Announcement of Financial Rep
HgCapital Trust plc
Private equity investment trust of the year
Investment Week Awards 2005, 2006, 2007, 2008 and 2009
Half-yearly report and accounts
30 June 2010
INVESTMENT OBJECTIVE
The objective of the Company is to provide shareholders with long-term capital appreciation in excess of the FTSE All-Share Total Return Index by investing in unquoted companies.
The Company provides investors with exposure to a diversified portfolio of private equity investments primarily in the UK and Continental Europe.
FINANCIAL HIGHLIGHTS
of the first six months of 2010
£72m A significant increase in cash deployed, investing in businesses that have continued to grow through the recession
£50m Completed a capital fundraising at £8.45 per share in April 2010 to provide funding for new investment opportunities
+17% Year-on-year aggregate EBITDA growth of the top 20 investments
+2.9% Increase in NAV per share on a total return basis resulting from improved trading performance in the portfolio
-2.6% Share price and dividend (total return) versus a return from the FTSE All-Share Total Return Index of -6.1% and from the FTSE Small-Cap of -1.7%
+13.2% Ten year share price total return p.a. versus 1.6% p.a. from the FTSE All-Share Total Return Index
>3.5x Ten year investment return for every £1 invested
CHAIRMAN'S STATEMENT
We aim to provide shareholders with long-term growth in value through participation in private equity in an investment vehicle that is liquid and transparent
Performance
In the first six months of 2010 the Company's NAV per share grew by +2.9% on a total return basis to 938.6 pence. This compares with a decline of -6.1% in the FTSE All-Share Total Return Index.
It is pleasing to note that the positive performance of the Company's portfolio can mostly be attributed to growth in the sales and profitability of the underlying investments, together with repayment of debt from cash flow. This has been offset by adverse foreign exchange movements and a small setback in the ratings of comparable companies applied to a number of our investments compared with their cost or most recent valuation.
Total return to shareholders (share price plus dividend) over the period was -2.6% compared with -6.1% for the FTSE All-Share Index and -1.7% for the FTSE Small-Cap Total Return Index.
The Company's share price has traded within the range 790.5 - 864.0 pence, representing a discount of 8% - 11% to the then published NAV. The share price at 30 June 2010 was 798.5 pence; this represented a discount of 10% to the last reported NAV at 31 May 2010. The Company's shares have continued to trade at a consistently narrower discount to NAV than comparable investment trusts, reflecting the Company's strong investment record and conservative policies.
Revenue per share was 13.0 pence, compared with 7.8 pence in the same period last year. As explained in earlier reports to shareholders, the Company's revenue will vary from one period to another, reflecting the structure of the underlying investments and income from the Company's holding of liquid funds awaiting reinvestment; this also causes dividends to vary from year to year. The Company's more fully invested position, combined with the low yields available on liquid funds and the greater number of shares in issue, are likely to bring revenues per share for the whole year, and thus the dividend, back to levels similar to those of previous years.
Share issue
In February we announced that the Board was considering raising further funds by way of a share issue. We completed this in April, raising £50 million before fees through a placing and open offer of new ordinary shares, at a price of 845 pence per share, with subscription shares attached on a 1-for-5 basis. As the share issue was made at the then market price, its dilutive effect was minimal and the issue had no apparent effect on the price at which shares traded in the after-market. The placing of shares brought a number of leading wealth managers and institutional investors onto our register. We welcome these new shareholders as solid, long-term investors, while anticipating that the broadening of the register will enhance liquidity in the Company's shares and analyst coverage.
At the same time, we made a bonus issue of subscription shares to all existing shareholders on the same basis. The subscription shares are listed on the London Stock Exchange and have traded at prices up to 55.0 pence. At 30 June 2010, the share price was 43.3 pence per share.
Each subscription share confers the right to subscribe for one new ordinary share, beginning in May 2011 and with the final exercise date being 31 May 2013. If exercised in 2011 or 2012 the subscription price will be 950 pence per share; and if exercised in 2013 it will be 1025 pence per share. If all the subscription shares are exercised this will raise funds of between £59.1 and £63.8 million for the Company to deploy in future years and will enhance further the liquidity of the market in our shares.
Investment strategy
HgCapital's strategy is to focus closely on five sectors (TMT, healthcare, industrials, business services, and renewable energy); each sector team identifies tightly defined sub-sectors of interest. Exposure to four of these sectors is gained through the buyout of established businesses, while new renewable energy projects are purchased through specialist funds in which the Company participates.
During 2009 the Board committed to invest alongside HgCapital's new buyout fund HgCapital 6; this fund has now closed and the Company's commitment is fixed at £285 million, giving it a 15% interest in each deal. As mentioned in our prospectus, we have also made a commitment to HgCapital's new renewable energy fund, HgCapital Renewable Power Partners 2 LP ('RPP 2'). The Manager closed on a relatively small amount of capital in order to facilitate the completion of a new deal opportunity. The Company committed €13 million to RPP 2 with its commitment increasing to €40 million once the Manager has aggregate commitments of €200 million. Under each of these commitments the Company has the right, in defined circumstances, to be excused, without penalty, from participating in any investment. There is also the flexibility to invest more, through co-investments, if conditions for investment are attractive and the Company has access to additional funds.
Investment activity
2009 was notable for the low level of activity in both the UK and German private equity markets. Against this background, and consistent with our policy of retaining sufficient liquidity on-balance sheet for deployment in new opportunities at attractive points in the cycle, the Company made only two new investments in 2009 (Epyx and Goldshield) and entered 2010 with substantial liquid funds for investment. The Manager had a strong pipeline of potential deals, many of which it had tracked since before the recession. When announcing our intention to raise further capital we said we believed the Company was in the early stages of the next significant cycle for deployment of capital and anticipated a progressive increase in transaction volumes.
As anticipated, the pace of deployment in buyout investments has picked up in 2010 and the Manager completed five new acquisitions in the first half of the year, investing £63.4 million on behalf of the Company; other investments in the period totalled £9 million. Further buyouts, of Teufel and TeamSystem, were announced in July and August.
The Company's portfolio is more diversified than it has been for some time. The top 20 buyout investments represent 92% of the investment portfolio; at December the top 10 represented 77.5%. Reflecting this, we have reverted to reporting in detail on the top 20 investments and, in the interests of transparency, we are disclosing greater detail of the valuation multiples, leverage and current trading of the top 20 investments.
The Manager's philosophy, with which the Board concurs, is to acquire good quality businesses, where there is a clear plan for growth in revenues and margins, with multiple ways to realise value. There is less competition for such deals than in previous years, but vendors are still able to achieve fair prices for good companies: we anticipate steady appreciation in value, rather than short-term gains from opportunistic purchases. The Manager anticipates a slower pace of deployment in the second half, as its sector teams focus on recent acquisitions.
Only modest realisations were made during the period, reflecting a long run of disposals from 2003 to 2008 and the immature state of much of the portfolio. The investment cycle implies that the ideal conditions for sale arrive as the best conditions for purchase begin to fade. To provide standby liquidity during this phase of the cycle the Company has from time to time arranged a small revolving bank facility. While the Board is considering arranging a short-term facility it does not believe in leveraging the Company's balance sheet with long-term borrowing.
Most of the Company's current investments need further time to mature towards their optimal value for realisation. Nevertheless, there are potential buyers, especially other private equity managers with funds raised before the global crash and which will expire if not invested. The Company's investments are performing well and a number of them, especially those acquired before 2007, are likely to attract offers worth considering.
Outlook
The Manager has made a good start in deploying its HgCapital 6 fund (and the funds committed by the Company for investment alongside it) into a range of buyouts in its specialist sectors; approximately 40% of these funds have now been invested or committed. The priority now is to absorb the latest investments and ensure they have clear strategies for growth in sales and profitability. Meanwhile, more mature investments are being prepared for sale and we can look forward, subject to market conditions, to an active realisation programme across 2011-2012, with some assets potentially being realised sooner.
Board
After 14 years as a director of the Company, Tim Amies retired from the Board at the AGM in May. For many years he chaired the Audit and Valuation Committee. We are grateful to him for his expertise in valuation and close scrutiny of the valuations of portfolio companies. As part of our succession planning, this role was assumed by Richard Brooman in 2008 and we have recently appointed Mark Powell to the Board. As managing director, and then chairman, of Rathbone Brothers Plc, he has built a successful and highly respected private bank and wealth manager; this expertise will provide the Board with a deeper understanding of the part that listed private equity can play in many portfolios and how we can improve our communications with investors.
We remain convinced that an allocation to listed private equity is appropriate for many long-term investors and intend to continue to report with increasing clarity and transparency so that investors may share our confidence.
Roger Mountford
Chairman
25 August 2010
INTERIM MANAGEMENT REPORT AND RESPONSIBILITY STATEMENT
Interim management report
The important events that have occurred during the period under review are set out in the Chairman's statement and in the Manager's review, which also include the key factors influencing the financial statements.
The principal risks and uncertainties for the remaining six months of the financial year are set out in the Manager's review.
The Directors do not consider that the principal risks and uncertainties have changed since the publication of the annual report for the year ended 31 December 2009. A detailed explanation of the risks summarised below can be found on page 54 of the annual report which is available at http://www.hgcapitaltrust.com.
Performance risk
The Board is responsible for deciding the investment strategy to fulfil the Company's objectives and for monitoring the performance of the Manager. An inappropriate strategy may lead to poor performance.
Income/dividend risk
The amount of dividends and future dividend levels will depend on the income received and receivable from the Company's underlying portfolio.
Regulatory risk
The Company operates as an investment trust in accordance with section 1158/9 of the Corporation Tax Act 2010 ("CTA"). As such, the Company is exempt from corporation tax on any capital gains realised from the sale of its investments.
Operational risk
In common with most other investment trusts, the Company has no employees. The Company therefore relies upon the services provided by third parties and is dependent upon the control systems of the Manager and the Company's other service providers.
Financial risks
The Company's investment activities expose it to a variety of financial risks that include valuation risk, market risk, currency risk, portfolio hedging, interest rate risk, liquidity risk, equity price risk and currency exposure.
By the nature of its investment objective, the Company invests in unquoted companies, and liquidity in their securities can be constrained, potentially making the investments difficult to realise at, or near, the Directors' published valuation at any one point in time.
Responsibility statement
The Directors confirm that to the best of their knowledge:
• The condensed set of financial statements has been prepared in accordance with the Statement on Half-yearly Financial Reports issued by the UK Accounting Standards Board and gives a true and fair view of the assets, liabilities, financial position and profit of the Company;
• The interim management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Company during that period; and any changes in the related party transactions described in the last annual report that could do so. There were no related party transactions during the period.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial information differs from legislation in other jurisdictions.
This half-yearly financial report was approved by the Board of Directors on 25 August 2010 and the above Responsibility statement was signed on its behalf by Roger Mountford, Chairman.
HgCapital Trust plc gives the investor access to a private equity portfolio run by an experienced and well-resourced Manager that makes investments in fast growing companies over a number of geographies and sectors.
We believe this approach will continue to reward investors with superior performance, both relative to the public markets and its peers over the long term.
PERFORMANCE RECORD
|
Financial highlights |
|||
|
Assets at: |
30.6.10 (unaudited) |
30.12.09 (audited) |
% change |
|
Net assets (£'000) |
291,941* |
236,044 |
23.7 |
|
Net assets per share |
938.6p* |
937.2p |
0.1 |
|
Share price (mid-market) |
798.5p |
844.0p |
(5.4) |
|
|
|||
|
Assets at: |
30.6.10 (unaudited) |
30.6.09 (unaudited) |
% change |
|
Net revenue (£'000) |
3,631 |
1,953 |
118.5 |
|
Revenue per share |
13.0p |
7.8p |
118.5 |
|
*Since 31 December 2009, an issue of £50 million of new ordinary shares completed at an issue price of 845p |
|||
Historical total return* performance |
|||||
|
|
Six months to 30 June 2010 % pa |
One year % pa |
Three years % pa |
Five years % pa |
Ten years % pa |
|
Net asset value |
2.9 |
9.8 |
6.5 |
13.2 |
11.3 |
|
Share price |
(2.6) |
4.6 |
1.5 |
11.0 |
13.2 |
|
FTSE All-Share Index |
(6.1) |
21.1 |
(5.7) |
3.5 |
1.6 |
|
FTSE Small-Cap Index |
(1.7) |
23.6 |
(9.9) |
1.0 |
0.3 |
|
Based on the Company's share price at 30 June 2010 and allowing for dividends to be reinvested, an investment of £1,000 ten years ago would now be worth £3,452. An equivalent investment in the FTSE All-Share Index would be worth £1,169.
*Total return assumes all dividends have been reinvested. Source: Factset |
|||||
MANAGER'S REVIEW
|
Analysis of movements in net asset value for the six months ended 30 June 2010
|
|
|
Opening net asset value as at 1 January 2010 |
236,044 |
|
Net proceeds from shares issued |
48,855 |
|
Gross revenue |
6,510 |
|
Priority profit share to General Partner |
(3,542) |
|
Other expenditure |
(1,187) |
|
Dividends paid |
(6,297) |
|
Realised loss over 31 December 2009 book value (excluding gross revenue) |
(619) |
|
Net unrealised appreciation of investments (excluding accrued interest) |
12,177 |
|
Closing net asset value as at 30 June 2010 |
291,941 |
Buyout investments are held through limited partnerships of which the Company is the sole limited partner. HgCapital Trust plc (the 'Company') invests alongside other clients of HgCapital. Typically, the Company's holding forms part of a much larger majority interest held by HgCapital clients in buyout investments in companies with an enterprise value ('EV') of between £50 million and £500 million. The Manager's review generally refers to each transaction in its entirety, apart from the tables detailing the Company's participation or where it specifically says otherwise.
Overview
The Company's net asset value grew from £236.0 million to £291.9 million during the period under review. This increase mainly arose from the proceeds of a share issue in April of this year, but also from favourable movements in the valuation of the unrealised portfolio.
The decrease in the share price of -2.6% (total return basis) compares favourably with a fall in the FTSE All-Share Total Return Index of -6.1% in the six months to 30 June 2010.
The Company realised proceeds during the period amounting to £10.7 million. These proceeds arose from the sale of Hoseasons, a refinancing of Elite and a dividend payment from Pulse.
During the period, the Company invested a total of £72.3 million, including five new buyout investments. Details can be found below.
Summary
Over the period, the Manager has invested in line with its stated investment stance: putting capital to work in businesses that have grown through the recent recession; paying prices which are below long run averages and taking a clear view that they will continue to grow faster than the economy as a whole. We have not bought cyclical recovery plays. This period of heightened activity leaves the Company at the period-end with 78% of net assets invested and a portfolio of 20 active investments representing 92% of the portfolio. Undrawn commitments amount to £231.0 million compared with liquid funds of £63.4 million; the Company can manage these commitments using cash flow from realisations and by raising modest amounts of short-term debt finance or, if necessary, by exercising its ability to opt out of investment calls.
Portfolio
Trading conditions have improved significantly during the period and overall performance across most of the portfolio has been strong. Most of the investee companies are showing positive revenue and profit trends versus the prior year. Management teams have placed a strong emphasis on driving growth initiatives after the strong focus on cost management in 2009. Overall, the Manager has been pleased with the speed of action and positive attitude of the managers it has backed.
Levels of debt in the portfolio have been reduced and the value weighted average debt/EBITDA multiple of the top 20 buyout investments was 2.9x as at 30 June 2010.
The impact of market ratings on portfolio valuations has been mixed; movements in comparables contributed to the write-up of Visma, but this was more than offset by unfavourable rating movements in the remainder of the portfolio. At 30 June 2010, the average EV/EBITDA multiple used to value the top 20 investments was 9.0x. The leveraged nature of many investments means that small changes in enterprise value have a geared impact on equity valuations. Unfavourable foreign exchange movements had a modest adverse effect on the value of the portfolio too.
Realised and unrealised movements in investment portfolio valuation (including accrued interest) for the six months ending 30 June 2010 |
||
|
|
Net unrealised appreciation/(depreciation) of investments £'m
|
Realised proceeds in excess of 31 December 2009 book value £'m (excludes gross revenue)
|
|
Visma (1) |
11.2 |
|
|
Achilles (13) |
2.7 |
|
|
Hoseasons (sold) |
|
2.6 |
|
Elite (17) |
2.5 |
|
|
SLV (9) |
2.1 |
|
|
Epyx (12) |
2.0 |
|
|
Euro Hedge |
1.6 |
|
|
Other |
|
0.2 |
|
Pulse (2) |
(1.1) |
|
|
Fx on new investments |
(1.3) |
|
|
Gilts |
|
(1.3) |
|
Hg RPP1 |
(1.4) |
|
|
Sporting Index (16) |
(1.9) |
|
|
*Investment name and ranking within top 20 investment portfolio |
||
Outlook - Economy and markets
Economic activity picked up during the first half of 2010 with Sweden and Germany performing better than most of the rest of Europe. Signs of slowing demand in China and the USA reinforce our overriding assumption that the upturn in the global economy from the lows of the recent recession will be subdued when compared with the growth period from 1991 to 2007. This is particularly the case for Western Europe including the UK. Moreover, it appears to us that the length of economic cycles will be shorter in duration than has been the case for the past 20 years. We also believe that GDP growth will be less energy intensive than in the past, as the real costs of carbon dioxide emissions, which have been ignored historically, are identified by market mechanisms. Finally, we agree with many commentators that there is a possibility that the current membership of the euro will not survive the next five years.
European private equity appeared to gain momentum during the first half of 2010, with the number of deals completed exceeding 300 for the first time since mid-2008. Two factors drove this expansion; first, buyers began to see value and second, debt providers' appetite gradually revived, albeit lending less and at twice the margins charged over the past 20 years.
Competition for new investments is more intense today than during the recovery from the last recession (1990 to 1991). This reflects the growing maturity of the European private equity market. However, when compared with the period from 2004 to 2007, we have seen less competition for deals over the past six months. With well-targeted effort and discipline, it has been possible to buy businesses at prices below long-run valuation multiples.
As the economy grows, we expect more players to return to active investing. Some, mostly the larger buyout firms, will be spending the undrawn commitments on earlier funds which, when added to new commitments, produce the potential "overhang of capital" in global private equity markets. Much of this money has a short shelf life and will be looking for acquisitions from existing owners, including HgCapital. We believe we are about to enter the phase of the cycle where there will be an active two-way M&A market. Unless or until the economy goes into recession and there is a bear market, the buyer's market phase of the M&A cycle has probably now come to an end.
We expect our investment rate to decline in the second half as we digest what we have acquired.Our resources will be directed towards developing interest from the rational and best buyers for our older investments and in research of investment themes that will deliver the next round of attractive investments for the Company.
Prospects
Prospects for the portfolio of buyout investments, assuming a slow recovery in the economy, appear to be sound. On average, the 20 largest companies have increased revenues by 6% and EBITDA by 17% over the 12 months to 30 June 2010 (source: management accounts). In the main, they serve markets that grow faster than GDP and these companies grew through the downturn. Some earlier investments, ill judged in retrospect, have suffered from sharp declines in demand; these were written down to zero 12 months ago and will have no impact on net assets until they produce a significant growth in earnings and cash generation. Average gearing has fallen through rising earnings, cash generation and lower levels of gearing levels used in newer investments.
Regulation-AIFM Directive
The European Union's ill-conceived proposals for additional regulation of private equity managers are likely, if enacted in their current form, to add compliance costs to the larger companies within our portfolio. We will of course comply, although we can see no benefit to society or to those who have a legitimate interest.
Renewable energy
We made three new and some further investments in which the Company's total participation was £5.0 million. Details of renewable energy assets are set out in the Renewable energy section further on in the report.
The performance of the Company's investments in renewable power generating assets is evolving in line with our expectations.The three platforms in Sweden, Spain and the UK are tracking marginally (3%) below plan, with availability and prices on plan and resource (wind and sun) below plan. As a consequence, the portfolio has started making significant cash distributions in the period to 31 December 2010.
Having made a first close on the second fund, RPP 2, we have closed the first investment, a 44MW wind farm in Sweden, in partnership with RES, the developer who completed Havsnäs for us. Our belief is that the investment climate will get less competitive as utilities have to address other challenges, not least the expensive replacement of an ageing and inadequate fleet of power plants, using conventional and nuclear power. Accordingly, for the foreseeable future, we will continue to focus on two platforms: Sweden and the UK, avoiding Spain until the regulatory and currency outlook becomes clearer.
Risks
Looking forward, we have identified three principal risks to the portfolio and the development of the Company over the next six months. First, there is the risk of another sharp contraction in the global economy. Trigger events could be the Chinese economy slowing sharply, a major bank failure, possibly arising from the credit problems of certain euro member states, or from inflation taking hold and requiring tight monetary policy overlaid on tight fiscal policy. In any of these scenarios, ratings are likely to fall. That said, our portfolio is defensively positioned by reference to the drivers of demand for the goods and services the companies sell and by reference to the debt levels they carry.
The second risk arises from the continuing deleveraging of the financial sector and, in particular, the shrinking of the balance sheets of the banks that provide acquisition debt. If the deleveraging accelerates, then this could adversely affect valuations across private and public markets and M&A activity.
Thirdly, while the outlook for the Company's investments in renewable power generating assets is getting clearer, there is a noteworthy risk, in the form of potential reductions by the Spanish Government of the 25-year tariff contracts for solar powered electricity. If the Spanish Government goes ahead with its threat, the value of the Company's investment in RPP 1 could fall by up to €4.7 million, a sum equivalent to 15.2p per share. To date, new legislation has been proposed that would not affect RPP 1's investments.
Trading performance of the top 20 investments
In the twelve months to 30 June 2010, aggregate sales and EBITDA for the top 20 investments (see below) were £2 billion and £0.5 billion respectively
This represents year-on-year sales growth of 6% and year-on-year EBITDA growth of 17% for this group of companies compared to concurrent GDP growth of only 1.6%.
The top 10, which includes five new investments, have continued to trade robustly. Some of the following ten have shown good recovery despite being harder hit by the downturn.
As can be seen from the chart above, 75% of the top 20 companies by number have experienced revenue growth year-on-year and those that have declined have done so by no more than 5%.
PORTFOLIO ANALYSIS
A diverse portfolio, invested along sector lines, across the UK and Continental Europe
At 30 June 2010, the Company's portfolio consisted of 35 investments, of which the top 10 buyout investments represented 67% of the portfolio valuation and the top 20 represented 92%.
The Company offers both sector and geographic diversification in a portfolio of privately owned mid-cap stocks. The valuation of the Company's unrealised portfolio (including interest) as at 30 June 2010 was £228.6 million, representing 78% of net assets.
Five substantial new investments were made during the period: the management buyouts of JLA, StepStone Solutions, Frösunda, SimonsVoss and Manx Telecom.
During the period the UK holiday company, Hoseasons, was sold for £5.1 million and refinancing proceeds received from Elite of £4.1 million.
The Company ended the period with £63.4 million of liquid assets (22% of net asset value).
Asset class†
78% Unquoted
22% Liquid assets
Valuation basis††
47% Earnings
38% Cost
8% Written down
7% Fund net assets
Sector by value††
40% TMT
24% Healthcare
13% Industrials
9% Consumer & Leisure
7% Services
6% Renewable energy
1% Fund
Deal type by value††
93% Buyout
6% Renewable energy
1% Fund
Geographic spread by value††
50% UK
28% Nordic Region
13% Germany
7% Rest of Europe
1% Benelux
1% North America
Vintage by value††
28% 2010
7% 2009
5% 2008
12% 2007
33% 2006
15% Pre 2006*
†Percentages are based on net assets
††Percentages are based on fixed investments at value including accrued interest
*10% relates to Pulse Staffing
INVESTMENTS
Selective investments in businesses which should perform across market cycles
During the first half of 2010, HgCapital invested £563 million on behalf of its clients, including £72.3 million for the Company.
|
Company |
Sector |
Activity |
Deal Type |
Cost £'000 |
|
StepStone |
TMT |
Global provider of strategic HR software |
Buyout |
15,805 |
|
JLA |
Services |
Provison of on-premise laundry services & commercial machine sales |
Buyout |
13,398 |
|
Frösunda |
Healthcare |
Swedish provider of specialist disability care |
Buyout |
13,076 |
|
Manx |
TMT |
Telecommunications and internet provider |
Buyout |
11,033 |
|
SimonsVoss |
Industrials |
Provider of digital radio-based locking and access control systems |
Buyout |
10,065 |
|
RPP 2 Fund |
Renewable energy |
Renewable energy fund |
Fund |
1,428 |
|
New investments |
|
|
|
64,805 |
|
Voyage |
Healthcare |
Care home operator |
Buyout |
4,357 |
|
RPP Fund |
Renewable energy |
Renewable energy fund |
Fund |
3,600 |
|
Visma |
TMT |
Business application software |
Buyout |
1,712 |
|
Goldshield |
Healthcare |
Markets pharmaceuticals and nutraceuticals |
Buyout |
(2,730)* |
|
Other investments |
|
|
|
549 |
|
Further investments |
|
|
|
7,488 |
|
Total investment by the Company |
|
|
|
72,293 |
|
*partial return of initial investment |
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Buyout investments are held through limited partnerships of which the Company is the sole limited partner.
Unless otherwise indicated, figures below refer to the total size of each acquisition, including debt raised from third parties, made by HgCapital on behalf of its clients, including the Company.
INVESTMENT ACTIVITY
Over the past few years we have used a significant part of our resources to identify themes that would produce attractive investment opportunities and then work them to good effect. One example is vertical application software as provided by Iris, Addison, Visma and now TeamSystem (acquisition agreed on 3 August 2010). Another is the long-term care of people with acute needs as offered by Castlebeck and Voyage in the UK and, most recently, Frösunda in Sweden. This effort affords us the opportunity to learn more about specific business models, companies, their owners and management teams. We attempt to convert this knowledge into competitive advantage.
Buyouts
2010 has seen us convert earlier research into five new investments and commitments to a further two post-period end. Total capital invested by the Company in the five completed investments amounts to £63.4 million with a further £41.1 million to be invested post-period end. Looking at these seven investments we have bought growth at reasonable prices in five investments (TeamSystem, Teufel, Simons Voss, Frösunda and StepStone Solutions), bought a strong franchise in Manx Telecom and made a fully priced acquisition of a business with a very strong franchise in the case of JLA.
This brings the HgCapital 6 vintage portfolio up to nine investments. Five of them are primary buyouts, one was a public-to-private transaction and just three were secondary buyouts. Again by number, four are TMT deals, two are healthcare, one is industrial goods, another in business services and a final investment in online retail, completed in Germany.
Further investment by the Company came to £3.4 million, used to support bolt-on acquisitions for portfolio companies or to de-gear, resetting debt repayment terms so expansion could be financed from cash flow.
As we have been in a buyers' market, divestment activity has been subdued. We made one sale (of Hoseasons) at 2x book value, redeemed loan stock issued by Elite and received a large dividend payment from Pulse, now that it has de-geared and a new level of profitability has been achieved.
Renewable energy
The Company participated in two new investments through RPP 1, Scout Moor and Tinajeros, and some further investments totalling £3.6 million, resulting in the RPP 1 Fund being closed for new investments. Following this, the Company made a new commitment to the RPP 2 Fund and participated in one new acquisition, Ytterberg, a Swedish wind farm, investing £1.4 million.
Looking forward
This period of activity means that the Company is well invested to take advantage of the first up-turn from the bottom of the market. Our attention will be focused on the portfolio, working with management teams to strengthen and exploit their franchises so that they continue to outperform their rivals and the economy as a whole.
NEW INVESTMENTS
StepStone Solutions
In May 2010, HgCapital acquired StepStone Solutions, the Talent Management division of StepStone ASA with over 400 staff located in 16 countries across the globe.
Over 1,400 organisations, including many of the world's leading businesses, use StepStone's services to recruit, retain and develop talent. StepStone Solutions is one of the biggest European "software-as-a-service" companies, a sub-sector where companies experience high levels of recurring revenue from long-term customers which leads to stability and high margins.
Frösunda
In May 2010, HgCapital acquired Frösunda, the leading Swedish provider of specialist disability care, from Polaris.
Frösunda provides personal assistance and housing services for adults and children with physical or mental disabilities. It also has an emerging coaching and schools business. The deal represents HgCapital's fourth investment in the healthcare services segment. It is a best-of-breed care provider and market leader with protected business positions, predictable revenue streams, platforms for organic and acquisition-led growth and scope for performance improvement.
JLA
In March 2010 HgCapital acquired a majority stake in JLA, the UK's largest commercial laundry equipment supplier.
JLA designs, installs, maintains and repairs laundry equipment used by over 18,000 customers who either buy or rent. It has also developed proprietary technology systems to help its clients operate safer and more energy efficient laundries.
JLA has shown strong operating performance, including sustained organic growth through the recession. With a high proportion of existing customers locked into long-term contracts, there are attractive recurring revenues. It serves a mature market that is a solid platform to grow into new market segments.
Manx Telecom
HgCapital backed the incumbent management team in the aquisition of a majority stake in Manx Telecom, the Isle of Man's largest telecommunications and internet provider in June 2010.
Manx Telecom offers the full range of fixed line, mobile and data services to consumers and businesses. It has a successful track record in achieving major industry breakthroughs and is the incumbent operator in a high growth economy where spending in the sector has historically grown above real GDP.
The company enjoys a leading market position and a favourable regulatory environment, with the regulator focused on encouraging continued investment in infrastructure.
SimonsVoss
In May 2010, HgCapital acquired SimonsVoss Technologies AG. Founded in 1995, the company develops, manufactures and markets digital radio based locking and access control systems and is one of the technology leaders and premier suppliers in this fast-growing market.
SimonsVoss is the European market leader in a niche market segment with high barriers to entry (development costs and certification in particular).
The company's robust trading through the recent recession saw them gain market share in a depressed market and the business grew EBITDA by an average of 28% each year between 2005 and 2009.
FURTHER INVESTMENTS
Voyage
In June 2010, the business was refinanced, extending the term debt package by an additional 36 months to April 2014. HgCapital clients injected £28.7 million as their share of a total £40 million package alongside other investors to pay down debt and provide additional growth capital for the business.
Visma
In June 2010, Visma acquired Sirius IT, a Nordic IT Services company focused on government and retail customers. This transaction was financed partly from Visma's own resources and partly from a capital injection by HgCapital's clients.
ACTIVITY SINCE THE PERIOD-END
Teufel
July 2010 saw the close of a deal to acquire Teufel, a leading designer and online retailer of loudspeaker systems in Germany. HgCapital Trust contributed £9.1 million to the deal.
The company designs, markets and sells its own brand audio speaker systems directly through its internet platform, teufelaudio.com. Based in Berlin, with 72 employees, the business is focused on the mid-to-high-end segment of the market.
TeamSystem
In August 2010, HgCapital agreed to acquire TeamSystem, a leading software and services business based in Pesaro, Italy. TeamSystem was founded in 1979 and is the number one provider of a range of business-critical software products to a diversified base of over 80,000 customers.
This is the fourth investment we have made in an accounting software platform. Of the others, two have realised strong returns and the third is doing well.
HgCapital Trust's investment in this deal is expected to be around £28.5 million.
StepStone Solutions
Also in August 2010, HgCapital provided funding to StepStone Solutions to acquire a competitor, Mr. Ted, as a bolt-on acquisition. The company's strong technology base is complementary to StepStone's, and its several large blue chip customers make it an ideal addition. HgCapital Trust contributed £3.5 million.
REALISATIONS
During the first half of 2010, HgCapital realised total proceeds of £71 million on behalf of its clients, including £10.7 million for the Company.
|
Company |
Sector |
Exit route |
Cost £'000 |
Proceeds1 £'000 |
Cumulative gain/(loss)2 £'000 |
Current year gain/(loss)3 £'000 |
|
Hoseasons |
Consumer & Leisure |
Trade sale |
2,197 |
5,065 |
2,868 |
2,592 |
|
FTSA4 |
Industrials |
Liquidation |
6,813 |
- |
(6,813) |
- |
|
Full realisations |
|
|
9,010 |
5,065 |
(3,945) |
2,592 |
|
Elite |
TMT |
Refinancing |
2,209 |
4,126 |
1,917 |
- |
|
Pulse |
Healthcare |
Dividend |
- |
909 |
909 |
- |
|
Other |
|
|
2,395 |
554 |
(1,841) |
165 |
|
Partial realisations |
|
|
4,604 |
5,589 |
985 |
165 |
|
Total realisations |
|
|
13,614 |
10,654 |
(2,960) |
2,757 |
|
1 Includes gross revenue received during the year 2 Realised proceeds including gross revenue received, in excess of historic cost 3 Realised proceeds including gross revenue received, in excess of 31 December 2009 book value and accrued interest 4 Fully written-off pre-31 December 2009 |
||||||
Figures below refer to the total value of each realisation, including, where appropriate, repayment of third party debt. Proceeds to clients, including the Company, are stated net of any such repayment.
FULL REALISATIONS
Hoseasons
In light of strong trading performance and significant interest in the business, an exit process began in November 2009. A select group of prospective trade and financial purchasers were invited to make offers for the business culminating in Wyndham Worldwide Inc acquiring the business on 28 February 2010.
The consideration was £51 million, 8.5x FY2009 EBITDA, resulting in a 2.3x cash-on-cash return to HgCapital clients.
PARTIAL REALISATIONS
Elite loan repayment
The Company has benefited from an overall upswing in the semiconductor cycle, as well as a minor restructuring of its cost base in 2009. Both of these factors served to improve cashflows in the business, which allowed $35.0 million to be realised by way of a partial loan and interest repayment in January 2010.
REVIEW OF PRINCIPAL BUYOUT INVESTMENTS
1 Visma
Sector: TMT
Location: Nordic region
Date invested: May 2006
Original enterprise value: NOK 4.3 billion
HgCapital clients' total equity: 46%
Business description
• VISMA is the number one provider of business software and related services to small and medium-sized enterprises in the Nordic region.
• The company provides accounting, resource planning and payroll software, outsourced book-keeping, payroll services and transaction process outsourcing.
Performance
• Current trading: performance in the year to date has been strong, with good growth in both sales and EBITDA. The company has also closed three bolt-on acquisitions: Opic, Sirius IT and Invoicia.
• Exit strategy: significant interest from secondary buyers is expected. A trade sale to software/ publishing companies or an IPO provide alternatives.
2 Pulse
Sector: Healthcare
Location: UK
Date invested: June 1999
Original enterprise value: £67 million
HgCapital clients' total equity: 74%
Business description
• Pulse is one of the UK's leading providers of comprehensive labour management, recruitment and deployment services in the healthcare sector.
• The company works in partnership with healthcare organisations in the public and private sectors to provide staffing, management services and consultancy.
Performance
• Current trading: both revenues and EBITDA are significantly up year on year.
• Exit strategy: Pulse is anticipated to be a target for both private equity and trade buyers and is also a possible candidate for an IPO.
3 StepStone Solutions
Sector: TMT
Location: UK
Date invested: May 2010
Original enterprise value: €110 million
HgCapital clients' total equity: 79%
Business description
• StepStone Solutions, a division of StepStone ASA, is a leading provider of strategic HR software to medium and large enterprises in Europe, operating in 16 countries with 430 full-time employees.
• The business operates a subscription-based revenue model with a strong recurring consulting element required to configure solutions to customer requirements. Customer retention rates are high at around 95%.
Performance
• Current trading: performance in the year to date has been strong. Since period-end, a bolt-on acquisition of Mr. Ted, one of StepStone's competitors, has been made.
• Exit strategy: the company will be positioned for a trade exit, most likely to an industry consolidator.
4 JLA
Sector: Services
Location: UK
Date invested: March 2010
Original enterprise value: £150 million
HgCapital clients' total equity: 75%
Business description
• JLA is the number one service provider to the on-premises laundry market, providing distribution, rental and servicing of commercial laundry machines to more than 18,000 UK business customers.
• The company is also the number one provider of coin-operated, commercial machines into accommodation units. It services this market via its Circuit brand.
Performance
• Current trading: performance in the year to date is slightly above the prior year.
• Exit strategy: Exit strategy: the most likely exit routes are a sale to another private equity firm or a trade sale.
5 Frösunda
www.frösunda.se
Sector: Healthcare
Location: Nordic region
Date invested: June 2010
Original enterprise value: SEK1.5 billion
HgCapital clients' total equity: 88%
Business description
• Frösunda provides personal assistance and housing services for people with physical or mental disabilities. It also has an emerging coaching and schools business.
• Headquartered in Solna, Sweden, Frösunda employs around 3,700 employees, cares for around 1,600 users and operates in 41 locations.
Performance
• Current trading: sales are ahead of the prior year with EBITDA slightly below the prior year.
• Exit strategy: exit could be via an IPO or to a private equity fund or private equity-backed trade buyer.
6 Manx Telecom
Sector: TMT
Location: UK
Date invested: June 2010
Original enterprise value: £158.9 million
HgCapital clients' total equity: 80%
Business description
• Manx Telecom is the primary fixed and mobile telecom operator on the Isle of Man. Manx Telecom provides telecommunication and data hosting services to business and consumer customers, principally on-island.
• In addition to its on-island activities, the company has developed a number of niche off-island voice and data hosting businesses which are delivering further growth.
Performance
• Current trading: revenues are slightly up and EBITDA is flat compared to the prior year.
• Exit strategy: Manx Telecom is anticipated to be an attractive target to trade buyers.
7 Mondo Minerals
www.mondominerals.com
Sector: Industrials
Location: Nordic region
Date invested: October 2007
Original enterprise value: €230 million
HgCapital clients' total equity: 89%
Business description
• Mondo is the European number two in talc mining and processing. The company's core markets are the European paper and paint industries.
• Mondo supplies the majority of talc for paper producers in the highly regional market of Finland, the rest of the Nordic region and Northern Europe.
Performance
• Current trading: both revenues and EBITDA are significantly up on the prior year.
• Exit strategy: Mondo is anticipated to be an attractive target for both private equity and trade buyers.
8 SimonsVoss
Sector: Industrials
Location: Germany
Date invested: June 2010
Original enterprise value: €112 million
HgCapital clients' total equity: 69%
Business description
• Founded in 1995, SimonsVoss is the dominant player in the development, manufacture and marketing of electronic battery powered locking and access systems for public, commercial and residential buildings.
• Revenues come primarily from Germany with additional sales in France and Benelux.
Performance
• Current trading: sales are slightly down on prior year but EBITDA is up on the prior year.
• Exit strategy: the most likely exit route will be via a trade sale.
9 SLV
Sector: Industrials
Location: Germany
Date invested: August 2007
Original enterprise value: €280 million
HgCapital clients' total equity: 66%
Business description
• SLV is a fast growing and highly profitable German provider of lighting systems and decorative lighting solutions with a B2B focus. Products are only sold through catalogues.
• SLV has a competitive advantage in the areas of product development and design, production, warehousing and logistics, and distribution.
Performance
• Current trading: sales and EBITDA are both up on the prior year.
• Exit strategy: SLV should be an attractive target for both private equity and trade buyers. The feasibility of an IPO will also be considered; SLV could be marketed as an attractive German mid-market growth story.
10 Goldshield
www.goldshield-pharmaceuticals.com
Sector: Healthcare
Location: UK
Date invested: December 2009
Original enterprise value: £179 million
HgCapital clients' total equity: 53%
Business description
• Goldshield is a profitable niche pharmaceutical company focused on the UK. It sells mature branded products and niche generics, typically re-formulating them to extend their lives.
• Goldshield also has a small consumer health division which sells a range of weight management and consumer health products.
Performance
• Current trading: Goldshield's sales and EBITDA are down on the prior year, due mainly to the consumer health division and supply chain issues in the pharmaceutical division.
• Exit strategy: a trade sale is most likely although an IPO or sale to a private equity fund are possible.
11 Voyage Group
www.voyagecare.com
Sector: Healthcare
Location: UK
Date invested: April 2006
Original enterprise value: £322 million
HgCapital clients' total equity: 65%
Business description
• Voyage owns and operates small community-based homes for adults with learning disabilities and associated physical disabilities, autistic spectrum disorders, complex needs and acquired brain injury.
• Voyage offers a range of care provision from daily help to intensive physical and mental support in modified accommodation. Fees are paid by local authorities.
Performance
• Current trading: occupancy remains strong and is significantly higher than the industry average despite pressures on public sector budgets. Both sales and EBITDA are ahead of prior year.
• Exit strategy: exit could be via an IPO, to a private equity fund or private equity-backed trade buyer.
12 Epyx
www.epyx.co.uk
Sector: TMT
Location: UK
Date invested: June 2009
Original enterprise value: €230 million
HgCapital clients' total equity: 51%
Business description
• Epyx provides a marketplace for fleet vehicle service, maintenance and repair, disposals, hire, relicensing and procurement.
• Epyx is the UK market leader, processing transactions for around 90% of service and maintenance events for UK fleet vehicles.
Performance
• Current trading: trading is above budget with sales and EBITDA both significantly ahead of last year.
• Exit strategy: the options for Epyx are attractive, with a trade sale or secondary buyout being viable options.
13 Achilles
www.achilles.com
Sector: TMT
Location: UK
Date invested: July 2008
Original enterprise value: £75 million
HgCapital clients' total equity: 63%
Business description
• Achilles operates schemes whereby buyers in a certain industry require their suppliers to subscribe and to provide information to the Achilles online database; for suppliers it is mandatory to join the scheme if they wish to supply to the buyer group and both buyers and suppliers pay annual subscription fees.
• Achilles currently operates more than 30 schemes across 22 countries.
Performance
• Current trading: Achilles is significantly ahead of the prior year in sales and EBITDA.
• Exit strategy: a trade sale is the most likely route, although a private equity buyer or IPO have not been ruled out.
14 Schleich
www.schleich-s.com
Sector: Consumer & Leisure
Location: Germany
Date invested: December 2006
Original enterprise value: £165 million
HgCapital clients' total equity: 76%
Business description
• Schleich is the leading producer of plastic toy figurines, such as farm and wildlife animals, historical characters and The Smurfs.
• Its products are sold in over 30 countries, including its home market of Germany, the US, the UK and France.
Performance
• Current trading: demand for Schleich products is slightly up on the prior, year while EBITDA is slightly down.
• Exit strategy: options include a trade sale, a secondary transaction or an IPO.
15 Americana
www.bench.co.uk
Sector: Consumer & Leisure
Location: UK
Date invested: March 2007
Original enterprise value: £180 million
HgCapital clients' total equity: 45%
Business description
• Americana is a branded apparel business, primarily focused on designing and marketing Bench brand products aimed at both men and women in the 16 to 25 age group.
Performance
• Trading in the current financial year has been good. Revenue and EBITDA have been driven particularly by increasingly strong brand penetration in Germany.
• Exit strategy: options include a sale to trade or a financial buyer.
16 Sporting Index
www.sportingindex.com
Sector: Consumer & Leisure
Location: UK
Date invested: November 2005
Original enterprise value: £73 million
HgCapital clients' total equity: 69%
Business description
• Sporting Index is a sports spread betting firm, well positioned in the UK market.
• It aims to offer more markets, more 'fun bets', and more choice than any other sports spread betting company.
Performance
• Current trading: sales and EBITDA are significantly ahead of the prior year, having been boosted by recent sporting events.
• Exit strategy: the company will be positioned for a trade exit, most likely to an industry consolidator.
17 Elite
www.sitelsemi.com
Sector: TMT
Location: Benelux
Date invested: June 2005
Original enterprise value: £39 million
HgCapital clients' total equity: 80%
Business description
• Elite creates custom-made microchips targeted primarily at the home wireless voice and data applications market. Its customers include the world's leading manufacturers of cordless home telephone systems.
• Elite outsources all of its asset-intensive manufacturing to large blue-chip foundries, allowing it to generate a high return on capital.
Performance
• Current trading: stable with sales increasing, although price erosion is constraining revenues and profits.
• Exit strategy: an exit will most likely be through a trade sale.
18 Casa Reha
www.casa-reha.de
Sector: Healthcare
Location: Germany
Date invested: January 2008
Original enterprise value: £240 million
HgCapital clients' total equity: 51%
Business description
• Casa Reha provides care services for the elderly. By size, growth, and profitability it is one of the leading German businesses in this field.
• Casa Reha's current portfolio numbers 54 homes, of which ten are in a preparatory phase.
Performance
• Current trading: roll out of new sites has been delayed by banks taking longer to approve financing, but sales and EBITDA are up on prior year.
• Exit strategy: the most likely exit options are a secondary buyout or IPO.
19 SHL
Sector: Services
Location: UK
Date invested: October 2006
Original enterprise value: £102 million
HgCapital clients' total equity: 75%
Business description
• SHL is the UK market leader in objective psychometric testing and has a global presence.
• The business consists of the development and sale of 300 different types of psychometric tests to corporate clients and the provision of psychologists for the administration and interpretation of tests.
Performance
• Current trading: the first half of 2010 has been strong with both sales and EBITDA significantly up on the prior year.
• Exit strategy: the business could be an attractive asset to HR software and service providers, principally US-based, as well as B2B publishers or staffing businesses.
20 Software (Cayman)
www.iris.co.uk
Sector: TMT
Location: UK
Date invested: July 2006
Original enterprise value: £500 million
HgCapital clients' total equity: 10%
Business description
• Software (Cayman) LP, trading as Iris Software Group Ltd, is the UK's leading provider of financial, practice management, customer care, payroll and tax software to accountancy and law firms and over 50,000 small businesses. The majority of its revenues are paid on a recurring, annual subscription basis.
Performance
• Current trading: sales are slightly below the prior year whilst EBITDA is up on the prior year.
• Exit strategy: HgCapital realised a multiple of 3.1x cost through the sale of its majority holding to Hellman & Friedman in June 2007. We anticipate selling our remaining 10% holding through a tertiary buyout, trade sale or an IPO.
|
Company |
Residual cost £'000 |
Unrealised value £'000 |
Accrued interest £'000 |
Total value £'000 |
Valuation methodology |
|
Visma |
16,321 |
38,082 |
2,551 |
40,633 |
Earnings |
|
Pulse |
6,131 |
22,624 |
- |
22,624 |
Earnings |
|
StepStone Solutions |
15,805 |
14,883 |
- |
14,883 |
Cost |
|
JLA |
13,398 |
13,398 |
- |
13,398 |
Cost |
|
Frösunda |
13,076 |
12,837 |
- |
12,837 |
Cost |
|
Manx Telecom |
11,033 |
11,033 |
- |
11,033 |
Cost |
|
Mondo Minerals |
6,987 |
7,536 |
2,736 |
10,272 |
Earnings |
|
SimonsVoss |
10,065 |
9,898 |
- |
9,898 |
Cost |
|
SLV |
5,999 |
6,691 |
2,407 |
9,098 |
Earnings |
|
Goldshield |
8,545 |
8,545 |
- |
8,545 |
Cost |
|
Voyage Group |
13,112 |
6,447 |
1,928 |
8,375 |
Written down |
|
Epyx |
6,388 |
7,522 |
836 |
8,358 |
Earnings |
|
Achilles |
5,226 |
6,871 |
1,047 |
7,918 |
Earnings |
|
Schleich |
4,634 |
5,934 |
1,633 |
7,567 |
Earnings |
|
Americana |
4,625 |
4,483 |
2,530 |
7,013 |
Earnings |
|
Sporting Index |
7,272 |
3,077 |
3,029 |
6,106 |
Written down |
|
Elite |
3,540 |
2,012 |
1,522 |
3,534 |
Written down |
|
Casa Reha |
8,151 |
2,224 |
542 |
2,766 |
Written down |
|
SHL |
7,984 |
1,934 |
794 |
2,728 |
Written down |
|
Software (Cayman) t/a Iris Software Group Ltd |
530 |
1,887 |
10 |
1,897 |
Earnings |
RENEWABLE ENERGY
REVIEW OF RENEWABLE ENERGY INVESTMENTS
HgCapital's Renewable Energy sector team uses private equity skills to identify and acquire renewable energy projects, usually based on wind or solar energy, in Western Europe. Investment returns are anticipated through a combination of yield during operation and capital gain at refinancing or exit, providing a return profile that the Board believes will complement returns from its core investments in leveraged buyouts.
HgCapital is developing groups of projects based on the three platforms described below. These platforms can then be refinanced efficiently or sold as portfolios of closely related projects. By participating as a limited partner in HgCapital's renewable funds the Company gains exposure across all these platforms more efficiently than by co-investing alongside the funds.
Renewable energy projects are initially valued at cost until they have been in operation for two years. From that time they are valued on a discounted cash flow basis using discount rates reflecting similar transactions in the relevant market.
Hg RENEWABLE POWER PARTNERS LP AND HgCAPITAL RENEWABLE POWER PARTNERS 2 LP
In June 2006 the Company made its first commitment, of €21 million, to Hg Renewable Power Partners LP ('RPP 1'). In June 2010, the Company committed €40 million to HgCapital Renewable Power Partners 2 LP ('RPP 2'). This brings the Company's total commitment to HgCapital's renewable energy investment programme to €61 million.
The investment strategy of these funds is to create a diversified portfolio of European renewable power assets, seeking out superior resource locations and utilising proven technologies. The funds take controlling positions in high quality, European renewable energy infrastructure projects, which provide a combination of attractive risk-adjusted returns, inflation linkage and insulation from GDP volatility. Investments are diversified by geography, technology, equipment supplier and regulatory regime. Projects are typically acquired at the pre-construction phase, and brought into operation within two years of acquisition. Each project is structured with long-term contracts for the sale of the power generated, for the supply and maintenance of equipment, and fixed rate funding.
In June 2010, it was reported that the Spanish government was considering the retroactive reduction of government guaranteed 25-year tariffs for solar PV projects. The HgCapital renewables team has taken steps to lobby against this unprecedented move. Legislation drafted by the Spanish government does not include any retroactive changes for existing projects. The team remains confident that any such changes remain unlikely.
|
Principal investments by platform |
Cost £'000 |
Valuation £'000 |
Portfolio value % |
|
UK Wind: RPP 1 |
5,343 |
5,462 |
2.4% |
|
Swedish Wind: RPP 1 |
2,555 |
2,555 |
1.1% |
|
Swedish Wind: RPP 2 |
1,317 |
1,317 |
0.6% |
|
Spanish Solar: RPP 1 |
4,747 |
4,718 |
2.1% |
DIVERSIFICATION BY VALUE
Geography
34% UK / Ireland
31% Spain
28% Sweden
3% France
3% Germany
1% Italy
Platform
66% Wind
31% Solar
3% Biogas
RPP 1 Overview:
At €303 million, RPP 1 is one of the largest Renewable Energy Funds in Europe.
At 30 June 2010, RPP 1 was 83.6% committed, having invested in a total of 21 power plants: ten wind projects in construction or operation totalling 264.2MW; four biogas projects in operation totalling 1.4MW, and seven solar photovoltaic plants totalling 60.7MW.
Overall, RPP 1's portfolio is performing strongly, with 87% of capital invested in projects which are performing either in line with or ahead of original investment case.
The substantial majority of the fund's investments have been in three core platforms: UK onshore wind (the 6th largest independent portfolio in the UK), Swedish onshore wind (including the largest onshore wind farm in Sweden) and Spanish photovoltaic (the 5th largest solar portfolio in Europe).
Other investments have been completed in France, Italy and Germany.
RPP 2 Overview:
Consistent with the investment strategy of the first fund, HgCapital intends to invest RPP 2 in countries in Western Europe which have strong incentive programmes for investment in renewable energy generation, as well as building on the core platform-based strategy established in RPP 1.
In June 2010, RPP 2 made its first investment into the Swedish 44MW Ytterberg onshore wind farm project. In the first week of August, the financing of the project was closed, committing €37 million of equity to the investment.
UK ONSHORE WIND
One of the ten largest independently-owned onshore wind portfolios in the UK, the renewables funds have 112MW of capacity in operation.
Principal wind farms in operation
Tir Mostyn:
21MW wind farm in North Wales operating since 2005.
Bagmoor:
16MW project in Lincolnshire operating since 2009.
Scout Moor:
65MW wind farm in Lancashire operating since 2009 and owned through a 50 / 50 joint venture with Peel Holdings.
Wind Direct:
Two operating wind farms of 4MW and 5MW and a third 2MW project under construction, located on industrial sites to supply electricity directly to their industrial host.
Windfarm development
RidgeWind:
A fully staffed development business with more than 220MW under development and 60MW across three projects with planning permission that are being prepared for construction. HgCapital has a 100% controlling interest in this company.
Performance
• Performance year to date in 2010 has been poor due to exceptionally low wind conditions across the UK from January to June. For the first half of 2010, revenues are 58%, and EBITDA is 54% of investment case.
• Power generation is expected to revert to investment case with underperformance entirely due to extreme but natural variations in wind resource and not related to any long-term problem. All projects were above investment case in July.
• Cumulative revenues since inception have been 89% of investment case.
SWEDISH ONSHORE WIND
The largest owner of onshore wind farms in Scandinavia with total capacity of 139MW in two projects, both developed and built by Renewable Energy Systems Limited, one of the world's most experienced developers of wind farms.
Havsnäs:
95MW wind farm operating since mid-2010, 75% owned by RPP I.
Ytterberg:
44MW project acquired by RPP 2 in June 2010, currently under construction.
Performance
• Havsnäs became fully operational post-period end, in early July 2010.
SPANISH SOLAR PHOTOVOLTAIC: MERCURIO
Mercurio is the fourth largest operator of solar PV in Europe with capacity of 60.8MW in seven projects in Spain. Mercurio is owned by RPP 1 in partnership with Plenium Partners, who provide all operations, maintenance and administration services.
Olivenza:
18.0MW project in Extremadura operating since 2008.
Yecla:
7.5MW project in Murcia operating since 2008.
Abenojar:
5.3MW project in Castilla la Mancha operating since 2008.
Herencia:
4.7MW project in Castilla la Mancha operating since 2008.
Bargas:
5.3MW project in Castilla la Mancha operating since 2008.
Tinajeros:
12MW project in Murcia operating since 2008.
Fuente Alamo:
8.0MW project in Murcia commissioned in June 2010.
Performance
• Revenues for the first half of 2010 are 95% of investment case and EBITDA 89%.
• Cumulative revenues since inception have been 104% of investment case.
|
THE COMPANY'S TOP 20 INVESTMENTS BY VALUE† |
|||||||
|
|
Company |
Year of investment |
Sector |
Residual cost £'000 |
Valuation £'000 |
Portfolio value % |
Cum. Value % |
|
1 |
VISMA Holdings |
2006 |
TMT |
16,321 |
40,633 |
17.8% |
17.8% |
|
2 |
Pulse Staffing Ltd |
1999 |
Healthcare |
6,131 |
22,624 |
9.8% |
27.6% |
|
3 |
Stepstone Solutions |
2010 |
TMT |
15,805 |
14,883 |
6.5% |
34.1% |
|
4 |
JLA Equityco Ltd |
2010 |
Services |
13,398 |
13,398 |
5.9% |
40.0% |
|
5 |
Frösunda Luxco SARL |
2010 |
Healthcare |
13,076 |
12,837 |
5.6% |
45.6% |
|
6 |
Manx Telecom Ltd |
2010 |
TMT |
11,033 |
11,033 |
4.8% |
50.4% |
|
7 |
Mondo Minerals Co-op |
2007 |
Industrials |
6,987 |
10,272 |
4.5% |
54.9% |
|
8 |
SimonsVoss SARL |
2010 |
Industrials |
10,065 |
9,898 |
4.3% |
59.2% |
|
9 |
SLV Electronik SARL |
2007 |
Industrials |
5,999 |
9,098 |
4.0% |
63.2% |
|
10 |
Goldshield Group |
2009 |
Healthcare |
8,545 |
8,545 |
3.7% |
66.9% |
|
11 |
Voyage Holdings Ltd |
2006 |
Healthcare |
13,112 |
8,375 |
3.7% |
70.6% |
|
12 |
Epyx Investments Ltd |
2009 |
TMT |
6,388 |
8,358 |
3.7% |
74.3% |
|
13 |
Achilles Group Holdings Ltd |
2008 |
TMT |
5,226 |
7,918 |
3.5% |
77.8% |
|
14 |
Schleich Luxembourg SA |
2006 |
Consumer & Leisure |
4,634 |
7,567 |
3.3% |
81.1% |
|
15 |
Americana International Holdings Ltd |
2007 |
Consumer & Leisure |
4,625 |
7,013 |
3.1% |
84.2% |
|
16 |
Sporting Index Group Ltd |
2005 |
Consumer & Leisure |
7,272 |
6,106 |
2.7% |
86.9% |
|
17 |
Elite Holding SA |
2005 |
TMT |
3,540 |
3,534 |
1.5% |
88.4% |
|
18 |
Casa Reha SARL |
2008 |
Healthcare |
8,151 |
2,766 |
1.2% |
89.6% |
|
19 |
SHL Group Holdings 1 Ltd |
2006 |
Services |
7,984 |
2,728 |
1.2% |
90.8% |
|
20 |
Software (Cayman), LP - re IRIS |
2006 |
TMT |
530 |
1,897 |
0.8% |
91.6% |
|
|
Top 20 buyout investments |
|
|
168,822 |
209,483 |
91.6% |
|
|
|
Other investments (13) |
|
|
36,551 |
2,885 |
1.3% |
92.9% |
|
|
NOK / GBP Hedge |
|
|
1,699 |
1,364 |
0.6% |
93.5% |
|
|
Hg5 Euro Hedge |
|
|
- |
(275) |
(0.1%) |
93.4% |
|
|
Total buyout investments |
|
|
207,072 |
213,457 |
93.4% |
|
|
|
Renewable energy investments |
|
|
|
|
|
|
|
1 |
RPP 1 Fund |
2006 |
Renewable energy |
15,570 |
13,771 |
6.0% |
99.4% |
|
2 |
RPP 2 Fund |
2010 |
Renewable energy |
1,428 |
1,364 |
0.6% |
100.0% |
|
|
Total renewable energy investments |
|
|
16,998 |
15,135 |
6.6% |
|
|
|
Total all investments (35) |
|
|
224,070 |
228,592 |
100.0% |
|
|
*Including investment valuation of £207,023,000 and accrued interest £21,569,000. |
|||||||
† The above investments, other than Hg Renewable Power Partners LP and HgCapital Renewable Power Partners 2 LP, are held through the Company's investment in HGT LP and HGT6 LP, two limited partnerships of which the Company is the sole limited partner. For more information, see Note 3 of the Financial Statements.
INCOME STATEMENT
for the six months ended 30 June 2010
|
|
Note |
Revenue return |
Capital return |
Total return |
||||||
|
Six months ended |
Year ended |
Six months ended |
Year ended |
Six months ended |
Year ended |
|||||
|
30.6.10 £'000 (unaudited) |
30.6.09 £'000 (unaudited) |
31.12.09 £'000 (audited) |
30.6.10 £'000 (unaudited) |
30.6.09 £'000 (unaudited) |
31.12.09 £'000 (audited) |
30.6.10 £'000 (unaudited) |
30.6.09 £'000 (unaudited) |
31.12.09 £'000 (audited) |
||
|
Gains/(losses) on investments and government securities |
|
- |
- |
- |
11,558 |
(6,698) |
5,211 |
11,558 |
(6,698) |
5,211 |
|
Losses on loans receivable from General Partner |
7(b) |
- |
- |
- |
(1,850) |
(2,188) |
(4,737) |
(1,850) |
(2,188) |
(4,737) |
|
Net income |
6 |
4,818 |
2,885 |
8,018 |
- |
- |
- |
4,818 |
2,885 |
8,018 |
|
Investment management fee rebate |
7(a) |
- |
138 |
208 |
- |
415 |
625 |
- |
553 |
833 |
|
Other expenses |
8 |
(1,187) |
(312) |
(1,078) |
- |
- |
- |
(1,187) |
(312) |
(1,078) |
|
Net return/(deficit) on ordinary activities before taxation |
|
3,631 |
2,711 |
7,148 |
9,708 |
(8,471) |
1,099 |
13,339 |
(5,760) |
8,247 |
|
Taxation on ordinary activities |
10 |
- |
(758) |
- |
- |
(116) |
- |
- |
(874) |
- |
|
Transfer to/(from) reserves |
|
3,631 |
1,953 |
7,148 |
9,708 |
(8,587) |
1,099 |
13,339 |
(6,634) |
8,247 |
|
Return/(deficit) per share |
11 |
12.98p |
7.75p |
28.38p |
34.69p |
(34.09p) |
4.36p |
47.67p |
(26.34p) |
32.74p |
|
The total column of this statement represents the Company's income statement. The supplementary revenue and capital return columns are both prepared under guidance published by the Association of Investment Companies ("AIC"). All recognised gains and losses are disclosed in the revenue and capital columns of the income statement and as a consequence no statement of total recognised gains and losses has been presented. All revenue and capital items in the above statement derive from continuing operations. Interim dividend for the year ended 31 December 2009 of 25.00p (£6,297,000) declared on 17 February 2010 and paid on 31 March 2010. Final dividend for the year ended 31 December 2008 of 25.00p (£6,297,000) declared on 13 March 2009 and paid on 11 May 2009. |
||||||||||
BALANCE SHEET
as at 30 June 2010
|
|
Note |
30.6.10 £'000 (unaudited) |
30.6.09 £'000 (unaudited) |
31.12.09 £'000 (audited) |
|
Fixed assets |
|
|
|
|
|
Investments held at fair value |
|
|
|
|
|
Quoted at market valuation |
|
- |
84 |
76 |
|
Unquoted at Directors' valuation |
|
207,023 |
104,227 |
127,128 |
|
|
|
207,023 |
104,311 |
127,204 |
|
Current assets |
|
|
|
|
|
Debtors |
|
23,638 |
17,516 |
25,237 |
|
Government securities |
|
60,913 |
97,258 |
84,526 |
|
Cash |
|
2,073 |
3,419 |
2,873 |
|
|
|
86,624 |
118,193 |
112,636 |
|
|
|
|
|
|
|
Creditors - amounts falling due within one year |
|
(1,706) |
(1,341) |
(3,796) |
|
Net current assets |
|
84,918 |
116,852 |
108,840 |
|
Net assets |
|
291,941 |
221,163 |
236,044 |
|
|
|
|
|
|
|
Capital and reserves |
|
|
|
|
|
Called up share capital |
|
7,838 |
6,296 |
6,296 |
|
Share premium account |
|
61,436 |
14,123 |
14,123 |
|
Capital redemption reserve |
|
1,248 |
1,248 |
1,248 |
|
Capital reserve - realised |
|
232,462 |
239,390 |
242,015 |
|
Capital reserve - unrealised |
|
(23,992) |
(50,314) |
(43,253) |
|
Revenue reserve |
|
12,949 |
10,420 |
15,615 |
|
Total equity shareholders' funds |
|
291,941 |
221,163 |
236,044 |
|
|
|
|
|
|
|
Net asset value per share |
11 |
938.6p |
878.1p |
937.2p |
|
Diluted net asset value per share |
11 |
940.5p |
n/a |
n/a |
CASH FLOW STATEMENT
for the six months ended 30 June 2010
|
|
Note |
Six months ended 30.6.10 £'000 (unaudited) |
Six months ended 30.6.09 £'000 (unaudited) |
Year ended 31.12.09 £'000 (audited) |
|
Net cash inflow/(outflow) from operating activities |
9 |
5,653 |
(4,248) |
(3,439) |
|
Taxation refunded/(paid) |
|
- |
352 |
(1,149) |
|
Capital expenditure and financial investment |
|
|
|
|
|
Purchase of fixed asset investments |
|
(73,992) |
(16,889) |
(29,863) |
|
Proceeds from the sale of fixed asset investments |
|
4,891 |
1,651 |
5,467 |
|
Net cash outflow from capital expenditure and financial investment |
|
(69,101) |
(15,238) |
(24,396) |
|
Financing activities |
|
|
|
|
|
Proceeds from issue of share capital |
|
50,000 |
- |
- |
|
Fees paid on issue of share capital |
|
(1,145) |
- |
- |
|
Equity dividends paid |
|
(6,297) |
(6,297) |
(6,297) |
|
Net cash inflow/(outflow) from financing activities |
|
42,558 |
(6,297) |
(6,297) |
|
|
|
|
|
|
|
Net cash outflow before management of liquid resources |
|
(20,890) |
(25,431) |
(35,281) |
|
|
|
|
|
|
|
Management of liquid resources |
|
20,090 |
23,009 |
(32,313) |
|
Decrease in cash in the period |
|
(800) |
(2,422) |
(2,968) |
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the six months ended 30 June 2010
|
|
Note |
Share capital £'000 |
Share premium account £'000 |
Capital redemption reserve £'000 |
Capital reserves £'000 |
Revenue reserve £'000 |
Total £'000 |
|
At 31 December 2009 |
|
6,296 |
14,123 |
1,248 |
198,762 |
15,615 |
236,044 |
|
Issue of ordinary shares |
|
1,480 |
48,520 |
- |
- |
- |
50,000 |
|
Issue of subscription shares |
|
62 |
(62) |
- |
- |
- |
- |
|
Cost of share issues |
|
- |
(1,145) |
- |
- |
- |
(1,145) |
|
Net return from ordinary activities |
|
- |
- |
- |
9,708 |
3,631 |
13,339 |
|
Dividends paid |
4 |
- |
- |
- |
- |
(6,297) |
(6,297) |
|
At 30 June 2010 |
|
7,838 |
61,436 |
1,248 |
208,470 |
12,949 |
291,941 |
|
|
|
|
|
|
|
|
|
|
At 31 December 2008 |
|
6,296 |
14,123 |
1,248 |
197,663 |
14,764 |
234,094 |
|
Net return from ordinary activities |
|
- |
- |
- |
1,099 |
7,148 |
8,247 |
|
Dividends paid |
4 |
- |
- |
- |
- |
(6,297) |
(6,297) |
|
At 31 December 2009 |
|
6,296 |
14,123 |
1,248 |
198,762 |
15,615 |
236,044 |
NOTES TO THE FINANCIAL STATEMENTS
1. Principal activity
The principal activity of the Company is that of an investment trust company. The Company is an investment company as defined by section 833 of the Companies Act 2006 and an investment trust within the meaning of section 1158/9 of the Corporation Tax Act 2010 ("CTA").
2. Basis of preparation
The accounts have been prepared in accordance with applicable UK law and Accounting Standards ('GAAP') and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies' ('SORP'), dated January 2009. All of the Company's operations are of a continuing nature.
The Company has considerable financial resources and as a consequence, the Directors believe that the group is well placed to manage its business risks successfully despite the current uncertain economic outlook. After making enquiries, the Directors have a reasonable expectation that the Company will 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.
The same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in the Company's latest annual audited financial statements.
3. Organisational structure and Manager arrangements
Partnerships
In May 2003 (subsequently revised in January 2009) and January 2009, the Company entered into two separate partnership agreements with general and founder partners, at which point investment holding limited partnerships were established to carry on the business of an investor, with the Company being the sole limited partner in these entities.
The purpose of these partnerships, HGT LP and HGT 6 LP (together the 'buyout funds') is to hold all the Company's investments in buyouts and other investments, other than liquid funds and renewable energy projects (see below).
Under the partnership agreements, the Company made capital commitments into the buyout funds with the result that the Company now holds direct investments in the buyout funds and an indirect investment in the fixed asset investments that are held by these funds, as it is the sole limited partner. The fixed asset investments on the Balance Sheet and the Investment portfolio above comprise the underlying investments held by these buyout funds.
The Company also entered into partnership agreements with the purpose of investing in renewable energy projects by making capital commitments alongside other limited partners in Hg Renewable Power Partners LP and HgCapital Renewable Power Partners 2 LP (together the 'renewable funds'). These are direct investments in the renewable funds, as shown on the Balance Sheet and the Investment portfolio above.
Priority profit share and carried interest per the buyout limited partnership agreements
Under the terms of the buyout fund limited partnership agreements ('LPAs'), the general partner is entitled to appropriate, as a first charge on the net income of the funds, an amount equivalent to its priority profit share ('PPS'). The Company is entitled to net income from the funds, after payment of the PPS.
In years in which these funds have not yet earned sufficient net income to satisfy the PPS, the entitlement is carried forward to the following years. The PPS is payable quarterly in advance, even if insufficient net income has been earned. Where the cash amount paid exceeds the net income, an interest free loan is advanced to the general partner by these funds, which is funded via a loan from the Company. Such loan is only recoverable from the general partner by an appropriation of net income; until net income is earned, no value is attributed to this loan.
Furthermore, under the buyout LPAs, the founder partner is entitled to a carried interest distribution once certain preferred returns are met. The LPAs stipulate that the funds' capital gains (or net income), after payment of the carried interest, are distributed to the Company.
Accordingly, the Company's entitlement to net income and net capital gains are shown in the appropriate lines of the income statement. Notes 6, 7 and 9 to the financial statements and the cash flow statement disclose the gross income and gross capital gains of the funds (including the associated cash flows) and also reflect the proportion of net income and capital gains in the funds that have been paid to the general partner and founder partner as its PPS and carried interest, where applicable.
The PPS paid from net income is charged to the revenue account in the income statement, whereas PPS paid as an interest-free loan, if any, is charged as an unrealised depreciation to the capital return on the income statement.
The carried interest payments made from net income and capital gains are charged to the revenue and capital account respectively on the income statement.
4. Dividends
It is intended that dividends will be declared and paid annually in respect of each accounting period. A dividend of 25.00p per share, declared on 17 February 2010 as an interim dividend, was paid on 31 March 2010 in respect of the year ended 31 December 2009 (year ended 31 December 2008: final dividend of 25.00p per share, declared on 13 March 2009 and paid on 11 May 2009).
5. Issued share capital
|
|
Six months ended 30. 6.10 (unaudited) |
Six months ended 30.6.09 (unaudited) |
Six months ended 31.12.10 (audited) |
|||
|
|
No. '000 |
£'000 |
No. '000 |
£'000 |
No. '000 |
£'000 |
|
Ordinary shares of 25p each |
40,000 |
10,000 |
40,000 |
10,000 |
40,000 |
10,000 |
|
Allotted, called up and fully paid: |
|
|
|
|
|
|
|
Ordinary shares At 1 January |
25,187 |
6,296 |
25,187 |
6,296 |
25,187 |
6,296 |
|
Issued as part of placing and open offer |
5,917 |
1,480 |
- |
- |
- |
- |
|
At 30 June / 31 December |
31,104 |
7,776 |
25,187 |
6,296 |
25,187 |
6,296 |
The Company's issued share capital at the beginning of the year consisted of 25,186,755 ordinary shares. On 7 April 2010, 5,917,160 new ordinary shares were issued as part of the placing and open offer at a price of £8.45, resulting in proceeds of £50 million being received. Subscription shares on a one for five basis were attached to these shares.
|
|
Six months ended 30.6.10 (unaudited) |
Six months ended 30.6.09 (unaudited) |
Six months ended 31.12.10 (audited) |
|||
|
|
No. '000 |
£'000 |
No. '000 |
£'000 |
No. '000 |
£'000 |
|
Allotted and fully paid: |
|
|
|
|
|
|
|
Subscription shares of 1p each Issued as part of placing and open offer |
6,221 |
62 |
- |
- |
- |
- |
|
At 30 June / 31 December |
6,221 |
62 |
- |
- |
- |
- |
On 7 April 2010, 5,037,351 subscription shares were issued as part of the qualifiying bonus issue, representing one subscription share for every five existing ordinary shares held. A further 1,183,432 subscription shares were issued, attached to the placing and open offer, representing one subscription share for every five new ordinary shares issued.
Each subscription share entitles the holder to subscribe for one ordinary share upon exercise of their subscription right and payment of the subscription price. The first opportunity to exercise such right will be on 31 May 2011, and thereafter on 31 October and 31 May in each year to 2012, at a price of 950p per ordinary share. The final exercise date is on 31 May 2013 at a subscription price of 1,025p per ordinary share.
6. Income
|
|
Six months ended 30.6.10 £'000 (unaudited) |
Six months ended 30.6.09 £'000 (unaudited) |
Year ended 31.12.09 £'000 (audited) |
|
Income from investments |
|
|
|
|
UK and overseas unquoted investment income |
5,869 |
3,239 |
6,994 |
|
UK dividends from unquoted investments |
909 |
2 |
2,278 |
|
Gilt interest less amortisation |
(419) |
374 |
322 |
|
|
6,359 |
3,615 |
9,594 |
|
Other income |
|
|
|
|
Deposit interest |
151 |
44 |
88 |
|
|
151 |
44 |
88 |
|
Total income |
6,510 |
3,659 |
9,682 |
|
Priority profit share attribution |
(1,692) |
(774) |
(1,664) |
|
Total net income |
4,818 |
2,885 |
8,018 |
7. Fees, priority profit share and carried interest paid to Manager
(a) Investment management fee
|
|
Revenue return |
Capital return |
||||
|
|
Six months ended 30.6.10 £'000 (unaudited) |
Six months ended 30.6.09 £'000 (unaudited) |
Year ended 31.12.09 £'000 (audited) |
Six months ended 30.6.10 £'000 (unaudited) |
Six months ended 30.6.09 £'000 (unaudited) |
Year ended 31.12.09 £'000 (audited) |
|
Investment management fee |
- |
- |
- |
- |
- |
- |
|
VAT recovered |
- |
(138) |
(208) |
- |
(415) |
(625) |
|
|
- |
(138) |
(208) |
- |
(415) |
(625) |
From 1 January 2009, no further investment management fee is payable as the Manager is receiving a priority profit share from that date. The investment management fee was levied quarterly in arrears and was charged 75% to capital and 25% to revenue.
(b) Priority profit share
|
|
Revenue return |
||
|
|
Six months ended 30.6.10 £'000 (unaudited) |
Six months ended 30.6.09 £'000 (unaudited) |
Year ended 31.12.09 £'000 (audited) |
|
Priority profit share to General Partners funded by: |
|
|
|
|
Share of investment income |
1,692 |
774 |
1,664 |
|
Loan to General Partner |
1,850 |
2,188 |
4,737 |
|
|
3,542 |
2,962 |
6,401 |
The priority profit share payable on HGT LP and HGT 6 LP rank as a first appropriation of gross income from investments held in HGT LP and HGT 6 LP respectively and is deducted prior to such income being attributed to the Company in its capacity as a Limited Partner. The net income of HGT LP and HGT 6 LP earned during the year, after the deduction of the priority profit share, is shown on the Income Statement.
(c) Carried interest
|
|
Capital return |
||
|
|
Six months ended 30.6.10 £'000 (unaudited) |
Six months ended 30.6.09 £'000 (unaudited) |
Year ended 31.12.09 £'000 (audited) |
|
Carried interest payable to Founder Partner funded by: |
|
|
|
|
Share of gains on investments |
- |
- |
1,062 |
|
|
- |
- |
1,062 |
The carried interest payable ranks as a first distribution of capital gains on the investments held in HGT LP and HGT 6 LP, a limited partnership established solely to hold the Company's investments, and is deducted prior to such gains being paid to the Company in its capacity as Limited Partner. The net amount of capital gains of HGT LP and HGT 6 LP during the year, after the deduction of carried interest, is shown on the Income Statement.
8. Other expenses
|
|
Revenue return |
||
|
|
Six months ended 30.6.10 £'000 (unaudited) |
Six months ended 30.6.09 £'000 (unaudited) |
Year ended 31.12.09 £'000 (audited) |
|
Custodian and administration fees |
138 |
134 |
268 |
|
Other administration costs |
1,049 |
178 |
810 |
|
|
1,187 |
312 |
1,078 |
9. Cash flow from operational activities
|
|
Six months ended 30.6.10 £'000 (unaudited) |
Six months ended 30.6.09 £'000 (unaudited) |
Year ended 31.12.09 £'000 (audited) |
|
Net return/(deficit) before taxation |
13,339 |
(5,760) |
8,247 |
|
(Gains)/loss on investments held at fair value and loans |
(9,708) |
8,886 |
(1,536) |
|
Priority profit share advanced |
(1,850) |
(2,188) |
(4,737) |
|
Amortisation of premium on government securities |
2,664 |
2,708 |
5,372 |
|
Movement in carried interest |
(1,062) |
(5,132) |
(4,070) |
|
Increase in accrued income |
(1,069) |
(1,711) |
(5,101) |
|
Decrease/(increase) in debtors |
2,675 |
- |
(2,708) |
|
Increase/(decrease) in creditors |
671 |
(1,050) |
1,115 |
|
Tax on investment income included within gross income |
(7) |
(1) |
(21) |
|
Net cash inflow/(outflow) from operating activities |
5,653 |
(4,248) |
(3,439) |
10. Taxation
Tax for the six month period is charged at 28% (31 December 2009: 28%), representing the best estimate of the average annual effective tax rate expected for the full year, applied to the pre-tax income of the six month period.
In the opinion of the Directors, the Company has complied with the requirements of Section 1158/9 of the CTA 2010 and will therefore be exempt from corporation tax on any capital gains made in the year. The Company expects to designate all of any dividend declared in respect of this financial year as an interest distribution to its shareholders. This distribution is treated as a tax deduction against taxable income, resulting in no corporation tax being payable by the Company; hence, no tax liability has been provided at 30 June 2010.
11. Return and net asset value per ordinary share
|
|
Revenue return |
Capital return |
||||
|
|
Six months ended 30.6.10 (unaudited) |
Six months ended 30.6.09 (unaudited) |
Year ended 31.12.09 (audited) |
Six months ended 30.6.10 (unaudited) |
Six months ended 30.6.09 (unaudited) |
Year ended 31.12.09 (audited) |
|
Earnings (£'000): |
|
|
|
|
|
|
|
Return/(deficit) on ordinary activities after taxation |
3,631 |
1,953 |
7,148 |
9,708 |
(8,587) |
1,099 |
|
Number of shares ('000) |
|
|
|
|
|
|
|
Weighted average number of shares in issue |
27,983 |
25,187 |
25,187 |
27,983 |
25,187 |
25,187 |
|
Return per share (pence) |
|
|
|
|
|
|
|
Basic |
12.98 |
7.75 |
28.38 |
34.69 |
(34.09) |
4.36 |
|
|
Six months ended 30.6.10 (unaudited) |
Six months ended 30.6.09 (unaudited) |
Year ended 31.12.09 (audited) |
|
Net asset value (£'000) |
|
|
|
|
Net assets |
291,941 |
221,163 |
236,044 |
|
Assuming exercise of all subscription shares (at minimum price) |
59,097 |
- |
- |
|
Fully diluted net asset value |
351,038 |
221,163 |
236,044 |
|
Number of shares ('000) |
|
|
|
|
Number of shares in issue |
31,104 |
25,187 |
25,187 |
|
Dilutive potential subscription shares |
6,221 |
- |
- |
|
Diluted shares |
37,325 |
25,187 |
25,187 |
|
Net asset value per share (pence) |
|
|
|
|
Basic |
938.6 |
878.1 |
937.2 |
|
Diluted |
940.5 |
n/a |
n/a |
The diluted net asset value per share is currently higher than the basic net asset value as the minimum excercise price of the subscription shares is 950 pence, whereas the current net asset value per share is 938.6 pence.
12. Capital commitments
The Company has committed through HGT 6 LP to invest £285 million alongside the Manager's latest buyout fund, HgCapital 6. The Company has agreed to pay fees on its commitment, whereas management fees were previously based on its NAV. The Company will be entitled, without penalty, to opt out of any investment which could cause the Company to lose its status as an investment trust, result in the Company not having the cash resources to meet any of its projected liabilities or expenses, or result in it not being able to pay dividends or undertake any intended share buy-back. At 30 June 2010, £198,951,000 of this commitment was uncalled.
The Company has also committed through HGT LP to invest £120 million alongside the Manager's previous buyout fund, HgCapital 5. At 30 June 2010, £20,464,000 of this commitment was uncalled.
On 28 May 2010, the Company committed to invest up to €40 million as a limited partner in HgCapital Renewable Power Partners 2 LP. The Company's total commitment will become available when all commitments by limited partners reach €200 million. Until that level of commitment is reached, the Company's contribution to capital called up from Limited Partners is limited to 25% of the total commitments. At 30 June 2010, the Company committed €13 million to the Fund of which €11,735,000 was uncalled. In addition the Company is allowed, without penalty, to be excused by the Manager of the Fund from any investment which could cause the Company to lose its status as an investment trust.
As at 30 June 2010, investment purchases of £1,771,000 (31 December 2009: £5,557,000) had been authorised and contractually committed, including the uncalled commitment to Hg Renewable Power Partners LP but excluding any uncalled commitment in any of the above partnerships. In addition, the Company's derivative financial instruments held through HGT LP expire on 29 August 2012. In order to meet any potential liability arising on this date, an amount of £6,260,000 million has been reserved for this purpose. This amount is therefore callable from the Company at this or any earlier date.
13. Publication of non-statutory accounts
The financial information contained in this half-yearly financial report does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006. The financial information for the six months ended 30 June 2010 and 2009 has not been audited. The financial information for the six months ended 30 June 2009 was reviewed by the Company's auditor. The information for the year ended 31 December 2009 has been extracted from the latest published audited financial statements, which have been filed with the Registrar of Companies. The report of the auditors on those accounts contained no qualification or statement under section 498 (2) or (3) of the Companies Act 2006.
14. Annual results
The Board expects to announce the results for the year ending 31 December 2010 in March 2011. The Annual report should be available by the end of March 2011, with the Annual General Meeting being held in May 2011.
MANAGEMENT AND ADMINISTRATION
Board of Directors
Roger Mountford (Chairman)
Peter Gale (Deputy Chairman)
Richard Brooman (Chairman of the Audit and Valuation Committee)
Piers Brooke
Andrew Murison
Mark Powell (appointed 27 July 2010)
Tim Amies (retired 10 May 2010)
HgCapital Trust plc
2 More London Riverside
London
SE1 2AP
Registered office
(Registered in England No. 1525583)
2 More London Riverside
London
SE1 2AP
Manager, secretary and administrator
HgCapital*†
2 More London Riverside
London
SE1 2AP
Telephone: 020 7089 7888
www.hgcapital.com
Stockbroker
RBS Hoare Govett Limited*
250 Bishopsgate
London
EC2M 4AA
Independent auditor
Deloitte LLP
2 New Street Square
London
EC4A 3BZ
Legal adviser
Herbert Smith LLP
Exchange House
Primrose Street
London
EC2A 2HS
Registrar
Computershare Investor Services plc*
The Pavilions
Bridgwater Road
Bristol
BS99 6ZY
Telephone: 0870 702 0131
www-uk.computershare.com/investor
AIC
Association of Investment Companies
www.theaic.co.uk
HgCapital Trust is a member of the Association of Investment Companies. The AIC is the trade body for the closed-ended investment company industry. It represents a broad range of closed-ended investment companies, including investment trusts, offshore closed-ended investment companies and venture capital trusts (VCTs). Its mission is to help members add value for shareholders over the longer term.
LPEQ
Listed Private Equity
www.lpeq.com
HgCapital Trust is a founder member of Listed Private Equity (LPEQ). This is a group of private equity investment trusts and similar vehicles listed on the London Stock Exchange and other major European stock markets, formed to raise awareness and increase understanding of what listed private equity is and how it enables all investors - not just large institutions - to invest in private equity.
LPEQ provides information on private equity in general, and the listed sector in particular, undertaking and publishing research, and working to improve levels of knowledge about the asset class among investors and their advisers.
*Authorised and regulated by the Financial Services Authority.
† HgCapital is the trading name of Hg Pooled Management Limited
This information is provided by RNS
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