Electra Private Equity PLC EQUITY PLC ELECTRA PRIVATE Paternoster House 65 St Paul’s Churchyard London EC4M 8AB T: +44 (0)20 7214 4200 www.electraequity.com Electra Private Equity PLC Report and Accounts REPORT AND ACCOUNTS 2013 REPORT AND ACCOUNTS This Report and Accounts is printed on FSC® certified paper, using fully sustainable, vegetable oil-based inks. The paper supplying mill is ISO 9001, ISO 14001 and OHSAS 18001 certified and operates to EMAS standards. The mill is fully integrated, manufacturing pulp and paper on site, therefore reducing energy consumption and carbon output. Printed by Nicholas Gray Limited. www.nicgray.com 30 September 2013 Electra65054_EPE_REPORT_COVER.indd EPE Cover 2013.indd 1 1 09/12/2013 10:5413:03 Electra’s objective is to achieve a rate of return on equity of between 10-15% per year over the long-term by investing in a portfolio of private equity assets. Strategic and Overview business review Financial statements Governance Further information 1 Objective and 6 Strategic Report 29 Consolidated Income 67 Report of the Directors 88 Board of Directors Investment Policy 10 The Manager Statement 74 Directors’ Remuneration 90 Information for 2 Financial Highlights 12 Investment Highlights 29 Consolidated Statement Report Shareholders 3 Chairman’s Statement 14 Portfolio Review of Comprehensive Income 79 Corporate Governance 92 Ten Year Record 19 Key New Investments 30 Consolidated Statement 85 Report of the Audit 93 Notice of Annual and Realisations of Changes in Equity Committee General Meeting 22 Key Investments 32 Company Statement 87 Statement of Directors’ 96 Contact Details 24 Large Private Equity of Changes in Equity Responsibilities Investments 34 Consolidated Balance Sheet 35 Company Balance Sheet 36 Consolidated Cash Flow Statement 37 Company Cash Flow Statement 38 Notes to the Accounts 62 Independent Auditors’ Report References in this Report and Accounts to Electra Private Equity PLC and its subsidiaries have been abbreviated to ‘Electra’ or ‘the Company’. References to Electra Partners LLP and EQM Capital LLP (manager of Electra’s money market investments) have been abbreviated to ‘Electra Partners’ or ‘the Manager’. Electra65054_EPE_REPORT_COVER.indd EPE Cover 2013.indd 2 2 09/12/2013 10:5413:03 Objective and Investment Policy Overview Electra has been quoted on the London Stock Exchange since 1976. Electra is managed as an HM Revenue and Customs approved investment trust and invests primarily in the private equity mid-market. The business and affairs of Electra are managed on an exclusive and fully discretionary basis by Electra Partners, an independent private equity fund manager with over 25 years’ experience in the mid-market. Electra’s objective is to achieve a rate of return on equity of between 10-15% per year over the long-term by investing in a portfolio of private equity assets. Electra Partners aims to achieve this target rate of return on behalf of Electra by utilising a flexible investment strategy and: In implementing Electra’s n exploiting a track record of successful private equity investment; flexible investment n utilising the proven skills of its management team with a strong record of deal flow strategy, Electra Partners generation and long-term presence in the private equity market; and business review Strategic typically targets n targeting private equity opportunities (including direct investment, fund investments investments at a cost of and secondary buyouts of portfolios and funds) so that the perceived risks associated £40 million to £100 million with such investments are justified by expected returns; in companies with an n investing in a number of value creating transactions with a balanced risk profile across enterprise value of up a broad range of investment sectors through a variety of financial instruments; and to £300 million. n actively managing its capital position and levels of gearing in light of prevailing economic conditions. The investment focus is principally on Western Europe, with the majority of investments made in the United Kingdom where Electra Partners has historically been most active. There is an emphasis on areas where Electra Partners has specific knowledge and expertise. In circumstances where Electra Partners feels that there is merit in gaining exposure to countries and sectors outside its network and expertise, consideration is statements Financial given to investing in specific funds managed by third parties or co-investing with private equity managers with whom it has developed a relationship. In implementing Electra’s flexible investment strategy, Electra Partners typically targets investments at a cost of £40 million to £100 million in companies with an enterprise value of up to £300 million. Electra Partners attempts to mitigate risk through portfolio diversification. Investments will therefore be made across a broad range of sectors and industries. At the time of investment, not more than 15% of Electra’s total assets will typically be invested in any single investment. If Electra acquires a portfolio of companies in a single transaction, this limitation shall be applied individually to each of the underlying companies purchased Governance and not to the portfolio as a whole. Electra has a policy to maintain total gearing below 40% of its total assets. Unless required to do so to maintain Electra’s investment trust status, it is the policy of the Directors not to pay dividends. Further information Further Electra Private Equity PLC | Report and Accounts 2013 1 Electra EPE 2013.indd 1 09/12/2013 10:52 Financial Highlights As at 30 September 2013 NAV per share (diluted) 2,764p NAV per share increase over ten years (diluted) 279% Share price 2,230p Share price increase over ten years 267% Total Net Assets £1,030m Net liquid resources £294m Annualised return on equity over ten years (diluted) 14% Performance (Total Return): As at 30 September 2013 One year Three years Five years Ten years Electra NAV per share (diluted) 12% 35% 53% 279% Morningstar PE Index NAV per share return (ex. Electra)* 14% 19% (13)% 46% Electra share price 26% 63% 81% 267% Morningstar PE Index share price return (ex. Electra)** 40% 47% (3)% 39% FTSE All-Share Index 19% 33% 66% 140% Performance calculated on a total return basis with dividends reinvested. * The above index, prepared by Morningstar UK Limited, reflects the NAV per share performance of 20 private equity vehicles, excluding Electra, quoted on the London Stock Exchange **The above index, prepared by Morningstar UK Limited, reflects the share price performance of 20 private equity vehicles, excluding Electra, quoted on the London Stock Exchange Share Price vs. NAV vs. FTSE All-Share to 30 September 2013 (Total Return) 400 350 300 250 200 150 100 1 year 2 years 3 years 4 years 5 years 6 years 7 years 8 years 9 years 10 years Electra Share Price Electra NAV per Share (diluted) FTSE All-Share 2 Electra Private Equity PLC | Report and Accounts 2013 Electra EPE 2013.indd 2 09/12/2013 10:52 Chairman’s Statement Overview “Electra has had an active and successful year with both purchases and sales of private equity investments at their highest ever level, an increase in diluted net asset value and a strong share price performance. “Electra Partners has delivered a total return, including favourable currency movements, of £222 million on Electra’s investment portfolio, an increase of 26% for the year. “Electra Partners’ deal flow continues to grow with the improving economic outlook and the gradual contraction of competition from other private equity funds. With a flexible investment strategy, a sound capital base and substantial cash resources, Electra is well positioned for future growth.” Overview Electra has had a successful year to 30 September 2013: purchases and sales of private equity investments were at their highest ever level; diluted net asset value per share has increased by 12%; the share price has increased by 26% and the discount to diluted NAV has reduced to 19%. Investment activity included the acquisition of five new investments and three realisations, including the sale and subsequent reinvestment in Allflex. Strategic and business review Strategic Investment activity continued strongly up to and after the year-end with the acquisition, just before 30 September, of South Lakeland Parks and the concluded sale of Lil-lets Group in November. Results At 30 September 2013 Electra’s diluted net asset value was 2,764p per share compared to 2,473p at 30 September 2012, an increase of 12% since 30 September 2012 compared to a FTSE All-Share rise of 19%. The return per share on a diluted basis amounted to 298p for the year. Over the ten years to 30 September 2013 Electra’s diluted net asset value per share including dividends increased by 279%, a ten-year annualised ROE of 14%. Electra’s share statements Financial price also grew strongly in the same period, up by 267%. Both compare to a rise in the FTSE All-Share of 140%. In my statement to 31 March 2013 I reported a first time provision in respect of the 2006 investment pool under the carried interest arrangements for members of Electra Partners. The uplift in diluted net asset value per share of 12% for the year is calculated after reflecting carried interest provisions for the year of £63 million. Over the year, Electra’s share price increased by 26% with a strong rise in the first six months followed by a small fall in the second half of the year. Discounts across the listed private equity sector generally improved over the first six months, but widened in the second half. In the case of Electra’s shares, which started the Governance year on a 28% discount, this reduced significantly to 12% at 31 March 2013 but had widened to 19% at the year end.