SVG Capital plc SVG Capital plc Annual Report and Accounts 2009 SVG Capital plc Head office Annual Report 2009 61 Aldwych London WC2B 4AE Telephone 020 7010 8900 Fax 020 7010 8950 www.svgcapital.com
Annual Report and Accounts 2009
This report has been printed on Hello Silk a paper which is certified by the Forest Stewardship Council. The paper is made at a mill with EMAS and ISO 14001 environmental management system accreditation. This report was printed using vegetable oil based inks and 100% renewable energy by a CarbonNeutral® printer certified to ISO 14001 environmental management system and registered to EMAS the Eco Management Audit Scheme. Designed and produced by Radley Yeldar www.ry.com Welcome to SVG Capital plc
Company profile
SVG Capital is an international private equity investor and fund management business listed on the London Stock Exchange.
Our investment objective
SVG Capital’s investment objective is to achieve capital appreciation by investing principally in private equity funds that are managed or advised by Permira, a leading international private equity specialist. In addition, the Company invests in private equity funds that invest in Japan, North America, Asia and the life sciences sectors, and in unquoted and quoted businesses through specialist funds and co-investments alongside these funds. The Company may also invest in other private equity related assets and alternative asset classes. To complement this investment objective and create capital and income for the Company, its fund management business structures, markets, manages and advises products for investment in private equity, private equity related assets, alternative asset classes and in public equity using private equity techniques.
Contents
Overview Remuneration report 33 Welcome to SVG Capital plc 1 Corporate governance 40 SVG Capital at a glance 2 Corporate social responsibility 44 Chairman’s statement 6 Financial information Chief Executive’s statement 8 Independent auditors’ report 45 Business review Consolidated income statement 46 Investment objective 10 Consolidated statement of comprehensive income 46 Investment policy 10 Company income statement 47 Key performance indicators 10 Company statement of comprehensive income 47 Strategy 11 Consolidated statement of changes in equity 48 Marketplace 12 Company statement of changes in equity 49 Financial review 12 Consolidated balance sheet 50 Portfolio review 14 Company balance sheet 51 Largest investments 14 Consolidated cash flow statement 52 20 largest underlying companies 17 Company cash flow statement 53 SVG Advisers 20 Notes to the accounts 54 Contractual arrangements 20 Company information Risks and risk management 20 Company summary 92 Corporate information Advisers 93 List of investments (Group) 26 Financial calendar 94 Directors 28 Glossary 95 Report of the Directors 30 E-communications for shareholders 96 1 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
Our business £1,060.3m Total assets The Group invests from its own balance sheet as well as on behalf of third-party investors through funds that it manages and/or advises. At 31 December 2009, total assets and commitments under £895.6m management were £4.7 billion, including £3.2 billion* managed Net investment portfolio or advised on behalf of third-parties.
+22.5% Private equity investment Since June 2009 SVG Capital invests in a portfolio of private equity funds, the majority of which are advised by Permira, a leading +6.1% Since December 2008 international private equity specialist. Information on our investment portfolio is included on pages 2 to 5, pages 14 to 19 and pages 26 to 27. Investing in private equity and related asset classes Fund management SVG Capital’s fund management business, SVG Advisers, structures, £697.6m markets, manages and advises products for investment in private Net assets of (222.9p per share) and public equity using private equity techniques. More information on this area of our business can be found on page 9. +30.4% Since June 2009
+7.1% Balance sheet Since December 2008 31 December 31 December 2009 2008 Investment portfolio £895.6m £741.1m Including the December 2009 unaudited Cash £144.1m £130.6m valuation of SVG Advisers of £77.2m Other assets £20.6m £30.7m Total assets £1,060.3m £902.4m
£620.4m Senior Notes (£220.6m) (£332.2m) Shareholders’ funds Bank facility (£97.7m) – Convertible bond (£100.1m) (£102.6m) Excluding the December 2009 unaudited valuation of SVG Advisers Other liabilities and minority interests (£21.5m) (£33.4m) Shareholders’ funds (audited) £620.4m £434.2m
Valuation of SVG Advisers (unaudited) £77. 2m £56.4m Net assets (including SVG Advisers) £ 697.6m £490.6m Net assets per share 222.9p 208.1p **
Loan to value ratios Bank facility (maximum of 50% including value of SVGA) 18.4% 25.9% Loan notes (maximum of 55%) 20.0% 28.0%
* This figure excludes SVG Capital’s commitments to SVG Advisers’ managed or advised funds ** Restated for the Rights Issue and Placing SVG Capital at a glance 2
Private equity funds portfolio
As at 31 December 2009 2009 2008 Value £731.3m £595.8m Percentage of the investment portfolio 81.7% 80.4% Focus: Investing in 16 funds with an underlying portfolio of 109 companies. 92.6% of the private equity funds portfolio is invested in Permira Funds
£m 800 595.8 85.0 (19.9) (0.3) 70.7 731.3 700
600
500
400
300
200
100
0 Opening valuation Calls paid Distributions received Income receivedReturn Closing portfolio
Key features of the 12 months: 1. Increase of 10.4% in the value of the private equity funds portfolio over the year and 24.6% over the second half. 2. Early and decisive action by Permira has resulted in performance across the portfolio stabilising and, in many instances, improving. 3. Permira and the underlying management teams have worked together to mitigate the impact of declines in revenue on earnings, ensuring that appropriate cost structures were adopted quickly and operational efficiency improved. 4. A clear priority for Permira continues to be the de-risking of the capital structures of the portfolio companies. Action was taken in 2009 to reduce the Permira Funds portfolio debt by over €4.5 billion.
Major unrealised portfolio movements Change in 12 months1 £’000 TDC 25,817 91,198 65,381 Galaxy 25,026 39,671 14,645 Provimi 22,698 62,031 39,333 Saga AA 18,224 59,645 41,421 Birds Eye iglo 18,137 57,062 38,925 New Look 14,034 25,684 11,650 Marazzi (12,392) 8,032 20,424 DinoSol (20,427) Supermercados 20,427
31 Dec 092 £’000 31 Dec 082 £’000
1 Including Permira feeder vehicles 2 Gross of any carried interest provision 3 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
Valuation analysis Top 20 companies By value
4 1 5 3 93% of the gross private equity fund portfolio
2
31 Dec 31 Dec 20 largest underlying companies 2009 2008 % % % of Value gross private Cost December 2009 * 1. Earnings 46 28 Company Fund equity portfolio £’000 £’000 2. Written down – earnings* 36 51 Hugo Boss and Valentino Fashion Group PIV 15.2 205,530 120,846 3. Quoted 11 10 4. Written down 5 6 Arysta LifeScience PIV 11.6 151,544 92,763 5. Cost 1 1 TDC PEII + PEIII 11.5 40,798 91,198 6. Third-party 1 4 Provimi PIV 7.8 52,356 62,031 * Both December 2008 earnings and written down earnings valuation basis have been reclassified. AA Saga PEIII 7. 5 41,756 59,645 Birds Eye iglo PEIII 7. 2 32,487 57,062 Geographical analysis Galaxy PIV 5.0 109,268 39,671 By value Cost* Freescale PIV 4.2 145,058 33,526 5 1 5 1 4 4 Legico PIV 3.9 50,436 30,670 New Look PEII 3.2 480 25,684
3 3 Freenet/debitel PEIII 2.7 138 21,677 2 2 Telepizza PEIII 2.2 12,251 17,724
31 Dec 31 Dec Cognis Group PEII 2.0 1,860 15,895 2009 2008 % % % Cost* All3Media PEIII 1.6 12,074 12,911 1. Global 45 48 36 Sisal PEIII 1.6 16,916 12,635 2. Continental Europe 24 28 28 Maxeda PEIII 1.4 529 11,168 3. UK 20 15 24 4. Asia 7 5 10 Strides Arcolab SVAPF 1.4 3,250 10,787 5. North America 4 4 2 NDS PIV 1.3 7,728 10,351 * Fund reported local currency costs translated at 31 December 2009 foreign exchange rates. Marazzi PIV 1.0 41,892 8,032 SEAT Pagine Gialle PEII 0.8 26,327 5,974 Sector analysis PEI: Permira Europe I (1997 vintage) By value Cost* PEII: Permira Europe II (2001 vintage)
7 8 1 8 9 1 PEIII: Permira Europe III (2003 vintage) 6 9 7 PIV: Permira IV (2006 vintage) 5 6 2 2
4 5 4 3 3
31 Dec 31 Dec 2009 2008 % % % Cost* 1. Retail 24 26 21 2. Chemicals 21 21 20 3. Electronics and communications 21 20 16 4. Consumer 15 15 8 5. Leisure 7 5 16 6. Medical/health 5 4 2 7. Financial 4 5 3 8. Media 2 2 11 9. Other services 1 2 3 * Fund reported local currency costs translated at 31 December 2009 foreign exchange rates. SVG Capital at a glance continued 4
Private equity funds of funds portfolio
As at 31 December 2009 2009 2008 Value £85.7m £111.5m Percentage of the investment portfolio 9.6% 15.1% Focus: Investing in six diversified funds of funds, the majority of which are managed or advised by SVG Advisers.
£m 140 111.5 17.5 (1.3) (1.1) (40.9) 85.7
120
100
80
60
40
20
0 Opening valuation Calls paid Distributions received Income receivedReturn Closing portfolio
Key features of the 12 months: 1. Value fell over the year as declines in valuations continued to be amplified by the leverage in the fund structures. 2. The valuations of these holdings are predominantly based on September 2009 underlying fund valuations, adjusted for subsequent cash flows.
Public equity funds portfolio
As at 31 December 2009 2009 2008 Value £39.6m £19.5m Percentage of the investment portfolio 4.4% 2.6% Focus: Investing in five funds managed by SVG Investment Managers which invest in public markets using private equity techniques.
£m 40 19.5 8.2(5.3) (0.2) 17.4 39.6
30
20
10
0 Opening valuation Calls paid Distributions received Income receivedReturn Closing portfolio
Key features of the 12 months: 1. Favourable equity markets had a positive impact on the valuation. The funds have materially outperformed comparable public market indices over the period. 2. These returns were achieved without portfolio level gearing, and were driven by strong operating performance from a number of key portfolio holdings alongside a general recovery in the valuation of quoted companies. 5 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
Warehoused assets
As at 31 December 2009 2009 2008 Value £29.8m £15.0m Percentage of the investment portfolio 3.3% n/a Focus: Holdings in private equity funds that SVG Capital is warehousing on behalf of SVG Advisers.
£m 30 15.0 8.2 (0.7) 7.3 29.8
20
10
0 Opening valuation Calls paid Distributions received Return Closing portfolio
Key features of the 12 months: 1. The warehoused assets are made up of nine private equity funds investing in the US and Europe. 2. Valuations of these funds are predominantly based on September 2009 underlying fund valuations, adjusted for subsequent cash flows.
Other investments
As at 31 December 2009 2009 2008 Value £9.2m £14.3m Percentage of the investment portfolio 1.0% 1.9% Focus: Predominantly holdings in two private equity funds focused on India.
£m 20 14.3 0.3 (5.4) 9.2
15
10
5
0 Opening valuation Calls paid Return Closing portfolio
Key features of the 12 months: 1. Decline in value of 36.5% over the year mainly led by a reduction in earnings of the underlying investments. 2. Since June we have seen a moderate recovery in earnings and multiple expansion. Chairman’s statement 6
2009 was a year of stabilisation and progress While 2009 marked an exceptionally The fundamentals of the private equity asset for SVG Capital. At the beginning of the subdued period in terms of private equity class, which focuses on building, turning year, we completed the strengthening of deal activity, the year has by no means around and creating value within businesses, our balance sheet and our strategic review. been quiet for the sector. Private equity remain strong. A major independent During the year we had a successful professionals reacted rapidly to the research report on private equity sponsored management transition, with Lynn Fordham economic downturn by taking decisive by the World Economic Forum during the becoming CEO of SVG Capital and Tony action to safeguard and stabilise their year, found that both productivity gains and Dalwood CEO of SVG Advisers, our 100% underlying investments. growth were higher in private equity backed owned advisory company. companies. Permira has a long track record General Partners have had to address not of delivering performance improvements At the half year, while uncertainty remained, just the operations but also capital structures in its portfolio companies. Having adjusted I was able to report that Permira was seeing of many of their portfolio companies and operations and capital structures where signs of stabilisation in the performance where possible repurchase debt, reset necessary in 2009, the priority for Permira of the companies in the portfolio. This has covenants, agree extensions or waivers with is to support its portfolio companies to continued with many of the portfolio their portfolio companies’ creditors. While capitalise on the slow economic recovery companies showing a meaningful the debt markets appear to be improving, and resume or accelerate growth plans. improvement year-on-year in cash flow lending remains selective and cautious. generation, in large part through operational measures and cost reductions. This, together During 2009, the European Commission Board with the significant deleveraging across proposed a Directive on Alternative Investment Fund Managers (AIFMs) with In 2009 we saw a number of changes to the portfolio and the positive influence of SVG Capital’s Board composition with Damon public markets, has translated into a 30.4% ‘the objective of creating a comprehensive and effective regulatory and supervisory Buffini, Anthony Habgood and Andrew increase of net assets per share since June Williams stepping down from the Board in and 7.1%1 over the year to 222.9p framework for AIFMs at the European level’. The proposal, which is to be applied to the first half. Since the year-end we have also (£697.6 million)2 with shareholders’ announced that Gary Steinberg has resigned funds increasing to £620.4 million. both hedge funds and private equity, is being scruitinised by many UK public bodies from the Board following his appointment including the Association of Investment to a new role with the International Monetary Companies, the British Venture Capital Fund in Washington D.C.. We would like Association and the Bank of England’s to thank all four Directors for their important Financial Markets Committee. We are contributions to the Board. supporting the campaigns to have the draft amended.
1 For comparative purposes the opening NAV per share of 348.1p has been adjusted on a pro-forma basis to 208.1p to reflect the impact of subsequent Rights Issue and Placing. This is a non-GAAP measure and is described in more detail in the financial review. 2 Including the 31 December 2009 unaudited Directors’ valuation of SVG Advisers of £77.2 million (24.7p per share).
2009 was a year of stabilisation and progress for SVG Capital.
Many of the portfolio companies are showing a meaningful improvement year-on-year in cash flow generation, in large part through operational measures and cost reductions. 7 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
In February 2010, the Company announced One of the effects of the New Articles would the appointment of Andrew Sykes to be to change the borrowing limit set out the Board as an independent non-executive in the Company’s Investment Policy which Director with effect from 8 February 2010 shareholders would therefore be approving and his election will be proposed at the as part of approving the adoption of the forthcoming AGM. Andrew will bring New Articles. The change reflects the way valuable experience to the Board and on the borrowing limit has in practice been behalf of the Directors I welcome him. applied by the Company and, therefore, the Board does not consider this to be Circular to shareholders a material change. We are asking shareholders to approve Explanatory notes on all the business the Company adopting new Articles to be considered at this year’s AGM appear of Association primarily to reflect the on pages 7 to 8 of the Circular. implementation of the Shareholder Rights Directive in the UK in August 2009 and the Annual General Meeting provisions of the Companies Act 2006 and certain amendments to the Uncertificated The Annual General Meeting will be held Securities Regulations 2001 in October 2009. at 11.30am on 21 April 2010 at 61 Aldwych, An explanation of the main changes between London WC2B 4AE. As in previous years it the proposed and the existing Articles will include a presentation on the activities of Association is set out in Part III of the of the Company. Notice of Annual General Meeting Circular We are very grateful to all our employees and (the “Circular”) posted to shareholders. shareholders for your stalwart support during the last year. SVG Capital is now able to look to the future with positive expectations for 2010 and beyond.
Nicholas Ferguson Chairman 4 March 2010 Chief Executive’s statement 8
The overriding priority for 2009 has been Shareholders’ funds (£ million) to maintain and improve the strength Excluding the value of SVG Advisers of SVG Capital’s balance sheet. This was 700 595 (56) 109** 6 (34) 620 to ensure the Company is underpinned by a robust financing structure and business 600 platform from which it can grow. With the £28m net cost of financing 500 £53m increase in investment portfolio restructuring of the balance sheet completed after other activities in the first half of the year, we were able 400 to focus on the renewal of the revolving 300 credit facility, and we have recently agreed terms with our banking syndicate for 200 a two year extension until January 2013 100 and amendment to our facility. 0 Adjusted shareholder Investment losses Investment gains FX gain on Financing costs and Net assets Much of the future value of SVG Capital funds December 2008* FX movement valuation financing and cash other movements December 2009 will be driven by the returns generated by * Adjusted for the effects of the rights issue and placing 3 ** Includes investment income Permira IV (41% of the investment portfolio). SVG Advisers’ valuation excluded from the analysis To this end, we have spent a significant The unaudited Directors’ valuation of SVGA has increased from £56.4 million to £77.2 million amount of time with the team at Permira getting more visibility on their actions to protect and recover value in the latest fund. A clear priority has been the de-risking of This was partially a result of the early response It has been encouraging to see that the quick the capital structures of underlying portfolio to the downturn but also Permira’s ability to and decisive action taken is beginning to bear companies. Action was taken in 2009 to secure the continuing support of the senior fruit and the value of investment portfolio reduce the Permira Funds’ portfolio debt by lenders. We anticipate calls to accelerate has increased by 22.5% since June and 6.1% over €4.5 billion, including €2.5 billion of during the course of 2010 with potential over the year. In constant currencies, these debt from Permira IV portfolio companies. follow-on investments expected in some gains become 18.9% and 13.2% respectively. Taking SVG Capital’s top 20 companies, of the portfolio companies. attributable debt is down by 18%4 over Investment portfolio the year and whilst the gearing risk on the Commitments portfolio has been reduced, further de-risking In line with our stated investment policy of the portfolio remains a key focus. In the strategy update in April, we stated the vast majority of our investment portfolio that in the near to medium-term the Board is made up of funds managed or advised Improving market conditions may also will seek to maximise shareholder value by by Permira. provide opportunities for Permira to realise focusing on maintaining and improving the some of the more mature investments within strength of the balance sheet. Furthermore, Permira reacted early to the downturn the portfolio and we expect distributions to until the Company is in a position to offer by working with the portfolio company slowly pick up over the next 12–24 months. a return of capital to shareholders, no new management teams to implement appropriate In the short to medium-term returns from commitments to third-party managers will be cost structures and promote operational the portfolio will be driven by investments in made. In this period, any new commitments improvements in an effort to mitigate the Permira Europe II and III. However, over the will be minimal and limited to existing funds impact of earnings declines. As our results longer term we believe the re-rating and to protect or enhance shareholder value, and show, the majority of the portfolio is well realisation of SVG Capital’s investments in commitments to new SVG Advisers funds, positioned to capitalise on a recovery. Permira IV will be a key driver. which will be capped at amounts required as Whilst distributions from the portfolio were a General Partner or manager of such funds. limited during the year, the pace of calls was also significantly slower than we originally expected 12 months ago, with a number of follow-on investments not materialising.
3 Direct and indirect holdings. 4 Excluding quoted companies.
Lynn Fordham Chief Executive 4 March 2010 9 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
In line with this strategy, the Company made SVGA is a scalable business with good In the private equity sector confidence a follow-on investment in an existing fund, potential for growth and we will be investing appears to be lifting, although uncertainty P25, a feeder vehicle into Permira Europe III significantly in it during the course of 2010 remains around the sustainability of a full and Permira IV. SVG Capital has a 48% equity and 2011. We do not expect to see the full recovery in the economy. However, a year holding in P25 and made a €40.0 million benefits of this investment until 2012 and on, we certainly feel we are moving into (£35.5 million) investment in the subordinated therefore have been prudent in the unaudited more positive territory; the credit markets loan notes of the fund. These notes are valuation of £77.2 million (24.7p per share) appear to be more receptive to new issues subordinated to the senior borrowings, have for the business at December 2009. and despite the recent postponement of a a priority return of 30% p.a. and a term of number of IPOs, exit windows are opening. 3.5 years with the potential for extension or Investors’ attitude to risk and sentiment early redemption. towards private equity appears to be We believe that private equity will have a key improving. In a recent survey5 conducted role to play in the recovery of the global with over 100 institutional investors, over economy. The turmoil of the last few years Share price performance 90% confirmed that they would be will bring change to the way the industry In the same strategy update we also committing either more or the same amount operates and, like other major asset classes, reiterated our commitment to shareholders of capital to private equity funds in 2010. the private equity model will evolve and to improve the Company’s share price Funds like the ones that SVGA manage play adapt. We believe this evolving environment performance and liquidity. The shares have an important role for smaller to medium will play to the strengths of those managers, appreciated by 43% in 2009 and 5% year to sized institutions in broadening their like Permira, with the ability and experience date in 2010. For much of the Company’s investment options, and we hope to see an to influence the strategy and operating history the share price has traded at a premium uptick in the pace of fundraising generally performance of companies and help them to NAV and one of my priorities as CEO is to over the course of the next 12 months. take advantage of the economic recovery. narrow the discount on the share price. The However, for the time being the fundraising environment remains relatively quiet. The longer term nature of private equity majority of the investment performance that and its corporate governance model provides will help drive a re-rating of the shares will Over the nine years since SVGA was the asset class with a competitive advantage come from the performance of the Permira established, its funds and commitments and puts it in an ideal position to play a Funds. However, we are also investing a under management have grown to significant role in shaping the companies significant amount of time in widening the €4.0 billion, investing in 180 funds managed of the future. shareholder base. In this effort, we have been by 96 private equity fund managers6. working closely with our brokers, JP Morgan This investment platform is a key source The last year has been one of transition for Cazenove and Numis and more recently we of intellectual capital from which the Group the Group and as a Board we have been have appointed Execution Noble as a broker can leverage value for our shareholders. focused on stabilising the business. With to the Company. the balance sheet now in a much stronger position we can concentrate on the Outlook SVG Advisers Company’s longer term investment strategy. Turning to 2010 we are confident that For our fund management and advisory we have taken the appropriate steps business SVG Advisers (SVGA), 2009 was also to strengthen the balance sheet and a year of transition and stabilisation, with the the performance of the majority of our departure of some senior members of the investment portfolio has stabilised and team in the first half and the appointment in many instances is improving. of Tony Dalwood as CEO in May.
5 Preqin Research Report – Private equity Investor Survey – February 2010. 6 At 31 December 2009.
With the balance sheet now in a much stronger position we can concentrate on the Company’s longer term investment strategy.
A clear priority for Permira has been the de-risking of the capital structures of underlying portfolio companies. Action was taken in 2009 to reduce the Permira Funds’ portfolio debt by €4.5 billion. Business review 10
The Business review provides shareholders with an overview of SVG Capital’s: Introduction Investment objective and policy – page 10 Investment portfolio review – page 14 SVG Capital is an international private Key Performance Indicators – page 10 20 Largest underlying companies – page 17 equity investor and fund management Strategy – page 11 SVG Advisers – page 20 business with offices in London, Boston and Singapore. Marketplace – page 12 Contractual arrangements – page 20 Financial review – page 12 Risks and risk management – page 20 The Group invests from its own balance sheet as well as on behalf of third-party investors through funds that it manages and/or advises. Key Performance Indicators At 31 December 2009, total assets and commitments under management were The Group’s Financial Key Performance Indicators are: £4.7 billion, including £3.2 billion7 managed or advised on behalf of third-parties. Shareholder total return* Investment objective 42.7% (2.4)% p.a. The investment objective is to achieve Year to 31 December 2009 Since 1996 capital appreciation by investing principally in private equity funds that are managed or advised by Permira, a leading international Net asset growth private equity specialist. ** ** In addition, the Company invests in private 7.1% 1.1% p.a. equity funds that invest in Japan, North Year to 31 December 2009 Since 1996 America, Asia and the life sciences sectors, * Source Bloomberg and in unquoted and quoted businesses ** Including the 31 December 2009 Directors’ unaudited valuations of SVG Advisers through specialist funds and co-investments alongside these funds. The Company may also invest in other private equity related The Company had previously used a key performance indicator of the long-term assets and alternative asset classes. net IRRs of the former Schroder Ventures and Permira private equity funds (since their inception on 1983). The Board no longer believes that this is an appropriate To complement this investment objective measure of performance as the majority of the funds in the data set no longer and create capital and income for the form a meaningful part of SVG Capital’s portfolio. Company, its fund management business structures, markets, manages and advises More information on non-financial KPIs are contained in the Corporate social products for investment in private equity responsibility report on page 44. related asset classes and in public equity using private equity techniques.
Investment policy The Company invests principally in private equity funds managed or advised by Permira, which provide it with exposure to a portfolio of companies that are diversified by vintage year, size, geography and industry sector. Under current legalisation, the Company operates so as to ensure that, at the point of acquiring or adding to its investment in any company or group, its holding in that company or group does not exceed 15% by value of its overall investments. The Company has a desired average level of gearing of approximately 20% over time and has an absolute maximum limit on borrowings of two times its adjusted capital and reserves, as set out in the Articles of Association of the Company.
7 This figure excludes SVG Capital’s commitments to SVG Advisers’ funds. 11 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
Strategy • In the near to medium term the Board will − The mechanism chosen to return capital seek to maximise shareholder value by to shareholders will be decided nearer the Investing in international private equity focusing on maintaining and improving time of distributions. Currently the board The Company’s core investment focus the strength of the balance sheet; and anticipates using pro-rata tender or other is on international private equity. offering investors a choice between share buy-back mechanisms to provide reinvestment in the private equity asset those shareholders who wish to do so, Diversification class and return of capital, once sufficient with the ability to receive a return of capital distributions are received. in a simple, equitable, transparent and low The majority of the Company’s investments cost way. are focused on one manager, Permira, an • In the absence of a significant international private equity specialist. The improvement in the market environment, • In accordance with existing contractual current relationship with Permira is addressed the Company does not expect to receive agreements, which were approved by through the operating agreement of any major distributions from its investment shareholders in 2005, Permira Funds 21 March 2005 as set out in Contractual portfolio over the next 12 to 24 months. currently represent 76% of the Company’s arrangements on page 20. Information on investment portfolio, and in the short term • The Company will therefore have an it is not expected to change materially. the Company’s investment portfolio, over-riding near-term objective of including the diversification of its underlying The world is going through a period of maintaining and improving the strength major economic change, and much of assets by vintage year, size, geography and of the balance sheet, to ensure that we industry sector is contained in the investment the outcome remains unclear. As it continue to have appropriate funds to becomes clearer, the Board may adjust portfolio review on pages 14 to 16 and on meet all our commitments and outgoings. pages 2 to 5. this investment strategy, in consultation Furthermore, until the Company is in with shareholders. a position to offer a return of capital Building a successful fund to shareholders, no new commitments • SVG Advisers, the 100% owned subsidiary management business to third-party managers will be made. of SVG Capital, is a profitable, stand-alone SVG Capital’s fund management business, In this period, any new commitments will fund management business, which has SVG Advisers, was established in 2001 with be minimal and limited to existing funds grown significantly in recent years. It is an the strategy of providing intelligent solutions to protect or enhance shareholder value, important asset for the Company and its for mid-sized institutions and high-net-worth and commitments to new SVG Advisers shareholders. The immediate priorities for investors for investing in private equity or funds, which will be capped at amounts SVG Advisers are to manage, on behalf public equity using private equity techniques. required as a General Partner or manager of their investors, all existing funds through of such funds. the difficult market conditions; and to At 31 December 2009 funds under further improve the efficiency and management stood at €4.0 billion, investing • The Company expects to continue to scalability of the business. in over 180 funds managed by 96 private invest in the private equity asset class equity fund managers. This investment over the longer term. However, the Board • There is now a separate management platform within the business is a key source recognises SVG Capital’s diverse shareholder structure for each of SVG Capital and of intellectual capital that the Group base, and their requirement for flexibility SVG Advisers. The CEO of SVG Capital will can leverage. given uncertain market conditions. have responsibility for management of Through the review process it became the Company’s balance sheet, investment clear that some shareholders would like strategy and relations with shareholders. Strategic review to see capital flows from distributions The CEO of SVG Advisers will be responsible In April the Company announced a strategic reinvested by the Company; some would for the successful management, development review with the objective of improving share like a return of capital; and some were and growth of SVG Advisers. price performance and liquidity: undecided. Accordingly, once the Company receives sufficient distributions A full description of the Group’s principal • SVG Capital will remain a long-term from the underlying investment portfolio, risks and its risk management process is investor in private equity, which has it will offer each shareholder a choice included on pages 20 to 25 of the Business historically outperformed other asset classes between reinvestment of available capital Review, as well as note 29 of the accounts on over the course of the economic cycle. by the Company in the private equity class, pages 85 to 91. These include risks relating to The Company also concluded it will and a return of capital. New commitments valuation and leverage, funding, borrowing, continue to operate as a listed Investment would then be made by the Company concentration and portfolio company risk. Trust, which provides an attractive way on behalf of reinvesting shareholders. for investors to gain an exposure to the private equity asset class. − The timing, number and size of such offers will be driven by the timing and size of receipt of distributions; by the requirement to comply with the constraints of the Company’s senior borrowings; by relevant taxation legislation; and will be subject to the Company’s overall priority of maintaining a prudent level of debt. A key driver of the pricing of any return of capital will be net asset value. Business review continued 12
Marketplace Financial review Understandably, private equity fundraising While recession took hold in many countries in aggregate was slow in 2009. According The performance for the year ended at the start of 2009 – prolonging an already to research $246 billion was raised worldwide, 31 December 2009 needs to be considered difficult operating environment – market and a decrease of 61% on 2008 and the lowest with respect to the Rights Issue and Placing, economic conditions improved gradually as total for five years8. While some funds did which had a material impact on the net assets the year progressed. In the second half of close in the year and in early 2010, in many per share as the issue price of 100p was at a 2009 global equity markets started to rally cases they have been marketing for longer significant discount to the prevailing net asset and credit markets became more receptive and initial targets have been reduced. value per share. to new issues; by the end of the year several As confidence begins to return, we expect to countries had emerged from recession and see some more GPs returning to the market. The rebased net asset value per share sentiment had begun to lift. therefore increased by 7.1% during the Finally, regulatory discussions are ongoing year from 208.1p to 222.9p. The portfolio Despite uncertainty remaining, deal activity in both Europe and the US. A number of performance is analysed in more depth started to pick up during the fourth quarter, amendments on the European Commission’s in the investment portfolio review. in part driven by an improvement in the proposed Directive on Alternative Investment availability of financing and a stabilisation Fund Managers are being discussed by the Cash balances and uncalled commitments of asset prices. While deal activity for the year European Parliament and we don’t yet know in aggregate remained low – a result of the the outcome of these discussions. In the US, The Group’s cash balances increased from environment in which we were operating – President Obama’s proposed plans to restrict £131 million at the prior year-end to £144 prospects for deals this year look encouraging. deposit-taking banks from owning, operating million at 31 December 2009. The increase or advising private equity or hedge funds was mainly a result of the share issue net With the environment for realisations also as part of a broader regulation to limit risk- proceeds of £161 million and a drawdown improving, General Partners (GPs) are taking by banks, remain under consideration. of €110 million from the Company’s loan working on preparing some of their portfolio We continue to participate in those debates facility. Set against this was a £90 million companies for sale and in some cases actively via our industry association to encourage buy‑back of Senior Notes, net investment seeking exit routes for their investments. any additional regulation to be reasonable cash outflows of £88 million and finance Initial Public Offerings (IPOs) were expected and effective. costs of £41 million. to pick up in 2010 and while recently a number have been postponed due to market The Company made no new primary uncertainty and investor caution, several commitments during the year but it did invest companies are still set for a public market in €40 million of high yielding subordinated listing. However, IPOs constitute only one debt issued by P25. Uncalled commitments divestment route, and in the past six months fell from £493 million to £371 million, partly both trade sales and secondary activity due to the appreciation of sterling. There have started to gather pace, with healthy was a €36 million (1.5%) call from Permira IV, competition emerging for good quality reducing the uncalled commitment to this assets. Corporate transactions also appear fund from €202 million to €166 million, to be increasing as buyers look to acquire falling in sterling terms from £196 million or merge with strategically attractive assets. to £148 million.
8 Preqin press release 07.01.10, data from Preqin’s Research Report, Q4 2009 Fundraising Update. 13 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
Shares in Foreign exchange issue (dilutive Diluted The appreciation of sterling against the £’000 – ‘000s) NAV/share US dollar and euro had a negative impact Shareholders’ funds b/f (dilutive basis) 434,893 141,155 308.1p on portfolio gains, reducing the portfolio Unaudited valuation of SVG Advisers (“SVGA”) 56,400 141,155 40.0p uplift by an estimated £56 million to an overall gain of £53 million11. 491,293 141,155 348.1p Adjustments for lapses and grants of Performance Shares (720) 477 International Private Equity and Rights Issue and Placing (net proceeds) 160,567 171,338 93.7p Venture Capital valuation guidelines Opening balances adjusted for share issue 651,140 312,970 208.1p New valuation guidelines were issued in September 2009. The most notable change Gain attributable to equity shareholders 22,872 312,970 7.3p was the removal of marketability discounts Other reserve movements 2,820 312,970 0.9p on the enterprise value of a company. Instead there is scope to effectively discount, Increase in unaudited valuation of SVGA 20,8009 312,970 6.6p if appropriate, the comparator multiples 31 December 2009 NAV 697,632 312,970 222.9p10 in determining a suitable multiple to produce fair value. We do not consider that the new guidelines have had a material impact on the Borrowings The Company’s revolving credit facility has valuations produced by the funds in which been extended to January 2013. At the same we invest, and particularly the Permira Funds. The leveraged position improved following time the Company has agreed to reduce the Rights Issue and Placing with net the size of the facility from €550 million to Risks borrowings falling over the year by £30 €325 million initially, with further step-downs million from £304 million to £274 million. to €320 million in March 2011, €315 million A full discussion of the Group’s principal risks The Company initially drew down €100 in September 2011 and €250 million in and its risk management process is included million near the beginning of the year March 2012. The facility is subject to certain on pages 20 to 25 of the Business review, from its loan facility, which provided financial covenants, further details of which as well as note 29 to the accounts on pages a partial currency hedge against the are provided in note 20 of the financial 85 to 91. These include risks relating to investment portfolio; we converted the statements. The maximum loan to value valuation, leverage, funding, borrowing, cash into US dollars as an offset against the covenants remain unchanged but the cost concentration and portfolio company risk. US dollar-denominated Senior Note of the facility has increased slightly. liabilities. A further €10 million was drawn In March 2009 the Company purchased in the last quarter to finance investments. £5 million nominal of its convertible bonds At 31 December 2009, the Company’s for cancellation at a significant discount Loan to Value ratio for its bank facility was to par value. This represented 4.2% of the 18% against a maximum covenant of 50% outstanding principal amount of the (including the value of SVG Advisers) and convertible bonds. 20% against a maximum covenant of 55% for the Senior Notes.
9 The unaudited valuation of SVG Advisers is £77.2 million (2008: £56.4 million). 10 Includes unaudited valuation of SVG Advisers of 24.7p per share (2008: 18.0p per share, adjusted for share issue). 11 Including investment income.
Major realisation: Freenet/debitel During the latter half of 2009 and early in 2010, funds debitel was sold to Freenet in July 2008 in return for advised by Permira realised their remaining holding cash proceeds, a vendor loan note and an indirect stake in Freenet AG. in Freenet AG. Funds advised by Permira originally acquired debitel, The final tranches of this realisation were at an uplift a German mobile phone services provider in 2004. Over of £11.3 million to the December 2008 valuation. the course of the next four years the company grew Including all previous proceeds, the investment returned substantially, with a value creation plan based on growth a gross multiple of 3.1x cost in local currency. through acquisition and strategic repositioning which lead to substantial sales and EBITDA improvements. Business review continued 14
Large investments This significant de-leveraging of the portfolio has had a positive influence on valuations at Listed below are the Company’s 10 largest fund investments as at 31 December 2009 the year-end. The most notable example of 2009 this is Hugo Boss and Valentino Fashion Fund Manager/adviser £000’s Group, following the further investment to Permira IV Permira 324,987 buy-back a third of the company’s debt at a Permira Europe III Permira 109,321 significant discount to par. The deleveraging Permira Europe II Permira 80,447 of the company, together with the expansion of multiples has largely offset a weakening of P25 SVG Advisers 71,745 earnings. At December 2009, the company P1234 SVG Advisers 44,450 was valued at £120.8 million which, allowing SVG Diamond SVG Advisers 42,709 for the £43.7 million follow-on investment, P123 SVG Advisers 40,548 is a small discount to the December 2008 valuation and a £25.8 million write-up to SVG Diamond II SVG Advisers 19,154 June 2009. SV Life Sciences Fund IV SV Life Sciences Advisers 18,277 Elsewhere in the portfolio, increases in Strategic Recovery Fund II SVG Investment Managers 15,382 valuations have been driven by positive movements in public markets and the Portfolio review Private equity funds portfolio – performance of the more defensive £731.3 million companies. Significant examples of this The improvement in public markets and include TDC (+£25.8 million – 8.2p per continued stabilisation of performance across Early and decisive action by Permira has share) and Birds Eye iglo (+£18.1 million – the investment portfolio, especially in the resulted in performance across the portfolio 5.8p per share) both of which have seen latter half of the year has resulted in net stabilising and, in many instances, improving. strengthening earnings and deleveraging gains on the investment portfolio of £53.3 Permira and the underlying management over the year, with TDC continuing to use million12, an increase of 6.1% over the year teams have worked together to mitigate the proceeds from the sale of non-core assets and 22.5% over the second half. In constant impact of declines in revenue on earnings, to deleverage; Galaxy Entertainment currencies, these gains become 13.2% and ensuring that appropriate cost structures which has increased significantly in value 18.9% respectively. were adopted quickly and operational (+£25.0 million – 8.0p per share) after a efficiency improved. A clear priority for 201% increase in its share price; and finally The vast majority of the investment portfolio Permira continues to be the de-risking of the is represented by the private equity funds Provimi (+£22.7 million – 7.3p per share), capital structures of the portfolio companies. AA Saga (+£18.2 million – 5.8p per share) portfolio, which accounts for 81.7% of the total, Actions taken in 2009 have removed over with the remainder split between private and New Look (+£14.0 million – 4.5p €4.5 billion of debt from the Permira Funds per share), all of which have been written equity funds of funds, public equity funds, portfolio, including €2.5 billion of debt warehoused assets and other investments. up on the strength of earnings and from Permira IV portfolio companies. multiple expansion. Looking at SVG Capital’s top 20 companies at December 2009, attributable debt decreased by 18%13 over the year.
12 Including investment income. 13 Excluding quoted companies.
Major unrealised portfolio movements
Follow-ons in Change in Drivers of valuation change 31 Dec 2009** 12 months 31 Dec 2008** 12 months* Company Country £’000 £’000 £’000 £’000 Multiple Earnings De-leverage Share price TDC Denmark 91,198 – 65,381 25,817 Galaxy Greater China 39,671 – 14,645 25,025 Provimi The Netherlands 62,031 – 39,333 22,698 AA Saga UK 59,645 – 41,421 18,224 Birds Eye iglo UK 57,062 – 38,925 18,137 New Look UK 25,684 – 11,650 14,034 Marazzi Italy 8,032 – 20,424 (12,392) ✗ DinoSol Supermercados Spain – – 20,427 (20,427) ✗
* Including Permira feeder vehicles ** Gross of any carried interest provision 15 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
In addition to Hugo Boss and Valentino New investments Fashion Group, a number of the more cyclical companies in the portfolio continue Through its holdings in P1234, SVG Sapphire to experience pressure on earnings, in IV, Sapphire IV and SVG Diamond I, II and III, particular DinoSol Supermercados and SVG Capital participated in the acquisitions of Marazzi, both of which have been written NDS (announced in the June 2009 accounts) down despite the significant positive impact and Just Retirement. Just Retirement is a of comparator multiples over the year. specialist life assurance group in England and Wales focusing on the provision of financial Permira continues to closely monitor capital services to those at or in retirement. NDS structures and where necessary is proactively and Just Retirement investments were valued strengthening and restructuring balance at £10.4 million and £4.1 million respectively, sheets. A number of the portfolio companies an uplift of £3.2 million (1.0p per share) are currently valued at nil and of these, to cost. ProsiebenSat Media.1 and BorsodChem are the most significant on a cost basis. Realisations Performance at ProsiebenSat has improved and Permira has written up the valuation The Permira Funds have taken advantage of the company marginally. Permira of improving market conditions to realise continues to monitor the group’s capital two investments, the most material of structure and we have elected to leave which was the sale of the residual holding in the value of our holding at zero for the Freenet in October 2009 and January 2010. time being. In the case of BorsodChem, Permira Funds originally acquired debitel, a consensual restructuring of the capital a German mobile phone services provider structure has been agreed with Wanhua in 2004. Over the course of the next four Industrial Group (Wanhua), a Chinese years the company grew substantially, with a chemical firm and strategic investor. value creation plan based on growth through As a part of the agreement Wanhua will acquisition and strategic repositioning, supply financing to the company and has which led to substantial sales and EBITDA a call option to acquire the Permira Funds’ improvements. debitel was sold to Freenet stake in BorsodChem within the next 24 in July 2008 in return for cash proceeds, a months. For the time being we continue vendor loan note and a stake in Freenet AG. to hold our investment at zero. The final tranches of this realisation were at an uplift of £11.3 million (3.6p per share) to the December 2008. Including all previous proceeds, the investment returned a gross multiple of 3.1x cost in local currency.
Valuation basis The improvement in public markets during the course of 2009 has had a positive influence on the earnings multiples used to value the portfolio companies with the weighted average multiple increasing by 10.9% to 9.114.
14 Due to changes in the IPEV valuation guidelines, valuation multiples include discounts if appropriate.
Portfolio maturity – investments in companies (£ million) – 31 December 2009 2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999 and before 0255075100 125150 175200 225250
Write-downs Cost Quoted Earnings Earnings (below cost) Third-party Year of original investment in underlying companies Business review continued 16
Fund commitments Other assets
Amount Amount called uncalled Uncalled Private equity funds of funds portfolio – (local currency) (local currency) commitment* £85.7million Uncalled commitments millions millions £ millions Permira funds SVG Capital’s investments in private equity Permira Europe III €328.7 €29.8 26.5 funds of funds fell over the year as declines Permira IV €1,278.3 €166.1 147.6 in valuations continued to be amplified P1234 €30.8 €7.7 6.8 by the leverage in the fund structures. P25 €75.4 €6.6 5.9 At 31 December 2009 these funds were valued at £85.7 million15, a £40.9 million SVG Sapphire IV €11.2 €2.8 2.5 (13.1p per share) decline over the year. Sapphire IV €0.8 €0.2 0.2 189.5 Public equity funds portfolio – £39.6 million Other private equity funds Favourable equity markets had a positive The Japan Fund IV ¥4,601.5 ¥1,071.4 7.1 impact on the valuation of SVG Capital’s SV Investments Fund I US$43.7 US$3.7 2.3 holdings in funds managed by its public SV Life Sciences Fund III US$13.3 US$1.7 1.1 equity team, which increased in value by SV Life Sciences Fund IV US$31.2 US$18.8 11.6 62.7% over the 12 months. At 31 December 22.1 2009 these funds were valued at £39.6 15 Private equity fund of funds million , a £17.4 million (5.5p per share) increase over the year. SVG Diamond III €40.6 €24.9 22.1 SVG Asia Fund of Funds US$6.1 US$34.8 21.5 Warehoused assets – £29.8 million Vintage I €11.2 €28.8 25.6 Schroder Private Equity Fund of Funds III €0.8 €0.3 0.3 The value of SVG Capital’s holdings in the private equity funds that it is warehousing 69.5 on behalf of SVG Advisers increased by Public equity funds £7.3 million (2.3p per share) to £29.8 Strategic Recovery Fund II £19.9 £8.4 8.4 million1. The warehoused assets are made Other investments up of nine private equity funds investing SVG India US$31.5 US$0.5 0.3 in the US and Europe. Gaja Fund US$1.0 US$4.0 2.5 2.8 Other investments – £9.2 million Warehoused private equity fund investments Over the 12 months the value of SVG – €-denominated €33.3 €76.7 68.2 Capital’s holdings in India declined by 36.5%. – $-denominated US$12.9 US$17.1 10.6 At 31 December 2009, the value of these holdings was £9.2 million15. 78.8 Total 371.1
* Based on exchange rates at 31 December 2009
15 Allowing for calls and distributions.
Provimi Provimi is a world leader in the growing market of animal The value creation plan has focused the company nutrition, focusing on the high value-added segments on higher value-added segments of the market while of the market. The Group is the largest pure player in the divesting non-core assets. At 31 December 2009, field of animal nutrition in the world. The Group is a world SVG Capital’s holding in Provimi was valued leader in animal nutrition and a market leader in Eastern at £62.0 million, a £22.7 million write up to the European private label pet food. December 2008 valuation. 17 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
20 largest underlying companies 1 Hugo Boss and 4 Provimi In the following pages we show the Valentino Fashion Group The Netherlands 20 largest investments of the private equity Italy £’000 funds’ portfolio, by value, as at 31 December £’000 Cost 52,356 2009. The valuations of these companies Value 62,031 have been presented in accordance with Cost 205,530 Date of acquisition April 2007 IFRS. Following the decision by the Company Value 120,846 % of gross PE portfolio 7.8% to cap its commitment to Permira IV Date of acquisition May 2007 Underlying fund Permira IV in December 2008, the valuations of all % of gross PE portfolio 15.2% of the Permira IV investments made prior Underlying fund Permira IV Provimi is a world leader in the growing to 2009 include a provision against future market of animal nutrition. The company Hugo Boss and Valentino Fashion Group distributions. Value attributable to follow-ons operates 87 plants in 30 countries specialising operate in over 100 countries, with more into Permira IV companies is not subject in innovative products serving the nutritional than 1,600 single-brand boutiques and to this provision. and health needs of many animals. The 430 directly-managed shops. The group’s valuation basis is earnings. activities are broken down into three business units, covering the entire luxury and fashion sector: Hugo Boss, Valentino and licensed 5 AA Saga (Acromas) brands including M Missoni. The valuation UK basis is earnings. £’000 Cost 41,756 2 Arysta LifeScience Value 59,645 Date of acquisition September 2004 Japan % of gross PE portfolio 7.5% £’000 Underlying fund Permira Europe III Cost 151,544 Value 92,763 Acromas was formed in September 2007 Date of acquisition February 2008 by the merger financing of the AA and Saga, % of gross PE portfolio 11.6% bringing together the two brand names to Underlying fund Permira IV create the UK’s leading affinity organisation, providing motoring, travel, media and Arysta LifeScience is the world’s largest financial services to the UK motorist and privately-held agrochemical company. people aged over 50. The initial investment The company markets a portfolio of over in the AA was made in September 2004. 150 products in more than 125 countries The valuation basis is earnings. worldwide and focuses on two main business lines: conventional crop protection 6 Birds Eye iglo (agriscience) and animal care products (life science). The valuation basis is earnings. UK £’000 Cost 32,487 3 TDC Value 57,062 Denmark Date of acquisition November 2006 £’000 % of gross PE portfolio 7.2% Underlying fund Permira Europe III Cost 40,798 Value 91,198 Birds Eye iglo is a leader in the European Date of acquisition December 2005 frozen food market, operating mainly in the % of gross PE portfolio 11.5% UK and Ireland under the ‘Birds Eye’ brand and in Continental Europe under the ‘iglo’ Underlying funds Permira Europe II & III brand. The company’s main products include TDC is a leading Danish-based provider fish, vegetable, poultry and ready meals, of communications solutions. It also has in addition to iconic products such as fish significant presence in markets in the other fingers and Schlemmer Filets. The valuation Nordic countries. The valuation basis basis is earnings. is earnings. Business review continued 18
7 Galaxy 10 New Look 13 Cognis Group Greater China UK Germany £’000 £’000 £’000 Cost 109,268 Cost 480 Cost 1,860 Value 39,671 Value 25,684 Value 15,895 Date of acquisition November 2007 Date of acquisition April 2004 Date of acquisition November 2001 % of gross PE portfolio 5.0% % of gross PE portfolio 3.2% % of gross PE portfolio 2.0% Underlying fund Permira IV Underlying fund Permira Europe II Underlying fund Permira Europe II Galaxy Entertainment Group is a casino and New Look is a leading European fast fashion Cognis is a global supplier of innovative hotel operator in Macau SAR, China. It is one retailer with a value proposition aimed at speciality chemicals and nutritional ingredients, of only six gaming concessionaires licensed targeting the young female market. Although with a particular focus on the areas of to operate casinos in Macau SAR, the only the company’s broad product offering wellness and sustainability. It produces a legal gaming location in China and the focuses on womenswear, it also includes range of consumer-orientated and industrial world’s largest gaming market by revenue. footwear, accessories and is expanding into products that combine top performance Galaxy operates the flagship hotel casino, menswear. New Look’s broad network is with the requirements for environmental StarWorld, four ‘City Club’ casinos and comprised of 592 stores in the UK and 55 compatibility. With production sites and owns a construction materials business. stores in Europe and 35 franchise stores with service centres in around 30 countries, The valuation basis is quoted. 27 in the Middle East. In addition, in France Cognis has three strategic business units; and Belgium, the company also operates Care Chemicals, Nutrition & Health and 8 Freescale 304 stores which trade under the MIM fascia. Functional Chemicals. The valuation basis The valuation basis is earnings. is earnings. USA £’000 11 Freenet/debitel 14 All3Media Cost 145,058 Value 33,526 Germany UK Date of acquisition November 2006 £’000 £’000 % of gross PE portfolio 4.2% Cost 138 Cost 12,074 Underlying fund Permira IV Value 21,677 Value 12,911 Date of acquisition June 2004 Date of acquisition September 2006 Freescale is a global leader in the design and % of gross PE portfolio 2.7% % of gross PE portfolio 1.6% manufacture of embedded semiconductors Underlying fund Permira Europe III Underlying fund Permira Europe III for wireless, networking, automotive, consumer and industrial markets. Based Funds advised by Permira sold their holding All3Media is one of the largest UK in Texas, Freescale has a broad portfolio in debitel to Freenet AG in July 2008. Freenet independent TV production business, of more than 14,000 products serving is the third largest mobile phone provider in comprising a group of production companies over 10,000 customers. The company has Germany and the acquisition of the debitel in the UK, Germany, The Netherlands, over 50 sales offices located in 25 countries. Group by Freenet has resulted in the leading New Zealand, the USA and Australia. The The valuation basis is earnings. distribution platform in the German mobile group also includes a digital media producer, telephony market. The valuation basis is a next generation advertising agency, 9 Legico third-party and quoted. Since the year-end an international distribution company the Permira Funds have sold their remaining and a talent management business. Key Luxembourg holding in Freenet. programmes include Hollyoaks, Midsomer £’000 Murders and Shameless. The valuation Cost 50,436 12 Telepizza basis is earnings. Value 30,670 Date of acquisition January 2008 Spain % of gross PE portfolio 3.9% £’000 Underlying fund Permira IV Cost 12,251 Value 17,724 Legico seeks to invest in credit market Date of acquisition September 2006 opportunities by investing in senior, mezzanine % of gross PE portfolio 2.2% and PIK opportunities in both the primary Underlying fund Permira Europe III and secondary markets. The company’s main geographical focus is the UK and Europe, Telepizza is currently the leading player in although it does have the flexibility to invest the Spanish home delivery and take-away worldwide. The valuation basis is mark- pizza business operating about 650 owned to-market. and franchised outlets. The company has an international presence in Portugal, Chile, Central America and Poland where it has over 400 outlets. The valuation basis is earnings. 19 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
15 Sisal 18 NDS Italy UK £’000 £’000 Cost 16,916 Cost 7,728 Value 12,635 Value 10,351 Date of acquisition October 2006 Date of acquisition January 2009 % of gross PE portfolio 1.6% % of gross PE portfolio 1.3% Underlying fund Permira Europe III Underlying fund Permira IV Sisal is Italy’s second largest player in the NDS is a world leading provider of media gaming sector. The group has four main content security and enabling technologies activities: traditional games (lotteries), sports for pay-TV. It has a longstanding relationship and horse racing betting, slot machines with leading pay-TV operators and offers and payment services, mobile phones and solutions for the satellite, cable, IPTV and mobile satellite pay-TV prepaid card top ups. The TV markets. The valuation basis is earnings. group is headquartered in Milan, operates about 33,000 points of sales and employs 19 Marazzi around 1,000 people. The valuation basis is earnings. Italy £’000 16 Maxeda Cost 41,892 Value 8,032 The Netherlands Date of acquisition July 2008 £’000 % of gross PE portfolio 1.0% Cost 529 Underlying fund Permira IV Value 11,168 Date of acquisition September 2004 Marazzi Group is the world leader in the % of gross PE portfolio 1.4% design, manufacturing and distribution of ceramic tiles with a growing presence in Underlying fund Permira Europe III sanitary fixtures. It has a strong track record Maxeda is the largest non-food retailer in in design and innovation with production The Netherlands. It has strong positions in facilities in Europe, the USA and Russia both the DIY and fashion markets. In total, and sells in over 130 countries with direct the group trades eight different brand formats distribution in the USA and Russia. and operates around 1,400 stores in seven The valuation basis is earnings. European countries. The valuation basis is earnings. 20 SEAT Pagine Gialle Italy 17 Strides Arcolab £’000 India Cost 26,327 £’000 Value 5,974 Cost 3,250 Date of acquisition July 2003 Value 10,787 % of gross PE portfolio 0.8% Date of acquisition January 2002 Underlying fund Permira Europe II % of gross PE portfolio 1.4% SEAT Pagine Gialle, is a multimedia provider Underlying fund SV Asia Pacific Fund of directory information services through the Strides Arcolab manufactures a range print, online and voice channels. It publishes of generic drugs and tablets for supply printed and online yellow and white pages to Western and developing markets. directories in Italy, where it has a 95% The valuation basis is quoted. market share. It also provides voice directory assistance services in Italy, Germany, France and Spain. The company also owns the ‘Thomson Local’ directories in the UK. The valuation basis is quoted. Business review continued 20
SVG Advisers The effect of the operating agreement In addition to any Group borrowings the therefore is to increase the Group’s reliance Company also holds interests in funds which The investment management and advisory on Permira and increase its concentration are leveraged themselves such as SVG business, SVG Advisers, was established risk. Subject to earlier termination, the Diamond I, II, III and Vintage I. The additional in 2001 with the key objective of providing operating agreement will terminate on the leverage in these funds may create additional intelligent solutions and innovative structures date on which the first closing of Permira V volatility to valuations. All underlying for investing in private equity or public occurs if none of SVG Capital, any other investments are valued at fair value by the equity using private equity techniques. member of the Group or any SVG product Directors in accordance with the current 2009 was also a year of transition and makes any commitment to Permira V or, International Private Equity and Venture stabilisation for SVG Advisers, with the if SVG Capital, any other member of the Capital (“IPEV“) Guidelines. The IPEV departure of some senior members of Group or any SVG product does so, the Guidelines contain detailed methodology the team and the appointment of Tony date of final closing of that fund. There can setting out best practice with respect to Dalwood as CEO in May. In addition, be no assurance as to when Permira V will valuing unquoted investments. In valuing changes were made to the Board of SVGA, be raised. If the first closing of Permira V its portfolio, SVG Capital is dependent on including the appointment of Andrew Sykes has not occurred by 30 June 2012, the such information as Permira and other fund as non-executive chairman. SVG Advisers is Company and Permira Holdings are each managers may provide to it as a limited a scalable business and in order to ensure able to terminate the operating agreement partner in the relevant fund. Permira and SVG Advisers has a robust platform for by giving written notice. A copy of the other fund managers are themselves growth we will be investing significantly in Circular to shareholders is available on the dependent on information made available by the business during the course of 2010 and Company’s website: www.svgcapital.com. the management of the portfolio companies. 2011. Over the nine years since the business This information from Permira, other fund was established, external funds under Risks and risk management managers and portfolio companies is management have grown to €4.0 billion, necessarily limited, subjective and depends investing in over 180 funds managed by The Board has adopted a matrix of key on the accuracy of judgments by the 96 private equity fund managers. risks which affect its business and a robust underlying portfolio companies, many of framework of internal control which is which are unquoted and not publicly traded Total external fee income all of which is designed to monitor those risks and to provide and by the general partners and other recurring, stood at £28.8 million, which a monitoring system to enable the Directors managers of the funds. There can be no compares to £28.4 million for 2008. to mitigate these risks as far as possible. assurance that such information or judgments Including fees paid by SVG Capital to Further details of the Directors’ system of are accurate or complete. It should be noted SVG Advisers, total fees earned by the internal control and its monitoring system, that the Company has no direct access to the operating subsidiaries and other income is set out in the Corporate Governance underlying management accounts of the 16 were £33.8 million, contributing £5.8 million Statement. The principal risks are portfolio companies. Investment in funds to the Group’s 2009 profit before tax. This considered to be as follows: requires a long term commitment with no number includes certain exceptional items. certainty of return. The ability of the funds to General risks associated with investment achieve capital appreciation could be affected Contractual arrangements in private equity by any significant general change in the As was fully reported in a Circular to Investment in private equity involves a high value of the investments held by the funds. shareholders dated 24 March 2005, degree of risk. The Group invests in private There can be negative movements in SVG Capital entered into arrangements with equity through its exposure to buy-out and valuations which can be due to deterioration Permira which allowed SVG Capital full access development capital funds. Such investments in a specific portfolio company’s performance to Permira IV and to its successor, Permira V. are illiquid and might be difficult to realise, and/or changes in market or public company Concurrent with the arrangements, Permira particularly within a short timeframe. comparable earnings multiples. In highly subscribed for shares in the Company. The The Directors seek to maintain a diversified leveraged companies, reductions in earnings arrangements also included an operating portfolio of investments to mitigate these may have a significantly greater impact on agreement which imposes material limits on risks, although the portfolio does remain their valuation. Private equity investments, the extent to which the Group may have concentrated with respect to private equity by their nature, involve uncertainty as to the investments which are not in Permira Funds fund managers as explained on page 23. ultimate value likely to be realised upon or Permira Products. These limits substantially disposal of those investments (if any), particularly because their predominantly prevent the Group from investing in private Valuation and leverage risk equity funds or products managed or advised unquoted nature means that a ready market by general partners or managers other than The Group’s exposure to valuation risk may not exist for them. Portfolio companies Permira during the term of the operating comprises mainly movements in the value may be difficult to value and disposals, if any, agreement. One of the principal undertakings of its underlying investments. A breakdown of such investments may require a lengthy made by SVG Capital is that the Company of the Group’s portfolio of private equity period of time depending on the market will operate with the intention that no more funds is given on pages 26 to 27 and a for such investments at the time. The value than 20% of the gross assets and uncalled detailed analysis of the 20 largest underlying of these investments could decrease and commitments of the Group will be in companies is given on pages 17 to 19. SVG Capital, as an investor in a fund, non-Permira funds or products (subject may not recover the full amount of its to certain limited exceptions) and subject original investment. to a maximum of 25%.
16 Further information on the risks facing the Group are detailed in note 29 on the accounts. The following risks should thererfore be considered in conjunction with the additional disclosures contained in note 29. 21 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
Future commitment/funding risk The Group Revolving Credit Facility and the Notes may mature before the investments At 31 December 2009, the Group had in underlying portfolio companies are uncalled commitments, including warehouse realised. In that case, the Group will be commitments, of £371.1 million (2008: required to seek a refinancing of such £492.9 million), compared to Shareholders’ financing. There can be no assurance that funds of £620.4 million (2008: £434.2 the Group will be able to obtain new finance million), including cash balances of £144.1 on competitive terms or at all and therefore million (2008: £130.6 million). In addition, it may suffer a loss as a result of having the Company has the ability to draw a further to dispose of investments at a price which €215 million from its loan facility. The does not reflect the full value of the asset Company has reached an agreement with which may be achieved upon its maturity. its bankers to extend the form of its revolving A failure to obtain new finance could result credit facility to January 2013, but at the in a member of the Group defaulting on same time reduce the size of the facility from its obligations which could have a material €550 million to €325 million initially, with adverse effect on the Group. The Revolving further step-downs to €320 million in March Credit Facility is currently available until 2011, €315 million in September 2011 and January 2013. The convertible bonds mature €250 million in March 2012. The Company in 2016 and the Notes are due in 2013, has £220.6 million of unsecured Notes in 2014 and 2015. issue, after repurchasing 26.7% of the Notes in January 2009. The Notes are repayable Any reduction in the net asset value between 2013 and 2015. In addition the attributable to shareholders and the share Company has £100.1 million of subordinated price will be amplified by balance sheet convertible bonds in issue, repayable in 2016, gearing. The Directors keep the Group’s after buying back £5.1 million per value of gearing under review and impose restrictions convertibles during the year. In March 2009, on borrowings to mitigate this risk. the Company received gross proceeds of £171.3 million from a Rights Issue and Placing. Default risk The Board considers cash flow forecasts A fund’s documentation generally provides at each Board meeting and expects for certain penalties in the event that to meet a substantial portion of its uncalled an investor in the fund fails to meet a call. commitments, as well as commitments There is typically a grace period during to future funds, from distributions received which interest accrues on the unpaid from its investments and from borrowings amount. If the default continues, the investor available to the Group. may become subject to various sanctions, including termination of the investor’s right Borrowing risk to participate in future investments, loss of its entitlement to distributions or income The Revolving Credit Facility and the but not its liability for losses or expenses, Notes each contain financial covenants. mandatory transfer or sale of its interest, The consequences for the Company continuing liability for the principal and of breaching such covenants would be interest in respect of the defaulted amount serious. The lenders under the Revolving and partial or total forfeiture of the investor’s Credit Facility would no longer be interest. In addition, the general partner or required to advance amounts available manager may have other rights and remedies under the Revolving Credit Facility and (including legal remedies). The investor may amounts outstanding under the Revolving also remain liable for future calls in respect Credit Facility and the Notes may become of the relevant fund as and when they are immediately due and payable by the made. There can be no assurance as to Company. In such circumstances, the the price which may be achieved in any Company may become obliged to sell mandatory transfer or sale following a default its assets on unfavourable terms to repay on a call. Certain funds give the general its debts, thereby reducing the returns partner or manager the right to proceed which shareholders may otherwise have directly to forfeiture proceedings following earned. Any such default may also trigger notice and continuation of default by an a cross-default under other existing investor. In the case of a forfeiture, the share financing arrangements. of the fund held by the defaulting investor would generally be allocated among the general partner or manager and the remaining investors. In addition, the investor may remain liable for the defaulted amount. Business review continued 22
Consequently, any failure by SVG Capital Any further material change in the economic to meet any call may have a material adverse environment, including a continued slow- effect on the value of SVG Capital’s interest down in economic growth and/or changes in in a fund and/or on the net asset value of interest rates or foreign exchange rates, could SVG Capital and/or on SVG Capital’s ability have a negative impact on the performance to generate returns for its Shareholders. and/or valuation of the underlying portfolio In addition, a failure to meet a call may result companies. SVG Capital’s performance may in a cross-default under the Notes and the be affected by prolonged weakness or further Revolving Credit Facility which could result deterioration in public markets and by market in a substantial loss. events, which may impact on not only its quoted portfolio companies but also the public If another investor or limited partner in a fund company comparable earnings multiples in which the Company holds an interest used to value unquoted portfolio companies. were to default on a call, this may result in the other investors (including the Company) A further consequence of the difficulty in in the fund in question becoming subject achieving attractive sale prices for portfolio to individual calls of a larger amount (but companies is that the general partners, subject to each investor’s original capital or other managers, of the private equity commitment) and, in addition, the fund in funds in which the Company holds interests question may make fewer or smaller or more are more likely to delay disposing of portfolio highly leveraged investments. Any such companies until market conditions improve. occurrence may lead to a reduction in the As a result, the Company is likely to receive diversification of the Company’s interests distributions in respect of its investments in underlying portfolio companies, increase at a slower rate than may have otherwise volatility, increase the Company’s financing been the case in a more favourable economic requirements and may have an adverse effect environment. In addition to this, a fund on the Company’s business and prospects. manager’s ability to realise its interest in certain portfolio companies in whole or in Investment holding risk period part may be subject to contractual restrictions such as shareholder lock-up arrangements. Investment in private equity requires a long It may therefore be the case that the term commitment with no certainty of Company decides to pay calls with debt return. Many of the investments made by finance rather than relying upon receiving the Group are illiquid holdings in buy-out distributions from investments which it has and development capital funds and, in some made which may therefore increase the cases, may not be capable of being realised Company’s borrowings and risk and volatility in a timely manner or at all. The timing for Shareholders. There can therefore be no of cash distributions, if any, made by the assurance as to whether, and if so how much, buy-out and development capital funds the value of the Company’s assets will grow. is uncertain and unpredictable. The timing of returns, if any, to SVG Capital Current market conditions have made it is uncertain and unpredictable. more difficult for general partners or other Investments in buy-out and development managers of private equity funds to dispose capital funds may be difficult to value and of investments at attractive prices and dispositions may require a lengthy time otherwise on favourable terms. The Company period since there is only a limited market for considers that it is likely that these difficult secondary sales of private equity investments. circumstances will continue in the short to Further, sales or other transfers of interests medium term and, while they do continue, in buy-out and development capital funds it may be that the returns of the Company sometimes require the written consent of the from its investments will be reduced general partner of the fund, the granting of and/or delayed. which is at its discretion. Accordingly, the Group may not be able to sell its investments in buy-out and development capital funds at their net asset value. The Company’s portfolio is concentrated with respect to private equity fund managers as explained below and this may impact the ability to place a large holding of a single fund on the secondary market at any one time. 23 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
Concentration risk Portfolio company risks The Company’s ability to achieve its Since the Company invests through private investment objective and to generate returns equity funds in portfolio companies, the risks for Shareholders will depend upon the ability experienced by the portfolio companies of the general partners and other managers will closely affect the returns earned by the of the funds in which the Company holds Company and the trading price and value interests (including Permira Funds) to identify, of its Ordinary Shares. The risks which the invest in, support and dispose of portfolio portfolio companies may experience, and companies on attractive terms. The majority the risks posed by an investment in such of the Company’s investments are managed companies, include: or advised by Permira, and the future performance of the Group will therefore be • these companies may be highly leveraged largely dependent on the future performance and subject to significant debt service of the Permira Funds in which it has invested. obligations, stringent operating and The Directors have chosen this strategy on financial covenants and a higher risk of the basis of the very long positive record of default under financing and other Permira and the geographical and industry contractual arrangements, which would diversification which the Permira Funds’ lead to severe adverse consequences for provide. However, the greater concentration the relevant portfolio company and the of the investment portfolio also presents value of the Company’s investment in such a risk. The performance of Permira Funds company if a default were to occur; depends to a significant extent upon the skills • the valuations of highly leveraged and experience of Permira and its personnel. companies are typically more sensitive The continued service of these individuals to changes in value in public company is not guaranteed and there can be no comparable earnings multiples, declines in assurance that key individuals can be revenues, increases in expenses and interest replaced with equally skilled and experienced rates and adverse economic, market and professionals by Permira. Therefore, the industry developments. The risk of loss departure of one or several key investment associated with a highly leveraged professionals or partners at Permira may have company is generally far greater than for an adverse effect on the performance of the companies with comparatively less debt; Company and the value and trading price of the Ordinary Shares. Each fund investment • they may have limited financial resources proposition is considered by the Board in and may be unable to meet their accordance with a structured investment obligations under their debt facilities, process. This includes presentations from the or to refinance debt facilities when they manager of the proposed fund, extensive fall due, which may be accompanied due diligence, consideration of the terms by a deterioration in the value of their and conditions for investment in the fund, equity securities in which the Company consideration of the Group’s own cash flows is ultimately invested; and future commitments and a review • they may require significant additional of the effect of any such investment on capital investment or operational portfolio concentration. or management support to improve their operations, finance expansions or maintain their competitive positions. Such investment and support may not be forthcoming; • generally, little public information exists about these companies and investors in these companies generally must rely on information obtained by the general partner, or other manager, of the relevant fund which holds the portfolio company; Business review continued 24
• reliance is placed on the general partner as Passive investor with limited recourse to the adequacy or accuracy of information provided during any due diligence exercise The Company is generally a passive investor conducted prior to an investment being and has limited powers under the governing made. The general partner, or relevant documents of the funds in which it holds manager, of the fund in question may interests. The funds concerned are, within have made judgments concerning the certain broad parameters, generally materiality of contingent or actual risks authorised to follow broad investment or liabilities identified during due diligence guidelines and, subject thereto, are able that may not in practice turn out to have to invest in geographies, industries and been accurate; investment opportunities at their discretion. The Company does not review each • the purchase agreements relating to the proposed investment and is, subject investment in question may contain only to certain limited exceptions, unable limited representations and warranties from to refuse to meet a Call without suffering the relevant vendors and these may be the consequences of a default. There can limited in, for example, time and amount. be no assurance that the strategies adopted Such contractual protection would typically by Permira or other general partners not be addressed to the Company directly or managers of the funds in which the and, in any case, there can be no assurance Company holds interests will be successful as to the ability of the relevant vendor or that the portfolio companies of such to satisfy any claims which may be made funds, or the Company’s investments under any such agreement; generally, will appreciate in value. • general operating risks arising from or The Company also holds some investments being, amongst other matters, the cost of in funds in respect of which other members goods and services, difficulty in obtaining of the Group are the general partner, customers, losses arising from customer manager and/or adviser. In these instances, failure, market developments, competition fiduciary duties are owed by the relevant risk, key man risk, foreign exchange risk, members of the Group to other investors financing risks, an increase in costs and the which, together with the terms of the legal and regulatory framework within relevant fund management or advisory which the portfolio company operates; agreement, mean that the relevant members of the Group are unable to submit each • there are likely to be prior claims on the proposed investment for review by the assets of portfolio companies from debt Company which will, therefore, remain providers which would reduce the amounts a passive investor in respect of the earned by the equity holders including, relevant fund. indirectly, the Company; and The Company cannot make claims against • lenders to portfolio companies may take general partners or managers of the funds actions which are adverse to the interests in which the Company invests even in cases of the holders of equity interests in the of poor performance except in very limited portfolio company including, indirectly, circumstances typically involving severe the Company. culpability on the part of the general partner The value of the portfolio companies held or manager. The Company’s recourse in the by the funds in which the Company holds event of poor performance of the funds interests may be affected by uncertainties, concerned is highly restricted. Removal such as political developments, changes of the general partner or manager of a fund in government policies, regulations, laws, generally requires a high level of investor taxation, currency fluctuations, currency participation and consent with the relevant repatriation and other restrictions, in some threshold often being set so as to require of the countries in which the funds may invest. the consent of holders of 75% of the capital The Company, directly or indirectly through committed to the fund in question. The the funds in which the Company holds Company is unlikely to be able to procure interests, may also be exposed to these risks. such participation and consent on its own and it may therefore be very difficult to remove a general partner or manager of a fund in which the Company invests such that the Company may potentially find itself locked into an under-performing fund. 25 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
The fund documentation relating to Permira Risk of warehousing assets IV contains no provision for the removal of the general partner or manager by vote The Company has, in the past, occasionally of the limited partners save in circumstances made commitments to fund investments involving severe culpability. Even if those in order to seed a prospective SVG Advisers circumstances were to arise, which the product and then warehoused the investments Company considers to be unlikely, the consent on the balance sheet until the product was of a special majority of limited partners would launched. In the current difficult fund raising be required which the Company is unlikely environment, there is a risk that no new to be able to procure on its own. Once the funds will be raised in the near future into Company has made a capital commitment which these commitments can be transferred. to a fund, it may be difficult to terminate its The Company will therefore either have participation or reduce its capital commitment to sell these investments or hold them on its even if the investment returns arising from balance sheet. that fund are poor or not competitive. Taxation risk Currency and interest rate risk Any change in the taxation legislation or The Group is exposed to currency risk directly practice could affect the value of the Group’s since the majority of its assets and liabilities investments and as a result, its performance. are denominated in foreign currency and A breach of Section 842 of the Income and their sterling value can be significantly Corporation Taxes Act 1988 could result affected by movements in foreign exchange in the Group being subject to corporation rates. Currency risk is monitored on a regular tax on realised gains on the sale of portfolio basis by the Board. The Group may from investments which would have a material time to time hedge against foreign currency adverse effect on the net returns earned by movements affecting the value of its SVG Capital. However, the Group has strict balance sheet. controls in place to ensure that it complies with the requirements of Section 842 and contracts with specialist tax advisers Regulatory risks to provide advice on changes to tax The regulatory environment in which the regulation and practice. However, there Group operates is increasingly complex and can be no guarantee in advance that the the Group faces a number of regulatory risks. Company will satisfy the conditions for Breaches of regulations such as the UK Listing approval by HMRC as an investment trust Authority’s Listing Rules could lead to a under Section 842 or that the Company number of detrimental outcomes and damage will not become a close company, which the Group’s reputation. Breaches of controls would result in its being unable to qualify by service providers could also lead to as an investment trust for tax purposes. reputational damage or loss. Key regulatory The Company has agreed allocation risks have been identified and appropriate arrangements within the documentation monitoring of such risks is undertaken of Permira Funds in order to assist in regularly on behalf of the Board. compliance with the conditions for approval by HMRC as an investment trust under Three of the Company’s subsidiaries: Section 842. There can be no guarantee or SVG Advisers Limited, SVG Investment assurance however that such arrangements Managers Limited and SVG Managers will be secured for future investments. Limited are authorised and regulated Any failure to do so will increase the risk by the Financial Services Authority. of a breach of Section 842. Certain other subsidiaries are regulated by foreign regulators. There are a number of legislative initiatives to increase regulation of the alternative investments sector including private equity. Such legislation has not been finalised, however there is a risk that such legislation, when enacted, could materially affect the business of the Company or its subsidiaries. List of investments (Group) at 31 December 2009 26
SVG Capital’s Value of holding in SVG Capital’s Year Original life the fund holding % of total formed (years) % £’000 investments Europe Permira Europe I The first US$1 billion fund raised for private equity investment in Europe focusing on large and medium-sized leveraged buy-out opportunities. 1997 10* 13.5 1,554 0.2 Permira Europe II Focused on European buy-outs and buy-ins, in addition to growth capital investments. 2000 10 15.2 80,447 9.0 Permira Europe III Focused on buy-outs/ins and growth capital investments in European businesses or of global businesses with a strong European presence. 2003 10 7. 2 109,321 12.2 Permira IV Focused on buy-outs/ins and growth capital investments in businesses which have or intend to have significant activities in Europe. The fund may invest up to 30% of its committed capital in businesses which do not have or intend to have significant activities in Europe. 2006 10 22.2** 324,987 36.3 P123 A fund of Permira buy-out funds, with interests in Permira Europe I, II and III. 2003 15 24.8 40,548 4.5 P1234 A fund of Permira buy-out funds, with interests in P123 and Permira IV. 2006 15 42.8 44,450 5.0 P25 A fund of Permira buy-out funds, with interests in Permira Europe III and Permira IV. – limited partnership interest 2006 15 47.7 34,183 3.8 – interest in subordinated debt 80.0 37, 562 4.2 Sapphire IV A feeder fund that invests solely in Permira IV. 2006 15 0.3 209 – SVG Sapphire IV A feeder fund that invests solely in Permira IV. 2006 15 34.2 2,751 0.3 Permira Italy II 1993 10* 21.0 831 0.1 Permira UK III 1993 10* 0.3 65 – Permira UK Venture III 1990 10* 8.7 124 – Permira UK Venture IV 1995 10* 4.2 151 – Total Europe 677,183 75.6
SVG Capital’s Value of holding in SVG Capital’s Year Original life the fund† holding % of total formed (years) % £’000 investments Asia Asia Pacific Trust 1990 8* 6.4 18 – Asia Pacific Fund II 1994 10* 14.0 1,871 0.2 Schroder Ventures Asia Pacific Fund 1999 10 29.9 12,121 1.4 The Japan Fund IV 2004 10 27. 2 4,313 0.5 Total Asia 18,323 2.1
* The lives of these funds have been extended. ** Interest in existing portfolio companies as at the date of the Permira IV reorganisation in 2008. 27 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
SVG Capital’s Value of holding in SVG Capital’s Year Original life the fund† holding % of total formed (years) % £’000 investments North America Schroder Canadian Buy-Out Fund III 2000 10 26.6 387 – Co-investments with Schroder Canadian Buy-Out Funds III and SV Investments Fund I 869 0.1 SV Life Sciences Fund III 2002 10 3.8 5,577 0.6 SV Life Sciences Fund IV 2006 10 9.0 18,277 2.0 SV Investments Fund I 1999 10 19.4 10,660 1.2 Total North America 35,770 4.0 Total private equity fund portfolio 731,276 81.7 Private equity funds warehouse: Actis Emerging Markets III 1,376 0.1 American Capital Equity II 2,398 0.3 AXA IV 3,617 0.4 Barclays Private Equity III 10,171 1.1 Bridgepoint Europe IV 708 0.1 CVC Capital Partners Asia Pacific III 879 0.1 CVC European Equity Partners V 4,421 0.5 Industri Kapital 2007 3,906 0.4 PAI Europe V 2,301 0.3 Total private equity funds warehouse 29,777 3.3 Private equity funds of funds: SVG Diamond I 35,779 4.0 SVG Diamond I (F Notes) 6,930 0.8 SVG Diamond II 16,089 1.8 SVG Diamond II (F Notes) 3,065 0.3 SVG Diamond III 7,346 0.8 Vintage I 14,074 1.6 Schroder Private Equity Fund of Funds III 433 – SVG Asia Fund of Funds 1,974 0.2 Total private equity funds of funds 85,690 9.6 Public equity funds: Strategic Equity Capital 8,120 0.9 Strategic Recovery Fund II – co-investment 15,382 1.7 SVG UK Focus Fund 9,488 1.1 SVG UK Alpha Fund 645 0.1 SVG European Fund 5,954 0.7 Total public equity funds 39,589 4.4 SVG India 8,120 0.9 Gaja Fund 456 0.1 Other 667 0.1 Total other investments 9,243 1.0 Total investment portfolio 895,575 100.0 Other assets less total liabilities (275,016) Total Shareholders’ funds 620,559
† Direct interest in the fund. Comparative values for the 10 largest funds are shown in note 30 of the financial statements. Directors 28
1 Nicholas Ferguson 3 Francis Finlay 4 Edgar Koning Chairman Non-Executive Director Non-Executive Director Aged 61 Aged 67 Aged 57 Chairman of the Nominations Committee Chairman of the Remuneration Committee Member of the Nominations Committee Member of the Nominations Committee Nicholas Ferguson was appointed as a Edgar Koning was appointed as a Director Director on 12 February 1996 and Chairman Francis Finlay was appointed as a Director on 12 February 1996 and is Executive on 25 April 2005. He was formerly Chairman on 1 October 2004. His other non-executive Vice President with AEGON Nederland NV. of Schroder Ventures and instrumental directorships include two London listed He joined the AEGON Group in 1981 in its development since 1984. He is investment trusts, Scottish Investment and has held various senior management a non-executive Director of British Sky Trust plc and Indochina Capital Vietnam positions in the AEGON Group. Broadcasting Group Plc. Holdings Limited. 5 Denis Raeburn 2 Lynn Fordham Non-Executive Director Chief Executive Aged 65 Aged 46 Chairman of the Audit Committee Lynn Fordham was appointed as a Director Member of the Nominations Committee Member of the Remuneration Committee on 1 July 2008. She is the Company’s Chief Executive Officer. She has over 20 years of Denis Raeburn was appointed as a Director financial experience and has worked in a on 25 June 2001 and was Managing Director number of companies including Mobil of the asset management company Global Oil, BAA plc, Boots Group plc and Asset Management (GAM) between 1986 MAN Group plc. and 1999.
1
2 4
3 5 29 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
6 Charles Sinclair Non-Executive Director Aged 61 Senior Independent Director Member of the Audit Committee Member of the Nominations Committee Charles Sinclair was appointed as a Director on 1 January 2005. He is Chairman of Associated British Foods plc. He retired as Chief Executive of Daily Mail and General Trust plc on 30 September 2008, a post he held since 1989.
7 Andrew Sykes Non-Executive Director Aged 52 Member of the Audit Committee Member of the Nominations Committee Andrew Sykes was appointed as a Director on 8 February 2010. He is deputy chairman of Smith & Williamson Holdings Limited, chairman of Invista Foundation Property Trust Limited, Absolute Return Trust Limited and SVG Advisers Limited. He is also a non-executive Director of Record plc, Gulf International Bank (UK) Limited and MBIA UK Insurance Limited and chairs the investment committee of the Schroder Retirement Benefits Scheme.
6
7 Report of the Directors 30 for the year ended 31 December 2009
The Directors submit their report and the audited accounts of the Company for the year ended 31 December 2009.
Company’s business The Company carries on business as an investment trust and is an investment company within the meaning of Section 833 of the Companies Act 2006. In order to obtain exemption from capital gains tax, the Company has conducted itself with a view to being an approved investment trust for the purposes of Section 842 of the United Kingdom Income and Corporation Taxes Act 1988 (as amended). The last accounting period for which the Company has been treated as approved by HM Revenue & Customs as meeting the qualifying criteria for investment trust status is the year ended 31 December 2008 and the Company has subsequently conducted its affairs so as to enable it to continue to qualify for such approval. The Company is not a close company for taxation purposes. A review of the Company’s business and its likely future development is given in the Chairman’s statement on pages 6 and 7, the Chief Executive’s report on pages 8 and 9 and the Business review on pages 10 to 20. The Business review, Corporate Governance review and Corporate Social Responsibility review are to be treated as part of the Report of the Directors.
Revenue and earnings The consolidated revenue loss for the year attributable to equity shareholders was £36,572,000 (2008: loss of £10,404,000). The Company’s revenue loss for the year was £28,025,000 (2008: loss of £8,514,000). The consolidated capital gain for the year attributable to equity shareholders was £59,447,000 (2008: loss of £853,959,000). The Company’s capital gain for the year was £60,597,000 (2008: loss of £853,554,000). Taking capital returns into account, the consolidated profit for the year attributable to equity shareholders was £22,875,000 (2008: loss of £864,363,000). The Company’s profit for the year was £32,572,000 (2008: loss of £862,068,000).
Dividend The Company is prohibited by its Articles of Association from distributing as dividends any capital surpluses that arise from the realisation of investments. Accordingly, any dividends paid by the Company will be funded out of its revenue account. The Company’s investment objective is one of capital growth and it is anticipated that returns for shareholders will derive primarily from capital. No final dividend is recommended for the year ended 31 December 2009 (2008: dividend of 6.5p per share).
Policy for payment of creditors It is the policy of the Company to settle all investment transactions in accordance with the terms and conditions of the relevant markets in which it operates. All other expenses are paid on a timely basis in the ordinary course of business. The Company had no trade creditors at 31 December 2009 (2008: nil).
Purchase of shares for cancellation At the AGM held on 6 May 2009, the Company was authorised to purchase up to 14.99% of share capital in issue on 1 April 2009. The Directors have not used this authority to purchase any of the ordinary shares of the Company and do not intend to excercise the authority prior to its expiry on 21 April 2010.
Annual General Meeting The AGM will be held at 11.30 am on 21 April 2010 at 61 Aldwych, London WC2B 4AE. Details of the resolutions to be proposed at the AGM, together with explanations, appear in the Notice of Meeting Circular which is being sent to Shareholders at the same time as this report. Directors In accordance with the Company’s Articles of Association and the Company’s policy on tenure outlined on page 40, Nicholas Ferguson, Francis Finlay and Edgar Koning will retire at the Annual General Meeting and, being eligible, offer themselves for re-election. Andrew Sykes offers himself for election at the Annual General Meeting following his appointment as non-executive Director with effect from 8 February 2010. Andrew is deputy chairman of Smith & Williamson Holdings Limited, chairman of Invista Foundation Property Trust Limited, Absolute Return Trust Limited and SVG Advisers Limited. He is also a non-executive Director of Record plc, Gulf International Bank (UK) Limited and MBIA UK Insurance Limited and chairs the investment committee of the Schroder Retirement Benefits Scheme. The Board recommends that you support the election of Andrew Sykes and re-elections of Nicholas Ferguson, Francis Finlay and Edgar Koning, who continue to demonstrate commitment to their roles and provide valuable contributions to the deliberations of the Board and its Committees. Edgar Koning has served as a non-executive Director of the Company for more than nine years. He is considered to be independent in both character and judgement. Biographical details of all current Directors may be found on pages 28 and 29. 31 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
The Directors of the Company and their beneficial and family interests in the Company’s share capital during the year to 31 December 2009 are given below: Ordinary shares of £1.00 each At At 31 December 1 January 2009 2009 Beneficial Nicholas Ferguson 879,618 439,809 Francis Finlay 250,000 125,000 Lynn Fordham 40,567 3,248 Edgar Koning 80,000 40,000 Denis Raeburn 328,332 164,166 Charles Sinclair 110,124 55,062 Gary Steinberg (resigned 12 January 2010) 5,000 Nil Non-beneficial Nicholas Ferguson 210,937 210,937 Anthony Habgood (resigned 6 May 2009)** 16,666 8,333
Damon Buffini, Anthony Habgood and Andrew Williams resigned during 2009. They held 12,611,332 shares beneficialy and 42,848 shares non-beneficialy in the Company in aggregate. Nicholas Ferguson has options over ordinary shares, details of which are given on page 38. Anthony Habgood held £200,000 Convertible Bonds due 2016 at the date of his resignation, Denis Raeburn holds £800,000 Convertible Bonds due 2016 and Charles Sinclair holds £100,000 Convertible Bonds due 2016. Damon Buffini had an interest in 12,450,000 SVG Capital shares at the date of his resignation since he has an interest in Permira Holdings Limited, the parent of Permira Capital Limited which owns 12 million SVG Capital shares and because he participated directly in the Placing, applying for 450,000 shares. Further, Permira Holdings Limited is a party to an operating agreement with the Company dated 21 March 2005 (more particularly described in a Circular to shareholders dated 24 March 2005) pursuant to which (a) SVG Capital Group has committed to be the major investor in future funds designed, managed or advised by entities in the Permira Group and during the term of that agreement is entitled to access to such funds; and (b) SVG Capital Group has agreed not to commit to any private equity fund or product for direct investment, other than agreed commitments to other private equity funds and Japan funds, which are not designed, managed or advised by entities in the Permira Group. As a result of Mr Buffini’s interest in the Permira entities described above, Mr Buffini did not participate in any decisions relating to commitments made by SVG Capital Group to any funds or products designed, managed or advised by entities in the Permira Group. Nicholas Ferguson and members of his family have an interest in the carried interest in respect of certain private equity funds. Nicholas Ferguson has foregone a portion of his entitlement to carried interest on existing private equity funds and any entitlement he may have to carried interest on Permira or Schroder Ventures’ funds launched after 2001 in return for share options granted by the Company under the Executive Share Option Plan. Nicholas Ferguson will receive no further options following his retirement as Chief Executive Officer in April 2005. Nicholas Ferguson also participates in the Schroder Ventures Co-Investment Scheme and Schroder Ventures Investments Limited. He has received no new carried interest allocations and made no new commitments since he joined SVG Capital plc in 2001. Andrew Williams resigned as a Director of SVG Capital plc on 8 May 2009. Details of payments made to him on his departure are included in the Remuneration Report on pages 33 to 39. Lynn Fordham has a service contract with SVG Advisers Limited (“SVGA”). Andrew Sykes is non-executive chairman of SVGA. No other Director has any material interest in any other contract that is significant to the Company’s business.
Auditors The Company is required to appoint Auditors for each financial year of the Company, to hold office until the conclusion of the next general meeting at which accounts are presented. Ernst & Young LLP have expressed their willingness to remain in office and resolutions to re-appoint them and to authorise the Directors to determine their remuneration will be proposed at the Annual General Meeting. The Auditor provides non-audit services to the Group, details of which are set out in note 5 on page 63. The Audit Committee has adopted a pre-approval policy on the engagement of the Auditor to supply non-audit services to the Group. It is not considered that the independence of the Auditor has been prejudiced by the provision of non-audit services. Terms of Reference of the Audit Committee may be found on the Company’s website, www.svgcapital.com.
Provision of information to auditors As far as the Directors are aware there is no relevant audit information of which the auditors are unaware and they have taken all steps they should have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information. Report of the Directors continued 32
Statement of Directors’ responsibilities The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable United Kingdom law and those International Financial Reporting Standards (“IFRS”) as adopted by the European Union. The Directors are required to prepare Group financial statements for each financial year which present fairly the financial position of the Group and the financial performance and cash flows of the Group for that period. In preparing those financial statements the directors are required to: • select suitable accounting policies in accordance with IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently; • present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; • provide additional disclosures when compliance with the specific requirement in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group’s financial position and financial performance; and • state that the Group has complied with IFRS, subject to any material departures disclosed and explained in the financial statements The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the Group financial statements comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They are responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Each of the Directors, whose names and functions are set out in this report, confirms that, to the best of their knowledge: • the accounts, which have been prepared in accordance with IFRS, give a true and fair view of the assets, liabilities, financial position and net return of the Company; and • the Report of the Directors includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.
Substantial share interests As at the date of this report, the Company has received notifications in accordance with the FSA’s Disclosure and Transparency Rule 5.1.2 R of the following interests in 3% or more of the voting rights attaching to the Company’s issued share capital. As at 8 March 2010, the Company had 310,407,923 shares of £1 in issue. No shares were held in treasury. The total number of voting rights as at 8 March 2010 is 310,407,923.
Voting rights attached to shares Number of Percentage ordinary of total shares voting rights Coller Investment Management Limited 62,000,000 19.97 AEGON Investment Management BV 59, 507,330 19.17 Aviva plc 53,300,957 17.17 Schroders plc and its subsidiaries: – non-beneficial, managed for clients 21,998,371 7.09 – beneficial 14,226,898 4.58 Permira Capital Limited 12,000,000 3.87 Legal & General Group Plc 10,134,622 3.26
By order of the Board
Stuart Ballard Company Secretary 8 March 2010 Registered Number: 3066856 Registered Office: 61 Aldwych, London WC2B 4AE Remuneration report 33 for the year ended 31 December 2009 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
Introduction This report provides details of the remuneration paid to the Directors for the year ended 31 December 2009 and describes the Remuneration Committee’s policy on the remuneration of the Directors for the coming year. This report has been prepared in accordance with the Companies Act 2006, Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 and the Listing Rules of the Financial Services Authority. The report is divided into two parts. Part A, which is not subject to audit, describes the Remuneration Committee’s policy on the remuneration of Directors for the coming year. Part B, which is audited, contains tables detailing the Directors’ emoluments for the year ended 31 December 2009, their accrued pensions and their interests under the Companies’ long-term incentive arrangements. A resolution to approve this report will be put to shareholders at the Company’s Annual General Meeting in April 2010.
Part A – Unaudited section
The Remuneration Committee (the “Committee”) The Committee’s members during the year were Francis Finlay (Chairman), Anthony Habgood (until 6 May 2009), Denis Raeburn and Gary Steinberg and all were considered by the Board to be independent non-executive Directors. Their biographies are provided on pages 28 and 29. Subsequent to the year-end Gary Steinberg resigned from the Board and the Remuneration Committee. The Chairman and selected executives, including the Chief Executive, and the Committee’s advisers are invited to attend as appropriate. None of the executives invited to attend during the year participated in discussions or decisions regarding their remuneration. The Committee is responsible for determining the remuneration policy throughout the SVG Group (including making a recommendation to the Board on the remuneration of the Chairman) and the operation of the Company’s Executive Share Incentive Plans. Its terms of reference take into account the provisions of the Combined Code on corporate governance. The Committee has appointed Hewitt New Bridge Street and Towers Watson, independent remuneration consultants, to advise it. Hewitt New Bridge Street also provides advice on the operation of the Company’s share schemes and during the year also advised on the design of incentive arrangements for employees below the Board. The Committee meets at least twice a year and during the year under review it met formally twice, in February and March 2009. Both meetings were attended by all four of the Committee’s members. In addition, the subcommittee of the Remuneration Committee, comprising the Chairman of the Committee and the Company Secretary, met in October 2009 to effect a proposal for the granting of awards under the Performance Share Plan (“PSP”). In addition, a number of meetings of the Committee took place by telephone conference call throughout the year. During the year the Committee: • Determined the bonus awards for the year to 31 December 2008. • Approved the increase in Lynn Fordham’s remuneration. • Approved revised performance conditions for the awards made under the Performance Share Plan in October 2009. The revised performance conditions relate to growth in SVG Capital’s Net Asset Value measured over four years and absolute Total Shareholder Return measured over three years with each determining the vesting of 50% of the award. • Approved all remuneration packages for SVG Group executives focused on SVG Capital and any Group executive with a proposed total cash remuneration in excess of £250,000 per annum. • Determined the arrangements in connection with the departure of employees from the Group. Both SVGA and SVGIM have separate Boards with independent directors and the non-executive members of these Boards form the Remuneration Committee for these subsidiaries. The SVG Capital Remuneration Committee sets parameters and principles for the salary increases, discretionary bonuses and long-term incentive plans for these subsidiaries. Accordingly, the subsidiary remuneration committees, operating under specified delegated limits of authority from the main Board, met during the year to determine increases in salary and discretionary bonuses for all executives below main Board level. A summary of these were presented to the SVG Capital Remuneration Committee for its ratification in 2010. A summary of the terms of reference of the Committee are set out on page 42. A copy of the full terms of reference of the Committee is available for inspection at the Company’s registered office during normal business hours.
Policy on the remuneration of executive Directors The Committee’s aim is to ensure that remuneration packages should attract, retain and motivate senior executives (including executive Directors) while avoiding paying more than is necessary for this purpose and not encouraging excessive risk taking. At 31 December 2009 Lynn Fordham was the only executive Director of the Company. The Committee’s policy is that the fixed elements of remuneration should be sufficient to allow the Company to be competitive against other companies with which the Company competes for executive talent. The majority of the remuneration package should be performance-related so that it is linked to the returns created for shareholders and the total cost is sufficiently flexible to reflect changes in business performance. The variable element comprises a balance between short-term and long-term performance through the Company’s annual bonus and the performance share plan. In order to help mitigate risk and ensure that overall rewards are not excessive, incentive levels are capped at a level that encourages out-performance and allows the Company to deliver competitive levels of remuneration without encouraging undue risk taking. Remuneration report continued 34
Basic salary Salaries are reviewed annually with changes becoming effective in April each year. The Committee decides on the increases awarded to the executive Directors and is consulted on increases for all employees of the business. When setting basic salaries the Committee pays due regard to competitive market data provided by Towers Watson on similar positions in other private equity organisations and financial institutions and takes account of individual performance and contribution within the role. The Committee is also sensitive to wider issues including pay and employment conditions in the Group when setting pay levels. The Committee considers Group performance, individual performance and appropriate benchmark data in reaching any decisions. No executive Director of the Company is involved in deciding his or her own remuneration. In view of the economic conditions in late 2008 and early 2009, salaries were not increased for 2009. Lynn Fordham’s salary was increased in May 2009 from £240,000 to £340,000 to take account of her promotion to the position of Chief Executive. With effect from April 2010 Lynn Fordham’s salary will increase to £350,000. This represents an increase of 2.9%, which is in-line with increases awarded to the broader employee population.
Annual bonus Annual bonuses are intended to reward achievement of Group and personal objectives. Bonuses are non-pensionable and discretionary. The Committee sets the performance targets for the annual bonus plan at the beginning of the financial year. The targets are chosen to reflect the successful implementation of the business plan and strategies agreed by the Board. The normal maximum annual bonus for an executive Director has been set at 200% of salary, although, this cap can be exceeded in exceptional circumstances. The Committee believes that capping bonuses at this level enables the Company to provide competitive levels of remuneration while ensuring that executives are not incentivised to take inappropriate risks. The bonus awarded to Lynn Fordham in respect of her performance in the year to December 2009 amounted to £400,000. This included a bonus of £180,000 in respect of the first five months of the financial year to which she was contractually entitled under the terms of her recruitment in 2008. The bonus earned for the remaining seven months whilst she was in the role of Chief Executive was £220,000. This reflects the key performance parameters for Lynn Fordham of restructuring the balance sheet, implementing the short-term financing strategy for the business and building relationships with key shareholders. The overall bonus earned was slightly above the on-target level reflecting the Committee’s assessment that the bonus targets were fully met and that Lynn Fordham had performed well during the year. Lynn Fordham has used part of the 2009 bonus awarded to purchase 34,071 shares in SVG Capital plc.
Long-term incentives Lynn Fordham and selected employees of the SVG Group are eligible to participate in the Performance Share Plan (“PSP”) at the discretion of the Remuneration Committee. The Committee believes that participation in long-term incentives ensures that a significant part of executives’ potential remuneration is tied to the returns received by shareholders over the longer term through the use of performance conditions linked to the Group’s strategy and through exposure to the Group’s share price. This provides alignment between executives and shareholders and, because vesting of awards takes place three or four years after grant, provides an element of lock-in and encourages a focus on performance that is sustainable in the longer term. PSP awards are made annually, as this enables executives to build up a series of overlapping awards, which the Committee believes is more retentive than larger one-off awards. The PSP enables awards of conditional free shares (or nil or nominal cost options) to be made. Award levels are determined by reference to the level of salary and bonus earned in the previous year as this provides a link to individual performance. The maximum that can be awarded in any financial year is 200% of base salary and bonus. For the purposes of calculating these limits the maximum amount of bonus which may be used is capped at 300% of base salary and the value of an award shall be calculated and, if necessary, adjusted to take into account the total exercise cost (if any) payable by an award holder on exercise and any employer’s secondary National Insurance contributions (or overseas equivalent) that may have been transferred to the award holder. In practice, the cap on the amount of bonus that may be included in the calculation of awards is unlikely to be reached as the normal maximum annual bonus of 200% of salary can only be exceeded in exceptional circumstances. In order to ensure that long-term incentives provide alignment with shareholders the Committee sets performance conditions that reward executives for delivering absolute growth in the value of the Group. In previous years, growth in the Company’s NAV has been used as the sole performance condition as this reflects the underlying value of the business. During the year, the Committee conducted a review of the NAV performance condition to determine whether it remained appropriate for future awards under the plan. The review concluded that given that one of the Group’s current objectives is, in the longer term, to offer investors flexibility between reinvestment and return of capital, continuing to use NAV as the sole performance measure could result in a conflict of interest when management come to make decisions on the return of capital. In order to provide an appropriate balance to the NAV condition the Committee determined that part of the 2009 award of long-term incentives should be based on Total Shareholder Return (“TSR”) performance, as TSR will capture capital returned to shareholders. The performance conditions used for the 2009 awards consist of (i) the average growth in the Company’s undiluted Net Asset Value per Share (“NAV”) over a four-year period and (ii) the Company’s average annual compound TSR over a three-year period, with each determining the vesting of 50% of the award. NAV-based awards will normally vest on the fourth anniversary of the award being granted provided that the award holder is a Director or employee within the SVG Group on that date and to the extent that the NAV performance condition has been satisfied. If average annual growth in NAV over the performance period is less than 7% per annum none of this part of the award will vest. If average annual growth in NAV over the performance period is 15% per annum or more all of this part the award will vest. For NAV growth between these two points, between 0% and 100% of this part of the award will vest on a pro-rata basis. TSR based awards will normally vest on the third anniversary of the award being granted provided that the award holder is a Director or employee within the SVG Group on that date and to the extent that the TSR performance condition has been satisfied. If average annual compound TSR over the performance period is less than 10% per annum none of this part of the award will vest. If average annual compound TSR over the performance period is 20% per annum or more all of this part of the award will vest. For TSR performance that is between these two points between 0% and 100% of this part of the award will vest on a pro-rata basis. 35 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
The Remuneration Committee believes that TSR and growth in NAV are appropriate measures of long-term performance for a business focused on delivering superior levels of NAV growth and returns to shareholders. In setting the performance targets for the 2009 awards the Remuneration Committee took account of the current shareholder expectations of future performance for the Company. To balance the fact that the performance targets for the NAV based awards are lower than those that apply to awards made in 2008, the Committee reduced the percentage of an award vesting for threshold performance from 25% of the award to 0%. The Committee is satisfied that these new performance conditions are at least as challenging as those set when the plan was first introduced. The Chairman of the Committee consulted with major shareholders in advance of the first grant under the new performance targets and the major shareholders consulted were in broad agreement with the new performance targets. The PSP replaced the 2001 ESOP following the 2007 AGM. However, whilst the Committee does not intend to make further grants under the ESOP it has been retained for use in exceptional circumstances such as for the recruitment and retention of senior staff or to reward exceptional performance. Any grant of options under the ESOP will count toward the individual limits under the PSP and appropriately demanding performance conditions will be set at the time of grant. The Committee does not intend to adjust awards under the PSP (including the Recruitment Award made to Lynn Fordham) or options under the 2001 ESOP to take account of the recent Rights Issue and Placing. In addition, the Company introduced a SIP at the 2007 AGM. The SIP is a tax approved all-employee share plan with standard features. No awards have been made under the SIP.
Benefits Benefits in kind (which are not pensionable) relate to the provision of health insurance and life assurance cover. Private health insurance is offered to all employees who have the option to cover their partners and dependent children. In addition, all employees are entitled to a contribution to their pension plans.
External appointments The Company permits executive Directors of the Company to accept limited non-executive Directorships and other similar appointments, it being recognised that such appointments increase their commercial knowledge and business experience to the general benefit of the Company. Fees earned from such directorships may be retained by the executive Directors. Lynn Fordham does not currently have any paid external non-executive Directorships. During the year, Andrew Williams was a non-executive Director of CDC Group plc and Macquarie Bank International plc, respectively. Annual Directors’ fees of £75,000 for these appointments were retained by Andrew Williams.
Executive Director service contracts Lynn Fordham’s contract provides for six months’ notice for termination and SVG Advisers Limited may terminate her employment by paying a sum in lieu of notice calculated by reference to her salary and other benefits. In the event of termination of her employment on the giving of notice by SVG Advisers Limited (or constructive dismissal) in contemplation of or following a change of control of SVG Capital on or before 1 July 2010 she will be entitled to receive a liquidated payment of £340,000 (less necessary withholdings) reduced by 1/364 for each day that she has served under any period of notice that she may be under at the time of termination. Such payment will be in addition to her normal salary and benefits in respect of the period preceding termination and will be made in full and final settlement of all and any claims arising from or in connection with her termination.
Date of last Notice period issued contract (months) Lynn Fordham 13 November 2009 6
Andrew Williams, an executive Director during the year ended 31 December 2009, was employed by Schroder Investment Management Limited (“SIM”) and was seconded to the Group. His contract with SIM provided for six months’ notice. Andrew Williams ceased to be a Director of the Company on 8 May 2009 and his contract with SIM terminated on 31 October 2009. The Remuneration Committee decided, in view of the turbulence in the markets and the exceptional circumstances facing the Company that it was in the best interests of the Company that Andrew, given his long involvement with the Company and with its advised funds, be available, after the expiry of his notice period, to ensure a smooth transition in a period of considerable challenge. To that end, he has been retained by SVG Advisers Limited as a consultant for the six month period commencing on 1 November 2009 at a fee of £36,900 per calendar month plus VAT. Andrew also received a bonus of £405,555 for the period to 31 October 2009 to reflect his significant contribution in building the value of SVG Advisers Limited over many years and the important role he played in the restructuring of the Company’s balance sheet in late 2008. In addition, a payment of £76,000 was made to him as compensation and his professional costs of £71,000 were met by the Company. Options held by Andrew over ordinary shares of the Company under the 2001 Executive Share Option Plan and awards held by him over ordinary shares of the Company under the Performance Share Plan have lapsed. Remuneration report continued 36
Policy on the remuneration of non-executive Directors Remuneration paid to non-executive Directors is determined by the Board and reviewed each year. When considering remuneration levels, the Board will consider, amongst other things, industry practice and contribution to various committees and time spent on the business of the Company.
Appointment, re-appointment and re-election of non-executive Directors All Directors are appointed for an initial term of three years subject to election at the first Annual General Meeting following their appointment. Thereafter Directors retire by rotation at least every three years. The Chairman meets with each Director before a Director is proposed for re-election, and, subject to the evaluation of performance carried out each year, the Board agrees whether it is appropriate for that Director to seek an additional term. When recommending whether an individual Director should seek re-election, the Board will take into account the provisions of the Combined Code, including the need to refresh the Board and its committees. Non-executive Directors are appointed under letters of appointment and do not have service contracts. The letters of appointment are available for inspection at the Company’s registered office during normal business hours.
Performance graph The TSR for the five years to 31 December 2009 is shown in the graph below. This graph looks at the value of £100 invested in SVG Capital on 31 December 2004 compared with the value of £100 invested in the FTSE All-Share Total Return Index. The other points plotted are the values at intermediate financial year ends. For this purpose, the Committee has decided that the FTSE All-Share Total Return Index is the most appropriate available index for comparative purposes because it is the principal index in which the Company’s shares are quoted.
This graph looks at the value, by the end of 2009, of £100 invested in SVG Capital on 31 December 2004 compared with the value of £100 invested in the FTSE All-Share Total Return Index. The other points plotted are the values at intermediate financial year ends. 37 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
Part B
Directors’ remuneration The emoluments of the Directors in respect of the year ended 31 December 2009 were as specified below: Total Total emoluments emoluments Year to Year to Salary* Annual Other 31 December 31 December and fees* Benefits** bonus§ compensation 2009 2008 £’000* £’000** £’000 £’000 £’000 £’000 Nicholas Ferguson 233* –** –† – 233 200 Andrew Williams (resigned 8 May 2009) 119* 1** 406† 147 673 338 Lynn Fordham 301* 74** 400† – 775 319 Damon Buffini (resigned 6 May 2009) 12* –** –† – 12 34 Francis Finlay 44* –** –† – 44 44 Anthony Habgood (resigned 6 May 2009) 17* –** –† – 17 44 Edgar Koning 29* –** –† – 29 32 Denis Raeburn 44* –** –† – 44 44 Charles Sinclair 43* –** –† – 43 44 Gary Steinberg 48* –** –† – 48 43 Aggregate emoluments 890* 75** 806† 147 1,918 1,142
* Covers salary payment for the period 1 January 2009 to 8 May 2009 when he resigned. ** The Company attributes an amount equal to 30% of Lynn Fordham’s basic annual salary to her personal pension plan, subject to a notional salary cap equal to £200,000. For the years ended 31 December 2009 and 2008 the Company made a total contribution of £90,000, of which £18,000 had been provided for in the prior year accounts. § Bonuses include provision for amounts accrued but not paid in each year. Annual bonuses are awarded in respect of calendar years. † Part of the bonus awarded to Lynn Fordham represents a contractual amount of £180,000 guaranteed as part of the terms of her employment. Details of the Directors’ interests in shares are shown on page 31. During the year Nicholas Ferguson acted as Executive Chairman for a period of three months until the appointment of Lynn Fordham as Chief Executive. He was awarded an additional payment of £33,000 for acting in this capacity for the period. Andrew Williams resigned from the Board on 8 May 2009 but remained as a secondee to SVG Advisers until 31 October 2009. For the period from 8 May 2009 to 31 October 2009 he received a salary of £164,000. From 1 November 2009, SVG Advisers entered into an agreement with Mr Williams to provide consultancy services for a six-month period for £36,900 per month, Mr Williams received £76,000 as compensation and his professional costs of £71,000 were met by the Company.
Pension arrangements The following figures, prepared in accordance with UK legislation and the Listing Rules of the Financial Services Authority, apply to Andrew Williams (who was a member of Schroder’s Retirement Benefits Scheme) in respect of the period to 8 May 2009.
Executive Directors’ pensions Transfer value at 31 December 2009 in respect Accrued Increase in Decrease Accrued Transfer Increase in Transfer of increase in benefit at accrued in accrued benefit at value at transfer value value at accrued benefit 31 December benefit due benefit due to 31 December 31 December net of Director’s 31 December (excluding 2008 to inflation other factors 2009 2008 contributions 2009 inflation) £’000 £’000 £’000 £’000 £’000 £’000 £000 £000 Andrew Williams 118 – (24) 94 2,259 447 2,706 447
Transfer values are liabilities of the relevant pension fund rather than amounts due to be paid to the executive Directors or liabilities of the Company. Andrew Williams resigned as a Director on 8 May 2009. Remuneration report continued 38
Awards Under the Company’s Executive Share Incentive Plans
Options held by Directors over ordinary shares of the Company under the 2001 ESOP The following Directors have been granted options over ordinary shares under the Executive Share Option Plan. No adjustments are required to the price or number of shares subject to award following the Rights Issue: During the year Exercise dates† At At Exercise 31 December Options Options Options 31 December price 2008 granted exercised lapsed 2009 (pence) Earliest Latest Nicholas Ferguson* 715,446 – – – 715,446 410.00 21 June 2004§ 20 June 2011 357,724 – – – 357,724 410.00 21 June 2005§ 20 June 2011 404,484 – – – 404,484 334.50 5 April 2005§ 4 April 2012 349,840 – – – 349,840 392.75 13 March 2006§ 12 March 2013 363,256 – – – 363,256 479.00 12 March 2007§ 11 March 2014 250,704 – – – 250,704 564.00 23 March 2008§ 22 March 2015 Andrew Williams# 243,983 – – 243,983 – 410.00 Lapsed Lapsed 186,992 – – 186,992 – 410.00 Lapsed Lapsed 272,645 – – 272,645 – 334.50 Lapsed Lapsed 239,847 – – 239,847 – 392.75 Lapsed Lapsed 248,851 – – 248,851 – 479.00 Lapsed Lapsed 242,957 – – 242,957 – 564.00 Lapsed Lapsed Total 3,876,729 – – 1,435,275 2,441,454
* Options granted to Nicholas Ferguson were made at a time prior to his appointment as Chairman. † Options are exercisable subject to the satisfaction of performance conditions (see below). § Performance conditions have been met. # All these awards lapsed when Andrew Williams left the business in October 2009. The performance targets have been met in respect of all the options listed above. All of the above options were granted for nil consideration. All options under the 2001 ESOP were granted at the prevailing market price around the time of grant. 39 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
Awards held by Directors over ordinary shares of the Company*
During the year Vesting dates** At At Exercise price 31 December Awards Awards Awards 31 December per share 2008 granted* vested lapsed 2009 (pence) Earliest Latest A C Williams# 229,848 – – 229,848 – 100.00 Lapsed Lapsed 337,6 42 – – 337,6 42 – 100.00 Lapsed Lapsed L Fordham** 99,999 – – – 99,999 0.00 25 September 2012 25 September 2018 – 412,044*** – – 412,044 0.00 13 October 2012 13 October 2019 – 412,044*** – – 412,044 0.00 13 October 2013 13 October 2019 Total 667,489 824,088 – 567,490 924,087
* Awards made before 2009 will vest and become exercisable subject to the satisfaction of an NAV performance condition requiring the average annual growth in SVG’s NAV over four years to be between 10% per annum (25% of the award vests) and 18% per annum (100% vests). ** Of the 99,999 shares awarded to Lynn Fordham in 2008, awards over 83,478 shares were made under the PSP and the remaining 16,521 shares were awarded under a one-off agreement under Listing Rule 9.4.2R(2). The details of this award were fully disclosed in the 2008 Annual Report and Accounts. The one-off award was granted on substantially the same terms as the 2008 PSP award and is subject to the same NAV growth performance conditions. *** The awards granted in 2009 were split equally between awards based on NAV growth and awards based on TSR (details summarised in the section headed “Long-Term Incentives” above). # All these awards lapsed when Andrew Williams left the business in October 2009. The price of an ordinary share on 25 September 2008, when awards were granted to Lynn Fordham under the PSP and one-off agreement, was 579.0p. The price of an ordinary share on 13 October 2009, when awards were granted to Lynn Fordham under the PSP, was 126.2p. The mid-market price of shares at 31 December 2009 was 127.0p and the range for the year was 73.5p to 142.0p. External advisers will confirm the performance criteria calculations for the Committee, which will be measured on a consistent basis.
Share Plan Dilution Limits It is currently intended that all awards granted under the PSP will be satisfied using new issue shares. All options and awards granted under the 2001 ESOP and PSP to persons seconded to the Group have been structured as nominal cost options and will be satisfied using new issue shares. In any 10 calendar year period the Company may not issue (or grant rights to issue) more than 10% of the issued ordinary share capital of the Company under the PSP, the 2001 ESOP and any other employees’ share scheme adopted by the Company. As at 31 December 2009, the total number of shares issued or issuable under awards and options made under the PSP and the 2001 ESOP was equal to 1.9% of the issued ordinary share capital on that date. The Company has established an employee benefit trust to enable it to subscribe for or purchase shares in the market to satisfy awards and options made to employees under the PSP and the 2001 ESOP. As at 31 December 2009 no shares were held in the trust. The Board will regularly review the benefit of using the trust to make market purchases. On behalf of the Board
Francis Finlay Chairman, Remuneration Committee 8 March 2010 Corporate governance 40
The Board is committed to high standards of corporate governance and has implemented a framework for corporate governance which it considers to be appropriate for an investment trust in order to comply with the principles of the combined code. The Financial Reporting Council published a revised version of the Combined Code in 2008. The disclosures in this statement therefore relate to the requirements of the 2008 Combined Code (the “Code”). The Code is published by the FSA and is available to download from www.fsa.gov.uk.
Compliance Statement The UK Listing Authority requires all listed companies to disclose how they have complied with the provisions of Code. This Corporate governance statement, together with the Statement of Directors’ responsibilities on page 32 and Going concern set out on page 42, indicates how the Company has complied with the principles of good governance of the Code and its requirements on internal control. The Board considers that the Company has, throughout the year under review, complied with the best practice provisions in Section 1 of the Code.
Role of the Chairman The Chairman is responsible for leading the Board, ensuring its effectiveness in all aspects of its role and setting its agenda.
Role of the Board The Board determines and monitors the Company’s investment objectives and policy, decides on individual fund investments and considers the future strategic direction of the Company. The Board is responsible for presenting a balanced and understandable assessment of the Company’s position and, where appropriate, future prospects in annual and half-yearly reports and other forms of public reporting. It monitors and reviews the shareholder base of the Company, marketing and shareholder communication strategies, and evaluates the performance of all service providers, with input from its Committees where appropriate. A procedure for Directors, in the furtherance of their duties, to take independent professional advice at the expense of the Company has been agreed.
Composition and independence At 31 December 2009, there was one executive and six non-executive Directors, including the Chairman. Profiles of each of the Directors, including age and length of service, may be found on pages 28 and 29. The Board considers each of Francis Finlay, Edgar Koning, Denis Raeburn and Charles Sinclair to be independent. Gary Steinberg resigned as a non-executive Director on 12 January 2010. Andrew Sykes was appointed as a non-executive Director on 8 February 2010. The Board considered Gary Steinberg independent and considers Andrew Sykes independent. With respect to Andrew Sykes, the Board considered his former directorship of Schroders plc and is comfortable he is independent given he resigned from Schroders plc in 2004. In addition, the Board considered his role as non-executive chairman of SVGA and is comfortable this role increases the Company’s oversight of its subsidiary and does not affect his independence. The independence of each Director is considered on a continuing basis. A review of Board composition and balance, including succession planning for appointments to the Board, is included as part of the annual performance evaluation of the Board, details of which may be found below. The Board is satisfied that it is of sufficient size, with an appropriate balance of skills and experience, and that no individual or group of individuals is or has been in a position to dominate decision making.
Senior Independent Director Charles Sinclair succeeded Anthony Habgood as Senior Independent Director on 4 March 2009. The Senior Independent Director leads the evaluation of the performance of the Chairman and is available to shareholders if they have concerns that cannot be resolved through discussion with the Chairman. As part of the evaluation process, the non-executive Directors meet without the Chairman being present, and the Senior Independent Director chairs these meetings.
Company Secretary The Directors have access to the advice and services of the Company Secretary, who is responsible to the Board, inter alia, for ensuring that Board procedures are followed and that applicable rules and regulations are complied with.
Tenure The Directors have adopted a policy on tenure that they consider appropriate for the Company as a self-managed investment trust. The Board does not believe that length of service, by itself, impacts on independence. The independence of non-executive Directors will continue to be assessed on a case-by- case basis. In order to allow shareholders the opportunity to endorse this policy, however, any non-executive Director who has served for more than nine years will be subject to annual re-election at the Annual General Meeting. 41 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
Induction and training When a Director is appointed he or she receives a full, formal and tailored induction. Changes affecting Directors’ responsibilities are advised to the Board as they arise. Advisers to the Company also prepare reports for the Board from time to time. In addition, Directors may attend ad hoc seminars covering issues and developments relevant to the Company.
Performance evaluation The Board has adopted a formal and rigorous annual evaluation of its own performance and that of its Committees and individual Directors. The last evaluation was completed in March 2010. The evaluation is in two stages. First, the evaluation of individual Directors is led by the Chairman, and the evaluation of the Chairman’s performance is led by the Senior Independent Director. Evaluation is conducted utilising a questionnaire. Second, the Board evaluates its own performance and that of its Committees. The Board has developed criteria for use at the evaluation, which focuses on the individual contribution to the Board and its Committees made by each Director and the responsibilities, composition and agenda of the Committees and of the Board itself.
Meetings The Board held five scheduled meetings during 2009. Attendance at the Board and Committee meetings was as set out below: Audit Nominations Director Board Committee Remuneration Committee Nicholas Ferguson 5/5 N/A N/A 1/1 Damon Buffini (resigned 6 May 2009) 1/2 N/A N/A 0/1 Francis Finlay 5/5 N/A 2/2 1/1 Lynn Fordham 5/5 N/A N/A N/A Anthony Habgood (resigned 6 May 2009) 2/2 1/1 1/1 0/1 Edgar Koning 3/5 N/A N/A 1/1 Denis Raeburn 5/5 2/2 2/2 1/1 Charles Sinclair 5/5 2/2 N/A N/A Gary Steinberg (resigned 12 January 009) 5/5 2/2 2/2 N/A Andrew Williams (resigned 8 May 2009) 0/2 N/A N/A N/A
The Board is satisfied that each of the Chairman and the other non-executive Directors commit sufficient time to the affairs of the Company to fulfil their duties as Directors.
Information flows Management reports to the Board on at least a quarterly basis and as appropriate on specific matters. The Chairman ensures that Directors are provided, on a regular basis, with key information on the Company’s policies, regulatory requirements and internal controls. The Board receives and considers reports regularly from its advisers and ad hoc reports and information are supplied to the Board as required.
Insurance and Indemnities During the year the Company maintained cover for its Directors and Officers under a directors’ and officers’ liability insurance policy. The Company provides a Deed of Indemnity to each Director to the extent permitted by United Kingdom law whereby the Company is able to indemnify such Director against any liability incurred in proceedings in which the Director is successful, and for costs in defending a claim brought against the Director for breach of duty where the Director acted honestly and reasonably.
Conflicts of interest In the light of changes to the law resulting from the implementation of the Companies Act 2006, the Board has approved a policy on Directors’ conflicts of interest. Under this policy, the Directors are required to disclose all actual and potential conflicts of interest to the Board as they arise for consideration and approval. The Board may impose restrictions or refuse to authorise such conflicts if deemed appropriate. Corporate governance continued 42
Committees The Board has delegated certain responsibilities and functions to Committees. Terms of Reference for each of these Committees are available on the Company’s website at www.svgcapital.com. Details of membership of the Committees at 31 December 2009 may be found below and information regarding attendance at Committee meetings during the year under review may be found above.
Audit Committee The role of the Audit Committee is to ensure that the Company maintains the highest standards of integrity in financial reporting and internal control. The Board considers each member of the Committee to be independent. The Board also considers that members of the Committee have competence in accounting. To discharge its duties, the Committee met on two occasions during the year ended 31 December 2009 and considered the annual financial statements and half-yearly financial statements, the external Auditors’ year end reports and management letters, the effectiveness of the audit process, the independence and objectivity of the external Auditor and the risk profile of the Group. With effect from 4 March 2009, Gary Steinberg succeeded Charles Sinclair as Chairman of the Audit Committee. Following Gary Steinberg’s resignation on 12 January 2010, Dennis Raeburn is Chairman of the Audit Committee.
Remuneration Committee The role of the Committee is to determine remuneration policy throughout the SVG Group and to operate the Company’s Share Awards Schemes. The Board considers each member of the Committee to be independent. To discharge its duties, the Committee met formally on two occasions during the year ended 31 December 2009 and considered the approval of annual bonus proposals and the approval of appropriate targets and long term incentives for the executive Directors and key staff based on performance in respect of the year ended 31 December 2008. In addition, a number of meetings of the Committee took place by conference call during the year. The Committee considered the approval of revised performance conditions for the awards made under the Performance Share Plan in October 2009 and determined the arrangements in connection with the departure of employees from the Group.
Nominations Committee The role of the Committee is to consider and make recommendations to the Board on the Board’s composition and balance of skills and experience, and on individual appointments, to lead the process and make recommendations to the Board. To discharge its duties, the Committee met on one occasion during the year ended 31 December 2009 and considered an evaluation of the balance of skills and expertise of the Board and succession planning.
Relations with shareholders The Board believes that the maintenance of good relations with both institutional and retail shareholders is important for the prospects of the Company. It has, since its launch, sought engagement with investors. The Chairman, the Senior Independent Director and other Directors where appropriate, discuss governance and strategy with major shareholders and the Chairman ensures communication of shareholders’ views to the Board. The Board also receives feedback on the views of shareholders from its corporate broker. The Board believes that the Annual General Meeting provides an appropriate forum for investors to communicate with the Board, and encourages participation. The Annual Report and Accounts is, when possible, sent to shareholders at least 20 business days before the Annual General Meeting, which is normally attended by the full Board of Directors. Proceedings include a presentation on the activities of the Company. There is an opportunity for individual shareholders to question the chairmen of the Board, Audit and Remuneration Committees. Details of proxy votes received in respect of each resolution are made available to shareholders at the meeting. The Board believes that the Company’s policy of reporting to shareholders as soon as possible after the Company’s year end is valuable. The Notice of Meeting Circular sets out the business of the meeting.
Going concern The Group’s activities, together with the factors likely to affect its future development, performance and position are set out in the Chairman’s statement on pages 6 and 7, the Chief Executive’s report on pages 8 and 9 and the Business Review on pages 10 to 25. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Financial Review on pages 12 and 13. In addition note 29 to the financial statements includes details of the Group’s financial instruments and its risk profile. A description of the Group’s risks and risk management are also outlined in the Business Review on pages 20 to 25. In light of the Group’s financial resources, the Directors believe that the Group is positioned to manage its business risks successfully despite the current uncertain economic outlook, and, after making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts. 43 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
Internal control The Code requires the Board to at least annually conduct a review of the adequacy of the Group’s systems of internal control and report to shareholders that it has done so. The Board has undertaken a full review of all the aspects of the Turnbull Guidance for Directors, as revised in October 2005 (the “Turnbull Guidance”) under which the Board is responsible for the Group’s system of internal control and for reviewing its effectiveness. The Board has approved a detailed Risk Map identifying significant strategic, investment-related, operational and service provider-related risks and has adopted an enhanced monitoring system to ensure that risk management and all aspects of internal control are considered on a regular basis. The Board has appointed Deloitte LLP to provide internal audit support. The Board believes that the key risks identified and the implementation of an ongoing system to identify, evaluate and manage these risks are based upon and relevant to the Group’s business as an investment trust. The ongoing risk assessment, which has been in place throughout the financial year and up to the date of this report, includes consideration of the scope and quality of the systems of internal control (including whistleblowing polices where appropriate) adopted by major service providers, and ensures regular communication of the results of monitoring by third parties to the Board, the incidence of significant control failings or weaknesses that have been identified at any time and the extent to which they have resulted in unforeseen outcomes or contingencies that may have a material impact on the Group’s performance or condition. No significant control failings or weaknesses were identified during the course of the year and up to the date of this report from the Board’s continuing risk assessment. The Board considers that adequate controls exist over the financial reporting process. A single team is responsible for preparing and consolidating the financial reporting for each of the Group entities and ensuring that financial information is accurate, complete, reconciled and reviewed by senior members of staff, and that transactions and balances are recognised and measured on a consistent basis and in accordance with accounting policies and financial reporting standards. Although the Board believes that it has a robust framework of internal control in place this can only provide reasonable and not absolute assurance against material financial mis-statement or loss and is designed to manage, not eliminate, risk. Corporate social responsibility 44
Introduction SVG Capital’s long term business success requires effective management of both financial and non-financial performance. Our business relies in particular on strong relationships with our employees, our investors, and the general partners of the funds in which we invest. Although we are a major investor in private equity funds, regulations and commercial realities limit the degree to which we can have an active influence on those funds. We aim to develop open, long term relationships with the general partners with whom we invest. Nonetheless we do engage with general partners to identify where non-financial issues may have an impact on our reputation and on that of our investors. We also engage with relevant industry associations and participate in other initiatives to help raise awareness and understanding of these issues, both within and outside the sector. The Group employs 70 people based in London, Boston and Singapore. As a financial services firm, the environmental and social impact of our activities is low. However, we are looking at ways to reduce this environmental impact, and to support local communities. We recognise the mutual benefits that can arise from doing so in a consistent way. Overall responsibility for the implementation of the Group’s Corporate Social Responsibility (CSR) Policy rests with the Board, working with relevant corporate functions, including a CSR committee chaired by Nicholas Ferguson. The Board’s strategic priorities with respect to the CSR policy are:
Employees Our objective is to recruit, train and retain the highest calibre employees, and to foster a work environment that helps them to fulfil their potential. To do this we aim to: • provide a supportive work environment and corporate culture • provide appropriate training and development • address where possible employees’ interests regarding environmental, social and governance issues
Investors Our objective is to ensure that our operations address investors’ policies relating to environmental, social and governance issues. To do this we aim to: • maintain a high standard of corporate governance • respond to investors’ environmental, social and governance concerns as they relate to our own operations • give full consideration to investors’ concerns as they relate to our investment activities
Funds in which we invest Our objective is to develop strong relationships, balancing the legitimate needs of the general partners of the funds in which we invest with our interests and the expectations of our investors. We aim to do this by: • ensuring the highest levels of integrity in our relationships with general partners • developing strong and open working relationships with general partners, so that we can maintain trust without unnecessary restrictions and unrealistic requests • undertaking early and constructive engagement on environmental, social and governance issues of legitimate concern to our investors. Prior to investment, we evaluate how the general partners assess such issues as part of their due diligence on underlying companies and how they report on such issues.
Making a difference where we can
Communities Our objectives are to support our employees’ volunteering and charitable donations through a matched giving scheme and to support communities by providing charitable donations from the Group of up to £350,000 in aggregate per annum. The CSR committee has responsibility for the implementation of the charitable donations policy which is focused on: • creating opportunity • providing access to education • protecting the environment In 2009, the Group agreed to continue to support the School for Social Entrepreneurs, Breakthrough, Fairbridge and ERM Foundation’s Low Carbon Enterprise Fund. A total of £120,000 was donated in 2009.
Environment Our objective is to reduce the most significant environmental impact of our operations. We aim to do this by: • periodically undertaking a carbon footprint analysis • reducing the impact of our travel and energy use • disposing of office waste and used equipment in a responsible manner
Engagement with the sector Our objective is to engage in debates on the role and impact of private equity. We aim to do this by: • working with relevant sector associations • participation in other relevant initiatives • engaging in discussions with stakeholders Independent auditors’ report 45 to the shareholders of SVG Capital plc SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
We have audited the financial statements of SVG Capital plc for the year ended 31 December 2009 which comprise the Group and parent Company Balance Sheets, the Group and parent Company Income Statements, the Group and parent Company Statements of Comprehensive Income, the Group and parent Company Statements of Changes in Equity, the Group and parent Company Cash Flow Statements and the related notes 1 to 30. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRS) as adopted by the European Union. This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors As explained more fully in the Directors’ Responsibilities Statement set out on page 33, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material mis-statement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s and the parent Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements.
Opinion on financial statements In our opinion: • the financial statements give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at 31 December 2009 and of the Group’s and the parent Company’s profit or loss for the year then ended; • the financial statements have been properly prepared in accordance with IFRS as adopted by the European Union; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.
Opinion on other matters prescribed by the Companies Act 2006 In our opinion: • the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and • the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements.
Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Act 2006 we are required to report to you if, in our opinion: • adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or • certain disclosures of Directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Under the Listing Rules we are required to review: • the Directors’ statement, set out on page 43, in relation to going concern; and • the part of the Corporate Governance Statement relating to the Company’s compliance with the nine provisions of the June 2008 Combined Code specified for our review.
Sarah Williams (Senior statutory auditor) for and on behalf of Ernst & Young LLP, Statutory Auditor London 8 March 2010 Consolidated income statement 46
For the year ended 31 December 2009 For the year ended 31 December 2008 Revenue Capital Revenue Capital return return Total return return Total Notes £’000 £’000 £’000 £’000 £’000 £’000 Gains/(losses) on investments – at fair value through profit and loss 9 – 51,322 51,322 – (814,016) (814,016) Exchange gains/(losses) on other items – 5,514 5,514 403 (39,224) (38,821) – 56,836 56,836 403 (853,240) (852,837) Operating income Investment income 2,971 – 2,971 11,191 – 11,191 Income from investment advisory services 28,830 – 28,830 28,448 – 28,448 Other operating income 113 – 113 1,236 – 1,236 Total operating income 4 31,914 – 31,914 40,875 – 40,875 Operating expenses Administrative expenses 5 (28,565) – (28,565) (17,743) – (17,743) Other operating expenses – 28 28 – (481) (481) Total expenses (28,565) 28 (28,537) (17,743) (481) (18,224) Operating profit/(loss) 3,349 28 3,377 23,132 (481) 22,651 Finance costs 8 (40,904) 1,943 (38,961) (32,277) – (32,277) Profit/(loss) before tax (37,555) 58,807 21,252 (8,742) (853,721) (862,463) Tax 10 980 640 1,620 (1,659) (239) (1,898) Profit/(loss) for the year (36,575) 59,447 22,872 (10,401) (853,960) (864,361) Attributable to: Equity holders of the parent 12 (36,572) 59,447 22,875 (10,404) (853,959) (864,363) Minority interest (3) – (3) 3 (1) 2 Earnings per share From continuing activities Basic 12 8.0p (621.5p) Diluted 12 8.0p (621.5p)
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. The notes on pages 54 to 91 form an integral part of these accounts.
Consolidated statement of comprehensive income
For the For the year ended year ended 31 December 31 December 2009 2008 £’000 £’000 Profit/(loss) for the year 22,872 (864,361) Other comprehensive income: Net gain/(loss) on cash flow hedges 2,762 (4,960) Other comprehensive income/(loss), net of tax 2,762 (4,960) Total comprehensive income/(loss), net of tax 25,634 (869,321) Attributable to: Equity holders of the parent 25,637 (869,323) Minority interests (3) 2 25,634 (869,321) Company income statement 47 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
For the year ended 31 December 2009 For the year ended 31 December 2008 Revenue Capital Revenue Capital return return Total return return Total Notes £’000 £’000 £’000 £’000 £’000 £’000 Gains/(losses) on investments – at fair value through profit and loss 9 – 50,757 50,757 – (813,758) (813,758) Exchange gains/(losses) on other items – 7,868 7,868 – (39,280) (39,280) – 58,625 58,625 – (853,038) (853,038) Operating income Investment income 16,649 – 16,649 25,547 – 25,547 Other operating income 96 – 96 1,092 – 1,092 Total operating income 4 16,745 – 16,745 26,639 – 26,639 Operating expenses Administrative expenses 5 (7,094) – (7,094) (7,444) – (7,444) Other operating expenses – 29 29 – (481) (481) Total expenses (7,094) 29 (7,065) (7,444) (481) (7,925) Operating profit/(loss) 9,651 29 9,680 19,195 (481) 18,714 Finance costs 8 (41,379) 1,943 (39,436) (34,115) – (34,115) Profit/(loss) before tax (31,728) 60,597 28,869 (14,920) (853,519) (868,439) Tax 10 3,703 – 3,703 6,406 (35) 6,371 Profit/(loss) for the year 12 (28,025) 60,597 32,572 (8,514) (853,554) (862,068) Earnings per share From continuing activities Basic 12 11.4p (619.9p) Diluted 12 11.3p (619.9p)
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 Trust Companies. All items in the above statement derive from continuing operations. The notes on pages 54 to 91 form an integral part of these accounts.
Company statement of comprehensive income
For the For the year ended year ended 31 December 31 December 2009 2008 £’000 £’000 Profit/(loss) for the year 32,572 (862,068) Other comprehensive income: Net gain/(loss) on cash flow hedges 71 (879) Other comprehensive income/(loss), net of tax 71 (879) Total comprehensive income/(loss), net of tax 32,643 (862,947) Consolidated statement of changes in equity 48
Share Total Share Share Revenue Capital Hedge option Other equity Minority capital premium reserve reserve reserves reserve reserves holders interest Total £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 For the year ended 31 December 2009 Balance at 31 December 2008 139,070 142,001 10,187 32,410 (4,927) 5,448 109,984 434,173 130 434,303 (Loss)/gain for the year – – (36,575) 59,447 – – – 22,872 (3) 22,869 Recycled through income statement: – currency contracts – – – – 1,807 – – 1,807 – 1,807 – interest rate swaps – – – – 532 – – 532 – 532 Other comprehensive income – – – – 423 – – 423 – 423 139,070 142,001 (26,388) 91,857 (2,165) 5,448 109,984 459,807 127 459,934 Dividends – – (6) – – – – (6) – (6) Issue of performance share awards – – – – – 64 – 64 – 64 Issue of shares 171,338 (10,771) – – – – – 160,567 – 160,567 Buy-back of convertible loan notes – – – 620 – – (620) – – – Balance at 31 December 2009 310,408 131,230 (26,394) 92,477 (2,165) 5,512 109,364 620,432 127 620,559
Share Total Share Share Revenue Capital Hedge option Other equity Minority capital premium reserve reserve reserves reserve reserves holders interest Total £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 For the year ended 31 December 2008 Balance at 31 December 2007 139,064 141,980 29,630 886,369 33 7,267 95,258 1,299,601 104 1,299,705 Loss for the year – – (10,404) (853,959) – – – (864,363) 2 (864,361) Recycled through income statement: – currency contracts – – – – 799 – – 799 – 799 – interest rate swaps – – – – (53) – – (53) – (53) Other comprehensive income – – – – (5,706) – – (5,706) – (5,706) 139,064 141,980 19,226 32,410 (4,927) 7,267 95,258 430,278 106 430,384 Dividends – – (9,039) – – – – (9,039) (1) (9,040) Issue of share options and performance shares – – – – – (1,868) – (1,868) – (1,868) Tax on share options and performance shares – – – – – 49 – 49 – 49 Issue of shares on exercise of share options 6 21 – – – – – 27 – 27 Issue of shares in subsidiary – – – – – – – – 25 25 Issue of convertible loan notes – – – – – – 14,726 14,726 – 14,726 Balance at 31 December 2008 139,070 142,001 10,187 32,410 (4,927) 5,448 109,984 434,173 130 434,303
The notes on pages 54 to 91 form an integral part of these accounts. Company statement of changes in equity 49 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
Share Share Share Revenue Capital Hedge option Other capital premium reserve reserve reserve reserve reserves Total £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 For the year ended 31 December 2009 Balance at 31 December 2008 139,070 142,001 (3,153) 31,919 (846) 5,175 109,984 424,150 (Loss)/gain for the year – – (28,026) 60,597 – – – 32,572 Recycled through income statement – – – – 532 – – 532 Other comprehensive income – – – – (461) – – (461) 139,070 142,001 (31,179) 92,516 (775) 5,175 109,984 456,793 Issue of performance share awards – – – – – 64 – 64 Issue of shares (note 22) 171,338 (10,771) – – – – – 160,567 Redemption of convertible loan notes – – – 620 – – (620) – Balance at 31 December 2009 310,408 131,230 (31,179) 93,136 (775) 5,239 109,364 617,424
Share Share Share Revenue Capital Hedge option Other capital premium reserve reserve reserve reserve reserves Total £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 For the year ended 31 December 2008 Balance at 31 December 2007 139,064 141,980 14,400 885,473 33 7,0 43 95,258 1,283,251 (Loss)/gain for the year – – (8,514) (853,554) – – – (862,068) Recycled through income statement – – – – (53) – – (53) Other comprehensive income – – – – (826) – – (826) 139,064 141,980 5,886 31,919 (846) 7,0 43 95,258 420,304 Dividends – – (9,039) – – – – (9,039) Issue of share options and performance shares – – – – – (1,868) – (1,868) Issue of shares on exercise of options 6 21 – – – – – 27 Issue of convertibles – – – – – – 14,726 14,726 Balance at 31 December 2008 139,070 142,001 (3,153) 31,919 (846) 5,175 109,984 424,150
The notes on pages 54 to 91 form an integral part of these accounts. Consolidated balance sheet 50
As at As at 31 December 31 December 2009 2008 Notes £’000 £’000 Non-current assets Property, plant and equipment 13 2,534 1,139 Investments designated as fair value through profit and loss 14 895,575 741,112 Deferred tax asset 1,080 2,583 899,189 744,834 Current assets Financial assets 18 – 15,039 Other receivables 18 12,815 10,914 Tax recoverable 19 4,205 1,000 Cash and cash equivalents 18 144,067 130,627 161,087 157,580 Total assets 1,060,276 902,414 Current liabilities Other payables 19 (118,825) (32,372) Tax payable 19 (9) – (118,834) (32,372) Total assets less current liabilities 941,442 870,042 Non-current liabilities Senior Notes 20 (220,577) (332,239) Convertible bonds 20 (100,148) (102,595) Deferred staff compensation – (628) Deferred tax liability (158) (277) (320,883) (435,739) Net assets 620,559 434,303 Equity Called up share capital 22 310,408 139,070 Share premium account 23 131,230 142,001 Capital redemption reserve 23 3,204 3,204 Share purchase reserve 23 92,054 92,054 Share option reserve 23 5,512 5,448 Convertible bonds – equity 23 14,106 14,726 Hedge reserves 23 (2,165) (4,927) Capital reserve 23 92,477 32,410 Revenue reserve 23 (26,394) 10,187 Shareholders’ funds 620,432 434,173 Minority interest 127 130 Total equity 620,559 434,303 Net asset value per ordinary share (“Shareholders’ funds”) – undiluted 24 199.9p 312.2p – diluted 24 198.2p 308.1p
The notes on pages 54 to 91 form an integral part of these accounts. The Group’s financial statements were authorised for issue by the Board of Directors on 8 March 2010 and the balance sheets were signed on behalf of the Board by:
Nicholas Ferguson Lynn Fordham Company balance sheet 51 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
As at As at 31 December 31 December 2009 2008 Notes £’000 £’000 Non-current assets Investments designated as fair value through profit and loss 14 887,213 729,269 Investments in subsidiaries 17 19,181 22,983 906,394 752,252 Current assets Financial assets 18 – 15,039 Other receivables 18 8,472 5,862 Cash and cash equivalents 18 131,067 113,576 139,539 134,477 Total assets 1,045,933 886,729 Current liabilities Other payables 19 (107,784) (27,745) (107,784) (27,745) Total assets less current liabilities 938,149 858,984 Non-current liabilities Senior Notes 20 (220,577) (332,239) Convertible loan notes 20 (100,148) (102,595) (320,725) (434,834) Net assets 617,424 424,150 Equity Called up share capital 22 310,408 139,070 Share premium account 23 131,230 142,001 Capital redemption reserve 23 3,204 3,204 Share purchase reserve 23 92,054 92,054 Share option reserve 23 5,239 5,175 Convertible loan notes – equity 23 14,106 14,726 Hedge reserves 23 (775) (846) Capital reserve 23 93,136 31,919 Revenue reserve 23 (31,178) (3,153) Shareholders’ funds 617,424 424,150 Net asset value per ordinary share (“Shareholders’ funds”) – undiluted 24 198.9p 305.0p – diluted 24 197.3p 301.0p
The notes on pages 54 to 91 form an integral part of these accounts. The Company’s financial statements were authorised for issue by the Board of Directors on 8 March 2010 and the balance sheets were signed on behalf of the Board by:
Nicholas Ferguson Lynn Fordham
Company number: 3066856 Consolidated cash flow statement 52
For the For the year ended year ended 31 December 31 December 2009 2008 Notes £’000 £’000 Investment management and advisory fee income 25,413 30,749 Interest income 1,786 13,104 Other income 613 1,684 Expenses of the management and advisory group (19,778) (23,070) Other expenses (6,556) (3,034) Interest paid (40,995) (24,420) Tax paid (1,840) (109) Net cash (used in)/from operating activities 25 (41,357) (5,096) Investing activities Capital distributions from core private equity funds’ portfolio 19,910 319,774 Receipts in respect of other investments 13,487 21,399 Calls paid to core private equity fund portfolio (85,046) (412,927) Payments in respect of other investments (34,022) (161,781) Purchases of property, plant and equipment (2,118) (533) Net cash used in investing activities (87,789) (234,068) Financing Loan facility drawdowns 101,460 – Proceeds from share issues 171,338 52 Share issue costs (10,771) – (Buy-back)/issue of Senior Notes (88,451) 40,000 Cost of buy-back/issue of Senior Notes (1,429) (2,210) (Buy-back)/issue of convertible bonds (2,487) 120,000 Issue costs of convertible bonds – (3,545) Dividends paid (6) (9,041) Net cash from financing activities 169,654 145,256 Net increase/(decrease) in cash and cash equivalents 40,508 (93,908) Cash and cash equivalents at beginning of year 130,627 183,487 Effect of foreign exchange rates on cash and cash equivalents (27,068) 41,048 Cash and cash equivalents at end of year 27 144,067 130,627
The notes on pages 54 to 91 form an integral part of these accounts. Company cash flow statement 53 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
For the For the year ended year ended 31 December 31 December 2009 2008 Notes £’000 £’000 Interest income 2,170 11,275 Dividends from subsidiaries 13,745 15,452 Other income 614 1,684 Expenses (6,513) (10,542) Finance costs (42,029) (25,649) Tax received/(paid) 5,515 3,120 Net cash outflow from operating activities 25 (26,498) (4,660) Investing activities Capital distributions from the private equity funds’ portfolio 19,872 319,126 Receipts in respect of other investments 13,487 20,816 Calls paid to the private equity fund portfolio (85,046) (412,908) Payments in respect of other investments (34,022) (154,036) Loans from subsidiaries (repaid)/drawn (15,000) 16,443 Investment in subsidiaries (146) (8,118) Net cash used in investing activities (100,855) (218,677) Financing Loan facility drawdowns 101,460 – Proceeds on issue of ordinary shares 171,338 27 Share issue costs (10,771) – (Buy-back)/issue of Senior Notes (88,451) 40,000 (Buy-back)/issue costs of Senior Notes (1,429) (2,210) (Buy-back)/issue of convertible bonds (2,487) 120,000 Issue costs of convertible bonds – (3,545) Dividends paid – (9,039) Net cash from financing activities 169,660 145,233 Net increase/(decrease) in cash and cash equivalents 42,307 (78,104) Cash and cash equivalents at beginning of year 113,576 152,416 Effect of foreign exchange rates on cash and cash equivalents (24,816) 39,264 Cash and cash equivalents at end of year 27 131,067 113,576
The notes on pages 54 to 91 form an integral part of these accounts. Notes to the accounts 54
1 Accounting policies
Basis of preparation The financial statements of the Company and the Group have been prepared in accordance with International Financial Reporting Standards (“IFRS”), which comprise standards and interpretations approved by the International Accounting Standards Board (“IASB”), and International Accounting Standards and Standing Interpretations Committee interpretations approved by the International Accounting Standards Committee (“IASC”) that remain in effect, and to the extent that they have been adopted by the EU and as applied in accordance with the provisions of the Companies Act 1985. The principal accounting policies adopted are set out below. Where presentational guidance set out in the Statement of Recommended Practice (“SORP”) for investment trusts issued by the Association of Investment Companies (“AIC”) in January 2005 is consistent with the requirements of International Financial Reporting Standards (“IFRS”), the financial statements have been prepared on a basis compliant with the SORP. The Group and Company financial statements are presented in sterling and all values are rounded to the nearest thousand pounds (£’000) except when otherwise indicated. The accounts have been prepared on a going concern basis as the Directors consider that for the foreseeable future the Group will continue to be able to meet its liabilities as they fall due.
Changes in accounting policy and disclosure The accounting policies adopted are consistent with those of the previous financial year except as follows:
IFRS 2 Share-based Payment (Revised) Amendments to IFRS 2 (i) clarified the definition of vesting conditions and prescribed the treatment for an award that is cancelled and (ii) clarified the scope and accounting for group cash-settled share-based payment transactions. The Group adopted these amendments as of 1 January 2009. It did not have an impact on the financial position or performance of the Group.
IFRS 3 Business Combinations (Revised) and IAS 27 Consolidated and Separate Financial Statements Amendments to IFRS 3 introduced significant changes in the accounting for business combinations. Changes affect the valuation of non-controlling interests, accounting for transaction costs, initial recognition and subsequent measurement of a contingent consideration and business combinations achieved in stages. IAS 27 (Amended) requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as a transaction with owners in their capacity as owners and therefore not give rise to goodwill or a gain or loss. The Group adopted these amendments as of 1 January 2009. It did not have an impact on the financial position or performance of the Group.
IFRS 7 Financial Instruments: Disclosures – Improving Disclosures about Financial Instruments Amendments to IFRS 7 were issued by the IASB in March 2009 and are effective for annual periods beginning on or after 1 January 2009. The amendments to IFRS 7 require fair value measurements to be disclosed by the source of inputs, using a three-level hierarchy: • Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) • 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) • Inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3) In addition, the amendment revises the specific minimum liquidity risk disclosures including: the contractual maturity of non-derivative and derivative financial liabilities, and a description of how this risk is managed. Comparative information has not been restated or provided as permitted by the transitional provisions of the amendment.
IFRS 8 Operating Segments IFRS 8 is effective for annual periods beginning on or after 1 January 2009 and replaces IAS 14 Segment Reporting. The operating segments determined in accordance with IFRS 8 are slightly more detailed than those previously identified. IFRS 8 disclosures are shown in note 3, including the related revised comparative information.
IAS 1 Presentation of Financial Statements The revised standard separates owner and non-owner changes in equity. The statement of changes in equity includes only details of transactions with owners. In addition, the standard introduces the statement of comprehensive income: it presents all items of recognised income and expense, either in one single statement, or in two linked statements. The Group has elected to present two statements. The Group has also adopted the following new and amended IFRS and IFRIC interpretations as of 1 January 2009: • IAS 23 Borrowing Costs (Revised) • IAS 1 Puttable Financial Instruments and Obligations Arising on Liquidation • IAS 39 Recognition and Measurement – Eligible Hedged Items • IFRIC 9 Remeasurement of Embedded Derivatives • Improvements to IFRSs (May 2008) Adopting these changes did not have an impact on the financial position or performance of the Group. 55 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
1 Accounting policies continued
Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and all entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. Financial statements of all Group companies are prepared for the same reporting period. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.
Presentation of income statement In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the income statement between items of a revenue and capital nature has been presented alongside the income statement. In accordance with the Company’s status as a UK investment company under Section 266 of the Companies Act 1985, net capital returns may not be distributed by way of dividend.
Financial instruments Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised when the Company’s contractual right to the cash flow from the asset expires or substantially all the risks and rewards of ownership are transferred. Financial liabilities are derecognised when the contractual obligation is discharged, with gains and losses recognised in the income account.
Investments Investments are recognised and derecognised on a trade date where a purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value. As the Company’s business is investing in financial assets with a view to profiting from their total return in the form of income or capital gains, such financial assets are designated as fair value through profit or loss on initial recognition. Incidental costs on acquisition of such assets are expensed. Financial assets designated as fair value through profit or loss are measured at subsequent reporting dates at fair value, which for investment funds is at their net asset value based on the fair value of the underlying investments. 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. In respect of unquoted instruments, or where the market for a financial instrument is not active, fair value is established by using recognised valuation methodologies, in accordance with International Private Equity and Venture Capital (“IPEV”) Valuation Guidelines. Fair value is the price at which an orderly transaction would take place between market participants at the Reporting Date. Gains and losses arising from investments, designated as investments held at fair value through profit or loss, are included in the income statement in the period in which they arise. Foreign exchange gains and losses on fair value through profit or loss investments are included within the changes in its fair value.
Derivative financial instruments The Group uses derivative financial instruments to hedge its risk associated with interest rate fluctuations and foreign exchange movements. It is not the Group’s policy to trade in derivative instruments. Derivative instruments are initially recognised in the balance sheet at cost and are subsequently re-measured at their fair value. Fair value is determined by reference to market values for similar instruments.
Cash flow hedges For cash flow hedges, the effective portion of the unrealised gain or loss on the hedging instrument is recognised in equity and recorded in the statement of comprehensive income, while the ineffective portion is recognised in the income statement. Amounts taken to equity are transferred to the income statement when the hedged transaction affects profit or loss, such as when a forecast sale or purchase occurs. Where the hedged item is the cost of a non-financial asset or liability, the amounts taken to equity are transferred to the initial carrying amount of the non-financial asset or liability. If a forecast transaction is no longer expected to occur, amounts previously recognised in equity are transferred to the income statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognised in equity remain in equity until the forecast transaction occurs and are transferred to the income statement or to the initial carrying amount of a non-financial asset or liability as above. If the related transaction is not expected to occur, the amount is taken to the income statement. Notes to the accounts continued 56
1 Accounting policies continued A hedging relationship qualifies for hedge accounting if all of the following conditions are met. • at the inception of the hedge there is formal designation and documentation of the hedging relationship and the entity’s risk management objective and strategy for undertaking the hedge. • the hedge is expected to be highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk, consistently with the originally documented risk management strategy for that particular hedging relationship. • for cash flow hedges, a forecast transaction that is the subject of the hedge must be highly probable and must present an exposure to variations in cash flows that could ultimately affect profit or loss. • the effectiveness of the hedge can be reliably measured, i.e. the fair value or cash flows of the hedged item that are attributable to the hedged risk and the fair value of the hedging instrument can be reliably measured. • the hedge is assessed on an ongoing basis and determined actually to have been highly effective throughout the financial reporting periods for which the hedge was designated.
Current financial assets Financial assets purchased with a view to subsequent transfer or resale (“warehoused investments”) are carried at fair value and included in current assets.
Investments in subsidiaries In its separate financial statements the Company recognises its investment in subsidiaries at cost, unless they are investment vehicles, in which case they are included at fair value.
Investments in associates In accordance with IAS 28 ‘Investments in Associates’, the standard does not apply to investments held in associates by private equity organisations that are designated as fair value through profit and loss. Such investments are measured at fair value, with changes in fair value recognised in profit or loss in the period in which they occur. An associate is an entity over which the Group is in a position to exercise significant influence, but not control or joint control, through participation in the financial and operating policy decisions of the investee.
Bank borrowings and loan notes Interest-bearing bank loans and loan notes issued are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis in the income statement account using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.
Convertible loan notes Convertible loan notes are regarded as compound instruments, consisting of a liability component and an equity component. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible debt. The difference between the proceeds of issue of the convertible loan notes and the fair value assigned to the liability component, representing the embedded option to convert the liability into equity of the Group, is included in equity. Issue costs are allocated proportionately to the liability and equity components. The carrying amount of the liability component is subsequently measured at amortised cost.
Equity instruments Equity instruments issued by the Company are recorded as the proceeds received, net of direct issue costs.
Share-based payments The Group has applied the requirements of IFRS 2 ‘Share-based Payments’. In accordance with the transitional provisions, IFRS 2 has been applied to all grants of equity instruments after 7 November 2002 that were unvested as of 1 January 2005. The cost of equity-settled share-based payments with employees of the Group are measured at fair value at the date of grant and recognised as an expense over the vesting period, which ends on the date on which the employees become unconditionally entitled to the award. Fair value is determined by an external valuer using an appropriate valuation model. In valuing equity-settled transactions, no account is taken of any non-market vesting conditions. At each balance sheet date before vesting, the cumulative expense is calculated, representing the extent to which the vesting period has expired and management’s best estimate of the number of equity instruments that will ultimately vest. The movement in cumulative expense since the previous balance sheet date is recognised in the consolidated income statement, with a corresponding entry in equity. No expense is recognised in the Company’s income statement as there are no equity instruments issued in consideration for the provision of employee services to the Company. The cost of equity awards to employees of subsidiaries is added to the Company’s investment in subsidiaries. 57 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
1 Accounting policies continued
Revenue recognition Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for services provided in the normal course of business. Interest income is accrued on a time basis, by reference to the principal outstanding and the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount. Interest income is classified within operating activities in the cash flow statement. Dividend income from investments is recognised when the shareholders’ rights to receive payment has been established and is classified within operating activities in the cash flow statement. Investment management and advisory fees are accrued over the period for which the service is provided. The Group’s revenue and realised capital gains are derived primarily from distributions in respect of its holdings in fund investments. Realised gains on capital distributions which arise from the realisation of investments within the funds are credited to the income statement and taken to the capital reserve. Income distributions are credited to the income statement and taken to the revenue reserve. Management and advisory fee income are accrued over the period for which the service is provided.
Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
The Group as lessee Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term.
Retirement benefit costs Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. The costs relating to defined benefit schemes are accounted for in the same way as for defined contribution schemes where the Group is unable to identify its share of the underlying performance and financial position of the plan with sufficient reliability for accounting purposes. Such situations arise where the contributions payable by the Group are set in terms of the scheme as a whole and, as such, there is no consistent and reliable basis for allocating the Group’s obligations, plan assets, or costs.
Foreign currencies The functional currency of the Company is pounds sterling. Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Gains and losses arising on retranslation are included in the income statement and are allocated either to revenue or capital, as appropriate. On consolidation, the assets and liabilities of the Group’s overseas operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period unless exchange rates fluctuate significantly. Exchange differences arising, if any, are classified as equity and transferred to the Group’s capital reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of.
Taxation The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Investment trusts which have approval under Section 842 Income and Corporation Taxes Act 1988 are not liable for taxation on capital gains. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Notes to the accounts continued 58
1 Accounting policies continued
Property, plant and equipment Fixtures and equipment are stated at cost, including direct acquisition costs, less accumulated depreciation and any recognised impairment loss. Depreciation is charged so as to write off the cost less estimated residual value of assets over their estimated useful lives, using the straight-line method, on the following bases: Telecommunications and office equipment 10% – 20% Leasehold improvements 10% Computer equipment 20% – 33% The Group does not ordinarily provide for depreciation against art. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in income. The carrying values of property, plant and equipment are reviewed for impairment when events or circumstances indicate the carrying value may not be recoverable.
Cash and cash equivalents Cash and cash equivalents are held for the purpose of meeting short-term cash commitments rather than for investment purposes. Assets are classified as cash equivalents if they are readily convertible to cash and are not subject to significant changes in value. The Company has classified short-term bank deposits, investments in money market funds and short-dated treasury bills as cash equivalents.
Summary of new standards and interpretations not applied The IASB and IFRIC have issued the following standards and interpretations with an effective date after the date of these financial statements: Effective date* International Accounting Standards (IAS/IFRS) IFRS 3R – Business Combinations 1 July 2009 IAS 27 Amendment – Consolidated and Separate Financial Statements 1 July 2009 Amendment to IAS 39 – Eligible Hedge Items 1 July 2009 IFRS 1R – Structural Amendment 1 July 2009 International Financial Reporting Interpretations Committee (IFRIC) IFRIC 17 – Distributions of Non-Cash Assets to Owners 1 July 2009 IFRIC 18 – Transfers of Assets from Customers 1 July 2009
* The effective dates stated are those given in the original IASB/IFRIC standards and interpretations. The Directors do not anticipate that the adoption of these standards will have a material impact on the Group’s financial statements in the period of initial application. 59 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
2 Significant accounting judgements, estimates and assumptions The preparation of the Group’s consolidated financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of profits and net assets at the end of the reporting period. However, uncertainty about these assumptions and estimates could result in outcomes that have a material impact on net assets in future periods. The key assumptions and sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to net assets within the next financial year are discussed below. Other areas of uncertainty and risk are discussed in note 29.
Fair value of financial instruments The Group primarily invests in private equity limited partnerships (“Funds”) that in turn invest in companies that are typically unquoted. Valuing unquoted investments involves a significant degree of judgement. Fair values of the Funds in which the Group invests are typically provided by the general partner of such funds and are reviewed and, if considered appropriate, approved by the Board. The fair value of a Fund’s investment in an investee company is generally obtained by calculating the Enterprise Value (“EV”) of the company and then deducting financial instruments, such as external debt, ranking ahead of the Fund’s highest ranking instrument in the company. A common method of determining the EV is to apply a market-based multiple (i.e. an average multiple based on a selection of comparable quoted companies) to the ‘normalised’ earnings of the investee company. This market-based approach presumes that the comparator companies are correctly valued by the market. Where the fair value of financial assets recorded in the Group’s balance sheet cannot be derived from active markets, they are determined using valuation techniques, in accordance with IPEV Valuation Guidelines, including the methodology briefly outlined above. The valuation techniques recommended by the IPEV Board are industry standard. However, amounts ultimately realised on disposal of an investee company can differ materially from the previous carrying value and therefore have a significant impact on the Group’s profits and net assets.
Taxes Uncertainties exist with respect to the amount and timing of future taxable income. Significant deferred tax assets have not been recognised in respect of brought-forward tax losses that the Company can utilise to offset future taxable profits. Management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits together with future tax planning strategies. The Company expects to derive returns primarily in the form of capital gains on its investment portfolio. As an investment trust, the Company is exempt from corporation tax on capital gains. The Company’s tax return for the year-ended 31 December 2008 showed taxable losses amounting to £42.2 million. If the Group recognised these losses as deferred tax assets, profits and net assets would increase by £11.8 million. A tax return for the year ended 31 December 2009 hasn’t been submitted yet but is expected to show a further taxable loss.
3 Business segments For management purposes, the Group is currently organised into the following two principal activities:
Investing activities SVG Capital’s investment objective is to achieve capital appreciation by investing principally in private equity funds that are managed or advised by Permira, an international private equity specialist. In addition, the Company invests in private equity funds that invest in Japan, North America, Asia and the life sciences sectors, and in unquoted and quoted businesses through specialist funds and co-investments alongside these funds. Investing activities are undertaken by SVG Capital plc, SVG India LP and The Platinum Trust. A further segmental analysis within investment activities is the Group’s exposure to Permira and non-Permira investments.
Investment management and advisory services To complement this investment objective and create capital and income for the Company, its fund advisory business structures, markets, manages and advises products for investment in private equity and in public equity using private equity techniques. Investment management and advisory services are provided by SVG Advisers Limited (“SVGA”), SVG Managers Limited (“SVGM”), SVG Advisers Inc. (“SVGI”), SVG North America (“SVGNA”), SVG Advisers (Singapore) Limited Pte. (“SVGS”) and SVG Investment Managers Limited (“SVGIM”). This latter category can be further sub-divided into the following three main business areas: • SVGA – external private equity investment management and advisory services provided by SVGA, SVGNA and SVGS. • SVGIM – public equity investment management services provided by SVGIM, plus the ancillary operations of SVGM and SVGI. • Other – intra-Group services provided by SVGA to SVG Capital and the Permira feeder vehicles, plus certain other items. For this purpose in respect of the current year, items such as redundancy costs, defined benefit pension costs in respect of former employees, project costs, LTIP costs and charges associated with the termination of supplier contracts fall within this category. These sub-categories are additional business segments to those disclosed in prior years and are intended to provide a further layer of information to shareholders. This will be of greater relevance going forward as share-based payment awards granted to SVGA employees in 2010 will include vesting conditions that will be partly dependent on the performance of the ‘SVGA’ business unit. Notes to the accounts continued 60
3 Business segments continued These activities are undertaken by SVG Advisers Limited, SVG Managers Limited, SVG Investment Managers Limited, SVG Advisers (Singapore) Pte. Limited, SVG Advisers Inc. and SVG North America Inc. Segmental information showing the performance of these business segments is presented below: For the year ended 31 December 2009 For the year ended 31 December 2008 Investment Investment management management Investing and advisory Investing and advisory activities services Eliminations Total activities services Eliminations Total Group £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Income from investment advisory services – 28,830 – 28,830 – 28,448 – 28,448 Other operating and investment income 2,977 107 – 3,084 9,252 3,175 – 12,427 Intra-group income 13,780 4,898 (18,678) – 16,360 7, 540 (23,900) – 16,757 33,835 (18,678) 31,914 25,612 39,163 (23,900) 40,875 Performance shares and options fair value charge – (64) – (64) – 1,520 – 1,520 Other administrative costs (2,909) (25,592) – (28,501) (2,223) (17,0 40) – (19,263) Intra-group expenses (4,423) – 4,423 – (5,702) – 5,702 – Other operating expenses 28 – – 28 (481) – – (481) (7,304) (25,656) 4,423 (28,537) (8,406) (15,520) 5,702 (18,224) Operating profit/(loss) 9,453 8,179 (14,255) 3,377 17,206 23,643 (18,198) 22,651 Finance costs (38,961) – – (38,961) (32,277) – – (32,277) Intra-group finance costs (475) (34) 509 – (1,838) (908) 2,746 – Gains/(losses) on fair value through profit and loss 51,317 5 – 51,322 (813,997) (19) – (814,016) Exchange gains/(losses) 7,898 (2,384) – 5,514 (39,001) 180 – (38,821) Profit/(loss)before tax 29,232 5,766 (13,746) 21,252 (869,907) 22,896 (15,452) (862,463)
Dividends (6) – – (6) (9,039) – – (9,039) Intra-group dividends – (13,746) 13,746 – – (15,452) 15,452 – (6) (13,746) 13,746 (6) (9,039) (15,452) 15,452 (9,039)
Total assets 1,029,947 30,327 – 1,060,274 867, 542 34,026 – 901,568 Total liabilities (422,435) (17,280) – (439,715) (453,235) (14,030) – (467,265) Intra-group assets/(liabilities) 6,105 (6,105) – – (6,674) 6,674 – – Net assets 613,617 6,942 – 620,559 4 07,633 26,670 – 434,303 61 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
3 Business segments continued The Group’s investment management and advisory services can be further analysed between the following three categories (see earlier description): SVGC, SVGA and SVGIM. Investment management and advisory services Investment management and advisory services for the year ended 31 December 2009 for the year ended 31 December 2008 SVGA SVGIM Other Total SVGA SVGIM Other Total Group £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Income from investment advisory services 19,284 2,271 7,275 28,830 17,326 3,162 7,960 28,448 Other operating income 83 24 – 107 2,956 219 – 3,175 Intra-group income – – 4,898 4,898 – – 7, 540 7, 540 19,367 2,295 12,173 33,835 20,282 3,381 15,500 39.163 Performance shares and options fair value charge – – (64) (64) 1,520 – – 1,520 Other administrative costs (12,557) (1,476) (11,559) (25,592) (11,548) (1,977) (3,515) (17,0 40) Intra-group expenses – – – – – – – – Other operating expenses – – – – – – – – (12,557) (1,476) (11,623) (25,656) (10,028) (1,977) (3,515) (15,520) Operating profit/(loss) 6,810 819 550 8,179 10,254 1,404 11,985 23,643 Finance costs – – – – – – – – Intra-group finance costs – (34) – (34) – (123) (785) (908) Gains/(losses) on fair value through profit and loss 5 – – 5 (19) – – (19) Exchange (losses)/gains (2,353) (31) – (2,384) 56 124 – 180 Profit before tax 4,462 754 550 5,766 10,291 1,405 11,200 22,896
Exposure to Permira 31 December 2009 31 December 2008 Permira Non-Permira Total Permira Non-Permira Total Group £’000 £’000 £’000 £’000 £’000 £’000 Investment portfolio value 677,183 218,392 895,575 558,337 182,775 741,112 Financial assets – – – – 15,039 15,039 Uncalled commitments 189,500 181,600 371,100 248,900 244,000 492,900 Total exposure 866,683 399,992 1,266,675 807,237 441,814 1,249,051
31 December 2009 31 December 2008 Permira Non-Permira Total Permira Non-Permira Total Company £’000 £’000 £’000 £’000 £’000 £’000 Investment portfolio value 676,959 210,254 887,213 558,117 194,135 752,252 Financial assets – – – – 15,039 15,039 Uncalled commitments 189,500 181,600 371,100 248,900 244,000 492,900 Total exposure 866,459 391,854 1,258,313 807,017 453,174 1,260,191
Exposure to Permira includes direct investments in Permira funds plus investments in Permira feeder vehicles. Notes to the accounts continued 62
3 Business segments continued For the year ended 31 December 2009 For the year ended 31 December 2008 Investment Investment management management Investing and advisory Investing and advisory activities services Total activities services Total Company £’000 £’000 £’000 £’000 £’000 £’000 Total operating income 16,745 – 16,745 26,639 – 26,639 Other administrative expenses (7,094) – (7,094) (7,444) – (7,444) Other operating expenses 29 – 29 (481) – (481) Operating profit 9,680 – 9,680 18,714 – 18,714 Finance costs (39,436) – (39,436) (34,115) – (34,115) Gain/(loss) on fair value through profit and loss 50,757 – 50,757 (813,758) – (813,758) Exchange gains/(losses) 7,868 – 7,868 (39,280) – (39,280) Profit/(loss) before tax 28,869 – 28,869 (868,439) – (868,439)
Total assets 1,045,933 – 1,045,933 886,729 – 886,729 Total liabilities (428,509) – (428,509) (462,579) – (462,579) Net assets 617,424 – 617,424 424,150 – 424,150
SVG Capital is an investment company and does not provide any investment management and advisory services. Income arises mainly from UK operations. A geographical analysis of investments is included in note 16, with further details in note 29.
4 Revenue For the For the For the For the year ended year ended year ended year ended 31 December 31 December 31 December 31 December 2009 2009 2008 2008 Group Company £’000 Company £’000 £’000 Group £’000 Income from investments: Dividends from subsidiaries – 13,385 – 15,452 Income from money market instruments 774 707 8,111 7,015 Interest from funds and co-investments 1,583 1,583 984 984 Other income from funds and co-investments 614 974 1,684 1,684 Interest on warehoused funds – – 412 412 Other operating income: Income from investment advisory services 28,830 – 28,448 – Other interest receivable and other income 113 96 1,236 1,092 31,914 16,745 40,875 26,639 Represented by: Interest 2,463 2,384 10,605 9,381 Income from investment advisory services 28,830 – 28,448 – Dividends from subsidiaries – 13,385 – 15,452 Other income from funds and co-investments 614 974 1,684 1,684 Other income 7 2 138 122 31,914 16,745 40,875 26,639 63 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
5 Administrative expenses For the For the For the For the year ended year ended year ended year ended 31 December 31 December 31 December 31 December 2009 2009 2008 2008 Group Company £’000 Company £’000 £’000 Group £’000 Fees payable to SVG Advisers Limited – 4,423 – 5,703 Fees payable to Schroder Investment Management Limited 248 204 349 274 Directors’ remuneration 1,918 470 1,142 485 Performance shares and options fair value charge/(credit) 64 – (1,520) – N.I. on performance shares and options 145 – (2,087) (616) Staff costs (note 6) 13,136 – 9,836 – Depreciation (note 9) 593 – 795 – General expenses 12,166 1,840 9,047 1,514 Auditors’ remuneration – Statutory audit fees: Company 123 123 78 78 – Statutory audit fees: subsidiaries 95 – 90 – – Regulatory reporting 17 15 – – – Other services 60 19 13 6 28,565 7,094 17,743 7,444
The Company has no employees (2008: nil). The Directors are the only key management personnel of the Company. Their remuneration is discussed in more detail in the Remuneration Report. The Company’s current and former executive Directors, Andrew Williams (up until his resignation on 8 May 2009) and Lynn Fordham, received remuneration as Directors of SVG Capital of £1,448,000 (2008: £657,000) in respect of their employment with SVG Advisers Limited, a wholly-owned subsidiary.
6 Staff costs For the For the For the For the year ended year ended year ended year ended 31 December 31 December 31 December 31 December 2009 2009 2008 2008 Group Company £’000 Company £’000 £’000 Group £’000 Wages, salaries and bonuses 7,675 – 7,381 – Redundancy costs 1,940 – – – Social security costs 1,074 – 838 – Pension costs (note 7) 1,467 – 813 – Other staff costs 980 – 804 – 13,136 – 9,836 –
The Company has no employees. The average number of staff employed by the Group was: For the For the year ended year ended 31 December 31 December 2009 2008 Number Number Full-time employees 68 67 Seconded staff 2 3 70 70 Notes to the accounts continued 64
7 Pension costs The charge for pension costs comprises: For the For the For the For the year ended year ended year ended year ended 31 December 31 December 31 December 31 December 2009 2009 2008 2008 Group Company £’000 Company £’000 £’000 Group £’000 Defined benefit schemes 696 – 101 – Money purchase schemes 771 – 712 – 1,467 – 813 –
The Group does not participate in a SVG Group pension scheme. Costs in respect of defined benefit schemes relate to payments due to the Schroders Retirement Benefits Scheme (“the Scheme”) in respect of four current and former employees, including the Company’s executive Director, seconded from Schroder Investment Management Limited to SVG Advisers Limited (“SVGA”), a wholly owned subsidiary of the Company. SVGA and the Scheme’s trustees, taking advice from the independent actuaries, agree the contributions. In accordance with IAS 19, the Group’s contributions to the Scheme are accounted for as a defined contribution scheme on the basis that the Group is unable to readily identify its share of the underlying assets and liabilities of the Scheme at the balance sheet date as there is no consistent and reliable basis for allocating the obligations, plan assets and costs to the Group. Further details of the Scheme can be found in the Annual Report and Accounts of Schroders plc. In particular, the Scheme had 299 active members in the defined benefit section at 31 December 2008 and the accounts of Schroders plc disclosed a net pension surplus in respect of the Scheme of £22.4 million, calculated under IAS 19. However, Schroders’ interim results disclose net actuarial losses in the 6 months to 30 June 2009 amounting to £74.2 million. The Group is currently in discussions with Schroders in respect of SVG’s share of the Scheme deficit.
8 Finance costs For the For the For the For the year ended year ended year ended year ended 31 December 31 December 31 December 31 December 2009 2009 2008 2008 Group Company £’000 Company £’000 £’000 Group £’000 Convertible loan note interest 9,317 9,317 5,665 5,665 Amortisation of issue and listing costs plus premium to redemption re convertibles 1,988 1,988 866 866 Gain on buy-back of convertibles (1,943) (1,943) – – Senior note interest 19,323 19,323 20,318 20,318 Amortisation of issue costs re Senior Notes 960 960 386 386 Swap payments/(receipts) 532 532 (53) (53) Loan facility finance costs 7,605 7,605 4,429 4,429 Amortisation of loan facility issue costs 1,134 1,134 551 551 Other finance costs 45 520 115 1,953 38,961 39,436 32,277 34,115
9 Operations in the year There is a large degree of uncertainty and risk involved in investing in private equity and the results of the Group and the Company are primarily dependent on the performance of its private equity fund investments. During the year ended 31 December 2009, gains on investments amounted to £51.3 million (2008: loss of £814.0 million) for the Group and £50.8 million (2008: loss of £813.8 million) for the Company. As detailed in notes 28 and 29, the Company has agreed that it should focus its investments mainly on Permira Funds. As such, and given that our largest exposures currently are to Permira Funds (see notes 3 and 30), we expect that the performance of the Company will be largely dependent on the performance of the Permira Funds in which we invest. 65 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
10 Tax
(a) The charge for tax for the year is made up as follows: For the year ended 31 December 2009 For the year ended 31 December 2008 Revenue Capital Total Revenue Capital Total Group £’000 £’000 £’000 £’000 £’000 £’000 Current tax Corporation tax 649 (640) 9 2,345 204 2,549 Double taxation relief – – – – – – 649 (640) 9 2,345 204 2,549 Overseas tax (15) – (15) 61 570 631 Prior year adjustment (group relief) (1,365) – (1,365) (3,298) – (3,298) Total current tax (note 10(b)) (731) (640) (1,371) (892) 774 (118) Deferred tax Deferred tax (261) – (261) 2,559 (535) 2,024 Effect of changes in UK corporation tax rate – – – (5) – (5) Prior year adjustment 12 – 12 (3) – (3) Total deferred tax (249) – (249) 2,551 (535) 2,016 Total tax charge/(credit) (980) (640) (1,620) 1,659 239 1,898
For the year ended 31 December 2009 For the year ended 31 December 2008 Revenue Capital Total Revenue Capital Total Company £’000 £’000 £’000 £’000 £’000 £’000 Current tax Group relief (2,370) – (2,370) (3,105) – (3,105) Double taxation relief – – – – – – (2,370) – (2,370) (3,105) – (3,105) Overseas tax – – – 3 570 573 Prior year adjustment (1,333) – (1,333) (3,304) – (3,304) Total current tax (note 10(b)) (3,703) – (3,703) (6,406) 570 (5,836) Deferred tax Deferred tax – – – – (535) (535) Total deferred tax – – – – (535) (535) Total tax (credit)/charge (3,703) – (3,703) (6,406) 35 (6,371)
There are no profits chargeable to corporation tax for the Company in the current year. Excess management expenses relating to the private equity funds’ portfolio are available to set against any taxable income of the Company. These excess management expenses are included within the investments in private equity funds in the balance sheet of the Company and are not reflected in the Company’s revenue account. If in a future year in relation to the private equity fund investments income exceeds expenses, the taxation charge to the Company’s revenue account will include tax on this excess with a suitable note by way of explanation. Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 28% (2008: 28%). A deferred tax asset of £603,000 (2008: £683,000) has been recognised by SVG Advisers Inc. in respect of US taxation. A deferred tax asset of £473,000 (2008: £1,900,000) has been recognised in respect of SVG Advisers Ltd. A deferred tax asset of £15.6 million (2008: £9.6 million), of which nil (2008: nil) would have been recognised in equity, relating to losses and other temporary differences, has not been recognised as there is insufficient evidence that there will be sufficient taxable profits against which these losses and temporary differences can be utilised. The excess management expenses and other temporary differences to which this unrecognised asset relates are available indefinitely for offset against future taxable profits. Notes to the accounts continued 66
10 Tax continued
(b) Factors affecting current tax charge for the year: The tax assessed for the year is lower than the standard rate of corporation tax in the UK of 28% for a large company (2008: 28.5%). The differences are explained below: For the For the For the For the year ended year ended year ended year ended 31 December 31 December 31 December 31 December 2009 2009 2008 2008 Group Company £’000 Company £’000 £’000 Group £’000 Profit/(loss) before tax 21,252 28,869 (862,463) (868,439) Corporation tax at 28% (2008: 28.5%) 5,951 8,083 (245,779) (247,482) Effects of: Non-taxable capital (gains)/losses (17,155) (16,967) 243,264 243,230 Non-taxable income net of disallowable expenses 770 (3,664) (57) (4,269) Difference between accounting and taxable income from funds 6,375 6,375 5,416 5,416 Depreciation of items not eligible for capital allowances 55 – 10 – Income of subsidiary not taxable 55 – 141 – Income taxable at (lower)/higher rates (120) – (85) – Prior year adjustments re UK corporation tax (1,353) (1,333) (3,301) (3,304) Temporary differences arising in the year on which deferred tax is not recognised 3,802 3,803 – – Effect of share price movements on deferred tax assets relating to share option schemes and long-term incentive plan – – 2,256 – Overseas tax – – 3 3 Overseas deferred tax – – 35 35 Effect of changes in UK corporation tax rate – – (5) – Current tax charge/(credit) for the year (note 10(a)) (1,620) (3,703) 1,898 (6,371)
11 Dividends For the For the For the For the year ended year ended year ended year ended 31 December 31 December 31 December 31 December 2009 2009 2008 2008 Group Company £’000 Company £’000 £’000 Group £’000 Amounts recognised as distributions in the year: Dividend of nil (2008: 6.5p) – – 9,039 9,039
In order to maintain investment trust status, the Company must not retain more than 15% of its income from shares and securities. The total dividend payable in respect of the financial year and which will be taken into account in determining the amount of net revenue retained under the requirements of Section 842 of the Income and Corporation Taxes Act 1988, is set out below. For the For the For the For the year ended year ended year ended year ended 31 December 31 December 31 December 31 December 2009 2009 2008 2008 Group Company £’000 Company £’000 £’000 Group £’000 Dividend of nil (2008: nil) – – – – 67 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
12 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 For the For the For the year ended year ended year ended year ended 31 December 31 December 31 December 31 December 2009 2009 2008 2008 Group Company £’000 Company £’000 £’000 Group £’000 Earnings/(loss) for the purposes of basic earnings per share being net profit attributable to equity holders of the parent 22,875 32,572 (864,363) (862,068)
Number Number Number Number Number of shares Weighted average number of ordinary shares for the purposes of basic earnings per shares 286,139,771 286,139,771 139,067,257 139,067,257 Effect of dilutive potential ordinary shares: Share options and performance shares 1,165,631 1,165,631 n/a n/a Convertible loan notes n/a n/a n/a n/a Weighted average number of ordinary shares for the purposes of diluted earnings per share 287,305,402 287,305,402 139,067,257 139,067,257 Earnings per share Basic 8.0p 11.4p (621.5p) (619.9p) Diluted 8.0p 11.3p (621.5p) (619.9p)
As the Company and Group have made losses in the year there is no dilution from the issuance of potential ordinary shares.
13 Property, plant and equipment (Group) Telecom- munications Leasehold Computer and office improvements equipment equipment Art Total £’000 £’000 £’000 £’000 £’000 Cost At 1 January 2009 978 1,254 636 101 2,969 Additions 1,358 380 386 – 2,124 Disposals (837) (476) (326) – (1,639) Exchange translation (28) (12) (13) – (53) At 31 December 2009 1,471 1,146 683 101 3,401 Depreciation At 1 January 2009 670 795 365 – 1,830 Charge for the year 251 215 127 – 593 Disposals (742) (472) (325) – (1,539) Exchange translation – (9) (8) – (17) At 31 December 2009 179 529 159 – 867 Net book value At 31 December 2009 1,292 617 524 101 2,534 At 1 January 2009 308 459 271 101 1,139
Property, plant and equipment are assets of SVG Capital’s subsidiary companies. Notes to the accounts continued 68
13 Property, plant and equipment (Group) continued Telecom- munications Leasehold Computer and office improvements equipment equipment Art Total £’000 £’000 £’000 £’000 £’000 Cost At 1 January 2008 827 1,078 440 90 2,435 Additions 78 157 166 11 412 Disposals – (9) – – (9) Exchange translation 73 28 30 – 131 At 31 December 2008 978 1,254 636 101 2,969 Depreciation At 1 January 2009 260 545 167 – 972 Charge for the year 377 236 182 – 795 Disposals – (6) – – (6) Exchange translation 33 20 16 – 69 At 31 December 2008 670 795 365 – 1,830 Net book value At 31 December 2008 308 459 271 101 1,139 At 1 January 2008 567 533 273 90 1,463
14 Investments
(a) Group Private Private equity fund Other Total equity fund Other Total portfolio investments portfolio portfolio investments portfolio 2009 2009 2009 2008 2008 2008 Fair value through profit or loss assets £’000 £’000 £’000 £’000 £’000 £’000 Valuation brought forward 595,797 145,315 741,112 1,160,975 160,340 1,321,315 Calls and purchases 85,049 34,169 119,218 412,927 137,935 550,862 Transfer from financial assets – 15,039 15,039 – – – Distributions and sales (19,914) (11,062) (30,976) (319,774) (5,761) (325,535) Gains/(losses) on investments 70,343 (19,161) 51,182 (658,331) (147,199) (805,530) Valuation carried forward 731,275 164,300 895,575 595,797 145,315 741,112
(b) Company Private Private equity fund Other Total equity fund Other Total portfolio investments portfolio portfolio investments portfolio 2009 2009 2009 2008 2008 2008 £’000 £’000 £’000 £’000 £’000 £’000 Valuation brought forward 595,508 133,761 729,269 1,159,931 150,522 1,310,453 Calls and purchases 85,046 34,024 119,070 412,908 129,842 542,750 Transfer from financial assets – 15,039 15,039 – – – Distributions and sales (19,872) (11,062) (30,934) (319,126) (5,760) (324,886) Gains/(losses) on investments 70,352 (15,583) 54,769 (658,205) (140,843) (799,048) Valuation carried forward 731,034 156,179 8 87,213 595,508 133,761 729,269
The total gain of £50,757,000 (2008: loss of £813,758,000) shown in the Company’s income statement also include losses on subsidiaries during the year of £4,012,000 (2008: loss of £5,413,000). In 2008 there were also valuation write-downs of £9,297,000 on warehoused assets held as current assets. All funds in the private equity fund portfolio are unlisted. However, some of the underlying companies held within those funds are listed. Included in the value of total private equity fund portfolio are gross valuations of listed investments amounting to £85,579,000 (31 December 2008: £62,428,000). The Group and Company investment portfolios include Permira IV at a value of £325.0 million, which is net of a 25% provision of £77.0 million (2008: £85.2 million) against future distributions on the realisation of investments held by Permira IV, in accordance with the terms of the Permira IV re-organisation in December 2008. It should also be noted that the value of the Permira IV investments attributed to follow-ons that were made after 2008 are not subject to a provision, as distributions in respect of such investments will be received in full. 69 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
14 Investments continued
Significant interests in investment funds Details of investments in which the Company or Group has an interest of 10% or more of any class of share/units are detailed in the list of investments on pages 26 and 27. In addition, SVG Capital has a 16.5% interest in the I Class units of the SVG UK Focus Fund, a 94.5% interest in the A Class and 98.6% interest in the R Class units of the SVG European Fund and a 85.2% interest in the A Class units of the SVG Alpha Fund, all of which form part of SVG Investment Funds, a Dublin-listed OEIC managed by SVG Investment Managers Limited, of which SVG Capital has an aggregate interest of 22.3%. As the Company’s overall holding in SVG Investment Funds does not represent a controlling interest the fund is not a subsidiary. It also has a 22.5% interest in Strategic Equity Capital plc, a UK-listed investment trust managed by SVG Investment Managers Limited and a £13.3 million commitment to co-invest alongside the Strategic Recovery Fund II. Furthermore the Company has a 35.5% interest in SVG Diamond, a 35.7% interest in SVG Diamond II, and a 23.4% interest in SVG Diamond III, all of which are advised by SVG Advisers Limited. The Company also has a 100% interest in SVG India LP.
15 Fair values In accordance with amendments to IFRS 7, 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 December 2009 Level 1 Level 2 Level 3 Total Group £’000 £’000 £’000 £’000 Private equity Permira funds and feeder vehicles – – 677,183 677,183 Other private equity funds and co-invstmens – – 54,093 54,093 Private equity funds warehouse – – 29,777 29,777 Private equity funds of funds – – 85,690 85,690 Public equity Listed investment trusts 8,120 – – 8,120 Open-ended investment companies 16,087 – – 16,087 Limited partnership co-investments scheme – – 15,382 15,382 Other investments Indian limited partnerships and funds – – 8,576 8,576 Other – – 667 667 24,207 – 871,368 895,575 Financial liabilities Interest rate swaps – (775) – (775) Forward currency contracts – (1,390) – (1,390) – (2,165) – (2,165) Notes to the accounts continued 70
15 Fair values continued 31 December 2009 Level 1 Level 2 Level 3 Total Company £’000 £’000 £’000 £’000 Private equity Permira funds and feeder vehicles – – 676,959 676,959 Other private equity funds and co-investments – – 54,075 54,075 Private equity funds warehouse – – 29,777 29,777 Private equity funds of funds – – 85,690 85,690 Public equity Listed investment trusts 8,120 – – 8,120 Open-ended investment companies 16,087 – – 16,087 Limited partnership co-investment scheme – – 15,382 15,382 Other investments Indian limited partnerships and funds – – 456 456 Other – – 667 667 Subsidiary investments at fair value – – 9,167 9,167 24,207 – 872,173 896,380 Financial liabilities Interest rate swaps – (775) – (775) – (775) – (775)
Comparative information has not been presented as permitted by the transitional provisions of the amendment to IFRS 7. The Group primarily invests in private equity via limited partnerships or other fund structures. Such vehicles are typically unquoted and in turn invest in unquoted securities. The Group’s investment portfolio is recognised in the balance sheet at fair value, in accordance with IPEV Valuation Guidelines. 31 December 2009 Level 1 Level 2 Level 3 Total Group £’000 £’000 £’000 £’000 Valuation brought forward* 13,775 – 742,376 756,151 Payments 3,010 – 116,208 119,218 Receipts (3,010) – (27,966) (30,976) Fair value gains/(losses) 10,432 – 40,750 51,182 Transfers – – – – Valuation carried forward 24,207 – 871,368 895,575
31 December 2009 Level 1 Level 2 Level 3 Total Company £’000 £’000 £’000 £’000 Valuation brought forward* 13,775 – 743,566 757,341 Payments 3,010 – 116,205 119,215 Receipts (3,010) – (27,924) (30,934) Fair value gains/(losses) 10,432 – 40,326 50,758 Transfers – – – – Valuation carried forward 24,207 – 872,173 896,380
*Inclusive of financial assets. Transfers During the year there were no transfers between Levels 1, 2 or 3.
71 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
15 Fair values continued
Fair value of financial instruments not held at fair value The Group’s debt instruments, such as the loan facility, senior notes and convertible bonds, are not held at fair value. Indicative fair values of these instruments are shown below along with the corresponding par value used as the basis for their carrying value in the balance sheet (see notes 19 and 20). 31 December 2009
Par value £’000 Fair value £’000 Group and Company Loan facility 97,734 97,382 US$124.61 million 9.10% Fixed Rate Series A Senior Notes due 18 July 2013 77,163 74,848 €14.66 million 7.57% Fixed Rate Series B Senior Notes due 18 July 2013 13,025 12,035 £5.131 million Floating Rate Series C Senior Notes due 18 July 2013 5,131 4,961 US$128.275 million 8.49% Fixed Rate Series A Senior Notes due 18 July 2014 79,432 73,713 €10.995 million 7.72% Fixed Rate Series B Senior Notes due 18 July 2014 9,769 8,821 €3.665 million Floating Rate Series C Senior Notes due 18 July 2014 3,256 3,110 £36.65 million 9.10% Fixed Rate Series D Senior Notes due 18 July 2015 36,650 31,666 Convertible bonds 114,950 83,914 Total 437,110 390,450 Notes to the accounts continued 72
16 Geographical analysis of investments 31 December 2009 31 December 2008 Group Company Group Company £’000 £’000 £’000 £’000 Private equity funds and co-investments Europe* 677,183 676,959 558,337 558,117 Total Europe 677,183 676,959 558,337 558,117 Asia Asia Pacific 14,010 13,992 3,856 3,787 Japan 4,313 4,313 4,820 4,820 Total Asia 18,323 18,305 8,676 8,607 North America Canada 1,256 1,256 1,567 1,567 United States** 34,514 34,514 27,217 27,217 Total North America 35,770 35,770 28,784 28,784 Private equity fund portfolio 731,276 731,034 595,797 595,508 Private equity funds warehouse***: US 4,653 4,653 3,082 3,082 Europe 25,124 25,124 11,957 11,957 Total private equity funds warehouse 29,777 29,777 15,039 15,039 Public equity funds: UK 33,635 33,635 15,120 15,120 Europe 5,954 5,954 4,424 4,424 Total public equity funds 39,589 39,589 19,544 19,544 Other investments: Private equity funds of funds**** 85,690 85,690 111,506 111,506 Indian funds 8,576 456 11,938 384 Other – Europe 667 667 2,327 2,327 Total other investments 94,933 86,813 125,771 114,217 Total investment portfolio 895,575 8 87,213 756,151 744,308
Allocations are based on the expected geographical focus of the funds. A further analysis of the estimated currency exposure of assets is provided in note 29.
* Permira Funds have been included in Europe, which is the primary focus of such funds, although they can invest a significant amount of their committed capital in businesses which do not have significant activities in Europe. ** SV Life Sciences Fund II, SV Life Sciences Fund III and SV Life Sciences Fund IV have been included within the US. *** These have been reclassified. In 2008 they were included as current assets rather than as part of the investment portfolio. It remains the Company’s intention to sell or transfer these assets. **** Private equity funds of funds are relatively equally focused between Europe and the US. 73 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
17 Investments in subsidiaries Year ended Year ended 31 December 31 December 2009 2008 Company Company £’000 £’000 Cost at the beginning of the year 25,753 19,503 Cash contributions 146 8,118 Capital contribution in respect of performance shares and options over SVG Capital shares 64 (1,868) Cost at the end of the year 25,963 25,753 Net unrealised gain on investment at the end of the year (6,782) (2,770) Carrying value at the end of the year 19,181 22,983
Analysed as: Subsidiaries at cost 10,014 9,950 Subsidiaries at fair value 9,167 13,033 19,181 22,983
In accordance with IFRS 2, the fair value amount of options issued that have been charged in the income statements of SVG Advisers Limited (“SVGA”) and SVG Advisers Inc. are treated as a non-refundable contribution to subsidiaries and added to the cost of subsidiaries in SVG Capital’s accounts. As an investment vehicle, the Platinum Trust is included in the Company’s balance sheet at its fair value of £1,050,000 (31 December 2008: £1,427,000). Similarly, SVG India LP is an investment entity and is included in the Company’s balance sheet at its fair value of £8,117,000 (31 December 2008: £11,606,000). The other subsidiaries are operating companies rather than investment vehicles and are included at cost. SVG Advisers Limited is included at cost of £9,489,000 (31 December 2008: £9,425,000). SVG Investment Managers Limited is included at cost of £275,000 (31 December 2008: £275,000). SVG Managers Limited is included at cost of £250,000 (31 December 2008: £250,000). SVG North America Inc. and SVG Advisers Inc. are wholly-owned subsidiaries of SVGA.
Subsidiary undertakings at 31 December 2009: Profit after tax Number and Capital and for the year Country of class of reserves at ended registration, shares/units 31 December 31 December incorporation held by the Group 2009 2009 Company and business and operation Group holding £’000 £’000 The Platinum Trust (unit trust) – investment vehicle Guernsey 23,112 ‘A’ units 99% 1,152 (15) 900 ‘B’ units 90% SVG Advisers Limited – advisory and administration services UK 4,250,000 Ordinary Shares 100% 11,850 3,425 SVG North America, Inc. – broker/dealer US 3,000 Common Shares 100% 115 13 SVG Advisers, Inc – investment adviser US 100 Common Shares 100% 983 201 SVG Investment Managers Limited – investment manager UK 25,000,000 ‘A’ Ordinary Shares 100% 665 16 2,500,100 ‘B’ Ordinary Non-voting Shares 50% SVG Managers Limited – investment manager UK 250,000 Ordinary Shares 100% 752 192 SVG Advisers (Singapore) Ltd Pte – advisory services Singapore 1 Ordinary Share 100% 55 24 SVG Investments Limited – investment entity UK 100 Ordinary Shares 100% (3) (3) SVG India LP – investment vehicle Guernsey US$32,040,980 commitment 100% 8,117 (3,635) Notes to the accounts continued 74
18 Current assets 31 December 2009 31 December 2008 Group Company Group Company Financial assets £’000 £’000 £’000 £’000 Warehoused fund investments* – – 15,039 15,039
* The portfolio of private equity funds that were treated as current assets in 2008 have been reclassified as long-term investments as it is no longer the intention to sell these funds.
31 December 2009 31 December 2008 Group Company Group Company Other receivables £’000 £’000 £’000 £’000 Amounts falling due within one year: Amounts owed by Group undertakings – 6,105 – 928 Interest receivable 617 612 465 303 Prepayments and other debtors 3,174 1,755 7,224 4,631 Accrued investment advisory fee income† 9,024 – 3,225 – 12,815 8,472 10,914 5,862
† Investment advisory fee income of £422,000 has been deferred and has not been recognised by SVGA as its future recoverability is contingent on future performance. We expect to recover these fees but as there is some uncertainty over the outcome we have erred on the side of caution.
31 December 2009 31 December 2008 Group Company Group Company Cash and cash equivalents £’000 £’000 £’000 £’000 Bank balances and short-term deposits 14,146 7,220 7,497 2,176 Money market funds 129,921 123,847 123,130 111,400 144,067 131,067 130,627 113,576
Cash equivalents are highly liquid investments readily convertible to known amounts of cash and subject to insignificant risk of change in value, other than those arising from fluctuations in foreign exchange rates. Cash at bank and investments in money market funds earn interest at floating rates. Money market funds are redeemable for same-day value and are AAA-rated.
19 Current liabilities 31 December 2009 31 December 2008 Group Company Group Company Other payables £’000 £’000 £’000 £’000 Amounts owed to Group undertakings – – – 7,602 Loan facility drawings 97,734 97,734 – – Interest payable and similar charges 8,677 8,677 11,710 11,710 Other creditors and accruals 10,249 598 6,729 969 Fair value of forward currency contracts 1,390 – 13,087 6,618 Fair value of interest rate contracts 775 775 846 846 118,825 107,78 4 32,372 27,745
Financial liabilities at fair value through profit or loss The fair value of forward currency contracts and interest rate contracts are determined using valuation techniques based on observable inputs (Level 2), as further detailed in note 15.
Borrowings In February 2010, the Company renegotiated its loan facility with The Royal Bank of Scotland plc, The Bank of Scotland plc and Bayerische Hypo-und Vereinsbank AG. Under the terms of the renegotiations, the term of the loan facility was extended from March 2011 until January 2013 and the size of the facility was reduced from €550 million to €325 million, with further step-downs to €320 million in March 2011, €315 million in September 2011 and €250 million in March 2012. The facility is subject to financial covenants (see note 20). The Company made drawdowns totalling €110 million from the facility during the year ended 31 December 2009. The borrowings under the facility enabled the Company to maintain a significant cash balance in US dollar money market funds ($200 million at year-end), acting as a partial currency hedge against the US dollar-denominated Senior Notes ($252.9 million at year-end). 75 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
19 Current liabilities continued
Tax payable/(recoverable) For the For the For the For the year ended year ended year ended year ended 31 December 31 December 31 December 31 December 2009 2009 2008 2008 Group Company £’000 Company £’000 £’000 Group £’000 Current tax liability/(debtor) – corporation tax Balance brought forward (1,000) – 3,026 – Corporation tax paid (1,840) – (3,228) – Corporation tax charged to income statement (note 10(a)) 9 – 2,549 – Corporation tax credited to equity – – (49) – Prior year adjustment (1,365) – (3,298) – Balance carried forward (4,196) – (1,000) –
20 Non-current liabilities 31 December 2009 31 December 2008 Group Company Group Company £’000 £’000 £’000 £’000 Senior Notes 220,577 220,577 332,239 332,239 Convertible Bonds 100,148 100,148 102,595 102,595 Deferred staff compensation – – 628 – Deferred tax liability 158 – 277 – 320,883 320,725 435,739 434,834
Non-current liabilities include £220.6 million of Senior unsecured loan Notes. Further details of the Notes are provided in the following table: 31 December 2009 31 December 2008 Group Company Group Company £’000 £’000 £’000 £’000 US$124.61 million 9.10% Fixed Rate Series A Senior Notes due 18 July 2013 77,163 77,163 118,236 118,236 €14.66 million 7.57% Fixed Rate Series B Senior Notes due 18 July 2013 13,026 13,026 19,335 19,335 £5.131 million Floating Rate Series C Senior Notes due 18 July 2013 5,131 5,131 7,0 0 0 7,0 0 0 US$128.275 million 8.49% Fixed Rate Series A Senior Notes due 18 July 2014 79,432 79,432 121,714 121,714 €10.995 million 7.72% Fixed Rate Series B Senior Notes due 18 July 2014 9,769 9,769 14,501 14,501 €3.665 million Floating Rate Series C Senior Notes due 18 July 2014 3,256 3,256 4,834 4,834 £36.65 million 9.10% Fixed Rate Series D Senior Notes due 18 July 2015 36,650 36,650 50,000 50,000 Total nominal amount of Senior Notes 224,427 224,427 335,620 335,620 Unamortised issue costs (3,850) (3,850) (3,381) (3,381) 220,577 220,577 332,239 332,239
On 18 July 2006, the Company entered into an interest rate swap agreement with The Royal Bank of Scotland plc (“RBS”) to effectively fix the interest payments under the Series C 2013 Notes at a rate of 6.65% per annum (8.65% following the debt renegotiations in December 2008). With effect from 2 August 2007, the Company entered into an interest rate swap agreement with RBS to effectively fix the interest payments under the Series C 2014 Notes at a rate of 5.86% per annum (7.86% following the debt renegotiation in December 2008). In January 2009, the Company repurchased at par and cancelled 26.7% of the original nominal amount of the Senior Notes in issue. Issue costs are charged to the revenue account over the term of the Senior Notes.
Covenants The facility is subject to financial covenants. Until 30th June 2011, the maximum loan to value (“LTV”) covenant is 50% (including the unaudited Directors’ valuation of SVG Advisers (“SVGA”). With effect from 1 July 2011, the maximum LTV reduces to 40% (excluding the SVGA valuation). At 31 December 2009, the LTV was 20%. The Senior Notes are subject to financial covenants. Until 30 June 2011, the maximum LTV covenants are 55% (excluding the unaudited Directors’ valuation of SVGA) and 50% (including the SVGA valuation). With effect from 1 July 2011, the maximum LTV reduces to 40% (excluding the SVGA valuation). At 31 December 2009, the LTV’s were 18.4% (including the SVGA valuation) and 20.0% (excluding the SVGA valuation). Notes to the accounts continued 76
20 Non-current liabilities continued Non-current liabilities also include £100.1 million of Convertible Bonds. Further details are provided in the following table: 31 December 2009 31 December 2008 Group Company Group Company £’000 £’000 £’000 £’000 8.25% Subordinated Convertible Bonds 2016 – nominal 114,950 114,950 120,000 120,000 Unamortised premium, issue and listing costs (14,802) (14,802) (17,405) (17,405) 100,148 100,148 102,595 102,595
The Bonds were issued on 5 June 2008 and are redeemable at par on 5 June 2016. At issue the conversion option was valued at £14,726,000 and this amount has been credited to an equity reserve (see note 23). During the year, the Company purchased and cancelled £5,050,000 nominal of Bonds at a discount of 50.75%. As a result of the buy-back £620,000 was released from the equity reserve. The Bonds were originally issued with a Conversion Price of £10.00. As a result of the Rights Issue, the Conversion Price was amended to £7.28 on 4 February 2009, in accordance with the Terms and Conditions of the Bonds. As a further result of the Placing, the Conversion Price was amended to £6.48 on 10 February 2009. The Bonds are convertible at the option of the bond-holder. They are not currently dilutive as the Conversion Price is above the Company’s NAV per share. As the Bonds are subordinated to the Senior Notes and the loan facility, they are not counted as debt for the purposes of calculating the loan to value covenants for the Senior Notes and loan facility.
21 Capital commitments and contingencies At 31 December 2009, the Group had uncalled commitments to its fund investments as follows: 2009 2009 2008 Uncalled Uncalled Uncalled commitment commitment* commitment* (local currency) £’million £’million Permira funds Permira Europe III €29.8m 26.5 34.3 Permira IV €166.1m 147.6 195.5 P1234 €7.7m 6.8 7.4 P25 €6.6m 5.9 6.3 Sapphire IV €0.2m 0.2 – SVG Sapphire IV €2.8m 2.5 5.4 189.5 248.9 Other core private equity funds SV Investments Fund I $3.7m 2.3 2.8 SV Life Sciences Fund III $1.7m 1.1 1.6 SV Life Sciences Fund IV $18.8m 11.6 21.2 The Japan Fund IV ¥1.1bn 7.1 8.2 22.1 33.8 Private equity fund warehouse Actis Emerging Markets III $7.3m 4.5 6.2 American Capital Equity II $2.5m 1.5 1.8 AXA IV €10.0m 8.8 10.8 Barclays Private Equity III €5.8m 5.2 7.7 Bridgepoint Europe IV €13.7m 12.2 14.3 CVC Capital Partners Asia Pacific III $7.4m 4.6 5.3 CVC European Equity Partners V €20.2m 17.9 21.2 Industri Kapital 2007 €10.3m 9.2 11.0 PAI Europe V €16.7m 14.9 16.4 78.8 94.7 Public equity funds The Strategic Recovery Fund II £8.4m 8.4 13.5 Private equity funds of funds SVG Diamond Private Equity III €24.9m 22.1 37.8 Vintage I €28.8m 25.6 27.8 SVG Asia Fund of Funds $34.8m 21.5 25.6 Schroder Private Equity Fund of Funds III €0.3m 0.3 0.4 69.5 91.6 77 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
21 Capital commitments and contingencies continued
2009 2009 2008 Uncalled Uncalled Uncalled commitment commitment* commitment* (local currency) £’million £’million Other investments SVG India $0.5m 0.3 0.5 Gaja Capital Fund $4.0m 2.5 3.0 Key Capital SVG CLO Equity Fund II – – 6.8 2.8 10.3 Total 371.1 492.8
* Based on exchange rates at the relevant year-end. Commitments are payable at short notice.
Operating leases The Group has the following obligations under operating leases: < 1 year 1–5 years > 5 years Total £’000 £’000 £’000 £’000 Operating lease obligation as at 31 December 2009 852 3,408 4,051 8,311 Operating lease obligation as at 31 December 2008 919 3,408 5,114 9,441
The obligation under operating leases relates to SVG Advisers, which holds a long-term lease (11 years) over its office space at 61 Aldwych. The lease terms are subject to upward only rent reviews every five years.
22 Share capital 31 December 2009 31 December 2008 Group Company Group Company £’000 £’000 £’000 £’000 Allotted, called up and fully paid: Opening balance of 139,069,901 (2008: 139,064,434) shares 139,070 139,070 139,064 139,064 Placing of 70,000,000 shares 70,000 70,000 – – Rights Issue of 101,338,022 shares 101,338 101,338 – – Issue of ordinary shares on exercise of options – – 6 6 Closing balance of 310,407,923 (2008: 139,069,901) shares 310,408 310,408 139,070 139,070
Options over ordinary shares Options Options Options 31 December 31 December granted in the exercised in the lapsed in the Exercise price 2009 2008 Issue date Latest exercise date year year year per share number in issue number in issue 21 June 2001 20 June 2011 – – 1,455,364 410.00p 1,167,069 2,622,433 21 June 2001 20 June 2011 – – 24,660 405.50p 3,699 28,359 5 April 2002 4 April 2012 – – 806,276 334.50p 518,531 1,324,807 5 April 2002 4 April 2012 – – 10,447 335.00p 3,029 13,476 13 March 2003 12 March 2013 – – 619,731 397.75p 509,353 1,129,084 13 March 2003 12 March 2013 – – 15,094 397. 50 p 3,522 18,616 15 October 2003 14 October 2013 – – – 493.00p 30,425 30,425 12 March 2004 11 March 2014 – – 652,398 479.00p 586,988 1,239,386 12 March 2004 11 March 2014 – – 10,467 492.00p 4,684 15,151 23 March 2005 22 March 2015 – – 544,159 564.00p 567,701 1,111,860 23 March 2005 22 March 2015 – – 8,884 569.50p 13,355 22,239 – – 4,147,4 80 3,408,356 7,555,836 Notes to the accounts continued 78
22 Share capital Options Options Options 31 December 31 December granted exercised in the lapsed in the Exercise price 2008 number in 2007 number in Issue date Latest exercise date in the year year year per share issue issue 21 June 2001 20 June 2011 – – – 410.00p 2,622,433 2,622,433 21 June 2001 20 June 2011 – – – 405.50p 28,359 28,359 5 April 2002 4 April 2012 – – – 334.50p 1,324,807 1,324,807 5 April 2002 4 April 2012 – – – 335.00p 13,476 13,476 13 March 2003 12 March 2013 – – – 397.75p 1,129,084 1,129,084 13 March 2003 12 March 2013 – – – 397. 50 p 18,616 18,616 15 October 2003 14 October 2013 – – – 493.00p 30,425 30,425 12 March 2004 11 March 2014 – – – 479.00p 1,239,386 1,239,386 12 March 2004 11 March 2014 – (5,467) – 492.00p 15,151 20,618 23 March 2005 22 March 2015 – – – 564.00p 1,111,860 1,111,860 23 March 2005 22 March 2015 – – – 569.50p 22,239 22,239 24 March 2006 n/a – – (694,931) 831.40p – 694,931 24 March 2006 n/a – – (23,159) 832.00p – 23,159 – (5,467) (718,090) 7,555,836 8,279,393
For all options in issue, the performance target is for growth in the Company’s net asset value per ordinary share to exceed the growth in the Retail Prices Index plus 4% per annum over the three years from the date of grant. The performance target has been met for all options issued by the end of March 2005. The Remuneration Committee does not currently intend to adjust the options to take account of the recent Rights Issue and Placing.
Share-based payments No options were granted during the year (2008: nil). The range of exercise prices for options outstanding at the year-end was 334.5p to 569.5p (2008: 334.5p to 569.5p). The weighted average exercise price of options in issue at the year end was 434.9p (2008: 428.9p). All options in issue will be equity-settled. The mid-market price of shares at 31 December 2009 was 127.0 p and the range during the year was 73.5p to 142.0p. No options were exercised during the year. The fair value of equity-settled share options granted is estimated as at the date of grant using a stochastic model, taking into account the terms and conditions upon which the options were granted. The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. No other features of options grant were incorporated into the measurement of fair value.
Performance shares A new performance share plan was approved at the 2007 AGM to replace further grants of options, other than in exceptional circumstances. Performance 31 December 31 December Performance shares vested/ Performance 2009 2008 Earliest Vesting/(1) shares granted exercised shares lapsed Exercise price number number Issue date exercise date(1) Latest exercise date* in the year in the year in the year per share in issue in issue 15 May 2007 15 May 2010(1) 15 May 2017 – – 459,057 0.0p – 459,057 15 May 2007 15 May 2011(2) 15 May 2017 – – 64,269 0.0p 38,512 102,781 15 May 2007 15 May 2010(1) 15 May 2017 – – 48,154 100.0p – 48,154 15 May 2007 15 May 2011(2) 15 May 2017 – – 275,984 100.0p – 275,984 25 October 2007 25 October 2010(1) 25 October 2017 – – 58,261 0.0p – 58,261 13 March 2008 13 March 2011(3) 13 March 2018 – – 88,540 0.0p 526,430 614,970 13 March 2008 13 March 2012(4) 13 March 2018 – – 29,513 0.0p 28,208 57,721 13 March 2008 13 March 2011(3) 13 March 2018 – – 58,621 100.0p 2,319 60,940 13 March 2008 13 March 2012(4) 13 March 2018 – – 396,262 100.0p – 396,262 25 September 2008 25 September 2011(3) 25 September 2018 – – 1,391 0.0p 87,218 88,609 25 September 2008 25 September 2012(4) 25 September 2018 – – – 0.0p 99,999 99,999 13 October 2009 13 October 2012(5) 13 October 2019 889,460 – – 0.0p 889,460 – 13 October 2009 13 October 2013(6) 13 October 2019 889,460 – – 0.0p 889,460 – 1,778,920 – 1,480,052 2,561,606 2,262,738 79 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
22 Share capital continued Performance 31 December 31 December Performance shares vested/ Performance 2008 2007 Earliest Vesting/(1) shares granted exercised shares lapsed Exercise price number in number in Issue date exercise date(1) Latest exercise date* in the year in the year in the year per share issue issue 15 May 2007 15 May 2010(1) 15 May 2017 – – (3,537) 0.0p 459,057 462,594 15 May 2007 15 May 2011(2) 15 May 2017 – – – 0.0p 102,781 102,781 15 May 2007 15 May 2010(1) 15 May 2017 – – – 100.0p 48,154 48,154 15 May 2007 15 May 2011(2) 15 May 2017 – – – 100.0p 275,984 275,984 25 October 2007 25 October 2010(1) 25 October 2017 – – – 0.0p 58,261 58,261 13 March 2008 13 March 2011(3) 13 March 2018 622,127 – (7,157 ) 0.0p 614,970 – 13 March 2008 13 March 2012(4) 13 March 2018 57,721 – – 0.0p 57,721 – 13 March 2008 13 March 2011(3) 13 March 2018 60,940 – – 100.0p 60,940 – 13 March 2008 13 March 2012(4) 13 March 2018 396,262 – – 100.0p 396,262 – 25 September 2008 25 September 2011(3) 25 September 2018 88,609 – – 0.0p 88,609 – 25 September 2008 25 September 2012(4) 25 September 2018 99,999 – – 0.0p 99,999 – 1,325,658 – (10,694) 2,262,738 947,774
*Vesting of these awards will be satisfied by market purchase of shares. Performance condition footnotes: (1) Awards subject to stretching growth targets in the gross value of SVG Advisers Limited over three financial years of the Company ending 31 December 2009. The targets were not met and the awards have lapsed. (2) Awards subject to performance conditions based on growth in the Company’s undiluted Net Asset Value per Share of the Company (“NAV”) over four financial years ending 31 December 2010. Specifically, 25% and 100% of an award will vest or become capable of exercise if average annual NAV growth over the performance period is equal to 10% and equal to or greater than 18% respectively. For performance between these two points awards will vest on a straight-line basis. (3) Awards subject to stretching growth targets in the gross value of SVG Advisers Limited over three financial years of the Company ending 31 December 2010. (4) Awards subject to performance conditions based on growth in the Company’s undiluted Net Asset Value per Share of the Company (“NAV”) over four financial years ending 31 December 2011. Specifically, 25% and 100% of an award will vest or become capable of exercise if average annual NAV growth over the performance period is equal to 10% and equal to or greater than 18% respectively. For performance between these two points awards will vest on a straight-line basis. (5) Awards subject to performance conditions based on growth in Total Shareholder Return (“TSR”) over three financial years ending 13 October 2012. Specifically, 25% and 100% of an award will vest or become capable of exercise if average annual NAV growth over the performance period is equal to 10% and equal to or greater than 18% respectively. For performance between these two points awards will vest on a straight-line basis. (6) Awards subject to performance conditions based on growth in the Company’s undiluted Net Asset Value per Share of the Company (“NAV”) over four financial years ending 31 December 2011. Specifically, 25% and 100% of an award will vest or become capable of exercise if average annual NAV growth over the performance period is equal to 10% and equal to or greater than 18% respectively. For performance between these two points awards will vest on a straight-line basis. The price of an ordinary share on 13 October 2009, when awards were granted under the PSP, was 126.2p. The price of an ordinary share on 13 March 2008 and 25 September 2008, when awards were granted under the PSP, was 708.5p and 579.0p, respectively. The fair value of equity-settled performance shares granted is estimated as at the date of grant using a stochastic model, taking into account the terms and conditions upon which the performance shares were granted.
23 Reserve accounts The purpose of the various reserve accounts used by the Group is set out below.
Share premium account The net proceeds of share issues in excess of the nominal value of such shares are credited to the share premium account.
Capital redemption reserve This reserve represents the nominal amount of the Company’s own shares that have been purchased for cancellation. The amounts included in this reserve represent transfers from the Company’s share capital account.
Share purchase reserve On 24 June 1998, the Company obtained permission from the High Court to cancel its share premium account (in existence at that date) and set up a new distributable reserve, the share purchase reserve, against which the cost of purchasing the Company’s own shares for cancellation can be debited.
Share option reserve The Group’s share option reserve represents the fair value amounts in respect of options issued that have been charged through the income statements of SVG Advisers Limited and SVG Advisers Inc, as well as related deferred tax. The Company’s share option reserve represents the corresponding amount included in SVG Capital’s accounts as a contribution to subsidiaries (note 17). Notes to the accounts continued 80
23 Reserve accounts continued
Convertible bonds – equity This reserve represents the equity component of the convertible bonds 2016, which were issued on 5 June 2008 (see note 19).
Hedge reserves This reserve includes the effective portion of unrealised gains or losses on cash flow hedges.
Capital reserves This reserve represents cumulative capital profits and losses. As an investment trust (defined by the Income and Corporation Taxes Act 1988), the Company is prohibited by its Articles of Association from distributing as dividend any surpluses arising from the realisation of investments.
Revenue reserve As an investment company (defined by the Companies Act 2006, as amended), the Company’s revenue reserve represents its profits available for distribution.
24 Net asset value per ordinary share (“Shareholders’ funds”)
31 December 2009 31 December 2008 Group Company Group Company £’000 £’000 £’000 £’000 Basic 199.9p 198.9p 312.2p 305.0p Diluted 198.2p 197.3p 308.1p 301.0p
Calculation of the net asset values per share are based on Group net assets attributable to equity shareholders of the parent of £620,432,000 (31 December 2008: £434,173,000), Company net assets of £617,424,000 (31 December 2008: £424,150,000) and on 310,407,923 (31 December 2008: 139,069,901) ordinary shares in issue at the year end. The Group diluted net asset values per share assume that share options and performance shares (note 22) 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 2,561,606 ordinary shares (31 December 2008: 2,084,824) for consideration of £nil (31 December 2008: £720,000). The Company diluted net asset values per share assume that share options and performance shares (note 22) 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 2,561,606 ordinary shares (31 December 2008: 2,084,824) for consideration of £nil (31 December 2008: £720,000). The convertible bonds 2016 are exercisable at a strike price of 648p (2008: 1000p) and are therefore not dilutive at 31 December 2009 or 2008. Therefore, the calculation of the diluted net asset value per share of the Group is based on Group net assets attributable to equity shareholders of £620,432,000 (31 December 2008: £434,893,000), and on 312,969,529 (31 December 2008: 141,154,725) ordinary shares in issue at the year end. The diluted net asset per share of the Company is based on Company net assets of £617,424,000 (31 December 2008: £424,870,000) and on 312,969,529 (2008: 141,154,725) ordinary shares.
Reconciliation of NAV per share adjusting for the share issue The opening NAV per share is not directly comparable to the closing NAV per share because of the significant share issue during the period at a discount to the prevailing NAV per share. The following table illustrates the impact of the share issue on the opening NAV per share:
Undiluted Group £’000 Shares in issue NAV per share Opening shareholders’ funds 434,173 139,069,901 312.2p Net proceeds from rights issue and placing 160,567 171,338,022 93.7p Opening shareholders’ funds adjusted for share issue 594,740 310,407,923 191.6p Gain attributable to equity shareholders of the parent company 22,872 310,407,923 7.4p Other reserve movements during the period (hedging) 2,820 310,407,923 0.9p Closing shareholders’ funds 620,432 310,407,923 199.9p 81 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
24 Net asset value per ordinary share (“Shareholders’ funds”) continued Diluted NAV Group £’000 Shares in issue per share Opening shareholders’ funds – dilutive basis 434,893 141,154,725 308.1p Adjustment re lapses and grants of performance shares (720) 476,782 Net proceeds from rights issue and placing 160,567 171,338,022 93.7p Opening shareholders’ funds adjusted for share issue 594,740 312,969,529 190.0p Loss attributable to equity shareholders of the parent company 22,872 312,969,529 7.3p Other reserve movements during the year (hedging) 2,820 312,969,529 0.9p Closing shareholders’ funds – dilutive basis 620,432 312,969,529 198.2p
25 Reconciliation of operating profit to net cash inflow from operating activities Year ended Year ended Year ended Year ended 31 December 31 December 31 December 31 December 2009 2009 2008 2008 Group Company Group Company £’000 £’000 £’000 £’000 Profit/(loss) before tax 21,252 28,869 (862,463) (868,439) Adjustments for: (Gains)/losses on investments (51,322) (50,757) 814,016 813,758 Exchange gains/(losses) on other items (5,514) (7,868) 38,821 39,280 Finance costs 38,961 39,436 32,277 34,115 Depreciation of property, plant and equipment 593 – 795 – Loss on sale of property, plant and equipment 7 – – – Share option expense 64 – (1,868) – Operating cash flows before movements in working capital 4,041 9,680 21,578 18,714 Increase/(decrease) in receivables (3,898) (164) 29,266 1,795 Increase/(decrease) in payables 1,335 500 (31,411) (2,640) Cash generated by operations 1,478 10,016 19,433 17,869 Taxes (paid)/recovered (1,840) 5,515 (109) 3,120 Interest paid (40,995) (42,029) (24,420) (25,649) Net cash (used in)/from operating activities (41,357) (26,498) (5,096) (4,660)
Purchases and sales of investments are considered to be investing activities rather than operating activities. Notes to the accounts continued 82
26 Post balance sheet events In February 2010 the Company renegotiated its loan facility. As a result of these discussions, the term of the facility was extended from 11 March 2011 to 17 January 2013, and it was agreed that the loan facility would be reduced from €550 million to €325 million, with further step-downs to €320 million on 11 March 2011, €315 million on 11 September 2011 and €250 million on 11 March 2012. The Company also sold its investment in KC II for €0.75 million.
27 Analysis of changes in net cash/(debt) Cash and Cash Short-term Long-term Net cash/ For the year ended 31 December 2009 equivalents debt debt (debt) Group £’000 £’000 £’000 £’000 Balance brought forward 130,627 – (434,834) (304,207) Foreign exchange movements (27,068) 3,726 22,742 (600) Amortisation of issue costs – – (2,943) (2,943) Gain on buy-back of convertibles – – 1,943 1,943 Cash flow 40,508 (101,460) 92,367 31,415 Balance carried forward 144,067 (97,734) (320,725) (274,392)
Cash and Cash Short-term Long-term Net cash/ For the year ended 31 December 2008 equivalents debt debt (debt) Group £’000 £’000 £’000 £’000 Balance brought forward 183,487 – (218,137) (34,650) Foreign exchange movements 41,048 – (75,926) (34,878) Amortisation of issue costs – – (1,252) (1,252) Transfer to equity on issue of convertible bonds – – 14,726 14,726 Cash flow (93,908) – (154,245) (248,153) Balance carried forward 130,627 – (434,834) (304,207)
Cash and Cash Short-term Long-term Net cash/ For the year ended 31 December 2009 equivalents debt debt (debt) Company £’000 £’000 £’000 £’000 Balance brought forward 113,576 – (434,834) (321,258) Foreign exchange movements (24,816) 3,726 22,742 1,652 Amortisation of issue costs – – (2,943) (2,943) Gain on buy-back of convertibles – – 1,943 1,943 Cash flow 42,307 (101,460) 92,367 33,214 Balance carried forward 131,067 (97,734) (320,725) (287,392)
Cash and Cash Short-term Long-term Net cash/ For the year ended 31 December 2008 equivalents debt debt (debt) Group £’000 £’000 £’000 £’000 Balance brought forward 152,416 – (218,137) (65,721) Foreign exchange movements 39,264 – (75,926) (36,662) Amortisation of issue costs – – (1,252) (1,252) Transfer to equity on issue of convertible bonds – – 14,726 14,726 Cash flow (78,104) – (154,245) (232,349) Balance carried forward 113,576 – (434,834) (321,258) 83 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
28 Related party transactions Lynn Fordham is a member of the Advisory Committees of certain of the Permira funds in which the Company invests. She does not receive fees for these services. Nicholas Ferguson and members of his family have an interest in the Carried Interest in respect of certain private equity funds. With the introduction of the Executive Share Option Plan in May 2001, Nicholas Ferguson gave up a portion of his entitlement to Carried Interest on existing private equity funds and any entitlement he may have to Carried Interest on certain private equity funds launched after 2001 in return for share options granted by the Company under the Executive Share Option Plan. Nicholas Ferguson also participates in the Schroder Ventures Co-Investment Scheme and Schroder Ventures Investments Limited. He has received no new carried interest allocations and made no new commitments since he joined SVG Capital in 2001. As detailed in the Remuneration Report, Andrew Williams was employed by Schroder Investment Management Limited and is a member of Schroders Retirement Benefits Scheme. Mr Williams, a former executive Director, was seconded to SVG Advisers, which paid all the costs of his employment. Andrew Williams resigned as a Director on 8 May 2009 and his employment with Schroder Investment Management Limited terminated on 31 October 2009. At the date of his resignation, Damon Buffini had an interest in 12,450,000 SVG Capital shares since he has an interest in Permira Holdings Limited, the parent of Permira Capital Limited which owned 12 million SVG Capital shares. In addition Mr Buffini holds 450,000 shares. As such Damon Buffini’s total interest in SVG Capital was 12,450,000 shares. Further, Permira Holdings Limited is a party to an operating agreement with the Company dated 21 March 2005 (more particularly described in a Circular to shareholders dated 24 March 2005) pursuant to which (a) the SVG Capital Group has committed to be the major investor in future funds designed, managed or advised by entities in the Permira Group and during the term of that agreement is entitled to access to such funds; and (b) SVG Capital Group has agreed not to commit to any private equity fund or product for direct investment, other than agreed commitments to other private equity funds and Japan funds, which are not designed, managed or advised by entities in the Permira Group. As a result of Mr Buffini’s interest in the Permira entities described above, Mr Buffini did not participate in any decisions relating to commitments made, or which may be made, by the SVG Capital Group to any funds or products designed, managed or advised by entities in the Permira Group. Damon resigned as a Director of the Company on 6 May 2009. The interests of Directors in SVG Capital’s shares are detailed in the Report of the Directors on page 31. In addition, certain Directors also have an interest in funds managed or advised by the SVG Capital Group, as detailed below: Director * Investment in SVG Funds** Damon Buffini*** (resigned 6 May 2009) – 5,000,000 shares in SVG Diamond Private Equity III plc Nicholas Ferguson – 400,000 shares in Sapphire (PCC) Limited Anthony Habgood (resigned 6 May 2009) – 400,000 shares in SVG Diamond Private Equity III plc – 20,000 shares in Strategic Equity Capital plc Denis Raeburn – 500,000 shares in SVG Diamond Holdings II Limited – 1,000,000 shares in SVG Diamond Private Equity III plc Charles Sinclair – 200,000 shares in Sapphire (PCC) Limited – 250,000 shares in Schroder Private Equity Fund of Funds III plc – 900 shares in SVG UK Focus Fund – 100,000 shares in SVG Diamond Holdings II Limited – 150,000 shares in SVG Diamond Private Equity III plc Andrew Sykes (appointed 8 February 2010) – 100,000 shares in SVG Diamond Holding Limited – 100,000 shares in SVG Diamond II Holdings Limited – 100,000 shares in SVG Diamond III plc – 43,182 shares in Schroder Private Equity Fund of Funds plc – 125,000 shares in Schroder Private Equity Fund of Funds III plc – 200,000 shares in Sapphire (PCC) Limited – 3,911 shares in SVG UK Focus Fund Andrew Williams (resigned 8 May 2009) – 100,000 shares in SVG Sapphire (PCC) Limited
* Including beneficial interests of spouses and children. ** Holdings are unchanged from the prior year. *** Mr Buffini has an indirect interest in this investment, which is held by Permira Group Investments Limited. No other Director has any material interest in any other contract that is significant to the Company’s business. The Directors are the only key management personnel of the Company. Details of their remuneration are included in the Remuneration Report. Notes to the accounts continued 84
28 Related party transactions continued The Company invests in a number of funds for which its subsidiary companies, SVG Advisers Limited (“SVGA”) or SVG Investment Managers Limited (“SVG IM”), act as either investment adviser or investment manager and receive fees for their services. The following table details funds managed or advised by SVG IM or SVGA that are also part of SVG Capital’s investment portfolio. Uncalled commitment Valuation Investment Manager/Adviser £’million £’million Permira feeder vehicles: P123 SVGA – 40.5 P1234 SVGA 6.8 44.5 P25 SVGA 5.9 71.7 Sapphire IV SVGA 0.2 0.2 SVG Sapphire IV SVGA 2.5 2.8 Generalist funds of funds: SVG Diamond Holdings SVGA – 42.7 SVG Diamond Holdings II SVGA – 19.2 SVG Diamond Holdings III SVGA 22.1 7.3 SVG Asia Fund of Funds SVGM 21.5 2.0 Schroder PE Fund of Funds III Schroders/SVGA 0.2 0.4 Other investments: SVG India LP PEIAL* 0.3 8.1 Public equity vehicles: SVG Focus Fund SVG IM – 9.5 SVG Alpha Fund SVG IM – 0.6 SVG European Fund SVG IM – 6.0 Strategic Equity Capital plc SVG IM – 8.1 Strategic Recovery Fund II co-investment SVG IM 8.4 15.4
* Private Equity Investment Advisers Limited (“PEIAL”) is a joint venture investment advisory company based in Mauritius in which SVGA holds a 50% interest in the equity shares. Aegon Investment Management BV was the largest investor in SVG Capital plc at 31 December 2008, prior to the Placing and Rights Issue. As part of the Placing announced by the Company on 18 December 2008, the Company agreed to place 10,300,000 new Ordinary Shares with Aegon Nederland NV. The Company paid a commission to Aegon Nederland NV in respect of such Placing of £180,250. The Company also paid a commission of £430,564 to Aegon Nederland NV in respect of its irrevocable undertaking to take up its rights under the Rights Issue announced by the Company on 18 December 2008. In addition, Aegon is the largest investor in SVGA’s range of products. As such it could be considered a major supplier under IFRS 8, although since the products in which it has already invested are closed-ended, SVGA’s current revenue stream is not reliant on Aegon maintaining its existing investments. A number of other major investors, including Aviva, Schroders and Permira, signed irrevocable agreements to participate fully in the Rights Issue. In return for these commitments, the Company paid a 1.75% commission to such shareholders in respect of their take-up of shares in the Rights Issue. Coller International Partners were the major participators in the overall placing of 70 million shares, taking up 50 million shares. The Company has an investment in KC II, a Dublin-based corporate finance company holding 29.9% of the issued shares of KC II (24.9% on a diluted basis). This holding was sold following the year-end for consideration of €750,000. In December 2009, the Company transferred its holdings in certain CLO funds to Key Capital in exchange for €3.3 million in cash and some shares in two SVG-advised funds (details below). The CLO funds were as follows: Key Capital SVG CLO Equity Fund; Key Capital SVG CLO Equity Fund II; Clavos Euro CDO; Cordatus Loan Fund; Cordatus Loan Fund II; Dalradian European CLO IV; and Jubilee CDO IV. These assets were included in the June 2009 balance sheet at nil value. The fund assets received from Key Capital were: 250,000 SVG Diamond III shares; and 1,000,000 Sapphire IV shares. SVG Capital has no employees but uses the services of its wholly-owned subsidiary, SVGA, to provide certain advisory and administrative services to SVG Capital in return for a fee of 0.5% p.a. of gross assets. The fees payable in respect of these services for the year ended 31 December 2009 amounted to £4.4 million (2008: £6.1 million). SVGA pays for all staff costs, including the remuneration costs of the Company’s executive Director, Lynn Fordham, as well as the office costs incurred in providing the services to SVG Capital. SVG Capital has an interest in SVG India LP, in which it is the sole limited partner. PEIAL, a joint venture with SVGA, provides investment advice to SVG India LP, for which it currently receives a fee of $150,000 per annum. 85 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
28 Related party transactions continued In 2007 the Company advanced a loan of £624,000 to SVG Investment Managers Limited, for regulatory capital purposes, which remains outstanding. Interest of 5% per annum is payable on the loan. At 31 December 2008 SVGA had provided a loan of £15.0 million to SVG Capital at a commercial interest rate. A repayment of £2.0 million was made during the year. In December 2009 SVGA paid a dividend of £13.0 million to SVG Capital, which was used to fully repay the loan. During the year the Company received dividends of £13.0 million from SVGA (2008: £15.0 million), £0.4 million from SVGIM (£2008: £0.4 million) and £0.4 million (2008: £0.02 million) from the Platinum Trust. SVGA also received a dividend of $0.1 million from SVGNA. There were no other distributions paid by subsidiaries during the year. At 31 December 2009 the Company had uncalled commitments of £78.8 million to nine private equity funds that are being warehoused for future product launches. These funds have been reclassified in 2009 as investments rather than current assets. During the year SVGA received €1.6 million of Diamond I Loan Notes and €1.0 million of Diamond II Loan Notes, as part of its ongoing investment advisory fee arrangements. These Notes were purchased from SVGA by SVG Capital plc at par value on the date of issue, as the holding of investments is the main activity of the parent company. As previously disclosed, the ‘Diamond Investment Scheme’ enabled external Diamond Advisory Committee Members to purchase shares in Diamond I & II from SVG Capital. Likewise Diamond II shares were made available to SVGA staff. Until shares have been transferred they remain in the name of SVG Capital but are held on trust for the beneficiaries, pending settlement. A total of 1,035,000 Diamond I shares were sold at NAV to the Diamond Advisory Committee. A further 3,090,000 Diamond II shares were sold at NAV to staff and Diamond Advisory Committee members. At 31 December 2009 the total amounts receivable by the Company under their Scheme was £1.7 million (2008: £4.5 million). A total of 750,000 Diamond I shares and 890,000 Diamond II shares were repurchased by the Company during the year at prevailing NAV. Of these, all the Diamond I shares and 750,000 Diamond II shares were purchased from Key Capital and the other 140,000 Diamond II shares were purchased from Andrew William’s children. Related party transactions during the year were made on terms equivalent to those that prevail in arm’s length transactions.
29 Risk Financial instruments and risk profile The Company’s primary investment objective is to achieve capital appreciation by investing principally in private equity funds which are managed or advised by Permira, a leading international private equity specialist. These investments are typically illiquid. In addition, the Company holds money market instruments, cash and short-term deposits and various items such as debtors and creditors that arise directly from its operations. These financial instruments held by the Company are generally liquid. The holding of securities, investing activities and associated financing undertaken pursuant to this objective involves certain inherent risks. Events may occur that would result in either a reduction in the Group’s net assets or a reduction of revenue profits available for dividend. As an investment trust, the Company invests in securities for the long term. The Company has not taken out any derivatives contracts to date, other than the interest rate swap agreements referred to in note 20, which are used to hedge against fluctuations in interest rates with respect to the floating rate Senior Notes in issue. SVG Advisers Limited has entered into forward currency contracts, referred to in note 19, which are used to hedge against fluctuations in foreign exchange rates, since the majority of its fee income is euro-denominated but its ongoing costs are primarily sterling-denominated. Additional risks faced by the Group are explained as part of the Business Review on pages 20 to 25 and should be read in conjunction with the analysis of financial risks outlined below. Notes to the accounts continued 86
29 Risk continued
Financial instruments (a) Financial assets Company Group Floating Fixed Non-interest Floating Fixed Non-interest rate rate bearing Total rate rate bearing Total £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Currency denomination of assets at 31 December 2009: Sterling 2,531 – 163,610 166,141 15,089 – 161,215 176,304 Euro 1,972 – 561,328 563,300 1,972 – 533,543 535,515 US dollar 126,564 – 116,790 243,354 127,0 06 – 116,867 243,873 Japanese yen – – 4,312 4,312 – – 32,141 32,141 Singapore dollar – – 745 745 – – 745 745 Hong Kong dollar – – 39,671 39,671 – – 39,671 39,671 Indian rupee – – 27,154 27,154 – – 27,157 27,157 Canadian dollar – – 1,256 1,256 – – 1,256 1,256 131,067 – 914,866 1,045,933 144,067 – 912,595 1,056,662
Company Group Floating Fixed Non-interest Floating Fixed Non-interest rate rate bearing Total rate rate bearing Total £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Currency denomination of assets at 31 December 2008: Sterling 1,153 – 105,694 106,847 17,923 – 98,811 116,734 Euro 3,832 – 451,011 454,843 3,832 – 451,052 454,884 US dollar 108,591 – 132,055 240,646 108,872 – 132,861 241,733 Japanese yen – – 4,820 4,820 – – 4,820 4,820 Singapore dollar – – 1,695 1,695 – – 1,695 1,695 Hong Kong dollar – – 56,779 56,779 – – 56,779 56,779 Indian rupee – – 18,686 18,686 – – 18,634 18,634 Canadian dollar – – 1,567 1,567 – – 1,567 1,567 113,576 – 772,307 885,883 130,627 – 766,219 896,846
Non-interest bearing assets represent non-monetary items such as the Group’s investment portfolio, warehoused assets and other short-term debtors. Floating rate financial assets consist of cash at bank, short-term deposits and AAA-rated money market funds. All financial assets are included at fair value. 87 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
29 Risk continued
(b) Financial liabilities The Company had £224 million nominal (2008: £336 million nominal) of Senior Notes outstanding at the year end. The Company had in place a loan facility of €550 million with The Royal Bank of Scotland plc, The Bank of Scotland plc and Bayerische Hypo-und Vereinsbank AG at 31 December 2009, from which it had drawn €110 million (2008: nil) at the balance sheet date. Following the year end, the loan facility was renegotiated. The maximum size of the facility is currently €325 million and the term has been extended until January 2013. The Company had £115 million nominal (2008: £120 million) of subordinated convertible bonds in issue at the balance sheet date. The level of borrowing will impact on the Group’s performance by amplifying the effect of movements in the valuation of the investment portfolio. In addition to financial liabilities (note 20), the Company also has uncalled fund commitments (note 21) as at 31 December 2009 of £371 million (2008: £493 million), which are discussed below as part of commitment/liquidity risk. It should also be noted that fund investments and underlying investee companies may also utilise borrowings to varying degrees. This is particularly the case with respect to CLO funds and structured private equity funds of funds, which are highly leveraged vehicles. Currency denomination of the financial liabilities of the Group: 31 December 31 December 2009 2008 £’000 £’000 Sterling 154,032 159,021 Euro 125,337 38,280 US dollar 160,180 237, 533 439,549 434,834
Gross contractual cash-flows* (cumulative interest and principal amounts) payable on the liabilities of the Group are as follows: 31 December 31 December 2009 2008 £’000 £’000 Loan facility drawndowns (final maturity date 17 January 2013) 106,451 – Senior Notes due 18 July 2013 124,900 186,886 Senior Notes due 18 July 2014 127,350 188,753 Senior Notes due 18 July 2015 54,993 71,678 Convertible Bonds due 5 June 2016 176,592 194,250 Other creditors 10,249 6,729 Forward currency contracts (gross payments) 15,993 7,196 Interest rate swaps (net payments) 1,573 1,259 618,101 656,751
* Based on exchange rates at each year end and allowing for interest rate swaps. A more detailed analysis of the maturity profile of the Group’s financial assets, financial liabilities and gross-settled derivatives based on contractual undiscounted cash flows and year-end exchange rates is shown below. Gross settled derivatives are calculated based on the spot prices at the year-end.
Financial liabilities (maturity) The maturity groupings are based on the remaining period from the end of the reporting period to the contractual maturity date. When a counterparty has a choice of when the amount is paid, the liability is allocated to the earliest period in which the Group can be required to pay. For loan facility drawdowns this will be within three months, although the amounts will be available to be re-drawn, subject to compliance with loan covenants. For the purposes of this analysis it is assumed that the outstanding loan amount will remain drawn until the quarter-end prior to the expiry date of the facility, i.e. 31 December 2012.
Financial assets (maturity) Analysis of financial assets at fair value through profit or loss into maturity groupings is based on the long-term nature of these assets and, in the absence of evidence to the contrary, it is assumed that no distributions or realisations will occur within 12 months of the balance sheet date. Beyond that it is extremely difficult to judge the precise size or timing of such cash flows. It is, however, a requirement under IFRS 7 to disclose such an analysis and therefore a breakdown is provided in the following table for illustrative purposes. It is emphasised that the analysis is provided to comply with accounting standards. It is not a forecast and should not be construed as such. It is based on broad assumptions, further details of which are provided below the table. For other assets, the analysis into maturity groupings is based on the remaining period from the end of the reporting period to the contractual maturity date or if earlier, the expected date the assets will be realised. Notes to the accounts continued 88
29 Risk continued
Maturity analysis (Group) < 1 month 1–3 months 3–12 months 1–5 years > 5 years Total 31 December 2009 £’000 £’000 £’000 £’000 £’000 £’000 Financial assets Cash and cash equivalents 144,067 – – – – 144,067 Interest receivable 617 – – – – 617 Prepayments and other debtors 330 2,904 2,474 1,670 – 7,378 Accrued investment advisory fee income 1,528 2,088 5,409 – – 9,025 Financial assets at fair value through profit or loss 10,025 3,240 – 617,617 264,693 895,575 156,567 8,232 7,8 83 619,287 264,693 1,056,662
< 1 month 1–3 months 3–12 months 1–5 years > 5 years Total 31 December 2009 £’000 £’000 £’000 £’000 £’000 £’000 Financial liabilities Other creditors and accruals (10,249) – – – – (10,249) Loan facility drawdowns – (726) (2,179) (103,546) – (106,451) Senior Notes due 18 July 2013 (4,226) – (4,226) (116,448) – (124,900) Senior Notes due 18 July 2014 (3,877) – (3,877) (119,596) – (127,350) Senior Notes due 18 July 2015 (1,668) – (1,668) (13,341) (38,316) (54,993) Convertible Bonds due 5 June 2016 – – (9,483) (37,93 4) (129,175) (176,592) (20,020) (726) (21,433) (390,865) (167,491) (600,535)
Payments in respect of debt instruments shown above include interest and principal amounts. < 1 month 1–3 months 3–12 months 1–5 years > 5 years Total 31 December 2009 £’000 £’000 £’000 £’000 £’000 £’000 Derivatives Forward currency contracts – Gross cash inflow 4,006 – 8,558 2,043 – 14,607 – Gross cash outflow (4,442) – (9,330) (2,221) – (15,993) Interest rate swaps – Net cash inflow/(outflow) (166) – (181) (1,226) – (1,573) (602) – (953) (1,404) – (2,959)
Available liquidity /(gap) 135,945 7,506 (14,503) 227,018 97,202 453,168
The Group’s actual liquidity profile is likely to be somewhat different to the analysis outlined above. In particular, it is very difficult to predict the quantum and timing of returns on the Group’s long-term investment portfolio. As already mentioned, it is important to note that the maturity analysis in respect of financial assets at fair value (i.e. the investment portfolio) is highly subjective and is not a forecast of the expected cash flows. The amounts receivable within three months are based on actual cash flows. The residual balance has been allocated 70:30 between less than and more than five years. This is considered to be a reasonable and prudent estimate, but is no more than that. It is not a forecast. The Group’s undrawn loan facility amounts to £215 million.
Uncalled fund commitments At 31 December 2009, the Group had uncalled fund commitments of £371 million, which are expected to be drawn over a number of years. It should be noted that when these commitments are funded they will typically be used to make investments and therefore create an asset that would be expected to be realised for cash over the longer term.
Risks The main risks arising from the Company’s financial instruments are considered to be commitment risk and valuation risk. The Board reviews and agrees policy for managing these and other risks as summarised below. The Directors consider that the risks faced by the Group are primarily those faced by the Company. 89 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
29 Risk continued
Commitment/liquidity risk The nature of investing in buy-out and development capital funds entails making significant financial commitments, as shown in note 21. At 31 December 2009, the Group had significant uncalled commitments of £371.1 million (2008: £492.8 million), compared to cash balances of £144.1 million (2008: £131.1 million) and shareholders’ funds of £620.4 million (2008: £434.2 million). The Company is a ‘closed-ended’ investment trust and is therefore not subject to redemption requests from its investors. The Company’s shares are listed on the London Stock Exchange. It is anticipated that over the longer term, and in normal circumstances, the Company’s commitments to private equity funds and other financial liabilities will be financed by available cash resources and distributions received on the realisation of underlying investments within the fund portfolio, although in the current market environment it is not anticipated that there will be significant realisations from the investment portfolio in the short term. In addition, the Group currently has a €325 million loan facility that could be drawn on, subject to financial covenants as described in note 20, to meet fund commitments as they fall due. The Board monitors liquidity risk and, if considered appropriate, could renegotiate its lending arrangements or issue new securities. The Group’s investments are mainly illiquid but, in extremis, the Board could consider selective disposals of long-term investments, if required to meet commitments as they fall due. In these circumstances it is possible, dependent on prevailing market conditions, that the realisation value of such assets could be at a significant discount to their previous carrying value. A residual risk remains that the Group could be unable to meet its future commitments in full. If as a consequence of a failure to pay a call, the Company is treated as a defaulting investor to the relevant Fund, it will suffer a resultant dilution in interest and possibly the compulsory sale of its interest. In December 2008 the Company agreed to reduce its commitment to Permira IV. The total direct commitment by the Company to Permira IV was €2.4 billion, of which 51.6% had been called. The Company elected to cap its commitment at 60% of the total. At 31 December 2009 the Company had an uncalled commitment to Permira IV of €166 million (2008: €202 million), which will only be called to finance follow-on investments and fees. The terms of these arrangements require that future distributions from the realisation of portfolio companies receivable by those investors in Permira IV that elected to cap their commitments will be reduced by 25%, such benefit to accrue to the Limited Partners that did not elect to cap their uncalled commitments. The Company’s loan facility expires in January 2013. The Senior Notes in issue mature between July 2013 to July 2015 (see note 20). The Convertible Bonds are repayable in 2016. The Board manages liquidity risk by regularly and rigorously reviewing cash flow forecasts and available funding options. Commitments to fund investments are reviewed by the Board.
Valuation/market price risk The Company’s exposure to valuation risk comprises mainly movements in the value of its underlying investments. A breakdown of the Fund portfolio is given on pages 26 and 27 and a detailed analysis of the 20 largest underlying companies is given on pages 17 to 19. In accordance with the Company’s accounting policies, set out on pages 54 to 58, all underlying investments are valued at fair value by the Directors in accordance with the current International Private Equity and Venture Capital (“IPEV”) Valuation Guidelines. The IPEV Guidelines contain detailed methodology setting out best practice with respect to valuing unquoted investments. It should be noted that a large proportion of the Company’s underlying investee companies are expected to be unquoted and therefore the valuation of such companies involves exercising judgement. The Company does not hedge against movements in the value of these investments. Uncertainty arises as a result of future changes in the valuation of the Company’s underlying investments, the majority of which are unquoted, and the effect changes in exchange rates may have in the sterling value of these investments. Development-stage equity investments and early-stage equity investments, by their nature, involve uncertainty as to the ultimate value likely to be realised on the disposal of those investments, particularly as their unquoted nature means that a ready market may not exist for them. As an indication of the valuation risk facing the Company, in 2009 the Group benefited from gains on its investment portfolio totalling £57.5 million (2008: loss of £818.6 million). The Company’s sensitivity to valuation risk will be affected by changes in the Company’s levels of borrowing (see note 20) and liquidity, as approved by the Board. It will also be affected by leverage in the funds in which we invest and the local currency denomination of such funds, which is considered separately under currency risk. At 31 December 2009, a 10% movement in the valuation of the Group’s aggregate investments designated as fair value through profit and loss, would result in a 14.4% (2008: 17.3%) change in Shareholders’ funds. Valuation risk will be affected by leverage in the underlying investee companies. A sensitivity analysis has been performed on the valuations of the 20 largest underlying investee companies, which had an aggregate valuation (before providing for carried interest) of £740.2 million or 92.9% of the gross private equity fund portfolio valuation (2008: £568.9 million or 91.3%), the results of which are set out in the table below.
Hypothetical Hypothetical fair value fair value (10% write- Fair value (10% uplift)* down)* £’million £’million £’million 31 December 2009 Gross valuation of 20 largest investee companies 740.2 943.3 560.7 Change in valuation/effect on income +27.4% –24.3% 31 December 2008 Gross valuation of 20 largest investee companies 568.9 754.0 388.8 Change in valuation/effect on income +32.6% –31.6%
* All investments are included in the balance sheet at fair value. Quoted companies are valued based on market prices and recently acquired unquoted investments may be carried at cost. For such investments, a 10% movement in the valuation basis will have a 10% impact on fair value. For unquoted investments valued on a different basis, such as earnings-related, a 10% movement in the earnings of the investee company will not necessarily result in a 10% change in fair value, because of other factors such as the level of debt utilised by the investee companies. The Board manages valuation risk by reviewing and approving the valuation of the private equity fund portfolio. Notes to the accounts continued 90
29 Risk continued
Holdings risk In certain circumstances, the Company may wish to transfer its holdings in particular funds. In a majority of the funds in which the Company will invest, the general partner, trustee or manager has the ultimate right, similar to that exercisable by a board of a private company, to refuse to register the transfer of an interest. While the Company has no reason to believe that any request for the transfer of an interest would be refused, it is of course conceivable that the general partner’s, trustee’s or manager’s overriding fiduciary duty could result in its refusing to register a particular transfer proposed by the Company.
Concentration risk The Directors believe that the diversified nature of the underlying investments in the Group’s private equity fund portfolio reduces the risks normally associated with making investments in the buy-out and development capital markets. However, it should be noted that, in accordance with its stated investment objective, the Group intends to focus its investments principally in private equity funds that are managed or advised by Permira. As outlined in note 9, the future performance of the Group will therefore be largely dependent on the future performance of the Permira Funds in which we invest (see notes 3 and 30 for an indication of the Group’s exposures). The Directors believe that this represents an opportunity, but investors should also be aware that greater concentration of the investment portfolio also presents a risk.
Interest rate risk The Group’s revenue will be affected by changes in prevailing interest rates since a large portion of its income ordinarily derives from money market instruments and bank deposit interest. It also pays interest on its Senior Notes and drawings on the loan facility that may be taken out from time to time. The Company’s primary objective is to achieve capital returns from its investments and, as such, the main exposure to interest rate risk is indirect, through its impact on the valuation of the private equity funds, although it is not possible to quantify such effects. Interest rates are one of the key determinants of economic growth. At a more specific level, interest rates and credit spreads also have an important role in the ability of private equity funds to secure profitable deals, as many transactions are partly financed by debt. The effect of interest rate changes on the valuation of investments and debt forms part of valuation risk, which is considered separately. At 31 December 2009, the Group held investments in AAA-rated money market funds valued at £126.4 million (2008: £111.4 million), earning interest at market rates. The money market funds are redeemable on less than 24 hours’ notice. Other floating rate financial assets comprised cash at bank or short-term deposits. At 31 December 2009, the Group had £220.6 million (2008: £332.2 million) of Senior Notes in issue and £100.1 million (2008: £102.6 million) of Bonds (see note 20). Interest rate risk on the Senior Notes and the Bonds is mitigated as the Bonds and most of the Notes pay fixed rates of interest and swap agreements have been taken out with respect to the floating rate notes. The weighted average interest rate payable on the Notes and the swaps amounted to 8.7% at 31 December 2009. The timing of the cash flows in respect of the interest rate swaps exactly matches those of the floating rate notes that are being hedged. All interest payments on the Senior Notes are effectively fixed and the Company considers that the swaps are effective in providing a hedge against interest rate risk. The fair value of the interest rate swaps included in the balance sheet amount to a liability of £775,000 at 31 December 2009 (2008 liability of £846,000) and have been valued by The Royal Bank of Scotland plc, the swap counterparty.
Credit risk There are no significant concentrations of credit risk within the Group unless otherwise disclosed. The Group is subject to credit risk on its cash and cash equivalents. The maximum credit risk exposure relating to cash and cash equivalents is represented by carrying value as at the balance sheet date. The Group’s cash and deposits are held with a variety of counterparties with a credit rating of AA or better. Cash equivalents at the year end comprised money market funds with a variety of counterparties, each fund having a credit rating of AAA.
Currency risk The Group is exposed to currency risk directly since the majority of its assets and liabilities are denominated in foreign currency and their sterling value can be significantly affected by movements in foreign exchange rates. The Company does not normally hedge against foreign currency movements affecting the value of its investments, but takes account of this risk when making investment decisions. However, the Group has issued Senior Notes of US$345 million and €40 million, respectively, which act as a partial hedge against assets denominated in those currencies and could be swapped into other currencies if deemed appropriate. The Group also has a €325 million loan facility which, if drawn, would act as a hedge against the currency risk on the value of its euro-denominated assets. The Group has also entered into forward foreign exchange contracts to mitigate against movements in exchange rates. These contracts are primarily to provide a cash flow hedge against euro-denominated investment management and advisory fees receivable by subsidiary companies in 2009 and 2010. The total outstanding under such contracts at 31 December 2009 amounted to a sale of €18.0 million in exchange for £14.6 million. A fair value loss of £1.4 million (2008: £5.7 million) was taken to equity in respect of these contracts as a result of the appreciation of euro against sterling since the contracts were entered into. 91 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
29 Risk continued A sensitivity analysis has been performed on the valuations on the effect of exchange rate fluctuations on the value of shareholders’ funds, the results of which are set out in the table below. Hypothetical Hypothetical Equity value value shareholders’ (10% £ (10% £ funds depreciation) appreciation) £’million £’million £’million 31 December 2009 Equity shareholders’ funds 620.4 680.4 560.5 Change in shareholders’ funds/effect on income +9.7% –9.7% 31 December 2008 Equity shareholders’ funds 432.4 482.5 382.2 Change in shareholders’ funds/effect on income +11.6% –11.6%
Capital risk management The objective of the Company is to provide shareholders with long-term growth in capital. In pursuing this long-term objective, the Board has a responsibility for ensuring the Company’s ability to continue as a going concern. It must therefore maintain an optimal capital structure through varying market conditions. This involves the ability to: issue and buy-back share capital within limits set by the shareholders in general; and borrow monies in the short and long term. Changes to ordinary share capital are set out in note 22. Borrowings are set out in notes 19 and 20.
30 Ten largest fund investments (by value) 2009 2008 Manager/Adviser £’000 £’000 Permira IV Permira 324,987 282,632 Permira Europe III Permira 109,321 99,974 Permira Europe II Permira 80,447 61,938 P25* SVGA 71,745 30,948 P1234 SVGA 44,450 42,002 SVG Diamond SVGA 42,709 50,806 P123 SVGA 40,548 37,142 SVG Diamond II SVGA 19,154 29,967 SV Life Sciences Fund IV SV Life Sciences Advisers 18,277 12,111 Strategic Recovery Fund II SVG IM 15,382 5,769† 767,020 653,289
* Inclusive of the €40 million follow-on investment in subordinated debt. † The Strategic Recovery Fund II has moved into the top 10 at 31 December 2009 at the expense of Vintage I, which was valued at £21,882,000 at 31 December 2008. Company summary 92
The Company SVG Capital plc is a private equity investor and fund management business listed on the London Stock Exchange. SVG Capital plc carries on business as an investment trust. Investment trust companies are able to switch investments without liability for capital gains tax. This, together with the advantages of professional management and spread of risk, makes investment trusts a valuable investment medium. The Company carries on business as an investment company within the meaning of Section 833 of the Companies Act 2006. In order to obtain exemption from capital gains tax the Company conducts itself with a view to continuing as an approved investment trust for the purposes of Section 842 of the United Kingdom Income and Corporation Taxes Act 1988 (as amended). The Company is not a close company for taxation purposes.
Information for shareholders The Company’s shares are listed on the London Stock Exchange. The stock exchange code for the shares is SVI. The price of the shares is quoted daily in the Financial Times, the Daily Telegraph and The Times. The net asset value is calculated at 30 June and 31 December each year following an extensive valuation procedure. Due to the nature of the Company’s investments, it is not practical to publish the net asset value on a more frequent basis. A factsheet containing information including the diversification of the portfolio and the Company’s largest investments is published quarterly and is available on request from the Company Secretary.
Registrar services Communications with shareholders are mailed to the address held on the share register. Any notifications and enquiries relating to registered share holdings, including a change of address or other amendment should be directed to Equiniti Registrars at Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA. The helpline telephone number of Equiniti Registrars is 0871 384 2776 (calls to this number are charged at 8p per minute from a BT landline. Other telephone providers’ charges may vary).
Advisers 93 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
Head office Registrar for ordinary shares 61 Aldwych Equiniti Limited London WC2B 4AE Aspect House Telephone 020 7010 8900 Spencer Road Fax 020 7010 8950 Lancing www.svgcapital.com West Sussex BN99 6DA Telephone 0871 384 2776* Secretary and registered office Website www.shareview.co.uk
Stuart Ballard *Calls to this number are charged at 8p per minute 61 Aldwych from a BT landline. London WC2B 4AE Other telephone providers’ costs may vary. Telephone 020 7010 8900 Solicitors
Auditors Slaughter and May One Bunhill Row Ernst & Young LLP London EC1Y 8YY 1 More London Place London SE1 2AF Brokers and financial advisers
Bankers J.P. Morgan Cazenove 20 Moorgate The Royal Bank of Scotland plc London EC2R 6DA Corporate Banking Office 5–10 Great Tower Street Numis Securities London EC3P 3HX The London Stock Exchange Building 10 Paternoster Square Bank of Scotland London EC4M 7LT Level 7 Bishopsgate Building Execution Noble 155 Bishopsgate Block D London EC2M 3YB The Old Truman Brewery 91 Brick Lane Bayerische Hypo-und Vereinsbank AG London E1 6QL London Branch Moor House 120 London Wall London EC2Y 5ET Financial calendar 94
31 December Company’s year end March Preliminary results for the financial year announced March Annual Report published April Annual General Meeting 30 June Company’s half year August Half-yearly results announced September Half-yearly report published Glossary 95 SVG Capital plc Annual Report 2009 Overview Business review Corporate information Financial information Company information
Early-stage Distributions Seed: Payments to investors after the realisation of investments of the partnership. • Financing provided to allow a business concept to be developed, perhaps Divestments (or realisations or exits) involving production of prototypes and additional research, prior to bringing a product to market. Exits of investments, usually via a trade sale or an IPO (Initial Public Offering) on a stock market. Start-up: Draw downs/calls • Financing provided to companies for the use in product development and initial marketing. Companies may be in the process of being set up or may Payments to the partnership by investors in order to finance investments. have been in business for a short time, but have not sold their product Funds are drawn down from investors on a deal-by-deal basis. commercially. Fund of funds Other early-stage: Private equity funds whose principal activity consists of investing in other • Financing provided to companies that have completed the product private equity funds. Investors in funds of funds can thereby increase their development stage and require further funds to initiate commercial level of diversification. manufacturing and sales. They will not yet be generating profit. Gearing, debt/equity ratio or leverage the level of a company’s borrowings as a percentage of shareholder funds. Late-stage Expansion financing: Hurdle rate • Capital provided for the growth and expansion of a company which Arrangement that caps the downside risk for investors. It allows investors is breaking even or even trading profitably. Funds may be used to finance to get preferential access to the profits of the partnership. In the absence increased production capacity, market or product development and/or of reaching the hurdle return, general partners will not receive a share of the provide additional working capital. Capital provided for turnaround profit (carried interest). A hurdle rate of 10% means that the private equity situations is also included in this category. fund needs to achieve a return of at least 10% before the profits are shared according to the carried interest arrangement. Management Buy-Out (MBO): Limited partnership • Funds provided to enable current operating management and investors to acquire an existing business. Most private equity firms structure their funds as limited partnerships. Investors represent the limited partners and private equity managers the Management Buy-In (MBI): general partners. • Funds provided to enable a manager or group of managers from outside Realisation the Company to buy into the Company. The sale of an investment. Follow-on investment Secondary market A company which has previously received private equity. The secondary market enables institutional investors to sell their stakes Secondary purchase in a private equity partnership before it is wound up. Purchase of existing shares in a company from another private equity firm, Trade sale or from other shareholders. Sale of the equity share of an investee company to another company. Public to private Turnaround Purchase of the share capital of a company quoted on a stock exchange with the intention of de-listing the company and taking it private. A loss-making company which can be successfully transformed into a profit maker. General Terms Further information on our website Carried interest (“carry”.) www.svgcapital.com Carried interest or simply ‘carry’ represents the share of a private equity fund’s profit (usually 20%) that will accrue to the general partners. Committed funds (or “raised funds” or “committed capital”) Capital committed by investors. This will be requested or ‘drawn down’ by private equity managers on a deal-by-deal basis. This amount is different from invested funds for two reasons. Firstly, most partnerships will invest only between 80% and 95% of committed funds. Second, one has to deduct the annual management fee which is supposed to cover the cost of operation of a fund. E-communications for shareholders 96
SVG Capital would like to encourage shareholders to receive shareholder documents electronically, via our website or by email notification instead of hard copy format. This is a faster and more environmentally friendly way of receiving shareholder documents. The online ‘Shareview’ service from our registrar, Equiniti, provides all the information required regarding your shares. Its features include: The option to receive shareholder communications electronically instead of by post Direct access to data held for you on the share register including recent share movements and dividend details The ability to change your address or dividend payment instructions online.
To receive shareholder communications electronically in future, including all reports and notices of meetings, you just need the ‘shareholder reference’ printed on your proxy form or dividend notices, and knowledge of your registered address. Please register your details free on: www.shareview.co.uk / 0870 601 5366 Should you require further information, please visit: www.svgcapital.com/investors/ecommunications or contact [email protected] / 020 7010 8900 Welcome to SVG Capital plc
Company profile
SVG Capital is an international private equity investor and fund management business listed on the London Stock Exchange.
Our investment objective
SVG Capital’s investment objective is to achieve capital appreciation by investing principally in private equity funds that are managed or advised by Permira, a leading international private equity specialist. In addition, the Company invests in private equity funds that invest in Japan, North America, Asia and the life sciences sectors, and in unquoted and quoted businesses through specialist funds and co-investments alongside these funds. The Company may also invest in other private equity related assets and alternative asset classes. To complement this investment objective and create capital and income for the Company, its fund management business structures, markets, manages and advises products for investment in private equity, private equity related assets, alternative asset classes and in public equity using private equity techniques.
Contents
Overview Remuneration report 33 Welcome to SVG Capital plc 1 Corporate governance 40 SVG Capital at a glance 2 Corporate social responsibility 44 Chairman’s statement 6 Financial information Chief Executive’s statement 8 Independent auditors’ report 45 Business review Consolidated income statement 46 Investment objective 10 Consolidated statement of comprehensive income 46 Investment policy 10 Company income statement 47 Key performance indicators 10 Company statement of comprehensive income 47 Strategy 11 Consolidated statement of changes in equity 48 Marketplace 12 Company statement of changes in equity 49 Financial review 12 Consolidated balance sheet 50 Portfolio review 14 Company balance sheet 51 Largest investments 14 Consolidated cash flow statement 52 20 largest underlying companies 17 Company cash flow statement 53 SVG Advisers 20 Notes to the accounts 54 Contractual arrangements 20 Company information Risks and risk management 20 Company summary 92 Corporate information Advisers 93 List of investments (Group) 26 Financial calendar 94 Directors 28 Glossary 95 Report of the Directors 30 E-communications for shareholders 96 SVG Capital plc SVG Capital plc Annual Report and Accounts 2009 SVG Capital plc Head office Annual Report 2009 61 Aldwych London WC2B 4AE Telephone 020 7010 8900 Fax 020 7010 8950 www.svgcapital.com
Annual Report and Accounts 2009
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