TIDMHGT
RNS Number : 1935A
HgCapital Trust PLC
10 September 2018
HgCapital Trust plc
INTERIM RESULTS FOR THE SIX MONTHSED 30 JUNE 2018
London, 10 September 2018: HgCapital Trust plc ("the Company"),
which provides investors with a listed vehicle to invest in all
private equity deals managed by Hg, today announces its interim
results for the six months ended 30 June 2018.
CONTINUED Strong NAV performance driven by double-digit revenue
and profit growth AND EXITS ABOVE BOOK VALUE
SUMMARY performance
31 August 30 June 31 December % Total
2018 2018 2017 return(1)
================ ============ =========== ============== ============
Share price GBP19.40 GBP19.35 GBP17.68 +11.3%
NAV per share GBP20.70 GBP20.59 GBP19.32 +8.3%
FTSE All-Share
Index +1.7%
=========================================================== ============
June 2018
Movement
Net Asset Value GBP772.5m GBP768.7m GBP721.0m +GBP47.7m
================ ============ =========== ============== ============
(1) Assuming reinvestment of all historic dividends
key Highlights FOR THE period TO 30 JUNE 2018
-- NAV per share of GBP20.59, a total return of 8.3%.
-- Share price of GBP19.35, a total return of 11.3%.
-- Interim dividend of 16 pence, payable in October 2018.
-- Strong revenue and EBITDA growth of 23% and 19% (on a
value-weighted basis) respectively across the top 20 buyout
investments (90% of the portfolio) over the last twelve months.
-- Valuation multiple (EV/EBITDA) of 16.8x and debt to EBITDA
ratio of 5.3x for the top 20 buyout investments (both on a
value-weighted basis).
-- GBP104 million of cash returned to the Company and GBP79
million invested on behalf of the Company.
year to date to 31 AUGUST 2018
-- NAV per share of GBP20.70, primarily reflecting unrealised
currency movements since period-end.
-- Share price of GBP19.40.
-- 4 realisations agreed since June completed or due to complete
in the second half of 2018.
-- 7 investments agreed since June completed or due to complete
in the second half of 2018.
-- Pro-forma liquid resources post completion of all announced
transactions are GBP154 million (20% of NAV).
-- Pro-forma outstanding commitments of GBP475 million (61% of
NAV). We expect these to be drawn down over the next two to three
years.
Hg's Outlook
-- It has been another strong six months for realisations, Hg
expects to see further liquidity events over the next six
months.
-- While the primary focus has been on exits, Hg has also
continued to selectively invest, in situations where it has a
unique angle and has developed many years' knowledge of the
business.
-- Robust double-digit trading performance from the unrealised
businesses underpins Hg's confidence in the quality of these
investments and ongoing growth.
-- A focus on operational improvement, coordinated by the
dedicated Operations Innovation team, continues to drive the
performance of the businesses, and deliver network benefits.
-- Strong earnings, realisations at uplifts to book value and
supporting the management teams of the underlying portfolio will
continue to drive value for shareholders in HgCapital Trust
plc.
Roger Mountford, Chairman of the Company, commented:
"The Company has sold a significant number of investments over
the last eighteen months, while many of the newer investments are
now in the earlier stages of their planned period of value
creation, with much work going on to drive growth and embed
operational improvements, the fruits of which we expect to become
progressively reflected in their valuations over time."
- Ends -
The Company's 2018 Interim Report and a video from the Manager
to accompany the results are available to view at:
http://www.hgcapitaltrust.com/.
For further details:
HgCapital Trust plc
Roger Mountford (Chairman, HgCapital
Trust plc) +44 (0)7799 662601
Laura Dixon (Senior Investor Relations
Manager, Hg) +44 (0)20 7089 7888
Maitland
Vikki Kosmalska and Seda Ambartsumian +44 (0)20 7379 5151
About HgCapital Trust plc
HgCapital Trust plc (ticker: HGT.L) gives investors exposure to
a portfolio of high-growth private companies, through a liquid
vehicle listed on the London Stock Exchange. New investments and
existing portfolio companies are managed by Hg, an experienced and
well-resourced private equity firm with a long-term track record of
delivering superior risk-adjusted returns for its investors. For
further details, please see www.hgcapitaltrust.com .
For further details, see www.hgcapitaltrust.com and
www.hgcapital.com
HgCapital Trust plc
Interim Report and Accounts - 30 June 2018
The objective of the Company is to provide shareholders with
consistent long--term returns in excess of the FTSE All--Share
Index by investing predominantly in unquoted companies where value
can be created through strategic and operational change.
The Company provides investors with exposure to a fast--growing
network of unquoted investments, primarily in technology and
technology--enabled businesses across Europe.
References in this Interim Report and Accounts to HgCapital
Trust plc have been abbreviated to 'HgCapital Trust' or 'the
Company'. Hg refers to the trading name of Hg Pooled Management
Limited and HgCapital LLP.
Hg Pooled Management Limited is the 'Manager'.
References in this Interim Report and Accounts to 'Total Return'
refer to a return where it is assumed that an investor has
re--invested all historic dividends at the time when they were
paid.
References in this Interim Report and Accounts to pounds
sterling have been abbreviated to 'sterling'.
Financial highlights
Six-month performance:
_____________________________________________________________________________________________________
Share price
at 30 June 2018 was GBP19.35 a total return for the period
of:
+11.3%
_____________________________________________________________________________________________________
NAV per share
at 30 June 2018 was GBP20.59, a total return for the period
of:
+8.3%
_____________________________________________________________________________________________________
Total annualised ongoing charges
The total annualised ongoing charges for the period to 30 June
2018:
2.1%
Please refer to page 72 of the full Interim Report and Accounts
for further detail of the calculation of ongoing charges.
____________________________________________________________________________________________________
Market capitalisation
The market capitalisation of the Company at 30 June 2018
was:
GBP722m
_____________________________________________________________________________________________________
Net assets
The total NAV of the Company at 30 June 2018 was:
GBP769m
_____________________________________________________________________________________________________
Interim dividend
(2017: 16p)
16p
_____________________________________________________________________________________________________
Top 20 investments as at 30 June 2018:
____________________________________________________________________________________________________
LTM sales growth
+23%
_____________________________________________________________________________________________________
LTM profit growth
+19%
_____________________________________________________________________________________________________
EV to EBITDA multiple
16.8x
_____________________________________________________________________________________________________
Debt to EBITDA ratio
5.3x
_____________________________________________________________________________________________________
These figures are calculated on a value-weighted basis. For
further information on the top 20 portfolio trading data, please
refer to the Manager's review below.
Balance sheet analysis as at 30 June 2018:
_____________________________________________________________________________________________________
Liquid resources
(20% of NAV)
GBP154m
Liquid resources are supported by an undrawn bank facility of
GBP80 million.
__________________________________________________________________________________________________
Outstanding commitments
(75% of NAV)
GBP575m
Commitments will be drawn down over the next two to three years
(2019-2021), an average cash outflow of c.GBP190 million p.a.
The Company can opt out of a new investment without penalty,
should it not have the cash available to invest.
Strong realisation activity over the first half of 2018, with
further liquidity events since June, taking advantage of a buoyant
environment for realising value at good prices.
_____________________________________________________________________________________________________
Cash realised for the benefit of the Company
GBP104m
_____________________________________________________________________________________________________
Cash invested on behalf of the Company
GBP79m
_____________________________________________________________________________________________________
For further information on investment and realisation activity
over the period, please see below.
Long-term performance record
Historic record
Net assets Revenue return/(loss) Revenue
Year attributable NAV per Share available return/(loss) Dividend
ended to shareholders share price for shareholders per share(1) per share(2)
31 December GBP'000 p p GBP'000 p p
-------------- ----------------- -------- -------- ---------------------- --------------- --------------
2009 236,044 937.2 844.0 7,148 28.4 25.0
----------------- -------- -------- ---------------------- --------------- --------------
2010 347,993 1,118.8 1,006.0 10,053 34.0 28.0
----------------- -------- -------- ---------------------- --------------- --------------
2011 346,832 1,089.9 970.0 (645) (2.0) 10.0
----------------- -------- -------- ---------------------- --------------- --------------
2012 437,956 1,231.5 1,016.0 10,398 32.1 23.0
----------------- -------- -------- ---------------------- --------------- --------------
2013 440,584 1,180.4 1,010.0 12,913 35.3 29.0
----------------- -------- -------- ---------------------- --------------- --------------
2014 476,918 1,277.8 1,057.5 21,933 58.8 51.0(3)
----------------- -------- -------- ---------------------- --------------- --------------
2015 530,023 1,420.0 1,115.0 17,907 48.0 40.0
----------------- -------- -------- ---------------------- --------------- --------------
2016 615,756 1,649.7 1,541.0 20,140 54.0 46.0
----------------- -------- -------- ---------------------- --------------- --------------
2017 721,024 1,931.7 1,768.0 20,043 53.7 46.0
-------------- ----------------- -------- -------- ---------------------- --------------- --------------
30 June
2018 768,661 2,059.4 1,935.0 5,650 15.1 16.0(4)
-------------- ----------------- -------- -------- ---------------------- --------------- --------------
(1) Based on weighted number of shares in issue during the year.
(2) Dividend proposed in respect of reported financial year, but declared
and paid in the following year.
(3) Includes a special dividend of 19 pence per Ordinary share.
(4) Interim dividend of 16 pence per Ordinary share to be paid on
26 October 2018.
Both the Company's share price and net asset value per share
have continued to outperform the FTSE All--Share Index.
Historical total return performance
One Three Five Ten Twenty
Six months
to 30 June
2018 year years years years years
% p.a. % p.a. % p.a. % p.a. % p.a. % p.a.
------------------------------------- ----------- -------- --------- --------- --------- ---------
Share price 11.3 17.6 24.4 15.1 11.6 13.7
----------- -------- --------- --------- --------- ---------
NAV per share 8.3 17.4 20.0 15.3 9.9 12.8
----------- -------- --------- --------- --------- ---------
FTSE All--Share Index 1.7 9.0 9.6 8.8 7.8 5.6
------------------------------------- ----------- -------- --------- --------- --------- ---------
Share price performance relative to
the FTSE All--Share Index +9.6 +8.6 +14.8 +6.3 +3.8 +8.1
------------------------------------- ----------- -------- --------- --------- --------- ---------
NAV per share performance relative
to the FTSE All--Share Index +6.6 +8.4 +10.4 +6.5 +2.1 +7.2
------------------------------------- ----------- -------- --------- --------- --------- ---------
Based on the Company's share price at 30 June 2018 and allowing
for all historic dividends being reinvested, an investment of
GBP1,000 made twenty years ago would now be worth GBP12,976, a
total return of 1,198%. An equivalent investment in the FTSE
All-Share Index would be worth GBP2,967.
Chairman's statement
The Company has sold a significant number of investments over
the last eighteen months, while many of the newer investments are
now in the earlier stages of their planned period of value
creation, with much work going on to drive growth and embed
operational improvements, the fruits of which we expect to become
progressively reflected in their valuations over time.
Performance in the first half
At 30 June 2018, the Company's NAV per share reached a new high
of GBP20.59 (after the payment of a final dividend in respect of
2017 of 30 pence per share), reflecting total return growth during
the half year of 8.3%. The total NAV of the Company at 30 June
reached GBP769 million, an increase of GBP48 million over the
year--end, after the payment to shareholders of GBP11 million in
final dividends in respect of 2017.
With the NAV breaching GBP20 per share, it is perhaps worth
noting that when the Company last made a placing of new shares, in
March 2010, the net asset value per share stood at 937.2 pence. A
shareholder who invested at the Offer Price would, by June 2018,
have easily more than doubled that investment.
The appreciation achieved in the first half of 2018 reflected
both further strong growth in sales and earnings in almost all of
the businesses we own and substantial uplifts above carrying value
on the sale of investments.
Over the twelve months to 30 June 2018, the top 20 companies,
that make up 90% of our portfolio, continued to achieve strong
growth in sales and profits, reporting sales growth of 23% and
EBITDA growth of 19%. The significant majority of our investments
are reporting sales and EBITDA ahead of the previous year. Growth
in profits has added more than GBP48.5 million (130 pence per
share) to the unrealised value of the investment portfolio at 30
June. Gains over carrying value on the realisation of investments
contributed GBP21.3 million (57 pence per share) to growth in NAV;
higher ratings used in some valuations, reflecting the values of
listed technology shares and M&A activity but also the
strategic changes made in some of our holdings, contributed GBP18.9
million (51 pence per share) to NAV. Partial hedging of foreign
exchange risk dampened the impact of movements in foreign exchange
rates.
The analysis of NAV movements and attribution analysis (further
on in this report) set out a breakdown of movements in the NAV and
the underlying investment portfolio.
It is worth noting that the Company currently holds 14% of NAV
in co-investments, which are free of any fees or carried interest
payable. The Company will continue to take up co-investment
opportunities as they arise.
Returns to shareholders
The Company's share price closed at GBP19.35 on 30 June 2018, an
increase of 11.3% on a total return basis in the first six months
of the year, compared with a 1.7% total return from the FTSE
All--Share Index. While this represents another excellent
short--term performance, the Board has always emphasised that
investment in private equity should be judged over longer time
periods, reflecting the cycle over which the Manager identifies
attractive opportunities, acquires them, and then deploys its own
personnel to work with the management of each business to add value
through strategic and operational change. This creates sustainable
value, that is ultimately realised through sale, and has resulted
in the Company delivering a compound annual share price total
return of 11.6% p.a. over the last ten years, and 13.7% p.a. over
the last twenty years.
We believe that the performance achieved over the long-term,
well in excess of the FTSE All--Share Index, justifies an
allocation of shares in the Company within a diversified portfolio
seeking long--term growth.
Dividend
The Board has previously advised shareholders that it expects to
distribute an annual dividend of not less than 46 pence per share.
The Board has decided to pay an interim dividend of 16 pence per
share and therefore anticipates recommending a final dividend of
not less than 30 pence. Long--term investors focused on growth in
the value of their holding might wish to consider automatically
reinvesting all dividends through the Company's dividend
re--investment plan (or 'DRIP'), details of which appear further in
the full Interim report and accounts.
Broadening our investment universe
The investment strategy adopted by the Manager and supported by
the Board has for some time been to focus carefully on selected
business models, while broadening the range of opportunities
available for investment. As the Company has grown in scale we have
progressively increased the upper size of businesses in which we
can invest.
Six months ago, we announced that we intended to commit GBP150
million to invest alongside the Hg Saturn Fund, for which the
Manager has now raised GBP1.35 billion from large institutional
investors.
The objective of Saturn is to invest in companies valued at an
enterprise value of GBP1 billion or more, with the same technology
and tech-enabled business models in which we are invested through
Hg's existing strategies. It is expected that this commitment will
be invested over the next three years.
I am pleased to report that we have completed our first two
investments in this strategy, Visma and IRIS, businesses which we
know well and have been invested in for some years. This allows the
Company to remain invested in growing businesses as they become
major players and consolidators in their respective sectors and
countries.
Importantly, we have not vacated the smaller end of the market
where Hg has delivered impressive returns for two decades. With
Hg's investment focus on technology and tech--enabled businesses,
it is important to remain active among smaller companies that are
developing software and services for new applications and business
needs, and achieve robust growth as they roll out new solutions.
Our investments in the Hg Mercury funds target just these types of
business.
In March, we also announced our decision to commit to another
ancillary vehicle targeting these same sized businesses, offering
Transition Capital to businesses with an enterprise value of GBP50
million to GBP100 million, but where the owners are not yet ready
to cede control. These transactions will be structured to deliver a
largely fixed return, with a set date for redemption. The Company
has committed GBP75 million to this strategy, which is expected to
fund three to four investments in the range of GBP15 million to
GBP25 million over the next three years.
Risk Management
The Board makes commitments to invest in each of Hg's
strategies, to be drawn over four to five years. These commitments
are made after careful analysis of estimated future cash flows and
shareholders can take comfort that, should the Company have
insufficient funds to meet its commitments in future, it will
across all its strategies have the benefit of an 'opt--out', as a
last resort, allowing it to be excused from investment without
penalty if it does not have sufficient cash available. In addition,
as previously reported, we have an unsecured bank facility of GBP80
million available until 30 June 2019 and this helps the Board to
remain confident that the Company can participate in all of Hg's
investments without financial strain.
Our objective is to manage shareholders' funds efficiently,
keeping the Company fully committed and well invested throughout
any cycle, maintaining cash at levels that are proportionate to the
investment commitments we have made.
The Board and Manager do not believe in trying to predict cycles
in macro--economic conditions or equity markets. However, the
Manager will look for opportunities to capture high values by
realising investments earlier than planned, whilst equity
valuations remain elevated. By replacing these with new investments
presenting opportunities to add value through active management, we
can achieve our aim of delivering compelling compound returns over
long periods while reducing the risk implicit in high
valuations.
Investment activity
In our 2017 interim report, the Manager observed that market
conditions were 'hot' - in other words, a time to exit holdings
where we could realise their potential value and be highly
selective in making new investments.
Between January 2017 and June 2018, Hg has realised 18
investments bringing expected cash proceeds to the Company of over
GBP420 million. This includes five businesses (Ullink, Allocate
Software, Radius, Intelliflo and Teufel) where the sales were
completed in the first half of 2018, contributing proceeds of
GBP104 million to the Company. Further announced realisations (JLA,
IRIS and Kinapse), have been completed in the second half of the
year. The sale prices of JLA and IRIS have been reflected in the 30
June valuations.
During the first half of 2018, we invested GBP79 million. The
Manager continues to focus on investing in businesses that are core
to Hg's investment strategy: technology and technology--enabled
businesses that provide products and solutions, often to
regulatory--driven workflow problems, which are mission--critical
to their businesses' customers and enjoy highly recurring revenues.
All the recent investments have many similarities to prior Hg
investments and are in similar "clusters", serving workflow
problems and the needs of similar business customer sets in similar
end markets.
The first four investments from Hg Mercury 2 have deployed an
estimated total of GBP26 million year--to--date and are close
replicas of earlier successful Hg investments, which we hope will
deliver similarly successful outcomes.
The first investment, DADA, is an SME hosting business (similar
to Zitcom, exited in 2017). The second, Financial Express, is a UK
retail investment fund documentation and dissemination business
(the UK equivalent to fundinfo, a European leader in this area,
acquired in 2017). The German healthcare software investment,
Medifox, provides Healthcare ERP software (similar to Allocate
Software, which we sold in 2018), while Rhapsody, based in
Massachusetts, is a provider of integration platform services that
connect various systems within hospitals and other healthcare
providers.
Hg8 has had a similar start over the last six months and the
Company has invested a total of GBP48 million, with an estimated
further GBP40 million since 30 June.
The first investment, Mobility Holding, is a combination of two
businesses (MeinAuto and Mobility Concept) to create a leading car
leasing business in Germany. This investment completed in two
stages in December 2017 and March 2018, with the further addition
of Athletic Sport Sponsoring (announced in July 2018). This is a
similar thesis to that of the Zenith investment in the UK,
successfully realised in early 2017.
The second investment from Hg8 was into The Access Group which
completed in June 2018 and is an ERP software provider in the UK -
similar to IRIS but with a focus on different SME segments of the
market. Hg8's third investment, IT Relation, announced in June, is
a provider of managed IT services for SME customers in Denmark and
also resembles the investment thesis in Zitcom.
Finally, Hg8 recently exercised its option with Vista Equity
Partners to re--invest c. GBP100 million into Allocate Software,
including c. GBP13 million from the Company. Allocate is a company
Hg has known for several years and which performed strongly during
Hg's ownership. The Manager is investing alongside Vista, a US
based firm, which has well--proven capability to support Allocate
to scale further in the US.
At 30 June, the Company held GBP154 million in liquid resources
awaiting investment and is likely to receive further cash proceeds
from realisations refinancings later in 2018.
"The Board believes that the Company's current portfolio
contains exciting opportunities which should deliver continuing
long--term growth to shareholders"
Roger Mountford, Chairman, HgCapital Trust plc
______________________________________________________________________________________________________
Prospects
Following the exits and new investments announced this year, our
current portfolio of over 30 individual holdings is entirely
positioned in Hg's target sectors of technology and
technology--enabled business. In their report (below) the Manager
illustrates how these businesses predominantly fall into eight
clusters defined by their markets, technologies or other
characteristics. These create real network benefits from sharing
experience and innovation between essentially similar business
models, with Hg's Operations Innovation team and experienced
Operating Partners helping each management team to create value
quickly and with reduced execution risk.
The Company has sold a significant number of investments over
the last eighteen months, while many of the newer investments are
now in the earlier stages of their planned period of value
creation, with much work going on to drive growth and embed
operational improvements, the fruits of which we expect to become
progressively reflected in their valuations over time. The table
below shows that, at 30 June, more than 50% by value of our
investments had been held for three years or less. With further
post-period realisations, close to 70% of the portfolio has been
held now for three years or less.
______________________________________________________________________________________________________
Investment vintage by value at 30 June*
8% 2018
7% 2017
30% 2016
8% 2015
20% 2014
27% pre 2014
*Excluding carried interest provision
______________________________________________________________________________________________________
The case study of our successful investment in Intelliflo,
described below, illustrates how value is added during the period
between investment and realisation. The top 20 investments' sales
growth of 23% in the last twelve months resulted in a slightly more
modest growth of 19% in EBITDA, reflecting the scale of investment
being made, depressing margins in the short term, but which will
deliver rapid EBITDA growth in future periods. The Board believes
that the Company's current portfolio contains exciting
opportunities which should deliver continuing long--term growth to
shareholders.
Roger Mountford
Chairman
7 September 2018
Investment objective and investment policy
The objective of the Company is to provide shareholders with
consistent long--term returns in excess of the FTSE All--Share
Index by investing predominantly in unquoted companies where value
can be created through strategic and operational change.
Investment policy
The policy of the Company is to invest, directly or indirectly,
in a portfolio of unlisted companies where Hg believes it can add
value through organic growth, operational improvements, margin
expansion, reorganisation or by acquisition to achieve scale. The
Company seeks to maximise its opportunities and reduce investment
risk by holding a spread of businesses diversified by sector,
market and geography.
Risk management
The Company has adopted formal policies to control risk arising
through excessive leverage or concentration. The Company's maximum
exposure to unlisted investments is 100% of the gross assets of the
Company from time to time. On investment, no investment in a single
business will exceed a maximum of 20% of gross assets. The Company
may invest in other listed closed--ended investment funds up to a
maximum at the time of investment of 15% of gross assets.
Sectors and markets
As the Company's policy is to invest in businesses in which Hg
can play an active role in supporting management, Hg primarily
invests in companies whose operations are headquartered or
substantially based in Europe. These companies operate in a range
of countries, but there is no policy of making allocations to
specific countries or markets. Investments are made across a range
of sectors where Hg believes that its skills can add value, but
there is no policy of making allocations to sectors.
The Company may, from time to time, invest directly in private
equity funds managed by Hg where it is more economical and
practical so to do.
Gearing
Each underlying investment is usually leveraged but no more than
its own cash flow can support, in order to enhance value creation;
it is impractical to set a maximum for such gearing across the
portfolio as a whole. The Company commits to invest in new
opportunities in order to maintain the proportion of gross assets
that are invested at any time, but monitors such commitments
carefully against projected cash flows.
The Company has the power to borrow and to charge its assets as
security. The Articles restrict the Company's ability (without
shareholder approval) to borrow, to no more than twice the
Company's share capital and reserves, allowing for the deduction of
debit balances on any reserves.
Hedging
Part of the Company's portfolio is located outside the UK,
predominantly in Northern Europe, and a further part in businesses
that operate in US dollars. The Company may therefore hold
investments valued in currencies other than sterling. From time to
time, the Company may put in place hedging arrangements with the
objective of protecting the sterling translation of a valuation in
another currency. Derivatives are also used to protect the sterling
value of the cost of investment made or proceeds from realising
investments in other currencies, between the exchange of contracts
and the completion of a transaction.
Overcommitment
The Company may be overcommitted at times in order to ensure
that it is more fully invested in the future. The level of
overcommitment is regularly reviewed by the Board and Hg.
Liquid funds
The Company maintains a level of liquidity to ensure, so far as
can be forecast, that it can participate in all investments made by
Hg throughout the investment--realisation cycle.
At certain points in the investment--realisation cycle the
Company may hold substantial cash awaiting investment. The Company
may invest its liquid funds in government or corporate debt
securities, or in bank deposits, in each case with an investment
grade rating, or in managed liquidity funds that hold investments
of a similar quality.
If there is surplus capital and conditions for new investment
appear to be unfavourable, the Board will consider returning
capital to shareholders, probably through the market purchase of
shares.
Any material change to the Company's investment objective and
policy will be made only with the approval of shareholders in a
general meeting.
Rationale and business model
The Board has a clear view of the rationale for investing in
unquoted businesses where there is potential for growth in value
through applying private equity expertise. This informs its
decisions on the operation of the Company and the evolution of the
Company's Business Model.
Rationale
The Board believes that there is a convincing rationale for
directly investing in well--researched private businesses where
there is potential for substantial growth in value, especially
where there is the ability to work with management to implement
strategic or operational improvements.
By taking on the burdens of administration, monitoring and
accounting that such investments require, the Company offers a
simple and liquid means by which shareholders can achieve an
investment in unquoted growth companies, monitored by an
independent Board.
Business model
To achieve the Company's Investment Objective and within the
limits set by the Investment Policy, the Company is a direct
investor in unquoted businesses managed, and in most cases
controlled, by the Manager. From time to time, the Company may hold
listed securities in pursuit of its Investment Policy.
The Company is currently invested in more than 30 companies (as
set out below), ranging in size, sector and geography, providing
diversification.
The Board has delegated the management of the Company's
investments to Hg Pooled Management Limited (the "Manager").
Further details of the terms of the management agreement are set
out below. The Manager invests predominantly in unquoted technology
and technology-enabled businesses in expanding sectors and provides
portfolio management support. The Manager's Review below outlines
how the Company's investments are managed on behalf of the
Company.
Most of the Company's investments are held through
special-purpose partnerships, of which the Company is the sole
limited partner.
Periodically, the Company enters into a formal commitment to
invest in businesses identified by the Manager, alongside
institutional investors who invest in a Hg Limited Partnership
Fund. Such commitments are normally drawn down over four to five
years. The institutional investors and the Company invest on
substantially identical terms. The Company is usually the largest
investor in each business. Following the 2016 commitment to invest
GBP350 million alongside the Hg8 Fund, the Board, in 2017,
committed a further GBP80 million with respect to the Mercury 2
Fund. In early 2018, the Board made a GBP75 million commitment to
invest in Transition Capital and GBP150 million to invest alongside
the Hg Saturn Fund. Further detail on these is provided in the
Chairman's statement above.
The Board has a further objective of keeping the Company as
fully invested as is practical, while ensuring that it will have
the necessary cash available when a new investment arises. The
Board, on the advice of the Manager, makes assumptions about the
rate of deployment of funds into new investments and the timing and
value of realisations. However, to mitigate the risk of being
unable to fund any draw--down under its commitments to invest, the
Board has negotiated a right for the Company to opt out, without
penalty, of its obligation to fund such draw--downs where certain
conditions exist.
The Company may also take up a co--investment in some businesses
(in addition to the investment it has committed to make). The
Company has no liability to pay fees on such co--investment and no
carried interest incentive is payable to the Manager on realisation
(currently 14% of the Company's NAV is in co--investments). The
Company may also offer to acquire a limited partnership interest in
any of Hg's funds, in the event that an institutional investor
wishes to realise its partnership interest.
The Board regularly monitors progress in all the businesses in
which it is invested, and their valuation; the development of the
Manager's investment strategy; and the resources and sustainability
of the Manager's business model.
Investment trust status
As the Company's shares are listed on the London Stock Exchange,
it can take advantage of tax benefits available to investment
trusts. This allows the Company to realise businesses from its
portfolio without liability to corporation tax. The Board intends
to retain this status so long as it is in shareholders' interests
to do so. This will require the Board to declare dividends so that
not more than 15% of taxable income is retained each year.
Performance targets
The Company's aim is to achieve returns in excess of the FTSE
All--Share Index over the long--term. To this end, the Board
monitors the Key Performance Indicators, as set out above. In the
six months to 30 June 2018, the Company's NAV per share increased
by 8.3% on a total return basis. In comparison, the FTSE All--Share
Index increased by 1.7%. The six month total return of the
Company's share price was 11.3%.
NAV per share has grown by 9.9% p.a. compound over the last ten
years and 12.8% p.a. compound over the last twenty years. The share
price has seen broadly similar performance growing by 11.6% p.a.
compound over the last ten years and 13.7% p.a. compound over the
last twenty years.
All of the above returns assume the reinvestment of all
historical dividends. The Board and the Manager aim to continue to
achieve consistent, long--term returns in this range.
The Company is not managed so as to reflect short--term
movements in any Index. The Board also regularly compares the
Company's NAV and share price performance against a basket of
broadly comparable companies with similar characteristics, listed
on the London Stock Exchange.
Dividends
In 2017, the Board announced that it anticipated that future
dividends would be no less than 46.0 pence per share and that these
would be split between an interim distribution made in or around
October and a final distribution made in or around May.
Where possible, the Trust has elected to 'stream' its income
from interest--bearing investments as dividends for tax efficiency
purposes. More details can be found in the full Interim report and
accounts.
Interim management report and responsibility statement
Interim management report
The important events that have occurred during the period under
review are described in the Chairman's Statement and in the
Manager's Review, which also include the key factors influencing
the financial statements.
The Directors do not consider that the principal risks and
uncertainties have changed materially since the publication of the
Annual Report for the year ended 31 December 2017. A detailed
explanation of the risks summarised below can be found on pages 17
and 18 of the 2017 Annual Report which is available at
www.hgcapitaltrust.com.
Performance risk
An inappropriate investment strategy may lead to poor
performance. The Board is responsible for deciding the investment
strategy to fulfil the Company's objectives and for monitoring the
performance of the Manager.
Financial risks
The Company's investment activities expose it to a variety of
financial risks that include valuation risk, liquidity risk, market
price risk, credit risk, foreign exchange risk and interest rate
risk.
Liquidity risk
The Company, by the very nature of its investment objective,
invests predominantly in companies whose shares are not traded on a
market. The Manager has the benefit of control over most of the
companies, but to realise its investment would require negotiation
of a sale to a purchaser or a flotation on the stock market, which
might not be achievable at the Directors' published valuation.
Borrowing risk
The Board and the Manager agree that prudent use of borrowing to
fund acquisitions can increase rates of return to shareholders.
Businesses held in the underlying portfolio usually utilise bank
borrowing and this is raised at levels that can be serviced from
the cash flows generated within that business.
Regulatory risk
The Company operates as an investment trust in accordance with
Sections 1158 and 1159 of the Corporation Tax Act 2010 ('CTA
2010'). As such, the Company is exempt from corporation tax on
capital gains realised from the sale of its investments, so the
impact of losing investment Company status would be significant to
the Company.
Operational risk
In common with most other investment trust companies, the
Company has no employees. The Company therefore relies upon the
services provided by third parties and is dependent upon the
internal control systems of the Manager and the Company's other
service providers.
Responsibility statement
The Directors confirm that to the best of their knowledge:
-- The condensed set of interim 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 return of the Company;
-- The Interim Management Report (incorporating the Chairman's
Statement and the Manager's Review) includes a fair review of the
information required by:
(a) DTR 4.2.7R of the Disclosure Guidance 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 Guidance 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 2017 Annual Report that could do
so.
We consider the Interim Report & Accounts, taken as a whole,
is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company's position and
performance, business model and strategy.
This interim financial report was approved by the Board of
Directors on 7 September 2018.
Roger Mountford
Chairman
7 September 2018
Hg's review
Building businesses that change how we all do business
Hg is an investor predominantly in unquoted technology and
technology--enabled businesses.
Our business model combines deep sector specialisation with
dedicated portfolio management support. Hg invests primarily in
growth companies in expanding sectors via leveraged buyouts across
Europe.
Hg's vision is to be the most sought after private equity
investor within our sector focus in Europe, being a partner of
choice for management teams, so as to produce consistent, superior
returns for the Company and other clients and a rewarding
environment for our staff.
References in this Interim Report and Accounts to the
'portfolio', 'investments', 'companies' or 'businesses', refer to a
number of buyout investments, held as:
-- indirect investments by the Company through its direct
investments in fund limited partnerships (HGT LP, HGT 6 LP, HGT 7
LP, HGT 8 LP, HgCapital Mercury D LP ('Hg Mercury') and HGT Mercury
2 LP) of which the Company is the sole Limited Partner;
-- a secondary purchase of a direct interest in Hg's 6 fund
through HgCapital 6E LP ('Hg6E'), in which the Company is a Limited
Partner; and
-- direct investments in renewable energy fund limited
partnerships (Asper Renewable Power Partners LP ('Asper RPP I LP')
and Asper Renewable Power Partners 2 C LP ('Asper RPP II LP'), of
which the Company is a Limited Partner.
Hg Pooled Management Limited was authorised as an Alternative
Investment Fund Manager with effect from 22 July 2014.
For further details, refer to pages 120 to 122 of the Annual
Report.
Overview
A clear and robust business model focus to provide long-term
consistent growth
____________________________________________________________________________________________________
Years of investing
>25
_____________________________________________________________________________________________________
Staff
>135
________________________________________________________________________________________________
Investment professionals
>80
_____________________________________________________________________________________________________
Funds under management
>GBP10bn
_____________________________________________________________________________________________________
About Hg
Hg began life as Mercury Private Equity, the private equity arm
of Mercury Asset Management plc. Mercury Asset Management was
acquired by Merrill Lynch in 1997. In December 2000, the executives
of Mercury Private Equity negotiated independence from Merrill
Lynch, and Hg was established as a fully independent partnership,
owned entirely by its partners and employees.
Since then, Hg has worked hard to develop a unique culture and
approach - setting us apart from other investors. We're committed
to building ambitious businesses across the technology,
technology--enabled services and industrial technology space.
With investment offices in London and Munich and over 135
employees, including more than 80 investment professionals, further
enhanced by the considerable experience of close to 20 Operating
Partners, we have funds of over GBP10 billion under management,
serving more than 100 highly regarded institutional investors.
These include private and public pension funds, endowments,
insurance companies and funds of funds, investing alongside the
Company. We have progressively invested in and strengthened the
business of Hg over the years, to establish a significant
competitive advantage.
Hg manages four currently investing funds:
-- Hg Saturn, a technology--focused large--cap buyout fund (GBP1.4 billion raised in 2018);
-- Hg8, the latest mid--market control buyout fund across
technology, services and industrial technology (GBP2.5 billion
raised in 2017);
-- Hg Mercury 2, a technology--focused small--cap control buyout
fund (GBP585 million raised in 2017); and
-- Transition Capital, a technology--focused small--cap minority
investment fund (GBP75 million raised in 2018).
Hg is committed to being a responsible investor and, as such, is
a signatory of the UN Principles for Responsible Investment.
The Company is the largest client of Hg, which has been
contracted to manage the Company's assets since 1994 and offers
investors a liquid investment vehicle, through which they can
obtain an exposure to Hg's diversified network of unquoted
investments with minimal administrative burdens, no long term lock
up or minimum size of investment, and with the benefit of an
independent board and associated corporate governance. The Company
is committed to all of Hg's current funds.
Investment strategy
Hg has a flexible approach to investing, primarily focused on
defensive growth buyouts in technology and technology--enabled
businesses in specific end--market 'clusters' with enterprise
values ('EVs') of GBP50 million to over GBP3 billion predominantly,
but not exclusively, in the UK and Northern Europe.
These companies typically provide opportunities for strategic
and operational improvement and to offer multiple exit options
across market cycles, but with the scale and potential to attract
high quality management.
We believe these markets offer a high volume of investment
opportunities with proven financial performance and strong market
positions.
Clear investment criteria
Hg applies a rigorous approach when evaluating all investment
opportunities. Our objective is to invest in the most attractive
businesses, rather than be constrained by a top down asset
allocation.
We seek companies that share similar characteristics, such as:
high levels of recurring or contracted revenues; a product or
service that is business--critical but typically low--spend; low
customer concentration; high customer loyalty and low sensitivity
to market cycles; and often providing a platform for merger and
acquisition ('M&A') opportunities.
We believe that these companies have the potential for
significant performance improvement.
"We focus our investments in technology and tech--enabled
businesses with specific business characteristics that we believe
have the ability to grow across market cycles and are
attractive
to future buyers."
Nic Humphries, Senior Partner, Hg
Active management of businesses in our network
By virtue of the fact that Hg repeatedly invests in specific
business models, our dedicated Operations Innovation ('OI') Team
has been able to tailor a differentiated approach to driving value
creation during our ownership. Following each investment, our OI
Team works with management to focus on a set of operational levers
that are key to performance in an Hg 'sweet spot' business model:
sales, digital marketing, pricing, customer success, IT and data
analytics. For each of these levers, the OI team has codified the
Hg experience and best--practices into set 'plays' that are
deployed together with management.
The nature of support provided by Hg can take a variety of
forms. At a Board level, we often appoint a member of the OI team
as a non--executive director responsible for applying active,
results--oriented corporate governance.
Beyond the boardroom, members of our OI team provide either
direct support through hands--on best--practice project work, or
collaborate with management teams to draw on expertise from our
proprietary network of specialists and Operating Partners, who each
bring a specific, operational specialism to company situations.
______________________________________________________________________________________________________
"Our differentiation is how focused we can be on a few high
impact areas that are relevant to all our tech and services
companies. The OI team members are experts in their areas, and they
work the same topics over and over again from one company to the
next."
Amanda Good, Partner, Hg
One of the most powerful ways the OI team motivates change is
through peer--to--peer collaboration. Over the first few months of
2018, for example, 27 M&A executives, 62 CTOs/CIOs and 130
Sales & Marketing leaders spent up to two days together
essentially sharing and adopting each other's best practices. By
way of example, across these Hg Forums: Visma has explained how to
build in--house capabilities to complete and integrate 20
acquisitions a year; Allocate has explained to the CTOs how to
transition from on--premise to cloud software in less than a year;
and Sovos has helped sales leaders understand what systems and
processes are required to generate $10 million in sales leads in a
month.
"This is not your grandmother's private equity. Progressive PE
firms like Hg are doing things differently, focusing on growth,
playing a longer game and, most importantly, embracing the power of
the portfolio to help each business acquire the knowledge and
skills required to lead their market. I'm grateful to be part of
it."
Eric Olson, Chief Marketing Officer of Sovos
Hg Insight
Data Analytics
The nature of the businesses we invest in means that our
portfolio companies are particularly data rich, each producing a
stream of information from their usage of our software, service
calls, marketing engagement and so on. These businesses have the
potential to become uniquely data driven - and therefore more
valuable through better marketing, sales and retention.
In the past, stitching these data streams together to form an
end-to-end view of the customer would have been technically
unrealistic - especially for a medium-sized business with a three
to five year window to maximise shareholder returns.
However, the past few years have seen a data and technology
revolution. Amazon, Google and Microsoft's cloud data platforms
have made data storage and processing power quick, cheap and
secure; new data transformation tools enable disparate legacy IT
systems to be joined up.
In response to this shift, over the past two years we have
established an Hg Operations Innovation ('OI') Data Analytics team
to bring these capabilities to our portfolio, with in-house data
scientists, a suite of pre-configured cloud platforms and tools,
and a dedicated near-shore Romanian team to provide
scalability.
The impact has been significant, with each of our first 10
projects adding an average of GBP1 million to GBP2 million EBITDA.
The work typically starts by setting up a data platform: cleaning
and connecting all the data sources into a single data set in the
cloud to give management automated, end-to-end visibility of the
business. Step two is to deploy AI and machine-learning techniques
to help shape how the business is run - typically via two or three
projects per portfolio company. For example, in one business, a
machine-learning early warning system to combat loss of customers
has saved more than GBP1 million EBITDA, with a similar uplift from
a predictive sales lead prioritisation model. Elsewhere, a
machine-learning model is informing a team of the best day and time
to call clients - and how many times to try - in order to maximise
renewal rates.
Looking ahead, the Data Analytics team will continue to act as a
data science 'centre of excellence' for our portfolio, scaling as
more projects are rolled out and evolving as new technologies
emerge. Our ambition is not only to drive EBITDA impact, but also
to offer a truly differentiated, value-adding capability to our
portfolio companies.
______________________________________________________________________________________________________
"Enabling our companies to harness data science is an important
strategic enabler and provides a real competitive edge. At Hg, we
will build out further this capability and reinforce our
differentiation."
Christopher Kindt, OI Principal, Head of Data Analytics team
For further insights from Hg, please refer to
www.hgcapital.com/our-thinking/
Our people
______________________________________________________________________________________________________
"We continue to invest heavily in our team and their expertise,
enabling us to work with the best executives in our target sectors
and actively help them to build great businesses"
Matthew Brockman, Managing Partner, Hg
Our people
Hg succeeds through the analysis and understanding of new and
emerging dynamics in the sectors and market clusters in which it
invests. This requires profound knowledge of technology, markets
and business practices. To this end, we employ exceptionally
talented people, who work in teams, to identify and execute
investment opportunities and accelerate value realisation during
our ownership.
This specialisation - both in investment selection and portfolio
management - requires significant resources and we have built a
business employing over 135 staff, including more than 80
investment and other professionals.
Our people come from a range of backgrounds and experience
including private equity, consulting, investment banking,
accounting and industry sector specialists. Supporting these
in--house resources, Hg's Operating Partners consist of a group of
senior individuals with many years of experience in operational and
strategic roles, as well as individuals with strong functional
expertise in a variety of areas. In addition to this, they have all
worked with Hg and other private equity firms over long
periods.
Investing primarily in European businesses, many of which have a
global footprint, requires time and a deep understanding of local
cultures. Accordingly, our people come from around the globe,
including ten European countries and the USA. Our partners have, on
average, nineteen years' experience in the management of private
businesses.
Positioning ourselves as a best-in-class recruiter
Hg's recruitment and selection processes are rigorous and agile
which, along with our vibrant culture, allows us to attract and
hire the best talent in our industry.
We place a strong emphasis on delivering an experience that will
encourage the best candidates to join us.
Improving our ability to identify talent
We have strengthened our talent identification processes to
accelerate the development of our top performers within the
business. We believe that this is the basis of effective succession
planning.
Employee engagement
Our people are highly motivated by, and committed to, delivering
outstanding value to the Company, our other institutional clients,
and our portfolio company leadership teams. They are engaged by
their work, our values and the opportunity to grow to their full
potential within Hg.
Our values have evolved over many years and are embodied in our
working culture; these are aligned with our performance review and
compensation structures. Hg works hard to ensure our employees are
engaged and we strive to improve levels of engagement, using
independent external benchmarks.
Developing future leaders
We are explicit about the behaviours we wish to encourage at Hg
and have aligned training, coaching, performance feedback and
incentives to our values. This focus includes both broad
organisation--wide and leadership competency models, which are used
as the basis for performance coaching, development and
promotion.
Responsible investment
______________________________________________________________________________________________________
growing sustainable businesses which are great employers, have a
low environmental impact and are good corporate citizens
Why responsible investment is important to us
For Hg, Responsible Investment ('RI') means growing sustainable
businesses which are great employers, have a low environmental
impact and are good corporate citizens, whilst generating superior
risk adjusted returns for the millions of pensioners and savers
globally who are invested with us.
We want the businesses we invest in to be genuinely focused on
doing well for all stakeholders including: employees, customers,
suppliers, shareholders and the wider society. We firmly believe
that responsible business practices help generate superior
long--term performance.
Our responsible investing journey
Hg has been a signatory of the UN Principles for Responsible
Investment ('UNPRI') since 2012. At the end of 2017 we reviewed and
updated our RI framework, policy and approach to set our ambition
and ensure we focus on the ESG opportunities and issues most
relevant for the types of businesses we invest in. Our new
Responsible Business framework forms the foundation of our work and
all businesses are assessed against the framework on an annual
basis.
How we integrate Responsible Investment into our investment
process
Investment screening & Due Diligence
-- When considering potential new investments, we screen their
activity against our exclusion list and assess the quality and
sustainability of their business model.
-- During due diligence, we assess companies for compliance with
relevant laws in relation to environmental, social, governance,
health and safety, bribery and corruption issues.
Ownership
-- We take an active approach to managing ESG during our
ownership. This starts with an ESG onboarding and maturity
assessment within the first months of acquisition to prioritise ESG
topics and agree an action plan.
-- We conduct an ESG assessment at least annually and work with
our businesses to identify areas for improvement and help them to
realise their ambitions within and beyond our Responsible Business
framework.
-- We organise face--to--face events for our management teams to
share best practice, network and receive support. In 2018, we have
held forums on diversity, implementing GDPR and best practice in
HR.
Realisation
-- Upon realisation, we aim to demonstrate the increased value
from improved ESG performance with case studies and performance
metrics.
For more information please go to
www.hgcapital.com/responsibility/
Sector specialisation
_____________________________________________________________________________________________________
Sector by value* of our primary buyouts
21% Services
1% Industrial technology
78% Technology
*Excluding carried interest provision
______________________________________________________________________________________________________
Deep sector focus
In order to identify businesses where we can add substantial
value, Hg applies a deep sector focus, predominantly targeting
buyout investments in technology and technology-enabled
businesses.
Hg's sector teams combine the domain knowledge and expertise of
a trade buyer - giving them enhanced credibility and the ability to
make confident decisions - with both the speed of execution and the
discipline of a financial investor, leading to high conversion
rates on deals.
This deep sector focus is channelled through a rigorous,
research based investment process; systematically identifying the
most attractive growth sub-sectors or 'clusters' and business
models, primarily in Europe; and through repeated investment in
similar types of companies that we know well, our deal flow is
optimised and our returns improved.
Technology
Technology covers a broad range of markets. Driven by our deep
sector approach, Hg's Technology teams focus on specific
sub--sectors, including: vertical market application software -
particularly delivered via a Software as a Service ('SaaS') model;
private electronic marketplaces; B2B media data/publishing; and SME
technology services.
Within these sub--sectors, we have invested in high quality
businesses with diverse customer bases, which feature subscription
based business models generating predictable revenues and cash
flows. The team regularly conducts top down research within the
wider sector, in order to continue to identify and assess further
repeatable investment themes where we can invest time to develop
proprietary expertise.
The size and experience of the team mean that we are well placed
to identify, assess and complete investments quickly and
thoroughly. We work to bring this experience and expertise to
support management teams, aiming to have the knowledge of a trade
buyer, coupled with the speed and focused delivery of a financial
buyer. The team benefits from the depth and breadth of many years
of private equity experience in technology, and is complemented by
an extensive network of industry experts and advisers.
Given the breadth of opportunity in European technology, Hg is
currently investing in the sector on behalf of the Company and from
three funds, Hg Saturn, Hg8 and Hg Mercury 2; targeting buyouts in
companies with typical enterprise values of over GBP50 million to
more than GBP3 billion.
In aggregate, the funds we have to invest across the sector
allow us to review a wider field of investments, whilst providing a
very comprehensive resource for the management teams that we
support.
Services
This team focuses on companies which provide business critical
services with high levels of intellectual property, large
fragmented customer bases, preferably with a repeat or recurrent
model and often with an increasing degree of technology
enablement.
The Services sector is a large and wide ranging segment which is
traditionally split into 'horizontal' business models, including
business process outsourcing, facilities management or testing and
inspection. In contrast, our investment approach concentrates much
more on specific end markets and sub segments, which we believe
lead to attractive business model characteristics. We have then
invested time to develop a strong understanding of the industry
dynamics through identifying service companies that sell into those
specific sub--sectors.
We target businesses with leading positions within a niche,
typically reflected by strong margins; and we aim to grow and scale
these businesses, either organically within existing markets, or
through acquisition.
Existing investments include companies that serve a range of
industries such as: employment law and health & safety;
bookkeeping and payroll services; and insurance distribution. In
all of these companies, the improved delivery of service via
technology is an important theme.
Industrial technology
Our industrial technology investment team focuses on growth
businesses, particularly within the DACH market, which is
characterised by a large number of highly successful, family owned
businesses (the 'Mittelstand').
We have earned a reputation with many of these Mittelstand
companies as a preferred partner with which to scale into
international businesses.
The Industrial Technology Team, based in Munich, is located in
the heart of an economic zone containing numerous high quality,
cutting edge, technology--led industrial businesses, many of which
have strong national or international positions in a specific niche
sector, but with the opportunity to achieve further scale.
Our thematic research within this sector has been concentrated
over many years on the characteristics that define a strong
industrial technology investment.
As a result, we have developed certain themes and business
models that we regard as particularly attractive: aftermarket
companies; product champions/niche manufacturers with
technology--enabled and mission critical products; and smart
distribution models. These themes are overlaid with specific
industrial sub--sectors where we have a strong understanding.
For further information on the sectors we look at, please refer
to www.hgcapital.com/sectors/
Case study - Intelliflo
Creating a leading technology platform for UK financial advisers
and the distribution of financial products
www.intelliflo.com Sector: Technology ('FinTech') Geography:
UK
About Intelliflo
Intelliflo is a leading UK Software as a Service ('SaaS')
provider of front and back office solutions for financial
intermediaries - including SME Independent Financial Advisors
('IFAs'), wealth managers, advisor networks, insurance/life
companies and brokers. The business has developed a strong
cloud-based product suite called Intelligent Office ('IO'), which
supports the financial advice process and back-office
administration in a range of workflow requirements. Intelliflo also
offers a number of additional modules and functionalities,
including a client facing portal, fund analytics and a mortgage
office software package. Intelliflo serves a wide customer base of
more than 14,000 IFAs, mortgage advisors and administrators,
primarily in the SME space, but with a number of strong reference
enterprise relationships. Headquartered in Kingston (South London),
Intelliflo employs c.170 people.
Why did we invest in Intelliflo?
Financial advisers are a critical part of the distribution of
retail financial products (investments, pensions, insurance and
mortgages) to UK consumers. This segment has historically been
characterised by low levels of technology adoption and highly
manual processes, but there are several commercial and regulatory
catalysts driving professionalisation of this ecosystem, creating a
need for more technology support. The most significant of these was
the Retail Distribution Review ('RDR') regulatory change in
2013.
Within this market context, Intelliflo had developed a strong
'true SaaS' technology platform, which makes the IO product
significantly more scalable and future proof than a number of
legacy on premise providers, putting it in a strong position to
gain market share. Intelliflo shares similar attractive investment
characteristics with a number of the SME regulatory software
investments Hg has made, including: a scalable business model in a
regulated end vertical market; organic recurring revenue growth
potential from increasing subscriptions, usage and cross-sell;
business critical service but typically a low-spend item; and high
customer loyalty. These characteristics create significant
opportunities for sharing best practice and creating value.
We would like to thank Hg for all their support since 2013 in
getting us to this stage in our development. In a comparatively
short space of time, we have built one of the UK's largest
pure-play software as a service business, and we now look forward
to expanding our business, taking our leading technology into new
markets across the globe. We will continue with our open
architecture philosophy after the sale - it remains critically
important to us that our financial adviser customers continue to be
able to select from a wide range of product providers.
Hamish Purdey, Chief Executive Officer at Intelliflo
The investment process
Hg Mercury initially partnered with Intelliflo in August 2013
and acquired a majority investment from the three founders. Two out
of three (CEO and CTO) stayed and rolled a material portion of
their proceeds into the deal. The investment was originally
acquired for a consideration of GBP34.4 million at an enterprise
value of GBP43.0 million.
How did we support them and create value?
Hg actively supported the development of the business in a
number of key areas - which were important to obtaining a very
successful investment outcome. In 2014, we supported the Management
expansion and transition of Intelliflo - through the recruitment of
Hamish Purdey as CEO, with Nick Eatock becoming Executive Chairman.
Hamish brought considerable SaaS and technology operations
experience, which have been very important to delivering the growth
plan. In 2015, Hg supported the management with the development of
a 5 year business and strategic plan which allowed the business to
commit to material investment in sales, marketing and sales
operations. The result was a significant acceleration in the rate
of recurring revenue growth and Intelliflo's UK market share.
How did we realise the value?
Confirming the strategic nature of Intelliflo's position at the
heart of the UK advice market and financial flows, Intelliflo was
acquired by Invesco Inc, a leading global asset manager, in June
2018. Invesco saw the strength of Intelliflo's technology, the
position in the UK market and associated customer/end client base
and the management team as critical to the future of their UK and
global adviser offering. The overall exit represented a 4.7x CoC
and 39% IRR return over the investment period.
4.7x Investment return multiple of cost
39% p.a. Gross IRR
Review of the period
Net asset value (NAV)
Over the first six months of 2018, the NAV of the Company
increased by GBP47.7 million, from GBP721.0 million to GBP768.7
million at 30 June 2018.
Attribution analysis of movements in NAV
Revenue Capital Total
GBP'000 GBP'000 GBP'000
------------------------------------------------ --------- --------- ---------
Opening NAV as at 1 January 2018 34,058 686,966 721,024
Realised capital and income proceeds
from investment portfolio
in excess of 31 December 2017 book value 3,626 17,676 21,302
Net unrealised capital and income appreciation
of investment portfolio 5,501 53,087 58,588
Net realised and unrealised gains from
liquid resources 163 266 429
Dividend paid (11,197) - (11,197)
Expenditure (1,753) (773) (2,526)
Taxation (141) - (141)
Investment management costs:
Priority profit share - current period
paid (6,042) - (6,042)
Priority profit share - net loan allocation 4,296 (4,296) -
Carried interest - current period paid - (10,338) (10,338)
Carried interest - current period provision - (2,438) (2,438)
------------------------------------------------ --------- --------- ---------
Closing NAV as at 30 June 2018 28,511 740,150 768,661
------------------------------------------------ --------- --------- ---------
Analysis of NAV movements
There were a number of underlying factors contributing to the
increase in the NAV. Positive impacts were the GBP58.6 million
revaluation of the unquoted portfolio and uplifts of GBP21.3
million on the realisation of investments compared with their
carrying value at the start of the year. Reductions in the NAV
included: the payment of GBP11.2 million of dividends to
shareholders and Hg's remuneration (GBP16.4 million and a GBP2.4
million increase in the provision for future carried interest).
Realised and unrealised movements in the value of investments
Investment name and ranking by value GBP'million
at 30 June 2018
------------------------------------------------ ---------------
IRIS (sold) 16.3
Visma (1) 12.8
JLA (sold) 7.8
Sovos (3) 7.8
Intelliflo (sold) 6.7
Allocate Software (sold) 6.4
Commify (11) 5.3
Teufel (sold) 5.2
Raet (sold) 4.7
DADA (14) 4.3
Mitratech (10) 3.2
CogitalGroup (5) 3.0
Radius (sold) 2.5
A-Plan (9) 2.4
fundinfo (22) 1.9
Citation (15) 1.4
Atlas (20) 1.4
Evaluate (23) 1.2
Mobility Holding (7) 1.0
Other 0.5
Frösunda (30) (3.6)
Achilles (12) (4.9)
Lumesse (28) (7.4)
------------------------------------------------ ---------------
Analysis of movements in the value of investments
During the period, the value of the unrealised investments
increased by GBP58.6 million, before the provision for carried
interest. The majority of the increase (GBP48.5 million) relates to
increases from profit growth in the underlying investments and
GBP18.9 million from increased ratings.
These were partially offset by GBP2.9 million of decreases
driven by realisations at carrying value net of acquisitions and an
increase in net debt of GBP11.6 million resulting from refinancings
that returned cash to the Company and further M&A activity
within the portfolio.
Top 20 portfolio trading performance as at 30 June 2018
The top 20 buyout investments of the Company (representing 90%
of total investments by value) have delivered strong sales growth
of 23% and EBITDA growth of 19% over the last twelve months
('LTM').*
This further demonstrates continued robust revenue and EBITDA
growth over the last three years. The business model
characteristics of these companies give us confidence that this
double--digit growth can be achieved consistently going
forward.
Close to 70% by value of the businesses we are invested in are
seeing double--digit revenue growth, and more than 70% of the
portfolio has delivered double--digit EBITDA growth over the last
twelve months.
Profits have grown at a slightly slower rate than revenues over
the last year, reflecting investment being made into the cost base
of a number of our companies, for example to finance increased
sales and marketing capabilities, strengthen management and new
product development. We have seen very robust and consistent
double--digit trading performance from Visma, IRIS, Foundry,
Mitratech, Commify and DADA in the technology sector, and
CogitalGroup, A--Plan, Citation and JLA in the Services sector.
Whilst new to the portfolio, Mobility Holding and Access have
seen a good start to their partnership with Hg. Atlas has seen a
significant improvement in its performance over the period.
In June 2018, we took the decision to write down two of our top
twenty investments, Lumesse and Achilles, as we work to achieve
improved performance.
Overall, consistent strong earnings growth and cash generation
continue to drive equity value in our investments.
Top 20 LTM sales growth: +23%
Number of investments % of top 20 portfolio
LTM Sales within associated by value within
Growth rates GBP' million band associated band
------------------ -------------- ---------------------- ----------------------
<0% p.a. 60 1 3%
0% to <10% p.a. 825 8 28%
10% to <20% p.a. 317 4 14%
>20% p.a. 1753 7 55%
------------------ -------------- ---------------------- ----------------------
Top 20 LTM profit growth: +19%
Number of investments % of top 20 portfolio
LTM EBITDA within associated by value within
Growth rates GBP' million band associated band
------------------ -------------- ---------------------- ----------------------
0% to <10% p.a. 293 7 27%
10% to <20% p.a. 315 5 36%
20% to <30% p.a. 133 3 22%
>30% p.a. 88 5 15%
------------------ -------------- ---------------------- ----------------------
*Sales and EBITDA growth have been calculated on a weighted
basis, based on the respective gross valuations of the underlying
investments. Previously, these were calculated on an unweighted
basis and the equivalent figures using the previous methodology are
18% for Sales and 19% for EBITDA
Valuation and gearing analysis as at 30 June 2018
Our valuation policy is applied consistently, in accordance with
the IPEV Valuation Guidelines. Each company has been valued
individually, based on the trading multiples of comparable
businesses and relevant M&A activity; this resulted in an
average EBITDA multiple for the top 20 buyout investments of
16.8x*.
There remains a continued shift in the mix of the portfolio to
higher growth businesses, in particular in the technology sector,
where we hold a number of companies with substantial opportunities
to grow their SaaS business.
Seven of the top 20 companies (representing 62% by value) are
valued at a multiple of over 16x (Mitratech, IRIS, Visma,
TeamSystem, Access, Sovos, and Foundry).
All have attractive business models, are growing strongly and
generating cash, and are in demand from investors.
As noted below, we have increased our exposure to Visma during
the period, via the Company's commitment to invest alongside the Hg
Saturn fund.
We continue to take a considered and prudent approach in
determining the level of maintainable earnings to use in each
valuation. Most holdings have been valued using the LTM earnings to
31 May 2018, unless we have anticipated that the outlook for the
full current financial year is likely to be lower, in which case we
have used forecast earnings. In selecting an appropriate multiple
to apply to a company's earnings, we look at a basket of comparable
companies, primarily from the quoted sector, but where relevant and
recent, we will also use M&A data.
Our companies make appropriate use of gearing, with a weighted
average net debt for the top 20 of 5.3x LTM EBITDA*. Many of our
businesses have highly predictable, strong earnings growth and are
very cash generative, enabling us to use debt to reduce their cost
of capital and improve returns on the equity we hold. Over the
period we took the opportunity to refinance JLA and Foundry as
detailed below.
Top 20 EV to EBITDA valuation multiple: 16.8x
Number of investments % of top 20 portfolio
EBITDA within associated by value within
Growth rates GBP' million band associated band
----------------- -------------- ---------------------- ----------------------
<12.0x p.a. 48 5 11%
12.0x to <14.0x
p.a. 152 4 16%
14.0x to <16.0x
p.a. 117 4 11%
16.0x to <19.0x
p.a. 227 4 22%
>19.0x 334 3 40%
----------------- -------------- ---------------------- ----------------------
Top 20 net debt to EBITDA ratio: 5.3x
Number of investments % of top 20 portfolio
Debt within associated by value within
Growth rates GBP' million band associated band
--------------- -------------- ---------------------- ----------------------
<3.0x p.a. 60 6 13%
3.0x to <5.0x
p.a. 1,366 3 29%
5.0x to <6.0x
p.a. 726 3 17%
6.0x to <7.0x
p.a. 1,015 4 17%
>7.0x 1,917 4 24%
--------------- -------------- ---------------------- ----------------------
*EBITDA multiple and net debt ratio have been calculated on a
weighted basis, calculated using the respective gross valuations of
the underlying investments. Previously, these were calculated on an
unweighted basis and the equivalent figures using the previous
methodology are 17.1x for EBITDA multiple and 5.8x for net debt
ratio
Outstanding commitments of the Company
The period ended with liquid resources of GBP154 million,
supported by an undrawn bank facility of GBP80 million. Outstanding
commitments as at 30 June 2018 were GBP575 million, as listed
below. We anticipate that the majority of these outstanding
commitments will be drawn down progressively over the next two to
three years and are likely to be partly financed by future cash
flows from realisations. Additionally, to mitigate the risk of
being unable to fund any draw--down under its commitments to invest
alongside certain of Hg's funds, the Board has negotiated a right
for the Company to opt out of the Company's obligation to fund such
commitments, without penalty, if it does not have the funds to do
so or certain other conditions exist.
Fund Fund Original Outstanding commitments Outstanding commitments
vintage commitment as at 30 June as at 31 December
GBP'million 2018 2017
----------------------------- ----------- -------------
GBP'million % of NAV GBP'million % of NAV
----------------------------- ----------- ------------- -------------- ---------- -------------- ----------
Hg8 2017 350.0 288.3 37.5% 341.1 47.3%
----------- ------------- -------------- ---------- -------------- ----------
Hg Saturn 2018 150.0 124.6 16.2% - -
----------- ------------- -------------- ---------- -------------- ----------
Transition Capital 2018 75.0 74.9 9.7% - -
----------- ------------- -------------- ---------- -------------- ----------
Hg Mercury 2 2017 80.0 69.2 9.0% 73.3 10.2%
----------- ------------- -------------- ---------- -------------- ----------
Asper RPP II 2010 35.4(1) 6.6 0.9% 8.3 1.1%
----------- ------------- -------------- ---------- -------------- ----------
Hg6 2009 285.0 6.0 0.8% 17.2 2.4%
----------- ------------- -------------- ---------- -------------- ----------
Hg Mercury 1 2011 60.0 2.4 0.3% 6.2 0.9%
----------- ------------- -------------- ---------- -------------- ----------
Pre--Hg6 vintage pre--2009 120.0(2) 1.3 0.2% 1.3 0.2%
----------- ------------- -------------- ---------- -------------- ----------
Hg7 2013 200.0 1.0 0.1% - -
----------- ------------- -------------- ---------- -------------- ----------
Asper RPP I 2006 19.1(3) 0.8 0.1% 0.8 0.1%
----------- ------------- -------------- ---------- -------------- ----------
Hg 6E(4) 2009 15.0 0.3 0.0% 0.9 0.1%
----------------------------- ----------- ------------- -------------- ---------- -------------- ----------
Total 575.4 74.8% 449.1 62.3%
------------------------------------------ ------------- -------------- ---------- -------------- ----------
Liquid resources 153.9 20.0% 160.3 22.2%
------------------------------------------ ------------- -------------- ---------- -------------- ----------
Net outstanding commitments
unfunded by liquid
resources 421.5 54.8% 288.8 40.1%
------------------------------------------ ------------- -------------- ---------- -------------- ----------
(1) Sterling equivalent of EUR40.0 million.
(2) Excluding any co--investment participations made through HGT LP.
(3) Sterling equivalent of EUR21.6 million.
(4) Partnership interest acquired during 2011.
Investment portfolio of the Company
Residual
cost Total valuation(1) Value
Fund limited partnerships GBP'000 GBP'000 %
-------------------------------------------------- --------- ------------------- -------
Primary buyout funds:
HGT 7 LP 161,115 258,910 42.1%
HGT 7 LP - Provision for carried interest - (25,817) (4.2%)
HGT 6 LP 60,972 147,995 24.1%
HGT 6 LP - Provision for carried interest - (46,917) (7.6%)
HGT LP 76,093 123,098 19.8%
HGT 8 LP 54,775 56,101 9.1%
HgCapital Mercury D LP 28,598 49,671 8.1%
HgCapital Mercury D LP - Provision for carried
interest - (10,005) (1.6%)
HGT Saturn LP 25,187 23,165 3.8%
HGT Mercury 2 LP 9,513 14,208 2.3%
-------------------------------------------------- --------- ------------------- -------
Total primary buyout funds 416,253 590,409 95.9%
-------------------------------------------------- --------- ------------------- -------
Secondary buyout funds:
HgCapital 6E LP - 7,851 1.3%
HgCapital 6E LP - Provision for carried interest - (2,610) (0.4%)
-------------------------------------------------- --------- ------------------- -------
Total secondary buyout funds - 5,241 0.9%
-------------------------------------------------- --------- ------------------- -------
Total buyout funds 416,253 595,650 96.8%
-------------------------------------------------- --------- ------------------- -------
Renewable energy funds:
Asper RPP II 20,964 18,015 2.9%
Asper RPP I 4,961 1,654 0.3%
-------------------------------------------------- --------- ------------------- -------
Total renewable energy funds 25,925 19,669 3.2%
-------------------------------------------------- --------- ------------------- -------
Total investments net of carried interest
provision 442,178 615,319 100.0%
-------------------------------------------------- --------- ------------------- -------
(1) Includes accrued income.
Hg funds update
Fundraising activity has seen Hg close on c. GBP4.5 billion of
institutional capital in the last 18 months, across four distinct
funds, to all of which the Company has made commitments pari passu
with institutional investors in Hg funds.
*The Company is the sole investor in this strategy
Focus Fund Characteristics
------------------------------ -------------------- ----------------------------------
Large-cap Hg Saturn -- Fund size: GBP1.5 billion
(EVs focus: >GBP1 billion) 2018 -- Typical hold: GBP400 million
- GBP500 million
-- Target number of investments:
c.4
------------------------------ -------------------- ----------------------------------
Mid-market Hg8 -- Fund size: GBP2.5 billion
(EVs: GBP200 million - GBP1 2018 -- Typical hold: GBP100 million
billion) - GBP250 million
-- Target number of investments:
c.12
------------------------------ -------------------- ----------------------------------
Lower mid-market Hg Mercury 2 -- Fund size: GBP575 million
(EVs: GBP50 million - GBP200 2017 -- Typical hold: GBP30 million
million) - GBP60 million
-- Target number of investments:
c.12
------------------------------ -------------------- ----------------------------------
Lower mid-market Transition Capital* -- Fund size: GBP75 million
(EVs: GBP50 million - GBP200 2018 -- Typical hold: GBP15 million
million) - GBP25 million
-- Target number of investments:
c.3
------------------------------ -------------------- ----------------------------------
Investments and realisations
Investments
Over the course of the period, Hg has invested a total of GBP377
million on behalf of its clients, with the Company's share being
GBP79 million.
The vast majority of our investments are generated by
establishing and developing relationships with companies in our
chosen segments over the longer term and typically pursuing
opportunities where we have a strong relationship with a founder or
management team. By doing this, we believe that we can invest in
the very best businesses within our chosen sub--sectors and
clusters.
We continue to look for businesses that share similar underlying
business model characteristics such as: high levels of recurring
revenues; a product or service that is business critical but
typically low spend; low customer concentration; and low
sensitivity to market cycles. This is a theme that runs through
many of our new investments and we believe companies with these
characteristics will remain in high demand.
______________________________________________________________________________________________________
New investments in the six months to 30 June
The Access Group - The Access Group - Access is a provider of
fully integrated, mission--critical business management software to
UK mid-market organisations. Its portfolio spans Finance, HR,
Payroll, Hospitality, Recruitment, Heath and Social Care,
Manufacturing and Distribution, Education and Not for Profit
sectors.
Access has a strong management team focused on delivering an
ever--expanding portfolio of mission--critical software to a
growing base of loyal customers demonstrating many of the business
characteristics that Hg looks for. This investment has been made
alongside TA Associates.
______________________________________________________________________________________________________
Further investments in the six months to 30 June
DADA S.p.A - DADA is a key provider of online hosting services
to SMEs in Italy, the UK and other regions across Europe. Following
the initial acquisition made in October 2017, Hg announced in
February 2018 that it had successfully completed a tender offer for
the remaining ordinary shares and would complete a
public--to--private transaction of DADA from the Italian Stock
Exchange. This represents the first investment by the Mercury 2
fund and Hg has extensive experience of investing in SME--focused
technology businesses and is well placed to partner with DADA for
the next phase of their growth.
Visma - In February, Hg made a further investment in Visma, a
leading provider of mission--critical business software to SMEs in
the Nordic region via the Hg Saturn fund. In 2002, Hg's Technology
team identified regulatory--driven, subscription--based software as
an attractive sub--sector with scope for considerable growth over
the following decade and initially invested in Visma in 2006. Since
this time the business has consistently exceeded our investment
plans, having acquired more than 140 companies over our ownership
to become today one of the leading and largest SaaS companies in
Europe, with more than NOK 4 billion of pure SaaS revenues.
Mobility Concept (Holding) - Mobility Concept is a leading B2B
fleet leasing company, headquartered in Germany. The business sits
in the Hg investment 'sweet spot', with a strong and predictable
business model, including recurring revenues and a loyal customer
base and continues Hg's strategy to develop technology--enabled
service providers in the automotive financing space and is the
result of considerable sector work undertaken in recent years.
Mobility Concept will, together with MeinAuto.de (a leading B2C
online platform for new car purchases), be part of Mobility
Holding,
a platform set--up by Hg to acquire businesses in the automotive
distribution and financing space.
______________________________________________________________________________________________________
New investments since the period end
MediFox - MediFox is a provider of software solutions to
outpatient and inpatient care providers and therapy practices in
Germany. The investment from the Mercury 2 Fund, recognises
MediFox's attractive business model characteristics, being a
well--established player with a strong position in a fragmented
sector, showing a positive underlying growth trajectory whilst also
having a compelling product offering, a robust financial profile
and a highly competent management team.
The company will invest a total of approximately GBP8.0 million
in Medifox with other institutional clients investing alongside the
Company through the Mercury 2 fund.
FE - FE supplies investment data, research and software to the
financial services industry in the UK and operates a proprietary
database of complete retail funds data with global coverage and
history, built up over 20 years. Trusted by hundreds of thousands
of investors, advisers, asset managers and platforms who use FE
data, software and investment advice every day, FE is a leading
player in supporting the UK fund industry. FE has a number of
business characteristics that Hg looks for, including a strong
position in the wealth/asset management software and data sector, a
well--recognised brand, mission--critical products, and a strong
management team.
The Company will invest an estimated GBP7.5 million in FE,
alongside institutional clients of Hg investing through the Mercury
2 fund.
IRIS - IRIS is a leading provider of business--critical software
and services to the UK accountancy, education and business market.
In May, Hg announced a joint investment into IRIS with Intermediate
Capital Group ('ICG').
The Company will invest an estimated GBP39.9 million in IRIS, in
parallel with other clients of Hg via the Hg Saturn fund.
IT Relation - IT Relation is a leading Danish supplier of
managed IT services to small and medium sized enterprises ('SMEs').
This investment is consistent with Hg's focus on SME Technology
Services
in Europe, with other activity in this sector including
investments in Zitcom (2015) and DADA (2017), both providers of
online hosting services to SMEs. Hg will support the management
team to build a clear industry champion based on IT Relation's
excellent customer service and operating platform.
The Company has invested GBP16.0 million in IT Relation
alongside Hg clients via the Hg8 fund.
Allocate Software - In August, Hg completed the acquisition of a
co--controlling stake in Allocate Software ('Allocate'), a leading
international provider of workforce solutions to the healthcare,
defence and maritime sectors, from current majority owners, Vista
Equity Partners.
Hg initially invested in Allocate via Mercury 1 at the end of
2014 and went on to sell the company to Vista in April 2018.
Headquartered in the UK, Allocate is a business that Hg has known
and tracked since 2012, performing strongly across economic cycles
and operating in a cluster that we believe is attractive and have
invested in on multiple occasions previously. We think this is an
attractive opportunity to deploy further capital from Hg8 in a
business that demonstrates many of the 'sweet--spot'
business--model characteristics that Hg looks for including:
mission--critical vertical application software; strong recurring
revenues and double--digit growth; potential for new products; and
M&A opportunities.
The Company has invested an GBP14.0 million in Allocate Software
alongside Hg clients via the Hg8 fund.
Rhapsody - In July, Orion Health announced that it had reached
an agreement for Hg to acquire majority ownership of Orion Health's
Rhapsody business and to invest in Orion Health's Population Health
business. Healthcare technology is a core investment area for Hg,
having recently completed a number of transactions across the
sector. This investment will be made from Hg's Mercury 2 Fund. The
combination of Rhapsody's global team and Hg's resources will
extend Rhapsody as a leader in the interoperability platform space,
building on both Rhapsody's world class technology and highly rated
customer service.
The Company will invest an estimated GBP7.3 milllion in Rhapsody
alongside Hg clients.
______________________________________________________________________________________________________
Further investment since the period end
Athletic Sport Sponsoring - In September, Mobility Holding
completed the acquisition of 100% in the shares of Athletic Sport
Sponsoring, a German provider of flat--rate car subscriptions to
members of closed user groups (especially sport associations and
civil servants). This transaction represents the third acquisition
onto our platform Mobility Holding which we created at the end of
2017 with the strategy to build a German multi--channel car
distribution and leasing business.
The Company has invested GBP10.8 million with other
institutional clients of Hg investing alongside the Company through
the Hg8 fund.
Further detail on investments as at 30 June 2018 can be found
below
_____________________________________________________________________________________________________
Realisations
Over the first six months of 2018, Hg has returned a total of
GBP855 million to its clients, including GBP104 million to the
Company.
2018 has been a very active period for realisations. We have
made several references to 'frothy' markets over the past eighteen
months and this has helped to inform our approach to selling
investments, whilst also considering carefully our appetite for
selling, versus the benefits of remaining invested in selected
businesses for longer.
We have also taken advantage of buoyant debt markets during the
period by refinancing investments where we have good visibility of
their future earnings, returning cash proceeds to our clients,
including the Company, and we will continue to assess further
opportunities here.
______________________________________________________________________________________________________
Exits in the six months to 30 June
Ullink - In February, the Technology team completed the sale of
Ullink, a leading global provider
of electronic trading and connectivity solutions to the
financial community to Itiviti, a company backed by Nordic Capital.
Hg initially invested in Ullink in 2014 and has been working with
the management of the company since 2014 to build a leading
Financial Information Exchange ('FIX') based trading community
through strong organic growth and the acquisitions of NYFIX and
Metabit.
This transaction delivered a 3.0x investment multiple and a 35%
gross IRR over the investment period. The sale of Ullink resulted
in an uplift of 27% over the carrying value of the business at 31
December 2017.
Allocate Software - In April, the Mercury team announced the
sale of Allocate Software, an international provider of healthcare
workforce management software, to Vista Equity Partners.
Hg initially invested in Allocate at the end of 2014, completing
a public--to--private transaction from the London Stock Exchange.
Since then, Hg has worked with management to materially enhance the
capabilities of Allocate's software suite, achieved greater
customer engagement and supported a substantial increase in
employment and skills development.
This transaction delivered a 3.6x investment multiple and a 50%
IRR. The sale resulted in a 47% uplift to the carrying value of the
investment as at 31 December 2017.
Radius - In April, the services team completed the sale of
Radius, which provides tailored solutions for fast growing
companies that are looking to expand into international markets, to
Vistra, one of the world's leading providers of corporate service
to international incorporations, trust, fiduciary, and fund
administrators.
This transaction delivered a 1.0x investment multiple. The sale
resulted in an 18% uplift to the carrying value of the investment
as at 31 December 2017.
Intelliflo - In June, the Mercury team completed the sale of
Intelliflo, a UK provider of front and back office software
solutions to financial intermediaries, including IFAs, wealth
managers, adviser networks, insurance/life companies and brokers.
It was sold to Invesco, the Atlanta--based global investment
management company. Over the past five years, Hg has supported the
business to implement best in class SaaS practices in development,
operations, sales and marketing.
This transaction delivered a 4.7x investment multiple and a 39%
gross IRR over the investment period. The sale of Intelliflo
resulted in an uplift of 66% over the carrying value of the
business at 31 December 2017. A case study of this investment
appears above.
Teufel - The end of April saw the sale of Teufel, a European
direct--to--consumer online brand for audio solutions, based in
Germany, to Naxicap Partners, one of France's leading private
equity companies. Since Hg partnered with Teufel in 2010, it has
supported the successful transition from a traditional loudspeaker
company to a high--quality brand for state--of--the--art audio
solutions, through the introduction of new categories and
technologies, including wireless streaming, headphones and
portables. This transaction delivered a 1.4x investment multiple.
The sale resulted in a 56% uplift to the carrying value of the
investment as at 31 December 2017.
Frösunda - Frösunda, a care home business based in Sweden,
agreed a sale in February 2018 to Norlandia. The sale of Frösunda
was largely based on deferred consideration which will be
determined by future earnings.
______________________________________________________________________________________________________
Realisations since the period end
Raet - In May, Hg announced the sale of Raet, a leading HR
solutions provider, specialising in HR cloud software and services,
to Visma, in which the Company already holds a substantial
interest. This acquisition followed a competitive sales process,
commenced earlier in the year by the Hg7 Fund. Raet and Visma Group
combined will become one of Europe's leading HR solutions
providers, delivering software and services to more than 10 million
end--users. This transaction has delivered
a 1.6x investment multiple and a 24% gross IRR over the
investment period to date. The sale of Raet resulted in an uplift
of 31% over the carrying value of the business at 31 December
2017.
JLA - In late--August, Hg completed the sale of JLA, a UK leader
for critical assets solutions in the commercial laundry, catering,
heating and fire safety markets, to Cinven. Hg's Services team
invested in JLA at the beginning of 2010, identifying JLA as a
'hidden champion' services business. JLA displays best--in--class
services characteristics: stable and predictable revenue streams,
growth from both existing and new customers, and a wide customer
base with high customer satisfaction levels. This transaction has
returned GBP10.3 million to the Company, delivering a 4.9x
investment multiple and a 26% gross IRR over the investment period.
The sale of JLA resulted in an uplift of 29% over the carrying
value of the business at 31 December 2017.
IRIS - In September, Hg announced the sale of and reinvestment
into IRIS, a leading provider of business--critical software and
services to the UK accountancy, education and business market,
representing the largest UK and third largest European private
equity software buyout ever. Hg6 originally invested in IRIS in
December 2011 and, over the course of the Fund's investment, the
business has experienced strong revenue, EBITDA and cash flow
growth, across market cycles. At an exit valuation of GBP1.3
billion, the business has more than trebled in size over the last 6
years. This transaction has returned GBP74.4 million to the
Company, resulting in a 4.2x investment multiple and a 26% gross
IRR over the investment period. The sale of IRIS resulted in an
uplift of 22% over the carrying value of the business at 31
December 2017.
Kinapse - In August, Hg announced the realisation of Kinapse, a
leading international provider of advisory, capability building and
operational services to the life sciences and pharmaceutical
industries, to Syneos Health, a Nasdaq--listed, fully integrated,
biopharmaceutical solutions organisation. Originally acquired in
2016, this transaction values the Company's investment at
approximately GBP7.9 million following a distribution from the
business, in April, of GBP2.3 million. The sale of Kinapse has
resulted in an uplift of c.43% over the carrying value of the
business at 31 December 2017.
Refinancings in the six months to 30 June
JLA - In January, the Services team completed the refinancing of
JLA, a UK provider of laundry and catering services, returning
GBP25 million to Hg clients, including GBP3.8 million to the
Company.
Foundry - In May, the technology team completed the refinancing
of Foundry, a UK headquartered global developer of computer
graphics, high--end visual effects and 3D design software,
returning GBP39 million to Hg clients, including GBP3.8 million to
the Company.
Post-period refinancings
DADA S.p.A - In July, the Mercury team completed the refinancing
of DADA, an international
leader in digital services for professionals and SMBs, returning
GBP46 million to Hg clients, including GBP6.1 million to the
Company.
Trace One - In July, the Mercury team completed the refinancing
of Trace One, a business that enables global retailers and
suppliers to collaborate and develop high quality compliant private
label products. This returned GBP36 million to Hg clients including
GBP5.7 million to the Company.
STP - In August, the Mercury team refinanced STP, a provider of
insolvency and law practice software in Germany. This returned an
estimated GBP9.1 million to Hg clients including GBP1.4 million to
the Company.
Further detail on investments as at 30 June 2018 can be found
below.
Summary of investment and realisation activity
Investments made during the period
Company Sector Geography Activity Cost
GBP'000
Provider of business management
Access Technology UK software 30,491
--------------------- ------------ ------------- --------------------------------- ---------
New investments 30,491
------------------------------------------------------------------------------------- ---------
Provider of business software
Visma Technology Scandinavia to SMEs 25,187
Automotive distribution and
Mobility Holding Services Germany financing platform 17,565
Provider of on--line hosting
DADA Technology Italy services to SMEs 3,248
Other 2,855
------------------------------------------------------------------------------------- ---------
Further investments 48,855
------------------------------------------------------------------------------------- ---------
Total investments on behalf of the
Company 79,346
-------------------------------------------------- --------------------------------- ---------
Realisations made during the period
Company Sector Exit route Proceeds(1)
GBP'000
----------------------- ----------------------- ---------------- ------------
Ullink Technology Trade sale 24,347
Allocate Software Technology Secondary sale 19,920
Radius Services Trade sale 18,312
Intelliflo Technology Trade sale 16,800
Teufel Industrial Technology Secondary sale 15,088
----------------------- ----------------------- ---------------- ------------
Full realisations 94,467
------------------------------------------------------------------ ------------
Foundry Technology Refinancing 3,795
JLA Services Refinancing 3,766
Other 1,533
------------------------------------------------------------------ ------------
Partial realisations 9,094
------------------------------------------------------------------ ------------
Total proceeds from realisations received
by the Company 103,561
------------------------------------------------ ---------------- ------------
(1) Includes gross revenue received during
the period ended 30 June 2018.
Geographic spread by value* of our primary buyouts
45% UK
20% Scandinavia
15% North America
11% Other Europe
8% Germany
1% New Zealand
Analysis by value* of investment return relative to its original
cost
97% Above
3% Below
Representing aggregate realised proceeds and unrealised
valuations of an investment
*Excluding carried interest provision
Outlook
Following a successful year of realisations in 2017, we have
continued to exploit the favourable exit environment in 2018 and
crystallise value across our portfolio of companies. Strong trading
from the unrealised portfolio, alongside realisations at attractive
valuations and uplifts to prior book value, have driven the
Company's NAV forward over the first six months of the year.
In terms of the Manager's outlook for the rest of the year, we
expect further liquidity, with a number of refinancing and exit
processes already underway, albeit at a slightly slower pace than
seen over the past eighteen months.
Following the completion of all realisations announced
year--to--date, the portfolio will be comprised mostly of
businesses that we have held for three years or less.
Over 2018, to the date of this report, the portfolio has
generated a return of close to GBP2 billion (including all
post--period transactions) to our clients, including an estimated
GBP210 million to the Company, from ten exits and five
refinancings. These realisations continue to demonstrate the
attractiveness of Hg portfolio companies to both trade and
financial buyers, as evidenced by the recent sale of Intelliflo to
Invesco, announced in June 2018, at a multiple of 4.7x original
cost and a gross IRR of 39%. The largest of these exits were the
sales of IRIS, announced in May, and JLA which completed in
August.
Trading over the six months under review has continued to
generate double--digit revenue and EBITDA growth across almost all
the businesses, with a positive trajectory across the portfolio.
Given their defensive growth characteristics and our focus on
protected business models, we believe our current investments are
well positioned to continue to create value on both an absolute and
relative basis going forward, even if macro--economic conditions
deteriorate. This is reinforced by our historic performance during
the last financial crisis, when our portfolio of businesses in
aggregate continued to grow both revenues and EBITDA throughout the
period from 2008 to 2010, without a down year.
Despite the focus on realisations, Hg has continued to invest
selectively over 2018, capitalising on situations where we have a
specific angle and have built many years of knowledge of the
business, and strong relationships with the founder and management
teams. Despite the heat of the current market, we do continue to
see exciting and attractive investment opportunities in our target
sub--sectors, just as we did in the closing stages of the last
period of high valuations, in 2005 to 2008. This has led to seven
new and four further investments over the year--to--date: The
Access Group, a UK provider of business management software to
mid--market companies; Mobility Concept, a German fleet leasing
company; MediFox, a leading provider of software solutions to
outpatient and inpatient care providers and therapy practices in
Germany; Financial Express, a data, analytics and software vendor
focused on the European retail investment funds market; and, most
recently, IT Relation, a Danish supplier of managed IT services to
SMEs. In addition to these new investments, significant further
capital was deployed into three businesses we know well: Visma,
Allocate and IRIS.
We continue to consider the UK's forthcoming exit from the
European Union and our prognosis remains that this will have a
relatively limited impact on our investments, especially given the
characteristics of our businesses, their geographic profile and
their relatively protected nature. Hg's pan--European presence and
office in Germany (since 1999) also offers flexibility in terms of
the breadth of our investment focus and general fund management
approach.
We believe that in the current market environment, the clarity
and focus of our investment strategy confers a number of clear
advantages to us as a disciplined buyer. Specifically, we will
continue to focus on investing in businesses that provide a
business--critical product or service, to a fragmented customer
base, and which benefit from strong contracted or recurring
revenues. This should enable us to identify opportunities with the
appropriate business model to generate strong, risk--adjusted
returns for our clients. With the addition of the Hg Saturn Fund
and Transition Capital, we have broadened our opportunity set of
potential investments and added to the scale and reach of our
network within European technology, whilst maintaining our
distinctive focus.
Finally, the drive for operational improvements in our
investments, aligned with the efforts of our dedicated and large
internal 'Operations Innovation' team, also means that we believe
we can continue to generate meaningful long--term value in a number
of particular areas across the portfolio on a repeatable basis,
irrespective of the challenges of the broader macro--environment.
From pricing analysis and customer satisfaction to cyber security,
these portfolio related initiatives will continue to remain an area
of real focus going forward.
Strong trading from the unrealised portfolio, realisations at
uplifts to book value, refinancing activity and continued support
of the management teams we back should continue to drive value for
shareholders in HgCapital Trust plc.
______________________________________________________________________________________________________
"A significant number of planned realisations in the first six
months of the year have reshaped the overall Hg portfolio. This has
provided us with the latitude to run some of our most successful
investments for longer, with the intention of driving further
capital growth in these companies through continued strong trading
performance and accretive M&A."
Steven Batchelor, COO & Partner, Hg
Overview of the underlying investments
held through the Company's limited partnerships
Investments Year Residual Total Cum.
(in order of value) Fund Sector Location of cost Valuation(5) Value value
investment GBP'000 GBP'000 % %
----------------------- ------------ ---------- ----------- ------------ -------- ------------- ------- ------
HGT
1 Visma(1) 7/HGT/Saturn Technology Scandinavia 2014 70,553 134,973 19.3% 19.3%
2 IRIS HGT 6 Technology UK 2011 21,654 92,818 13.2% 32.5%
3 Sovos(2) HGT 7/HGT Technology N. America 2016 38,508 79,515 11.3% 43.8%
4 JLA HGT 6 Services UK 2010 3,511 34,344 4.9% 48.7%
5 CogitalGroup(2) HGT 7/HGT Services UK 2016 20,966 32,012 4.6% 53.3%
6 Access Group HGT 8 Technology UK 2018 30,491 30,510 4.4% 57.7%
7 Mobility Holding HGT 8 Services Germany 2018 24,285 25,480 3.6% 61.3%
8 Raet HGT 7 Technology Netherlands 2016 16,127 25,159 3.6% 64.9%
9 A--Plan HGT 7 Services UK 2015 10,447 24,873 3.5% 68.4%
10 Mitratech(2) HGT 7/HGT Technology N. America 2017 22,258 22,736 3.2% 71.6%
Mercury
11 Commify(3) 1/HGT Technology UK 2016 12,309 19,378 2.8% 74.4%
12 Achilles(4) HGT Technology UK 2008 17,298 17,354 2.5% 76.9%
13 Foundry HGT 7 Technology UK 2015 15,142 15,598 2.2% 79.1%
Mercury
14 DADA 2 Technology Italy 2017 9,513 14,066 2.0% 81.1%
15 Citation HGT 7 Services UK 2016 10,892 12,567 1.8% 82.9%
16 TeamSystem HGT 6 Technology Italy 2010 144 11,165 1.6% 84.5%
Mercury
17 Trace One 1 Technology France 2016 4,489 10,381 1.5% 86.0%
Mercury
18 STP 1 Technology Germany 2016 5,422 8,896 1.3% 87.3%
19 P&I(2) HGT 7/HGT Technology Germany 2013 1,796 8,596 1.2% 88.5%
20 Atlas HGT Services UK 2007 12,542 7,813 1.1% 89.6%
Mercury
21 Eucon 1 Technology Germany 2015 4,408 6,745 1.0% 90.6%
Mercury
22 fundinfo 1 Technology Switzerland 2017 4,020 6,732 1.0% 91.6%
Mercury
23 Evaluate 1 Technology UK 2016 3,733 6,157 0.9% 92.5%
Industrial
24 Noventic HGT 6 tech Germany 2012 922 5,955 0.8% 93.3%
25 EidosMedia HGT 7 Technology Italy 2015 8,414 5,648 0.8% 94.1%
26 Kinapse HGT 7 Services UK 2016 8,859 4,950 0.7% 94.8%
27 Gentrack HGT 7 Technology New Zealand 2017 2,069 3,431 0.5% 95.3%
28 Lumesse HGT 6 Technology UK 2010 20,602 2,228 0.4% 95.7%
29 e--conomic HGT 6 Technology Scandinavia 2013 - 993 0.1% 95.8%
30 Frösunda HGT 6 Healthcare Scandinavia 2010 14,138 365 0.1% 95.9%
Non-active investments
(3) 741 234 - -
--------------------------------- ---------- ----------- ------------ -------- ------------- ------- ------
Total buyout investments
(33) 416,253 671,672 95.9%
--------------------------------- ---------- ----------- ------------ -------- ------------- ------- ------
Asper RPP
Renewable energy I/II Renewable energy 25,925 19,669 2.8% 98.7%
Secondary fund
interests Hg 6E Secondary fund interests - 7,851 1.1% 99.8%
Forward sale of US$,
Currency hedges Various EUR and DKK - 1,476 0.2% 100.0%
------------------- ------------ ------------------------------------- -------- ------------- ------- ------
Total all
investments 442,178 700,668 100.0%
------------------- ------------ ---------- ----------- ------------ -------- ------------- ------- ------
(1) Investment through HGT 7 LP, HGT Saturn LP and
co--investment participation through HGT LP.
(2) Investment through HGT 7 LP and co--investment participation
through HGT LP.
(3) Investment through HgCapital Mercury D LP and co--investment
participation through HGT LP.
(4) Investment and co--investment participation through HGT
LP.
(5) Including accrued income but before the provision for
carried interest of GBP85,349,000.
Top 10 investments
representing 72% of the value of the Company's investments
Investments are held through limited partnerships, of which the
Company is the sole limited partner. The Company invests alongside
other clients of Hg. Typically, the Company's holding forms part of
a much larger majority interest held by Hg's clients in buyout
investments in companies with an enterprise value ('EV') of between
GBP50 million and GBP3 billion.
Hg'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.
1. Visma
The Company's underlying investment through HGT 7 LP,
co-investment through HGT LP and through HGT Saturn LP
website: www.visma.com
Investment sector: Technology
Location: Scandinavia
Investment date: Aug 2014
Original enterprise value: NOK 21 billion
Hg clients' total equity: 41.5%
Residual cost (GBP'000): 70,553
Unrealised value (GBP'000): 134,973
Business description
Visma is a leading provider of mission--critical business
software to SMEs in the Nordic region and the Netherlands.
Headquartered in Oslo, with significant revenues in Norway, Sweden,
Finland, Denmark and the Netherlands, the company provides
accounting, resource planning and payroll software to its customer
base of over 800,000 enterprises. Hg has been invested in Visma
since 2016.
Visma produces detailed reporting on their website on a
quarterly basis:
www.visma.com/investors-relations/results-figures/overview/
Why did we invest?
Visma was an early example of Hg's focus on recurring revenue,
business--critical application software companies serving SMEs and
their advisers. The company enjoys high levels of predictable,
recurring revenue resulting from a subscription payment model. When
Hg first invested, in 2006, both organic and acquisition driven
revenue growth opportunities were identified, as well as
significant opportunities to increase profit margins.
How do we intend to create value?
Visma has consistently exceeded our investment plans. In April
2014, following a decision by majority owner KKR to sell part of
its original 2010 stake in Visma, Hg decided to sell its remaining
stake, generating a total return between 2006 and 2014 of 5.2x
original cost and a gross IRR of 33%. Hg clients then reinvested
GBP409 million in the business for a 31% stake, via the Hg7 fund
and co--investment, as a co--lead investor, alongside KKR and
Cinven. This valued the business at a total EV of NOK 21 billion
(GBP2.1 billion). In 2017, Hg announced a further investment into
Visma following the sale of KKR's stake valuing the business at NOK
45 billion (GBP4.2 billion). In 2018, Hg made a further investment
in Visma via Hg Saturn. The continued reinvestment in Visma
reflects our conviction in the continuing strength of the business,
backing a management team we know well with a strong track record
of creating value for investors.
What has been achieved?
Since 2006, Visma has acquired over 140 companies, notably:
Mamut, an ERP software provider to small customers in Norway
(2011); Netvisor, a provider of SaaS based ERP software to the
Finnish small customer segment (2011); Agda, a Swedish provider of
payroll software to SMEs (2012); InExchange, a Swedish e--invoicing
leader (2013); Huldt & Lillevik, a payroll provider to SMEs
(2014); e--conomic / SpeedLedger (2015); TripleTex, a Norwegian
SaaS micro ERP player; EasyCruit, recruitment software solutions
(2016); Bluegarden, a payroll provider in Denmark and Scandinavia
(2017); Admincontrol, a SaaS company offering board portal
solutions (2017); Raet, a provider of payroll & HR software to
the Dutch and Belgian markets, boosting Visma's presence in Benelux
(2018); and Aditro Public, increasing Visma's presence in the
public sector payroll segment in Finland (2018). These deals
strengthened organic growth from innovation in new products, as
well as driving margin improvement through a reorganisation of
Visma's internal processes. Visma is now positioned as one of the
leading and largest SaaS companies in Europe, with more than NOK 4
billion of pure SaaS revenues.
How is it performing?
Visma continues to see year--on--year strong double--digit
growth in both revenue and EBITDA. Following the further
reinvestment by Hg, the Company's valuation of its stake in Visma
saw an increase of GBP12.8 million over the first six months of
2018.
How will we crystallise value?
Visma has a scale and growth profile which would make it an
attractive candidate for an initial public offering ('IPO') or a
large 'private IPO', where multiple larger institutional or
sovereign wealth investors could invest in the business without
requiring its shares to be listed.
2. IRIS
The Company's underlying investment through HGT 6 LP
website: www.iris.co.uk
Investment sector: Technology
Location: UK
Investment date: Dec 2011
Original enterprise value: GBP425m
Hg clients' total equity: 81.5%
Residual cost (GBP'000): 21,654
Unrealised value (GBP'000): 92,818
Business description
Headquartered in Berkshire, IRIS is a leading provider of
business-critical software and services to the UK accountancy
market and payroll applications to key SME business segments,
including the UK general practitioners' market.
Hg has been an investor in IRIS since 2004, retaining a minority
stake following its sale and merger with CSH in 2007 and becoming a
majority investor again in 2011, when we separated the two
businesses.
Why did we invest?
IRIS is one of the earliest examples of our focus on
business--critical software firms operating in attractive,
predictable end markets. IRIS operates a business model with over
85% of revenues coming from subscriptions and with high customer
retention rates, driven by consistent regulatory updates and
additional features as part of their subscription. The investment
decision was based on the potential for organic growth and
acquisition--led consolidation opportunities in the sector.
How do we intend to create value?
The business continues to achieve strong organic revenue and
profit growth through a combination of sector share gains, price
optimisation and the ongoing development of new solutions to sell
into the existing customer base. Furthermore, the UK accountancy
and SME software markets remain fragmented, offering additional
acquisition opportunities. IRIS has always been at the forefront of
providing the most innovative products to its customers and will
continue to invest in new technology to meet all of its customers'
needs. In addition, we think there is a substantial upside in
developing or acquiring SaaS products to target adjacent
sectors.
What has been achieved?
IRIS has been successful in broadening its addressable market by
expanding its offering, both by organic product development and by
acquisition. The company has also successfully established a Cloud
Division to sell SaaS products to UK accountants and SMEs. In 2016,
IRIS acquired Octopus HR and PS Financial, followed by SAAF
Analytics, Results Squared and ParentMail in 2017. This M&A
momentum has continued in 2018 with the acquisition of Contact
Group, Taxfiler and STAR Payroll further broadening its
offering.
In August 2015 and October 2017, IRIS was refinanced on the back
of its strong trading performance. In December 2016, Hg agreed to
purchase a further minority stake in IRIS from Lloyds Development
Capital for a total consideration of GBP29.7 million. In 2018, Hg
announced the sale of IRIS from the Hg6 fund and a joint investment
into the business with ICG via Hg Saturn.
How is it performing?
IRIS is a business which has been able to maintain strong levels
of revenue, EBITDA and cash--flow growth across market cycles. For
the past few years, revenues have seen high double--digit growth
rates year--on--year, and the annual EBITDA margin has consistently
been close to 50%, excluding the investment in the Cloud division.
The company also enjoys high revenue and earnings visibility, with
over 80% of revenues being recurring and high customer loyalty.
The Company's valuation of its stake in IRIS has seen an
increase of GBP16.3 million over the first six months of 2018.
How will we crystallise value?
In May 2018, Hg agreed the sale of IRIS to Hg Saturn and ICG
which completed in September 2018. Going forward, IRIS remains an
attractive acquisition target to a financial buyer, due to its
strong organic growth, margins, cash conversion and recurring
revenue. It would also represent a strong strategic fit with
several trade players.
3. Sovos
The Company's underlying investment through HGT 7 LP and
co--investment through HGT LP
website: www.sovos.com
Investment sector: Technology
Location: North America
Investment date: Mar 2016
Original enterprise value: $700m
Hg clients' total equity: 98.5%
Residual cost (GBP'000): 38,508
Unrealised value (GBP'000): 79,515
Business description
Sovos is a leading global provider of tax compliance software
solutions. These solutions include sales and use tax determination
and filing, 1099 and 10 series tax information reporting, beverage
alcohol compliance reporting, VAT compliance reporting, e--Invoice
filing and reporting, and Automatic Exchange of Information
('AEOI') reporting (FATCA, CDOT & CRS).
Sovos is headquartered in Boston, Massachusetts and also has a
presence in Europe and Latin America. The majority of revenue is
generated from a US customer base of c. 4,500, which are
predominantly large enterprises.
Why did we invest?
Hg's technology team tracked Sovos (previously Taxware) for two
years, as we identified the company as a scale specialist in tax
compliance for enterprise customers. We also saw the potential to
expand the company outside the US market.
Sovos sits right in the Hg 'sweet spot' with a strong and
predictable business model, including: c. 95% contractually
recurring revenue; a fragmented, loyal customer base; high margins;
and robust cash conversion. Sovos' largest, core products have
achieved close to double--digit organic revenue growth.
How do we intend to create value?
In addition to continuing to grow revenues organically, Sovos
has a strong track record of acquiring and successfully integrating
tax compliance software companies. The market remains fragmented
and hence we believe there are many attractive opportunities for
Sovos to grow by acquisition. There is additional potential through
further margin improvement.
What has been achieved?
In June 2016, Sovos announced the acquisition of Invoiceware
International, based in Atlanta and Sao Paulo. This expanded the
company's capabilities in Latin America and added the industry's
only solution for handling electronic invoicing and fiscal
reporting in multiple countries from a single platform. A new
Chairman and CFO were also recruited. In August 2017, Sovos
announced the acquisition of Paperless, based in Santiago, Chile,
which complements Invoiceware's product offering and provides Sovos
with a sector leading solution for business to government reporting
- a form of regulatory compliance which has spread to more than 60
countries. In July 2018, Sovos completed the acquisition of
TrustWeaver, a leading provider of cloud software that helps
businesses authenticate and centrally archive electronic documents
for VAT audit purposes.
Hg has supported the management team at Sovos in key pricing
improvement initiatives across the business and helped to
operationalise the customer success team leading to higher customer
loyalty.
How is it performing?
Sovos has seen rapid growth since our investment in early 2016,
driven by strong organic growth in its core products. We have also
been successful in deploying material capital into M&A and seen
a significant number of additional opportunities ahead of us. The
Company has benefited from an increase of GBP7.8 million in the
Company's valuation of its stake over the first six months of
2018.
How will we crystallise value?
We believe Sovos will be an attractive acquisition target for
private equity buyers, as it demonstrates high levels of organic
revenue growth, high EBITDA margins, has a very high proportion of
recurring revenue and strong market positioning. However, we also
see an IPO as a potential route to exit, given the strong cash
generation and increasingly international reach. Lastly, there are
several potential trade buyers.
4. JLA
The Company's underlying investment through HGT 6 LP
website: www.jla.com
Investment sector: Services
Location: UK
Investment date: Mar 2010
Original enterprise value: GBP150m
Hg clients' total equity: 61.8%
Residual cost (GBP'000): 3,511
Unrealised value (GBP'000): 34,344
Business description
JLA is a leading provider of on--premise laundry, catering,
heating and fire safety services, providing distribution, rental
and servicing of commercial equipment to the UK SME market. JLA's
core customers are characterised by the equipment provided being
critical to business operations, though not itself a source of
revenue. Representative examples of core customer segments include
nursing homes, residential homes and small boutique hotels. JLA
delivers its core services via three offerings: Total Care
Solutions ('TCS'), being the rental and service of commercial
laundry, catering and heating equipment under eight--year
contracts; service solutions, providing a service for customers
with their own machines and equipment; and machine sales, being the
sale and installation of equipment.
Why did we invest?
JLA had enjoyed strong performance, including sustained organic
growth through the period 2007-2009 and displayed many of the
business model characteristics that we look for: a diverse customer
base that considers laundry, catering, heating and fire safety as
mission--critical parts of their day to day business; a large
proportion of customers on long--term contracts (representing a
high level of revenue and a greater proportion of profits)
providing good visibility of future revenues; significant headroom
for further organic growth both via new customer wins and also
upselling to existing customers; and potential for selective
M&A.
How do we intend to create value?
Hg has worked alongside management to increase the benefit of
selling new products and services through JLA's existing sales
force and service network. Following the successful extension into
the catering industry, the business is now rolling out a similar
proposition in heating and fire safety, whilst the management team
are working on other new industry verticals where JLA's service
proposition could also add value. In addition, the business is
focused on further M&A deals, in particular in Heating and Fire
Safety to help build scale.
What has been achieved?
A number of projects have been initiated covering strategic
planning, customer retention and pricing. Management has been
strengthened and several acquisitions of laundry and catering
companies have been completed, all funded from free cash flow. The
business now has a dedicated M&A team with a pipeline for
further acquisitions under development. 2016 saw the opening of a
second contact centre in Manchester to extend the existing sales
and marketing capabilities. The new site is delivering promising
results, adding larger cohorts of new customers.
In December 2015, Hg completed the refinancing of JLA and the
sale of a minority interest to institutional investors, returning
GBP17.3 million of cash proceeds to the Company. These
transactions, together with previous distributions, and a further
re--financing in January 2018 delivered a 2.1x multiple on original
investment in cash, whilst retaining 62% of the equity in the
business.
How is it performing?
JLA continues to see year--on--year organic growth driven
largely by growth in the core Total Care division which has
benefited from the recent launch of Heating Total Care into the
market. JLA has continued to grow equity value through robust and
consistent double--digit sales and EBITDA growth. The sale of JLA
announced in May, has led to an increase of GBP7.8 million in the
Company's valuation of its stake in JLA over the first six months
of 2018.
How will we crystallise value?
In August 2018, Hg completed the sale of JLA to Cinven. This
followed an extremely competitive exit process, with several
bidders showing strong interest. The transaction valued the
Company's investment in JLA at GBP34.3 million which has been fully
reflected in the June valuation. Overall, the realisation delivered
a return of 4.9x original cost, generating a gross IRR of 26% on
the investment, with the sale also representing an uplift of 29% to
the 31 December 2017 book value.
5. Cogital
The Company's underlying investment through HGT 7 LP and
co--investment through HGT LP
website: www.cogitalgroup.com
Investment sector: Services
Location: UK
Investment date: Oct 2016
Original enterprise value: GBP494m
Hg clients' total equity: 82.4%
Residual cost (GBP'000): 20,966
Unrealised value (GBP'000): 32,012
Business description
CogitalGroup ('Cogital') was launched in December 2016 through
the acquisitions and merger of Nordic based Azets (formerly named
Visma BPO) and UK based businesses Baldwins and Blick Rothenberg.
The Group's focus is the provision of business--critical support,
BPO and advisory services to the entrepreneurial and private
company business segments together with their owners and managers.
In total, the Group now has c. 75,000 customers with more than
4,900 employees operating from 168 offices in the UK, Norway,
Sweden, Denmark, and Finland. The Group also has 600 employees
based in Romania and Lithuania.
Why did we invest?
Cogital continues the Services team's record of investing in
regulatory driven businesses within Hg's 'sweet spot' business
model focus. We have been tracking the SME accountancy and advisory
services sector for many years as it exhibits several attractive
criteria, including: a high share of repeatable revenue due to the
mission--critical nature of the services; high retention rates due
to the trusted nature of the adviser relationship; serving
fragmented customer bases; fragmented competitive landscapes
allowing for significant M&A opportunities; and an opportunity
for high margin improvement driven by the increased use of
technology, near shoring and scale.
How do we intend to create value?
We are principally focused on three valuation creation levers:
driving organic growth across the Group; pursuing the acquisitions
of small accounting, audit & payroll offices; and improving
EBITDA margins through technology and nearshoring.
What has been achieved?
Since December 2016, Cogital has completed over 40 acquisitions,
successfully increased its acquisition facilities and rolled out a
group--wide incentive scheme.
How is it performing?
Cogital is trading in line with expectations, seeing strong
double--digit trading performance over the last year and this has
led to an increase in the Company's valuation of its stake of
GBP3.0 million over the period.
How will we crystallise value?
We expect the business model characteristics of Cogital to be
appealing to a wide range of financial sponsors at exit. We also
think an IPO is a possible exit strategy.
6. Access
The Company's underlying investment through HGT 8 LP
website: www.theaccessgroup.com
Investment sector: Technology
Location: UK
Investment date: June 2018
Original enterprise value: GBP1.0bn
Hg clients' total equity: 32.1%
Residual cost (GBP'000): 30,491
Unrealised value (GBP'000): 30,510
Business description
With its portfolio spanning Finance, HR, Payroll, Hospitality,
Recruitment, Heath and Social Care, Manufacturing and Distribution,
Education and Not for Profit sectors, The Access Group ('Access')
is a vendor of mission--critical business software to mid--market
organisations in the UK. Access software helps over 10,000 UK
businesses to work efficiently with expertise across numerous
industries. In June 2018, Hg8 completed an investment in Access for
an EV of GBP1 billion. As part of the transaction, TA Associates
rolled over part of their stake in order to maintain a stake equal
to Hg's equity ownership in the business, while management and
AlpInvest also rolled over as minority shareholders alongside Hg
and TA.
Why did we invest?
This investment builds on our prior experience in SME software,
Accounting and Tax software as well as the HR & Payroll
software space. Hg has made multiple investments in this space
already (HR & Payroll: IRIS, P&I, Raet, Visma, SHL;
Accounting & Tax: Cogital, Visma, TeamSystems, IRIS, ATC,
Sovos). Access demonstrates many of the characteristics that Hg
looks for in an investment including: mission--critical business
software, a strong management team and potential for M&A.
How do we intend to create value?
The top priorities for the Board and management team currently
include: integration of recent acquisitions; successful launch of
the Workspace user interface across multiple products; delivery of
bookings growth; and M&A execution.
What has been achieved?
Following the completion of Hg's investment, we have kicked off
a number of workstreams with the business including: product
development and the transition to a fully SaaS and subscription
model; customer success improvements; a pricing study; cross--sell
opportunities; and supporting potential M&A.
How is it performing?
Whilst Access is new to the Hg portfolio, it is trading well
with robust double--digit sales and EBITDA growth over the LTM,
primarily driven by recurring bookings. Revenue and EBITDA are both
seeing strong organic growth.
How will we crystallise value?
We believe Access will be an attractive acquisition target for
private equity buyers as it demonstrates high levels of organic
revenue growth, strong Net Revenue Retention ('NRR') and high
EBITDA margins. However, we also see an IPO as a potential route to
exit given the strong cash generation and increasingly global
equity story. Lastly, there are several notable potential trade
buyers.
7. Mobility Holding
The Company's underlying investment through HGT 8 LP
website: www.mobility-holding.de
Investment sector: Services
Location: Germany
Investment date: Dec 2017
Original enterprise value: EUR155m
Hg clients' total equity: 85.4%
Residual cost (GBP'000): 24,285
Unrealised value (GBP'000): 25,480
Business description
Mobility Holding ('MH') is a platform investment to develop a
leading independent multi-channel provider of subscription--based,
full--service car leasing and flat--rate solutions in Germany. As
part of this strategy, Hg8 initially acquired MeinAuto ('MA') (a
leading German online B2C platform for new car purchases in
Germany) from its founders in December 2017. Subsequently, MH
acquired Mobility Concept ('MC') (a leading B2B leasing company in
Germany) in a carve--out from Unicredit at the end of May 2018. In
September 2018, MH bought Athletic Sport Sponsoring ('ASS'), a
leading German provider of full--service, automotive leasing offers
and mobility subscriptions to members of closed user groups, in a
proprietary transaction. MH's products range from vehicle
purchasing and leasing to innovative flat rate offers for private
consumers as well as large commercial fleet customers.
Why did we invest?
This investment continues Hg's strategy to develop
technology--enabled service providers in the automotive financing
and distribution space and is the result of considerable sector
work undertaken in recent years. This includes prior investments in
Zenith, Epyx, Eucon and Parts Alliance. Mobility Holding sits in
the Hg investment 'sweet spot', with a strong and predictable
business model, recurring revenues and a loyal customer base. The
business has a strong management team with significant experience
in the German automotive leasing and online distribution space.
Together, the Group will benefit from strong synergies between MC
which provides full fleet leasing operations, MA, a B2C online
platform for new car purchases and ASS, a provider of flat--rate
car subscriptions to members of closed user groups (especially
sport associations and civil servants) which will allow for
accelerated growth.
How do we intend to create value?
Our hypothesis is that MC's existing business can benefit from
further professionalisation and margin improvement whilst MA and
ASS offer additional organic growth potential within their original
business models. Further, the combination of MC, MA and ASS, will
allow us to build a new online SME and B2C subscription/leasing
product including subscription--based mobility offers. Our
intention is to build the leading German multi--channel provider of
full service leasing solutions to B2C and SME customers with strong
online focus.
What has been achieved?
Management is currently finalising the redesign of the MA
webpage which will be optimised for strong conversion of leads to
leasing sales. Further, management has made good progress in
preparing the B2C leasing product which will be fully launched by
the end of the year (first leasing products launched in Q3). Focus
areas over the next 12 months are to launch the B2C leasing
product, improving the efficiency of both acquisition financing and
asset based funding, and supporting operational initiatives through
Hg's OI team who are working on various initiatives such as
packaging optimisation, predictive lead scoring, and controlling
efficiency. Further, Hg are working towards a more robust reporting
structure at MH Group level.
How is it performing?*
MA showed strong YTD performance with double--digit revenue and
EBITDA trading over the last year. The business has benefited from
strong market tailwinds due to a regulatory eco--premium which
incentivised customers to bring new car purchases forward. Given
that MC and ASS have only recently closed, we are currently
preparing financial onboarding and detailed reporting.
How will we crystallise value?
We believe MH's leasing and flat--rate product IP, a highly
loyal customer and multi--channel customer access, combined with
strong growth, is of high strategic relevance to strategic buyers
with a limited distribution footprint in Germany and is attractive
to financial sponsors.
*represents MeinAuto standalone
8. Raet
The Company's underlying investment through HGT 7 LP
website: www.raet.nl
Investment sector: Technology
Location: The Netherlands
Investment date: May 2016
Original enterprise value: EUR493m
Hg clients' total equity: 84.0%
Residual cost (GBP'000): 16,127
Unrealised value (GBP'000): 25,159
Business description
Raet is a leading provider of cloud--based payroll and Human
Capital Management ('HCM') software and services. Raet's software
is used by c. 10,000 clients and supports HR processes for c. 3
million active users. The business enjoys a strong historical base
of customers in the Netherlands where it is a leading player in
both the public and private sectors, having expanded beyond its
payroll heritage into a provider of a full suite of cloud--based
HCM software solutions and services. In recent years, Raet has
expanded its footprint internationally both organically and through
M&A.
Why did we invest?
This investment represents a continuation of Hg's theme of
investing in leading payroll and HR--related businesses. Raet
demonstrates many of the business model characteristics that Hg
looks for, including: high levels of recurring revenue; high cash
flow generation; strong customer loyalty; and a strong management
team. The investment is another example of the close cooperation
between our teams, with the Munich and technology teams working
closely together on the transaction, sharing resources and
knowledge from prior transactions in this space.
How do we intend to create value?
Hg has supported the management team to accelerate growth in the
Netherlands, with a greater focus on sales force effectiveness
accelerating new wins and improved customer engagement.
We believe there is an opportunity to deliver cash margin
improvements through operating leverage and efficiency gains
available in R&D, service delivery and central functions; and
we see a significant opportunity to expand operations beyond the
core Netherlands market, both organically and through M&A and
partnerships. We see a substantial opportunity to leverage Raet's
expertise and technology across geographies and grow the scale of
the addressable market.
What has been achieved?
Hg has worked closely with Raet on the following initiatives:
strengthening of the team, including a new CFO, Head of Marketing
and other senior executives; a focus on cost and operations to
deliver margin improvement; a drive to improve sales and marketing,
sharing Hg's best practice from the Hg OI team; and support on
M&A.
How is it performing?
Raet saw improved performance in 2018 and the Company saw an
increase in the valuation of its stake in the business of GBP4.7
million over the period.
How will we crystallise value?
In May 2018, Hg agreed the sale of Raet to Visma, who will
acquire 100 percent of the shares of Raet at an EV of EUR590
million. Proceeds of the sale will comprise a combination of cash,
deferred consideration and equity. We strongly believe in the
benefits of the integration and anticipated synergies. This
transaction values the Company's investment in Raet at GBP25.2
million, representing a multiple of 1.6x cost and 24% gross IRR
over the investment period to date.
9. A-Plan
The Company's underlying investment through HGT 7 LP
website: www.aplan.co.uk
Investment sector: Services
Location: UK
Investment date: Apr 2015
Original enterprise value: GBP270m
Hg clients' total equity: 72.2%
Residual cost (GBP'000): 10,447
Unrealised value (GBP'000): 24,873
Business description
UK--based insurance broker focused on non--discretionary B2C
motor and household insurance products. A--plan distributes
commercial lines insurance products and is active in a range of
niches including HNW individuals and foreign--speaking
customers.
A--Plan focuses on high levels of customer service and more
complex cases than online brokers. A--Plan's local, high--touch
model enables it to offer customers products at the same price as
those found on price comparison websites but with significantly
higher levels of service, whilst retaining industry beating
margins. A--Plan's KPIs consistently outperform those of its peers,
with market leading NPS scores, loss ratios and customer retention
which have enabled the business to demonstrate 25 years of
uninterrupted revenue growth.
Why did we invest?
The Services team identified the insurance broking sub--sector
as attractive for potential investment in 2011, as it is
characterised by businesses with high levels of recurring revenues,
providing a non--discretionary purchase for customers, with strong
cash generation and opportunities for bolt--on M&A. A--Plan was
identified as part of this market mapping exercise and had been
tracked by the Services Team for three years, prior to our
investment in the business.
A--Plan has a personal, service--oriented approach leading to
best in class levels of customer satisfaction, driving high
retention rates and low customer acquisition costs, due to a high
referral rate.
How do we intend to create value?
Hg intends to support A--Plan's experienced management through
organic growth of its current business volumes in the existing
branches and assisting with the roll--out of new branches.
Additionally, there are potential opportunities for further growth,
through selective M&A and new product lines.
What has been achieved?
Hg is supporting A--Plan with ongoing and future projects,
including: support on M&A development; an upgrade of the legacy
broking administration technology system; investment in the data
and analytics team and infrastructure to use insight to drive new
business growth and improve customer retention; and improved group
reporting.
In March 2017, the Services team completed a refinancing of
A--Plan, returning GBP52 million to clients including GBP5.2
million to the Company (35% of the original investment made).
How is it performing?
A--Plan is performing well and is ahead of our original
investment case on both a revenue and EBITDA basis, with growth
over the last twelve months of 13% and 7% respectively.
New business policies are benefitting from the continued branch
roll--out and marketing initiatives to drive new business at
existing branches. The inflation of premiums in motor insurance is
increasing, and this is now beginning to flow through to revenue,
following a natural lag as the market takes time to adjust to the
higher premium environment. Continued growth in equity value from
consistent underlying trading growth has added GBP2.4 million to
the Company's valuation of its interest in A--Plan over the first
six months of 2018.
How will we crystallise value?
A--Plan appeals to many buyer groups, including a trade or
financial buyer. The business could also be of interest to yield
investors or, when it reaches critical size, an IPO might be
feasible.
10. Mitratech
The Company's underlying investment through HGT 7 LP and
co-investment through HGT LP
website: www.mitratech.com
Investment sector: Technology
Location: North America
Investment date: Apr 2017
Original enterprise value: $730m
Hg clients' total equity: 61.1%
Residual cost (GBP'000): 22,258
Unrealised value (GBP'000): 22,736
Business description
Mitratech is a leading global provider of Enterprise Legal
Management ('ELM') software to corporate legal departments. The
core product is Matter Management software which acts as the
Enterprise Resource Planning ('ERP') software at the heart of
in--house legal teams, and an e--billing solution which provides
e--invoicing capabilities between law department and external
counsel with automatic invoice review.
Mitratech serves a wide customer base of c. 1,000 corporate
customers across the world, including 40% of the Fortune 500. Over
650 law firms are using the e--billing platform to transmit
invoices to clients, including all the AmLaw 200 and 99% of the
Global 100 Law Firms. The business is based in Austin, Texas with
further offices in the US, England, Wales and Australia, employing
c. 400 people.
Why did we invest?
Legal process and regulatory compliance software is a core Hg
sector, and one we have invested in before and are currently
invested in through STP, which supports insolvency processes and
mid--market practice management in the DACH region of Europe.
Hg's technology team have looked at many targets in this
fragmented sector. However, Mitratech is one that is sufficiently
large and attractive as a standalone investment and has a proven
track record of performance backed by a strong management team with
a clear strategy to create value.
How do we intend to create value?
Hg intends to support Mitratech through both continued organic
growth of the business and as the best placed platform to drive a
global sector roll--up. The business has a strong management team
with a best in class core product taking share from fragmented
competition in a growing market. Mitratech has a proven track
record of organic growth and we will look to add to this through
M&A.
What has been achieved?
Hg is supporting Mitratech to source further M&A
opportunities following the acquisition of ThinkSmart in April
2018, particularly in Hg's core markets of Western Europe. Hg's
Operations Innovation ('OI') team is working with the management on
proposition and product development as well as several customer
success initiatives to put new systems and processes in place to
enhance Mitratech's customer satisfaction and productivity.
How is it performing?
Performance in the 2018 financial year was slightly below budget
expectations, and we are working with management on a revised plan
for the 2019 financial year which will be more focussed on the
strategic core of the business and key value drivers. However, the
business has continued to deliver double--digit revenue and EBITDA
growth over the last twelve months.
The Company's stake in Mitratech has been written up by GBP3.2
million over the period, reversing previous adverse FX
movements.
How will we crystallise value?
We believe Mitratech will present an attractive acquisition
target to a number of trade acquirers in the Legal, Enterprise
Content Management and Governance Risk and Compliance sectors where
its position as the leading ELM vendor holds high strategic
value.
Equally, we expect that Mitratech will continue to be attractive
to Private Equity buyers given high organic growth, recurring
revenue, EBITDA margins and market position.
Other investments
Many of our businesses outside the top 10 are also performing
very well. Many of these are within the Hg Mercury Fund, which
invests in smaller TMT companies with EVs of between GBP50 million
and GBP200 million.
The Mercury investments are seeing high double--digit growth in
both revenues and profits across its portfolio. They also sit
firmly in Hg's 'sweet spot', with a high level of recurring
revenues, business--critical products, fragmented customer and
competitor bases and low exposure to economic cycles. The vast
majority of our investments have been into founder--owned
businesses, and we have a strong proprietary pipeline.
11 Commify Group
web: www.commify.com
Sector: Technology
Commify Group ('Commify') is a leading Application--to--Person
('A2P') messaging service in Western Europe. The customer base is
mainly SMEs and some larger enterprises who use Commify's services
to communicate with their end customers through messages, voice,
and a number of other media. The group is a combination of four
businesses: Mobyt (acquired in Q4 2016), SMS Envoi (acquired by
Mobyt in June 2017), Esendex (acquired in June 2017) and SMS Publi
(acquired by Esendex in June 2017). Most messages are
mission--critical, operational content such as appointment
reminders, delivery notifications. The business also supports
marketing/promotional messages and coupons, and surveys. Commify is
trading well and this has led to an uplift in value of more than
GBP5 million in the Company's valuation of its interest at the end
of June.
12 Achilles
web: www.achilles.com
Sector:Technology
Achilles manages a global network of collaborative industry
communities. The business provides a cloud--based service, enabling
networks of buyers to create industry standards for collecting and
validating supplier information. This is made available through the
Achilles platform, together with search, reporting and risk
management tools. The Company's valuation of its stake in Achilles
fell by GBP4.9 million over the first half of 2018 as we await
improved operating performance.
13 Foundry
web: www.foundry.co.uk
Sector:Technology
Foundry is a leading global developer of computer graphics,
high--end visual effects ('VFX') and 3D design software for the
design, visualisation and entertainment industries. The company was
founded in 1996 and is headquartered in London, with offices in
Manchester, Los Angeles, Silicon Valley and Austin; it has more
than 2,000 customers and 16,000 users in over 100 countries and
employs c. 270 people. Over the last year, Foundry has seen strong
double--digit earnings growth primarily driven from its core Media
and Entertainment products NUKE and Katana.
14 DADA
web: www.dada.eu
Sector:Technology
DADA is a pan--European mass hosting business, and has a
presence across several attractive European markets including
Italy, UK, Spain, Portugal, and France. DADA provides domains,
web--site hosting and email services to more than 650,000
customers. The management team have built the business through
extensive M&A since 2006, acquiring businesses across Europe.
This is a strategy the company continues to pursue as it builds
strategic positions in a number of high growth countries. In March
2018, Hg Mercury 2 completed the purchase of 100% of the shares in
DADA SpA, and de--listed the company from the Italian Stock
Exchange. The first half of 2018 has seen strong performance
resulting in an upward revaluation of the Company's investment by
GBP4.3 million.
15 Citation
web: www.citation.co.uk
Sector:Services
Citation is a leading provider of outsourced HR, Employment Law,
Health and Safety and ISO certification services to over 20,000
customers across the UK. Citation helps SMEs comply with the
relevant Employment Law and Health and Safety regulations.
Customers have access to 24/7 advice from highly skilled and
qualified experts in the fields of HR, Employment Law and Health
and Safety who can assist with a broad range of business related
issues. Citation has seen improved performance and this has led to
a slight increase of GBP1.4 million over the period in the value of
the Company's investment.
16 TeamSystem
web: www.teamsystem.com
Sector:Technology
Established in 1979, TeamSystem is a leading provider of
business--critical, regulatory driven software products to
accountants, HR professionals and SMEs in Italy. Headquartered in
Pesaro, the company has a large and diversified base of c. 250,000
customers.
It has 27 offices across Italy and employs c. 2,000 people. In
December 2015, Hg agreed to sell TeamSystem to Hellman and
Friedman. As part of the deal, Hg rolled over a small minority
stake in the business and retains a seat on the board. The business
continues to perform well.
17 Trace One
web: www.traceone.com
Sector:Technology
Trace One's cloud solutions enable global retailers and
suppliers to collaborate and develop high quality, trusted and
compliant private label products. The platform is critical for
helping retailers and suppliers to manage innovation, product
safety, traceability and quality. Trace One serves a blue--chip
customer base of more than 25 leading retailers, across Europe and
North America, with data on 20,000 member manufacturers. The
business has a particularly strong footprint in France, serving 7
of the top 8 food retailers in the country. In July, the Mercury
team completed a refinancing, returning an estimated GBPXX million
to the Company.
18 Atlas
web: www.atlasknowledge.com
Sector:Services
Based in Aberdeen, Atlas is an international provider of
learning technology solutions for safety critical industries (in
particular for the oil and gas sector). Founded in 1995, it
operates in well over 100 countries, serving more than 700
customers with over 500,000 employees. As a result of customers
postponing investments, because of macro--economic factors, the
business was originally written down in 2014, with a further
provision in 2016. The management, supported by Hg, have worked
hard to recover value, and following a write--up in 2017, Atlas has
continued to perform in 2018 resulting in a further increase of
GBP1.4 million in the value of the Company's stake.
19 STP
web: www.stp--online.de
Sector:Technology
STP is a leading provider of insolvency and law practice
software in Germany. Founded in 1993 and headquartered in
Karlsruhe, Germany, the business employs more than 100 people
serving over 1,000 legal customers with critical software. STP's
core business provides software solutions for insolvency law firms
where it has a leading position in the German market. In recent
years, STP launched a legal practice management software suite
which is growing strongly. In addition, the company offers an
Online Portal in the insolvency space and has a document management
software product which it sells into both the insolvency market, as
well as in combination with its practice management software. STP
continues to see positive performance.
20 P&I
web: www.pi--ag.com
Sector:Technology
P&I is a leading provider of integrated software solutions
for human resources management to the German and European
Mittelstand. The business delivers payroll, core HR, human capital
management, time and attendance as well as analytics to 15,000
customers across DACH and 11 further European countries via an
integrated and highly automated private cloud--based platform. Hg
took P&I private via a public takeover offer in 2013 and
re--invested into the business in 2016 alongside Permira.
21 Eucon
web: www.eucon.de
Sector:Technology
Eucon consists of two business units: Automotive and Digital
Services. The Automotive division is a leading provider of
automotive parts pricing and reference data to vehicle and parts
manufacturers globally. Eucon collects, processes and supplies
crucial data to support its customers in managing their parts and
aftermarket operations.
The Digital Services division is a highly automated claims
management service to insurers in Germany as well as data
extraction tools for Real Estate clients. In the insurance claims
management business, Eucon assists insurers in achieving lasting
reductions in claims expenditure through the sophisticated
automation of claims processes and the application of structured
data, both for car insurance as well as property insurance claims.
In addition to this, Digital Services helps Real Estate clients
automate data extraction, leveraging AI and machine learning
capabilities.
Eucon has c. 400 staff and is headquartered in Germany with an
additional office in the USA. Eucon serves nearly 250 clients
operating in 40 countries.
22 fundinfo
web: about.fundinfo.com
Sector:Technology
fundinfo, which is based in Switzerland, is a data and
information platform used by more than 500 fund management
companies to publish and disseminate their regulatory and
commercial fund documents and fund data to fund distributors in
over 15 countries. fundinfo counts many global asset managers as
its clients and distributes their documents and data to many key
wealth managers, banks and platforms throughout the wealth
management industry (including UBS, Credit Suisse, Deutsche Bank,
Allfunds Bank etc.) In March 2018, fundinfo acquired F2C, a
Luxembourg--based company with a multi--tenant SaaS platform that
allows fund management companies to publish and distribute their
fund documents and data.
Strong trading has continued in 2018 and has led to a small
uplift in the Company's valuation of its stake in the business over
the period of GBP1.9 million.
23 Evaluate
web: www.evaluategroup.com
Sector:Technology
Evaluate is a leading provider of commercial data to the Life
Science industry, supplying critical information for complex
commercial decisions to pharmaceutical companies and their
advisors. The core data around which Evaluate has been built is the
supply of third-party research analyst consensus forecasting, at a
product, disease indication and geographic level, which is
important for users in business development, licensing and
corporate strategy. Data is collected from c. 200 organisations
(directly and indirectly), company reports, and government data
sources, and Evaluate creates value by normalising, structuring and
continuously updating this information into a single consistent
dataset which is delivered to key decision makers.
Over the first six months of 2018, positive trading performance
has led to a small uplift of GBP1.2 million in the valuation of the
Company's stake in Evaluate.
24 Noventic
web: www.noventic.com
Sector:Industrial technology
Noventic (formerly QUNDIS) supplies a full data management
solution for the housing and
utilities industries to collect, measure, and transmit
consumption--dependent data for heating and water usage on an
apartment unit level. In May 2017, the Munich team completed the
exit of QUNDIS, retaining a minority position in the combined
group, Noventic.
25 EidosMedia
web: www.eidosmedia.com
Sector:Technology
EidosMedia is a leading global provider of digital publishing
solutions for the media and financial services industries. Its
digital publishing platform, Méthode, is used daily by 30,000
journalists across more than 600 titles globally to create and
deliver content across print and web media channels. This software
enables real--time creation and customisation of various media
(text, images and video), media workflow management, and
cross--media publishing. In recent years, EidosMedia has also
expanded into the financial services market, applying the workflow
and collaboration functionality of the Méthode platform to the
production of investment research reports published by financial
institutions. Headquartered in Milan, EidosMedia serves a global
client base with a focus on Western Europe and the US; 94% of its
revenues are generated outside of Italy.
26 Kinapse
web: www.kinapse.com
Sector:Services
Kinapse is a leading global provider of advisory, capability
building and operational services to the life sciences industries,
focused on regulatory compliance and quality. The business, which
is headquartered in London, has offices in the UK, India and the
United States and employs around 650 people worldwide. Kinapse was
established thirteen years ago to service the world's leading life
sciences organisations, their customers, suppliers and regulators
across a range of specialist areas, including quality and
compliance, regulatory and medical affairs, pharmacovigilance and
clinical trial disclosure. The business has grown rapidly over the
last few years and now partners with 19 out of the top 25 global
pharma companies.
In August, Hg announced the sale of Kinapse to Syneos Health, a
leading biopharmaceutical solutions organisation, returning GBP7.9
million to the Company.
27 Gentrack
web: www.gentrack.com
Sector:Technology
Gentrack is a provider of mission--critical software including
billing and CRM for utilities and management systems for airports.
Gentrack's shares are listed on the NZX and ASX markets and Hg is
the largest institutional shareholder in the business. Gentrack
focuses on utilities in Australia, New Zealand and the UK and
airports globally. This investment is valued at its market
price.
28 Lumesse
web: www.lumesse.com
Sector:Technology
Lumesse is a leading provider of strategic HR software to medium
and large--sized enterprises in Europe, operating in 16 countries
with almost 550 FTEs (mostly based in the UK and Germany). It
operates a subscription--based revenue model (more than 60% of
total revenue) with a strong consulting element required to
configure their solution to customer requirements. Lumesse's
products cover the entire HR management process, grouped into three
areas: talent acquisition, talent management and learning.
Lumesse's performance has stabilised over the last year and the
business is currently seeing a return to growth. However, we have
taken a conservative view to valuations leading to a reduction in
the valuation of the Company's stake over the first six months of
2018.
Renewable energy
Website: http://asper-im.com/
Investment sector: Renewable Energy
Location: Europe
Residual cost (GBP'000): 25,925
Unrealised value (GBP'000): 19,669
The Company has investments in two renewable energy funds: Asper
RPP I and Asper RPP II. These fund investments continue to be
overseen by the Manager, but are managed by a specialist renewable
energy team formerly at Hg.
On 30 November 2017, the team transitioned to Asper, a newly
formed independent investment management firm. This transition had
been in preparation for close to two years and is in line with the
strategic plans of both Hg and the Asper team. Asper uses private
equity skills to identify, acquire and build high quality European
renewable energy projects. Investment returns in this asset class
are generated through a combination of yield during operation and
capital gain at refinancing or exit. By bringing individual
investments together into platforms, Asper enhances value through
economies of scale, shared expertise and aggregated generation
capacity.
Asper has built a portfolio of high quality projects on time and
on budget and operational performance remains ahead of the
investment case across all platforms.
However, financial returns have been materially reduced by
retroactive tariff changes in Spain and depressed power prices in
Sweden between 2010--2013. Since 2014 the Asper team has been
working on a value recovery plan centred on:
-- investments in and realisations from the portfolio assets
unaffected by the adverse events;
-- arbitration proceedings against Spain for the retroactive
tariff changes; and
-- debt restructuring of distressed projects.
Three successful exits in 2017 (the main one in Ireland, others
in Sweden and the UK) and the robust operating performance of the
rest of the portfolio contributed to a substantial uplift of over
30% in the NAV of Asper RPP II over 2017.
The NAV has also increased in 2018, thanks to positive
developments in the arbitrations against Spain, including
successful investor awards in similar claims.
The Asper team is hard at work to increase NAV further and
crystallise value.
Financial statements
Income statement
for the six months ended 30 June 2018
Revenue return Capital return Total return
--------------- -----
Six months Year Six months Year Six months Year
ended ended ended ended ended ended
---------------
30.6.2018 30.6.2017 31.12.2017 30.6.2018 30.6.2017 31.12.2017 30.6.2018 30.6.2017 31.12.2017
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Notes (unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited)
--------------- ----- ------------ ------------ ---------- ------------ ------------ ---------- ------------ ------------ ----------
Gains on
investments
and liquidity
funds - - - 57,480 65,736 109,738 57,480 65,736 109,738
(Losses)/gains
on
priority
profit
share loans
(advanced
to)/recovered
from
General
Partners 7(b) - - - (4,296) 510 (1,372) (4,296) 510 (1,372)
Net income 6 7,544 7,937 22,920 - - - 7,544 7,937 22,920
Other expenses 8(a) (1,383) (1,492) (2,009) - - - (1,383) (1,492) (2,009)
--------------- ----- ------------ ------------ ---------- ------------ ------------ ---------- ------------ ------------ ----------
Net return
before
finance costs
and
taxation 6,161 6,445 20,911 53,184 66,246 108,366 59,345 72,691 129,277
--------------- ----- ------------ ------------ ---------- ------------ ------------ ---------- ------------ ------------ ----------
Finance costs 8(b) (370) (408) (825) - - - (370) (408) (825)
--------------- ----- ------------ ------------ ---------- ------------ ------------ ---------- ------------ ------------ ----------
Net return
before
taxation 5,791 6,037 20,086 53,184 66,246 108,366 58,975 72,283 128,452
--------------- ----- ------------ ------------ ---------- ------------ ------------ ---------- ------------ ------------ ----------
Taxation 10 (141) (18) (43) - - - (141) (18) (43)
--------------- ----- ------------ ------------ ---------- ------------ ------------ ---------- ------------ ------------ ----------
Net return
after
taxation
attributable
to reserves 5,650 6,019 20,043 53,184 66,246 108,366 58,834 72,265 128,409
--------------- ----- ------------ ------------ ---------- ------------ ------------ ---------- ------------ ------------ ----------
Return per
Ordinary
share 11(a) 15.14p 16.13p 53.70p 142.49p 177.49p 290.33p 157.63p 193.62p 344.03p
--------------- ----- ------------ ------------ ---------- ------------ ------------ ---------- ------------ ------------ ----------
The total return 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 comprehensive income has been presented.
All revenue and capital items in the above statement derive from continuing
operations.
No operations were acquired or discontinued during the period.
The following notes form part of these financial statements.
Balance sheet
as at 30 June 2018
Notes 30.06.18 30.06.17 31.12.17
GBP'000 GBP'000 GBP'000
(unaudited) (unaudited) (audited)
------------------------------------------- ----- ------------ ------------ ----------
Fixed asset investments
----- ------------ ------------ ----------
Investments at fair value through profit
or loss:
----- ------------ ------------ ----------
Unquoted investments 558,676 491,013 490,976
------------------------------------------- ----- ------------ ------------ ----------
Total fixed asset investments 558,676 491,013 490,976
------------------------------------------- ----- ------------ ------------ ----------
Current assets - amounts receivable after
one year:
----- ------------ ------------ ----------
Accrued income on fixed assets 56,643 65,176 71,107
----- ------------ ------------ ----------
Current assets - amounts receivable within
one year:
----- ------------ ------------ ----------
Debtors 271 490 414
----- ------------ ------------ ----------
Investments at fair value through profit
or loss:
----- ------------ ------------ ----------
Liquidity funds 148,459 106,716 155,938
----- ------------ ------------ ----------
Uninvested capital in Limited Partnerships 337 - 429
----- ------------ ------------ ----------
Cash at bank 5,127 12,707 3,925
------------------------------------------- ----- ------------ ------------ ----------
Total current assets 210,837 185,089 231,813
------------------------------------------- ----- ------------ ------------ ----------
Creditors - amounts falling due within
one year (852) (5,250) (1,765)
------------------------------------------- ----- ------------ ------------ ----------
Net current assets 209,985 179,839 230,048
------------------------------------------- ----- ------------ ------------ ----------
Net assets 768,661 670,852 721,024
------------------------------------------- ----- ------------ ------------ ----------
Capital and reserves:
----- ------------ ------------ ----------
Called up share capital 9,331 9,331 9,331
----- ------------ ------------ ----------
Share premium account 120,368 120,368 120,368
----- ------------ ------------ ----------
Capital redemption reserve 1,248 1,248 1,248
----- ------------ ------------ ----------
Capital reserve - unrealised 109,285 78,455 79,256
----- ------------ ------------ ----------
Capital reserve - realised 499,918 435,444 476,763
----- ------------ ------------ ----------
Revenue reserve 28,511 26,006 34,058
------------------------------------------- ----- ------------ ------------ ----------
Total equity shareholders' funds 768,661 670,852 721,024
------------------------------------------- ----- ------------ ------------ ----------
Net asset value per Ordinary share 11(b) 2,059.4p 1,797.3p 1,931.7p
------------------------------------------- ----- ------------ ------------ ----------
Ordinary shares in issue at 30 June /
31 December 11(b) 37,324,698 37,324,698 37,324,698
------------------------------------------- ----- ------------ ------------ ----------
The financial statements of HgCapital Trust plc (registered
number 01525583) were approved and authorised for issue by the
Board of Directors on 7 September 2018 and signed on its behalf
by:
Roger Mountford, Chairman
Richard Brooman, Director
The following notes form part of these financial statements.
Statement of cash flows
for six months ended 30 June 2018
Six months ended Year ended
Notes 30.06.18 30.06.17 31.12.17
GBP'000 GBP'000 GBP'000
(unaudited) (unaudited) (audited)
------------------------------------------- ----- ------------ ------------ ----------
Net cash inflow from operating activities 9 4,249 6,861 10,990
------------------------------------------- ----- ------------ ------------ ----------
Investing activities:
----- ------------ ------------ ----------
Purchase of fixed asset investments (79,346) (40,315) (73,021)
----- ------------ ------------ ----------
Proceeds from the sale of fixed asset
investments 79,971 122,014 201,584
----- ------------ ------------ ----------
Purchase of liquidity funds (23,900) (93,609) (166,409)
----- ------------ ------------ ----------
Redemption of liquidity funds 31,795 26,700 50,700
------------------------------------------- ----- ------------ ------------ ----------
Net cash inflow from investing activities 8,520 14,790 12,854
------------------------------------------- ----- ------------ ------------ ----------
Financing activities:
----- ------------ ------------ ----------
Proceeds from loan facility - 2,453 -
----- ------------ ------------ ----------
Servicing of finance (370) (408) (760)
----- ------------ ------------ ----------
Equity dividends paid (11,197) (17,169) (23,141)
------------------------------------------- ----- ------------ ------------ ----------
Net cash outflow from financing activities (11,567) (15,124) (23,901)
------------------------------------------- ----- ------------ ------------ ----------
Increase/(decrease) in cash and cash
equivalents in the period 1,202 6,527 (57)
------------------------------------------- ----- ------------ ------------ ----------
Cash and cash equivalents at 1 January 3,925 6,180 3,982
------------------------------------------- ----- ------------ ------------ ----------
Cash and cash equivalents at 30 June
/ 31 December 5,127 12,707 3,925
------------------------------------------- ----- ------------ ------------ ----------
The following notes form part of these financial statements.
Statement of changes in equity
for six months ended 30 June 2018
Non-distributable Distributable
Capital Capital
Share Capital reserve reserve
Share premium redemption - - Revenue
capital account reserve unrealised realised reserve Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------ ----- ---------- --------- ------------ ------------ ------------ ---------- --------
At 31 December
2017 9,331 120,368 1,248 79,256 476,763 34,058 721,024
Net return - - - 30,029 23,155 5,650 58,834
Equity dividends
paid 4 - - - - - (11,197) (11,197)
------------------ ----- ---------- --------- ------------ ------------ ------------ ---------- --------
At 30 June 2018 9,331 120,368 1,248 109,285 499,918 28,511 768,661
------------------ ----- ---------- --------- ------------ ------------ ------------ ---------- --------
At 31 December
2016 9,331 120,368 1,248 81,061 366,592 37,156 615,756
Net return - - - (1,805) 110,171 20,043 128,409
Equity dividends
paid 4 - - - - - (23,141) (23,141)
------------------ ----- ---------- --------- ------------ ------------ ------------ ---------- --------
At 31 December
2017 9,331 120,368 1,248 79,256 476,763 34,058 721,024
------------------ ----- ---------- --------- ------------ ------------ ------------ ---------- --------
The following notes form part of these financial statements.
Notes to the financial statements
1. Principal activity
The principal activity of the Company is investment. The Company
is an investment company as defined by Section 833 of the Companies
Act 2006 and an investment trust under Sections 1158 and 1159 of
the Corporation Tax Act 2010 ('CTA 2010') and is registered as a
public company in England and Wales under number 01525583 with its
registered office at 2 More London Riverside, London SE1 2AP.
2. Basis of preparation
The financial statements have been prepared under the historical
cost convention, except for the revaluation of financial
instruments at fair value as permitted by the Companies Act 2006,
and in accordance with applicable UK law and UK Accounting
Standards ('UK GAAP'), including Financial Reporting Standard 102 -
'The Financial Reporting Standard applicable in the United Kingdom
and Republic of Ireland' ('FRS 102') and with the Statement of
Recommended Practice 'Financial Statements of Investment Trust
Companies and Venture Capital Trusts' ('SORP'), issued in November
2014 and updated in January 2017. All of the Company's operations
are of a continuing nature.
The Company has considerable financial and management resources
and, as a consequence, the Directors believe that the Company is
well placed to manage its business risks. After making enquiries,
the Directors have a reasonable expectation that the Company will
have adequate financial resources to continue in operational
existence for the foreseeable future. Accordingly, they continue to
adopt the going concern basis in preparing these financial
statements.
The same accounting policies, presentation and methods of
computation are followed in these financial statements as applied
in the Company's previous annual audited report and accounts.
3. Organisational structure and accounting policies
Partnerships where the Company is the sole limited partner
The Company entered into eight separate partnership agreements
with general and founder partners in May 2003 (subsequently revised
in January 2009), January 2009, July 2011, March 2013, December
2016, February 2017, January 2018 and February 2018; at each point
an investment holding limited partnership was 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, HGT 6 LP, HgCapital
Mercury D LP, HGT 7 LP, HGT 8 LP, HGT Mercury 2 LP, HGT Transition
Capital LP and HGT Saturn LP (together the 'primary buyout funds'),
is to hold all the Company's investments in primary buyouts. Under
the partnership agreements, the Company made capital commitments
into the primary buyout funds, with the result that the Company now
holds direct investments in the primary buyout funds and an
indirect investment in the fixed asset investments that are held by
these funds, as it is the sole limited partner. These direct
investments are included under fixed asset investments on the
balance sheet and in the investment portfolio above. The underlying
investments that are held indirectly are included in the overview
of investments above.
Consolidated financial statements have not been prepared because
the Company does not have control over the operating and financial
activities of the underlying investment holding limited
partnerships, as the general partners are responsible for the
management of their activities.
Partnerships where the Company is a minority limited partner
In July 2011, the Company made a direct secondary investment in
HgCapital 6 E LP ('Hg6E'), one of the partnerships that comprise
the Hg6 Fund, in which the Company is now a limited partner pari
passu with other limited partners. This is a direct investment in
the Hg6E Fund, as shown on the balance sheet and in the investment
portfolio above.
The Company also entered into partnership agreements with the
purpose of investing in renewable energy projects by making capital
commitments with other limited partners in Asper Renewable Power
Partners LP ('Asper RPP I LP') and Asper Renewable Power Partners 2
C LP ('Asper RPP II LP') (together the 'renewable funds'). These
are direct investments in the renewable funds, as shown on the
balance sheet and in the investment portfolio above.
Priority profit share and other operating expenses, payable by
partnerships in which the Company is a minority limited partner,
are recognised as unrealised losses in the capital return section
of the income statement and are not separately disclosed within
other expenses.
Priority profit share and carried interest under the primary
buyout limited partnership agreements
Under the terms of the primary buyout fund limited partnership
agreements ('LPAs'), each 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 primary buyout 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 primary buyout funds' LPAs, each founder
partner is entitled to a carried interest distribution once certain
preferred returns are met. The LPAs stipulate that the primary
buyout funds' capital gains or net income, after payment of the
carried interest, are allocated to the Company, when the right to
these returns is established.
Accordingly, the Company's entitlement to net income and net
capital gains is shown in the appropriate lines of the income
statement. Notes 6, 7, and 9 to the financial statements disclose
the gross income and gross capital gains of the primary buyout
funds and also reflect the proportion of net income and capital
gains in the buyout funds that have been paid to the general
partner as its PPS and to the founder partner as 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 in 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
A dividend of 16.0 pence per share (2017: interim dividend in
respect of the year ended 31 December 2017 of 16.0 pence per share
and final dividend of 30.0 pence per share in respect of the year
ended 31 December 2016; GBP23,141,000).
5. Issued share capital
Whilst the Company no longer has an authorised share capital,
the Directors will still be limited as to the number of shares they
can at any time allot as the Companies Act 2006 requires that
Directors seek authority from the shareholders for the allotment of
new shares.
Six months ended Year ended
30.06.18 30.06.17 (unaudited) 31.12.17
(unaudited) (audited)
No.'000 GBP'000 No.'000 GBP'000 No.'000 GBP'000
------------------------------- ------------- ------------- --------------------- -------- -------- ----------
Ordinary shares of 25p each:
Allotted, called--up and fully
paid:
At 1 January 37,325 9,331 37,325 9,331 37,325 9,331
------------------------------- ------------- ------------- --------------------- -------- -------- ----------
At 30 June / 31 December 37,325 9,331 37,325 9,331 37,325 9,331
------------------------------- ------------- ------------- --------------------- -------- -------- ----------
6. Income
Revenue return
Six months ended Year ended
30.06.18 30.06.17 31.12.17
GBP'000 GBP'000 GBP'000
(unaudited) (unaudited) (audited)
------------------------------------------------------------- --------------------- ------------------ ----------
Income from investments held by HGT LP, HGT
6 LP, HGT 7 LP, HGT 8 LP, HgCapital Mercury
D LP, HGT Mercury 2 LP, HGT Transition Capital
LP and HGT Saturn LP:
UK unquoted investment income 8,887 10,510 22,733
Foreign unquoted investment income (996) 657 4,599
Foreign dividend income 706 21 60
Other investment income:
UK unquoted investment income 530 281 685
Liquidity funds income 150 241 1,028
------------------------------------------------------------- --------------------- ------------------ ----------
Total investment income 9,277 11,710 29,105
------------------------------------------------------------- --------------------- ------------------ ----------
Total other income 13 154 154
------------------------------------------------------------- --------------------- ------------------ ----------
Total income 9,290 11,864 29,259
------------------------------------------------------------- --------------------- ------------------ ----------
Priority profit share charge against income:
Current period -- HGT 7 LP (1,288) (1,707) (3,179)
Current period -- HgCapital Mercury D LP (237) (545) (765)
Current period -- HGT Mercury 2 LP (172) - -
Current period -- HGT LP (49) (549) (560)
Current period -- HGT 6 LP - (1,126) (1,835)
------------------------------------------------------------- --------------------- ------------------ ----------
Total priority profit share charge against
income (note 7(a)) (1,746) (3,927) (6,339)
------------------------------------------------------------- --------------------- ------------------ ----------
Total net income 7,544 7,937 22,920
------------------------------------------------------------- --------------------- ------------------ ----------
Total net income comprises:
Interest 6,825 7,838 22,706
Non--interest income 13 21 154
Dividend 706 78 60
------------------------------------------------------------- --------------------- ------------------ ----------
Total net income 7,544 7,937 22,920
------------------------------------------------------------- --------------------- ------------------ ----------
7. Priority profit share and carried interest
Revenue return
Six months ended Year ended
(a) Priority profit share payable to General 30.06.18 30.06.17 31.12.17
Partners
GBP'000 GBP'000 GBP'000
(unaudited) (unaudited) (audited)
----------------------------------------------- ------------ ------------ ----------
Priority profit share payable:
Current period amount 6,042 3,417 7,711
Less: Current period loans advanced to General
Partners (4,296) - (1,882)
Add: Prior period loans recovered from General
Partners - 510 510
----------------------------------------------- ------------ ------------ ----------
Current period charge against income 1,746 3,927 6,339
----------------------------------------------- ------------ ------------ ----------
Total priority profit share charge against
income 1,746 3,927 6,339
----------------------------------------------- ------------ ------------ ----------
The priority profit share payable on the primary buyout funds
rank as a first appropriation of net income from investments held
in the primary buyout funds respectively and is deducted prior to
such income being attributed to the Company in its capacity as a
Limited Partner. The net income of the primary buyout funds earned
during the period, after the deduction of the priority profit
share, is shown in the income statement.
Capital return
Six months ended Year ended
(b) Priority profit share loans to General 30.06.18 30.06.17 31.12.17
Partners
GBP'000 GBP'000 GBP'000
(unaudited) (unaudited) (audited)
---------------------------------------------- ------------- ------------- ----------
Movements on loans to General Partners:
Losses on current period loans advanced to
General Partners (4,296) - (1,882)
Gains on prior period loans recovered from
General Partners - 510 510
---------------------------------------------- ------------- ------------- ----------
Total (losses)/gains on priority profit share
loans (4,296) 510 (1,372)
---------------------------------------------- ------------- ------------- ----------
In years in which the funds described in note 7(a) have not yet
earned sufficient net income to satisfy the priority profit share,
the entitlement is carried forward to the following years. The
priority profit share 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 primary buyout 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 sufficient
net income is earned, no value is attributed to this loan and hence
an unrealised capital loss is recognised and reversed if sufficient
income is subsequently generated.
Capital return
Six months ended Year ended
(c) Carried interest to Founder Partners 30.06.18 30.06.17 31.12.17
GBP'000 GBP'000 GBP'000
(unaudited) (unaudited) (audited)
---------------------------------------------- ------------- ------------ ----------
Carried interest
Current period amount provided 2,438 15,310 26,629
Current period amount paid 10,338 - -
---------------------------------------------- ------------- ------------ ----------
Total carried interest charge against capital
gains 12,776 15,310 26,629
---------------------------------------------- ------------- ------------ ----------
The carried interest payable to the Founder Partners ranks as a
first appropriation of capital gains on the investments held in
primary buyout funds limited partnerships established solely to
hold the Company's investments, and is deducted prior to such gains
being paid to the Company in its capacity as a Limited Partner. The
net amount of capital gains of primary buyout funds during the
period, after the deduction of carried interest, is shown in the
income statement. The details of the carried interest contracts, as
set out on page 104 of the 2017 Annual Report, states that carried
interest is payable once a certain level of cash repayments have
been made to the Company. Based on the repayments received to date,
GBP10,338,000 carried interest was paid during the period.
If the investments in HGT 6 LP, HGT 7 LP, HgCapital Mercury D LP
and HgCapital 6 E LP are realised at the current fair value and
then distributed to Partners, an amount of GBP85,349,000 will be
payable to the Founder Partner and therefore the Directors have
made a provision for this amount. No provision is required in
respect of the Company's investment in the other fund limited
partnerships.
8. Other expenses
Revenue return
Six months ended Year ended
(a) Operating expenses 30.06.18 30.06.17 31.12.17
GBP'000 GBP'000 GBP'000
(unaudited) (unaudited) (audited)
---------------------------------------------- -------------- -------------- ----------
Registrar, management and administration fees 394 336 721
Legal and other administration costs(1) 989 1,156 1,288
---------------------------------------------- -------------- -------------- ----------
1,383 1,492 2,009
---------------------------------------------- -------------- -------------- ----------
(1) Includes employer's National Insurance contributions of
GBP14,077 (2017: GBP24,113).
Revenue return
Six months ended Year ended
(b) Finance costs 30.06.18 30.06.17 31.12.17
GBP'000 GBP'000 GBP'000
(unaudited) (unaudited) (audited)
----------------------------------------- ------------- ------------ ----------
Interest paid - 31 62
Non--utilisation fees and other expenses 370 377 763
----------------------------------------- ------------- ------------ ----------
Total finance costs 370 408 825
----------------------------------------- ------------- ------------ ----------
Priority profit shares and other operating expenses, payable by
partnerships in which the Company is a minority limited partner are
recognised as unrealised losses in the capital return section of
the income statement and are not separately disclosed in the above
operating expenses.
9. Cash flow from operating activities
Six months ended Year ended
Reconciliation of net return before finance 30.06.18 30.06.17 31.12.17
costs and taxation
to net cash flow from operating activities GBP'000 GBP'000 GBP'000
(unaudited) (unaudited) (audited)
--------------------------------------------- ------------ ------------ ----------
Net return before finance costs and taxation 59,345 72,691 129,277
Gains on investments held at fair value (60,691) (81,046) (138,826)
Carried interest paid (10,338) - -
Increase in carried interest provision 2,438 15,310 26,629
Increase in accrued income from liquidity
funds (150) (232) (1,020)
Decrease/(increase) in prepayments, accrued
income and other debtors 14,466 122 (5,815)
(Decrease)/increase in creditors (910) 19 1,214
Taxation received/(paid) 89 (3) (469)
--------------------------------------------- ------------ ------------ ----------
Net cash inflow from operating activities 4,249 6,861 10,990
--------------------------------------------- ------------ ------------ ----------
10. Taxation
Taxation for the six month period is charged at 19% (31 December
2017: 19.25%), 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 and Section 1159 of the CTA 2010
and will therefore be exempt from corporation tax on any capital
gains made in the year. Where possible, the Company aims to
designate all of any dividends declared in respect of this
financial year as interest distributions to its shareholders. These
distributions are treated as a tax deduction against taxable
income, resulting in no corporation tax being payable by the
Company on any interest income designated as a dividend.
11. Return and net asset value per Ordinary share
Revenue return Capital return
Six months Year Six months Year
ended ended ended ended
30.06.18 30.06.17 31.12.17 30.06.18 30.06.17 31.12.17
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
(a) Return per Ordinary share (unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited)
------------------------------- ------------ ------------ ---------- ------------ ------------ ----------
Amount (GBP'000):
Net return after taxation 5,650 6,019 20,043 53,184 66,246 108,366
------------------------------- ------------ ------------ ---------- ------------ ------------ ----------
Number of Ordinary shares
('000):
Weighted average number of
shares in issue 37,325 37,325 37,325 37,325 37,325 37,325
------------------------------- ------------ ------------ ---------- ------------ ------------ ----------
Return per Ordinary share
(pence) 15.14 16.13 53.70 142.49 177.49 290.33
------------------------------- ------------ ------------ ---------- ------------ ------------ ----------
Six months ended Year ended
(b) Net asset value per Ordinary share 30.06.18 30.06.17 31.12.17
GBP'000 GBP'000 GBP'000
(unaudited) (unaudited) (audited)
------------------------------------------- ------------ ------------ ----------
Amount (GBP'000):
Net assets 768,661 670,852 721,024
------------------------------------------- ------------ ------------ ----------
Number of Ordinary shares ('000):
Number of Ordinary shares in issue 37,325 37,325 37,325
------------------------------------------- ------------ ------------ ----------
Net asset value per Ordinary share (pence) 2,059.4 1,797.3 1,931.7
------------------------------------------- ------------ ------------ ----------
12. Commitment in fund partnerships and contingent
liabilities
Outstanding
Original at
commitment 30.06.18 30.06.17 31.12.17
GBP'000 GBP'000 GBP'000 GBP'000
Fund (unaudited) (unaudited) (audited)
------------------------------ ---------- ------------ ------------ ----------
HGT 8 LP(1) 350,000 288,295 350,000 341,084
HGT Saturn LP(1) 150,000 124,598 - -
HGT Transition Capital LP(1) 75,000 74,862 - -
HGT Mercury 2 LP(1) 80,000 69,203 80,000 73,306
Asper RPP II LP 35,373(2) 6,592(3) 6,118(3) 8,354(3)
HGT 6 LP 285,029(4) 6,000 12,608 17,174
Hg Mercury D LP 60,000(5) 2,368 3,814 6,182
HGT LP(6) 120,000 1,261 1,261 1,261
HGT 7 LP 200,000 1,045 22,390 -
Asper RPP I LP 19,137(7) 793(8) 846(8) 796(8)
Hg 6 E LP 15,000 316 940 940
------------------------------ ---------- ------------ ------------ ----------
Total outstanding commitments 575,333 477,977 449,097
------------------------------ ---------- ------------ ------------ ----------
(1) The Company has the benefit of an opt--out provision in
connection with its commitment alongside Hg 8, Hg Mercury 2 and HGT
Saturn LP, allowing it to opt out of its obligation to fund
draw--downs under its commitment, without penalty, where certain
conditions exist. The Company is the sole investor in the
Transition Capital strategy and no commitment will be made if the
Company does not have cash available to invest.
(2) Sterling equivalent of EUR40,000,000.
(3) Sterling equivalent of EUR7,454,000 (2017:
EUR9,412,000).
(4) 4.2% of the original GBP285 million commitment to the Hg6
fund has subsequently been cancelled, as the Manager deemed that is
was unlikely to be required
(5) 7.6% of the original GBP80 million commitment to the Mercury
1 fund has subsequently been cancelled, as the Manager deemed that
is was unlikely to be required
(6) 21.4% of the original GBP120 million commitment to the Hg5
fund has subsequently been cancelled, as the Manager deemed that it
was unlikely to be required.
(7) Sterling equivalent of EUR21,640,000.
(8) Sterling equivalent of EUR897,000 (2017: EUR897,000).
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 434 of the Companies Act 2006. The financial information
for the six months ended 30 June 2018 and 30 June 2017 has not been
audited. The information for the year ended 31 December 2017 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 2018 in March 2019. The 2018 Annual Report should be
available by the end of March 2019, with the Annual General Meeting
being held in April 2019.
Further information
Investment management and ongoing charges
Over the first six months of 2018, the Company's assets were
managed by Hg Pooled Management Limited ('Hg').
The Company pays a priority profit share in respect of either
its commitments to or invested capital alongside Hg funds on the
same terms as those payable by all institutional investors in these
funds as listed below:
Fund partnership Priority profit share (% p.a.)
----------------------- --------------------------------------------------
Hg Saturn 1.0% on invested capital (commenced 19 March
2018)
Transition Capital 1.25% on invested capital (expected to commence
during 2018)
Hg8 1.75% on the fund commitment during the investment
period
(commenced 1 October 2017), stepping down to
1.5% on invested capital
Hg Mercury 2 1.75% on the fund commitment during the investment
period
(commenced 1 October 2017), stepping down to
1.5% on invested capital
Hg7 1.5% of original cost of investments in the fund
less the original cost of investments that have
been realised or written--off.
HgCapital Mercury D LP 1.5% of original cost of investments in the fund
less the original cost of investments that have
been realised or written--off.
Hg6 and Hg6E 1.5% of original cost of investments in the fund
less the original cost of investments that have
been realised or written--off.
HGT 0.5% on the value of investments held in that
fund, excluding co--investments.
Asper RPP II 1.25% of lesser of value or cost of investments.
Asper RPP I 1.5% of original cost of investments in the fund,
less the original cost of investments that have
been realised or written--off.
----------------------- --------------------------------------------------
For the Company's investment alongside the Hg6, Hg Mercury 1,
Hg7, Hg Mercury 2 and Hg8 funds, the carried interest arrangements
are identical to that which applies to all limited partners in
these funds. Under these arrangements, carried interest is payable
based on 20% of the aggregate profits, but only after the repayment
to the Company of its invested capital and a preferred return,
based on 8% p.a., calculated daily, on the aggregate of its net
cumulative cash flows in each fund and such preferred return amount
that is capitalised annually. Carried interest in HGT Transition
Capital will be calculated in the same way.
For the Company's investment alongside the Hg Saturn fund, the
carried interest arrangement is also identical to that which
applies to all Limited Partners in this fund. Under this
arrangement, carried interest is payable based on 12% of the
aggregate profits, payable after the repayment to the Company of
its invested capital and a preferred return based on 8% p.a. or 20%
of the aggregate profits, payable after the repayment to the
Company of its invested capital and a preferred return of 12%.
The previous incentive scheme introduced in May 2003 remains in
place but only in respect of the Company's investments in HGT LP.
This arrangement allows for a carried interest of 20% of the excess
annual growth in average NAV over an 8% preferred return, based on
a three--year rolling average NAV, calculated half--yearly and
aggregated with any dividends declared by the Company in respect of
that financial year.
No priority profit share or carried interest will apply to any
co--investment made alongside Hg5, Hg6, Hg Mercury, Hg7, Hg Mercury
2 and Hg8 in excess of the Company's pro--rata commitment. Thus,
the co--investments made by the Company in P&I, Visma,
Achilles, Sovos, CogitalGroup, Mitratech and Commify do not entitle
Hg to any priority profit share or carried interest. No
compensation would be due to Hg on termination of the
agreement.
Hg has also been appointed as administrator of the company for a
fee equal to 0.1% p.a. of the NAV.
Link Company Matters Limited was appointed as company secretary
on 13 May 2015.
Calculation of ongoing charges
For the period to 30 June 2018, the Company's annualised ongoing
charges were calculated as 2.1% (31 December 2017: 1.5%). The
calculation is based on the ongoing charges expressed as a
percentage of the average published monthly NAV over the relevant
year. The ongoing charges, in accordance with guidelines issued by
The Association of Investment Companies ('AIC'), are the annualised
expenses that are operational and recurring by nature and
specifically exclude, amongst others, the expenses and gains or
losses relating to the acquisition or disposal of investments,
performance related fees (such as carried interest), taxation and
financing charges.
The Company's ongoing charges consist of its operating expenses
and current year priority profit share payable,
as described in notes 7 and 8 to the financial statements.
Shareholder information
Financial calendar
The announcement and publication of the Company's results may
normally be expected in the months shown below:
March -- Final results for year announced
-- Annual Report and Accounts published
April -- Annual General Meeting and payment of final dividend
September -- Interim figures announced and interim report published
October -- Payment of interim dividend
Dividend
The Interim dividend proposed in respect of the year ended 31
December 2018 is 16 pence per share.
Ex--dividend date (date from which shares are transferred
without dividend) 20 September 2018
Record date (last date for registering transfers to receive the
dividend) 21 September 2018
Last date for registering DRIP instructions (see below) 5
October 2018
Dividend payment date 26 October 2018
The final dividend is subject to approval of the shareholders at
the forthcoming AGM.
Payment of dividends
Cash dividends will be sent by cheque to the first--named
shareholder at their registered address, together with a tax
voucher, to arrive on the payment date. Alternatively, dividends
may be paid direct into a shareholder's bank account via Bankers'
Automated Clearing Service ('BACS'). This may be arranged by
contacting the Company's registrar, Computershare Investor Services
PLC ('Computershare'), on 0370 707 1037.
Dividend re--investment plan ('DRIP')
Shareholders may request that their dividends be used to
purchase further shares in the Company.
Dividend re--investment forms may be obtained from Computershare
on 0370 707 1037 or may be downloaded from
www--uk.computershare.com/investor. Shareholders who have already
opted for dividend re--investment do not need to re--apply. The
last date for registering for this service for the forthcoming
dividend is 5 October 2018.
Board, management and administration
Directors
Roger Mountford (Chairman)
Richard Brooman (Chairman of the Audit and Valuation
Committee)
Peter Dunscombe (Chairman of the Management Engagement
Committee)
Jim Strang
Guy Wakeley
Anne West (Senior Independent Director)
Company Secretary
Link Company Matters Limited
65 Gresham Street
London
EC2V 7NQ
Registered office
2 More London Riverside
London
SE1 2AP
Registered number
01525583
Website
www.hgcapitaltrust.com
Investment Manager
Hg Pooled Management Limited(1)
2 More London Riverside
London
SE1 2AP
Telephone: 020 7089 7888
www.hgcapital.com
Registrars and Transfer Office
Computershare Investor Services PLC(1)
The Pavilions
Bridgwater Road
Bristol
BS99 6ZZ
Telephone: 0370 707 1037
Brokers
Numis Securities Ltd(1)
The London Stock Exchange Building
10 Paternoster Square
London
EC4M 7LT
Telephone: 020 7260 1000
www.numiscorp.com
Auditors
Grant Thornton UK LLP(1)
30 Finsbury Square
London
EC2P 2YU
Administrator
Hg Pooled Management Limited(1)
2 More London Riverside
London
SE1 2AP
Telephone: 020 7089 7888
www.hgcapital.com
Depositary
IPES Depositary (UK) Limited(1)
9th Floor
No.1 Minster Court
Mincing Lane
London
EC3R 7AA
AIC
Association of Investment Companies
www.theaic.co.uk
The AIC represents closed--ended investment companies. It helps
its member companies through lobbying, media engagement, technical
advice, training, and events.
The AIC's website includes information about investments via
investment companies, including investments
in listed private equity companies.
(1) Authorised and regulated by the Financial Conduct
Authority.
www.hgcapitaltrust.com is constantly updated to ensure that the
you can always access the Company's latest data and information on
your computer or mobile device in a transparent, convenient and
intuitive manner.
If you have any suggestions on improvements we can make to the
site, please do get in touch at
investorrelations@hgcapitaltrust.com
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR BRGDCUGGBGIR
(END) Dow Jones Newswires
September 10, 2018 02:00 ET (06:00 GMT)
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