Quarterly Report Gresham Private Equity Limited

Transcription

1 PRIVATE EQUITY

2 Gresham Private Equity Co-Investment Fund Quarterly Report 30 June June 2016 Page 1 of 14

3 Gresham Private Equity Co-Investment Fund Contents Fund Overview Portfolio Summary Portfolio Performance Updates Appendices: Financial Reports for the Period Ended 30 June 2016 The information contained in this report is confidential and must not be copied or otherwise conveyed to any person other than the intended recipient. 30 June 2016 Page 2 of 14

4 Fund Overview 30 June 2016 Page 3 of 14

5 Fund Overview The Gresham Private Equity Co-Investment Fund ( the Fund ) raised $ million on 12 August 2004, at which time 15% was paid in by investors, thereby classifying it as a vintage year 2004 fund. The Fund is an unlisted unit trust, co-investing with Gresham Private Equity Funds No. 2a and 2b ( the institutional Funds ), in established Australian and New Zealand businesses, targeting management buy-outs and buy-ins, expansion capital, industry consolidations and public-to-private transactions. The Fund is domiciled in Sydney, Australia, is managed by Gresham Private Equity Limited ( GPE or the Manager ), and the Responsible Entity is Gresham Funds Management Limited, and is due to terminate on 30 June As at 30 June 2016, the Fund had drawn down $96.92 million from investors and invested approximately $87.4 million in seven portfolio companies of which six have now been realised, leaving Barminco as the Fund s remaining investment. Under the arrangements agreed with investors, portfolio companies are valued on a quarterly basis based on a fundamental review of the valuation of each portfolio company. These valuations are undertaken ahead of period end in order that the impact of valuations can be reflected in each quarter s nominal unit price. During the financial period, a related corporation of the Manager has had in place contracts in relation to the Manager and all persons who are or have been officers of the Manager, insuring these parties against certain liabilities. The terms of the relevant insurance policies prohibit any other disclosures. At 30 June 2016 ($ million, except per unit data) Total Total committed capital $ Total calls to date $96.92 Total uncalled capital $5.10 Cost of Investments to date $87.43 Distributions to date $31.82 Fair Value of Investments $18.22 Net assets attributable to Unitholders $18.65 Gross IRR on Investment Portfolio (1) (3.2)% Net IRR to investors (realised and unrealised) (2) (9.7)% Net cash on cash IRR (realised) (23.2)% Calls to date per Unit Total net assets attributable to Unitholders Per Unit (2) Paid-in capital to committed capital 0.95 Distribution to calls multiple 0.33 Residual value to calls multiple 0.19 Total value to calls multiple 0.52 (1) Prior to payment of management fees and other non-investment related expenses. Includes amounts earned in respect of investments, including dividends, transaction fees and directors fees. (2) Calculated at 30 June 2016 as if the Fund s assets were realised for their fair value at 30 June June 2016 Page 4 of 14

6 Fair Value of Investments as at 30 June 2016 In order to provide Unitholders with an indication of value for their own internal management purposes, the Manager provides an unaudited fair value of investments, which is determined in line with industry practice using appropriate valuation techniques. This unaudited fair value is also the basis on which the unit prices reported to Unitholders on a monthly basis are calculated. It should be noted, however, that there is no certainty whatsoever that the unaudited fair value will reflect the actual proceeds from the ultimate exit of these investments. Unitholders should be aware that the Fund s investments are illiquid with no certainty as to the timing of exit or valuation on exit. The Manager does not, and will not, give any warranty, guarantee or representation, express or implied, as to the accuracy, relevance or usefulness of its unaudited fair value and does not accept any responsibility for any inaccuracy in the unaudited fair value or in any of the information provided. The Manager accepts no responsibility for any interpretation, opinion or conclusion that may be formed as a result of an examination of the unaudited fair value or other information provided in this report. The unaudited fair value or other information provided may not be relied upon in any way in assuming any contractual or other obligation or liability in relation to the Fund or otherwise. 30 June 2016 Page 5 of 14

7 Portfolio Summary 30 June 2016 Page 6 of 14

8 Portfolio Summary Date of Date of Total Investment Return Total Multiple Holding Gross Investment Initial Final Investment Income Unrealised Investment of Cost Period IRR Exit Route Investment Realisation Industry Stage Cost Received/Realisations Fair Value Return X Yrs % $ $ $ $ Investment Portfolio Summary Unrealised Barminco Aug 2007 Mining MBO 13,877,950 4,301,024 18,215,042 22,516, % TOTAL UNREALISED INVESTMENTS 13,877,950 4,301,024 18,215,042 22,516, % Investment Portfolio Summary Realised APPP Jun 2005 Sep 2008 FMCG MBO 4,834,048 23,228,549-23,228, % Trade sale Witchery Australia Holdings Aug 2006 Oct 2012 Retail MBO 12,503,837 22,914,643-22,914, % Trade sale Noel Leeming Group Aug 2004 Dec 2012 Retail MBO 17,078,901 1,561,963-1,561, (38.3)% Trade sale GEON Nov 2005 Feb 2013 Printing MBO 23,372,293 1,541,797-1,541, nm Secondary sale Tasmanian Walking Co (formerly Awara) Oct 2007 Dec 2013 Tourism MBI 7,565,712 2,211,064-2,211, (18.9)% Trade sale Silk Logistics Apr 2008 June 2015 Logistics MBI 8,196, , , (46.5)% Trade sale TOTAL REALISED INVESTMENTS 73,551,554 51,994,546-51,994, (9.1)% Investment Portfolio Summary - Total TOTAL UNREALISED INVESTMENTS ,301,024 18,215,042 22,516, % TOTAL REALISED INVESTMENTS 73,551,554 51,994,546-51,994, (9.1)% TOTAL/ AVERAGE 87,429,504 56,295,570 18,215,042 74,510, (3.2)% nm not meaningful/measurable 30 June 2016 Page 7 of 14

9 Movement in Fair Value of Portfolio within the Fund Investee Company Fair Value Fair Value 31/03/2016 Realisation Revaluations 30/06/2016 Valuation Methodology $ $ $ $ Barminco 18,215, ,215,042 DCF TOTAL 18,215, ,215, June 2016 Page 8 of 14

10 Portfolio Performance Updates 30 June 2016 Page 9 of 14

11 1.0 Barminco Investment Summary Date of Investment Nature of Business Business Location Deal Type Role Co-Invest Fund ($ million) August 2007 Enterprise Value at $502.0 acquisition Mining Equity % 9.1% Investment $13.9 Australia Fair Value as at 30 June 2016 $18.2 MBI Board Representation R Casey Lead C Graham (Alternate for R Casey) GPE manages funds which hold 60.01% of the equity in Barminco. Simplifying Barminco s balance sheet through a restructure of its redeemable preference shares and shareholder loan notes, which is viewed positively by the credit rating agencies. Valuation The discounted cash flow analysis has been updated using the FY17 Budget and forecasts from the company s 5 year planning model. The discounted cash flow generates a valuation within an acceptable range of the March 2016 carrying value. Accordingly, the fair value has been maintained at $18.2m. The valuation implies an earnings multiple that is also broadly consistent with those observed by ASX-listed mining services companies, which have seen some share price improvement in recent months. Strategy Barminco s strategy focuses on organic growth in the company s core underground hard rock contract mining market in Australia, as well as selective international expansion opportunities and ongoing operational efficiencies. Capital Structure GPE implemented a number of capital structure initiatives with Barminco during the quarter to strengthen its balance sheet, reduce interest costs and enhance the company s position for investment realisation in due course. These include: The repurchase of a further US$26m in senior notes, funded through existing cash reserves. Since Barminco s repurchase program began in December 2014, the company has repurchased senior notes with a face value of US$179m, delivering annualised net cash interest savings of more than $15m; Negotiation of an extension of the company s revolving credit facility to 2018; and Current Trading EBITDA* EBIT* YTD trading relative to FY15 corresponding period +8.7% +28.6% * Based on unaudited management accounts, after major unbudgeted items, excluding African Underground Mining Services (AUMS) contribution. As expected, the last quarter of FY16 saw a softening of earnings as the Renison mine transferred to owner-operator. However, the full year result of approximately 9% EBITDA growth on the previous year was very strong compared to other companies in the sector, most of which are expected to see further falls in earnings this year. Barminco s growth was driven by good performance across most sites, the successful ramp-up of development at the Nova nickel mine and cost savings programmes initiated in early FY16. During the quarter, Barminco was awarded a major mining contract for the Kundana gold mines with the East Kundana Joint Venture (Northern Star Resources 51%, Rand Mining and Tribune Resources). The contract value is $275m and has term of 3 years with a 2 year option. The company also secured a 30 June 2016 Page 10 of 14

12 5 year renewal of its contract with MMG at the Duglald River zinc mine. These contract wins, together with ongoing business development and productivity initiatives, provide a strong base for continued growth in FY17. Key Challenges/Initiatives The mining services sector generally remains challenging, with strong competition for new contracts and a cost focus by clients putting pressure on margins. However, the price of Barminco s key commodity exposure, gold, has maintained historically high levels (in Australian dollar terms) throughout the year, increasing by a further 16% during FY16. More recently, the prices of base metals have also shown some improvement, with nickel rising by more than 20% since the start of June While the market is expected to remain very competitive, improved prices will support ongoing exploration, development and mining activity in Barminco s core markets. Barminco is actively targeting potential new business opportunities throughout Australia and internationally that may arise as a result of these more favourable conditions. Barminco also continues to focus on productivity and cost management initiatives to ensure it delivers excellent value to clients. The strategic plan initiatives identified in 2015 have delivered estimated net EBIT of benefits of $14m for FY16, significantly outperforming the original target. A series of further initiatives to drive additional EBIT improvements have been identified as part of the company s strategic plan for 2017 across operational excellence, innovation, people, business development and finance. GPE has also led a number of company initiatives during the financial year including a restructure of the Board and appointment of a new Chairman, a streamlining of the senior executive team and setting of financial targets for exit. GPE continues to manage the company for a sustainable capital structure whilst exploring options for a full-value liquidity event. 30 June 2016 Page 11 of 14

13 Appendices: Financial Reports for the Period Ended 30 June June 2016 Page 12 of 14

14 Gresham Private Equity Co- Investment Fund Financial Reports for the Period Ended 30 June 2016 Contents Income Statement Balance Sheet 30 June 2016 Page 13 of 14

15 Gresham Private Equity Co-Investment Fund Unaudited income statement for the period ended 30 June 2016 Gresham Private Equity Co-Investment Fund Unaudited balance sheet as at 30 June July 2015 to 30 June 2016 $ Investment Income/(loss) Interest 17,201 Transaction and advisory fees 190,934 Net gain/(loss) on investments at fair value through profit or loss 39,583 Other income 25,774 Total investment income/(loss) 273,492 Expenditure Administration and other expenses 19,864 Management fees (inclusive of non-recoverable GST) 499,693 Manager s share of transaction and advisory fees 95,467 Service fees (inclusive of non-recoverable GST) 223,838 Total expenditure 838,862 Net operating profit/(loss) (565,370) 30 June 2016 $ Current assets Cash 668,480 Receivables 55,822 Total current assets 724,302 Non - current assets Investments 18,215,042 Total non - current assets 18,215,042 Total assets 18,939,344 Current liabilities Creditors and accruals 289,975 Total current liabilities 289,975 Total liabilities excluding net assets attributable to unitholders 289,975 Net assets attributable to unitholders 18,649,369 Total liabilities 18,939, June 2016 Page 14 of 14

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