Fund manager commentary
As at 30 September 2013 the Company's net asset value (NAV) was £193.5m giving a fully diluted NAV per share of 264.07p, an increase over the quarter of 0.74%. A dividend of 5.22p per share was paid on 1 November. There was an adverse currency effect of 2.4% during the quarter.
At 30 September the Company had net cash of £6.4m. Taking into account the accrued liability for the Zero Dividend Preference shares of £40.9m gives total net debt of £34.5m, equivalent to a gearing level of 15.1%. The Company's total outstanding undrawn commitments at 30 September were £64.8m of which £19m are to funds whose investment period has expired. During the quarter combined realisations and income totalled £9.4m and drawdowns from funds and co-investments totalled £11.6m. No new commitments to private equity funds were made during the quarter. Three new co-investments were added and another one completed recently. £2.7m has been invested in Recover Nordic, Norway based but Nordic-area focused provider of damage control services, mainly to insurance companies. This investment is led by Agilitas, an emerging manager whose principals we have known for many years. We have a 7.2% stake in Recover Nordic. We also invested £1.3m in Safran, a Norwegian specialist software company which provides planning software to the Oil and Gas and Aerospace and Defence industries. This investment is led by Stavanger based boutique private equity manager Progressus. We have a stake of just under 20% in Safran. £3m was invested for 6.7% of Harrington Brooks, a provider of debt advice, Debt Management Plans and Individual Voluntary Arrangements and other related services. This investment is led by our long-standing partner RJD Partners. This Manchester-based company is one of the market leaders in debt management and it is growing strongly. After the quarter end we invested £3m for 11.2% of Meter Provida Limited, the UK market leading distributor of gas meters to different tiers of the energy industry. There is a pending demand for smart meters which will add significantly to the company's business in the coming years. This deal is led by emerging manager Total Capital Partners, who provide both debt and equity to growth companies.
Under our fund commitments, drawdowns of £5.1m were made in the quarter. The more notable ones once again demonstrate the sectoral and geographic spread of the portfolio, a key area of strength. August Equity III called £0.7m for investment in Minerva Education, a London based schools group. Minerva consists of Eaton Square School Group (ESS) and Ravenstone School. Lyceum Capital III called £0.6m for investment in two different companies. £0.2m went into Curocare, a UK provider of non-secure hospital and residential support for adults with learning disabilities operating nine units in total. It is expected that more will be added and further investment will be drawn as required. £0.4m of the drawdown went towards investment in Isotrak, an operator in the vehicle telematics industry, providing vehicle tracking and fleet management software. Further afield our first Poland only fund,Avallon Buyout Fund II, drew £0.5m for its first two investments. These are Velvet Care, the former Polish subsidiary of toilet tissue and paper towels company Kimberly Clark and ORE, a leading developer and provider of purchasing software solutions.
There were a number of significant realisations during the quarter with total distributions, including income, of £9.4m bringing the year-to-date total to £28.4m. The largest exit was that of fund administration company IPES which was sold to Silverfleet. The deal had been agreed some time ago but required regulatory approval to complete. RJD Partners led this deal and the return to us was £1.9m, representing a 3.1x investment multiple and 26% IRR. Huscompagniet, the Danish housebuilder, where the deal is led by FSN, is trading very well principally due to gains in market share in Denmark and growth into neighbouring markets such as Sweden and Germany. Cash generation has been strong. FSN have returned some capital to investors through selling the preference share element of the deal to a third party investor. This yielded £1.3m to us but we retain all of our equity holding and the potential for future upside. Growth Capital Partners distributed £0.9m from the sale of Glasgow-based software and services company Amor to Lockheed Martin. For an integrated capital deal consisting of both debt and equity the return of 3.6x and an IRR of 37% is excellent. Warburg Pincus IX distributed £1.0m during the quarter with £0.9m relating to the sale of ophthalmic products company Bausch and Lomb which achieved an investment multiple of 3.5x and an IRR of 17%.
The overall net result is a slight uplift in value. There were a number of encouraging uplifts and a smaller number of lesser downgrades. The largest single uplift was £5.4m from venture capital fund SEP III, where the sale of a small part of their stake in flight search-engine business Skyscanner to US VC Sequoia. If, in due course, the company is sold at or above this level it will prove to be a spectacular success. More conventionally sized uplifts are associated with realisations which have happened before or immediately after the quarter end. Growth Capital Partners was up by £0.6m related to Amor, Primary Capital III is uplifted £0.6m reflecting a partial realisation from Leisure Pass Group (LPG), the visitor attractions passes and systems company and Alchemy Special Opportunities Fund (ASOF) is up by £0.4m reflecting the strong post-flotation progress of the share price of Countrywide. A welcome development has been the return of uplifts in the Iberian element of the portfolio with N+1 Fund II announcing the sale of Mivisa, the manufacturer of tin can packaging to Crown Holdings of the US, achieving a 2.3x multiple and 35% IRR and an associated uplift of £0.4m, and Portobello Capital making several trading based uplifts collectively totalling £0.3m. There was also an encouraging development in Italian fund Alto Capital II which has announced the sale of Italian coffee machine manufacturer Rancilio, which results in an uplift of £0.4m. There have been some downgrades. Life Science Partners III has been decreased by £1.1m principally because its recently-floated holding Prosensa has seen a sharp share price fall following disappointing phase III results for their lead product Drisapersen (therapy for Duchenne muscular dystrophy). With its partner GSK it will continue to progress the product but in the short term this is a significant blow. The Nordic region has been generally positive but this quarter Procuritas IV was down by £0.6m due to poor performance of two holdings.
The Company has a very broad portfolio and this historically has proved to be a key strength. Most of the portfolio is invested in European mid-market buyout funds where the general picture is of modest growth and recovering confidence with this being more evident in the north of the Continent rather than the south.
As at 30 September 2013 unless otherwise stated.
Past performance is not a guide to future performance. Stock market movements may cause the value of investments and the income from them to fall as well as rise and investors may not get back the amount originally invested. Changes in rates of exchange may have an adverse effect on the value, price or income of investments. Smaller companies carry a higher degree of risk and their value can be more sensitive to market movement; their shares may be less liquid and performance may be more volatile. The fund may invest in hedge funds or private equity funds which are not normally available to individual investors, exposing the fund to the performance, liquidity and valuation issues of these funds. Such funds typically have high minimum investment levels and may restrict or suspend redemptions or repayment to investors. The asset value of these shares and its prospects may be more difficult to assess. If markets fall, gearing can magnify the negative impact on performance.