Principal

Investments

The Principal Investments SBU focuses on providing intermediate and private equity capital solutions for Northwest European companies. The SBU invests in companies with a stable, predictable cash flow and a leading market position looking for additional funding. This need for funding often comes at key strategic moments in a company’s development: acquisitions, disposals, mergers, management buy-outs, business successions, share-buy-backs, balance sheet restructuring or major investments for growth.

STRATEGY & MARKETS

• To deliver tailor made intermediate capital and equity solutions for, in particular, NIBC’s client franchise
• To create a highly professional team that acts as lead arranger and as active principal investor
• To transform underperforming portfolio of intermediate capital and equity into well managed, highperforming investment portfolio

In 2004, the SBU continued its exit from non-core investments, while doubling the portfolio of high value core investments. Last year also saw a shift in the proportion in the portfolio of mezzanine financing, which currently accounts for roughly 50 % of the total portfolio.

The very strong financial performance is the result of both the transformation of the portfolio towards high return investments and realised returns on a number of exits in the portfolio. By adding a number of attractive new investments, the total portfolio remained stable. In 2004 much time and effort spent on attracting professional staff and optimising the internal risk management and control of the portfolio. The major change in allocation relates to the allocation of corporate tax benefits in respect of the exits in 2004.

OUTLOOK 2005
Principal Investment’s main mission for 2005 is to continue the transformation of the portfolio, freeing up capital through the disposal of the remaining non-core assets in its portfolio.We will then use the freed-up assets to finance new investments in core assets, improving the quality of the portfolio and enabling us to meet our return targets.We will also continue to intensify our relationship with other NIBCapital SBUs, improving the proprietary deal flow by leveraging the NIBC client franchise and network. This applies in particular to the client coverage teams of the Corporate Finance SBU, with which we will pool our client and industry knowledge to offer a one-stop shop of innovative and alternative equity and mezzanine financing solutions.With family-owned businesses still accounting for the majority of mid-size companies in Europe, we see this as a market with substantial potential for NIBCapital.
By the end of 2005, we expect to be in a position to invite third party institutional investors to co-invest with Principal Investments in a newly-established NIBCapital investment fund, integrating equity and mezzanine financing. And in close cooperation with NIBCapital’s Public Financing Initiative (PFI) team, we plan to secure a sufficient deal flow over the next two years to set up a PFI equity fund, attracting investment from third parties, enabling us to achieve sufficient growth and scale to serve the financing needs of our growing client base.

TRANSACTION: SCHOELLER WAVIN SYSTEMS
In August 2003, NIBCapital arranged and underwrote senior debt and mezzanine facilities to finance the buy-out of Schoeller Wavin Systems (“SWS”). In 2004, Acquisition Finance and Principal Investments joined forces to help SWS in acquiring Arca Systems in order for SWS to increase scale, product coverage and geographical coverage. The deal, signed in early 2005, comprises € 267 million of senior debt facilities and a € 30 million mezzanine facility. This transaction is a good example of the combination of product expertise with company and industry knowledge to arrive at a tailor made financing solution and demonstrates our focus on building partnerships with our clients.