Company Announcements

BMO Private Equity Trust PLC

Quarterly results for the three months to 30 September 2020 (unaudited)

·    Net asset value of 388.68p per Ordinary Share reflecting a total return for the three months of 2.1 per cent for the Ordinary Shares

·    Share price total return for the three months of -13.9 per cent for the Ordinary Shares

·    Quarterly dividend of 3.99p per Ordinary Share to be paid on 29 January 2021

·    Dividend yield of 5.9% based on the period end share price (1).

(1)   Calculated as dividends of 3.99p paid on 31 July and 30 October 2020 and 3.99p payable on 29 January 2021 annualised divided by the Company's share price of 270.50p as at 30 September 2020.

Introduction

As at 30 September 2020, the net assets of the Company were £287.4 million, giving a Net Asset Value (NAV) per share of 388.68p. Taking into account the dividend of 3.99p paid on 31 July the NAV total return for the quarter is +2.1%, and -2.7% for the nine months to 30 September 2020.

With the discount widening from 8.8% at 31 December 2019 to 30.4% at 30 September 2020 the share price total return for this nine-month period was -25.7%.

At 30 September 2020 the Company had net debt of £67.9 million and outstanding undrawn commitments of £133 million including £14 million to funds where the investment period has expired.

The next quarterly dividend of 3.99p per share will be paid on 29 January 2021 to shareholders on the register on 8 January 2021. The ex-dividend date is 7 January 2021.

The valuation is set against the backdrop of the COVID-19 pandemic, which has continued to spread rapidly across the world, with over 48 million confirmed cases recorded and the loss of over 1.2 million lives as of 6 November 2020 according to the World Health Organisation. While the widespread national lockdowns experienced earlier in the year have been relaxed to varying degrees it is apparent that in some cases this was done too early or too rapidly in the absence of effective alternative methods of controlling the spread of the virus.  As a result, there is currently a worrying second wave spreading across many parts of Europe, leading to a rapid increase in both new cases and deaths and the re-imposition of national lockdowns in many European countries. Similarly, the US is experiencing a rapid rise in infections, with confirmed cases since the start of the pandemic now exceeding 10 million.

It is difficult to predict the full impact of the pandemic, lockdown restrictions, and fiscal and monetary support let alone the longer-term implications for economic growth. As is typical this valuation is largely based off 30 June valuations adjusted for cashflows, with only c.30% of 30 September valuations received by at the time of calculation. Nevertheless, this is arguably the first valuation in which the impact of the pandemic is reflected in all the underlying valuations, and it is therefore a good opportunity to assess more compressively how the portfolio has fared since the onset of the pandemic.

The Company has a well-diversified portfolio, which is not overly exposed to any one company or sector. As expected, most of the portfolio companies have been negatively impacted, with only a handful (for example those supplying personal protective equipment) experiencing accelerated growth. All the companies are facing significant challenges including keeping employees and customers safe and managing supply chains. However, at this stage, it appears that the portfolio as a whole is proving encouragingly resilient to the crisis, due in a large part to the hard work of the portfolio management teams and our investment partners who have been very actively supporting them. This support is one of the key foundations of private equity, and we believe is a key driver of private equity's outperformance of public markets particularly in difficult times.

New Investments

No new commitments were made to funds or co-investments during the quarter, as we continue to pursue a cautious approach to new investments until the full impact of, and path to recovery from, the pandemic is clearer.

As previously reported during the quarter we re-financed one of our co-investments Accuvein, a producer of vein visualisation devices, which help medical staff access patients veins which can be particularly difficult in very ill, obese and very young patients. In July we contributed £1.3 million to a £10 million round, which will hopefully see the company through to cashflow breakeven next year.

There were also a number of drawdowns across the portfolio for new investments and add-on investments. In the UK Kester Capital drew £1.5 million to fund investments in Vixio (previously Compliance Online) and YouGarden (gardening ecommerce) both of which were completed in 2019 and had been funded by a bridge loan. Inflexion Supplemental Fund V drew £0.4 million to support Marstons (traffic penalty enforcement and debt collection), which has been impacted by COVID-19 as enforcement officers were not allowed to work during the lockdown and continue to have restricted access to properties.

In Europe DBAG Fund VII drew £1.0 million for further investment into Cartonplast (supply chain services for the food and beverage industry) and Blikk (radiology services). Montefiore V drew £0.3 million for an investment in Groupe Open, a listed French IT services company that it has taken private and Verdane Edda drew £0.5 million for a new investment in Evondos, the Nordic market leader in automated medicine dispensing primarily for elderly patients.

In the US Archimed II drew £0.5 million for an investment in ActiGraph, a US based company that provides sensors and software for sleep monitoring for use in both academic and clinical studies and Graycliff drew £0.5 million from Funds III and IV for investment in Gerard Daniel Worldwide a manufacturer and distributor of wire mesh and other wire products.

During the quarter a total of £7.8 million was invested (£1.5 million into co-investments and £6.3 million into funds). This is down from a total of £11.7 million in Q1 and £9.9 million in Q2, with the funds element being £8.8 million and £8.4 million in Q1 and Q2 respectively.

Realisations

The total realisations during the quarter were £6.1 million, which is down from what we would expect in a normal quarter, but a recovery from the £4.8 million received in Q2 (during Q1 the Company received £9.7 million from realisations largely agreed prior to the onset of the pandemic).

The largest distribution at £4.1 million was the receipt of final proceeds from the sale of our co-investment in Recover Nordic to EQT bringing the total return for the Company to 3.6x cost and 23% IRR. Other material realisations include £0.6 million received from Accession Mezzanine following the sale of Bulgarian telecoms company Vivacom. This is the final exit for this 2006 vintage fund, which is now in liquidation.

In the UK consumer specialist Piper also achieved a strong exit, with the sale of natural dog food brand Forthglade to IK Investment Partners for an excellent 4.8x cost and 37% IRR, resulting in a distribution of £0.5 million from Piper Private Equity V. Finally, in the US Camden sold debt management software company Katabat for 1.1x cost, returning £0.4 million to the Company.

Since the quarter end there appears to be an increase in realisation activity with funds including Piper Private Equity V, Portobello III and Agilitas 2015 reporting successful exits. This demonstrates the continued demand for high quality businesses, and buyers increasing confidence in transacting during the crisis.

Valuation changes

The portfolio was up by £10.1 million (2.9%) before the impact of foreign exchange. During the quarter Sterling strengthened particularly against the US dollar (+4.4%), as a result there was a negative impact of 0.8% of portfolio value, taking the overall movement to +2.2%.

Uplifts came from across the portfolio, driven by a combination of recovery from previous pandemic induced lows and company specific circumstances. Our portfolio of Inflexion holdings provides a good example of the former: this portfolio of largely UK mid-market businesses is valued based of draft 30 September valuations and was up by £1.2 million (4.6%) reflecting encouraging progress across the portfolio.

The largest uplift of £3.1 million was in Ambio, the active pharmaceutical ingredients company, based on the valuation of a recent funding round. Dotmatics, the provider of informatics software to research laboratories, continues to trade strongly, with little impact from COVID-19, resulting in an uplift of £2.7 million to 2.1x cost. STAXS, the value added distributor of consumables for pharma and cleanrooms, continues to experience exceptional growth driven by COVID-19 induced demand for personal protective equipment, and has been written up by £2.4 million to 2.5x cost and with the potential to return c.£3 million (the cost of our investment) via a refinancing of the business over coming months. San Siro (Italian funeral homes) is also uplifted by £1.2 million to 2.0x cost, reflecting increased profitability following the integration of two acquisitions.

Funds that have been written-up include Inflexion 2010 Fund which has been written-up by £0.9 million largely due to strong trading in British Engineering Services (testing, inspection and certification) which has been written up to 12.7x cost. Procuritas Capital V (+£0.9 million), Procuritas IV (+£0.8 million), Polish fund Avallon MBO Fund III (+£0.6 million), Vaaka Partners Buyout Fund II (+£0.6 million) and Horizon Capital III (+£0.6 million).

Unsurprisingly there were also several write-downs within the portfolio, due to the adverse effects of the pandemic. The largest of these were in our oil and gas co-investments Ashtead, Coretrax and TWMA, which were down £2.4 million, £1.9 million and £0.7 million respectively due to the lower levels of activity in the oil and gas sector. As previously reported logistics company Walkers Transport has been hard hit by the pandemic and the reduction in palletised freight volumes particularly during the lockdown. There has been an encouraging recovery in volumes in Q3, however year to date trading is down c.30% on the prior year, and as a result the valuation is down by £1.1 million.  Collingwood Insurance Group also faces a difficult market and has experienced a significant reduction in its taxi business due to COVID-19, resulting in a write-down of £1.0 million. Finally, within the co-investment portfolio, restaurant chain Rosa Mexicano has been written down a further £0.4 million as a result of restaurant closures and reduced capacity due to the pandemic. Funds that were hard hit by the pandemic include NEM III (-£1.0 million) due to high exposure to travel, Italian Portfolio (-£0.8 million) and Astorg VI (-£0.4 million).

Financing

The Company has seen net debt increase from £62.7 million to £67.9 million over the quarter, an increase of £5.2 million, due to continued investment by funds, some re-financings, a fall in realisations and the payment of a £3.0 million dividend. Net debt has since reduced to £63.6 million as at 10 November 2020.

Our current projections continue to show that the Company should stay well within its covenants and borrowing facility.

Outlook

As we write Pfizer has released positive interim results from stage III clinical trials of its messenger RNA based COVID-19 vaccine, causing a surge in global stock markets and driving the MSCI All-Country World Index to a new all-time high.

While there is encouraging progress in the development of vaccines and therapies to combat COVID-19 we believe that it is likely that the pandemic will continue to negatively impact economies around the world for some time.

The full implications of the crisis on economic growth and individual businesses are still to be seen - for example the number of company insolvencies in England and Wales has decreased by c.40% in Q3 2020 vs the same period in the prior year as a result of generous government support. Unfortunately, when this support is withdrawn (as it surely must be at some point) we fear that this trend will reverse rapidly. The US election result has been well received by markets and should provide a more stable political backdrop for businesses. The terms of the UK's exit from the EU however remain to be agreed. We therefore believe that while the outlook is generally positive, huge challenges and uncertainties remain, and there will likely to be bumps in the road to recovery.

The Company's portfolio has so far proven encouragingly resilient, and requirements for re-financings have been smaller than anticipated. We therefore remain very confident that the Company is well placed to come through the crisis, and to continue to build long-term value for its shareholders.

Hamish Mair

Investment Manager

BMO Investment Business Limited

BMO PRIVATE EQUITY TRUST PLC

Statement of Comprehensive Income for the

nine months ended 30 September 2020 (unaudited)

BMO PRIVATE EQUITY TRUST PLC

Statement of Comprehensive Income for the

nine months ended 30 September 2019 (unaudited)

BMO PRIVATE EQUITY TRUST PLC

Statement of Comprehensive Income for the

year ended 31 December 2019 (audited)

BMO PRIVATE EQUITY TRUST PLC

Balance Sheet

BMO PRIVATE EQUITY TRUST PLC

Reconciliation of Movements in Shareholders' Funds

Notes (unaudited)

1.     The unaudited quarterly results have been prepared on the basis of the accounting policies set out in the statutory accounts of the Company for the year ended 31 December 2019.  Earnings for the nine months to 30 September 2020 should not be taken as a guide to the results for the year to 31 December 2020.

2.     Investment management fee:

3.     Finance costs:

4.     Returns and net asset values

5.     The financial information for the nine months ended 30 September 2020, which has not been audited or reviewed by the Company's auditor, comprises non-statutory accounts within the meaning of Section 434 of the Companies Act 2006.  Statutory accounts for the year ended 31 December 2019, on which the auditor issued an unqualified report, have been lodged with the Registrar of Companies.  The quarterly report is available on the Company's website www.bmoprivateequitytrust.com

Legal Entity Identifier: 2138009FW98WZFCGRN66

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