Macquarie Private Capital Group (MPCG) - Results for Half Year to 31 December 2005
24 February 2006
MPCG’s profit after tax[1] for the half year period ending 31 December 2005 was $4.2 million, or 3.9 cents per Stapled Security. This is the first half year report for MPCG so there is no prior period comparable.
Reflecting the positive returns from MPCG’s investments, Net Asset Value (NAV) per Stapled Security rose from $1.005 to $1.052 on a pre-tax basis in the period from 30 June 2005 to 31 December 2005. This result includes the dividend/distribution of 3.2 cents per Stapled Security[1] in respect of this period.
Based on this result, over the period from listing on the ASX on 22 March 2005 to 31 December 2005 MPCG’s investment portfolio returned 9.2% after fees and costs but before tax.
The table below outlines the performance of MPCG’s portfolio over the half year to 31 December 2005.
MPCG’s Portfolio Performance – Half Year to 31 December 2005
| NAV Per Security 30 June 2005 | NAV Per Security 31 December 2005(1) | Dividend/Distribution Per Security for the Period to 31 December 2005 | Total Return Per Security |
|---|---|---|---|
| $1.005 | $1.020 | $0.032(2) | 4.7%(3) |
(1) Based on audited financial report for the half year to 31 December 2005. Pre-tax. This NAV is higher than that reported to the ASX for 31 December 2005 on 13 January 2006 due to additional fund valuation information received from specialist managers for the period.
(2) MPCG went ex-dividend/distribution on 22 December 2005. This dividend/distribution is expected to be paid on 10 March 2006. This distribution is expected to be 70% franked.
(3) Includes the change in MPCG’s NAV plus the 3.2 cents dividend/distribution in respect of the half year to 31 December 2005. Pre-tax.
The chart below traces MPCG’s pre-tax NAV per Stapled Security since listing. The positive performance from MPCG’s portfolio over the period to 31 December 2005 was primarily driven by continued profitable realisations of investments by the specialist managers through which MPCG obtains its private equity exposures.
The NAV in the chart below is shown both inclusive and exclusive of the 1.6 cents distribution per Stapled Security paid in respect of 2004-05 and the 3.2 cents per Stapled Security dividend/distribution in respect of the first half of 2005-06.
The most significant drivers of the profit result in the half year to 31 December 2005 were the sale of a number of investments including ACIL, one of Australia’s largest economics and business consultancies; Video Ezy, a movie rental franchiser and operator, The Communications Group, an advertising agency through a trade sale to UK advertising agency WPP; Guardian Healthcare, a New Zealand based aged care provider was sold in a trade sale to the DCH Group; Austar, Australia’s leading subscription television provider; and John West Foods, a leading producer of canned foods, was sold to co-investor, Simplot.
The continued profitability of the Group highlights the benefits of MPCG’s established and mature portfolio of private equity assets.
Private equity market conditions continue to be positive with specialist managers operating with the backdrop of a strong listed equity market, relatively steady interest rates, and buoyant profit conditions. This is providing an opportune environment for private equity managers to exit investments. Assuming these market conditions do not deteriorate materially, it can be expected that exit opportunities for specialist managers will remain strong over second half of 2005-06.
At the same time as realisations have generated returns and delivered cash flow back to MPCG, the Group has obtained exposure to a number of new investments in the second half of 2005 including Perpetual Registrars (now known as Link Market Services), Australia’s second largest share registry; Worldwide Restaurant Concepts, the franchiser and operator of Sizzler, KFC and Pat & Oscar’s restaurants; Wightlink Shipping, the largest independent owner of ports and ferries in the UK; Barbeques Galore, an Australian supplier of barbeque equipment and related products; Elrond and Qualcare, owners and operators of integrated aged care facilities in NZ; and The Warehouse Group and Miller’s Retail Discount Variety, two of Australia’s largest discount retailers.
MPCG Trading at a Discount to NAV
While MPCG’s investment portfolio has produced positive returns, the Directors of MPCG are aware that the MPCG Stapled Security is trading at a significant discount to NAV. For example the Volume Weighted Average Price (VWAP) of MPCG securities traded on the ASX in January 2006 was $0.85 while the NAV per Stapled Security as at 31 December 2005 was $1.00 on a post tax ex dividend/distribution basis.
While many factors are likely to affect the premium or discount at which listed investment entities trade relative to their NAV, MPCG’s discount may, in part, reflect the level of cash in MPCG’s portfolio. This in turn reflects the relatively good environment over the past year for private equity managers to be exiting investments compared to making new investments. Since listing this environment has produced a flow of cash back to MPCG that has largely matched the draw downs by specialist managers for new investments.
To address the issue of the relatively high level of cash in MPCG’s portfolio the directors of MPCG have resolved to both increase the extent to which MPCG can make investments outside of Australia and to institute a more flexible dividend and distribution policy.
Dividend/Distributions in Respect of the Half Year to 31 December 2005
MPCG is a triple stapled structure consisting of two companies (Macquarie Private Capital A Limited and Macquarie Private Capital B Limited – “the Companies”) and the Macquarie Private Capital Trust (“MPCT”).
MPCG announced to the ASX on 19 December 2005 that the dividend/distribution in respect of the half year to 31 December was expected to be 3.2 cents per Stapled Security.
MPCG confirms that the dividend/distribution in respect of half years to 31 December 2005 will be 3.2 cents per Stapled Security.
It is expected that this dividend/distribution will be 70% franked and will be paid on 10 March 2006 to eligible MPCG Securityholders.
MPCG went ex-entitlement to this dividend on 22 December 2005. The books closing date was 30 December 2005.
In keeping with the revised dividend/distribution policy, it is expected that substantially all of the profits earned by the Group in the first half of 2005-06 will be distributed following the 2005-06 full year result once more information is obtained from specialist managers regarding the tax treatment of the income received by MPCG in the half year to 31 December 2005.
It is expected that MPCG will make an estimate of this dividend/distribution around mid-June 2006 and MPCG will trade ex-entitlement to any announced estimated dividend/distribution soon after that announcement with a books closing date of 30 June 2006.
MPCG - Background
MPCG is an ASX listed private equity group that invests through a number of specialist private equity managers and makes co-investments alongside these managers.
MPCG’s ASX code is MPG.
MPCG listed on the Australian Stock Exchange on 22 March 2005 with a seeded portfolio of private equity assets valued at approximately $52 million and after raising $55 million through an Initial Public Offering of Stapled Securities. As at 31 December 2005 Net Assets were $111 million.
MPCG’s seeded portfolio of private equity investments included exposures to over 25 funds managed by specialist managers such as CHAMP, Archer Capital, Ironbridge, Macquarie Infrastructure and Specialised Funds, and Pacific Equity Partners in Australia and Avenue Partners, TCW and Wayland Partners in the US. Since listing MPCG has mead commitments to funds managed by specialist managers such as GBS Biosciences, Quadrant Capital, Aisling Bioscience, the Carlyle Group and Blackstone. Through these, and other specialist managers, MPCG has an exposure to over 300 companies and assets.
These specialist managers provide exposure to both traditional private equity (venture capital, expansion and buy-out capital) as well as other private equity type investments in areas such as infrastructure and distressed debt.
Please see the MPCG Appendix 4D and Half Year Report to 31 December 2005 for more details on MPCG portfolio. This report will be available from MPCG’s website at www.macquarie.com.au/mpcg in late February 2006.
[1] Profit after tax but before the financing costs of distributions to Securityholders. As the Australian equivalent of International Financial Reporting Standards (A-IFRS) requires that distributions from a finite life trust (of which the Macquarie Private Capital Trust or MPCT was one for most of the half year to 31 December 2005) are accounted for as a financing cost, the profit number used in this statement adds back this amount to place the profit on a basis comparable with other listed investment companies. As the financing cost is a distribution that accrues to Securityholders, the directors believe this treatment provides a more appropriate representation of the financial performance of the Group. Net profit after tax (where distributions to unitholders from the Macquarie Private Capital Trust are counted as a financing item) was $2.5 million or 2.4 cents per Stapled Security.