Portfolio analysis

In 2013 our investment portfolio continued to deliver double digit growth and a considerable outperformance of the wider market. Looking at the portfolio as a whole, the earnings of the underlying companies showed good growth in aggregate over the year. The significant operational and strategic initiatives instigated by the management teams to ensure future value creation are now well developed and are expected to continue to bear fruit in the coming 12 to 24 months.

The management buyout funds portfolio represents the majority of SVG Capital’s investment portfolio. Currently, the majority of these funds are advised by Permira, a leading international private equity specialist. During 2013, we have started to build on this portfolio with commitments to a limited number of other leading private equity managers focused on management buyouts in Europe and the US.

At 31 December 2013, the management buyout funds portfolio represented 81% of the investment portfolio.

  Dec 2013 Dec 2012
Value £859.0m £802.9m
Percentage of investment portfolio 80.7% 79.2%

Investing in seven funds with an underlying portfolio of 35 companies.

Performance overview

Key features of 2013:

  • 31.1% total return over the year, largely driven by Permira IV’s two largest quoted investments
  • Significant share price gains in Hugo Boss and ProSiebenSat, further enhanced by Permira’s leveraged ownership structures
  • Substantial distributions following the recapitalisation of Red & Black, the investment holding company of Hugo Boss, and partial realisations of ProSiebenSat
  • Most companies continue to report good earnings growth, especially those with exposure to diversified global revenue streams
  • Continued focus on portfolio company leverage, taking advantage of opportunities to recapitalise investments and renegotiate covenants and terms

Major unrealised portfolio movements 

Two largest movements over 2013:

  • Hugo Boss’ share price increased by 30% over the year as the company continued to deliver strong revenue and earnings growth, with all regions contributing. In May, Permira sold 15% of its holding in Hugo Boss and used proceeds to repay existing leverage at the holding company, Red and Black. A subsequent refinancing facilitated an equity distribution to investors.
  • ProSiebenSat’s valuation increased by 130%. The company reported a 13% increase in revenues and a 6% increase in recurring EBITDA over the first nine months of 2013, year-on-year. Permira completed a series of partial realisations during 2013, with proceeds used to repay debt at Lavena, the investment holding company, and make a distribution to investors. Since the year-end, Permira has completed the final realisation of this investment.

 

 

Since its listing in 1996, the majority of SVG Capital’s commitments have been made to Permira, one of the largest and most experienced European private equity firms (largely Permira IV). More recently, SVG Capital has begun to diversify its portfolio through commitments to other private equity groups with the aim of building a portfolio of a limited number of leading private equity managers focused on management buyouts.

SVG Capital made commitments to three leading private equity managers during 2013; Cinven, Permira and Clayton, Dubilier & Rice.

Cinven

  • Cinven’s strategy is to invest in upper mid-market to large buyouts, typically with an enterprise value of €300m–€1.2bn based in Europe.
  • Team of 54 investment staff operating from five offices, Cinven’s investment approach is sector driven with a focus on six sectors – business services, consumer, financial services, healthcare, industrials and TMT.
  • Cinven’s approach to growing its portfolio is based on a clearly defined model that has two main pillars –via growth in new markets and by acquisition and applying global best practice within core existing markets.
  • At 31 December 2013, the fund was 20.5% called and had commited to invest in six companies: Mercury Pharma and Amdipharm (healthcare), which have been merged post-acquisition, to form AMCo, as part of a planned buy-and-build strategy; Prezioso and Pronet (business services); Host Europe (TMT) and CeramTec (industrials).

For further information, please visit the Cinven website

Permira

  • Permira V will invest primarily in mid to large cap buyouts with exposure to faster-growing global markets and sectors, typically with an enterprise value of up to €3bn.
  • Team of over 120 professionals operating from 12 offices based around the globe, Permira concentrate on five sectors: consumer, TMT, industrials, financial services and healthcare.
  • Within these sectors Permira V will focus on acquiring businesses with market leadership positions, resilient thematic growth and potential to globalise.
  • At least 70% of Permira V will be invested in businesses which have or intend to have significant activities in Europe.
  • At 31 December 2013, the fund had announced three new investments: Dr Martens (consumer); Best invest (financial services); Atrium Innovations (healthcare).

For further information, please visit the Permira website

Clayton Dubilier & Rice

  • Clayton Dubilier & Rice’s (CD&R) strategy is to make control investments in upper mid-market companies in the US and Europe (Germany, France and the UK), typically with an enterprise value of up to US$3bn.
  • Team of 48 investment professionals, based in New York and London, concentrating primarily on four sectors; industrials, business services, healthcare and consumer/retail.
  • CD&R’s investment model is focused on operational improvement within their portfolio companies utilising the combined skills of operating partners, who are former CEOs or other senior corporate leaders, and private equity investment executives. This partnership between private equity and operating skills runs right through the deal process from origination through to due diligence and post investment value creation stages.

For further information, please visit the Clayton Dubilier & Rice website

 

Fund Year formed Current value
£'m
Amount uncalled
£'m
Permira Europe I 1997 1.3 -
Permira Europe II 2000 16.6 -
Economic interest in iglo Group n/a 19.6 n/a
Permira IV 2006 621.3 57.9
Permira V 2013 - 83.0
P123 2003 23.0 -
P1234 2006 59.1 -
P25 2006 90.4 -
Sapphire IV 2006 1.5 -
SVG Sapphire IV 2006 10.1 -
Fifth Cinven Fund 2012 16.1 66.0
Clayton Dubilier & Rice Fund IX1 2013 - 84.6
Management buy-out funds   859.0 291.5

1SVG Capital's commitment was increased from US$100.0 million to US$140.0 million post 31 December 2013

The Aberdeen SVG managed or advised funds’ portfolio represents the majority of the remaining investment portfolio and largely consists of investments in the SVG Diamond funds. The three SVG Diamond funds are leveraged private equity fund of funds products with diversified  underlying portfolios of predominantly US and European focused buyout funds. SVG Capital has uncalled commitments of £16.7m to these funds.

At 31 December 2013, this portfolio represented 16% of the net investment portfolio.

  Dec 2013 Dec 2012
Value £165.0m £138.9m
Percentage of investment portfolio 15.5% 13.7%

Performance overview

Investing in four diversified private equity funds of funds managed or advised by Aberdeen SVG Private Equity Advisers.

Key features of 2013:

  • 17.0% total return as continued valuation increases in the underlying portfolios of private equity funds have been amplified by the leverage within the SVG Diamond fund structures
  • The underlying portfolios consist of high quality private equity investments many of which are reporting strong revenue and earnings growth
  • Portfolio distributions have continued at a good pace as the portfolios mature and managers take advantage of favourable exit market conditions – SVG Diamond funds are deleveraging ahead of previous expectations

 

SVG's look through exposure to the top five private equity funds, in aggregate

Underlying fund Manager Geographic focus Vintage SVG Capital look-through value at 31 Dec 2013
Permira IV Permira Global 2006 £21.7m1
The Fourth Cinven Fund Cinven European 2006 £14.3m
CVC European Private Equity Partners V CVC Global 2008 £11.7m
Olympus Growth Fund V Olympus US 2007 £11.6m
Carlyle Partners V Carlyle US 2007 £10.8m

1The value of the Company's exposure to Permira IV companies has been aggregated with the exposure through the MBO portfolio calculating the value of the 10 largest underlying companies.

Underlying companies - vintage year analysis at 31 December 2013

Chart Content:

  {xvalue: "2003 & before", cost: 0.00, earnings: 1.10, quoted: 0.10, thirdparty: 0.40, written: 1.40}, 
  {xvalue: "2004", cost: 0.00, earnings: 39.10, quoted: 0.00, thirdparty: 0.00, written: 0.20}, 
  {xvalue: "2005", cost: 0.30, earnings: 5.40, quoted: 4.30, thirdparty: 0.10, written: 2.00}, 
  {xvalue: "2006", cost: 0.60, earnings: 89.20, quoted: 61.70, thirdparty: 0.10, written: 3.40}, 
  {xvalue: "2007", cost: 1.60, earnings: 54.20, quoted: 430.30, thirdparty: 0.00, written: 14.60}, 
  {xvalue: "2008", cost: 1.20, earnings: 227.60, quoted: 3.30, thirdparty: 34.50, written: 6.70}, 
  {xvalue: "2009", cost: 0.30, earnings: 16.80, quoted: 11.10, thirdparty: 0.00, written: 1.80}, 
  {xvalue: "2010", cost: 0.20, earnings: 47.50, quoted: 2.80, thirdparty: 0.00, written: 4.30}, 
  {xvalue: "2011", cost: 1.20, earnings: 47.70, quoted: 1.10, thirdparty: 0.00, written: 2.30}, 
  {xvalue: "2012", cost: 4.40, earnings: 45.90, quoted: 1.90, thirdparty: 0.00, written: 3.60}, 
  {xvalue: "2013", cost: 15.70, earnings: 3.70, quoted: 0.00, thirdparty: 0.00, written: 0.40}