For immediate release 10 August 2012
Interim results for the six months to 30 June 2012
Strong returns in uncertain markets
Highlights
· 12.3% increase in net assets per share to 378.5p (excluding SVG Advisers and SVG Investment Managers)
· Compares to a 3.3% return for the FTSE All-Share (TR) over the same period, a significant out-performance
· Total capital of £87.4 million returned to shareholders since strategic update in December 2011 - 51% of £170 million commitment
· Proactive management of the assets and liabilities of the business, further strengthening the balance sheet through the sale of non-core assets; proceeds of £32.1 million generated, releasing £36.3 million of uncalled commitments1
· The Board is making good progress in a search for a successor Chairman and expects to appoint a new Chairman in the next few months
Investment portfolio
· Total return of 9.8% over the six months to 30 June 2012
· Two largest contributors were Hugo Boss and Valentino Fashion Group (+£53.5 million) and Galaxy Entertainment (+£40.5 million)
· Valentino Fashion Group sold at a £34 million premium to December 2011 carrying value
· Resilient earnings growth across the majority of portfolio companies, especially at Hugo Boss which is our largest investment
· Supported by top-line expansion as management teams pursue organic and inorganic initiatives
· 27% and 35% increase in the portfolio's weighted average revenue and earnings growth for the 12 months to June 2012, year-on-year
· Despite strong performance of the portfolio, visibility on the macroeconomic outlook remains difficult
· Modest strengthening of weighted average earnings multiples (LFL multiples increased by 4.3% to 9.1x)
· Continued active management of portfolio company capital structures, opportunistically renegotiating covenants and terms
Lynn Fordham, CEO of SVG Capital commented:
"This has been another period of strong performance and progress for SVG Capital. I am pleased to report NAV growth of 12% in the first half, a 9% out-performance of the FTSE All-Share (TR) over the period, and good progress on our strategy.
"We have returned £87.4 million to shareholders since December 2011 - more than half of our commitment. We have also moved to manage the assets of our business more actively, selling a number of non-core investments, further strengthening the balance sheet through the release of uncalled commitments. Our investment committee has begun to evaluate potential opportunities for investment, at the appropriate time.
"The majority of companies in the portfolio continue to demonstrate resilient earnings growth. We remain mindful of the uncertainty in the macroeconomic environment and the impact this may have on our portfolio companies. However, we feel positive that our exposure to an underlying portfolio of high quality assets and the progress we are making on our strategy will continue to deliver value for our shareholders over the shorter and longer term."
For further information, please contact:
|
SVG Capital plc
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020 7010 8900
|
|
Alice Kain/Charlotte Edgar
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|
|
Maitland
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020 7379 5151
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Neil Bennett/Tom Eckersley
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Copies of the press release and other corporate information can be found on the company website at: http://www.svgcapital.com
Forward-looking statements - this announcement contains certain forward-looking statements with respect to the portfolio of investments of SVG Capital and the operation of its subsidiaries. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that may or may not occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. Nothing in this announcement should be construed as a profit forecast.
Chairman's statement
I am pleased to report a further period of strong performance for the Company. Our NAV per share (excluding the value of SVG Advisers and SVG Investment Managers) increased by 12.3% to 378.5p over the six months to end June 2012, compared to an increase in the FTSE All-Share (total return) of 3.3% over the same period.
We continue to be encouraged by the strong performance of the underlying portfolio which has been driven largely by the robust performance of a number of companies within the Permira IV portfolio, the majority of which continue to report strong operating performance despite difficult trading conditions.
In the first six months of the year, we formalised the Company's proposed new strategy. Shareholders approved both a change of investment objective and a series of tender offers to facilitate returns of capital. I would like to thank our shareholders for their support in this, and affirm our commitment to maximising total shareholder returns and net asset growth.
The private equity market has faced its own challenges over the first half of the year. Following continued uncertainty in the wider economic environment and across the Eurozone, the pace and quantum of activity in the private equity market has slowed. While private equity managers remain focused on realising portfolio investments and returning capital to their investors, uncertainty in the wider economic environment has made exits more difficult. Nevertheless, transactions are completing where there are strong synergies between seller and buyer, as some of Permira's recent portfolio exits demonstrate, and debt remains available for the 'best' new deals. We anticipate conditions to remain challenging while uncertainty prevails, yet feel confident we have exposure to an underlying portfolio of quality businesses with global reach, which continue to grow resiliently.
For now, the macroeconomic environment remains shrouded in uncertainty: mounting deficits need to be tackled; Eurozone leaders need to find a long term solution to fiscal and political union and avoid a financial crisis in the interim; global imbalances persist and continue to build; and inflation is still a concern in various emerging economies. There is huge uncertainty over how, when or even if these issues will be dealt with successfully and in our view the environment will remain difficult for some time.
Since SVG Capital's inception 16 years ago, the world has changed a great deal. When we began our journey in 1996 we had net assets of £187 million; since then, the business has grown into a leading London-listed private equity investor underpinned by a strong balance sheet, with access to a quality, global, private equity portfolio, and net assets of over £1 billion. We have launched two successful fund management and advisory businesses, SVG Advisers and SVG Investment Managers, which now have €3.7 billion combined commitments and assets under management2. We have forged strong relationships with leading private equity managers, in particular Permira, and in 2008 took decisive action to enable us to navigate one of the greatest financial downturns in history. With the support of our shareholders, we were able to emerge from these challenging times with a strong balance sheet and a new strategy endorsed by our shareholders.
Now that our financial position has been strengthened and the new strategy approved, the time is right for a number of the non-executive Directors to step down from the Board. Dennis Raeburn, who joined the Board in 2001, and Francis Finlay, who joined in 2004, both retired in the first half. I would like to thank both of them for their valuable contribution to the Board over many years. In March 2012, Stephen Duckett, who has had a distinguished career in private equity, was appointed to the Board. In addition, I will be retiring as Chairman during the second half of the year, and Edgar Koning, who joined the Board in 1996, will also be retiring in due course. My successor as Chairman of the Company will be appointed in the coming months. After 11 years at the helm of SVG Capital, first as CEO and latterly as Chairman, and through the worst financial crisis of my lifetime, I am proud of what SVG Capital has achieved and I believe that the Company is in a strong position to capitalise on future growth opportunities in the market.
I would like to thank shareholders for all their support over many years, and to thank especially all our management and staff who have contributed to the firm's success. I wish the business continuing great success as it moves forward.
CEO's statement
In December 2011, we outlined a new strategy for the Company focusing on both net asset growth and shareholder total return, with a return of capital of up to £170 million. Over the first half, we have made good progress on delivering on our objectives. During the period, we have returned £81.4 million of capital to shareholders taking total capital returned to shareholders to over 50% of our commitment. The investment committee has also started to look more proactively at the assets of the business and has begun evaluating potential opportunities for investment, at the appropriate time.
The strong performance of the portfolio has continued into 2012, with the investment portfolio reporting a total return of 9.8% over the first half. The two largest contributors to this strong performance in the first half were again Hugo Boss and Valentino Fashion Group and Galaxy Entertainment, both of which continued to report strong operating performance. Looking across the portfolio, many of the companies have maintained strong earnings momentum, especially in Permira IV, which continues to enjoy resilient growth with a portfolio of companies with significant exposure to faster growing international economies. For the 12 months to June 2012, weighted average earnings growth across the portfolio companies stood at 35% with revenue growth of 27%, year-on-year.
The uncertain macroeconomic environment has impacted the exit market for portfolio companies and distributions in the first half were muted, with £38.6 million received in the first half. Since June, Permira has announced the sale of Valentino Fashion Group at a significant uplift to previous carrying value, demonstrating that despite the challenging environment, high quality assets with global growth prospects still attract a premium price. The majority of the proceeds from this sale are expected to be used to deleverage the investment holding company of the Hugo Boss investment.
In the first half of this year, the investment committee has started to look at the assets of the business, asset allocation and the overall risk/return profile of the portfolio. The largest asset in the portfolio is Permira IV and the bulk of the remainder of the portfolio is made up of more mature funds, many of which are coming to the end of their lives and have already returned significantly more than committed capital.
Over the last four years, the management team has focused on managing the liabilities of the business, buying back debt where appropriate and accretive, and also extending the tenor of our banking lines. We have started to manage the assets of the business more actively, looking at the potential future returns from some of our non-core and more mature assets versus current investment opportunities, including buying back our shares in the market. Consequently, we have sold a number of our non-core assets in the secondary market, generating total proceeds of £32.1 million and further strengthening our balance sheet by releasing £36.3 million3 of uncalled commitments. We will continue to review our non-core and more mature assets in light of the current market conditions and return criteria.
SVG Advisers and SVG Investment Managers
The various funds advised by our fund management businesses continue to perform well, with all of our private equity funds of funds reporting strong growth in NAV over the period and our public equity funds continuing to outperform markets. The team has significant private equity experience, a long track record of superior fund selection and robust processes. The investment platform is a key source of intellectual capital for the Group which SVG Capital will leverage as it moves forward with the new investment strategy.
At 30 June 2012, funds under management or advice stood at €3.7 billion, in-line with December 2011. Much like the wider financial markets, investors in private equity are focused on macroeconomic uncertainty and the potential implications of regulatory change and the fund raising environment for the asset class generally remains difficult.
Despite these challenging markets, we are seeing interest in a new primary fund of funds offering from our existing investor base and we expect to start marketing SVG Advisers' next global fund of funds product in the fourth quarter. The key focus for SVG Advisers is to replace the revenue streams of the more mature funds and the team is concentrating on this and widening the investor base.
Outlook
I am pleased with the progress the Company has made in the first half. The companies in our largest asset, Permira IV, continue to demonstrate resilient growth and we have begun to lay the foundations for the execution of our new investment strategy.
Looking forward, we are cautious on the macroeconomic outlook, especially for Europe. Whilst it is still possible to sell companies, especially those with a global footprint and growth trajectory, the current uncertainty continues to hamper exits across the asset class and we do not expect conditions to improve in the short term.
The portfolio has a significant exposure to companies with global reach and which we believe will continue to demonstrate growth. We continue to believe that the medium to longer term investment environment plays to the strengths of seasoned private equity investors. In the short term, we remain focused on returning capital to shareholders.
Financial review
The Group's NAV per share increased during the period by 12.3% to 378.5p. The increase in NAV per share was primarily driven by a 9.8% total return from the investment portfolio. The portfolio performance is analysed in more detail in the investment portfolio review.
Share repurchases
During the period, the Company returned a total of £81.4 million to shareholders. In March 2012, the Company completed a fully subscribed Tender Offer returning £50.0 million at 321p per share. In addition, the Company purchased 11.5 million shares in the market at an average share price of 274p, returning a further £31.4 million. These share repurchases, all at a discount to NAV, have been accretive to continuing shareholders, adding 2.9p to NAV per share over the period on a fully diluted basis.
Cash balances and uncalled commitments
As a result of the share repurchases, the Group's cash position fell from £121.0 million at 31 December 2011 to £33.1 million at 30 June 2012. Other cash outflows in the period include £13.4 million of finance costs and £7.4 million of Senior Note buy-backs.
Net cash inflows from the investment portfolio were £16.4 million. The Company paid calls of £22.2 million and received distributions of £38.6 million during the period. The most notable call was for £19.5 million to Permira IV, largely to fund a follow-on investment into Arysta LifeScience, whilst distributions included £10.9 million from a partial realisation of TDC and £5.4 million from the Japan Fund IV.
Over the period, a considerable amount of work has been done to review the Company's investment portfolio in the context of the Company's future strategy. The review has resulted in the sale of several non-core assets. Maintaining a strong balance sheet is of paramount importance to the Board. In addition to generating total cash proceeds of £32.1 million for the Company, the asset sales have significantly reduced the Company's uncalled commitments to non-core investments. At 30 June 2012, uncalled commitments stood at £125.8 million, further reducing to £109.0 million on the completion of one of the asset sales in August. The Company is well placed to meet these with cash plus undrawn loan facility totalling £235.4 million at 30 June 2012.
The Company's subsidiary fund management businesses, SVG Advisers and SVG Investment Managers, continue to make a positive financial contribution to the Group. Dividends of £6.3 million were paid to the Company from these businesses during the period.
Borrowings
During the first half the Company took the opportunity to repurchase £7.4 million of Senior Notes and gross debt stood at £239.1 million at the period end. The £81.4 million of capital returned to shareholders during the first half has resulted in net debt as a percentage of Shareholders' funds increasing to 19.3%. The Company's Loan to Value (LTVs) declined to 12.0%, significantly below the maximum of 30%.
The Company has an available revolving credit facility of €250 million which remained undrawn at 30 June 2012. As it currently stands, €150 million of the facility matures in January 2013 with the remainder maturing in December 2015.
Foreign exchange
The appreciation of sterling against the euro had a negative impact on portfolio gains, partly offset by the appreciation of the US dollar. In aggregate, foreign exchange reduced the overall portfolio returns by £29.8 million to £116.5 million4. The foreign exchange losses on senior borrowings were offset by gains on the related currency swap.
Risks
A description of the Group's principal risks and uncertainties is included in note 12 of the interim accounts. These include risks relating to concentration, valuation, leverage, funding, borrowing and portfolio company risk.
Investment portfolio review
The investment portfolio reported a total return of 9.8% over the six months to 30 June 2012, driven by continued earnings momentum, especially at Hugo Boss which is our largest investment, a strengthening of Galaxy Entertainment's share price and a modest increase in comparable earnings multiples which more than outweighed the negative impact of foreign exchange as sterling gained approximately 4% against the euro during the period.
Management buyout funds - £1,032.3 million
(81.4% of the net investment portfolio)
The management buyout (MBO) funds portfolio consists of funds advised by Permira which represent 81.4% of the investment portfolio.
The portfolio reported an 11.6% total return over the six months to 30 June 2012. The companies valued on an earnings basis benefited from continued momentum across the majority of portfolio companies as well as a modest strengthening of average earnings multiples with like-for-like multiples increasing by 4.3% on a weighted average basis and 1.1% on a non-weighted basis.
Encouragingly, much of the earnings growth has been supported by top-line expansion as management teams continue to pursue organic and inorganic initiatives, driving geographic expansion into faster growing markets and new product launches. For the 12 months to June 2012, the portfolio companies reported weighted average earnings growth of 35% and revenue growth of 27% year-on-year.
The portfolio value also benefitted from the 34.6% increase in Galaxy Entertainment's share price over the period following the announcement of its 14th consecutive quarter of revenue and earnings growth, up 130% and 202% year-on-year respectively, driven by strong performance from Galaxy Macau and continued growth in both mass market and VIP revenues.
Permira and the underlying management teams have continued to actively manage the capital structures, opportunistically renegotiating covenants and terms. At 30 June 2012, less than 15% of the Permira funds' portfolio companies' debt was due to expire before 20155 and the teams have continued to take advantage of opportunities to further decrease leverage, particularly in more mature companies.
The portfolio's five largest investments (Hugo Boss and VFG, Arysta LifeScience, Galaxy Entertainment, iglo Group and ProSiebenSat) represent 73.3% of the gross MBO portfolio value, with the three largest companies reporting the largest valuation gains over the period. The top five portfolio companies have well diversified revenue streams across industry and geography and are a mixture of Permira IV and Permira Europe III assets.
Major unrealised portfolio movements
|
Company
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30 Jun 20126
£m
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Calls in period
£m
|
Distributions in period
£m
|
31 Dec 20115
£m
|
Change in period7
£m
|
|
Hugo Boss and VFG
|
314.4
|
-
|
-
|
260.9
|
53.5
|
|
Galaxy Entertainment
|
160.7
|
-
|
-
|
120.2
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40.5
|
|
Arysta LifeScience
|
183.3
|
13.2
|
-
|
148.3
|
21.8
|
|
ProSiebenSat
|
63.0
|
-
|
-
|
51.9
|
11.1
|
|
Legico
|
54.6
|
-
|
-
|
44.9
|
9.7
|
|
TDC
|
39.4
|
-
|
20.4
|
69.1
|
(9.3)
|
|
Freescale
|
39.1
|
-
|
-
|
48.8
|
(9.7)
|
Hugo Boss and VFG was the largest value driver over the period (+£53.5 million) and represents 27.7% of the gross MBO portfolio value at 30 June 2012. Hugo Boss reported a 16% increase in H1 2012 sales and earnings, driven by growth in all regions and distribution channels. Management have reconfirmed their full year sales growth target of up to 10%, on a constant currency basis, and EBITDA growth target of between 10% and 12%. Following shareholder approval at an AGM in May, the conversion of all preference shares into ordinary shares has completed and Permira's valuation of Hugo Boss is now based on the quoted share price. Since June, funds advised by Permira signed a binding agreement to sell Valentino Fashion Group (VFG) to an investment group backed by a leading investor from Qatar and the valuation of VFG is based on expected net sales proceeds. The net proceeds at closing will be used predominantly to repay the existing financing debt at the holding company of the Hugo Boss investment. The sale is subject to customary closing conditions and is expected to complete by October 2012.
Galaxy Entertainment was the second largest value driver, delivering a £40.5 million gain over the period driven by a 34.6% increase in its share price following the announcement of its 14th consecutive quarter of revenue and earnings growth, up 130% and 202% year-on-year, respectively. Macau gaming revenues continue to grow, reporting a 12% increase in June 2012. In addition, Galaxy Entertainment announced the launch of phase two of Galaxy Macau's development which is likely to create the next new casino when it opens in mid 2015. Galaxy does not intend to issue additional equity to finance this investment.
Arysta LifeScience is the second largest portfolio company, representing 16.1% of the gross MBO portfolio value. The company has continued to report double digit earnings growth during H1 2012 driven by strong trading in Europe and South America and continued cost controls which more than offset challenging weather conditions in other regions and price pressures from generic chemical solutions in North America. During the period a £13.2 million follow on investment was made to support further M&A opportunities and deleverage the business. In addition, the valuation of the business has increased by a further £21.8 million over the half.
ProSiebenSat's value increased by £11.1 million, largely driven by an increase in comparable earnings multiples. The company reported a 5% increase in Q2 2012 revenues and a 2% increase in EBITDA, mainly driven by strong diversification performance into digital and content production sales. Following the Q2 2012 results, management reconfirmed their full year outlook, targeting mid single digit growth in revenues.
Legico is valued on a mark-to-market basis and has been written up by £9.7 million to reflect the increase in market prices of its assets. The underlying portfolio of loans continue to perform well and the portfolio composition is gradually shifting towards more liquid investments.
TDC's value declined by £9.3 million following a fall in its share price. The company has continued to trade resiliently despite macroeconomic uncertainty and a slowdown in Danish consumer spending, with H1 2012 revenue growing 0.5%. Permira completed a partial realisation during Q1 2012.
Freescale's share price fell by 19.2% over the period leading to a £9.7 million decline in SVG Capital's value.
Consistent with other companies in the semiconductor industry, Freescale has been experiencing some revenue and backlog softness since Q3 2011, largely driven by global macroeconomic uncertainties and weakness in the industrial and networking businesses. Despite this, the company has made further progress on several operating initiatives, improving underlying gross margins and increasing design wins momentum. In addition, Freescale made a number of IP licensing and patent sales during Q2 2012 which generated additional revenues and helped to reduce net debt. The Freescale management team have guided further softness in earnings in Q3 2012.
Realisations
Distributions of £10.9 million were received from the management buyout funds portfolio over the six months following completion of a partial realisation of TDC, the Danish listed communications solutions provider, at DKK 43.26 per share (30 June 2012: DKK 40.77). The value of this partial realisation to SVG Capital, both directly and indirectly through its holdings in the Permira feeder vehicles, was £20.4 million.
New investments and follow-ons
Permira IV announced one portfolio company acquisition during the period. SVG Capital will participate in this investment indirectly through its holdings in the Permira feeder vehicles and the SVG Diamond programme.
Intelligrated is a leading North American-based provider of automated material handling solutions, services and products. Intelligrated designs, manufactures and installs complete material handling solutions, for the warehousing, distribution, consumer product manufacturing, postal and parcel markets. Solutions include conveyor systems, sortation systems, palletisers and robotics, order fulfilment systems, warehouse control software and advanced machine controls. Intelligrated will remain headquartered in Mason, Ohio, and has operations throughout the United States and in Canada, Mexico and Brazil. The investment completed on 31 July 2012 and SVG Capital's share is approximately £2.0 million.
Valuation basis
On a like-for-like basis, weighted average discounted earnings multiples increased by 4.3% over the six months.
At 30 June 2012, the weighted average discounted earnings multiple used to value the portfolio was 9.1x and the median was 8.5x.
Valuation analysis
|
|
30 Jun 2012 (by value)
|
31 Dec 2011 (by value)
|
|
Quoted
|
50
|
24
|
|
Earnings
|
34
|
59
|
|
Written down - earnings
|
11
|
12
|
|
Third-party
|
5
|
4
|
|
Cost
|
-
|
1
|
Geographical analysis
|
|
30 Jun 2012 (by value)
|
31 Dec 2011 (by value)
|
|
Global
|
57
|
56
|
|
Continental Europe
|
19
|
21
|
|
Asia
|
14
|
12
|
|
UK
|
9
|
11
|
|
North America
|
1
|
-
|
Sector analysis
|
|
30 Jun 2012 (by value)
|
31 Dec 2011 (by value)
|
|
Retail
|
31
|
30
|
|
Leisure
|
16
|
14
|
|
Chemicals
|
16
|
15
|
|
Consumer
|
14
|
15
|
|
Electronics and communications
|
11
|
13
|
|
Media
|
6
|
7
|
|
Financial
|
5
|
5
|
|
Industrial products/services
|
1
|
1
|
Portfolio maturity - investments in companies - 30 June 2012 (£m)
|
|
|
Cost
|
Quoted
|
Earnings
|
Earnings (below cost)
|
Third-party
|
TOTAL
|
|
2003
|
|
-
|
-
|
|
0.3
|
-
|
0.3
|
|
2004
|
|
-
|
-
|
-
|
43.2
|
-
|
43.2
|
|
2005
|
|
-
|
58.6
|
-
|
-
|
|
58.6
|
|
2006
|
|
-
|
39.1
|
132.3
|
18.0
|
|
189.4
|
|
2007
|
|
-
|
475.0
|
-
|
63.0
|
-
|
538.0
|
|
2008
|
|
-
|
-
|
208.2
|
-
|
54.6
|
262.8
|
|
2009
|
|
-
|
-
|
22.3
|
-
|
-
|
22.3
|
|
2010
|
|
-
|
-
|
6.3
|
1.2
|
-
|
7.5
|
|
2011
|
|
2.9
|
|
6.3
|
-
|
-
|
9.2
|
|
2012
|
|
-
|
-
|
4.4
|
-
|
-
|
4.4
|
|
TOTAL
|
|
2.9
|
572.7
|
379.8
|
125.7
|
54.6
|
1135.7
|
Year of original investment in underlying companies
SVG managed or advised funds
SVG Advisers' funds - £132.9 million
(10.5% of the investment portfolio)
The SVG Advisers' funds portfolio reported a 12.8% total return over the six months, as underlying valuation increases have been amplified by the leverage within many of the fund structures. During the period, SVG Capital sold its commitment to SVG Asia Fund of Funds releasing £18.3 million of uncalled commitments.
SVG Investment Managers' funds - £47.3 million
(3.7% of the investment portfolio)
The funds managed by SVG Investment Managers reported good performance over the six months delivering a 6.0% total return. During the period, the SVG European Fund closed and SVG Capital exited its position.
Capital commitments
At 30 June 2012, the Group had uncalled commitments as follows:
|
|
Amount called (local currency) (unaudited)
|
Uncalled
commitment
(local currency)
(unaudited)
|
Uncalled
commitment1
(unaudited)
|
|
Management buyout funds
|
|
|
|
|
Permira Europe III
|
€352.4m
|
€6.1m
|
£4.9m
|
|
Permira IV
|
€1,367.4m
|
€77.0m
|
£62.3m
|
|
P1234
|
€30.8m
|
€7.7m
|
£6.2m
|
|
Sapphire IV
|
€1.7m
|
€0.3m
|
£0.2m
|
|
SVG Sapphire IV
|
€11.3m
|
€1.7m
|
£1.4m
|
|
|
|
|
£75.0m
|
|
SVG Advisers' funds
|
|
|
|
|
SVG Diamond Private Equity III
|
€47.2m
|
€18.3m
|
£14.8m
|
|
Schroder Private Equity Fund of Funds III
|
€0.9m
|
€0.1m
|
£0.1m
|
|
|
|
|
£14.9m
|
|
|
|
|
|
|
Non-core portfolio
|
|
|
£35.9m
|
|
|
|
|
|
|
Total
|
|
|
£125.8m
|
1 Based on exchange rates at 30 June 2012 exchange rates
10 largest underlying companies June 2012
|
1. Hugo Boss and Valentino Fashion Group (Germany and Italy)
|
|
|
£m
|
|
|
|
|
Cost
|
205.5
|
|
|
|
|
Value June 2012
|
314.4
|
|
|
|
|
Date of acquisition
|
May 2007
|
|
|
|
|
% of gross MBO portfolio
|
27.7
|
|
|
|
|
% of Shareholders' funds
|
29.5
|
|
|
|
|
Underlying fund
|
Permira IV
|
|
|
|
|
|
|
|
|
|
|
Hugo Boss and VFG operate in the fashion and luxury goods market, with a presence in more than 100 countries, comprising over 1,600 single-brand boutiques and more than 500 directly-managed shops. The valuation basis is quoted.
|
|
|
|
2. Arysta LifeScience (Japan)
|
|
|
£m
|
|
|
|
|
Cost
|
164.8
|
|
|
|
|
Value June 2012
|
183.3
|
|
|
|
|
Date of acquisition
|
February 2008
|
|
|
|
|
% of gross MBO portfolio
|
16.1
|
|
|
|
|
% of Shareholders' funds
|
17.2
|
|
|
|
|
Underlying fund
|
Permira IV
|
|
|
|
|
|
|
|
|
|
|
Arysta LifeScience is an agrochemical and lifescience company that produces a range of insecticides, fungicides and herbicides as well as a number of products for the healthcare and veterinary medicine markets. Arysta is the world's largest, privately-held agrochemical business, marketing a portfolio of more than 150 crop protection products in over 125 countries. The valuation basis is earnings.
|
|
3. Galaxy Entertainment (Greater China)
|
|
|
£m
|
|
|
|
|
Cost
|
43.5
|
|
|
|
|
Value June 2012
|
160.7
|
|
|
|
|
Date of acquisition
|
November 2007
|
|
|
|
|
% of gross MBO portfolio
|
14.1
|
|
|
|
|
% of Shareholders' funds
|
15.1
|
|
|
|
|
Underlying fund
|
Permira IV
|
|
|
|
|
|
|
|
|
|
|
Galaxy Entertainment Group is a casino and hotel operator in Macau SAR, China. It is one of six gaming concessionaires licensed to operate casinos in Macau, the world's largest gaming market by revenue and the only legal gaming location in China. The valuation basis is quoted.
|
|
|
|
|
|
|
|
|
|
|
|
|
4. iglo Group (UK)
|
|
|
£m
|
|
|
|
|
Cost
|
49.0
|
|
|
|
|
Value June 2012
|
111.1
|
|
|
|
|
Date of acquisition
|
November 2006
|
|
|
|
|
% of gross MBO portfolio
|
9.8
|
|
|
|
|
% of Shareholders' funds
|
10.4
|
|
|
|
|
Underlying fund
|
Permira Europe III
|
|
|
|
|
|
|
|
|
The iglo Group is a branded European frozen food company that produces fish, vegetables and poultry, including a number of iconic products such as Fish Fingers, Schlemmer Filets and Sofficini. The Group operates under three brands: Birds Eye (UK and Ireland), iglo (Germany, Austria, Belgium, The Netherlands and other countries) and Findus (Italy). The valuation basis is earnings.
|
|
|
|
5. ProSiebenSat. 1 Media (Germany)
|
|
|
|
|
£m
|
|
|
|
|
Cost
|
140.3
|
|
|
|
|
Value June 2012
|
63.0
|
|
|
|
|
Date of acquisition
|
March 2007
|
|
|
|
|
% of gross MBO portfolio
|
5.6
|
|
|
|
|
% of Shareholders' funds
|
5.9
|
|
|
|
|
Underlying fund
|
Permira IV
|
|
|
|
|
|
|
|
|
|
|
ProSiebenSat.1 Media AG is a leading European broadcasting group the core of which is free-to-air television. The company is present in 10 countries reaching more than 67 million TV households in northern, central and eastern Europe. The company owns Germany's largest family of free TV stations and its channels also hold the number two and three market positions in other key European markets. The valuation basis is earnings.
|
|
6. Legico (Luxembourg)
|
|
|
£m
|
|
|
Cost
|
50.4
|
|
|
Value June 2012
|
54.6
|
|
|
Date of acquisition
|
January 2008
|
|
|
% of gross MBO portfolio
|
4.8
|
|
|
% of Shareholders' funds
|
5.1
|
|
|
Underlying fund
|
Permira IV
|
|
|
|
|
|
|
|
Legico seeks to invest in credit market opportunities by investing in senior, mezzanine and PIK opportunities in both the primary and secondary markets. The company's main geographical focus is the UK and Europe, although it does have the flexibility to invest worldwide. The valuation basis is mark-to-market.
|
|
|
|
7. Acromas (AA Saga) (UK)
|
|
|
£m
|
|
|
|
|
Cost
|
41.8
|
|
|
|
|
Value June 2012
|
42.7
|
|
|
|
|
Date of acquisition
|
September 2004
|
|
|
|
|
% of gross MBO portfolio
|
3.8
|
|
|
|
|
% of Shareholders' funds
|
4.0
|
|
|
|
|
Underlying fund
|
Permira Europe III
|
|
|
|
|
|
|
|
|
|
|
Acromas is the holding company for the AA and Saga, two of the UK's most iconic brands with long traditions that inspire high levels of customer loyalty. With 15 million members, the AA is the UK's market leader in roadside assistance, attending over 3.5 million breakdowns each year. The AA is also one of the UK's biggest names in insurance. Saga provides financial services to people aged over 50 in the UK, including motor and home insurance as well as personal financial products. Saga also offers a broad range of holidays and other travel services to its customers (including the famous Saga world cruises) and is the UK's largest independent provider of domiciliary care services. The valuation basis is earnings.
|
|
|
|
8. TDC (Denmark)
|
|
|
£m
|
|
|
|
|
Cost
|
24.0
|
|
|
|
|
Value June 2012
|
39.4
|
|
|
|
|
Date of acquisition
|
December 2005
|
|
|
|
|
% of gross MBO portfolio
|
3.5
|
|
|
|
|
% of Shareholders' funds
|
3.7
|
|
|
|
|
Underlying fund
|
Permira Europe II & III
|
|
|
|
|
|
|
|
|
|
|
TDC is a provider of communications solutions in Denmark with nearly nine million revenue generating units. It also has a significant presence in other markets across the Nordic region. The valuation basis is quoted.
|
|
|
|
9. Freescale (USA)
|
|
|
£m
|
|
|
|
|
Cost
|
145.1
|
|
|
|
|
Value June 2012
|
39.1
|
|
|
|
|
Date of acquisition
|
November 2006
|
|
|
|
|
% of gross MBO portfolio
|
3.4
|
|
|
|
|
% of Shareholders' funds
|
3.7
|
|
|
|
|
Underlying fund
|
Permira IV
|
|
|
|
|
|
|
|
|
|
|
Freescale is a global leader in embedded processing solutions for the automotive, consumer, industrial and networking markets. The company has a heritage of innovation and product leadership spanning more than 50 years and has an extensive intellectual property portfolio, including approximately 6,100 patent families, and serves more than 18,000 customers with leading products and solutions. The valuation basis is quoted.
|
|
|
|
|
|
|
|
10. Marazzi (Italy)
|
|
|
£m
|
|
|
|
|
Cost
|
41.9
|
|
|
|
|
Value June 2012
|
24.9
|
|
|
|
|
Date of acquisition
|
July 2008
|
|
|
|
|
% of gross MBO portfolio
|
2.2
|
|
|
|
|
% of Shareholders' funds
|
2.3
|
|
|
|
|
Underlying fund
|
Permira IV
|
|
|
|
|
|
|
|
|
|
|
Marazzi Group is a worldwide leader in the design, manufacturing and distribution of ceramic tiles. The company is a technological leader in the tiles sector and has a strong track record in design and innovation. Marazzi sells into 130 countries, with leadership in most of the markets in which it operates, and has manufacturing facilities in all of its key areas of activity (Europe, the US and Russia) as well as direct distribution in Russia and the US. The valuation basis is earnings.
|
List of investments (Group) at 30 June 2012
|
|
Year
formed
|
Original life (years)
|
SVG Capital's holding in the fund
%
|
Value of SVG Capital's holding
£'000
|
% of total investments
|
|
Management buy-out funds
|
|
|
|
|
|
|
Permira Europe I
|
|
|
|
|
|
|
The first US$1 billion fund raised for private equity investment in Europe focusing on large and medium‑sized leveraged buy-out opportunities.
|
1997
|
10*
|
13.5
|
1,294
|
0.1
|
|
Permira Europe II
|
|
|
|
|
|
|
Focused on European buy-outs/ins, in addition to growth capital investments.
|
2000
|
10
|
15.2
|
19,221
|
1.5
|
|
Permira Europe III
|
|
|
|
|
|
|
Focused on buy-outs/ins and growth capital investments in European businesses or of global businesses with a strong European presence.
|
2003
|
10
|
7.2
|
111,347
|
8.8
|
|
Permira IV
|
|
|
|
|
|
|
Focused on buy-outs/ins and growth capital investments in businesses which have or intend to have significant activities in Europe. The fund may invest up to 30% of its committed capital in businesses which do not have or intend to have significant activities in Europe.
|
2006
|
10
|
22.2**
|
717,952
|
56.6
|
|
P123
|
|
|
|
|
|
|
A fund of Permira buy-out funds, with interests in Permira Europe I, II and III.
|
2003
|
15
|
24.8
|
31,414
|
2.5
|
|
P1234
|
|
|
|
|
|
|
A fund of Permira buy-out funds, with interests in P123 and Permira IV.
|
2006
|
15
|
42.8
|
65,519
|
5.2
|
|
P25
|
|
|
|
|
|
|
A fund of Permira buy-out funds, with interests in Permira Europe III and Permira IV.
|
|
|
|
|
|
|
- limited partnership interest
|
2006
|
15
|
47.7
|
76,154
|
6.0
|
|
Sapphire IV
|
|
|
|
|
|
|
A feeder fund that invests solely in Permira IV.
|
2006
|
15
|
0.6
|
1,265
|
0.1
|
|
SVG Sapphire IV
|
|
|
|
|
|
|
A feeder fund that invests solely in Permira IV.
|
2006
|
15
|
31.7
|
8,158
|
0.6
|
|
Total management buy-out Funds
|
|
|
|
1,032,324
|
81.4
|
* The lives of these funds have been extended.
** Interest in existing portfolio companies as at the date of the Permira IV reorganisation in 2008.
|
|
Year
formed
|
Original life (years)
|
SVG Capital's holding in the fund†
%
|
Value of
SVG Capital's holding
£'000
|
% of total investments
|
|
SVG managed or advised funds
|
|
|
|
|
|
|
SVG Advisers' funds - private equity
|
|
|
|
|
|
|
SVG Diamond Holdings
|
|
|
|
60,225
|
4.7
|
|
SVG Diamond Holdings (F Notes)
|
|
|
|
9,547
|
0.8
|
|
SVG Diamond Holdings II
|
|
|
|
37,313
|
2.9
|
|
SVG Diamond Holdings II (F Notes)
|
|
|
|
5,162
|
0.4
|
|
SVG Diamond Private Equity III
|
|
|
|
19,879
|
1.6
|
|
Schroder Private Equity Fund of Funds III
|
|
|
|
744
|
0.1
|
|
SVG Investment Managers' funds - public equity
|
|
|
|
|
|
|
Strategic Equity Capital
|
|
|
|
11,847
|
0.9
|
|
Strategic Recovery Fund II - co-investment
|
|
|
|
22,716
|
1.8
|
|
SVG UK Focus Fund
|
|
|
|
12,708
|
1.0
|
|
Total SVG managed or advised funds
|
|
|
|
180,141
|
14.2
|
|
Total non-core investments
|
|
|
|
56,220
|
4.4
|
|
Total investment portfolio
|
|
|
|
1,268,685
|
100.0
|
|
Other assets less total liabilities
|
|
|
|
(204,283)
|
|
|
Total Shareholders' funds
|
|
|
|
1,064,401
|
|
† Direct interest in the fund. Comparative values for the 10 largest funds are shown in note 13 of the financial statements.
* The life of this fund has been extended.
Statement of Directors' responsibilities
The Directors confirm to the best of their knowledge that:
(a) the condensed set of financial statements have been prepared in accordance with IAS 34 as adopted by the European Union;
(b) the interim report includes a fair review of the important events, principle risks and uncertainties and other information it is required to include; and
(c) the interim report includes a fair review of the information required on material transactions with related parties and changes since the last annual report.
The Directors of SVG Capital plc and their functions are listed below.
By order of the Board:
Nicholas Ferguson, Chairman
Lynn Fordham, Chief Executive
Stephen Duckett, Non-executive Director
Caroline Goodall, Non-executive Director
Edgar Koning, Non-executive Director
Charles Sinclair, Non-executive Director
Andrew Sykes, Non-executive Director
Independent review report to SVG Capital plc
Introduction
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2012 which comprises Consolidated Income Statement, Consolidated Statement of Comprehensive Income, Consolidated Statement of Changes in Equity, Consolidated Balance Sheet, Consolidated Cash Flow Statement and the related notes 1 to 13. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the Company in accordance with guidance contained in ISRE (UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRS as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2012 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
Ernst & Young LLP
London
9 August 2012
Consolidated income statement
|
|
|
For the six months ended
30 June 2012 (unaudited)
|
For the six months ended
30 June 2011 (unaudited)
|
|
|
Notes
|
Revenue return £'000
|
Capital return £'000
|
Total
£'000
|
Revenue return £'000
|
Capital return £'000
|
Total
£'000
|
|
Gains on investments - at fair value through profit and loss
|
|
-
|
114,219
|
114,219
|
-
|
270,107
|
270,107
|
|
Exchange gains on other items
|
|
-
|
46
|
46
|
-
|
3,490
|
3,490
|
|
Movement in fair value of derivative contracts
|
|
-
|
2,803
|
2,803
|
-
|
(9,060)
|
(9,060)
|
|
|
|
-
|
117,068
|
117,068
|
-
|
264,537
|
264,537
|
|
Operating income
|
|
|
|
|
|
|
|
|
Investment income
|
|
5,145
|
-
|
5,145
|
792
|
-
|
792
|
|
Income from investment advisory services
|
|
11,159
|
-
|
11,159
|
12,171
|
-
|
12,171
|
|
Other operating income
|
|
15
|
-
|
15
|
(83)
|
-
|
(83)
|
|
Total operating income
|
|
16,319
|
-
|
16,319
|
12,880
|
-
|
12,880
|
|
Operating expenses
|
|
(12,955)
|
-
|
(12,955)
|
(12,424)
|
-
|
(12,424)
|
|
Operating profit
|
|
3,364
|
-
|
3,364
|
456
|
-
|
456
|
|
Finance costs
|
4
|
(15,819)
|
-
|
(15,819)
|
(18,556)
|
(112)
|
(18,668)
|
|
(Loss)/profit before tax
|
|
(12,455)
|
117,068
|
104,613
|
(18,100)
|
264,425
|
246,325
|
|
Tax
|
|
391
|
180
|
571
|
403
|
(87)
|
316
|
|
(Loss)/profit for the period
|
|
(12,064)
|
117,248
|
105,184
|
(17,697)
|
264,338
|
246,641
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
Equity holders of the parent
|
|
(12,064)
|
117,248
|
105,184
|
(17,685)
|
264,338
|
246,653
|
|
Non-controlling interests
|
|
-
|
-
|
-
|
(12)
|
-
|
(12)
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
From continuing activities
|
|
|
|
|
|
|
|
|
Basic
|
6
|
|
|
36.9p
|
|
|
80.6p
|
|
Diluted
|
6
|
|
|
35.8p
|
|
|
78.3p
|
The total column of this statement represents the Company's income statement, prepared in accordance with IFRS. The supplementary revenue return and capital return columns are both prepared under guidance published by the Association of Investment Companies. All items in the above statement derive from continuing operations.
Notes 1 to 13 form an integral part of these accounts.
Consolidated statement of comprehensive income
|
|
For the
six months ended
30 June 2012 £'000 (unaudited)
|
For the
six months ended 30 June 2011
£'000 (unaudited)
|
|
Profit for the period
|
105,184
|
246,641
|
|
Net gain/(loss) on cash flow hedges
|
696
|
(600)
|
|
Total comprehensive income
|
105,880
|
246,041
|
|
Attributable to:
|
|
|
|
Equity holders of the parent
|
105,880
|
246,053
|
|
Non-controlling interests
|
-
|
(12)
|
|
|
105,880
|
246,041
|
Notes 1 to 13 form an integral part of these accounts.
Consolidated statement of changes in equity
|
|
Share capital and own shares £'000
|
Share premium £'000
|
Revenue reserve £'000
|
Capital reserve £'000
|
Cash flow hedge reserve £'000
|
Share option reserve £'000
|
Other reserves £'000
|
Attributable to equity holders £'000
|
Non-controlling interests £'000
|
Total equity £'000
|
|
For the six months ended 30 June 2012 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2011
|
291,074
|
131,230
|
(87,477)
|
590,158
|
719
|
12,194
|
100,835
|
1,038,733
|
100
|
1,038,833
|
|
(Loss)/profit for the period
|
-
|
-
|
(12,064)
|
117,248
|
-
|
-
|
-
|
105,184
|
-
|
105,184
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
Recycled through the income statement:
|
|
|
|
|
|
|
|
|
|
|
|
- currency contracts
|
-
|
-
|
-
|
-
|
(303)
|
-
|
-
|
(303)
|
-
|
(303)
|
|
Movement in fair value of cash flow hedges
|
-
|
-
|
-
|
-
|
999
|
-
|
-
|
999
|
-
|
999
|
|
|
291,074
|
131,230
|
(99,541)
|
707,406
|
1,415
|
12,194
|
100,835
|
1,144,613
|
100
|
1,144,713
|
|
Issue of performance share awards
|
-
|
-
|
-
|
-
|
-
|
1,682
|
-
|
1,682
|
-
|
1,682
|
|
Deferred tax on share options
|
-
|
-
|
-
|
-
|
-
|
684
|
-
|
684
|
-
|
684
|
|
Purchase of treasury shares
|
-
|
-
|
-
|
-
|
-
|
-
|
(62,203)
|
(62,203)
|
-
|
(62,203)
|
|
Cancellation of shares
|
(20,375)
|
-
|
-
|
-
|
-
|
-
|
-
|
(20,375)
|
-
|
(20,375)
|
|
At 30 June 2012
|
270,699
|
131,230
|
(99,541)
|
707,406
|
1,415
|
14,560
|
38,632
|
1,064,401
|
100
|
1,064,501
|
Notes 1 to 13 form an integral part of these accounts.
|
|
Share capital and own shares £'000
|
Share premium £'000
|
Revenue reserve £'000
|
Capital reserve £'000
|
Cash flow hedge reserve £'000
|
Share option reserve £'000
|
Other reserves £'000
|
Attributable to equity holders £'000
|
Non-controlling interests £'000
|
Total equity £'000
|
|
For the six months ended 30 June 2011 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2010
|
305,408
|
131,230
|
(54,439)
|
447,419
|
(1,471)
|
8,166
|
109,364
|
945,677
|
125
|
945,802
|
|
(Loss)/profit for the period
|
-
|
-
|
(17,685)
|
264,338
|
-
|
-
|
-
|
246,653
|
(12)
|
246,641
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
Recycled through the income statement:
|
|
|
|
|
|
|
|
|
|
|
|
- currency contracts
|
-
|
-
|
-
|
-
|
362
|
-
|
-
|
362
|
-
|
362
|
|
- interest rate swaps
|
-
|
-
|
-
|
-
|
(137)
|
-
|
-
|
(137)
|
-
|
(137)
|
|
Movement in fair value of cash flow hedges
|
-
|
-
|
-
|
-
|
(825)
|
-
|
-
|
(825)
|
-
|
(825)
|
|
|
305,408
|
131,230
|
(72,124)
|
711,757
|
(2,071)
|
8,166
|
109,364
|
1,191,730
|
113
|
1,191,843
|
|
Issue of performance share awards
|
-
|
-
|
-
|
-
|
-
|
1,631
|
-
|
1,631
|
-
|
1,631
|
|
Deferred tax on share options
|
-
|
-
|
-
|
-
|
-
|
488
|
-
|
488
|
-
|
488
|
|
Buy-back of convertible loan notes
|
-
|
-
|
-
|
122
|
-
|
-
|
(122)
|
-
|
-
|
-
|
|
Purchase of own shares
|
(7,334)
|
-
|
-
|
-
|
-
|
-
|
-
|
(7,334)
|
-
|
(7,334)
|
|
At 30 June 2011
|
298,074
|
131,230
|
(72,124)
|
711,879
|
(2,071)
|
10,285
|
109,242
|
1,186,515
|
113
|
1,186,628
|
Consolidated balance sheet
|
|
Notes
|
As at
30 June 2012
£'000 (unaudited)
|
As at
31 December 2011
£'000
(audited)
|
|
Non-current assets
|
|
|
|
|
Property, plant and equipment
|
|
1,538
|
1,605
|
|
Investments designated as fair value through profit and loss
|
|
1,268,685
|
1,168,511
|
|
Derivatives at fair value through profit and loss
|
|
-
|
4,451
|
|
Deferred tax asset
|
|
4,107
|
2,868
|
|
|
|
1,274,330
|
1,177,435
|
|
Current assets
|
|
|
|
|
Other receivables
|
|
9,105
|
8,498
|
|
Tax recoverable
|
|
3
|
-
|
|
Derivatives at fair value through profit and loss
|
|
7,371
|
-
|
|
Cash and cash equivalents
|
|
33,140
|
121,004
|
|
|
|
49,619
|
129,502
|
|
Total assets
|
|
1,323,949
|
1,306,937
|
|
Current liabilities
|
|
|
|
|
Other payables
|
|
(13,423)
|
(15,107)
|
|
Total assets less current liabilities
|
|
1,310,526
|
1,291,830
|
|
Non-current liabilities
|
|
|
|
|
Senior Notes
|
7
|
(154,162)
|
(162,046)
|
|
Convertible loan notes
|
7
|
(91,851)
|
(90,929)
|
|
Deferred tax liability
|
|
(12)
|
(22)
|
|
|
|
(246,025)
|
(252,997)
|
|
Net assets
|
|
1,064,501
|
1,038,833
|
|
Equity
|
|
|
|
|
Called up share capital
|
9
|
290,033
|
310,408
|
|
Own shares
|
|
(19,334)
|
(19,334)
|
|
Share premium account
|
|
131,230
|
131,230
|
|
Capital redemption reserve
|
|
3,204
|
3,204
|
|
Share purchase reserve
|
|
23,076
|
85,279
|
|
Share option reserve
|
|
14,560
|
12,194
|
|
Convertible loan notes - equity
|
|
12,352
|
12,352
|
|
Hedge reserves
|
|
1,415
|
719
|
|
Capital reserve
|
|
707,406
|
590,158
|
|
Revenue reserve
|
|
(99,541)
|
(87,477)
|
|
Shareholders' funds
|
|
1,064,401
|
1,038,733
|
|
Non-controlling interests
|
|
100
|
100
|
|
Total equity
|
|
1,064,501
|
1,038,833
|
|
Net asset value per ordinary share ("Shareholders' funds")
|
|
|
|
|
- undiluted
|
10
|
393.1p
|
348.4p
|
|
- diluted
|
10
|
378.5p
|
337.1p
|
Notes 1 to 13 form an integral part of these accounts.
The Group's financial statements were authorised for issue by the Board of Directors on 9 August 2012 and the balance sheet was signed on behalf of the Board by:
Lynn Fordham
Consolidated cash flow statement
|
|
For the
six months ended
30 June
2012
£'000 (unaudited)
|
For the
six months ended
30 June
2011
£'000 (unaudited)
|
|
Operating activities
|
|
|
|
Investment management and advisory fee income
|
15,092
|
16,128
|
|
Interest income
|
863
|
3,371
|
|
Other income
|
4,249
|
253
|
|
Administrative expenses
|
(14,960)
|
(17,789)
|
|
Interest paid
|
(13,355)
|
(16,562)
|
|
Tax received
|
(3)
|
1,053
|
|
Net cash used in operating activities
|
(8,114)
|
(13,546)
|
|
Investing activities
|
|
|
|
Capital distributions from private equity fund portfolio
|
15,831
|
34,039
|
|
Capital distribution from other investments
|
17,958
|
3,761
|
|
Calls paid to private equity fund portfolio
|
(20,891)
|
(7,816)
|
|
Payments in respect of other investments
|
(1,247)
|
(11,723)
|
|
Purchases of property, plant and equipment
|
(62)
|
(278)
|
|
Net cash from investing activities
|
11,589
|
17,983
|
|
Financing
|
|
|
|
Drawdown on loan facility
|
-
|
61,903
|
|
Repayment of loan facility
|
-
|
(24,384)
|
|
Buy-back of Senior Notes
|
(7,399)
|
(35,316)
|
|
Buy-back of convertible loan notes
|
-
|
(1,008)
|
|
Tender offer costs
|
(1,182)
|
-
|
|
Purchase of shares
|
(81,869)
|
-
|
|
Purchase of own shares by EBT
|
-
|
(7,334)
|
|
Net cash used in financing activities
|
(90,450)
|
(6,139)
|
|
Net decrease in cash and cash equivalents
|
(86,975)
|
(1,702)
|
|
Cash and cash equivalents at beginning of period
|
121,004
|
17,111
|
|
Effect of foreign exchange rates on cash and cash equivalents
|
(889)
|
325
|
|
Cash and cash equivalents at end of period
|
33,140
|
15,734
|
Notes to the accounts
1 General information
The information contained within these financial statements does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2011, prepared in accordance with International Financial Reporting Standards as adopted by the European Union, have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis of matter and did not contain a statement under Section 498 of the Companies Act 2006.
Going concern
The Group's activities, together with the factors likely to affect its future development, performance and position are set out in the Chairman's statement and the Chief Executive's statement. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the financial review. In addition, note 12 to the interim financial statements includes details of the Group's financial instruments and its risk profile.
In light of the Group's financial resources, the Directors' believe that the Group is positioned to manage its business risks successfully despite the continuing uncertain economic outlook. The Directors consider a number of measures when considering the Group's going concern status, such as whether adequate sources of liquidity exist to meet uncalled commitments and the ability of the Group to meet finance costs and operating expenses. After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Interim Report and Accounts.
2 Accounting policies
Basis of accounting
The interim report has been prepared in accordance with IAS 34 'Interim Financial Reporting' and the Listing Rules of the Financial Services Authority.
The accounting policies applied in these interim financial statements are consistent with those applied in the Group's most recent annual financial statements.
Income tax expense for the interim period has been determined on the best estimate of the weighted-average annual income tax rate for the Group expected for the full accounting year.
3 Operating segments
For management purposes, the Group is currently organised into the following principal activities:
Investing activities
SVG Capital's investment objective is to achieve capital appreciation by investing in a portfolio of private equity and private equity-related assets. Investing activities are undertaken by SVG Capital plc, SVG India LP and The Platinum Trust.
Investment management and advisory services
To complement this investment objective and create capital and income for the Company, its fund advisory business structures, markets, manages and advises products for investment in private equity, private equity related assets, alternative asset classes and in public equity using private equity techniques.
3 Operating segments continued
These activities are undertaken by SVG Advisers Limited (SVGA), SVG Managers Limited (SVGM), SVG Investment Managers Limited (SVGIM), SVG Advisers (Singapore) Pte. Limited, SVG Advisers Inc. and SVG North America Inc. Segmental information showing the performance of these business segments is presented below.
|
Group
Six months ended 30 June 2012
|
Investing activities
£'000 (unaudited)
|
Investment management and advisory services
£'000 (unaudited)
|
Eliminations £'000 (unaudited)
|
Consolidated £'000 (unaudited)
|
|
Income from investment advisory services
|
-
|
10,855
|
-
|
10,855
|
|
Gain/(loss) on forward rate contracts
|
-
|
303
|
-
|
303
|
|
Investment income and other operating income
|
5,137
|
24
|
-
|
5,161
|
|
Intra-group income
|
6,305
|
3,474
|
(9,779)
|
-
|
|
|
11,442
|
14,656
|
(9,779)
|
16,319
|
|
Performance shares and options fair value charge
|
-
|
(2,627)
|
-
|
(2,627)
|
|
Other administrative costs
|
(1,267)
|
(9,061)
|
-
|
(10,328)
|
|
Intra-group expenses
|
(3,225)
|
-
|
3,225
|
-
|
|
|
(4,492)
|
(11,688)
|
3,225
|
(12,955)
|
|
Operating profit/(loss)
|
6,950
|
2,968
|
(6,554)
|
3,364
|
|
Finance costs
|
(15,819)
|
-
|
-
|
(15,819)
|
|
Intra-group finance costs
|
(249)
|
(17)
|
266
|
-
|
|
Gains on investments and derivatives at fair value through profit and loss
|
117,020
|
2
|
-
|
117,022
|
|
Exchange gains
|
422
|
(376)
|
-
|
46
|
|
Profit before tax
|
108,324
|
2,577
|
(6,288)
|
104,613
|
|
|
|
|
|
|
|
Dividends
|
-
|
-
|
-
|
-
|
|
Intra-group dividends
|
-
|
(6,288)
|
6,288
|
-
|
|
|
-
|
(6,288)
|
6,288
|
-
|
|
|
|
|
|
|
|
Total assets
|
1,302,248
|
21,701
|
-
|
1,323,949
|
|
Total liabilities
|
(251,783)
|
(7,665)
|
-
|
(259,448)
|
|
Intra-group (liabilities)/assets
|
(12,656)
|
12,656
|
-
|
-
|
|
Net assets
|
1,037,809
|
26,692
|
-
|
1,064,501
|
3 Operating segments continued
|
Group
Six months ended 30 June 2011
|
Investing activities
£'000 (unaudited)
|
Investment management and advisory services
£'000 (unaudited)
|
Eliminations £'000 (unaudited)
|
Consolidated £'000 (unaudited)
|
|
Income from investment advisory services
|
-
|
12,171
|
-
|
12,171
|
|
Investment income and other operating income
|
769
|
(60)
|
-
|
709
|
|
Intra-group income
|
6,592
|
3,925
|
(10,517)
|
-
|
|
|
7,361
|
16,036
|
(10,517)
|
12,880
|
|
Performance shares and options fair value charge
|
-
|
(2,618)
|
-
|
(2,618)
|
|
Other administrative costs
|
(1,032)
|
(8,774)
|
-
|
(9,806)
|
|
Intra-group expenses
|
(3,681)
|
-
|
3,681
|
-
|
|
|
(4,713)
|
(11,392)
|
3,681
|
(12,424)
|
|
Operating profit/(loss)
|
2,648
|
4,644
|
(6,836)
|
456
|
|
Finance costs
|
(18,668)
|
-
|
-
|
(18,668)
|
|
Intra-group finance costs
|
(244)
|
(17)
|
261
|
-
|
|
Gains on investments and derivatives at fair value through profit and loss
|
261,034
|
13
|
-
|
261,047
|
|
Exchange gains
|
3,257
|
233
|
-
|
3,490
|
|
Profit before tax
|
248,027
|
4,873
|
(6,575)
|
246,325
|
|
|
|
|
|
|
|
Dividends
|
-
|
-
|
-
|
-
|
|
Intra-group dividends
|
-
|
(6,575)
|
6,575
|
-
|
|
|
-
|
(6,575)
|
6,575
|
-
|
|
|
|
|
|
|
|
Total assets
|
1,501,554
|
29,472
|
-
|
1,531,026
|
|
Total liabilities
|
(334,444)
|
(9,954)
|
-
|
(344,398)
|
|
Intra-group (liabilities)/assets
|
(8,579)
|
8,579
|
-
|
-
|
|
Net assets
|
1,158,531
|
28,097
|
-
|
1,186,628
|
4 Finance costs
|
Group
|
For the
six months ended
30 June
2012
£'000 (unaudited)
|
For the
six months ended
30 June
2011
£'000 (unaudited)
|
|
Convertible loan note finance costs
|
4,154
|
4,695
|
|
Amortisation of issue and listing costs plus premium to redemption re convertibles
|
922
|
1,057
|
|
Convertible loan note redemptions
|
-
|
113
|
|
Senior Note interest
|
7,001
|
7,851
|
|
Amortisation of issue costs re Senior Notes
|
750
|
877
|
|
Loss on repurchase of Senior Notes
|
444
|
1,112
|
|
Interest rate swap (receipts)/payments
|
(24)
|
(137)
|
|
Loan facility finance costs
|
1,433
|
2,142
|
|
Amortisation of loan facility issue costs
|
1,022
|
850
|
|
Other interest
|
117
|
108
|
|
|
15,819
|
18,668
|
5 Dividends
|
Group
|
For the
six months ended
30 June
2012
£'000 (unaudited)
|
For the
six months ended
30 June
2011
£'000 (unaudited)
|
|
Amounts recognised as distributions in the period:
|
|
|
|
Dividend of nil (2011: nil)
|
-
|
-
|
6 Earnings per share
The calculation of the basic and diluted earnings per share, in accordance with IAS 33, is based on the following data:
|
Group
|
For the
six months ended
30 June
2012
£'000 (unaudited)
|
For the
six months ended
30 June
2011
£'000 (unaudited)
|
|
Profit/(loss) for the purposes of basic earnings per share being net profit attributable to equity holders of the parent
|
105,184
|
246,653
|
|
Effect of dilutive potential ordinary shares
|
n/a
|
n/a
|
|
Gain/(loss) for the purposes of diluted earnings per share
|
105,184
|
246,653
|
|
|
Number
|
Number
|
|
Number of shares
|
|
|
|
Weighted average number of ordinary shares for the purposes of basic earnings per shares
|
285,280,473
|
306,013,005
|
|
Effect of dilutive potential ordinary shares:
|
|
|
|
Share options and performance shares
|
8,618,459
|
9,104,703
|
|
Convertible loan notes
|
n/a
|
n/a
|
|
Weighted-average number of ordinary shares for the purposes of diluted earnings per share
|
293,898,932
|
315,117,708
|
|
Earnings per share
|
|
|
|
Basic
|
36.9p
|
80.6p
|
|
Diluted
|
35.8p
|
78.3p
|
The 8,948,670 shares held by the SVIIT and the SVIIT USA Employee Benefit Trusts are disregarded for calculating the ordinary shares in issue for this purpose.
7 Borrowings
|
|
30 June
2012
£'000 (unaudited)
|
31 December 2011
£'000
(audited)
|
|
Loan facility
|
-
|
-
|
|
Senior Notes
|
154,162
|
162,046
|
|
Convertible loan notes
|
91,851
|
90,929
|
|
Fair value gain on currency swaps
|
(6,963)
|
(4,159)
|
|
|
239,050
|
248,816
|
Loan facility
The Company has a loan facility with The Royal Bank of Scotland plc, The Bank of Scotland plc and Unicredit Bank AG. The loan facility is split into two tranches. Tranche A is a facility of €150 million maturing January 2013. Tranche B is a facility of €100 million and matures in December 2015.
7 Borrowings continued
At 30 June 2012, drawings on the facility amounted to €nil. The facility documentation allows for a further €150 million to be contributed by a new lender into Tranche B. Any additional amounts committed under Tranche B will reduce the amount committed under Tranche A.
Senior Notes
Non-current liabilities include £154.2 million of Senior Unsecured Loan Notes. Further details of the Senior Notes are provided in the following table:
|
Group
|
Amount
(local currency 000's)
|
30 June
2012
£'000 (unaudited)*
|
31 December 2011
£'000
(audited)
|
|
9.10% Fixed Rate Series A Senior Notes due 18 July 2013
|
US$85,028
|
54,210
|
54,712
|
|
Floating Rate Series C Senior Notes due 18 July 2013
|
£1,028
|
1,028
|
1,028
|
|
8.49% Fixed Rate Series A Senior Notes due 18 July 2014
|
US$99,002
|
63,119
|
71,250
|
|
9.10% Fixed Rate Series D Senior Notes due 18 July 2015
|
£36,650
|
36,650
|
36,650
|
|
|
|
155,007
|
163,640
|
|
Unamortised issue costs
|
|
(845)
|
(1,594)
|
|
|
|
154,162
|
162,046
|
* Based on exchange rates at 30 June 2012.
During the period the Company repurchased a total of US$11.7 million US$ Senior Notes. Costs associated with the repurchases have been written-off to the income statement.
Issue costs are charged to the revenue account over the term of the Senior Notes.
Currency swap
In respect of certain foreign currency borrowings, the Company has executed currency swaps to hedge the exchange rate risk on the principal outstanding. The Company has entered into agreements to swap US$180 million of its US$ Senior Notes into euros, being approximately 98% of the total. The contracts were entered at an exchange rate of 1.347 and mature on 18 January 2013. Net derivative liability positions are included in the balance sheet as current liabilities and net derivative asset positions on currency swaps are included in the balance sheet as current assets. At 30 June 2012 the net derivative asset position was £7.0 million (31 December 2011: gain of £4.2 million).
Covenants
The loan facility and Senior Notes are subject to financial covenants. With effect from 1 July 2011, the maximum loan to value (LTV) covenant is 30% (excluding the SVGA valuation), with the flexibility of one nine month period to rectify an LTV above 30% (up to a maximum of 40%) to below 30%. At 30 June 2012, the LTV covenant stood at 12.0%.
7 Borrowings continued
Convertible loan notes
Non-current liabilities include £100.7 million of 8.25% convertible loan notes maturing on 5 June 2016. Further details of the convertibles are provided in the following table:
|
|
30 June
2012
£'000 (unaudited)
|
31 December 2011
£'000
(audited)
|
|
8.25% subordinated convertible loan notes 2016 - nominal
|
100,650
|
100,650
|
|
Unamortised premium, issue and listing costs
|
(8,799)
|
(9,721)
|
|
|
91,851
|
90,929
|
The loan notes were issued with a Conversion Price of £10.00. As a result of the Rights Issue in 2009, the Conversion Price was amended to £7.28 on 4 February 2009, in accordance with the Terms and Conditions of the loan notes. As a further result of the Placing, the Conversion Price was amended to £6.48 on 10 February 2009. Following the tender offer completed in the period, the Conversion Price was amended to £6.10.
As the loan notes are subordinated to the Senior Notes and the loan facility, they are not counted as debt for the purposes of calculating the loan to value covenants for the Senior Notes and loan facility.
8 Capital commitments and contingencies
|
|
Uncalled commitment (local currency)
|
Uncalled commitment
£ million
|
|
Management buyout funds
|
|
|
|
Permira Europe III
|
€6.1m
|
4.9
|
|
Permira IV
|
€77.0m
|
62.3
|
|
P1234
|
€7.7m
|
6.2
|
|
Sapphire IV
|
€0.3m
|
0.2
|
|
SVG Sapphire IV
|
€1.7m
|
1.4
|
|
|
|
75.0
|
|
|
|
|
|
SVG managed or advised funds
|
|
|
|
SVG Diamond Private Equity III
|
€18.3m
|
14.8
|
|
Schroder Private Equity Fund of Funds III
|
€0.1m
|
0.1
|
|
|
|
14.9
|
|
|
|
|
|
Other investments
|
|
35.9
|
|
|
|
|
|
Total
|
|
125.8
|
9 Share capital and reserves
|
|
30 June 2012
|
|
31 December 2011
|
|
|
Group
£'000
|
|
Group
£'000
|
|
Allotted, called up and fully paid:
|
|
|
|
|
Opening balance of 310,407,923
|
310,408
|
|
310,408
|
|
Cancellation of shares
|
(20,375)
|
|
-
|
|
Issue of ordinary shares on exercise of options
|
-
|
|
-
|
|
Closing balance of 290,032,690 shares
|
290,033
|
|
310,408
|
During the period, the Company invited shareholders to tender ordinary shares for sale to J.P. Morgan Cazenove and subsequent on-sale to the Company at a price of 321 pence per share ("the Tender Offer"). The Company purchased a total of 15.6 million shares from J.P. Morgan Cazenove following the Tender Offer. All shares purchased through the Tender Offer have been subsequently cancelled by the Company.
In addition to the Tender Offer, the Company purchased 11.5 million shares through on-market buybacks. The cost of shares purchased through the Tender Offer and on-market share buy-back, along with associated transaction costs, have been debited to the Share Purchase Reserve.
A total of 4.8 million shares have been cancelled from treasury, following the on-market share repurchases.
10 Net asset value per ordinary share (Shareholders' funds)
|
Group
|
30 June
2012
£'000 (unaudited)
|
31 December 2011
£'000 (audited)
|
|
Basic
|
393.1p
|
348.4p
|
|
Diluted
|
378.5p
|
337.1p
|
Calculation of the net asset values per share is based on Group net assets attributable to equity Shareholders of the parent of £1,064,401,000 (31 December 2011: £1,038,733,000), and on 270,790,291 (31 December 2011: 298,158,695) ordinary shares in issue at the period end.
The consolidated diluted net asset values per share assume that share options and performance shares with a strike price lower than the undiluted net asset value per share are exercised at the balance sheet date. This would result in the issue of 10,924,257 ordinary shares (31 December 2011: 10,502,266) for consideration of £1,977,000 (31 December 2011: £1,732,000).
The convertible loan notes 2016 are exercisable at a strike price of 610p and are therefore not dilutive.
Therefore, the calculation of the diluted net asset value per share of the Group is based on Group net assets attributable to equity Shareholders of £1,066,378,000 (31 December 2011: £1,040,465,000), and on 281,714,548 (31 December 2011: 308,660,961) ordinary shares in issue at the period end.
The diluted net asset value per share of 378.5p does not include the unaudited Directors' valuation of £40.4 million (or 14.3p) attributable to the operating subsidiaries.
Reconciliation of NAV per share
|
Group
|
£'000
|
Shares in issue
|
Undiluted
NAV per share
|
|
Opening shareholders' funds
|
1,038,733
|
298,158,695
|
348.4p
|
|
Purchase of shares
|
(82,578)
|
(27,368,404)
|
301.7p
|
|
Opening balances adjusted for share movements
|
956,155
|
270,790,291
|
353.1p
|
|
Gain attributable to equity shareholders of the parent company
|
105,184
|
270,790,291
|
38.9p
|
|
Other reserve movements during the period (hedging)
|
3,062
|
270,790,291
|
1.1p
|
|
Closing shareholders' funds
|
1,064,401
|
270,790,291
|
393.1p
|
11 Related party transactions
Lynn Fordham is a member of the Advisory Committees of certain of the Permira funds in which the Company invests. She does not receive fees for these services.
Nicholas Ferguson and members of his family have an interest in the carried interest in respect of certain private equity funds. With the introduction of the Executive Share Option Plan in May 2001, Nicholas Ferguson gave up a portion of his entitlement to carried interest on existing private equity funds and any entitlement he may have to carried interest on certain private equity funds launched after 2001 in return for share options granted by the Company under the Executive Share Option Plan. Nicholas Ferguson also participates in the Schroder Ventures Co-Investment Scheme and Schroder Ventures Investments Limited. He has received no new carried interest allocations and made no new commitments since he joined SVG Capital in 2001.
Lynn Fordham is eligible to participate in the Performance Share Plan (PSP) at the discretion of the Remuneration Committee. The terms of the PSP are outlined on pages 39 and 40 of the 2011 Annual Report and Accounts. During the period Lynn Fordham was awarded 571,402 performance shares. The shares awarded were split equally between awards based on NAV growth and awards based on Total Shareholder Return.
Lynn Fordham has a service contract with SVGA. Andrew Sykes is a non-executive director of SVGA. No other Director has any material interest in any other contract that is significant to the Company's business.
The Directors of the Company and their beneficial family interests in the Company's share capital during the period to 30 June 2012 are given below:
|
Investment
|
At 30 June 2012 (unaudited)
|
At 31 December 2011
(audited)
|
|
Beneficial
|
|
|
|
Nicholas Ferguson
|
834,759
|
879,618
|
|
Francis Finlay
|
N/A
|
250,000
|
|
Lynn Fordham
|
133,031
|
119,523
|
|
Caroline Goodall
|
Nil
|
Nil
|
|
Edgar Koning
|
75,413
|
80,000
|
|
Denis Raeburn
|
N/A
|
328,332
|
|
Stephen Duckett
|
Nil
|
N/A
|
|
Charles Sinclair
|
110,124
|
110,124
|
|
Andrew Sykes
|
21,000
|
21,000
|
|
Non-beneficial
|
|
|
|
Nicholas Ferguson
|
181,638
|
204,937
|
11 Related party transactions continued
Charles Sinclair holds £100,000 convertible loan notes due 2016. In addition, certain Directors also have an interest in funds managed or advised by the SVG Capital Group, as detailed below:
|
Director*
|
Investment in SVG Funds
|
|
Nicholas Ferguson
|
- 400,000 shares in Sapphire (PCC) Limited
|
|
Charles Sinclair
|
- 200,000 shares in Sapphire (PCC) Limited
|
|
|
- 250,000 shares in Schroder Private Equity Fund of Funds III plc
|
|
|
- 900 shares in SVG UK Focus Fund
|
|
|
- 100,000 shares in SVG Diamond Holdings II Limited
|
|
|
- 150,000 shares in SVG Diamond Private Equity III plc
|
|
Andrew Sykes
|
- 100,000 shares in SVG Diamond Holdings Limited
|
|
|
- 100,000 shares in SVG Diamond Holdings II Limited
|
|
|
- 100,000 shares in SVG Diamond Private Equity III plc
|
|
|
- 29,463 shares in Schroder Private Equity Funds plc
|
|
|
- 125,000 shares in Schroder Private Equity Fund of Funds III plc
|
|
|
- 200,000 shares in Sapphire (PCC) Limited
|
|
|
- 4,101 shares in SVG UK Focus Fund
|
|
|
|
|
|
|
* Including beneficial interests of spouses and children.
No other Director has any material interest in any other contract that is significant to the Company's business.
The Company invests in a number of funds for which its subsidiary companies, SVGA, SVGM or SVGIM, act as either investment adviser or investment manager and receive fees for their services. The following table details funds managed or advised by SVGIM, SVGM or SVGA that are also part of SVG Capital's investment portfolio.
|
Investment
|
Manager/adviser
|
Uncalled
commitment
£ million
|
Valuation
£ million
|
|
Management buyout funds
|
|
|
|
|
P123
|
SVGIM/SVGA
|
-
|
31,414
|
|
P1234
|
SVGA
|
6.2
|
65,519
|
|
P25
|
SVGA
|
-
|
76,154
|
|
Sapphire IV
|
SVGA
|
0.2
|
1,265
|
|
SVG Sapphire IV
|
SVGA
|
1.4
|
8,158
|
|
SVG managed or advised funds
|
|
|
|
|
SVG Advisers' funds:
|
|
|
|
|
SVG Diamond Holdings
|
SVGA
|
-
|
69,772
|
|
SVG Diamond Holdings II
|
SVGA
|
-
|
42,475
|
|
SVG Diamond Private Equity III
|
SVGM/SVGA
|
14.8
|
19,879
|
|
Schroder Private Equity Fund of Funds III
|
Schroders/SVGA
|
0.1
|
744
|
|
SVG Investment Managers' funds:
|
|
|
|
|
SVG UK Focus Fund
|
SVGIM
|
-
|
12,708
|
|
Strategic Equity Capital plc
|
SVGIM
|
-
|
11,847
|
|
Strategic Recovery Fund II co-investment
|
SVGIM
|
-
|
22,716
|
|
Other investments:
|
|
|
|
|
SVG India LP
|
PEIAL*
|
0.4
|
7,416
|
* Private Equity Investment Advisers Limited (PEIAL) is a joint venture investment advisory company based in Mauritius in which SVGA holds a 50% interest in the equity shares.
11 Related party transactions continued
During the period SVGA received €0.8 million of SVG Diamond Holdings Loan Notes and €0.6 million of SVG Diamond Holdings II Loan Notes, as part of its ongoing investment advisory fee arrangements. These Notes were purchased from SVGA by SVG Capital plc at par value on the date of issue, as the holding of investments is the main activity of the parent Company.
In 2007 the Company advanced a loan of £624,000 to SVGIM which remains outstanding. Interest of 5% per annum is payable on the loan.
In 2010 the Company received a loan of £10 million from SVGA. Interest of 5% per annum is payable on the loan.
SVG Capital has no employees but used the services of its wholly-owned subsidiary, SVGA, to provide certain advisory and administrative services in return for a fee of 0.5% p.a. of gross assets. The fees payable in respect of these services for the period ended 30 June 2012 amounted to £2.8 million (30 June 2011: £3.5 million).
As previously disclosed, the 'Diamond Investment Scheme' enabled staff to purchase shares in SVG Diamond Holdings II from SVG Capital. The total amounts receivable by the Company under the Scheme was £0.4 million at 30 June 2012 (31 December 2011: £0.4 million).
The following distributions were paid by subsidiaries during the period: SVGA paid a dividend of £6.0 million, SVGIM paid a dividend of £0.2 million and SVGM paid a dividend of £0.1 million.
Related party transactions during the period were made on terms equivalent to those that prevail in arm's length transactions.
12 Risk
Financial instruments and risk profile
The Company's investment objective is to achieve capital appreciation by investing in a portfolio of private equity and private equity related assets. These investments are typically illiquid. In addition, the Company holds money market instruments, cash and short-term deposits and various items such as debtors and creditors that arise directly from its operations. These financial instruments held by the Company are generally liquid.
The holding of securities, investing activities and associated financing undertaken pursuant to this objective involves certain inherent risks. Events may occur that would result in either a reduction in the Company's net assets or a reduction of revenue profits available for dividend.
As an investment trust, the Company invests in securities for the long term. The Company has not taken out any derivatives contracts for speculative purposes to date. The Company has entered into a currency swap agreement referred to in note 7, which is used to hedge against fluctuations in foreign exchange with respect to the Senior Notes in issue. In addition, SVGA has entered into forward foreign exchange rate agreements to partially hedge its projected fee stream, which is primarily denominated in euros.
12 Risk continued
Financial instruments
(a) Financial assets
|
Group
|
Floating
rate
£'000
|
Fixed
rate
£'000
|
Non-interest bearing
£'000
|
Total
£'000
|
|
Currency denomination of assets at 30 June 2012 (unaudited):
|
|
|
|
|
|
Sterling
|
19,263
|
-
|
134,785
|
154,048
|
|
Euro
|
8,669
|
-
|
836,683
|
845,352
|
|
US dollar
|
5,208
|
-
|
123,656
|
128,864
|
|
Japanese yen
|
-
|
-
|
22,000
|
22,000
|
|
Singapore dollar
|
-
|
-
|
715
|
715
|
|
Hong Kong dollar
|
-
|
-
|
160,677
|
160,677
|
|
Indian rupee
|
-
|
-
|
6,314
|
6,314
|
|
Canadian dollar
|
-
|
-
|
334
|
334
|
|
|
33,140
|
-
|
1,285,164
|
1,318,304
|
|
Group
|
Floating
rate
£'000
|
Fixed
rate
£'000
|
Non-interest bearing
£'000
|
Total
£'000
|
|
Currency denomination of assets at 31 December 2011 (audited):
|
|
|
|
|
|
Sterling
|
100,237
|
-
|
145,018
|
245,255
|
|
Euro
|
20,269
|
-
|
753,910
|
774,179
|
|
US dollar
|
498
|
-
|
126,435
|
126,933
|
|
Japanese yen
|
-
|
-
|
22,877
|
22,877
|
|
Singapore dollar
|
-
|
-
|
624
|
624
|
|
Hong Kong dollar
|
-
|
-
|
120,156
|
120,156
|
|
Indian rupee
|
-
|
-
|
11,832
|
11,832
|
|
Canadian dollar
|
-
|
-
|
608
|
608
|
|
|
121,004
|
-
|
1,181,460
|
1,302,464
|
Non-interest bearing assets represent non-monetary items such as the Group's investment portfolio and other short-term debtors. Floating rate financial assets consist of cash at bank, short-term deposits and AAA-rated money market funds. All financial assets are included at fair value.
(b) Financial liabilities
The Company has £154.2 million of Senior Notes outstanding and £91.9 million of subordinated convertible loan notes in issue at 30 June 2012.
The Company also has a loan facility with The Royal Bank of Scotland plc, The Bank of Scotland plc and Unicredit Bank AG, London. The loan facility is split into two tranches. Tranche A is a facility of €150 million maturing in January 2013. Tranche B is a facility of €100 million and matures in December 2015. At 30 June 2012 the drawn loan facility was £nil (31 December 2011: £nil) drawn. In addition to financial liabilities, the Company also has uncalled fund commitments of £125.8 million as at 30 June 2012, which are discussed below as part of commitment risk.
Financial liabilities also included the fair value of currency contracts that are 'out of the money'.
The level of borrowing will impact on the Group's performance by amplifying the effect of movements in the valuation of the investment portfolio.
12 Risk continued
It should also be noted that fund investments and underlying investee companies may also utilise borrowings to varying degrees. This is particularly the case with respect to collateralised loan obligation (CLO) funds and structured private equity funds of funds, which are highly leveraged vehicles.
Currency denomination of financial liabilities of the Group:
|
|
30 June
2012
£'000 (unaudited)
|
31 December 2011
£'000
(audited)
|
|
Sterling
|
139,817
|
141,333
|
|
Euro
|
110,687
|
113,103
|
|
US dollar
|
8,932
|
13,640
|
|
|
259,436
|
268,076
|
The currency exposures above have been adjusted for the effect of the currency swap.
The main risks arising from the Company's financial instruments are considered to be commitment risk and valuation risk. The Board reviews and agrees policy for managing these and other risks as summarised below. The Directors consider that the risks faced by the Group are primarily those faced by the Company.
Commitment/liquidity risk
The nature of investing in buy-out and development capital funds entails making significant financial commitments. At 30 June 2012, the Group had uncalled commitments of £125.8 million (31 December 2011: £170.2 million), compared to Shareholders' funds of £1,064.4 million (31 December 2011: £1,038.7 million).
It is anticipated that over the longer term, and in normal circumstances, commitments would be financed by available cash resources and distributions received on the realisation of existing investments, although in the current market environment it is not anticipated that there will be significant realisations from the investment portfolio in the short-term. In addition, the Group has a €250.0 million loan facility at 30 June 2012, of which £nil has been drawn, that could be drawn on to meet commitments as they fall due. It should be noted that the loan facility is subject to financial covenants and therefore the ability to access the facility could be restricted if asset values are insufficient to ensure compliance with the 30% LTV threshold, excluding the unaudited value of SVGA (with the flexibility of one nine month period to rectify an LTV above 30% (up to a maximum of 40%) to below 30%). It should also be noted that Tranche A of the loan facility is due to expire in January 2013 with Tranche B due to expire in December 2015. Hence, a residual risk remains that the Group could be unable to meet its future commitments in full. At 30 June 2011, the LTV ratio was 12.0%.
If as a consequence of a failure to pay a call, the Company is treated as a defaulting investor to the relevant Fund, it will suffer a resultant dilution in interest and possibly the compulsory sale of its interest. In December 2008 the Company agreed to reduce its commitment to Permira IV. The total direct commitment by the Company to Permira IV was €2.4 billion, of which 56.8% had been called. In 2008, the Company elected to cap its commitment at 60% of the total, resulting in a reduction in uncalled commitments of €963 million. The remaining commitment to Permira IV at 30 June 2012 was €77.0 million (note 8) which will only be called to finance follow-on investments and fees. The terms of these arrangements require that distributions from the realisation of portfolio companies receivable by those investors in Permira IV that elected to cap their commitments will be reduced by 25%, such benefit to accrue to the Limited Partners that did not elect to cap their uncalled commitments.
The Company's loan facility expires in January 2013 (€150.0 million) and December 2015 (€100.0 million). The Senior Notes in issue mature between July 2013 to July 2015 (see note 7). The convertible loan notes are repayable in 2016.
The Board manages liquidity risk by regularly and rigorously reviewing cash flow forecasts and available funding options. Commitments to fund investments are reviewed by the Investment Committee and the Board.
The currency swaps executed by the Company mature in January 2013. Significant fluctuations in the US$ to euro exchange rate could result in the contract being out of the money at the point of maturity.
12 Risk continued
The Board manages liquidity risk by regularly and rigorously reviewing cash flow forecasts and available funding options. Commitments to fund investments are reviewed and approved by the Board.
Valuation/market price risk
The Company's exposure to valuation risk comprises mainly movements in the value of its underlying investments. A detailed analysis of the 10 largest underlying companies is given in the portfolio review. In accordance with the Company's accounting policies, all underlying investments are valued at fair value by the Directors in accordance with the current International Private Equity and Venture Capital (IPEVC) Valuation Guidelines. The IPEVC Valuation Guidelines contain detailed methodology setting out best practice with respect to valuing unquoted investments. It should be noted that a large proportion of the Company's underlying investee companies may be unquoted and therefore the valuation of such companies involves exercising judgement. The Company does not hedge against movements in the value of these investments. Uncertainty arises as a result of future changes in the valuation of the Company's underlying investments, the majority of which would ordinarily be unquoted, and the effect changes in exchange rates may have in the sterling value of these investments. Development-stage equity investments and early-stage equity investments, by their nature, involve uncertainty as to the ultimate value likely to be realised on the disposal of those investments, particularly as their unquoted nature means that a ready market may not exist for them. As an indication of the valuation risk facing the Company, for the six months to 30 June 2012 the Group benefited from gains on its investment portfolio totalling £116.5 million (for the six months ended 30 June 2011: gain of £270.1 million).
The Company's sensitivity to valuation risk will be affected by changes in the Company's levels of borrowing and liquidity, as approved by the Board. It will also be affected by leverage in the funds in which we invest, leverage in the underlying investee companies and the local currency denomination of such funds, which is considered separately under currency risk.
At 30 June 2012, a 10% movement in the valuation of the Group's aggregate investments designated as fair value through profit and loss would result in a 12.6% change in Shareholders' funds (31 December 2011: 11.3%).
Valuation risk will be affected by leverage in the underlying investee companies. A sensitivity analysis has been performed on the valuations of the 10 largest underlying investee companies, which had an aggregate valuation (before providing for carried interest) of £1,033.2 million or 91.0% of the gross MBO portfolio valuation (31 December 2011: £917.7 million or 90.7%), the results of which are set out in the table below.
|
|
Fair value
£ million
|
Hypothetical*
fair value (10% uplift)
£ million
|
Hypothetical* fair value (10% write-down)
£ million
|
|
30 June 2012 (unaudited)
|
|
|
|
|
Gross valuation of 10 largest investee companies
|
1,033.2
|
1,238.1
|
828.1
|
|
Change in valuation/effect on income
|
|
+19.9%
|
-19.8%
|
|
31 December 2011 (audited)
|
|
|
|
|
Gross valuation of 10 largest investee companies
|
917.7
|
1,113.5
|
751.6
|
|
Change in valuation/effect on income
|
|
+21.3%
|
-18.1%
|
* All investments are included in the balance sheet at fair value. Quoted companies are valued based on market prices. For such investments, a 10% movement in the valuation basis will have a 10% impact on fair value. For unquoted investments valued on a different basis, such as earnings-related, a 10% movement in the earnings of the investee company will not necessarily result in a 10% change in fair value because of other factors such as the level of debt utilised by the investee companies.
The Board manages valuation risk by reviewing and approving the valuation of the private equity fund portfolio.
Concentration risk
The Directors believe that the diversified nature of the underlying investments in the Company's private equity fund portfolio reduces the risks normally associated with making investments in the buy-out and development capital markets. However, it should be noted that, at present, the Company hold a significant proportion of its investments in private equity funds that are managed or advised by Permira. At 30 June 2012, the value of the
12 Risk continued
Top 10 largest underlying holdings represented 91.0% of the gross management buyout portfolio (31 December 2011: 90.7%).
There is a large degree of uncertainty and risk involved in investing in private equity and the Group's results are primarily dependent on the performance of its private equity fund investments. During the six months ended 30 June 2012, Group gains on investments amounted to £116.5 million. As the Company's largest exposures currently are to Permira funds, we expect that the performance of the Company in the immediate future will be largely dependent on the future performance of the Permira funds in which we invest. Investors should be aware that greater concentration of the investment portfolio presents a significant risk.
Holdings risk
In certain circumstances, the Company may wish to transfer its holdings in particular funds. In a majority of the funds in which the Company will invest, the general partner, trustee or manager has the ultimate right, similar to that exercisable by a board of a private company, to refuse to register the transfer of an interest. While the Company has no reason to believe that any request for the transfer of an interest would be refused, it is of course conceivable that the general partner's, trustee's or manager's overriding fiduciary duty could result in its refusing to register a particular transfer proposed by the Company.
Interest rate risk
The Company's revenue will be affected by changes in prevailing interest rates since a large portion of its income ordinarily derives from money market instruments and bank deposit interest. It also pays interest on its Senior Notes, convertible loan notes and drawings on the loan facility that may be taken out from time to time.
The Company's primary objective is to achieve capital returns from its investments and, as such, the main exposure to interest rate risk is indirect, through its impact on the valuation of the private equity funds, although it is not possible to quantify such effects. Interest rates are one of the key determinants of economic growth. At a more specific level, interest rates and credit spreads also have an important role in the ability of private equity funds to secure profitable deals, as many transactions are partly financed by debt. The effect of interest rate changes on the valuation of investments and debt forms part of valuation risk, which is considered separately.
At 30 June 2012, the Company had £154.2 million of Senior Notes in issue, £91.9 million of convertible loan notes and drawings on the loan facility amounting to £nil. Interest rate risk on the Senior Notes and the loan notes is mitigated as the loan notes and most of the Senior Notes pay fixed rates of interest. The weighted average interest rate payable on the Senior Notes amounted to 8.8% at 30 June 2012. A sensitivity analysis has not been included as a majority of interest costs are at fixed rates and interest income is not a material contributor to returns.
Credit risk
There are no significant concentrations of credit risk within the Group unless otherwise disclosed. The Group is subject to credit risk on its cash and cash equivalents. The maximum credit risk exposure relating to cash and cash equivalents is represented by carrying value as at the balance sheet date. The Group's cash and deposits are held with a variety of counterparties. Cash equivalents at the year end comprised money market funds with a variety of counterparties, each fund having a credit rating of AAA.
Currency risk
The Company is exposed to currency risk directly since the majority of its assets and liabilities are denominated in foreign currency and their sterling value can be significantly affected by movements in foreign exchange rates. The Company does not normally hedge against foreign currency movements affecting the value of its investments, but takes account of this risk when making investment decisions. The Company has a €250.0 million loan facility which, if drawn, would act as a hedge against the currency risk on the value of its euro-denominated assets.
The Company also had foreign currency-denominated Senior Notes of US$184.0 million at 30 June 2012. In respect of these borrowings, the Company has executed currency swaps to hedge the exchange rate risk on the
12 Risk continued
principal outstanding. The Company has entered into agreements to swap US$180.0 million of its US$ Senior Notes into euros, being approximately 98% of the total. The contracts were entered at an exchange rate of 1.347 and mature on 18 January 2013. The Company has sufficient exposure to US$ assets to cover the remainder of its US$ liabilities.
The Group has also entered into forward foreign exchange contracts to mitigate against movements in exchange rates. These contracts are primarily to provide a cash flow hedge against euro-denominated investment management and advisory fees receivable by subsidiary companies in 2011, 2012 and 2013. The total outstanding under such contracts at 30 June 2012 amounted to a sale of €32.4 million in exchange for £27.7 million. A fair value gain for the period of £0.4 million was taken to equity in respect of these contracts as a result of the depreciation of euro against sterling.
A sensitivity analysis has been performed on the portfolio valuations on the effect of exchange rate fluctuations on the value of Shareholders' funds, the results of which are set out in the table below.
|
|
Equity
Shareholders'
funds
£ million
|
Hypothetical value (10%
£ depreciation)
£ million
|
Hypothetical
value (10%
£ appreciation)
£ million
|
|
30 June 2012 (unaudited)
|
|
|
|
|
Equity Shareholders' funds
|
1,063.6
|
1,168.2
|
959.0
|
|
Change in Shareholders' funds/effect on income
|
|
+9.8%
|
-9.8%
|
|
31 December 2011 (audited)
|
|
|
|
|
Equity Shareholders' funds
|
1,038.7
|
1,131.8
|
945.7
|
|
Change in Shareholders' funds/effect on income
|
|
+9.0%
|
-9.0%
|
13 Ten largest fund investments (by value)
|
|
Manager/
Adviser
|
30 June 2012
£'000
(unaudited)
|
31 December 2011
£'000
(audited)
|
|
Permira IV
|
Permira
|
717,952
|
600,710
|
|
Permira Europe III
|
Permira
|
111,347
|
118,449
|
|
P25
|
SVGA
|
76,514
|
67,062
|
|
SVG Diamond Holdings
|
SVGA
|
69,772
|
63,624
|
|
P1234
|
SVGA
|
65,519
|
59,879
|
|
SVG Diamond Holdings II
|
SVGA
|
42,475
|
34,313
|
|
P123
|
SVGA
|
31,414
|
32,581
|
|
Strategic Recovery Fund II
|
SVGIM
|
22,716
|
21,454
|
|
SVG Diamond Holdings III
|
SVGA
|
19,879
|
16,116
|
|
SV Life Sciences Fund IV
|
SV Life Sciences Advisors
|
19,541
|
19,311
|
|
|
|
1,177,129
|
1,033,499
|
1 Including post balance sheet transactions
2 As at 30 June 2012
3 Including post balance sheet transactions
4 Including investment income
5 Excluding SEAT Pagine Gialle
6 Gross of any carried interest provision
7 Including Permira feeder vehicles