2nd Mar 2009 07:00
Press release For immediate release on March 2nd, 2009 The information contained herein is not for publication or distribution to persons in the United States of America. Any securities referred to herein
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Candover Investments plc
Preliminary results for the year ended 31st December, 2008 Headlines * Net Asset Value per share down 50% at 1026p as at 31st December 2008 compared to 2065p at 31st December 2007
* Decline in NAV driven principally by significant falls in comparable public
company earnings multiples which are used to value investments * No final dividend. Consequently the dividend paid for the year is 22.0p per share (2007:60.0p) * Investments totalled £168.8m including buyouts of Stork, Expro and Technogym * Realisations and refinancings totalled £47.4m 2008 Fund
* Candover Investments has concluded that it is not currently in a position
to make any further commitment to invest alongside the present 2008 Fund
beyond its existing investment in Expro
* We are therefore in discussions with the Limited Partners of the 2008 Fund
with regard to a restructuring of the Fund, which may include a temporary
suspension of the investment period until such time as these matters have been resolved Strategy
* Strategic focus for 2009 is to reinforce the financial position of Candover
to enable the value inherent in the 2001 and 2005 Funds to be realised in the medium to longer term * Reduction of staffing levels to reflect current business outlook * Asian and Eastern European operations will either be put on a self-financing basis or closed down * All strategic options are being examined
Gerry Grimstone, Chairman of Candover Investments plc, said: "2008 has been a very tough year for private equity. Candover has inevitably been caught up in the turbulence and our financial position has weakened. The value of our portfolio has been severely impacted by the decline in multiples of public market comparables. In addition, our position has been affected by a lack of realisations caused by the dramatic effect of the global economic crisis. While we are not in breach of any financial covenants, we will be engaging in discussions with all our lenders in order to re-establish our financial flexibility for the longer term. "As a result of this market turmoil, we are not currently in a position to makeany further commitment to invest alongside the 2008 Fund beyond our existing investment in Expro. We are therefore in discussions with the Limited Partners in the 2008 Fund regarding a restructuring of the Fund, which may include a temporary suspension of the investment period until such time as these matters have been resolved. "The prospects for the private equity industry have altered considerably over the last six months. Our priority now is to reinforce the financial position ofthe firm, so that the value which we believe is inherent in our investments in the Candover 2001 and 2005 Funds can be realised for shareholders over a periodof time. We will also be examining the various strategic options potentially available to us. "In the circumstances facing the Company, it is clearly not appropriate to pay a final dividend."
Colin Buffin, Managing Director of Candover Partners Limited, said: "The impact of the global economic downturn is evident in our year-end valuations announced today, which are derived principally by applying public market comparable multiples. The fall in valuation multiples compounded by the impact of leverage in the capital structures has resulted in a significant
decline in the NAV. However when stock market valuations recover, we expect to see equity value returning. We remain convinced that there is significant
longer-term value in our investee companies. "The current global financial problems do not seem likely to be resolved in theshort term and our focus going forward, therefore, is on working closely with our portfolio companies and their management teams to maximise the value of
ourinvestments." Ends.
*Candover means Candover Investments plc and / or one or more of its
subsidiaries, including Candover Partners Limited as General Partner/Manager of the Candover 1997, 2001, 2005 and 2008 Funds. For further information, please contact:
Candover +44 20 7489 9848 Gerry Grimstone Colin Buffin Marek Gumienny Tulchan +44 20 7353 4200 Susanna Voyle Peter Hewer Chairman's statement
2008 has been an extremely turbulent time for the global economy, and in particular, for financial markets. The effect of the global economic crisis on the European buyout industry is stark, with investments, realisations and funding all substantially affected.
The problems in the banking sector, which resulted in a lack of debt financefor buyouts, led to a severe decline in both the value and volume of Europeanbuyouts during the year. Total deal values were down from €175 billion in 2007to €73 billion in 2008, a decline of 58%. Realisations from private equityportfolios also slowed substantially due to falling stock markets, theuncertain economic outlook and severely reduced debt funding. The fundraisingenvironment was similarly affected, with allocations to private equity hit bothby a lack of realisations from previous investments and by declining valuationsof existing public equity portfolios. This meant that many investors found thatthey were over-allocated to private equity.
I regret to report that inevitably Candover has been caught up in the turbulence affecting the private equity sector. In addition, as is set out below, we are facing our own set of challenges which have intensified in recent months.
Our performanceAfter five successive years of increases, net assets per share declined by50.3% during 2008. At 31st December, 2008 net assets attributable to theordinary shares were £224.3 million compared to £451.3 million at 31stDecember, 2007. Net assets per share were 1026p compared with 2065p at 31stDecember, 2007 (and 2051p at 30th June, 2008). The decrease in net assets pershare of 50.3% over the 12 months to 31st December, 2008 compares with adecrease of 32.8% in the FTSE All-Share Index over the same period. Profitsbefore tax were £5.2 million compared to £21.0 million last year, mainly due toprovisions made against the investment income from portfolio companies.
The write down in portfolio company valuations was mainly due to a fall in comparable earnings multiples of publicly quoted companies which we use to value our unquoted holdings and the weaker trading results seen in the final quarter of the year. This is discussed further in the Operational Review.
A worsening economic background and volatile financial markets may lead tofurther declines in valuations. However, we have revalued all the companies inwhich we have invested over the last 12 months, even though we are not obligedto do so by the IPEVC guidelines which we follow. This change in valuationbasis for these recent investments reduced the net assets by 472p per share.We invested £168.8 million in the year, of which £138.3 million was investedalongside the Candover 2005 and 2008 Funds in three new investments, namely thebuyouts of the Dutch engineering conglomerate, Stork; the oil field servicesgroup, Expro; and the gym equipment manufacturer, Technogym. Realisations andrefinancings generated £47.4 million of proceeds during the year, with £24.2million arising from the sale of our residual shareholdings in Aspen Insuranceand Wellstream.
Our year-end net debt was £64.9 million (a cash balance of £133.2 million offset by the US private placement bonds of £198.1 million) as against a net cash balance of £117.8 million
at the end of the previous year. The increase in net debt is due to the netcash outflow on investments of £121.4 million referred to above. The strengthof the Euro and the Dollar against the Pound during the year, which increasedthe Sterling value of our Euro and Dollar denominated debt by £45.6 million,also contributed to the increase. These movements have, however, benefitted thevaluation of our portfolio. The net impact of the exchange rate movement on theNAV per share has been an increase of 264p.
Our current position
The unprecedented global economic developments which occurred during the latterpart of 2008 have weakened Candover's financial position. This is due to bothan anticipated delay in realisations and the more immediate impact of thedecrease in net asset valuations on the covenants attached to the US privateplacement bonds that we issued in 2007. While we are not in breach of thesecovenants, we will be engaging in discussions with our lenders in order tore-establish our financial flexibility for the long term.The Board's focus in the current climate is to preserve the value of ourexisting investments. We have an outstanding commitment of £90.4 million to the2005 Fund which may be drawn over the next two years to fund follow-oninvestments or to strengthen the capital position of the portfolio companies.The Board's main priority is therefore to ensure that the company has thecapital required to fund this commitment and to maintain headroom in the bondcovenants. Our present gearing level is 29% and we are working to reduce thisso that we do not exceed 20% of net assets over the investment cycle.Our reduced capital strength means that we are not currently in a position tomake any further commitment to invest alongside the 2008 Fund beyond ourexisting investment in Expro. We are therefore in discussions with the LimitedPartners of the 2008 Fund regarding a restructuring of the Fund, which mayinclude a temporary suspension of the investment period until such time asthese matters have been resolved.
Our cost base has to be reduced to reflect the current financial position and, very sadly, we are having to make redundant a number of our staff. It is a matter of huge regret that we have had to take such a step.
We were developing operations in Asia and in Eastern Europe but we do notcurrently have the capacity to finance investments in these regions. The teamsconcerned are investigating the possibility of raising capital so that they canbecome effectively self-financing. If they do not succeed in raising funds,these operations will have to cease.
Dividend
It is clearly not appropriate to pay a final dividend and consequently the dividend paid for the year is 22.0p per share (60.0p in 2007). Dividends will be resumed when warranted by the financial position of the Company.
Outlook
The economic outlook has not improved since the year end. The recession willaffect trading in our portfolio companies and we expect that it will continueto make realisations challenging for some time. We are committed to workingwith our portfolio companies to ensure that they are well positioned tominimise the negative impacts of the downturn, as well as being well equippedto build value for the future. Some capital structures will come under pressurebecause of the depth of the present economic crisis and we are working with themanagement of the companies concerned to take corrective action wherenecessary.The prospects for the private equity industry have altered considerably overthe last six months, and it is unclear what our industry will look like in thefuture. Our priority now is to reinforce the financial position of the firm, sothat the value which we believe is inherent in our investments can be realisedfor shareholders. We will also be examining the various strategic optionspotentially available to us. We remain convinced that there is significantlonger term value in our funds and in Candover's share of the carried interestin those funds.Gerry GrimstoneChairman2nd March, 2009Operational reviewWith limited investment and realisation opportunities and deteriorating marketconditions, in the second half of the year our focus has been on managing theportfolio. We are ensuring that the appropriate measures are in place to helpeach of our portfolio companies maximise profitability and cashflow in thischallenging trading environment and this focus will continue into 2010.We have revised our approach to valuing new investments, which we believe isnecessary in the current environment. Rather than maintaining them at cost inline with industry guidelines we have either applied a significant discount oncost, or used public market comparables The revised approach to valuing newinvestments has resulted in a reduction in net assets per share of 472 pence.The majority of the portfolio companies reported earnings ahead of prior yearin the period, however, these earnings uplifts were offset by the decline inpublic market comparables which we use in our valuation methodology.
Investments
The Candover managed funds made three new investments during the year, withCandover investing £138.3 million in Stork, Expro and Technogym alongside thosefunds. Candover also made 11 follow-on investments totalling £30.5 million inexisting portfolio companies which are outlined in Table 1.Table 1 Candover £m 2001 Fund £m 2005 Fund £m 2008 Fund £m New investments Stork 48.9 - 295.9 - Expro International 69.5 - 131.1 150.7 Technogym 19.9 - 120.4 - Follow-on investments Parques Reunidos 15.3 - 92.4 - Wood Mackenzie 3.9 30.1 - - Gala Coral 3.8 30.1 - - Other 7.5 32.6 13.8 - Total investments 168.8 92.8 653.6 150.7RealisationsCandover and its managed funds achieved realisation proceeds of £313.8 millionduring the year - Candover's own share of such realisation proceeds was £47.4million.In April, Candover sold its residual shares in Wellstream generating proceedsof £15.6 million, bringing Wellstream's overall investment multiple to 6.9times the original investment. In May, we sold our residual shares in AspenInsurance, and together with earlier proceeds, the investment generated aninvestment multiple (at constant currency) of 1.7 times the originalinvestment. In addition, Wood Mackenzie completed its second refinancing, andhas now returned 0.8 times the original investment in cash. The principalrealisations are set out in Table 2.Table 2 Company Candover £m 2001 Fund £m 2005 Fund £m Type Aspen Insurance 8.6 68.0 - Sale of quoted stock Wellstream 15.6 143.6 - Sale of quoted stock Wood Mackenzie 5.3 49.1 - Refinancing Other 17.9 3.8 1.9 Total 47.4 264.5 1.9 realisations Portfolio reviewTable 3, below, shows the valuation movement by investee company. Favourableexchange rate movements reduced the effect of market related falls on all Euroand US dollar denominated investments, with those investments held at costseeing an uplift on the prior valuation as a result.Table 3 Residual Valuation Valuation Valuation Valuation Valuation cost1 at movement3 movement movementPortfolio 31.12.072 attributable at company £m £m to FX3 31.12.08 pence per £m share3 £m £m Expro 69.5 69.5 (34.7) 13.6 48.3 (97)International Stork 48.9 48.9 (12.7) 10.9 47.0 (8) Parques Reunidos 25.7 26.5 - 7.4 33.9 34 Alma Consulting 20.5 21.1 (0.8) 6.4 26.8 26Group Wood Mackenzie 5.6 17.6 3.0 - 20.6 14 Springer 0.6 28.5 (13.3) 4.8 20.0 (39) Ontex 22.1 12.6 0.2 4.0 16.8 19 Qioptiq 9.6 13.0 (0.6) 3.9 16.2 15 EurotaxGlass's 17.4 18.6 (6.3) 3.9 16.2 (11) Capital Safety 11.8 11.7 (0.7) 4.2 15.2 16Group Equity Trust 8.3 8.7 - 2.7 11.4 12 Ciclad 4 3.9 4.7 (0.5) 1.2 5.4 3 ICG Mezzanine 2.9 3.3 0.1 1.1 4.5 5Fund 2003 Ciclad 3 - 3.4 (0.6) 0.9 3.6 1 ICG 2000 Fund LP 1.0 1.2 0.1 0.4 1.6 2 ALcontrol 14.5 15.3 (14.0) 0.3 1.6 (63) DX Group 28.0 28.0 (28.0) - - (128) Ferretti 32.9 42.7 (42.7) - - (195) Gala Coral 28.6 24.8 (24.8) - - (113) Hilding Anders 27.4 28.8 (28.8) - - (132) Innovia Films 3.8 6.9 (6.9) - - (31) Technogym 19.9 19.9 (19.9) - - (91) Other 24.4 27.9 (12.2) 4.8 20.9 (33) Total valuation 427.3 483.6 (244.1) 70.5 310.0 (794)
1 Residual cost is original cost less realisations to date
2 Valuation net of additions and disposals during the year
3 Compared to the valuation at 31st December, 2007 or acquisition date, if later
Expro is a leading oil field service provider specialising in well flowmanagement with a particular focus on the most technically challengingdeepwater environments. Expro's operations are critical to the development ofoil and gas reservoirs and are utilised by multinational oil majors as well asstate owned national oil companies. However, the sharp drop in the oil pricesince July 2008, coupled with a weakening in the medium term outlook for oilexploration and production, has resulted in a decline in the public marketcomparables, and we have written our investment down by 50% (£34.7 million -excluding foreign exchange movements), despite the increase in profits in 2008.Expro is not immune to the factors governing global recession and themanagement team are focused on preparing the business for the expected toughertrading conditions. Candover has guaranteed an additional €44.1 millioninvestment in Expro on behalf of the 2008 Fund, pending its syndication and hasrecognised a provision of £16.8 million in respect of the guarantee.Stork is a diversified Dutch engineering conglomerate active in the aerospaceand technical services sectors. The group enjoys good market positions in thesectors and niches in which it operates and there is a clear strategy fordriving value from each of the divisions. Stork performed well in 2008 withprofits ahead of prior year. Despite the solid performance our valuation hasbeen impacted by a decline in the public market comparables, although this hasbeen partially offset by favourable exchange rate movements, and as a result wehave written down our investment by 25%, which before the positive impact offoreign exchange movements results in a decrease of £12.7 million.Parques Reunidos consolidated its position during the year as one of theworld's leading operators of attraction parks. The company enjoys leadingmarket positions in all its key markets and the majority of the parks are theleading family attraction in the surrounding area. In 2008 it made oneacquisition in Europe and two significant ones in the US, further diversifyingits park portfolio both by geography and park type. The valuation has been heldat cost with an increase in profits in 2008 offset by the decline in the publicmarket comparables.Alma Consulting Group is the European leader in cost reduction and tax recoveryoffering a wide range of services based on a success-fee model. During ourfirst year of ownership, the business has developed both organically andthrough acquisition, adding both product and geographical diversification. Wehave written our investment down by £0.8 million based on the decline in thepublic market comparables although this has been partially offset by anincrease in profits in 2008. We believe that Alma should continue to benefitfrom the global downturn as corporates look to make further savings andgovernments seek to introduce new subsidies and tax credits to stimulate theireconomies.Wood Mackenzie, a provider of research and consulting services to the energyindustry, maintained its strong performance despite the fall in the oil pricein the second half of the year. It extended its product offering in Augustthrough the acquisition of Brook Hunt, a leading provider of metals andminerals data. Despite a decline in the public comparable multiples during theyear, our investment has been written up by 17% or £3.0 million to reflect theprofit growth during the year.Springer Science + Business Media is the world's second largest publisher ofscientific journals and books. The company has been at the forefront of theindustry's move towards electronic content, with the migration from print toonline books, in particular, driving the company's performance in 2008. Despitethe positive performance, the valuation has been written down by 20% due to the fall in the market comparables. Springer has returned cash equivalent to 1.6 times the original investment to date.Ontex, the leading European manufacturer of retailer branded diapers andfeminine hygiene products, further strengthened its market position andreported solid profit growth in 2008, despite the volatility in the cost of rawmaterials in the first half of the year. A strong focus on customersatisfaction has ensured that Ontex has won a number of new contracts duringthe year thereby enabling it to increase its market share. Our investment hasbeen held at the prior valuation, given a decline in the public marketcomparables.Qioptiq, the world leader in the manufacture of high-precision optics,particularly benefitted from a strong defence market in the US and in the UKduring the year, although this has been partially offset by a weakeningcommercial market. Operationally the Group made significant progress during theyear successfully integrating Point Source, which it acquired at the beginningof the year, commissioning a new manufacturing operation in Singapore, andcontinuing actively to develop cross-selling synergies between its threedivisions. We have held our investment at the prior valuation, though thefavourable exchange rate movement results in an uplift of £3.3 million.EurotaxGlass's, a provider of automotive intelligence, is predominantly a B2Bsubscription business providing valuation data to all sectors of the automotiveindustry. Whilst its revenues are not correlated to new car sales, the globaldownturn has had an impact on some areas of the business, such as advertisingrevenues from dealers. Its sales have however remained stable and managementare currently carrying out an aggressive restructuring of the cost base of thebusiness to deliver profit growth. In view of the sector valuations and themarket environment, we have written down our investment by 34% or £6.3 millionexcluding the positive impact of foreign exchange movements.Capital Safety Group is a global market leader in height safety and fallprotection equipment. We wrote down our investment by 6% (on a reportedcurrency basis) due to a reduction in the comparable public company multiples.Capital Safety's products are sold globally and are widely used in industriessuch as oil and gas, construction (predominantly non-residential construction),manufacturing and telecoms. These sectors are all, to varying degrees, exposedto the global economy and economic sentiment but as Capital Safety is latecycle, the business only started to see this economic impact flow through toorder intake towards the end of the year. Management are currently focused ondriving costs out of the business and improving market share.Equity Trust, the world's leading trust and fiduciary services group, performedwell during the year, despite the slowdown in global trade and corporateactivity. The company was able to enhance its market position by virtue of itsquality of service and global positioning and in addition it expanded itsproduct offering through the acquisition of Custom House, a fund administrator.We continue to value our investment at cost, the increase in profits in 2008being offset by lower valuation multiples.
The Top 15 is completed by two small French private equity funds managed by Ciclad and two mezzanine funds managed by ICG.
We have taken a full provision against seven portfolio company investments.These companies are largely consumer-facing businesses, and the writedowns aredue to a combination of lower comparable multiples as well as weaker tradingresults.Ferretti is one of the leading brands in the luxury motor boat market. Thefinancial crisis, particularly the collapse of Lehmans in September 2008, hasled to a demand shock resulting in a lack of winter boat show sales and somebuyers cancelling their orders. Consequently, the company is in the process offinalising a proposal to restructure its capital base. On the terms proposed,Candover has decided not to participate in the restructuring and has thereforewritten this investment down by £42.7 million (195p per share).Hilding Anders is the European and Asian market-leading manufacturer of bedsand mattresses. The company has diverse products and operations, selling bothbranded and private label products and operates in 40 countries. Since thebuyout in December 2006, the company has grown both organically and through theacquisition of eight national bed manufacturers. However, the demand for bedsand mattresses is impacted by prevailing economic conditions and consumerconfidence and consequently demand has softened and comparable public marketmultiples have fallen significantly. As a result, we have written down ourinvestment by £28.8 million (132p per share) and provided a further £2.1million (10p per share) against a future equity commitment. Together with themanagement team we are focused on ensuring that the company trades through thisuncertain period.DX Group is the largest independent end-to-end operator in the UK postal marketoffering mail solutions for both businesses and the secure mail market. Keycustomers include property lawyers, financial institutions, National and LocalGovernment Agencies, and credit card companies. The write down of £28.0 million(128p per share) is mainly the result of falls in multiples of the comparablecompany group, as well as market related reductions in profitability. Thecurrent economic environment is adversely impacting key drivers of DX'sbusiness such as property transaction volumes, credit card issuance and highstreet activity and as a result, management are focusing on initiatives thatwill help to offset the effect of the downturn on volumes and hence sales. Thegroup continues to innovate and invest in enhanced operational capability, newproducts and services.Gala Coral is the pre-eminent integrated betting and gaming group in Europe,with strong market positions in licensed betting shops, bingo clubs and casinosand a high quality multimedia offering. Coral, the betting shop operator whichrepresents over half of group sales, continues to perform strongly, with EBITDAup in the last financial year. However, the bingo division was adverselyaffected by the smoking ban in 2008 resulting in a drop in attendances,although there are indications that it is starting to recover. The managementteam have responded to the adverse trading environment by restructuring thebusiness, cutting costs in all divisions and conserving cash, as well asfurther developing the growing e-commerce and international divisions. We havewritten down our investment by £24.8 million (113p per share) as a result of acyclical low in the trading multiples of the comparable company group. Howeverthe gaming and gambling sectors are consolidating and the larger players, likeGala, are well placed to benefit from the difficult trading conditions.Technogym is a global leader in the design and manufacture of premium brandedfitness equipment and wellness solutions, and enjoys strong brand recognitioninternationally. Whilst there is a strong fundamental support for growth fromsocial and demographic drivers such as health awareness, business growth hassuffered from the lack of commercial finance and the uncertain economic outlook has meant that a number of key accounts deferred the replacement of equipment. Given the current outlook, we have written down ourinvestment by £19.9 million (91p per share) and provided a further £12.2million (56p per share) against a future equity commitment.ALcontrol is a laboratory based testing business which supplies services to thefood and environmental markets in the UK, the Netherlands and a number of otherEuropean markets. ALcontrol made a good start to the year with improvedunderlying trading over prior year but subsequently suffered from the sharpfall in the UK construction market in 2008, with the decline in this marketsignificantly reducing demand for soil testing. As a result, management haveintensified their efforts to restructure the cost base. We have written downour investment by £14.0 million (63p per share).Innovia Films manufactures speciality films primarily for packaging, and is theonly manufacturer of polymer bank notes in the world via a joint venture withthe Reserve Bank of Australia. Year on year profits were adversely impacted byhigh input costs, particularly resin, pulp and energy. Now that theunfavourable cost environment is abating, 2009 profits are expected to improve.We have written our investment down by £6.9 million (31p per share) reflecting2008 results and the reduction in the trading multiples of the comparablecompany group.
Candover's share of the 2001 Fund carried interest was valued at £19.2 million (2007: £21.0 million)
In conclusion, the current environment does not seem likely to be resolved in the short term and our focus going forward is, therefore, on maximising the long-term value in the portfolio companies.
Colin Buffin Marek Gumienny Managing Director Managing Director Candover Partners Limited Candover Partners Limited 2nd March, 2009 2nd March, 2009
15 largest investments as at 31st December, 2008
Residual Directors' Valuation Effective % of cost Date of of valuation Movement Equity Candover's Basis of investment 1 interest Investment Geography investment £000 £000
£000 (fully net assets valuation diluted) Expro International UK July 2008 69,497 48,309 (34,748) 4.5% 21.5% Discounted cost Oilfield services Stork Netherlands January 48,880 46,998 (12,679) 6.4% 21.0% Multiple 2008 of earnings Engineering conglomerate Parques Reunidos Spain March 2007 25,707 33,893 - 5.6% 15.1% Multiple of earnings Operator of attraction parks Alma Consulting France December 20,504 26,752 (779) 5.4% 11.9% MultipleGroup 2007 of earnings Cost reduction and tax recovery services Wood Mackenzie UK July 2005 5,606 20,550 2,988 6.3% 9.2% Multiple of earnings Energy research Springer Science + Germany January 573 19,960 (13,307) 3.6% 8.9% MultipleBusiness Media 2003 of earnings Academic publisher Ontex Belgium January 22,115 16,794 238 6.3% 7.5% Multiple 2003 of earnings Hygienic disposables Qioptiq UK December 9,567 16,235 (622) 7.4% 7.2% Multiple 2005 of earnings Optical engineering
EurotaxGlass's Switzerland June 2006 17,394 16,204 (6,260)
8.0% 7.2% Multiple of earnings Automotive data intelligence
Capital Safety Group UK June 2007 11,828 15,168 (745)
6.6% 6.8% Multiple of earnings Fall protection equipment Equity Trust UK May 2003 8,319 11,350 - 5.6% 5.1% Multiple of earnings Trust services Ciclad 4 France July 2005 3,912 5,432 (536) N/A 2.4% Multiple of earnings French buyout fund ICG Mezzanine Fund UK March 2004 2,895 4,477 58
N/A 2.0% Multiple2003 of earnings Mezzanine fund Ciclad 3 France April 2000 - 3,625 (606) N/A 1.6% Multiple of earnings French buyout fund ICG 2000 Fund LP UK July 2000 1,044 1,649 67 N/A 0.7% Multiple of earnings Mezzanine fund
1. Valuation movements before the effect of foreign exchange since December 2007, adjusted for acquisitions and disposals
Financial review
Net asset value per share
As at 31st December, 2008 net assets per share were 1026p compared to 2065p at31st December, 2007 and 2051p at 30th June, 2008. The decrease in net assetsover the 12 months to 31st December, 2008 of 50.3% compares with a decrease of32.8% in the FTSE All-Share Index over the same period. The decrease in netassets per share over the six months to 31st December, 2008 was 50.0% comparedto a decrease in the FTSE All-Share Index over the same period of 22.6%.Net asset bridge analysis £m £m p/share p/share
Net asset value at 1st January 2008 451.3 2065 Investment movements: * Realised proceeds in excess of 17.3 79 31st December 2007 book value (244.1) (1117) * Unrealised writedown on investments (31.1) (142) * Provision against equity commitments and guarantee (257.9) (1180) Currency movements 57.6 264 Retained loss (9.8) (45)
Capitalised expenses, net of tax (16.1)
(74) Others (0.8) (4)
Net asset value at 31st December 224.3
1026
2008
The fall in net asset value is due to the significant write-down in the valuation of investments, caused primarily by the decline in the public market comparables used in our valuations.
Profit before tax
Profits before tax for the year were £5.2 million, compared with £21.0 millionfor the 12 months to 31st December, 2007. The decline is due principally to thehigh level of provisions against accrued interest on loan notes with investeecompanies, caused by the write down in the valuation of investments.
Investment bridge analysis
The valuation of investments of £310.0 million (2007: £344.9 million) was calculated having taken into account new investments net of realisations amounting to £138.7 million, and a net decrease of £173.6 million in the valuation of our investments.
The net decrease in the valuation of our investments comprised net unrealised depreciation
of £244.1 million, with gains from FX movements on the portfolio since 31st December, 2007 of £70.5 million.
Net debt position
Cash and liquid assets totalled £133.2 million (2007: £240.3 million) at theyear-end; loans and borrowings, excluding related derivative transactions anddeferred costs, totalled £198.1 million at the year end; giving a net debtposition of £64.9 million, and gearing of 29%.£m 2008 2007 Loans and borrowings 217.5 126.1 Fair value hedge adjustment (21.0) (5.2) Deferred costs 1.6 1.6 Value of bonds 198.1 122.5 Cash (133.2) (240.3) Net debt/(cash) 64.9 (117.8)Dividends
At the half year the Board increased the interim dividend by 10.0% from 20.0p per share to 22.0p per share. Given the current economic environment and pressures faced by the Company, the Board is not recommending a final dividend.
Investments - Analysis by value as at 31st December, 2008
By valuation method1. Discounted cost 17%2. Multiple of earnings 78%3. Third party valuations 5%By region1. United Kingdom 41%2. Benelux 22%3. France 12%4. Spain 12%5. Germany 7%6. Switzerland 6%By sector1. Industrials 27%2. Energy 17%3. Support services 13%4. Financials 13%5. Leisure 12%6. Media 7%7. Health 6%8. External funds 5%By age1. 5 years 18%Group income statement
for the year ended 31st December, 2008
unaudited Year to 31st December, 2008 Year to 31st December, 2007 Revenue Capital Total* Revenue Capital Total* ** £000 £000 £000 £000 £000 £000 Gains/(losses) on financial investments, derivatives and cash equivalents at fair value through profit and loss Realised gains and - 34,316 34,316 - 70,012 70,012losses Unrealised gains and - (224,913) (224,913) - 60,194 60,194losses - (190,597) (190,597) - 130,206 130,206 Revenue Management fees from 46,402 - 46,402 37,400 - 37,400managed funds Investment and other (5,215) - (5,215) 21,888 - 21,888income 41,187 - 41,187 59,288 - 59,288 Administrative expenses (33,207) (8,950) (42,157) (37,920) (9,339) (47,259) Profit/(loss) before 7,980 (199,547) (191,567) 21,368 120,867 142,235finance costs and taxation Finance costs (2,754) (11,075) (13,829) (369) (1,984) (2,353) Movement in the fair - 2,176 2,176 - - -value of derivatives Exchange movements on - (11,796) (11,796) - (1,458) (1,458)borrowings Profit/(loss) before 5,226 (220,242) (215,016) 20,999 117,425 138,424taxation Taxation (1,471) 3,926 2,455 (6,880) 3,397 (3,483) Profit/(loss) 3,755 (216,316) (212,561) 14,119 120,822 134,941attributable to equity shareholders Earnings per ordinary share Basic 17p (990)p (973)p 65p 553p 618p Diluted 17p (990)p (973)p 65p 552p 617p
* The total column represents the income statement under IFRS.
** The classification of fair value gains and losses on derivatives has beenrevised in the year. Fair value gains and losses on derivative financialinstruments which are taken out to mitigate the Group's foreign currencyexposure on its financial investments are now classified within "Gains onfinancial investments, derivatives and cash equivalents at fair value throughprofit and loss" on the income statement. Previously, gains and losses onthese derivative financial instruments were classified after "finance costs" onthe income statement. The change, which has no impact on profit before tax,has been made in accordance with IAS 8 as in the opinion of the Directors, itresults in more relevant information about the effect of derivativetransactions. Gains and losses on derivative financial instruments which havebeen taken out to mitigate the Group's exposures on its loans and borrowingscontinue to be classified after "finance costs" on the income statement.
Statement of changes in equity
for the year ended 31st December, 2008
unaudited Year to Year to 31st December, 31st December, 2008 2007 £000 £000 Opening total equity 451,265 328,521 (Loss)/profit attributable to equity (212,561) 134,941shareholders Exchange differences on translation of (41) (111)foreign operations Total recognised income and expenses (212,602) 134,830 Purchase of own shares (638) - Return of cash - (67) Share based payments (199) 271 Dividends (13,551) (12,290) Closing total equity 224,275 451,265Group balance sheetat 31st December, 2008unaudited 31st December, 31st December, 2008 2007 £000 £000 £000 £000 Non-current assets
Property, plant and equipment 4,008
4,146 Financial investments designated at fair value through profit and loss Investee companies 290,462 323,477
Other financial investments* 19,587 21,407
310,049 344,884
Trade and other receivables 1,240
- Deferred tax asset 6,451 4,894 321,748 353,924 Current assets
Trade and other receivables 23,864 33,574
Derivative financial 58,650 8,374 instruments** Current tax asset 3,924 - Cash and cash equivalents 133,249 240,309 219,687 282,257 Current liabilities Trade and other payables (20,342) (49,462)
Financial liability on equity (31,105) -
commitments*** Derivative financial (48,211) (7,731) instruments** Current tax liabilities - (1,658) (99,658) (58,851) Net current assets 120,029 223,406 Total assets less current 441,777 577,330liabilities Non-current liabilities Loans and borrowings (217,502) (126,065) Net assets 224,275 451,265
Equity attributable to equity
holders Called up share capital 5,464 5,464 Share premium account 1,232 1,232 Other reserves (238) 640 Capital reserve - realised 369,824 326,593
Capital reserve - unrealised (182,064)
77,483 Revenue reserve 30,057 39,853 Total equity 224,275 451,265 Net asset value per share Basic 1026p 2065p Diluted 1026p 2048p
* Other financial investments comprise the company's valuation of its investments as a special limited partner in managed funds.
** Derivative financial instruments are held to mitigate the Group's interest rate and foreign currency exposure on its loans and borrowings and its financial investments.
*** Financial liability on equity commitments comprise provisions against future equity commitments and guarantees
Group cash flow statement
for the year ended 31st December, 2008
unaudited Year to Year to 31st December, 31st December, 2008 2007 £000 £000 £000 £000 Cash flows from operating activities Cash flow from operations (22,861) 33,068 Interest paid (11,715) (637) Tax paid (4,684) (5,944) Net cash from operating (39,260) 26,487activities Cash flows from investing activities
Purchase of property, plant and (858) (3,146)
equipment
Purchase of financial investments (168,835) (90,485)
Sale of property, plant and - 92 equipment Sale of financial investments 47,426 162,415 Net cash from investing (122,267) 68,876activities Cash flows from financing activities Equity dividends paid (13,551) (12,315) Purchase of own shares (638) - Return of cash - (5,064) Loan repayments - (33,735) Advances of loans 33,178 119,870 Net cash from financing 18,989 68,756activities (Decrease)/increase in cash and (142,538) 164,119cash equivalents Opening cash and cash equivalents 240,309 63,437 Effect of exchange rates and 35,478 12,753revaluation on cash and cash equivalents Closing cash and cash equivalents 133,249
240,309
Note to the financial statements
The preliminary results for the year ended 31st December, 2008 are unaudited.The financial information included in this statement does not constitute theGroup's statutory accounts within the meaning of Section 240 of the CompaniesAct 1985. Statutory accounts for the year ended 31st December, 2008 will befinalised on the basis of the financial information presented by the directorsin this preliminary announcement and will be delivered to the Registrar ofCompanies in due course.The information given as comparative figures for the year ended 31st December,2007 does not constitute the Company's statutory accounts for those financialperiods. Statutory accounts for the year ended 31st December, 2007, prepared inaccordance with International Financial Reporting Standards as adopted by theEuropean Union, have been reported on by the Company's auditors and deliveredto the Registrar of Companies. The report of the auditors was unqualified anddid not contain a statement under Section 237(2) or (3) of the Companies Act1985.
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