Source - RNS
RNS Number : 0341K
SVG Capital PLC
16 September 2016
 



SVG Capital plc

Kean House

6 Kean Street

London WC2B 4AS

Tel +44 (0)20 3457 0000

Fax +44 (0)20 3457 0009

www.svgcapital.com

 

Press Release

For immediate release 16 September 2016

Results for the six months to 31 July 2016

 

Continued good performance and progress against strategic goals

 

·     NAV per share of 735p (£1.15bn) at 31 July 2016; 12% increase in the six months;

- Significant uplift from currency in the period; +6% increase in constant currenciesP0F[1]

- +21% increase in NAV per share over 12 months

 

·     Investment portfolio total return of +13% over the six months;

- Core investment portfolio (50% of the net investment portfolio) continues to perform well

- +13% total return over the six months

- Aggregate underlying portfolio company revenue and earnings growth of 9% and 10% respectively

- Co-investment and direct investment portfolio reported +20% total return over the six months; TeamViewer and Visma written up over the period

- Continued realisation activity from the mature Permira investment portfolio; £124m gross proceeds received from the sale of NXP Semiconductors (Freescale)

- Structured products (28% of the net investment portfolio)

- +13% total return over the six months;

- Other investments (5% of the net investment portfolio)

- +10% total return over the six months;

 

·     Three fund commitments totalling £273m adding two new managers to the portfolio

- €120m to IK VIII Fund, a European mid-market manager

- $125m to L Catterton Fund VIII, a US headquartered consumer-focused mid-market investor

- €120m to the Sixth Cinven Fund, a fund focused on European buyouts

 

·     Two new co-investments totalling £35m in second lien debt and equity

 

·     Strong balance sheet - liquidity coverage of 1.0x uncalled commitments

 

·     Unsolicited final cash offer from HarbourVest BidcoP1F[2]P of 650p per share

- The Board believes that this offer undervalues the Company and its assets

- The Company has received approaches from a number of credible parties, which the Board believes may lead to an offer competing with HarbourVest and could deliver superior value

- Shareholders are urged to take no action at this time

 

Lynn Fordham, CEO of SVG Capital commented: "The latest strong performance builds on the double digit annual growth of the past six years.  The Company benefits from a portfolio of investments with strong aggregate revenue and earnings growth and an experienced and capable investment team."

 

"We continue to maintain a strong balance sheet and good coverage of our uncalled commitments. This has enabled us to take advantage of compelling investment opportunities as they have arisen and we have now made nine significant fund investments with eight leading managers since our strategic review of the business."

 

"The Board believes that the unsolicited final offer from HarbourVest BidCo undervalues the Company and its assets. The Board continues to be focused on delivering maximum value to its shareholders. The Company has received approaches from a number of credible parties, which the Board believes may lead to an offer competing with HarbourVest and could deliver SVG Capital shareholders superior value than HarbourVest Bidco's final Offer."

 

For further information, please contact:

 

SVG Capital plc                                                                                                                                                 020 3457 0000

Alice Kain/Mervyn Douglas                                                                                                                        

 

Maitland                                                                                                                                                            020 7379 5151

Neil Bennett/Tom Eckersley

 

Copies of the press release and other corporate information can be found on the company website at: 33TUwww.svgcapital.comU33T. There will be a live webcast of the analyst meeting available on the Company's website from 10.30am. A recording of this webcast will available on the website for 12 months from the date of this announcement.

Forward-looking statements - this announcement contains certain forward-looking statements with respect to the portfolio of investments of SVG Capital. 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. 

 

The Company has adopted a consistent process in relation to the preparation of its net asset value of £1,149,254,000 as disclosed in the interim results for the six months ended 31 July 2016 with that used in the previous full-year annual report and accounts. In respect of the Company's:

·      underlying fund holdings, separate valuations as at 30 June 2016 have been provided by the general partners and managers of the relevant funds which have been performed entirely independently of the Company and were received prior to the date of the HarbourVest Bidco announcement of 12 September 2016;

·      core portfolio, separate valuations as at 30 June 2016 (save for one valuation which was at 31 March 2016) have been provided by the general partners and managers of the relevant funds and equity co-investments which have been performed entirely independently of the Company and were received prior to the date of the HarbourVest Bidco announcement of 12 September 2016; and

·      investments in structured products (including the Diamond vehicles and ACP), separate valuations as at 31 July 2016 (save for the ACP valuation which was at 31 March 2016) have been provided by the managers of the relevant products which have been performed entirely independently of the Company and were received prior to the date of the HarbourVest Bidco announcement of 12 September 2016.

 

The valuations provided by the general partners and managers are unaudited but provided as required by the limited partnership agreements or other relevant investment documentation in place for each fund or other investment.  

The Company has made no adjustments to the general partners' or managers' valuations as at 30 June 2016 (or the valuations referred to above as at 31 March 2016). In respect of the period from 30 June 2016 to 31 July 2016 (and the period from 31 March 2016 to 31 July 2016 in the case of the valuations referred to above as at 31 March 2016), the Company has made adjustments for changes to quoted investments, foreign exchange rates and cashflows to and from funds and other investments. The Company has converted valuations in currencies other than pounds sterling to pounds sterling at the 31 July 2016 spot rate on a simple mathematical basis. The Company's investments in listed stocks are valued by reference to their listed market price and direct debt investments in investee companies are valued on a discounted cash flow basis (with the discount rate being equal to the coupon on the relevant loan, leading to a valuation at par). Cash is valued at par (subject to conversion as described above if held in a non-sterling currency). Each of the valuations described above are combined to produce the Company's NAV reported in these results after incorporating an amount for the other assets and liabilities of the Company which the Company has valued on a basis consistent with that adopted in the previous full-year audited report. The Company's NAV is based on the most recent financial statements provided by the general partners and managers and no estimates have been used by the Company in the valuations as at 31 July 2016.  In accordance with Rule 29 of the Code, a report regarding the consistency of the basis of preparation of the NAV with the basis outlined above will be published within 14 days of publication of the HarbourVest Bidco offer document.

 

 

 

Chairman's statement

 

Overview

The half year to 31 July has again been a busy period for the Company. Our management team, led by Lynn Fordham, has continued to make significant progress against our strategy of investing across the private equity asset class, through the cycle to provide exposure to a balanced portfolio of private equity assets. As a result, the value of investments made since the inception of our new strategy[3] is now 50% of the net investment portfolio.

 

Performance

I am pleased to report a 12% increase in NAV per share to 735p for the six months to 31 July 2016. This NAV growth was underpinned by a continued favourable exit market and strong revenue and earnings growth in the investment portfolio. Performance was further enhanced by the currency impact of weak sterling, following the EU referendum in June 2016. Excluding the currency benefit on our investment portfolio, the NAV growth was 6%. On the
12 September 2016, Platform Specialty Products announced a revision of the terms of the preferred note held by Permira IV. The new terms will result in the valuation of our investment in Platform Specialty Products declining by £13 million, or 8p per share[4]. This revaluation is not reflected in the 31 July 2016 NAV.

 

During the period we committed £273 million[5] to three new fund investments. We introduced two new managers to our portfolio (L Catterton and IK Investment Partners) and made a commitment to one of our existing managers (the Sixth Cinven Fund). We have now made nine fund investments with eight managers, in line with our strategic objective to focus on eight to 10 relationships with leading private equity managers. We also completed two debt co-investments alongside our managers, taking the co-investment and direct portfolio to six investments. 

 

Market Environment

The first half of 2016 has continued to see significant geopolitical uncertainty. Economic indicators across the developed world suggest that growth prospects remain weak. The immediate fallout from the Brexit vote has been relatively muted, beyond a depreciation in sterling, but it is premature to gauge its long-term ramifications and we believe that uncertainty will weigh on European economies for some time to come. The uncertainty over the outcome of the US elections later this year is also a cause for potential volatility in global markets. 

 

The private equity markets remain active, but this is against a backdrop of full pricing driven by high levels of investible capital and competition from corporate buyers. While we do not anticipate these conditions changing in the near term, we believe that our managers are showing discipline in the deals they complete. Our management team also continue to exercise discipline drawing on their past experience to identify investments that we believe will deliver attractive returns.

 

Unsolicited bid from HarbourVest

On 12 September, SVG Capital received an unsolicited final cash offer (the "Offer") from HarbourVest Bidco[6] of 650p per share. This Offer represents a discount of 11.5% (85p per share) to the published 31 July 2016 NAV and a greater discount to the value of the investment portfolio (adjusting for cash).

The Board believes that this Offer undervalues the Company and its assets. The latest strong performance builds on the double digit annual growth of the past six years. In particular, the investments made under the new strategy have performed well.

 

The Board continues to be focused on delivering maximum value to its shareholders. The Company has received approaches from a number of credible parties, which the Board believes may lead to an offer competing with HarbourVest Bidco and could deliver SVG Capital shareholders superior value than HarbourVest Bidco's final Offer.

The Board is in discussions with these interested parties and will update the market as soon as it is in a position to do so.

Shareholders are urged to take no action at this time.

 

 

CEO's statement

 

Introduction

The management team continues to successfully implement the strategy approved in March 2012. The Company benefits from a strong balance sheet, a portfolio of investments with strong aggregate revenue and earnings growth and an experienced and capable investment team.

 

Investment portfolio performance

The investment portfolio has reported another period of growth with a total return of 13% over the six months. In constant currencies the investment portfolio reported a total return of 4%[7]. All three components of the investment portfolio delivered double digit growth. We remain encouraged by the performance of our core investment portfolio and structured product portfolio which both grew by 13%. Other investments grew by 10% over the period.

 

The investment portfolio is diversified by geography, sector and end market exposure and has a growth bias. Whilst there are a small number of companies with operating performance behind plan, this is more than outweighed by the larger positive performers which have strong weighted average revenue and earnings growth. Companies in the Consumer and TMT sectors have seen particularly strong performance. Within Consumer, the portfolio is biased towards structural growth markets, such as health products and optical retailing. In TMT, we have seen very strong growth from our co-investments, TeamViewer and Visma, resulting in uplifts in carrying value for both over the period. Elsewhere, we have seen double digit growth in earnings from Healogics and Medpace within Healthcare, and from PQ Corporation and Mauser within Industrials. A number of the larger portfolio companies are also cash generative which has enabled them to either reduce debt levels or recycle cash for organic growth or bolt-on acquisition opportunities.

 

In summary, we are pleased with the development of the investment portfolio. We and our managers have continued to demonstrate discipline, focusing on selective opportunities with clearly identified value creation plans. The new managers we have added to the portfolio bring complementary investment strategies consistent with our preference for managers with clear, sector driven investment processes who create value through operational improvement and strategic change.

 

Business review

In the first six months of 2016, the private equity environment remained broadly as experienced in 2015, characterised by full pricing and high levels of available capital. However, our managers continue to originate opportunities with scope for value creation through, for example, buy and build, strategic repositioning and operational improvement. The pricing dynamics benefitted the exit market and our managers continued to take advantage of this. We expect the volatility experienced in the public markets will lead to an increasingly attractive environment for private equity.

 

Our strategy is to build relationships with eight to 10 leading private equity managers providing access to both fund commitments and co-investments with these partners through the cycle and across the private equity asset class. During the period we added two new managers to the portfolio, committing €120 million to IK Investment Partners, a European mid-market manager and $125 million to L Catterton, a leading global consumer focused private equity investor. We also committed €120 million to the Sixth Cinven Fund, taking our total commitments to funds managed by Cinven to €220 million. Including these new commitments, since the change of strategy in 2012 we have made nine commitments to eight managers totalling £768 million[8].

 

In line with our strategy of investing across the asset class, we took advantage of the favourable private credit market in the US and made two co-investments alongside our fund partners in TruGreen and PQ Corporation totalling £35 million. We believe these co-investments add an attractive risk reward dimension to our portfolio. The co-investment and direct investment portfolio now comprises six investments and represents 13% of the net investment portfolio. Since the period end we have added to this part of the portfolio having completed a £17 million direct investment into a UK-based software company.

 

The transition to investments made under the new strategy is now well advanced. The core fund, co-investment and direct portfolios together represent 50% of the net investment portfolio and 95% of the uncalled commitments. This transition was accelerated by the £124 million gross proceeds received from Permira for the realisation of NXP Semiconductors (one of the last large mature portfolio companies in the investment portfolio[9]). The mature Permira portfolio now only represents 17% of the net investment portfolio and the majority of the remaining companies have a clear path to exit in the short term.

 

The structured product portfolio consists of the Diamond fund of funds programme and ACP, a Carlyle feeder vehicle. In addition to valuation uplifts in these investments, we received £11 million of proceeds in the period. The Diamond vehicles are now mature and currently hold significant cash balances. By the year-end, we expect to receive £35 to £40 million of distributions from the Diamond vehicles, with further distributions anticipated over the next few years. 

 

Capital allocation and financing

During the period we received a total of £154 million of proceeds continuing the strong period of distributions we have seen for the past three years. £80 million of investments were made in the period. The Company also repaid all of the convertible bonds and is now debt free. Over the period, we took advantage of public market volatility and bought back £21 million of shares at an average price of 499.8p. Net cash balances increased to £351 million compared to £291 million as at 31 January 2016. This cash, combined with the uncalled bank facility of £253 million, gives 1.0x coverage of our uncalled commitments of £604 million.

 

Well positioned and well-funded

We are entering a phase in the investment portfolio evolution where, as concentration has reduced following the significant realisation activity in the mature Permira portfolio, the flow of realisations is expected to normalise. Now that the fund portfolio is approaching our strategic target of eight to 10 managers, we anticipate that the rate of calls is likely to increase relative to recent historic periods.

 

We have a strong balance sheet and good coverage of our uncalled commitments which enables us to take advantage of compelling investment opportunities as they arise. We expect the current conditions in the private equity market to continue in the near term. We have good visibility on a pipeline of potential fund investments and continue to see interesting co-investment and direct opportunities.

 

 

Financial review
In the six months ended 31 July 2016 the portfolio reported a total return of £109 million and has continued to be strongly cash generative with £154 million of proceeds received.

 

Capital allocation
Investment activity
During the period £84 million was invested funding nine new investments, including two co-investments totalling $52 million, which have been hedged using forward foreign exchange contracts to reduce currency volatility.

 

Capital return
During the period, the Company returned £21 million to shareholders via on-market share buybacks at an average price of 499.8p per share.

 

Debt reduction
During the period, the Company redeemed in full the remaining £39 million nominal of convertible bonds.

 

Cash balances and borrowings
The Company had cash balances of £351 million at 31 July 2016. The Company also has an available revolving credit facility ("RCF") of €300 million with a maturity date of December 2019. The RCF remained undrawn throughout the period.  With no senior debt outstanding at 31 July 2016, the Loan to Value ratio was nil.

 

Uncalled commitments
Uncalled commitments increased significantly to £604 million from £332 million at 31 January 2016 reflecting new commitments of €120 million to the Sixth Cinven Fund, €120 million to IK VIII Fund and $125 million to L Catterton Fund VIII during the period. 

 

The Company has a strong balance sheet and is well placed to meet these commitments with cash balances of £351 million and an undrawn facility of £253 million (€300 million), giving commitment coverage of 1.0x.

 

Foreign exchange
In aggregate, foreign exchange movements had a significant positive impact on the investment portfolio return of £79 million over the period, largely resulting from the marked depreciation of sterling following the Brexit vote.

 

Capital commitments

At 31 July 2016, the Company had uncalled commitments as follows (based on 31 July 2016 exchange rates):


Called commitment

(unaudited)

Uncalled commitment

(unaudited)

Uncalled commitment

(unaudited)

Core portfolio




The Sixth Cinven Fund

-

€120m

£101m

IK VIII Fund

-

€120m

£101m

L Catterton Fund VIII

-

$125m

£95m

AEA Investors Fund VI

$7m

$93m

£70m

CCMP Capital Investors III

$74m

$76m

£57m

FFL Capital Partners IV

$29m

$71m

£54m

Clayton, Dubilier & Rice Fund IX

$77m

$63m

£48m

Permira V

€94m

€31m

£27m

The Fifth Cinven Fund

€76m

€24m

£20m

Permira IV

€1,428m

€17m

£14m




£587m

Structured products



£14m

Other investments



£3m

Total



£604m

 

Principal risks and uncertainties
The Board continues to review major risks and the risk monitoring process on a periodic basis. There are a number of risks that have the potential to affect the achievement of the Company's business objectives. A detailed explanation of the risks summarised below, and how the Company seeks to treat these risks, can be found on pages 24 to 26 of the 2016 Annual Report which is available at www.svgcapital.com. These principal risks and uncertainties have not changed.

 

Economic stability
Significant geopolitical uncertainty (for example resulting from mass involuntary migration, Brexit and the US election) along with low economic growth may lower risk appetite and impact investment and divestment.

 

Sector risk
The private equity sector globally falls out of favour with investors leading to a reduction in demand for the Company's shares.

Investment selection
The Company invests in funds managed by private equity managers, who in turn select and oversee underlying investee companies. The expertise, due diligence, risk management skills and integrity of the staff that select private equity managers and the private equity managers selected by the Company are key to the success of the Company.

 

Financing risk
Financing risk and the inability to match funding to the timing of commitments to private equity funds. Investments by underlying fund managers are not sold, or sold for less than expected, or suffer a reduction in value and those managers continue to call for new investments leading to higher drawdowns on the loan facility and an increased risk of being unable to meet commitments as they fall due.

 

Concentration risk
Concentration risk may result in the performance of the Company being unduly affected by the performance of one or a small group of underlying investee companies. At 31 July 2016, the Company's largest individual underlying company holding represents 11% of the net investment portfolio and the Top 15 largest underlying holdings represent 45% of the net investment portfolio.

 

Cyber security threats
The potential loss of operation of core systems or sensitive data leading to damage and disruption to our business.

 

Investment portfolio review

The investment portfolio has reported a total return of 13% for the six months to 31 July 2016.

 

During the period, all components of the portfolio contributed positively to constant currency growth of 4%. The core investment portfolio was the largest contributor to this growth, driven by the fund investment and the co-investment and direct investment portfolios. This underlying performance was significantly enhanced by favourable currency movements with sterling weakening versus the euro and US dollar post the EU referendum vote in June 2016.

 

Core investment portfolio (£539 million - 67% of the net investment portfolio)

The core portfolio reported a total return of 13% (+£79 million), or 5% in constant currencies.

 

The core investment portfolio comprises fund investments, the co-investment and direct investments portfolio and the remaining mature Permira investments (predominantly consisting of Platform Specialty Products, Genesys and Intelligrated). The weighting of the core portfolio to the fund and co-investment portfolios accelerated over the period. The fund investment portfolio increased in value to £294 million at 31 July 2016, with underlying performance resulting in a total return of 12%. Similarly, continued performance from our co-investment portfolio resulted in a total return of 20% driven by the write-ups of our two TMT co-investments, TeamViewer and Visma. The realisation of NXP Semiconductors has reduced the portfolio weighting to the mature Permira investment portfolio, which now stands at £138 million, or 17% of the net investment portfolio.

 

The positive performance of the core investment portfolio over the six months has been predominantly driven by strong revenue and earnings growth. In aggregate, the underlying companies reported LTM revenue and earnings growth of 9% and 10% respectively. At 31 July 2016, the EV/EBITDA multiple of those companies valued on an earnings basis (54% of the core investment portfolio) was 11.7x on a weighted average basis, a modest increase compared to 31 January 2016. This valuation multiple reflects the bias of the portfolio to growth companies, particularly within the TMT sector. The net debt/EBITDA of the portfolio was 4.6x on both a weighted and simple average basis, a slight decrease from 31 January 2016 on a like for like basis.

 

Fund investments (£294 million - 37% of the net investment portfolio)

The fund investments reported a total return of 12% (+£33 million), or 3% in constant currencies.

 

At the period end, the portfolio consisted of nine commitments to eight leading private equity managers, five in the US and three in Europe. During the six months to 31 July 2016, £45 million was invested by our managers in nine new investments, bringing the total number of underlying portfolio companies to 52. In aggregate, the fund investment portfolio remains relatively immature, with a weighted average maturity of 1.7 years, with many of the companies at an early stage in their value creation strategies. Despite this immaturity the fund investment portfolio was valued at 1.3x cost at 31 July 2016, net of fees. At an underlying company level the portfolio was valued at 1.4x gross multiple of cost at 31 July 2016, rising to 1.5x for those companies which are over 12 months old.

 

During the period we made three new fund commitments. We committed €120 million to the Sixth Cinven Fund following on from our €100 million commitment to the Fifth Cinven Fund. We are pleased with the positive progress of the Fifth Cinven Fund which has performed in line with our original investment thesis: all of the 15 investments completed at 31 July 2016 were originated by one of Cinven's six sector teams, based on strategies and insights Cinven identified to accelerate growth, including a number of buy and build strategies. Early performance has been strong driven by revenue and earnings growth, cash generation and two realisations, AMCo and Prezioso. The strategy for the Sixth Cinven Fund is a continuation of the strategy for the Fifth Cinven Fund. The Sixth Cinven Fund was uncalled at 31 July 2016.

 

The Company also made a $125 million commitment to the L Catterton Fund VIII. L Catterton is a leading global consumer focused private equity investment firm created through the merger of Catterton and L Capital. The L Catterton Fund VIII strategy is to invest in companies predominantly in the US with enterprise values up to $1 billon and an equity requirement of $50 million to $300 million. The team comprises of 21 investment professionals, 19 operating professionals and a team of specialised functional experts. The investment process is research led, focused on identifying consumer categories benefiting from secular trends under four main headings: consumer health, consumer technology, retail/restaurants and consumer services. L Catterton target companies with the potential to grow significantly in excess of the category, become market leading businesses and where there is the opportunity to implement significant operational improvements. The fund was uncalled at 31 July 2016.

 

The third commitment was €120 million to the IK Investment Partners VIII Fund. IK Investment Partners (IK) strategy is to invest in lower mid-market deals with enterprise values in the €100 million to €500 million range and an equity requirement of €50 million to €150 million in the Nordics, Benelux, France and Germany. IK's investment team of 34 professionals operates from offices in London, Paris, Hamburg and Stockholm. IK's investment approach aims to identify attractive opportunities through a focus on specific subsectors within their four core sectors of industrial goods, consumer goods, business services and healthcare. Value is generated through various initiatives including international expansion, strategic repositioning, buy and build and operational improvement. The fund was uncalled at 31 July 2016.

 

Co-investment and direct investments (£107 million - 13% of the net investment portfolio)

The co-investment portfolio generated a total return of 20% (+£18 million), or 9% in constant currencies.

 

At 31 July 2016, the co-investment and direct investment portfolio consisted of six investments, with two new debt investments completed over the period, adding to our existing four equity co-investments. The significant change in conditions in the US credit market over the last 12 months has led to a number of attractive investment opportunities to invest in private equity related debt. Over the six month period we have selectively invested in two of these opportunities alongside our existing partners, CD&R (TruGreen) and CCMP (PQ Corporation).

 

TruGreen is the leading lawn, tree and shrub care company in the US. In December 2015, CD&R merged the two largest players, TruGreen and Scotts LawnService, to create the only national branded provider. The combined company operates across 48 states and three Canadian provinces from over 350 company operated locations, providing services to over 2.3 million residential and commercial customers. As part of the merger transaction, SVG Capital invested £14m in the debt of the combined entity and a further £1m in equity. As at 31 July 2016 SVG Capital's total investment in TruGreen was valued at £23 million[10].

 

PQ Corporation ('PQ') is a leading global producer of specialty inorganic performance chemicals, catalysts, engineered glass beads and sulphuric acid for the consumer, oil and gas, transportation safety, specialty plastics and industrial markets. In May 2016, CCMP merged PQ with Eco Services, creating a unique global inorganic specialty materials company. As part of the refinancing for the transaction, SVG Capital invested £20m in the debt of the enlarged entity. As at 31 July 2016, SVG Capital's total investment in PQ was valued at £49 million8.

 

Our equity co-investment portfolio performed strongly over the period driven by our two TMT investments, TeamViewer alongside Permira and Visma alongside Cinven. Both companies delivered very strong revenue and earnings growth, generated significant cash flows and made further progress with their value creation initiatives. This resulted in both companies being written up over the period.

 

Mature Permira investments (£138 million - 17% of the net investment portfolio)

The mature Permira investments reported a total return of 12% (+£28 million), or 4% in constant currencies.

 

Performance continues to be driven by realisation activity and there were a number of successful exits during the period. The most significant of these was the full realisation of NXP Semiconductors (Freescale), generating gross proceeds of £124 million for SVG Capital versus a carrying value of £111 million at 31 January 2016. The merger of Freescale with NXP Semiconductors was transformational, creating an industry leader and significant cost synergies, enabling Permira to exit Freescale at a premium to cost at a fund level. Permira announced a number of other exits from Permira IV, including Intelligrated, Ancestry and Creganna, all at significant premiums to both carrying value and cost.

 

Post these realisations, the majority of the mature Permira investment portfolio is represented by Permira IV's residual exposure to Arysta LifeScience through a convertible preferred note in Platform Specialty Products. At 31 July 2016, SVG Capital's look through exposure to Platform Specialty Products was valued at £85 million. On the 12 September 2016, Platform Specialty Products announced a revision of the terms of the preferred note held by Permira IV. The new terms will result in the valuation of our investment in Platform Specialty Products declining by £13 million, or 8p per share[11]. This revaluation is not reflected in the 31 July 2016 NAV.

 

Structured products (£222 million - 28% of the net investment portfolio)

The structured products portfolio generated a total return of 13% (+£26 million), or 2% in constant currencies.

 

Our structured products portfolio comprises the mature Diamond fund of funds programme (£211m) and Aldwych Capital Partners (£11m), a Carlyle feeder vehicle. The majority of the underlying Diamond fund of funds portfolio is made up of US and European buyout funds with vintage years ranging between 2004 and 2008. The continued positive performance of recent periods has been driven by both valuation gains and realisation activity. This and the associated deleveraging of the structures has increased the visibility of further distributions in the coming periods. By the year-end, we expect to receive £35 to £40 million of distributions from the Diamond vehicles, with further distributions anticipated over the next few years.

 

Other investments (£41 million - 5% of the net investment portfolio)

Other investments reported a total return of 10% (+£4 million), or 4% in constant currencies.

 

The largest component of the other investment portfolio is SV Life Sciences Fund IV, which performed positively driven by a write up to its largest underlying portfolio company, ADiMaB, which represented £15 million of gross value for SVG Capital at 31 July 2016.

 

15 largest underlying companies (31 July 2016)

1.      Platform Specialty Products (Arysta LifeScience)

Equity cost

£41m*

Value July 2016

£85m**

% of total assets

7%

Date of acquisition

Feb 08

Fund (€)

Permira IV

Arysta LifeScience was sold to New York Stock Exchange listed Platform Specialty Products in February 2015. Platform Specialty Products is a global diversified producer of high technology specialty chemical products and provider of technical services. The value of the remaining holding in Arysta LifeScience is held in convertible preferred stock in Platform Specialty Products.

 

2.      PQ Corporation

Equity cost

£15m*

Debt cost

£20m**

Value July 2016

£49m

% of total assets

4%

Date of acquisition

Dec 14

Fund ($)

CCMP III + co-investment

PQ is a leading global producer of specialty inorganic performance chemicals, catalysts, engineered glass beads and sulphuric acid for the consumer, oil and gas, transportation safety, specialty plastics and industrial markets. The valuation basis is for the equity is earnings, the valuation basis for the debt is discounted cash flows (DCF).

 

3.      TeamViewer

Equity cost

£18m*

Value July 2016

£35m

% of total assets

3%

Date of acquisition

Jul 14

Fund (€)

Permira V + co-investment

TeamViewer is a leading global provider of secure remote support software with a focus on small and medium-sized businesses. The company is the industry leader in remote support and administration solutions for medium-sized businesses. TeamViewer has been installed on more than 1 billion devices and serves more than 340,000 commercial customers. The product is used in 220 countries and is available in 34 languages. The valuation basis is earnings.

 

4.      The Hillman Group

Equity cost

£23m*

Value July 2016

£30m

% of total assets

3%

Date of acquisition

Jun 14

Fund ($)

CCMP III + co-investment

The Hillman Group is a leader in the hardware and home improvement industry distributing over 100,000 Stock Keeping Units (SKU) in categories including fasteners, key duplication systems, letters, numbers and signs, engraved tags and builder's hardware. The company provides inventory management and in-store merchandising services to its retail customers for managing these SKU-intensive, complex home improvement categories. The valuation basis is earnings.

 

5.      Visma

Equity cost

£18m*

Value July 2016

£25m

% of total assets

2%

Date of acquisition

Aug 14

Fund (€)

Cinven V + co-investment

Visma is a leading provider of business management software and business process outsourcing (BPO) services in the Nordic region. The group comprises three divisions; Software SMB (small and medium-sized businesses), BPO and Software GLA (Government & Large Accounts). Visma delivers enterprise resource planning (ERP) software and services including accounting, tax and payroll applications and services to over 400,000 SME customers, retailers and local authorities across the Nordic region. The valuation basis is earnings.

 

 

6.      TruGreen

Equity cost

£7m*

Debt cost

£14m*

Value July 2016

£23m

% of total assets

2%

Date of acquisition

Apr 16

Fund ($)

CD&R IX + co-investment

TruGreen was founded in 1973 and is the leading lawn, tree and shrub care company in the US, providing services to over 2.3 million residential and commercial customers. Following its merger with Scotts LawnService, TruGreen is the clear market leader in the US, operating across 48 states and 3 Canadian provinces, from over 350 company operated locations. The valuation basis is for the equity is cost, the valuation basis for the debt is discounted cash flows (DCF).

 

7.      Eyemart Express

Equity cost

£15m*

Value July 2016

£17m

% of total assets

1%

Date of acquisition

Dec 14

Fund ($)

FFL IV + co-investment

Eyemart Express is the second largest independent value focused optical retailer in the US and ninth largest overall operating from 36 states. The company, founded in 1990 by Dr. Doug Barnes, provides a broad selection of high-quality private label and branded frames with convenient one-hour service in all locations at an attractive price point. The valuation basis is earnings.

 

8.      Jetro Cash & Carry

Equity cost

£8m*

Value July 2016

£16m

% of total assets

1%

Date of acquisition

Jul 14

Fund ($)

CCMP III

Established in 1976, Jetro is the largest cash and carry wholesaler of perishable and non-perishable food products, household goods, equipment, supplies and related goods for grocery retailers and restaurants in the US. Jetro operates two different store formats: (i) Restaurant Depot warehouses and (ii) Jetro Cash & Carry warehouses. The valuation basis is earnings.

 

9.      Genesys

Equity cost

£4m*

Value July 2016

£14m

% of total assets

1%

Date of acquisition

Jan 12

Fund (€)

Permira IV

Genesys is a leading supplier of enterprise software and solutions that enable best-in-class customer service for companies and organisations. Its software provides products for call routing and handling which integrate with all major contact centre hardware vendors. The valuation basis is third-party.

 

10.   Informatica

Equity cost

£10m*

Value July 2016

£12m

% of total assets

1%

Date of acquisition

Aug 15

Fund (€)

Permira V

Informatica is the world's leading independent provider of enterprise data integration software and services. Informatica is well known for its deep industry knowledge, extensive systems integration and services expertise and specialised solutions. Over 5,800 enterprises depend on Informatica to fully leverage their information assets residing on-premise, in the Cloud and on the public internet including across social networks. The valuation basis is cost.

 

11.   Tilney Bestinvest

Equity cost

£10m*

Value July 2016

£12m

% of total assets

1%

Date of acquisition

Mar 14

Fund (€)

Permira V

Tilney Bestinvest is a leading UK investment and financial planning group, looking after more than £11bn of assets on behalf of its clients. The group operates under the Tilney brand for investment management and financial planning, and Bestinvest for investment advisory services and online execution-only investing. The valuation basis is earnings.

 

12.   Synlab

Equity cost

£9m*

Value July 2016

£11m

% of total assets

1%

Date of acquisition

Aug 15

Fund (€)

Cinven V

Synlab Group is the market leader in laboratory services in Europe offering reliable and local laboratory services in 35 countries. The group operates a network of routine and specialist diagnostic, genetic and pathology labs across Europe and provides diagnostic services to doctors and patients in ambulatory and hospital settings. In addition to its core human diagnostic activities, the group also provides veterinary and environmental analytical services. The valuation basis is cost.

 

13.   Brand Energy & Infrastructure

Equity cost

£7m*

Value July 2016

£11m

% of total assets

1%

Date of acquisition

Nov 13

Fund ($)

CD&R IX

Brand Energy & Infrastructure Services was formed by the merger of Brand Energy and Harsco Infrastructure. The business is a premier provider of integrated specialty services to the global energy, industrial and infrastructure markets. Its extensive portfolio of specialised industrial service offerings include scaffolding, coatings, insulation, refractory, formwork and shoring, specialty mechanical services, cathodic protection and other related crafts. The valuation basis is earnings.

 

14.   Intelligrated

Equity cost

£2m*

Value July 2016

£11m

% of total assets

1%

Date of acquisition

Jul 12

Fund (€)

Permira IV

Intelligrated is a leading North American-based provider of advanced automation and fulfilment solutions. Intelligrated designs, manufactures, integrates and installs complete material handling automation solutions including conveyor, IntelliSort sortation, Alvey palletizers and robotics, and automated storage and retrieval systems - all managed by advanced machine controls and software. The valuation basis is third-party.

  

15.   HEG

Equity cost

£4m*

Value July 2016

£9m

% of total assets

1%

Date of acquisition

Aug 13

Fund (€)

Cinven V

HEG is a leading European provider of hosting and domain services to consumers and small and medium enterprises (SMEs). It offers a complete product suite including domain services, application hosting, cloud hosting and managed hosting. It also has an emerging software-as-a-service offering. The valuation basis is earnings.

 

*       Cost derived using foreign exchange rates at date of call

**     Following the Company's decision to cap its commitment to Permira IV in December 2008, the valuation of all of the Permira IV investments made prior to 2009 include a 25% provision against future distributions

 

For the purposes of reporting under IFRS, a cost valuation basis is equivalent to price of recent investment.

 

 

 

Statement of Directors' responsibilities

 

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 condensed financial statements.

 

The Directors confirm to the best of their knowledge that:

 

(a)       the condensed set of financial statements has 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, principal 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:

 

Andrew Sykes, Chairman

Lynn Fordham, Chief Executive

Simon Bax, non-executive Director

Stephen Duckett, non-executive Director

Helen Mahy CBE, non-executive Director

David Robins, non-executive Director

 

 

 

 

Consolidated statement of comprehensive income

 



For the six months ended
31 July 2016
Group

(unaudited)

For the six months ended
31 July 2015
Company

(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


-

106,769

106,769

-

18,236

18,236

Movement in value of subsidiaries

8

-

(79)

(79)

-

(730)

(730)

Movement in fair value of derivative contracts


-

(4,130)

(4,130)

-

-

-

Exchange gains/(losses) on other items


-

21,246

21,246

-

(6,275)

(6,275)



-

123,806

123,806

-

11,231

11,231

Operating income








Investment income


3,224

-

3,224

28,419

-

28,419

Other operating income


17

-

17

3

-

3

Total operating income

5

3,241

-

3,241

28,422

-

28,422

Operating expenses








Administrative expenses


(4,519)

-

(4,519)

(7,684)

-

(7,684)

Total operating expenses


(4,519)

-

(4,519)

(7,684)

-

(7,684)

Operating (loss)/profit


(1,278)

-

(1,278)

20,738

-

20,738

Finance costs

4

(2,883)

-

(2,883)

(11,633)

-

(11,633)

(Loss)/profit before tax


(4,161)

123,806

119,645

9,105

11,231

20,336

Tax


(38)

-

(38)

(357)

-

(357)

(Loss)/profit for the period


(4,199)

123,806

119,607

8,748

11,231

19,979









Earnings per share








From continuing activities








Basic

6



76.0p



11.0p

Diluted

6



75.9p



10.9p

There is no other comprehensive income and therefore the total profit for the period is the total comprehensive income for the period.

 

The total column of this statement represents the Group'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.

 

 

Company statement of comprehensive income

 



For the six months ended
31 July 2016
Company

(unaudited)

For the six months ended
31 July 2015
Company

(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


-

106,769

106,769

-

18,236

18,236

Movement in value of subsidiaries

8

-

(79)

(79)

-

(730)

(730)

Movement in fair value of derivative contracts


-

(4,130)

(4,130)

-

-

-

Exchange gains/(losses) on other items


-

21,246

21,246

-

(6,275)

(6,275)



-

123,806

123,806

-

11,231

11,231

Operating income








Investment income


3,224

-

3,224

28,419

-

28,419

Other operating income


2

-

2

3

-

3

Total operating income

5

3,226

-

3,226

28,422

-

28,422

Operating expenses








Administrative expenses


(4,478)

-

(4,478)

(7,684)

-

(7,684)

Total operating expenses


(4,478)

-

(4,478)

(7,684)

-

(7,684)

Operating (loss)/profit


(1,252)

-

(1,252)

20,738

-

20,738

Finance costs

4

(2,883)

-

(2,883)

(11,633)

-

(11,633)

(Loss)/profit before tax


(4,135)

123,806

119,671

9,105

11,231

20,336

Tax


(38)

-

(38)

(357)

-

(357)

(Loss)/profit for the period


(4,173)

123,806

119,633

8,748

11,231

19,979









Earnings per share








From continuing activities








Basic

6



76.1p



11.0p

Diluted

6



75.9p



10.9p

There is no other comprehensive income and therefore the total profit for the period is the total comprehensive income for the period.

 

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.

 

 

Consolidated statement of changes in equity

 

Group

Share
capital

(unaudited)

£'000

Own

shares

(unaudited)

 £'000

Share premium

(unaudited)

 £'000

Revenue reserve

(unaudited)

 £'000

Capital reserve

(unaudited)

 £'000

Share option reserve

(unaudited)

£'000

Other1 reserves

(unaudited)

 £'000

Total

(unaudited)

£'000

For the six months ended 31 July 2016









Balance at 31 January 2016

231,790

(900)

131,230

(147,130)

809,420

19,356

8,002

1,051,768

(Loss)/profit for the period

-

-

-

(4,199)

123,806

-

-

119,607

Issue of performance share awards

-

-

-

-

-

629

-

629

Buy-back of convertible loan notes

-

-

-

4,798

-

-

(4,798)

-

Purchase of shares

-

(1,335)

-

-

(21,415)

-

-

(22,750)

Own shares disposed by EBT to settle share awards

-

1,022

-

-

(1,022)

-

-

-

Cancellation of shares

(60,000)

-

-

-

60,000

-

-

-

Balance at 31 July 2016

171,790

(1,213)

131,230

(146,531)

970,789

19,985

3,204

1,149,254

 

 

Company

Share

capital

(unaudited)

£'000

Own

shares

(unaudited)

 £'000

Share premium

(unaudited)

 £'000

Revenue reserve

(unaudited)

 £'000

Capital reserve

(unaudited)

 £'000

Share option reserve

(unaudited)

£'000

Other1 reserves

(unaudited)

 £'000

Total

(unaudited)

£'000

For the six months ended 31 July 2015









Balance at 31 January 2015

253,724

(1,479)

131,230

(162,664)

871,827

18,911

15,556

1,127,105

Profit for the period

-

-

-

8,748

11,231

-

-

19,979

Issue of performance share awards

-

-

-

-

-

237

-

237

Buy-back of convertible loan notes

-

-

-

7,554

-

-

(7,554)

-

Purchase of shares

-

-

-

-

(101,025)

-

-

(101,025)

Own shares disposed by EBT to settle share awards

-

621

-

-

(621)

-

-

-

Cancellation of shares

(13,085)

-

-

-

13,085

-

-

-

Balance at 31 July 2015

240,639

(858)

131,230

(146,362)

794,497

19,148

8,002

1,046,296

 

 

Company statement of changes in equity

 

Company

Share
capital

(unaudited)

£'000

Own

shares

(unaudited)

 £'000

Share premium

(unaudited)

 £'000

Revenue reserve

(unaudited)

 £'000

Capital reserve

(unaudited)

 £'000

Share option reserve

(unaudited)

£'000

Other1 reserves

(unaudited)

 £'000

Total

(unaudited)

£'000

For the six months ended 31 July 2016









Balance at 31 January 2016

231,790

(900)

131,230

(147,010)

809,420

19,356

8,002

1,051,888

(Loss)/profit for the period

-

-

-

(4,173)

123,806

-

-

119,633

Issue of performance share awards

-

-

-

-

-

558

-

558

Buy-back of convertible loan notes

-

-

-

4,798

-

-

(4,798)

-

Purchase of shares

-

(1,335)

-

-

(21,415)

-

-

(22,750)

Own shares disposed by EBT to settle share awards

-

1,022

-

-

(1,022)

-

-

-

Cancellation of shares

(60,000)

-

-

-

60,000

-

-

-

Balance at 31 July 2016

171,790

(1,213)

131,230

(146,385)

970,789

19,914

3,204

1,149,329

 

 

Company

Share

capital

(unaudited)

£'000

Own

shares

(unaudited)

 £'000

Share premium

(unaudited)

 £'000

Revenue reserve

(unaudited)

 £'000

Capital reserve

(unaudited)

 £'000

Share option reserve

(unaudited)

£'000

Other1 reserves

(unaudited)

 £'000

Total

(unaudited)

£'000

For the six months ended 31 July 2015









Balance at 31 January 2015

253,724

(1,479)

131,230

(162,664)

871,827

18,911

15,556

1,127,105

Profit for the period

-

-

-

8,748

11,231

-

-

19,979

Issue of performance share awards

-

-

-

-

-

237

-

237

Buy-back of convertible loan notes

-

-

-

7,554

-

-

(7,544)

-

Purchase of shares

-

-

-

-

(101,025)

-

-

(101,025)

Own shares disposed by EBT to settle share awards

-

621

-

-

(621)

-

-

-

Cancellation of shares

(13,085)

-

-

-

13,085

-

-

-

Balance at 31 July 2015

240,639

(858)

131,230

(146,362)

794,497

19,148

8,002

1,046,296

 

 

 

Consolidated balance sheet


Notes

 As at
31 July
2016
Group

(unaudited)
£'000

As at
31 January
2016
Group

(audited)
£'000

Non-current assets




Investments designated as fair value through profit and loss

7

801,928

763,455

Investment in subsidiaries

8

-

79



801,928

763,534

Current assets




Other receivables


1,738

362

Cash and cash equivalents


351,393

330,367



353,131

330,729

Total assets


1,155,059

1,094,263

Current liabilities




Convertible loan notes

9

-

(38,732)

Other payables


(2,025)

(3,763)



(2,025)

(42,495)

Non-current liabilities




Derivatives at fair value through profit and loss

7

(3,780)

-



(3,780)

-

Total liabilities


(5,805)

(42,495)





Net assets


1,149,254

1,051,768





Equity




Called up share capital

10

171,790

231,790

Own shares


(1,213)

(900)

Share premium account


131,230

131,230

Capital redemption reserve


3,204

3,204

Share option reserve


19,985

19,356

Convertible loan notes - equity


-

4,798

Capital reserve


970,789

809,420

Revenue reserve


(146,531)

(147,130)

Shareholders' funds


1,149,254

1,051,768









Net asset value per ordinary share ("Shareholders' funds")




- undiluted

11

737.4p

657.4p

- diluted

11

734.6p

653.5p

 

 

Company balance sheet


Notes

 As at
31 July
2016

Company

(unaudited)
£'000

As at
31 January
2016

Company

(audited)
£'000

Non-current assets




Investments designated as fair value through profit and loss

7

801,928

763,455

Investment in subsidiaries

8

2,500

1,329



804,428

764,784

Current assets




Other receivables


1,610

259

Cash and cash equivalents


349,530

329,452



351,140

329,711

Total assets


1,155,568

1,094,495

Current liabilities




Convertible loan notes

9

-

(38,732)

Other payables


(2,459)

(3,875)



(2,459)

(42,607)

Non-current liabilities




Derivatives at fair value through profit and loss

7

(3,780)

-



(3,780)

-

Total liabilities


(6,239)

(42,607)





Net assets


1,149,329

1,051,888





Equity




Called up share capital

10

171,790

231,790

Own shares


(1,213)

(900)

Share premium account


131,230

131,230

Capital redemption reserve


3,204

3,204

Share option reserve


19,914

19,356

Convertible loan notes - equity


-

4,798

Capital reserve


970,789

809,420

Revenue reserve


(146,385)

(147,010)

Shareholders' funds


1,149,329

1,051,888









Net asset value per ordinary share ("Shareholders' funds")




- undiluted

11

737.4p

657.5p

- diluted

11

734.7p

653.6p

 

 

Consolidated cash flow statement



For the
six months ended
31 July 2016

Group

(unaudited)
£'000

For the
six months ended
31 July 2015
Company

(unaudited)
£'000

Operating activities




Interest income


1,415

691

Dividends from subsidiaries


-

902

Dividends from associates


-

11,973

Income distributions


1,311

15,136

Expenses


(5,582)

(5,145)

Interest paid


(3,020)

(4,663)

Tax paid


(38)

(357)

Net cash (used in)/generated from operating activities


(5,914)

18,537

Investing activities




Capital distributions from private equity investments


152,086

350,727

Calls paid to private equity investments


(80,924)

(62,355)

Secondary purchases of private equity interests


(2,867)

-

Consideration received on disposal of associate


-

30,193

Capital distributions from subsidiaries upon liquidation


-

449

Loans to subsidiaries


(244)

(246)

Net cash generated from investing activities


68,051

318,768

Financing




Purchase of own shares into treasury or for cancellation


(23,290)

(101,111)

Tender offer costs


-

(377)

Buy-back of convertible loan-notes


(39,100)

(66,772)

Settlement of foreign exchange trades


39

208

Net cash used in financing activities


(62,351)

(168,052)

Net (decrease)/increase in cash and cash equivalents


(214)

169,253

Cash and cash equivalents at beginning of period


330,367

134,912

Effect of foreign exchange rates on cash and cash equivalents


21,240

(6,481)

Cash and cash equivalents at end of period


351,393

297,684

 

 

Company cash flow statement



For the
six months ended
31 July 2016

Company

(unaudited)
£'000

For the
six months ended
31 July 2015
Company

(unaudited)
£'000

Operating activities




Interest income


1,415

691

Dividends from subsidiaries


-

902

Dividends from associates


-

11,973

Income distributions


1,311

15,136

Expenses


(5,280)

(5,145)

Interest paid


(3,020)

(4,663)

Tax paid


(38)

(357)

Net cash (used in)/generated from operating activities


(5,612)

18,537

Investing activities




Capital distributions from private equity investments


152,086

350,727

Calls paid to private equity investments


(80,924)

(62,355)

Secondary purchases of private equity interests


(2,867)

-

Consideration received on disposal of associate


-

30,193

Capital distributions from subsidiaries upon liquidation


-

449

Investment in subsidiaries


(1,250)

-

Loans to subsidiaries


(244)

(246)

Net cash generated from investing activities


66,801

318,768

Financing




Purchase of own shares into treasury or for cancellation


(23,290)

(101,111)

Tender offer costs


-

(377)

Buy-back of convertible loan-notes


(39,100)

(66,772)

Settlement of foreign exchange trades


39

208

Net cash used in financing activities


(62,351)

(168,052)

Net (decrease)/increase in cash and cash equivalents


(1,162)

169,253

Cash and cash equivalents at beginning of period


329,452

134,912

Effect of foreign exchange rates on cash and cash equivalents


21,240

(6,481)

Cash and cash equivalents at end of period


349,530

297,684

 

 

Notes

 

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 January 2016, prepared in accordance with International Financial Reporting Standards as adopted by the European Union, have been reported on by the Group'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.

 

This statement was approved by the Board of Directors on 16 September 2016.

 

 

2 Accounting policies

The interim report has been prepared in accordance with IAS 34 'Interim Financial Reporting' and the Listing Rules of the Financial Conduct Authority.

 

In the prior period, the SVG Capital plc Interim Report and Accounts were prepared for the Company only. However following the formation of the new subsidiary SVGC Managers Limited ("SVGCM") during 2015, which acts as the investment manager of the Company, the Interim Report and Accounts for the six months ended 31 July 2016 have been prepared on a consolidated basis for the SVG Capital plc Group. As a result of this change, the current period Group amounts are not entirely comparable with the Company-only prior period amounts in the statement of comprehensive income, statement of changes in equity, statement of cash-flows and related notes.

 

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, and also includes any withholding tax paid in the period.

The accounting policies applied in these interim financial statements are consistent with those applied in the Group's most recent annual financial statements.

The directors do not propose a dividend for the period ended 31 July 2016 (2015: £nil).

 

 

 

3 Business segments

For management purposes, during the year the Group was organised into the following two principal activities:

 

Investing activities

The Group'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.

 

Investment management and advisory services

During the prior period, investment management and advisory activities were undertaken by Aberdeen SVG Private Equity Managers Limited ("ASVGM") and Aberdeen SVG Private Equity Advisers Limited ("ASVGA"), associated companies but not considered part of the SVG Capital plc group.

 

In October 2015, subsequent to the disposal of the associated investments, the Company terminated its investment management agreement with ASVGM and entered into a new investment management agreement with SVGCM, a subsidiary formed during that year.

SVGCM is wholly-owned by the Company and as detailed in note 2, it has been consolidated into the SVG Capital plc Group financial statements. As such, segmental information showing the performance of these services is presented below.

 

 

For the six month period ended 31 July 2016 (unaudited)


Investing
activities

£'000

Investment management services

£'000

Eliminations on consolidation

£'000

Total

£'000

Income from investment management services

-

2,736

(2,736)

-

Other operating and investment income

3,226

15

-

3,241

Total operating income

3,226

2,751

(2,736)

3,241

Administrative costs

(4,478)

(2,777)

2,736

(4,519)

Operating loss

(1,252)

(26)

-

(1,278)

Finance costs

(2,883)

-

-

(2,883)

Gains on investments at fair value

106,769

-

-

106,769

Movement in fair value of subsidiaries

(79)

-

-

(79)

Movement in fair value of derivatives

(4,130)

-

-

(4,130)

Exchange gains

21,246

-

-

21,246

Profit/(loss) before tax

119,671

(26)

-

119,645






Total assets

1,155,568

3,263

(3,772)

1,155,059

Total liabilities

(6,239)

(838)

1,272

(5,805)

Net assets

1,149,329

2,425

(2,500)

1,149,254

 

 

4 Finance costs


For the
six months ended
31 July 2016
Group

(unaudited)
£'000

For the
six months ended
31 July 2016
Company

(unaudited)
£'000

For the
six months
ended
31 July 2015

Company

(unaudited)
£'000

Loan facility finance and amendment costs

1,314

1,314

1,194

Amortisation of issue and listing costs plus premium to redemption
on convertible loan notes

368

368

1,214

Convertible loan note interest

1,111

1,111

2,681

Acceleration of premium on buy-back of convertible loan notes

-

-

1,304

Loss on buy-back of convertible loan notes

-

-

5,222

Other finance costs

90

90

18


2,883

2,883

11,633

 

 

5 Operating income


For the
six months ended
31 July 2016
Group

(unaudited)
£'000

For the
six months ended
31 July 2016
Company

(unaudited)
£'000

For the
six months
ended
31 July 2015

Company

(unaudited)
£'000

Income from investments:




Dividends from subsidiaries

518

518

87

Dividends from associates

1,395

1,395

321

Income from money market instruments

1,311

1,311

15,136

Interest from fund investments

-

-

902

Other income from funds and co-investments

-

-

11,973

Other operating income:




Other interest receivable and other income

17

2

3


3,241

3,226

28,422

Represented by:




Interest

1,913

1,913

411

Other income from funds and co-investments

1,328

1,313

15,136

Dividends from subsidiaries and associates

-

-

12,875


3,241

3,226

28,422

 

 

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:


For the
six months
ended
31 July 2016

Group

(unaudited)
£'000

For the
six months
ended
31 July 2016

Company

(unaudited)
£'000

For the
six months
ended
31 July 2015
Company

(unaudited)
£'000

Earnings for the purposes of basic earnings per share being net profit attributable to equity holders

119,607

119,633

19,979


 

Number

 

Number

 

Number

Number of shares




Weighted average number of ordinary shares for the purposes of
basic earnings per share

157,276,034

157,276,034

182,042,176

Share options and performance shares

359,062

359,062

496,894

Weighted average number of ordinary shares for the purposes of diluted earnings per share

157,635,096

157,635,096

182,539,070





Earnings per share




Basic

76.0p

76.1p

11.0p

Diluted

75.9p

75.9p

10.9p

 

 

 

7 Fair values

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction that would take place between market participants at the reporting date.

 

Fair value hierarchy

IFRS 13 requires disclosures relating to fair value measurement using a three-level fair value hierarchy. The level within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement. Assessing the significance of a particular input requires judgement, considering factors specific to the asset or liability.

 

The following table shows financial instruments recognised at fair value, analysed between those whose fair value is based on:

·      quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);

·      those involving inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (Level 2); and

·      those with inputs for the instrument that are not based on observable market data (unobservable inputs) (Level 3).


31 July 2016

31 January 2016

Group and Company

 

Level 1
£'000

Level 2
£'000

Level 3*
£'000

Total
£'000

Level 1
£'000

Level 2
£'000

Level 3*
£'000

Total
£'000

 

Investments: core portfolio

 

-

 

-

 

538,350

 

538,350

 

-

 

-

 

520,899

 

520,899

Investments: structured products

-

-

222,450

222,450

-

-

203,788

203,788

Investments: other investments

12,236

-

28,892

41,128

11,341

-

27,427

38,768

Investment in subsidiaries

-

-

-

-

-

-

79

79


12,236

-

789,692

801,928

11,341

-

752,193

763,534

 

* Note that investments in unlisted private equity funds are classified as Level 3 even if some of the underlying investments within those funds are quoted on an active market.

 

 

Valuation techniques and process

Investment valuations are updated on a quarterly basis following the completion of a detailed valuation process by each general partner ("GP") of the Fund investments. The Valuation Team of the Investment Manager perform a review of the valuations to identify and understand any significant changes to valuation inputs or techniques. The valuations are then discussed with the Investment Team of the Investment Manager, to ensure valuation movements are in line with expectations based on the performance of the investment. The Investment Team's expectations are established based on the results of their continuous investment monitoring process.

 

The Valuation and Investment Teams hold quarterly calls with the GPs of the Fund investments to discuss updates on the Fund investments' performance, position and outlook and, where considered appropriate, hold further meetings to understand and challenge valuation inputs.

On a quarterly basis, after the checks above have been performed the Valuation Team presents the valuation results to the Board. This includes a discussion of the major assumptions used in the valuations, with an emphasis on the more significant investments and investments with fair value changes. The valuations are reviewed and, if considered appropriate, approved by the Board.

 

Valuations consist of listed equities and unlisted managed funds.

 

Listed equities

Quoted instruments are valued at either the bid price or the last traded price, depending on the convention of the exchange on which the investment is quoted. When fair values of publicly traded equities are based on quoted market prices in an active market without any adjustments, the investments are included within Level 1 of the hierarchy.

 

 

 

 

7 Fair values (continued)

 

Unlisted managed funds and equity co-investments

The Group primarily invests in private equity via limited partnerships or other fund structures. Such vehicles are typically unquoted and in turn invest primarily in unquoted securities. The Company's investment portfolio is recognised in the balance sheet at fair value, in accordance with International Private Equity and Venture Capital ("IPEV") Valuation Guidelines and IFRS.

Fair value is based on the Group's share of the Net Asset Value of the Fund, as determined by the GP of such funds. Updated Net Asset Values are received for each fund on a quarterly basis. The Net Asset Value of a fund is calculated after determining the fair value of a fund's investment in any investee companies. This value is generally obtained by calculating the Enterprise Value ("EV") of the investee company and then deducting financial instruments, such as external debt, ranking ahead of the Fund's highest ranking instrument in the entity. The Group's participation in the remaining instruments is then calculated to assess the fair value of the Group's investment. These valuations are then adjusted for material cash-flows that have taken place between the date of the valuation as determined by the GP and the reporting date.

A common method of determining the EV is to apply a market-based multiple (e.g. an average multiple based on a selection of comparable quoted companies) to the 'maintainable' earnings of the investee company. This market-based approach presumes that the comparator companies are correctly valued by the market. A discount is sometimes applied to market based multiples to adjust for points of difference between the comparators and the company being valued.

If the Valuation Team consider that an adjustment to the Net Asset Value is appropriate to better reflect fair value for market participants, the valuation is referred to the Pricing Committee of the Investment Manager. The Pricing Committee reviews, and if considered appropriate, approves the Valuation Team's pricing adjustment recommendation.

Adjustments to Net Asset Value may be considered, for example, where:

•              there has been significant elapsed time between the Net Asset Value calculation date and the Company's balance sheet date;

•              there has been material movements in quoted prices between the Net Asset Value calculation date and the Company's balance sheet date;

•              the Group has agreed a sale of its holding in a fund interest at a price other than the Net Asset Value;

•              valuations do not include a provision for carried interest;

•              Net Asset Value is not derived from the fair value of underlying portfolio companies.

 

Debt co-investments

Co-investments in debt securities are valued using a discounted cash flow methodology on each specific investment.

 

Significant unobservable inputs for Level 3 valuations

Unlisted managed funds and co-investments - fair value £789,692,000

As described above, in arriving at the fair value of the unlisted managed funds the key inputs are the Net Asset Values as determined by the GP of the funds and any approved pricing adjustments recommended by the Valuations Team. The range of Net Asset Values for the 10 largest funds, which have an aggregate valuation of 76.6% of the unlisted managed funds portfolio, can be seen in note 12. It is recognised that the valuations of these funds are sensitive to movements in the values of the underlying investee companies. The 15 largest underlying investee companies of the core portfolio in total amount to £357.2 million and include both quoted and unquoted companies. At 31 July 2016, 3.0% of aggregate value of the 15 largest underlying investee companies was derived from quoted prices and 97.0% represented unquoted valuations. Quoted companies are valued based on market prices. IFRS and IPEV Valuation Guidelines stipulate that quoted price should be used to value these companies at the valuation date. Therefore, provided the Net Asset Value calculation date and the Group's valuation date are aligned, the Board does not permit an adjustment to those valuations, unless there are significant restrictions applied to sale. Quoted companies within the managed funds portfolio have been valued using quoted prices and foreign exchange rates as at 31 July 2016. For unquoted investments, however, significant judgement is applied when calculating fair value. The Board may consider adjustments to unquoted valuations as described above. The range of possible adjustments could be broad and would vary based on the circumstances driving the adjustment. In the past, the Board have adjusted the valuation of unquoted companies by between 0% and 100% of the GP's proposed valuation. For the purposes of sensitivity analysis, a 10% adjustment could be considered reasonable. A 10% adjustment to the valuation of the unquoted constituents of the 15 largest underlying companies would result in a 3.1% movement in shareholders' funds.

 

 

 

7 Fair values (continued)

 

Level 3 reconciliation

The following table shows a reconciliation of all movements in the fair value of instruments (including investment in associates) categorised within Level 3 between the beginning and the end of the reporting period:


For the
six months

ended
31 July 2016
Level 3

(unaudited)
£'000

For the
year ended
31 January
2016
Level 3

(audited)
£'000

Valuation brought forward

752,114

1,084,058

Calls and purchases

83,791

93,640

Distributions and sales

(151,840)

(466,708)

Fair value gains on investment portfolio

105,627

82,124

Disposal of investment in associates

-

(41,000)

Valuation carried forward

789,692

752,114

 

The total fair value gains recognised in the Income Statement in respect of Level 3 investments are in respect of assets held as at 31 July 2016.

 

Transfers

During the period, there were no transfers between Levels 1, 2 or 3.

 

Financial liabilities at fair value through profit and loss

In order to hedge against the foreign exchange risk on interest receipts and principal redemption on some co-investments in debt securities, the Group has entered into multiple forward currency agreements to effectively swap US dollars into sterling.

 

Some of the exchange contracts are due to be settled within one year of the balance sheet date and therefore the derivatives have been included at a fair value loss of £0.3 million on the balance sheet in other payable, classified as a current liability. The remaining derivatives, which includes the hedge on the eventual redemption of the debt investments, are included at a fair value loss of £3.8 million as a non-current liability.

The fair value loss of the forward currency contracts are determined using valuation techniques based on observable inputs (Level 2).

 

Financial instruments not held at fair value

The Group's debt instruments held at 31 January 2016, the last reporting date, related to the 8.25% convertible loan notes and were included in the balance sheet at carrying value of £38.7 million (see note 9). The fair value of the convertible loan notes were £42.0 million and based on the offer prices of the notes as at 31 January 2016. Whilst the offer price is obtainable from the market, the instrument was not frequently traded and therefore fell under Level 2 of the fair value hierarchy. The notes were fully redeemed on 5 June 2016 and therefore the Group hold no debt instruments as at 31 July 2016.

 

Other financial assets and financial liabilities are held at amortised cost, and this carrying value is deemed to approximate fair value.

 

 

 

8 Investment in subsidiaries

 


For the
six months
ended
31 July 2016
Group

(unaudited)
£'000

For the
six months
ended
31 July 2016
Company

(unaudited)
£'000

For the
year ended
31 January
2016
Group

(audited)
£'000

For the
year ended
31 January
2016
Company

(audited)
£'000

Valuation at beginning of the period

79

1,329

1,259

1,259

Investment in subsidiaries

-

1,250

841

2,091

Capital distributions

-

-

(449)

(449)

Fair value losses on subsidiaries

(79)

(79)

(1,572)

(1,572)

Valuation at the end of the period

-

2,500

79

1,329

SVGCM is a wholly-owned subsidiary of the Company. The Company is classified as an investment entity and IFRS generally requires that such entities should measure subsidiaries at fair value through profit and loss. However as SVGCM provides investment management services to the Company and is not an investment entity itself, it has been consolidated into the SVG Capital plc Group in these financial statements.

During the period, SVG North America Inc. and SVG Advisors Inc. were liquidated.

The remaining subsidiaries in the group (detailed below) have been measured at fair value as at 31 July 2016. A review has been undertaken and where appropriate the subsidiaries have been written down to their net asset value, which is considered to be the fair value.

 

Subsidiary undertakings at 31 July 2016:

Subsidiary and business

Country of registration,
incorporation and operation

Number and class of
 shares/units held
by the Company

Company
holding

SVGC Managers Limited
- investment management services

UK

2,500,000 ordinary shares

100%

SVGC Equity Partners GP Limited
- investment advisory services

UK

1 ordinary share

100%

SVGC Equity Partners LLP
- investment advisory services

UK

98 voting interests

85 economic interests

98%

 

 

9 Borrowings

Loan facility
As at 31 July 2016, the Company had a €300.0 million loan facility with Lloyds Bank plc, The Royal Bank of Scotland plc and State Street Bank and Trust Company, of which £nil was drawn (31 January 2016: £nil). The facility matures in December 2019.

Drawings on the facility are subject to an interest charge of Euribor plus a margin of 3.00%. Undrawn amounts are subject to a non-utilisation fee of 1.10% per annum. There were no material changes to the terms of the facility during the period.

Covenants
The loan facility is subject to financial covenants. The maximum loan to value ("LTV") covenant is 30% and the Board manages the Company against that limit. However, the Company has the flexibility of one three-month period to rectify an LTV above 30% (up to a maximum of 40%) back to below 30%. At 31 July 2016, the LTV covenant stood at 0% (31 January 2016: 0%).

Convertible loan notes

The 8.25% convertible loan notes were fully repaid on 05 June 2016. At the previous reporting date, the carrying value of the notes were as follows:

 

Group and Company

31 July
2016

 (unaudited)
£'000

31 January
2016

(audited)
£'000

8.25% subordinated convertible loan notes 2016 - nominal

-

39,100

Unamortised premium, issue and listing costs

-

(368)

Carrying value of convertible loan notes

-

38,732

 

 

10 Share capital

Group and Company

31 July
2016

 (unaudited)
£'000

31 January
2016

(audited)
£'000

Allotted, called up and fully paid:



Opening balance of 231,789,499 shares (31 January 2015: 253,723,168 shares)

231,790

253,724

Cancellation of shares

(60,000)

(21,934)

Closing balance of 171,789,499 shares (31 January 2016: 231,789,499 shares)

171,790

231,790

 

At 31 July 2016, the Group held 15,656,809 shares in Treasury (31 January 2016: 71,392,872). During the period, 60 million shares were cancelled to reduce the number of Treasury shares to below 10% of issued share capital.

At 31 July 2016, shares held by the SVIIT Employee Benefit Trust and the SVIIT USA Employee Benefit Trust totalled 277,987 (31 January 2016: 417,647). The market value of these shares at 31 July 2016 was £1.5 million (31 January 2016: £2.0 million).

 

 

 

11 Net asset value per ordinary share ("Shareholders' funds")


31 July
2016

Group

 (audited)
£'000

31 July
2016

Company

(audited)
£'000

31 January
2016

Group

(audited)
£'000

31 January
2016

Company

(audited)
£'000

Basic NAV per share

737.4p

737.4p

657.4p

657.5p

Diluted NAV per share

734.6p

734.7p

653.5p

653.6p

 

Calculations of the net asset values per share are based on Group net assets attributable to equity shareholders of the parent of £1,149,254,000 (31 January 2016: £1,051,768,000), Company net assets of £1,149,329,000 (31 January 2016: £1,051,888,000) and on 155,854,703 (31 January 2016: 159,978,980) ordinary shares in issue at the period end.

The Group and Company diluted net asset value per share assumes that performance shares and deferred 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 584,490 ordinary shares (31 January 2016: 781,383) for consideration of £nil (31 January 2016: £nil). The convertible loan notes were redeemed during the period and therefore any conversion to shares was no longer relevant for dilution purposes.

Therefore, the calculation of the diluted net asset value per share is based on 156,439,193 (31 January 2016: 166,869,738) ordinary shares in issue at the period end.

 

Reconciliation of NAV per share

Group


£'000

Shares in

issue

Diluted NAV

per share

Opening shareholders' funds - dilutive basis

1,090,500

166,869,738

653.5

Adjustment re lapses and grants of performance shares

-

(196,893)

n/a

Adjustment re redemption of convertible loan notes

(38,732)

(6,109,375)

634.0

Disposal of own shares

-

404,660

n/a

Purchase of shares

(22,750)

(4,528,937)

502.3

Opening balances adjusted for share changes

1,029,018

156,439,193

657.8

Gain attributable to equity shareholders

119,607

156,439,193

76.5

Other reserve movements during the year

629

156,439,193

0.4

Closing shareholders' funds - dilutive basis

1,149,254

156,439,193

734.6





 

Company


£'000

Shares in

issue

Diluted NAV

per share

Opening shareholders' funds - dilutive basis

1,090,620

166,869,738

653.6

Adjustment re lapses and grants of performance shares

-

(196,893)

n/a

Adjustment re redemption of convertible loan notes

(38,732)

(6,109,375)

634.0

Disposal of own shares

-

404,660

n/a

Purchase of shares

(22,750)

(4,528,937)

502.3

Opening balances adjusted for share changes

1,029,138

156,439,193

657.9

Gain attributable to equity shareholders

119,633

156,439,193

76.5

Other reserve movements during the year

558

156,439,193

0.4

Closing shareholders' funds - dilutive basis

1,149,329

156,439,193

734.7

 

 

12 Ten largest fund investments (by value)

Group and Company

Manager/Adviser

31 July

2016

(unaudited)

£'000

31 January

2016

(audited)
£'000

Aberdeen Diamond Holdings II Limited

APEA

 97,000

83,363

Permira V

Permira

 86,278

66,328

Permira IV

Permira

 80,718

168,775

CCMP Capital Investors III

CCMP

 66,570

52,737

The Fifth Cinven Fund

Cinven

 60,465

54,324

Aberdeen Diamond Holdings Limited

APEA

 58,153

60,023

Aberdeen Diamond III Holdings plc

APEA/APEM

 55,801

49,693

Clayton, Dubilier & Rice Fund IX

Clayton, Dubilier & Rice

 54,035

31,995

P1234

APEA

 24,277

28,328

FFL Capital Partners IV

FFL

 21,409

 18,753



604,706

614,319

 

 

13 Post balance sheet events

Following the announcement on 12 September 2016 by Platform Specialty Products (a Permira IV investment) of a revision of terms on the preferred note, the valuation of our investment has declined by £13.1m, equivalent to 8p per share of NAV. We consider this a non-adjusting post balance sheet event and therefore has no impact on our reported balance sheets as at 31 July 2016.

 

END OF CONDENSED FINANCIAL STATEMENTS

 

 



[1] Cash flows and valuations translated at January 2016 foreign exchange rates

[2] HarbourVest Structured Solutions III L.P.

[3] New strategy approved in March 2012

[4] Further information on the announcement is detailed in Note 13

[5] Commitment totals derived using foreign exchange rates at date of commitment

[6] HarbourVest Structured Solutions III L.P.

[7] Cash flows and valuations translated at opening (January 2016) foreign exchange rates

[8] Commitment totals derived using foreign exchange rates at date of commitment

[9] Remaining large mature assets are considered to include Platform Specialty Products, Genesys and Intelligrated

[10] Including SVG Capital's pro-rata share of fund investment at 31 July 2016 exchange rates

[11] Further information on the announcement is detailed in Note 13


This information is provided by RNS
The company news service from the London Stock Exchange
 
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