Interim Results

HG Capital Trust PLC 16 August 2005 16 August 2005 HgCapital Trust plc Interim Results for the six months ended 30 June 2005 HIGHLIGHTS - Net asset value per share (NAV) increased by 16.9% in the six months to 30 June 2005 from 484.5p (as restated) to 566.2p. Over the same period, the FTSE All-Share Index rose by 8.2% and the FTSE SmallCap Index by 7.1%, all in total-return terms. - Share price rose by 18.5% from 451.5p at 31 December 2004 to 535.0p at 30 June 2005. - New and follow on investments amounted to Â£11.3 million. - Realisations amounted to Â£22.4 million in cash. - NAV was 575.5p at 31 July 2005. - Earnings per share of 7.6p (2004: 2.5p). Historical total return performance One year Three years Five years Seven years Ten years % pa % pa % pa % pa % pa Share price 49.7 24.4 15.0 14.0 19.4 Net asset value 39.4 18.6 9.4 12.3 17.1 FTSE All-Share Index 18.7 7.8 -0.3 1.9 8.0 FTSE SmallCap Index 15.6 10.8 -0.3 4.3 7.6 Based on the Company's share price at 30 June 2005 and allowing for dividends to be reinvested, an investment of Â£1,000 ten years ago would now be worth Â£5,874. An equivalent FTSE All-Share Index return would be worth Â£2,152. The Chairman, Roger Mountford, comments: 'Conditions in the European economy are favourable to investment in private equity and the Board considers that this sector remains an attractive area. Our Investment Manager has expanded its resources in both the UK and Continental Europe, in order to broaden its access to new investment opportunities.' Investment Manager's Review Attribution analysis of movements in net asset value Â£'000 Opening net asset value as at 1 January 2005 (restated) 122,040 Gross revenue 2,937 Expenditure (1,482) Taxation (192) 2004 final dividend (2,015) Realised proceeds in excess of 31 December 2004 book value (excludes gross revenue) 6,991 Unrealised movements on investments 14,341 Closing net asset value as at 30 June 2005 142,620 Realised and unrealised movements in portfolio value Realised Proceeds Unrealised * Movements** Total Â£'m Â£'m Â£'m Verigen (1.3) (1.3) W.E.T. (1.1) (1.1) Hoseasons (0.7) (0.7) Acuid (0.5) (0.5) Bertram 0.5 0.5 Other 0.8 0.8 Match 0.8 0.8 Rolfe & Nolan 0.9 0.9 Eagle Rock 1.0 1.0 Castlebeck 1.2 1.2 Trados 1.3 1.3 Xyratex 1.4 1.4 ClinPhone 2.0 2.0 Travelsphere 2.4 2.4 Raymarine 1.9 1.0 2.9 Tunstall 3.3 3.3 FTE 6.4 6.4 Total 7.0 14.3 21.3 * Realised proceeds in excess of 31 December 2004 book value (excludes gross revenue). ** Unrealised movements on investments. At 30 June 2005 the Company's portfolio consisted of 46 investments (31 December 2004:46) and the twenty principal investments represented nearly 90% of the portfolio valuation. The portfolio's valuation increased over the six months to Â£115.4 million, reflecting continued strong trading in the majority of the principal investments, the improving fortunes of some under-performing companies and increased values of quoted holdings. The Company's net asset value during the period increased from Â£122.0 million (as restated) to Â£142.6 million, arising from realised proceeds in excess of 31 December 2004 book value of Â£7.0 million and unrealised movements of Â£14.3 million. Significant proceeds were realised from the Company's investment in FTE Automotive. The company has generated substantial earnings growth since its acquisition in 2002, which culminated in its sale during the period. In addition, the sales of Tunstall and Trados were agreed, which resulted in increased valuations. The value of quoted stock in Raymarine and Xyratex rose and we took the opportunity to realise a proportion of our shareholding in Raymarine. Travelsphere, ClinPhone, Castlebeck and Rolfe & Nolan all recorded a good increase in profits and the valuation of Eagle Rock Entertainment's catalogue also increased, while Match and Bertram showed an improvement in trading. A small number of companies within the portfolio did not fare so well. Hoseasons and W.E.T. Automotive Systems experienced an underperformance in trading; Acuid was placed in liquidation having failed to achieve its milestones; and Verigen, which had been underperforming, was sold. During the six-month period the Company invested a total of Â£11.3 million and participated in two management buy-outs of technology companies: SiTel Semiconductor BV and Addison Software und Service GmbH. Considerable proceeds were realised, amounting to Â£22.4 million. FTE Automotive was sold and other proceeds arose mainly from a sale of quoted shares in Raymarine and a partial repayment of loan stock together with accrued interest by Castlebeck. Since the period end contracts have been exchanged for the sale of Tunstall and Trados has been sold, as has the final tranche of shares in Bottomline Technologies; the Company has contributed Â£3.8 million to finance the acquisition of The Sanctuary Spa's products business; and has committed â‚¬0.8 million to a new wind farm project, Sorne Wind, based in Ireland. Sorne Wind is HgCapital's second wind farm investment in less than a year following our identification of renewable energy as a sector offering attractive leveraged returns. Tunstall's sale for Â£225.0 million follows a doubling of profits since our investment, representing an annual year-on-year growth of 15%, and a 56% increase in turnover. Over the life of the investment, the Company has realised a profit of Â£12.4 million, which equates to a return of 2.7 times cost. The sale of Trados for $60.0 million marks HgCapital's third exit from its German portfolio. Since our investment this early-stage company has nearly tripled turnover and proceeds from the sale will broadly cover cost. Proceeds from realisations further increased the Company's liquid resources to Â£20.9 million, which will rise to around Â£38 million following the sales of Tunstall and Trados. These liquid resources, combined with a Â£25.0 million borrowing facility, will allow the Company to take full advantage of a good pipeline of new investment opportunities. In addition to our presence in London and Frankfurt, HgCapital has established an office in Amsterdam as we step up our focus on the Benelux region following our continued success in the German market. Investments Company Deal Type Cost Â£'000 Elite Holding SA t/a SiTel Semiconductor MBO 5,749 Addison Luxembourg SA t/a Addison Software und Service MBO 4,633 New investments 10,382 Clarion Events Holdings Ltd MBO 709 Other (4) 180 Further investments 889 Total investments 11,271 Two new investments were made during the first six months of the year, both management buyouts of technology companies based in Germany and Holland, thus reinforcing the Company's exposure to Continental Europe investments, in line with HgCapital's investment policy. Follow-on funding was provided to five companies. Elite t/a SiTel Semiconductor The $74.0 million management buy-out of the digital cordless business unit of National Semiconductor Corporation completed in June 2005. SiTel Semiconductor, which is based in Holland, creates system products targeted primarily for the home wireless voice and data applications market. Its customers include the world's leading manufacturers of cordless systems, such as Siemens and Panasonic. HgCapital's clients, including the Company, invested Â£29.0 million in the acquisition. Addison Luxembourg t/a Addison Software und Service The â‚¬78.0 million management buy-out of Addison Software und Service completed in June 2005. Addison is a leading, privately-owned German application software company that provides business-critical solutions to two related markets - tax accountants and SMEs. It develops, licenses and manages standard and sector- specific software for bookkeeping, accounts production, tax, cost accounting, payroll and administration. HgCapital's clients invested Â£24.0 million in the acquisition. Clarion Events In June 2005 Clarion Events, the largest independent exhibition and events business in the UK, completed the Â£13.5 million acquisition of Amusement Trade Exhibitions Group, the commercial exhibition, conference, publishing and services subsidiary of the British Amusement Catering Trade Association. Clarion's portfolio now consists of 44 business and consumer events and three leading publications. HgCapital's clients invested a further Â£4.2 million to support this transaction. Other A further investment was made to purchase most of Castlebeck's warrants as part of its recapitalisation. In addition funding was provided to Euroknights III to finance a call of capital and we purchased management shares in Hoseasons and Tunstall. Realisations Company Cost Proceeds+ Â£'000 Â£'000 Â£'000 FTE Automotive GmbH - 13,492 13,492 Verigen AG 3,463 - (3,463) Full realisations 3,463 13,492 10,029 Raymarine plc 84 4,356 4,272 Castlebeck Group Ltd 2,469 3,332 863 Rolfe & Nolan Holdings plc - 804 804 Other (9) 300 454 154 Partial realisations 2,853 8,946 6,093 Total realisations 6,316 22,438 16,122 + Includes gross revenue received during the period Two investments were fully realised, both German companies, and twelve investments were partially realised. FTE Automotive In June 2005 FTE Automotive, the world's largest manufacturer of automotive clutch and brake actuation systems, was sold to PAI Partners, a Paris-based private equity firm, for â‚¬370.0 million. We acquired FTE Automotive for â‚¬180.0 million in 2002. A year later it consolidated its global presence with the acquisition of Automotive Products, the leading manufacturer of hydraulic clutch actuation systems in North America. In September 2004 we completed a â‚¬225.0 million recapitalisation, recouping 1.7 times original investment whilst increasing our shareholding. The Company has realised an overall profit of Â£18.4 million, 2.7 times original cost, from its investment in FTE Automotive. Verigen In February 2005 Verigen was sold to Genzyme Corporation, a US biotechnology company. Initial proceeds of $2.7 million are being held in escrow pending potential warranty claims. Further proceeds of up to $20.7 million are dependent on the achievement of milestones. Raymarine Since the flotation of Raymarine in December 2004, the company has been trading strongly, achieving a 43% increase in the price of its stock. In March 2005, we sold a further tranche of shares having been released from our lock-in provision. This investment has to date realised in excess of four times cost, including the value of the residual shareholding. Castlebeck In March 2005 we completed a Â£73.0 million recapitalisation of Castlebeck, the UK's leading independent provider of residential healthcare for people with learning disabilities and severely challenging behaviours. The refinancing allowed the return of the majority of our original Â£20.0 million equity investment. Rolfe & Nolan A dividend repayment was received from Rolfe & Nolan. Portfolio Analysis Asset Class Geographic spread Unquoted 68% UK and Ireland 76% Cash and other assets 19% Continental Europe 22% Quoted 13% United States 2% Valuation Basis Deal type Cost 29% Buy-out 86% Earnings 20% Expansion 7% Third party transaction 16% Venture 5% Bid-market price 15% Fund 2% Written down/off 13% Net assets 7% Sector by Valuation Vintage by valuation Technology 33% 2005 9% Healthcare 27% 2004 15% Media 14% 2003 26% Industrials 9% 2002 5% Leisure 9% 2001 10% Consumer 4% 2000 9% Other 3% 1999 17% Renewable Energy 1% Pre-1999 9% Investment Listing Company Cost Valuation Year of Value Cumulative Â£'000 Â£'000 Investment % % Tunstall Holdings Ltd 7,000 14,231 1999 12.3 12.3 Xtx Ltd t/a Xyratex** 6,995 11,827 2003 10.2 22.5 W.E.T. Automotive Systems AG 7,609 6,658 2003 5.8 28.3 Blue Minerva Ltd t/a Iris Software 6,626 6,626 2004 5.7 34.0 Travelsphere Holdings Ltd 3,899 6,447 2000 5.6 39.6 Classic Copyright (Holdings) Ltd 6,033 6,033 2003 5.2 44.8 t/a Boosey & Hawkes Elite Holding SA t/a SiTel 5,749 5,832 2005 5.1 49.9 Semiconductor, BV+ ClinPhone Holdings Ltd 2,361 5,616 1996 4.9 54.8 Eagle Rock Entertainment Ltd 3,856 5,270 2001 4.6 59.4 Clarion Events Holdings Ltd 4,965 4,965 2004 4.3 63.7 Addison Luxembourg SA t/a Addison Software und Services+ 4,633 4,677 2005 4.1 67.8 Castlebeck Group Ltd 1,407 4,223 2002 3.7 71.5 Raymarine plc* 103 3,994 2001 3.5 75.0 Rolfe & Nolan Holdings plc 238 3,264 2003 2.8 77.8 Match Holdings Ltd 3,854 3,045 1999 2.6 80.4 Hirschmann Electronics Holdings SA 2,669 2,769 2004 2.4 82.8 Trados Inc 2,492 2,187 2000 1.9 84.7 Hoseasons Group Ltd 2,155 2,155 2003 1.9 86.6 Doc M Sarl t/a DocMorris+ 1,956 1,861 2004 1.6 88.2 The Sanctuary Spa Holdings Ltd 118 1,802 1995 1.6 89.8 Other investments (26) 40,682 11,947 10.2 100.0 Total 115,400 115,429 100 * Listed on the London Stock Exchange. ** Xyratex is traded on NASDAQ. + The difference between cost and valuation is due to foreign exchange rate movements. The Company invests alongside other clients of HgCapital. Typically, the Company's holding forms part of a much larger stake in buy-outs of companies with enterprise values of between Â£25 million and Â£250 million, controlled by clients of HgCapital. The Investment Manager's Review generally refers to each transaction in its entirety, apart from the tables, which reflect the Company's participation, and where it specifically says otherwise. The Company currently has an allocation of some 20% to new investments made by HgCapital. For further information please contact: Roger Mountford- Chairman, HgCapital Trust plc Tel: 07799 662601 www.hgcapitaltrust.net Ian Armitage - Partner, HgCapital Tel: 020 7089 7979 www.hgcapital.net Suzanne Bartch, Peter Ogden The Maitland Consultancy Tel: 020 7379 5151 REVENUE STATEMENT for the six months ended 30 June 2005 Six months Six months Year ended ended ended 30.6.05 30.6.04 31.12.04 Â£'000 Â£'000 Â£'000 Notes (unaudited) (unaudited) (audited)* Income 6 2,937 1,460 4,905 Investment management fee 7 (310) (296) (604) Other expenses 8 (241) (231) (484) Net revenue before finance costs and taxation 2,386 933 3,817 Interest payable and similar charges - (46) (110) Revenue on ordinary activities before taxation 2,386 887 3,707 Taxation on ordinary activities (471) (266) (1,058) Transfer to reserves 1,915 621 2,649 Return per ordinary share 7.60p 2.47p 10.52p * Restated: see note 3 The final dividend of 8.00p per share in respect of the year ended 31 December 2004 was declared on 19 April 2005 and paid on 29 April 2005. RETURN PER ORDINARY SHARE Six months Six months Year ended ended ended 30.6.05 30.6.04 31.12.04 (unaudited) (unaudited) (audited) Earnings 7.60p 2.47p 10.52p Capital return 82.11p 25.56p 89.04p Total return 89.71p 28.03p 99.56p BALANCE SHEET as at 30 June 2005 30.6.05 30.6.04 31.12.04 Â£'000 Â£'000 Â£'000 (unaudited) (unaudited) (audited)* Fixed assets Investments Listed 17,832 15,411 17,630 Unquoted 97,597 90,681 85,642 115,429 106,092 103,272 Current assets Debtors 7,058 10,673 6,808 Government securities 16,104 - 11,884 Cash 4,829 634 1,180 27,991 11,307 19,872 Creditors - amounts falling due within one year (800) (13,373) (1,104) Net current assets/(liabilities) 27,191 (2,066) 18,768 Net assets 142,620 104,026 122,040 Capital and reserves Called up share capital 6,296 6,296 6,296 Share premium account 14,123 14,123 14,123 Capital redemption reserve 1,248 1,248 1,248 Capital reserve - realised 114,366 85,016 100,834 Capital reserve - unrealised (59) (7,375) (7,207) Revenue reserve 6,646 4,718 6,746 Total equity shareholders' funds 142,620 104,026 122,040 Net asset value per ordinary share 566.2p 413.0p 484.5p * Restated: see note 3 SUMMARISED CASH FLOW STATEMENT for the six months to 30 June 2005 Six months Six months Year ended ended ended 30.6.05 30.6.04 31.12.04 Â£'000 Â£'000 Â£'000 (unaudited) (unaudited) (audited) Net cash inflow/(outflow) from operating activities 655 (1,424) 4,257 Returns on investments and servicing of finance - (46) (110) Taxation received/(paid) 353 (822) (1,604) Capital expenditure and financial investment Purchase of fixed asset investments (11,271) (4,786) (21,937) Proceeds from the sale of fixed asset investments 20,640 1,421 38,153 Equity dividends paid (2,015) (3,022) (3,022) Management of liquid resources (4,713) 17 (11,603) Net cash inflow/(outflow) from drawdown/(repayment) of loans - 8,750 (3,500) Increase in cash in the period 3,649 88 634 Reconciliation of net REVENUE return before finance costs and taxation to net cash flow from operating activities Six months Six months Year ended ended ended 30.6.05 30.6.04 31.12.04 Â£'000 Â£'000 Â£'000 (unaudited) (unaudited) (audited) Net return before finance costs and taxation 2,386 933 3,817 Investment management fee and finance costs charged to capital (931) (1,025) (2,141) (Increase)/decrease in accrued income (599) (1,378) 4,088 (Decrease)/increase in creditors (28) 125 133 Tax on investment income included within gross income (173) (79) (1,640) Net cash inflow/(outflow) from operating activities 655 (1,424) 4,257 NOTES TO THE INTERIM ANNOUNCEMENT 1. Principal activity The principal activity of the Company is that of an investment company within the meaning of section 266 of the Companies Act 1985. 2. Basis of preparation The accounts have been prepared under the historical cost convention, modified to include the revaluation of investments and in accordance with applicable Accounting Standards and with the Statement of Recommended Practice ' Financial Statements of Investment Trust Companies' dated January 2003. All of the Company's operations are of a continuing nature. The same accounting policies used for the year ended 31 December 2004 have been applied with the following exception. Under FRS 21 - Events after the Balance Sheet Date, dividends should not be recognised in the accounts unless they have been declared and paid before the Balance Sheet date. Final dividends are therefore recognised in the period in which they are declared and paid. As a result of this change the accounts for the year ended 31 December 2004 and 31 December 2003 have been restated as per note 3 below. Additionally the Company has adopted a change in the basis of measurement of the valuation of listed investments to comply with FRS 26 Financial Instruments: Recognition and Measurement. Prior to 1 January 2005, listed investments were valued at fair value, based on middle market prices with marketability discounts applied where there was a risk the holding was not immediately saleable, or formal trading restrictions were in place. Following the introduction of FRS 26, listed investments are now valued at fair value which is based on bid market prices. Unlisted investments continue to be valued at fair value in accordance with the accounting policies set out in the year ended 31 December 2004 accounts. The effect of this change is to decrease the value of listed investments at 30 June 2005 and to decrease by Â£59,000 the net return on ordinary activities after taxation for the six months ended 30 June 2005. Comparatives have not been restated as the impact is deemed immaterial. 3. Restatement 3. Restatement in respect of final dividend (a) Statement of Total Return The Statement of Total Return no longer reflects payment of dividends. These are shown in note 3(c) below which sets out movements in capital and reserves, during the period in which they are declared and paid. The Statement of Total Return for the year ended 31 December 2004 has been restated accordingly. (b) Balance Sheet 31.12.04 31.12.03 per per ordinary ordinary Â£'000 share Â£'000 share Net assets as at 31 December as previously stated 120,025 476.5p 96,965 385.0p Add back final dividend declared and payable 2,015 8.0p 3,022 12.0p Restated net assets as at 31 December 122,040 484.5p 99,987 397.0p The balance sheet at 30 June 2004 remains unchanged. (c) Movements in capital and reserves Capital Share Share redemption Capital Revenue capital premium reserve reserve reserve Total Note Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Net assets at 31 December 2004 * 6,296 14,123 1,248 93,627 6,746 122,040 Net profit from ordinary activities - - - 20,680 1,915 22,595 Dividends paid and declared 4 - - - (2,015) (2,015) --------- ---------- --------- ---------- --------- --------- Net Assets at 30 June 2005 6,296 14,123 1,248 114,307 6,646 142,620 ========= ========== ========= ========== ========= ========= Net assets at 31 December 2003 * 6,296 14,123 1,248 71,201 7,119 99,987 Net profit from ordinary activities - - - 6,440 621 7,061 Dividends paid and declared 4 - - - - (3,022) (3,022) --------- ---------- --------- ---------- --------- --------- Net Assets at 30 June 2004 6,296 14,123 1,248 77,641 4,718 104,026 ========= ========== ========= ========== ========= ========= Net assets at 31 December 2003* 6,296 14,123 1,248 71,201 7,119 99,987 Net profit from ordinary activities - - - 22,426 2,649 25,075 Dividends paid and declared 4 - - - - (3,022) (3,022) --------- ---------- --------- ---------- --------- --------- Net Assets at 31 December 2004 6,296 14,123 1,248 93,627 6,746 122,040 ========= ========== ========= ========== ========= ========= * as restated 4. Dividend It is intended that dividends will be declared and paid annually in respect of each accounting period. A dividend of 8.00p per share, declared as a final dividend, was paid on 29 April 2005 in respect of the year ended 31 December 2004. 5. Issued share capital There were 25,186,755 ordinary shares in issue for the six months to 30 June 2005 (30 June 2004 and 31 December 2004: 25,186,755). 6. Income Six months Six months Year ended ended ended 30.6.05 30.6.04 31.12.04 Â£'000 Â£'000 Â£'000 (unaudited) (unaudited) (audited) Income from investments UK unquoted investment income 1,484 1,358 4,550 UK dividends from listed companies 814 - - Overseas dividends 8 82 172 2,306 1,440 4,722 Other income Gilt interest 611 - 34 Deposit interest 20 20 61 Underwriting commission - - 88 631 20 183 Total income 2,937 1,460 4,905 7. Investment management fee Revenue Capital Six months Six months Year Six months Six months Year ended ended ended ended ended ended 30.06.05 30.06.04 31.12.04 30.06.05 30.06.04 31.12.04 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 (unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited) Investment management fee 264 252 514 792 756 1,542 Irrecoverable VAT thereon 46 44 90 139 132 270 310 296 604 931 888 1,812 The investment management fee is levied quarterly in arrears. Investment management fees are charged 75% to capital reserve - realised and 25% to revenue. 8. Other expenses Six months Six months Year ended ended ended 30.6.05 30.6.04 31.12.04 Â£'000 Â£'000 Â£'000 (unaudited) (unaudited) (audited) Custodian and administration fees 52 61 126 Other administration costs 189 170 358 241 231 484 9. Capital commitments At 30 June 2005, investment purchases of Â£1,653,000 (30 June 2004: Â£2,461,000, 31 December 2004: 1,169,000) had been authorised and contractually committed. 10. Publication of non-statutory accounts The financial information contained in this interim report does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The financial information for the six months ended 30 June 2005 and 2004 has not been audited. The information for the year ended 31 December 2004 has been extracted from the latest published audited financial statements and amended to reflect the changes to accounting policies disclosed in note 3(c), which have been filed with the Registrar of Companies. The report of the independent auditor on those accounts contained no qualification or statement under sections 237(2) or (3) of the Companies Act 1985. 11. Annual results The Board expects to announce the results for the year ending 31 December 2005 at the beginning of March 2006. The annual report should be available by mid-March 2006, with the Annual General Meeting being held in April 2006. Third Floor, Minerva House 3-5 Montague Close London SE1 9BB 16 August 2005 RMN/cht/hgt/stock exchange announcements/intann-jun 2005 This information is provided by RNS The company news service from the London Stock Exchange

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