NPM Capital takes the lead in transparency

Prompted by recommendations made by the British Venture Capital Association, NPM Capital has taken the lead in the Netherlands in the transparent reporting of profits from and developments related to equity investments. In its 2008 Annual Report, NPM Capital will publish the results of a survey conducted among the 19 largest companies in its portfolio with enterprise values of € 50 million or higher. These companies together comprise nearly 70% of the capital invested. The survey reveals that
the higher value of these companies in recent years has been due mainly to operational improvements and growth, in addition to reporting a strong rise in employment.

The call for transparency in the private equity industry came in the wake of accusations that private equity firms drain their investee companies of funds and push them deep into debt. During the last quarter of 2007, the Walker Working Group, which was established by the British Venture Capital Association (BVCA) in response to these accusations, published its report Guidelines for Disclosure and Transparency in Private Equity. An independent committee ensures compliance with the regulatory requirements. NPM Capital believes it is important that the Dutch private equity industry, like its UK counterpart, becomes more transparent, and expects that the Dutch Private Equity and Venture Capital Association (NVP, or Nederlandse Vereniging van Participatiemaatschappijen) will make a case for the implementation of similar guidelines in the Netherlands.

Survey reveals healthy growth
In the UK, discussion has focused on the nature of the returns of private equity firms: to what extent are they driven by debt (i.e. financial leverage), to what extent by market conditions (i.e. multiples) and to what extent by improved strategic and operational performance? On this basis, and in anticipation of a common approach with the Dutch Private Equity and Venture Capital Association, NPM Capital conducted an initial survey among the companies in its portfolio with enterprise values exceeding € 50 million – 19 companies altogether, which were included in the portfolio in both 2006 and 2007. Each of these companies was fully incorporated into the survey regardless of NPM’s interest in the company, making both years fully comparable.

The survey data show that our portfolio companies are experiencing healthy growth, with turnover, profitability, investment in assets and employment all increasing sharply. Total debt has remained stable, causing the debt/EBITDA ratio to decline from 2.1 to 1.7.

The table below shows the key financial data for 2006 and 2007. All figures (with the exception of the number of FTEs) are to be multiplied by € 1 million. 

	2006	2007	growth     in %
Turnover	6,591	7,575	15
EBITDA (earnings before interest, taxes, depreciation and amortisation)	560	731	30
EBIT (earnings before interest and tax)	341	505	48
Net profit	181	316	75
FTEs	24,262	28,223	15
Net debt	1,184	1,238
Net debt / EBITDA	2.1	1.7
Investment in fixed assets	284	334
Depreciation of fixed assets	169	183
Investment in working capital	-    228	-      52

Research into the profit contribution of our portfolio reveals that 11% of the total
(realised and unrealised) profit is related to leverage, while 40% is related to increased price/earnings ratios and 49% to operational improvements and growth.

To NPM Capital, these results demonstrate the strength of its model of active shareholder participation and of the regulatory control of its portfolio companies.