EUROPE - Candover reveals full extent of downturn

In a statement that reflected the severe pressures being felt by firms at the larger end of the value spectrum - and therefore the sharp end of the current downturn - the group wrote down the value of its portfolio by more than a third from £483.6m in December 2007 to £310m. The bold cuts included several writedowns against investments made in the last twelve months, something that is not required under current fair value guidelines but which the report claimed was "necessary in the current climate".

Significantly six of the firm's 22 interests were written down to zero. Included in this group is Italian yacht manufacturer Ferretti, which was reported last week as being in the midst of a restructuring from which Candover publicly pulled out. Additionally, the investment in UK-laboratory testing services group Alcontrol, which was also reported as entering restructuring negotiations last week, was written down by close to 90%.

That is not to say that the news was all bleak on the portfolio front, with 10 of the firm's investments showing an increase in value year-on-year. However, it is important to note that all bar one of these rises was due in the main to the fact that, as Euro denominated investments, they benefitted from the strength of the currency against Sterling over the year. Furthermore, four of these investments are actually interests in two private equity funds managed by French firm Ciclad and two mezzanine funds managed by ICG.

The rub
As a consequence of the stark figures, Candover is instigating a strategic review of all operations and has already announced several measures that will take place in the coming months.

Firstly, the firm has announced that it is no longer in a position to commit any capital to its 2008 fund, which held a first close on EUR 2.8bn in August 2008 and was targeting EUR 5bn. The contribution from Candover Investments was to be EUR 1bn. Discussions are currently ongoing with LPs in relation to a restructuring of the fund, which may include a temporary suspension of the investment period.

Secondly, and as has been anticipated since the fund downsizing was initially announced around two weeks ago, Candover will be making a series of redundancies across the business in an effort to reduce the cost base. In addition, the firm will no longer be able to finance investments in Asia and Eastern Europe, where it has been developing operations. The teams in these regions are said to be seeking to raise capital independently, otherwise they are to be closed.

Finally, there is to be no final year dividend, meaning the dividend for 2008 stands at just 22p per share (down from 60p in 2007).

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