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SVG Capital PLC (SVI)

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Monday 22 October, 2012

SVG Capital PLC

Interim Management Statement

RNS Number : 1790P
SVG Capital PLC
22 October 2012
 



For immediate release 22 October 2012

Interim Management Statement

 

Disciplined capital allocation; on track to complete £170 million capital return in April 2013

 

This statement is made in accordance with the UK Listing Authority's Disclosure and Transparency Rules and relates to the period from 1 July 2012 to 30 September 2012.

 

Highlights

·     NAV of 361.8p per share - a 4.4% decline in the quarter (1)

─    Year-to-date NAV has increased by 7.3%

─    Since quarter end positive movements in quoted portfolio have added £21.3 million, 8.0p per share taking the roll-forward NAV to 369.8p (as at 18 October 2012)

 

·     £102.1 million of proceeds in the period

─    £70.8 million from the partial realisation of Galaxy

─    Cash balances of £101.4 million

 

·     Net debt of £136.5 million, 13.5% of adjusted Shareholders' funds

 

·     On-going capital return programme

─    £9.0 million returned to Shareholders in the period

─       Through share buy backs at a weighted average discount of 25% to 30 June 2012 NAV

─    Total amount of capital returned since December 2011 is £93.5 million, or 55% of SVG Capital's £170.0 million commitment to shareholders (as at 18 October 2012)

 

·     Continued active management of the balance sheet, in particular looking at the more mature assets and the incremental return we expect to receive from these assets relative to other uses of capital

 

·     Restructuring of Permira Europe III exposure

─    Sale of direct holding in Permira Europe III (8% of the investment portfolio)

─             Retention of 50% of direct economic interest in iglo Group; remains fourth largest portfolio company, valued at £76.3 million (on a direct and indirect basis)

─    Continue to have a material exposure to Permira Europe III indirectly through Permira Feeder Vehicles

─    £90.2 million of consideration for SVG Capital - 13.3% discount to Permira's September 2012 valuation of the assets

─    Focuses the portfolio towards less mature assets with diversified global revenue streams and stronger growth prospects

─    Along with the distribution from the Galaxy realisation in September, proceeds will be used to deleverage and complete the £170 million return of capital through on-going buy backs and a tender offer. The Board expects to complete the £170 million capital return in April 2013

─    The impact of this sale has been reflected in the September 2012 net asset value

 

Investment portfolio

·     Negative total return of 1.5% over Q3 2012 (including the impact of Permira Europe III secondary sale this increased to a negative total return of 2.5%)

─    Majority of  decline in Hugo Boss share price offset by uplift on the partial realisation of  Galaxy and subsequent increase in its share price

─    Foreign exchange had a negative impact of £17.7 million over the period

 

(1)  Excluding SVGA and SVGIM

 

·     Weighted average net multiple used to value the unquoted portfolio was 9.6x - heavily influenced by Arysta LifeScience

─    Simple average net multiple of 8.6x - a 1% increase over the quarter

 

·     Good operating performance in many of the portfolio companies

─    In particular those with diversified global revenue streams

 

·     Economic outlook is uncertain and challenging and we remain cautious

─    Some additional discounts applied to comparable multiples on the unquoted portfolio to reflect the uncertain outlook

 

Top 10 companies (91.4% of MBO portfolio, 78.8% of the investment portfolio) at 30 September 2012

(adjusted for the sale of direct holding in Permira Europe III)

 

Portfolio company

30 Sept 2012

valuation

Q3 2012

movement (2)

YTD movement (1)

Hugo Boss/VFG

£275.7m

-£38.7m

+£14.8m

Arysta LifeScience

£187.0m

+£3.8m

+£25.4m

Galaxy Entertainment

£99.0m

+£30.3m(3)

+£70.9m(3)

iglo Group

£76.3m

-£1.2m

+£3.6m

ProSiebenSat

£62.1m

-£1.0m

+£10.2m

Legico

£61.1m

+£6.5m

+£16.1m

Freescale           

£35.4m

-£3.7m

-£13.4m

TDC

£28.9m

+£1.3m

-£2.0m

Marazzi

£25.8m

+£1.0m

+£4.2m

AA Saga

£16.4m

-£0.5m

-£2.4m

 

Notable changes in valuations during the period include:

 

·     Galaxy Entertainment - increase in share price of 36% over Q3 2012, coupled with realisation of 53% of holding at HKD21.00

·     Hugo Boss/VFG - 12% decline in value in Hugo Boss shares, partially offset by sale of Valentino, which we expect to complete in Q4.

·     Since the period end the quoted portfolio has appreciated by £21.3 million (8.0p per share) (4) 

 

This adjusted net asset value is based on a revaluation of 97.2% of the net investment portfolio. The remainder of the investment portfolio has been valued at 30 June 2012 valuations, updated for any cash flow and foreign exchange movements. The Company's assets will be fully revalued at 31 December 2012 in accordance with IFRS and International Private Equity and Venture Capital (IPEV) guidelines, the results of which will be announced in February 2013.

 

Restructuring of Permira Europe III exposure
During the course of the year, the investment committee has spent a considerable amount of time reviewing the assets of the business and the Company has started the process of repositioning the portfolio and balance sheet ahead of a new investment programme. Part of this process has been assessing the relative risk and return profiles for the more mature assets and the incremental return we expect to receive from these assets relative to other uses of capital. 

 

In line with this process, SVG Capital has signed an agreement to sell its direct holding in Permira Europe III, which has generated a net IRR of 24% and a multiple of original investment cost. The Company continues to have a

(2)Pro-rata for the sale of 41% of our total Permira Europe III exposure

(3)Including £71.0m of proceeds from the partial realisation of Galaxy

(4)As at 18 October 2012

material indirect exposure to Permira Europe III through its holdings in the Permira Feeder Vehicles. As part of the sale, SVG Capital will retain the right to receive distributions relating to 50% of its direct exposure to iglo Group, the largest asset in the fund.  As a result, iglo Group remains the fourth largest portfolio company, valued at £76.3 million (on a direct and indirect basis).

The consideration for this sale is £90.2m, a 13.3% discount, or 5.0p write down to Permira's September 2012 valuation of the fund. This write down is already reflected in the September 2012 net asset value. Of the £90.2m consideration, SVG Capital will receive cash proceeds of £64.7 million (in addition to the distributions arising from 50% of the Company's direct exposure to iglo Group). The cash proceeds are payable: 50% on completion of the transaction, 25% in December 2013 and 25% in December 2014 (5).We expect the transaction to complete before the year-end.

This sale will also reduce SVG Capital's uncalled commitments by £4.9 million and take the Company's roll-forward liquidity and coverage of expected uncalled commitments to £244.8 million and 2.8x times respectively (6).  Along with the distribution from the Galaxy realisation in September, the proceeds of the sale will be used to deleverage and complete the £170 million return of capital to shareholders through on-going buy backs and a tender offer. SVG Capital expects to complete the return of £170 million of capital in April 2013 (7).

 

Calls and distributions

Distributions of £102.1 million in the period were dominated by the partial realisation of Galaxy Entertainment and significantly outweighed calls paid of £2.1 million.  Permira IV sold 53% of its holding in Galaxy Entertainment at HKD21.00. The value of this partial realisation to SVG Capital, both directly and indirectly through its holdings in the Permira Feeder Vehicles, was approximately £91.8 million. SVG Capital received proceeds of £70.8 million from its direct holding in Galaxy Entertainment.

 

Financial review

At 30 September 2012, SVG Capital had cash balances of £101.4 million and gross borrowings of £243.0 million (£151.1 million of senior notes and £91.9 million of convertible bonds) taking the Group's net borrowed position to £136.5 million (8) or 13.5% of adjusted Shareholders' funds.

 

At 30 September 2012, the Company's Loan to Value ratio was 12.5% (against a maximum permitted LTV of 30%, with the ability to go up to 40% for one nine month period).

 

Uncalled commitments stood at £102.1 million. Of this approximately £86.4 million is expected to be called and this compares with available liquidity of £181.1 million (cash plus €100m undrawn bank-line) - a coverage of 2.1x.

 

There have been no material events and transactions impacting the financial position of the Company's fund management and advisory businesses in the period.

 

(5) Other than with respect to distributions that relate to the Company's economic exposure to 50% of its direct holding in iglo Group, the payment of the deferred consideration will be accelerated by the purchaser paying all net distributions received from Permira Europe III to the Company until such time that the total deferred consideration has been paid in full

(6) Allowing for total proceeds of £64.7 million from the secondary sale

(7) Subject to the Company maintaining a conservative level of gearing and compliance with the senior debt documentation. Under the current senior debt documentation the Company can return up to 10% of gross assets in any 365 day period. The earliest date that SVG Capital would be in a position to complete the £170 million return of capital is April 2013 (following the anniversary of the £50m tender in April 2012)

(8) Including the fair value of the cross currency interest rate swap valued at £5.1 million at 30 September 2012

 

 

Board changes

Further to the announcement earlier in the year of Nicholas Ferguson's intention to retire from the Board, SVG Capital has announced that Andrew Sykes will succeed Nicholas as Chairman with effect from 8 November 2012.  Andrew joined the Board as a non-executive director in February 2010.

 

Share buy-backs and share capital

The Company has taken advantage of the discount the shares are trading at relative to its NAV, buying back 3.2 million shares in the period. These repurchases were done at a weighted average share price of 282p, which represents a 25% discount to the 30 June NAV per share.

 

Since the period end, SVG Capital has bought back a further 0.5 million shares (as at 18 October 2012) at a weighted average share price of 270p. This takes the total amount of capital returned to Shareholders since the December 2011 announcement of the intention to return up to £170 million to Shareholders to £93.5 million.

 

At 19 October 2012, SVG Capital had 290,032,690 issued ordinary shares admitted to trading on the Official List of the London Stock Exchange, of which 13,971,729 are held in treasury.

 

Outlook

We have continued the active management of the balance sheet, concentrating on potential future incremental returns from the more mature assets with reference to our long term public market outperformance target and alternative uses of capital, including buying back our shares in the market. The secondary sale, coupled with the partial realisation of Galaxy Entertainment has generated sufficient liquidity to provide shareholders with clear visibility on completion of the £170 million return of capital.

Despite the difficult environment, Permira is still seeing good earnings growth in many of the portfolio companies, in particular those with diversified global revenue streams. Looking forward, we remain cautious on the outlook. Visibility of the operating environment is limited and macro-economic concerns remain prominent.

 

We believe the repositioning of our assets has further focused SVG Capital's portfolio on high quality companies with global growth prospects. It has also laid the foundations for our new investment programme, which will build future portfolio growth beyond the current assets through new investments in private equity funds, subject to passing our capital allocation criteria.

 

For further information, please contact:

 

 

SVG Capital

Alice Kain ./ Charlotte Edgar

020 7010 8900

Maitland

Neil Bennett / Tom Eckersley

020 7379 5151

 

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. 

 



 


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