and successful exits. This is an improvement from last year where there was a definite North-South divide. Although it has not affected the portfolio directly, the public markets are once again a viable exit route for the larger private equity held companies. It is also clear that banking conditions, whilst not easy, have considerably improved over the last six months to one year.

New Investments and Drawdowns

Only one new commitment to a private equity fund was made during the quarter. £3 million was committed to the well-established lower mid-market specialists Primary for their Fund IV. This fund which has closed at £235 million is focused on UK companies with enterprise value of between £20 million and £100 million. Since the quarter end we have added two investments to the co-investment portfolio. £3.3 million has been invested for a 3.3 per cent stake in Park Holidays UK, the country's fourth largest caravan holiday park operator, owning and operating 21 freehold and 2 leasehold caravan holiday parks, concentrated in the South of England. Caravan park holidays have been an enduring and robust form of leisure activity for a large proportion of the population, and with the economic recovery well established there is scope for the market to accelerate from here. This company has a very experienced management team who have the skills to maximise returns from the existing parks as well as to make selective acquisitions. This investment is led by Caledonia Investments plc, which has a significant commitment and resource dedicated to private equity.

Very recently, we have invested £2 million for a 7.5 per cent stake in Ticketscript, the market leader in the Netherlands of cloud-based, self-serve event ticketing, promotion and management software, growing rapidly in other core European markets. Its market are the small to medium events and venues (selling less than 50,000 tickets a year) which are poorly served by the large ticket agencies and largely rely on 'old economy' sales solutions at present. Apart from a significant cost advantage and digital marketing, Ticketscript provides excellent customer analytics. This deal is led by Fleming Family & Partners Private Equity.

During the quarter, total drawdowns from funds were £5.2 million. In the UK there has been relatively little new deal activity to report. In Europe, the largest new investment was made by Capvis III which called £1.1 million for Italian based swimwear manufacturer Arena. Capvis are finishing their Fund III and starting Fund IV and their latest deal, VAT Holdings AG, is in both funds. The Company's investment between the two funds for VAT Holdings AG is £1.1 million. It is a Swiss based manufacturer of high end vacuum valves used in the semi-conductor, flat panel display and photovoltaic industries. In Spain, N+1 Private Equity II invested £0.7 million in Salto, a designer and manufacturer of electronic locks. This company, which sells into 90 countries, exports 90 per cent of its sales. In France, Chequers Capital XVI called £0.2 million for an investment in Espaces Verts, the largest landscape operator in France. In the US, specialist healthcare fund Healthpoint Capital Partners III called £0.5 million for follow-on investments in three companies; OrthoAccel (orthodontics), Microdental (dental labs) and Blue Belt (surgical robot technology).

Realisations

Distributions during the quarter totalled £10.2 million. In addition, the Company received £1.6 million of income. The exits were widespread by sector and geography.

In the UK, Inflexion exited Parasol (Optionis), a longstanding holding of its 2003 Fund and its associated Hickory Fund. This employment services company was sold achieving an investment multiple of 3.5x and an IRR of 22 per cent and returning £1.0 million. SEP III exited Control Circle, a provider of cloud based services to medium sized companies, returning £0.7 million and achieving 2.5x and an IRR of 27 per cent. Hutton Collins III returned £1.3 million through the refinancing of Caffe Nero, which represented 1.6x and an IRR of 17 per cent.

In Continental Europe, Chequers Capital XV recapitalised Accelya, an IT services provider to the air transport industry, returning £1.3 million. Since acquisition, the company has generated returns of 5.2x cost and an IRR of 30 per cent. Gilde Buyout Fund III sold frozen food company Hofmann Menü, returning £1.1 million (2.9x, IRR 20 per cent), and Hutton Collins, through Fund II, exited Spanish consultancy Everis, which was sold to Japanese corporate NTT, returning £1.9 million (1.8x, IRR 10 per cent). Also in Spain, Portobello Capital II exited hygiene pads company Indas to Domtar Corporation, returning £0.7 million (2.6x, IRR 15 per cent). Lastly, FSN further reduced its position in Danish house-builder HusCompagniet by selling down the remaining preference shares, returning £0.6 million. In the US, Camden Partners IV sold Prolexic, a cyber-security company, to Akamai Technologies, returning £0.6 million (3.2x, IRR 94 per cent).

Valuation Changes

There were few significant changes in valuations during the quarter. The Inflexion Co-investment Fund 2012 was up by £0.4 million due to positive trading in a number of its holdings. Argan Capital was up by £0.3 million mainly due to strong trading of industrial connectors business Faster. The Aurora Fund was up by £0.2 million reflecting a number of positive developments. On the downside, Progressus (Safran) was reduced by £0.3 million as management have adopted a provision for carried interest.

Financing

At the quarter end, the Company was in a net cash position of £9.5 million and all of its £50 million revolving credit facility was unutilised. Since then, the Company has made two co-investments (Park Holidays and Ticketscript) and has set aside funds for paying the final dividend and, as a consequence, has drawn approximately £4 million of the revolving credit facility. We expect that over the next few months cash inflows from funds will exceed drawdowns by a considerable margin and that the Company's cash resources will naturally rebuild. The extent to which we utilise the revolving credit facility will depend on how many co-investment and secondary opportunities we take. It is very important that the Company continues to rejuvenate its portfolio through new investments and that its balance sheet is used efficiently to ensure a fully invested portfolio.

On 15 December this year, the Company's issue of Zero Dividend Preference Shares ('ZDPs') is due for redemption at a price of 152.14p per share, or £45.6 million. The Company has considered a range of options for funding the redemption of the ZDPs including, accumulation of a cash balance; a further issue of ZDPs; an issue of convertible loan stock or preference shares and an expansion and extension of the existing loan facility. The Board has concluded that the most cost effective and flexible means of redeeming the ZDPs and putting in place medium term borrowings is through increasing the size of the loan facility and extending it over a longer period. The Company is currently in advanced negotiations with its bankers. Such a new arrangement will allow the Company to maintain a moderately but flexibly geared structure with the ability to draw its borrowings in multiple currencies and to maintain a fully invested portfolio. Furthermore, it is anticipated that the interest rate payable on a new loan arrangement will be below what could be achieved in the ZDP market at present, and significantly lower than the original GRY on the maturing ZDPs.

Outlook

The economic recovery, which is gathering momentum across Europe, is providing a supportive background for private equity deal making in the mid-market. Confidence levels of private equity investors, vendors of private companies, management teams and corporate players has all improved. This is even the case in markets where there have been deep adjustments, such as in Spain, where investors are now returning. Fund raising continues for many mid-market funds with the aggregate total of funds raised growing once again. Within this total there are widely different experiences with 'established names' succeeding successfully and quickly but, for most, fund raising is an arduous and intensely competitive process. That this private equity is in general very hard won, means that it is deployed very judiciously and carefully. There is no sign that the required return of private equity investors is falling. On the contrary, after more extended holding periods and the challenges brought about by recession, there is a strong incentive for managers to buy quality companies as well as possible and a disincentive to be lured into over paying for sought after assets. At present, the European mid-market, as seen through the activities of our investment partners, appears to offer some excellent opportunities at reasonable prices. Our older maturing portfolio continues to generate cash as companies which have come through the recession increasingly find buyers. We believe that the Company's well diversified portfolio is well placed to benefit from these positive trends.

Hamish Mair

Investment Manager

F&C Investment Business Limited

F&C PRIVATE EQUITY TRUST PLC

Consolidated Statement of Comprehensive Income for the

three months ended 31 March 2014 (unaudited)

F&C PRIVATE EQUITY TRUST PLC

Consolidated Statement of Comprehensive Income for the

three months ended 31 March 2013 (unaudited)

F&C PRIVATE EQUITY TRUST PLC

Consolidated Statement of Comprehensive Income for the

year ended 31 December 2013 (audited)

F&C PRIVATE EQUITY TRUST PLC

Consolidated Balance Sheet

F&C PRIVATE EQUITY TRUST PLC

Reconciliation of Movement in Shareholders' Funds

1. The unaudited quarterly results have been prepared on the basis of the accounting policies set out in the statutory accounts of the Group for the year ended 31 December 2013.

2. Investment management fee:

3. Finance costs:

4. The basic return per Ordinary Share is based on a net loss on ordinary activities after taxation of £1,403,000 (31 March 2013 - profit £5,851,000; 31 December 2013 - profit £18,348,000) and on 72,282,273 (31 March 2013 - 72,282,273; 31 December 2013 - 72,282,273) shares, being the weighted average number of Ordinary Shares in issue during the period.

The fully diluted return per Ordinary Share is based on a net loss on ordinary activities after taxation of £1,403,000 (31 March 2013 - profit £5,851,000; 31 December 2013 - profit £18,348,000) and on 74,241,429 (31 March 2013 - 74,241,429; 31 December 2013 - 74,241,429) shares, being the weighted average number of Ordinary Shares in issue during the period after conversion of the Ordinary Share warrants.

The basic return per Restricted Voting Share is based on a net profit on ordinary activities after taxation of £nil (31 March 2013 -£nil; 31 December 2013 - £nil) and on nil (31 March 2013 - 67,084,807; 31 December 2013 - 67,084,807) shares, being the weighted average number of Restricted Voting Shares in issue during the period.

5.  Zero Dividend Preference Shares

The Zero Dividend Preference Shares ('ZDP Shares') of F&C Private Equity Zeros plc were issued on 14 December 2009 at 100p per share and redeem on 15 December 2014 at 152.14p per share, an effective rate of 8.75 per cent per annum.

The fair value of the ZDP Shares at 31 March 2014 was £44,437,500 based on the quoted offer price of 148.125p per ZDP Share.

6. The basic net asset value per Ordinary Share is based on net assets at the period end of £195,814,000 (31 March 2013 - £192,158,000; 31 December 2013 - £197,217,000) and on 72,282,273 (31 March 2013 - 72,282,273; 31 December 2013 - 72,282,273) shares, being the number of Ordinary Shares in issue at the period end.

The fully diluted net asset value per Ordinary Share is based on net assets at the period end of £198,360,000 (31 March 2013 - £194,704,000; 31 December 2013 - £199,763,000) and on 74,241,429 (31 March 2013 - 74,241,429; 31 December 2013 - 74,241,429) shares, being the number of Ordinary Shares in issue at the period end after conversion of the Ordinary Share warrants.

7. Following the payment of the final Restricted Voting Shares dividend of 1.675p per share on 14 February 2013, the Restricted Voting Pool has no assets or liabilities. The Restricted Voting Shares were converted and redesignated as Deferred Shares on 14 February 2013 and the Deferred Shares were bought back by the Company and cancelled on that date. On 15 February 2013 the admission of the Restricted Voting Shares to the Official List of the UKLA and trading on the London Stock Exchange's Main Market were cancelled. The Company therefore no longer has any Restricted Voting Shares in issue.

8. The financial information for the three months ended 31 March 2014, which has not been audited or reviewed by the Company's auditor, comprises non-statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2013, on which the auditor issued an unqualified report, will be lodged with the Registrar of Companies. The quarterly report is available on the Company's website www.fcpet.co.uk.

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