We are pleased to report a good set of results and strong
performance from both SVG Capital and from our fund management
business, SVG Advisers.
We believe the current portfolio is well positioned to provide shareholders with substantial returns over the medium to long-term. The portfolio is relatively immature, but it is well diversified by industry sector and geography. As is normal at this point of SVG Capital’s investment cycle, new investments from recent commitments dominate the portfolio and the portfolio is fairly concentrated with the 10 largest investments representing 64% of the portfolio. As Permira IV becomes more fully invested and matures, the portfolio will become less focused on a small number of large investments.
Since the year end, the Company has received distributions totalling £66.0 million with a further £18.1 million expected prior to the end of April 2008. In addition, the Company has also received proceeds of £40.0 million in January 2008 from the Private Placement of Notes. Against this, we are anticipating calls of approximately £165.0 million to fund investments already announced in 2007 and we should move to a slightly more leveraged position by the end of April 2008.
SVG Capital has a strong balance sheet, with substantial financial resources in place. The Company is well positioned to meet its uncalled commitments of £1.6 billion, which we expect to be drawn down over the next four to five years.
Third-party funds under management increased by 33% to €4.4 billion4 over the year and the business reported profit before tax of £17.6 million, an 89% increase on 2006. External income from investment advisory services increased 46% to £29.7 million and including fees paid by SVG Capital and other income, total revenue was £37.1 million.
As reported at the half-year, the biggest contributor to the increase in funds under management was the successful closing of our third structured private equity fund of funds, SVG Diamond III, raising €700 million. In addition to this, the Schroder Private Equity Fund of Funds IV has raised €339 million5 to date, with a final close expected before the end of the first quarter, and €96 million was also raised for the Strategic Recovery Fund II. Since the year end, we have held a successful first close at US$104 million of our first Asian fund of funds. The fund is targeting a final close at US$150 million before the end of the first half. In order to support the growth of our Asian business, both in terms of fund selection and investor base, we will be opening an office in Singapore in the second half of this year.
SVG Advisers now employs almost 70 people and with the opening of our Asian office will have a presence in Europe, North America and Asia. We will continue to invest in building up the SVG Advisers’ team and the firm’s infrastructure so we will be well positioned to take advantage of changes in the private equity market over the next three to five years.
The dramatic shift in sentiment and confidence within markets in the second half of 2007 has had a major impact on both the debt and equity capital markets. This presents both a challenge and opportunity for SVG Advisers. We have already taken steps to expand the firm’s geographic reach and will be looking at diversifying the current product offering to capitalise on opportunities and to create new investment vehicles in our areas of expertise.
On the investment front, the overhang of unsyndicated leveraged buy-out debt remains high. Until this debt is syndicated, buy-out activity is unlikely to pick up significantly, especially at the larger end of the market. The hiatus in debt financing has resulted in a softening of leverage multiples on those transactions that have been agreed since the summer. This softening will affect pricing of new deals and will present attractive buying opportunities. On the exit front, we expect the rate of realisations to slow and holding periods to lengthen.
3Including income of £17.1 million
4Including SVG Capital's commitments to SVG Advisers' funds
5As at 1 March 2008
We believe the current portfolio is well positioned to provide shareholders with substantial returns over the medium to long-term. The portfolio is relatively immature, but it is well diversified by industry sector and geography. As is normal at this point of SVG Capital’s investment cycle, new investments from recent commitments dominate the portfolio and the portfolio is fairly concentrated with the 10 largest investments representing 64% of the portfolio. As Permira IV becomes more fully invested and matures, the portfolio will become less focused on a small number of large investments.
Cash balances and uncalled commitments
The portfolio was again very cash-generative with £312.4 million3 of distributions during the year. We have paid £581.7 million of calls in the year, mainly to fund Permira IV which is still in the early stages of its investment programme and thus has been drawing down funds relatively quickly. As a result, SVG Capital ended the year with gross cash balances of £183.5 million, taking the Group to a leveraged position of £34.7 million, or 2.7% of Shareholders’ funds.Since the year end, the Company has received distributions totalling £66.0 million with a further £18.1 million expected prior to the end of April 2008. In addition, the Company has also received proceeds of £40.0 million in January 2008 from the Private Placement of Notes. Against this, we are anticipating calls of approximately £165.0 million to fund investments already announced in 2007 and we should move to a slightly more leveraged position by the end of April 2008.
SVG Capital has a strong balance sheet, with substantial financial resources in place. The Company is well positioned to meet its uncalled commitments of £1.6 billion, which we expect to be drawn down over the next four to five years.
Borrowings
The Company issued approximately US$300.0 million (equivalent) of long-term debt through a Private Placement of Notes taking SVG Capital’s total fixed borrowings to approximately £258.1 million. In addition, the Company increased its bank lines from €600.0 million to €750.0 million (£550.9 million) during the course of the year.SVG Advisers
The fund management business, SVG Advisers, has reported another strong year of growth and the Directors have placed an unaudited valuation on the business of £106.4 million (71.8p per share).Third-party funds under management increased by 33% to €4.4 billion4 over the year and the business reported profit before tax of £17.6 million, an 89% increase on 2006. External income from investment advisory services increased 46% to £29.7 million and including fees paid by SVG Capital and other income, total revenue was £37.1 million.
As reported at the half-year, the biggest contributor to the increase in funds under management was the successful closing of our third structured private equity fund of funds, SVG Diamond III, raising €700 million. In addition to this, the Schroder Private Equity Fund of Funds IV has raised €339 million5 to date, with a final close expected before the end of the first quarter, and €96 million was also raised for the Strategic Recovery Fund II. Since the year end, we have held a successful first close at US$104 million of our first Asian fund of funds. The fund is targeting a final close at US$150 million before the end of the first half. In order to support the growth of our Asian business, both in terms of fund selection and investor base, we will be opening an office in Singapore in the second half of this year.
SVG Advisers now employs almost 70 people and with the opening of our Asian office will have a presence in Europe, North America and Asia. We will continue to invest in building up the SVG Advisers’ team and the firm’s infrastructure so we will be well positioned to take advantage of changes in the private equity market over the next three to five years.
The dramatic shift in sentiment and confidence within markets in the second half of 2007 has had a major impact on both the debt and equity capital markets. This presents both a challenge and opportunity for SVG Advisers. We have already taken steps to expand the firm’s geographic reach and will be looking at diversifying the current product offering to capitalise on opportunities and to create new investment vehicles in our areas of expertise.
Outlook
The majority of companies in the portfolio continue to perform in line with expectations and we believe the portfolio is well positioned to weather market conditions. Clearly, any material change in the economic environment could impact the short-term performance of the portfolio companies, and investing with top-performing private equity firms will become even more crucial. The managers that SVG Capital has invested with, in particular Permira, have over 20 years of experience in creating value for investors through varying financial and economic environments. We have confidence in their criteria for investment and their ability to drive growth and harness value in companies, creating superior returns for investors and outperforming public markets over the longer term.On the investment front, the overhang of unsyndicated leveraged buy-out debt remains high. Until this debt is syndicated, buy-out activity is unlikely to pick up significantly, especially at the larger end of the market. The hiatus in debt financing has resulted in a softening of leverage multiples on those transactions that have been agreed since the summer. This softening will affect pricing of new deals and will present attractive buying opportunities. On the exit front, we expect the rate of realisations to slow and holding periods to lengthen.
3Including income of £17.1 million
4Including SVG Capital's commitments to SVG Advisers' funds
5As at 1 March 2008