Better bemoans difficult period for debut fund

The 2009 Cell has lost over ten percent of its value in the last year thanks to underperformance in the portfolio

UK-listed turnaround specialist Better Capital admitted today that poor performance in its debut fund had damaged shareholder confidence, after reporting that the 2009 vehicle had lost 10.7 percent of its net asset value in the twelve months to March 31.

The 2009 Cell, which originally raised £210 million and completed its investment period at the end of December 2012, saw NAV (including distributions) fall by £31.2 million during the period to £260.1 million.

In February, Better – which is led by Jon Moulton – warned that write-downs were likely, since a number of the companies in the portfolio were performing “significantly below expectations”. These included its two biggest assets: Gardner, a UK-based supplier of metallic aerospace parts, and Spicers, a wholesaler of stationery and office products, which together accounted for more than half of the fund's net asset value. Publishing business Reader's Digest, which Better had rescued from bankruptcy in 2010, also had to be sold for a “nominal” sum – an outcome the firm described today as “very disappointing”.

Better admitted frankly today that Spicers had had a “very disappointing” period, largely due to “a poorly executed move to Smethwick and inadequate systems which resulted in poor service delivery to customers”. As a result, the senior management team has been replaced and Better's head of portfolio Nick Sanders parachuted in as executive chairman.

There was more positive news on Gardner, however, where Sanders has also been acting as executive chair: prospects are “now improving again”, Better said. Calyx Group, Santia and Omnico were making satisfactory progress, the firm added, while trading has picked up at yacht-maker Fairline after a difficult previous year.

Better was able to report a more positive performance by its second fund, the 2012 Cell, which has raised £356 million and committed just over £200 million to date. This vehicle has already invested in delivery business City Link, clothing retail business Jaeger and window maker Everest, and saw NAV increase by £19 million during the period.

Since the close of the financial year, the 2012 fund has also completed the £80 million acquisition of office supplies business OfficeTeam, and intends to invest a further £90 million to finance a restructuring. Better is combining this business with Spicers at a corporate level, although the two businesses will continue to trade separately.

Better reviewed 439 deal opportunities during the same period, up from 346 in the previous year. More than a quarter of these were in Germany, a level of activity that has encouraged Better to open an office in Munich in May, led by Dr. Ben Moldenhauer. However, it admitted that despite the increased volume, there had been a shortage of good investment opportunities for the fund.

At 1600 BST, Better shares were trading at 107.75p, down 0.25p and close to its 52-week low of 106p. This gives the firm a market capitalisation of £222.8 million.