Private Equity Holding AG: Annual Results 2002/2003

Securing adequate financial resources represented the major challenge throughout 2002/2003. By the end of the financial year, the combination of concurrent adverse market conditions including declining valuations of the portfolio investments, disproportionate commitments made in the past and unprecedented low levels of distributions brought the company on the verge of illiquidity. On May 14, 2003, Private Equity Holding announced the sale of part of its investment portfolio and the repayment of the Swiss Life loan. The financing of Private Equity Holding is thus secured; the company is debt free and has regained the necessary managerial flexibility to actively shape its future.

 

In the course of the financial year 2002/2003 (April 1, 2002 - March 31, 2003), the fair value per share of Private Equity Holding progressively declined from CHF 213.52 to CHF 131.70, not taking into account the effects from the refinancing transaction. The refinancing necessitates additional write-downs of the portfolio as investments are sold to CSFB at a discount to fair value; the adjusted fair value per share, taking into account the effects from the transaction, therefore amounts to CHF 60.46. The attached audited financial results for 2002/2003 and the figures presented in the following reflect the full effect and value impairment of the transaction.

 

Permanent write-downs of CHF 711 million (2001/ 2002: CHF 259 million), thereof CHF 311 million resulting from the CSFB transaction, were recorded in the income statement. Furthermore a value appreciation of CHF 34 million (depreciation of CHF 551 million) was booked against equity, resulting in a net decline in value of the portfolio of CHF 677 million (CHF 810 million). The main factors were (i) the additional write-downs in connection with the CSFB transaction, (ii) corrections of the valuations in response to the prevailing weak market conditions, and (iii) operational issues and failure by portfolio companies to meet business targets. The effects of fluctuations in the USD-CHF-exchange rate were mostly offset through currency hedges. As a result of weak markets, gains on securities available for sale declined to CHF 16 million (CHF 68 million). In summary, the financial year 2002/2003 closed with a net loss of CHF 747 million (CHF 265 million).

 

In the reporting period, total assets declined from CHF 1.20 billion to CHF 604 million. The value of the investments (securities available for sale, loans and trading securities) contracted from CHF 1.16 billion to CHF 577 million.

Outstanding commitments decreased substantially from CHF 652 million to CHF 59 million. This reduction was primarily achieved by the sale of part of the portfolio to CSFB and capital calls met, the sale of a venture participation as well as the impact of the USD-CHF currency exchange rate.

 

A private equity fund managed by CSFB will take over investments from Private Equity Holding with a total unadjusted fair value as of March 31, 2003 of CHF 616 million for a purchase price of CHF 305 million; included in the purchase price is the assumption of outstanding commitments amounting to CHF 305 million. As a result of this transaction, Private Equity Holding is able to repay the outstanding loan from Swiss Life amounting to CHF 325 million in full. The cash repayment amounts to CHF 175 million (CHF 155 million from CSFB plus CHF 20 million from Private Equity Holding), whilst the remaining outstandings of CHF 150 million are set off against a loan of Swiss Life to a CSFB-managed private equity fund. In addition, Private Equity Holding has been granted an earn-out to share in future net distributions, above defined hurdles, originating from the qualitatively best part of the portfolio sold to the CSFB-fund.

 

The retained portfolio of now CHF 268 million in fair value comprises 33 private equity funds and 22 direct and loan investments, representing 74% and 26% of the fair value respectively. Outstanding commitments were reduced by over 80% to CHF 59 million.

 

With regard to geographic and industry exposure, the retained portfolio remains diversified: While the exposure is certainly more European-centric with 64% of fair value, the portfolio remains geographically diversified with investments in Israel (6%) and in the USA (30%). Private Equity Holding remains committed to industries offering high growth potential while retaining some exposure to more traditional industries. The portfolio is well diversified by industry with communication accounting for 26% of total fair value, IT/software 26%, life science 14%, semiconductors 11% and others 23%.

 

In general, the venture funds retained in the portfolio of Private Equity Holding are expected to mature well. The majority of them has reached a stage in their life-cycle where they will only require limited additional financial resources and are expected to increase the rate of distributions in the near-term. The direct and loan portfolio offers interesting upside opportunities, particularly in life science and communications.

 

The Board of Directors of Private Equity Holding will propose to the Annual General Meeting on August 26, 2003, that the accumulated deficit be booked against the share capital premium and the nominal value of the shares of Private Equity Holding be reduced.

 

Following the completion of the CSFB transaction, Private Equity Holding will focus its activities on the further reduction of the unfunded commitments, realization of mature direct investments, and, very selectively, follow-on direct fundings to avoid dilution on attractive investments and maximize the return potential of the portfolio. As a result of this repositioning, Private Equity Holding has restored its financial health and the associated managerial freedom by means of the complete debt redemption and the massive reduction in capital commitments.

 

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Private Equity Holding AG (SWX: PEHN), managed by Swiss Life Private Equity Partners, offers investors the opportunity to invest, within a simple legal and tax optimized structure, in a broadly diversified and professionally managed private equity portfolio. For further information: www.peh.ch or Eva Kalias, Investor Relations and Communications (phone +41 41 726 79 80).