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SVG Capital makes 9% in 2015 on strong exits

SVG Capital has announced its results for the year ended 31 December 2015. Net assets per share increased by 11% over the 12 months to 654p with the performance driven by a 9% total return on the investment portfolio and further augmented by accretive share buybacks and tenders. 2015 was a good year for exits with larger, more mature, investments being sold and a second record year of distributions from the portfolio. In total, £486m of proceeds were received from the investment portfolio in the year, which in turn facilitated £167m of capital returns, £94m of new investment and £67m of debt repayment. They ended the year with net cash balances of £291m.

They say the 9% return in the year was driven by post-2012 and non-core investments, which generated returns of 19% and 24% respectively. Within the post-2012 investment portfolio they say they have been encouraged by the early strong performance of the investments and the two realisations to date. The portfolio of 45 companies has a bias towards more defensive, structural growth sectors, mainly the Healthcare, TMT and Business Services and has resulted in the investments delivering strong weighted average LTM earnings and revenue growth of 10% and 11% respectively over the year. In particular, they have seen very strong growth from our underlying companies in the Healthcare and TMT sectors.

Performance over the 12 months has been driven by strong underlying earnings growth and two realisations, with multiples used to value the companies remaining constant, on a like-for-like basis. In aggregate, the underlying companies reported LTM earnings and revenue growth of 10% and 11% respectively. Within TMT, two of our four co-investments, Visma and TeamViewer, have performed particularly well, with our investment in TeamViewer written up to £25m, or 1.4x cost.  Within Healthcare, Healogics, Medpace and Pantheon Healthcare, have also performed strongly. Elsewhere within the portfolio, within Consumer/Retail, Jamieson Laboratories, Jetro Cash & Carry and Clarkson Eyecare have all delivered double digit earnings growth, as has Mauser within Industrials.

The value contribution from this strong company operating performance was augmented by two realisations from the portfolio. Cinven announced the sale of AMCo to Concordia Healthcare Corp in October 2015 for £2.3bn, predominantly in cash and Concordia shares. Through a combination of organic growth and acquisitions, AMCo’s EBITDA doubled under Cinven’s period of ownership. During the same month, having delivered exceptional revenue and earnings growth since acquisition, CD&R announced the sale of PharMEDium to AmerisourceBergen, for $2.6bn in cash.  Both investments were realised at over 100% uplifts to carrying values and combined contributed £28m to the value of the gross investment portfolio over the period.

Within the non-core investments, performance has again been driven by holdings in the Diamond fund of funds programme, with the strong exit environment enabling the funds to deleverage significantly and towards the end of the year, commence distributions to shareholders.  They expect distributions from these funds to accelerate over the coming years.

The portfolio’s weighting to pre-2012 investments fell from 61% to 32% with a number of the more mature investments having been sold into a favourable exit environment. The remaining larger assets in the pre-2012 portfolio, NXP Semiconductors and Platform Specialty Products are expected to be fully realised in due course.

They made one new commitment in the year, a $100 million commitment to leading US mid-market private equity manager AEA Investors. AEA’s strategy is to make control investments in global, mid-market companies, primarily headquartered in the United States, within their core sectors of value-added industrials, specialty chemicals, consumer/retail and business services. AEA target well-positioned companies with good free cash flow generation where significant operational change, led by their operating partners and network of senior business executives, can accelerate growth and profitability. They believe the US mid-market is an attractive area for investment and AEA’s deep sector knowledge coupled with their network of senior business executives, active operational involvement and focus on free cash flow allow the firm to deliver strong and consistent returns across the cycle.

Uncalled commitments were reduced to £332m from £367mn at 31 January 2015 reflecting calls paid, partially offset by a $100m commitment to AEA Investors during the year.  This included a reduction of SVG Capital’s uncalled commitment to Permira IV of 75% to £12m.

SVI : SVG Capital makes 9% in 2015 on strong exits

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