Fund manager commentary
The net asset value (NAV) of the company was £192m at 30 June 2013, giving a fully diluted NAV per share of 262.12p. Taking into account the dividend of 5.07p paid on 31 May this gives a NAV total return of 1.9% and 5.0% for the second quarter and first half respectively. The company's cash balances at 30 June were £9.5m and the accrued liability for the Zero Dividend Preference shares was £40m giving net debt of £30.5m which equates to gearing of 13% of total assets. The outstanding undrawn commitments of the company were £71.6m, a small increase over the previous quarter. At the current share price of 217p, and applying the new fully diluted NAV, the discount is just over 17%, the lowest for several years.
One new fund commitment was made during the quarter. We have committed £3m to August Equity Partners III, the latest in a series of UK mid-market funds. This is the third of its funds we have backed, as this has been a successful core relationship. We have also made three new co-investments. Firstly we have invested £1.72m (CHF 2.5m) for 12.5% stake in Swiss-based chemical company Schaetti. This is a deal led by the Zurich-based private equity manager Zurmont Madison. We became acquainted with the team through our holding in their first fund through The Aurora Fund LP. Schaetti is a niche player in the chemical sector with its principal business in customised thermoplastic and thermo-fusible powders.
The other two co-investments were funded after the quarter end. On 28 July £1.3m was invested via a single investment LP into Safran, a Stavanger, Norway, based software company for just under a 20% stake in the company. This deal was brought to us and is led by Progressus, a Norwegian private equity boutique. Safran's principal product is project management software for the North Sea Oil industry. Also on 28 July we invested £2.2m (20.5m NOK) for 7.2% of Recover Nordic, a Norway based but pan-Nordic provider of damage control services. Its customer base is mainly insurance companies who retain Recover Nordic to provide immediate support to households and businesses impacted by adverse weather events. This deal is led by Agilitas, an emerging management group known to us through its managing partner Martin Calderbank, whom we have known for many years through Candover and Stirling Square.
Drawdowns from funds and co-investments totalled £5.9m for the quarter bringing the total for the first six months to £16.3m. Whilst this is £3m ahead of the equivalent period last year when adjusting for co-investments and secondaries, which accounted for £7.4m in the first half, the amount drawn down under existing commitments is £8.4m, down by 30%. This reflects the maturing of the funds in our portfolio as well as a generally quieter market for new deals. It also emphasises the need to make fresh commitments alongside the co-investments to maintain the company's foundation for future growth. The co-investment component is currently below 12% of the portfolio. Subject to finding suitable investments, doubling this exposure over the medium term is our broad objective.
The new investments made through drawdowns are typically diverse. £0.6m was invested through CapVis III in nicko tours, a specialist provider of river cruises with a fleet of 33 ships. DBAG V called £0.9m for two new investments. Formel D, which provides quality assurance services and technical documentation to the automotive industry, is a play on the continued outsourcing by automotive OEMs and the increasing globalisation of their supply chains. Stephan Machinery is a designer and manufacturer of food processing machinery. In the UK Inflexion 2010 called £0.4m for CTC, the pilot training company, which we also have exposure to through the Inflexion 2012 Co-investment Fund.
In the second quarter realisations have totalled £10.4m. In addition there has been £0.4m of income bringing total inflows to £10.8m. This gives total realisations and associated income for the first six months of £19m. In the equivalent period last year realisations were £27m. This number was helped by the exit of Lifeways. In the first half of this year we have had no exits of co-investments. However we have had a good number of realisations from the funds. Herkules III returned £1.6m when it exited debt collection company Gothia through the sale to arvator infoscore Gmbh achieving an exit multiple of 2.0x and an IRR of 20%. One of our few ventureoriented funds, Life Science Partners III, has achieved a notable success with the sale of Okairos to GlaxoSmithKline. Okairos, which is based in Switzerland, has a platform technology based on T cell vaccines with applications in the prophylaxis and treatment of infections. LSP III have returned £1.5m with scope for more as escrows are released. Accession Mezzanine II have returned £1.5m through the sale of Polish medical clinics company Lux Med to BUPA. The investment multiple was 2.0x and the IRR 16%. Lastly Primary Capital II exited specialist rail travel business Amber with its sale to private equity group ECI which generated proceeds of £1.2m, an investment multiple of 3.2x and IRR of 17%. There were a number of other smaller realisations during the quarter.
The largest individual uplift of £2.5m was from Life Science Partners III with the sale of Okairos and the listing of another holding, Prosensa, on NASDAQ on 30 June which led to a near doubling of the value of this holding. Prosensa is an RNA-based therapeutics company focusing on genetic disorders. Stirling Square Capital II is uplifted by £1.2m reflecting uplifts for SAR, the Norwegian waste services business focused on the oil and gas industry and for helicopter operator Omni, which also has an oil and gas angle. The largest individual downgrade was £1.8m for our co-investment in Italian Security company Axitea (Sicurglobal) where the weak Italian economy is having an impact on investment in security systems and on customers' propensity to pay on time.
Over recent weeks economic commentators have shifted towards a more positive narrative. In fact a number of the principal European economies have been recovering for up to three years. The picture for fund raising in the European midmarket remains challenging. In this tier pricing of new deals is generally quite low and our impression is that a good buying opportunity remains. The broadly based fund portfolio has produced several notable exits and we would expect this to continue for the remainder of the year with the company well positioned to deliver good NAV growth for the year. The new investments are designed to build value in the medium and longer term.
As at 30 June 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.