TIDMHGT
RNS Number : 5716L
HgCapital Trust PLC
09 September 2019
HgCapital Trust plc
INTERIM RESULTS FOR THE SIX MONTHSED 30 JUNE 2019
London, 9 September 2019: HgCapital Trust plc ("the Company"),
which provides investors with a listed vehicle to invest in
unquoted software and service businesses managed by Hg, today
announces its interim results for the six months ended 30 June
2019.
CONTINUED Strong NAV performance driven by ROBUST double-digit
revenue and EARNINGS growth AND EXITS ABOVE BOOK VALUE
performance
31 August 30 June 31 December % Total
2019 2019 2018 return(1)
================ ============ =========== ============== ============
Share price GBP2.17 GBP2.16 GBP1.79 +22.5%
NAV per share GBP2.45 GBP2.42 GBP2.16 +13.9%
FTSE All-Share
Index +13.0%
=========================================================== ============
June 2019
Movement
Net Asset Value GBP984.3m GBP975.1m GBP805.0m +GBP170.1m
================ ============ =========== ============== ============
(1) Assuming reinvestment of all historic dividends
Note: All figures have been adjusted for the 10:1 share-split in
May 2019
Source: Hg, Factset
key Highlights FOR THE SIX MONTHS TO 30 JUNE 2019
-- NAV per share of GBP2.42, a total return of 13.9%.
-- Share price total return of 22.5% to 30 June 2019.
-- Interim dividend of 1.8 pence per share (2018 interim
dividend of 1.6 pence per share).
-- Strong revenue and EBITDA growth of 26% and 35% respectively
across the top 20 investments (88% of the portfolio) over the last
twelve months.
-- Valuation multiple (EV/EBITDA) of 19.5x and net debt to
EBITDA ratio of 6.3x for the top 20 investments.
-- GBP65 million of cash returned to the Company and GBP107
million invested on behalf of the Company.
-- Increased focus on improving liquidity in the Company's
shares, with a ten for one share-split in May 2019.
-- Share issue in June 2019 raised GBP63 million (after all
expenses) to fund future commitments to Hg funds and further
co-investment in Hg portfolio companies.
-- Outperformed the FTSE All-share over one, three, five, ten
and twenty-year periods
-- Over the last twenty years, Shareholders have seen a Total
Return of 1,429%
PORTFOLIO ACTIVITY OVER THE PERIOD
-- Investments in the period include Transporeon Group, one of
the world's leading cloud-based logistics platforms, team.blue, a
leader in mass hosting services for SMEs across Europe, and Litera
Microsystems, a leading provider of end-to-end document lifecycle
solutions to the legal and life sciences industries worldwide.
-- Foundry sold to Roper Technologies at a 79% uplift to book
value delivering a 2.1x investment multiple and a 22% gross IRR
over the investment period.
-- Continued M&A activity across the portfolio.
year to date to 31 AUGUST 2019
-- Pro-forma NAV per share of GBP2.45, primarily reflecting
unrealised currency movements since period end and the realisation
of Register.
-- Share price of GBP2.17, market capitalisation of GBP872
million, YTD performance of 23%.
-- Pro-forma liquid resources post-completion of all announced
transactions and the proposed dividend payable in October 2019, are
GBP166 million (17% of 31 August pro-forma NAV).
-- Pro-forma outstanding commitments of GBP342 million (35% of
31 August pro-forma NAV). We expect these to be drawn down over the
next two years.
Hg's Outlook
-- It has been another strong period of performance for the
Company with the underlying businesses continuing to see robust
trading performance underpinning confidence in the ongoing growth
of the strong and defensive portfolio.
-- Hg continues to selectively invest in "sweet-spot" software
and service businesses in areas or 'clusters' where we have many
years of deep knowledge.
-- Highly focused on making further accretive bolt--on
acquisitions into our portfolio companies.
-- A focus on operational improvement continues to drive
performance and deliver significant network benefits.
-- We expect to see further liquidity events over the next
twelve months through both exits and refinancings.
Strong earnings, realisations at uplifts to book value and
supporting the management teams of the underlying businesses will
continue to drive value for shareholders in HgCapital Trust plc
Roger Mountford, Chairman of the Company, commented:
"Over the twelve months to 30 June 2019, the top 20 companies,
that make up 88% of our portfolio by value, reported sales growth
of 26% and EBITDA growth of 35%. These are the strongest trading
figures we have ever reported and evidence the quality of the
businesses we own."
- Ends -
The Company's 2019 Interim Report, presentation, fact sheets 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
Laura Dixon (Senior Investor Relations
Manager, Hg) +44 (0)20 7089 7888
Brunswick
Gill Ackers and Alice Gibb +44 (0)20 7404 5959
About HgCapital Trust plc
HgCapital Trust plc, whose shares are listed on the London Stock
Exchange (ticker: HGT.L), gives investors exposure through a liquid
vehicle to a portfolio of high-growth private companies in the
technology and tech-enabled sector. The selection of new
investments and creation of value in these businesses 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 2019
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 software and service
businesses across Europe.
References in this Announcement 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 Announcement 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 Announcement to pounds sterling have been
abbreviated to 'sterling'.
Financial highlights
Six-month performance:
______________________________________________________________________________________________________
Share price
at 30 June 2019 was GBP2.16 a total return for the period
of:
+22.5%
______________________________________________________________________________________________________
Market capitalisation
The market capitalisation of the Company at 30 June 2019
was:
GBP868m
______________________________________________________________________________________________________
NAV per share
at 30 June 2019 was GBP2.42, a total return for the period
of:
+13.9%
______________________________________________________________________________________________________
Net assets
The total NAV of the Company at 30 June 2019 was:
GBP975m
______________________________________________________________________________________________________
Total ongoing charges
The total annualised ongoing charges for the period to 30 June
2019:
1.7%
Please refer below for further detail of the calculation of
ongoing charges.
Interim dividend
(2018: 1.6p)
1.8p
Interim dividend of 1.8p per Ordinary share to be paid on 25
October 2019. 2018 interim dividend of 16p per Ordinary share
restated for the ten for one share split completed in May 2019.
______________________________________________________________________________________________________
Top 20 investments as at 30 June 2019:
_____________________________________________________________________________________________________
LTM sales growth
(31 Dec 2018: +25%)
+26%
_____________________________________________________________________________________________________
LTM profit growth
(31 Dec 2018 +27%)
+35%
_____________________________________________________________________________________________________
EV to EBITDA multiple
(31 Dec 2018 17.3x)
19.5x
_____________________________________________________________________________________________________
Debt to EBITDA ratio
(31 Dec 2018 5.6x)
6.3x
_____________________________________________________________________________________________________
These figures are calculated on a value-weighted basis. For
further information on the top 20 portfolio trading data, please
refer below for the Manager's review.
Balance sheet analysis as at 30 June 2019:
_____________________________________________________________________________________________________
Liquid resources
(16% of NAV)
GBP159m
Liquid resources are supported by an undrawn bank facility of
GBP80 million.
_____________________________________________________________________________________________________
Outstanding commitments
(35% of NAV)
GBP341m
Commitments will be drawn down over the next two years
(2019-2021), an average cash outflow of c. GBP170 million p.a.
The Company can opt out of a new investment without penalty,
should it not have the cash available to invest.
_____________________________________________________________________________________________________
Continued portfolio activity over the first half of 2019, with
further investments and liquidity events expected in the second
half of 2019.
_____________________________________________________________________________________________________
Cash realised for the benefit of the Company
GBP65m
_____________________________________________________________________________________________________
Cash invested on behalf of the Company
GBP107m
_____________________________________________________________________________________________________
For further information on investment and realisation activity
over the period, please see below.
Historical total return performance
Both the Company's share price and net asset value per share
have continued to outperform the FTSE All--Share Index.
One Three Five Ten Twenty
Six months
to 30 June
2019 year years years years years
% % % p.a. % p.a. % p.a. % p.a.
------------------------------------- ----------- ------- --------- --------- --------- ---------
Share price 22.5 13.9 25.0 20.2 13.7 14.6
----------- ------- --------- --------- --------- ---------
NAV per share 13.9 20.2 19.0 18.1 13.5 13.5
----------- ------- --------- --------- --------- ---------
FTSE All--Share Index 13.0 0.6 9.0 6.3 10.3 5.1
------------------------------------- ----------- ------- --------- --------- --------- ---------
Share price performance relative to
the FTSE All--Share Index +9.5 +13.3 +16.0 +13.9 +3.4 +9.5
------------------------------------- ----------- ------- --------- --------- --------- ---------
NAV per share performance relative
to the FTSE All--Share Index +0.9 +19.6 +10.0 +11.8 +3.2 +8.4
------------------------------------- ----------- ------- --------- --------- --------- ---------
Based on the Company's share price at 30 June 2019 and allowing
for all historic dividends being reinvested, an investment of
GBP1,000 made twenty years ago would now be worth GBP15,292, a
total return of 1,429%. An equivalent investment in the FTSE
All-Share Index would be worth GBP2,709.
Chairman's statement
Over the twelve months to 30 June 2019, the top 20 companies,
that make up 88% of our portfolio by value, reported sales growth
of 26% and EBITDA growth of 35%. These are the strongest trading
figures we have ever reported and evidence the quality of the
businesses we own.
Company performance in the first half
In the first half of 2019, the Company delivered a total return
in net asset value per share of 13.9% with the NAV per share
reaching a new high of 242 pence per share (after the payment of a
final dividend in respect of 2018 of 3 pence).
Our share price also reached a new high of 225 pence per share
over the period, closing on 30 June at 216 pence, a total return of
22.5%.
The total NAV of the Company at 30 June reached GBP975 million,
an increase of GBP170 million over the previous year-end, after the
payment to shareholders of GBP11 million in final dividends,
including the proceeds of the share issue in June.
The long-term performance of the Company continues to be
outstanding. A shareholder who invested GBP1,000 twenty years ago
(and reinvested all dividends) would today have an investment
valued at GBP15,292; an equivalent investment in the FTSE All Share
Index would be worth GBP2,709.
Share-split
Shareholders will be aware that, in late May, we completed the
share-split announced earlier in the year; this resulted in each
shareholder holding ten new shares for every share held previously.
As a result, of course, the net asset value and market price of our
shares were reduced by a factor of ten. In the commentary set out
in this announcement, all historic figures presented on a per share
basis have similarly been adjusted to provide appropriate
comparisons.
There were several reasons for carrying out this share-split.
The first was that, following more than a decade of growth in net
asset value, far exceeding that of the listed market as a whole,
our share price had reached a level of over GBP21 per share. This
can be inconvenient for some investors, especially private
shareholders wishing to invest smaller sums, but also for many
institutional investors where they need to allocate shares to a
large number of separate accounts. In the period that followed, our
belief that this share-split would generate new interest in the
Company's shares, and help create a more liquid market, was borne
out.
Dividend
The Company is managed to achieve growth in net asset value and
share price, rather than to generate a specific level of dividend.
The income available to pay dividends in any accounting period is a
result of the capital structure adopted for holding our investments
and income earned on our liquid resources awaiting deployment; it
can also be affected by valuations of individual holdings.
Following the share-split, the Board has declared an interim
dividend of 1.8 pence per share, increased from the level of 1.6
pence per share last year. Long-term investors who hold the
Company's shares for growth in capital value can participate in our
Dividend Reinvestment Plan ('DRIP'), under which dividends are
automatically applied to buy additional shares; details of this are
further on page 71 of the full Interim Report and Accounts.
Share issue
With a market capitalisation of GBP868 million, the Company has
been a member of the FTSE 250 since October 2018. We believe this
better positions our shares for retail investors and index funds,
helping to support the share price which has recently traded at a
premium to net asset value.
The Board took this opportunity to make a placing of new shares
in June, raising GBP63 million in new equity. This will help to
underpin the new commitments that the Board anticipates making in
the coming months to invest alongside the next generation of Hg
funds and co-investments. The share issue also helps consolidate
the Company's position in the FTSE 250, attracting more new
investors, broadening the share register and further improving
liquidity in the trading of the Company's shares.
We were pleased that so many of our long-term shareholders, who
had previously felt constrained by the size of their holdings
relative to market capitalisation, supported the issue. We were
also pleased to see Partners and staff of Hg making substantial
investments in the Company, in addition to the commitments they
already had made to invest through the Manager's limited
partnership funds. Partners and staff of Hg now hold approximately
13 million shares, representing over 3% of the Company. This
reinforces the alignment of interest between the Manager and our
shareholders, and I should point out is in addition to the
substantial commitments the Partners and staff of Hg make to each
vintage fund that Hg raise (typically 2% of the total funds
raised).
Portfolio performance
The appreciation achieved in the first half of 2019 reflected
further strong growth in sales and earnings across the businesses
we own. Over the twelve months to 30 June 2019, the top 20
companies, that make up 88% of our portfolio by value, reported
sales growth of 26% and EBITDA growth of 35%. These are the
strongest trading figures we have ever reported and evidence the
quality of the businesses we own. Two-thirds of the uplift in the
value of the unrealised portfolio (20.4 pence per share) in the
first half-year has come from this growth in profits. In private
equity, to deliver outstanding returns, it is important to avoid
losses as well as invest in winners; 96% by value of our portfolio
stands above its original cost. Our investment is now focused on
software (more than 80% of the portfolio) and services that make
use of technology. Technology companies now form the largest sector
of the global equity markets but opportunities for investors to buy
technology stocks in the UK market are more limited; taken
together, the businesses in which we are invested would form one of
the largest software businesses in Europe and thus we offer UK
investors a rare opportunity to add exposure to this important
sector.
Gains over carrying value on the realisation of investments
contributed GBP14 million (3.5 pence per share) to growth in NAV
and contributed to proceeds of GBP65 million for reinvestment.
Following a strong run of realisations over the previous two years,
only one investment, Foundry, was sold outright in the recent
period but several others were refinanced, allowing the return of
part of our investment without giving up our ownership
interest.
Partial hedging of foreign exchange risk again dampened the
impact of movements in foreign exchange rates, with FX movements
contributing a small net positive contribution of GBP3.8
million.
The analysis of NAV movements and attribution analysis (see
below) set out a breakdown of movements in the NAV and the
underlying investment portfolio.
The Board has decided that it will be in shareholders' interest
to update the valuations of investments more frequently.
Accordingly, with effect from this autumn, we will introduce
valuations as at 31 March and 30 September; an updated NAV will
therefore be published in early May and early November each year.
These will be published on the Company's website and through the
regulatory news service: no additional printed reports will be
issued.
New Investments
We made investments totalling GBP100 million in three new
companies, in Germany, North America and Belgium, and follow-on
investments into several others. All the recent investments have
many similarities to prior Hg investments and are in Hg's existing
'clusters', solving workflow problems and serving the needs of
similar business customer sets in comparable end markets.
Even when multiples on acquisitions are relatively high we can
grow our portfolio through bolt-on acquisitions by companies we
already own. These are often identified by the Manager before the
initial acquisition and can be made at significantly lower
multiples; seven companies in the portfolio made substantial
bolt-on acquisitions during the half-year, with some such as Visma,
IRIS and Sovos, making multiple acquisitions in the period.
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 and anticipates maintaining between 10%
and 15% of NAV in this strategy.
Governance
Given that the Company invests in unquoted companies, we have
tried to set new standards in transparency; as private equity
transactions can be complex, we have always focused on the clarity
of our reporting; and we have ensured that our valuations are
rigorous.
The Board pays constant attention to its governance of the
Company, taking care to apply best practice in ways that reflect
the particular characteristics of the Company and its investment
strategy.
Published codes of corporate governance are drafted for use
across the market as a whole by many different types of businesses
operating with different business models and in different sectors.
As a Board, we endeavour to adopt fully the spirit of these codes,
applying them carefully to the specific needs of our business. By
the nature of private equity investment, the Company makes large,
and long-term commitments to invest, with drawdowns over 4-5 years
into investments that may be held for up to a decade. The
relationship between the Board and the Manager is a long-term
partnership based on the deep understanding and long-term
commitment between them. It is important to refresh the Board
regularly to bring new thinking and challenge. To this end, the
Board has adopted new policies on Board tenure and diversity, in
order to find the right balance of experience, challenge and
diversity of skills and perspective. We expect to recruit new Board
members every 2 or 3 years and aim to maintain an average tenure of
around 5 to 6 years. Our next recruitment is anticipated during
2020, as part of the planning for my own succession as Chairman,
under a process to be led by Anne West, our Senior Independent
Director. In doing so, the Board intends to renew its past efforts
to achieve greater gender diversity within the Board.
______________________________________________________________________________________________________
"The quality of the individual holdings in our portfolio is the
highest the Board can recall, with almost every one of them trading
well."
______________________________________________________________________________________________________
Prospects
We have started discussions with Hg about the commitments the
Board will make to invest across the next 4 to 5 years, starting in
2020, by which time the existing commitments will have largely been
drawn down. We will make further announcements about this in due
course.
While market valuations in our target sectors continue to be
high, relative to more traditional industries, the rates of growth
that are being achieved justify higher multiples. Hg continues to
be able to identify businesses that can grow strongly, and at
profitable margins, and to attract management teams who can see the
opportunities to grow their businesses. Deep sector knowledge built
up over many years, and the reputation that this has created,
enables Hg to plan bolt-on strategies that add to growth, often
reducing the overall multiple at which an investment has been made.
While a correction in global equity markets, due to uncertainties
around politics and trade continues to look likely, the Board
believes our sector and approach to management offers a high degree
of protection, as they did in 2008-9.
We continue to monitor the continuing uncertainties around when
and how Brexit will be completed, and the new trading relationships
between the UK and the European Union; but we agree with the
Manager's analysis that the businesses we own are likely to be
largely unaffected - in particular as software and services are
already outside of the scope of current EU trade agreements.
The quality of the individual holdings in our portfolio is the
highest the Board can recall, with almost every one of them trading
well and fulfilling the Manager's expectations. More than 70% by
value of our investments have been acquired within the last three
and a half years, suggesting that this young portfolio offers
continuing opportunities to add value. Hg's Portfolio Team has been
further strengthened and can now bring to bear a wide range of
sophisticated and practical skills that will enhance the business
and operating models of our businesses and thereby add value.
As the investments are made in distinct clusters that share
characteristics and sectors, valuable experience can also be passed
directly between the businesses. This is a highly productive model
of ownership - sharing expertise but granting to each management
team a high degree of accountability and incentives tied solely to
their own performance. This model also encourages the realisation
of businesses when value has been created, sustaining growth in
shareholder value, rather than building a group where Board and
management regard size for its own sake as the objective.
As a vehicle offering exposure to high-growth software and
service businesses, not otherwise available to small institutions
and private investors, HgCapital Trust offers a way to invest
alongside some of the largest institutional investors in the world.
With a young portfolio of very attractive businesses, it continues
to deserve an allocation in the portfolio of long-term investors
seeking growth in value.
Roger Mountford
Chairman
6 September 2019
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.
Commitment Strategy
The Company employs a commitment strategy to ensure that the
Company's balance sheet is managed efficiently. The level of
commitment 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 that 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 the potential for accelerating
the growth in value through a private equity approach. 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 a Board of
independent Directors.
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 31 companies (as set
further below on this Announcement), 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' or
'Hg'). Further details of the terms of the management agreement are
set out further below in this Announcement. The Manager invests
predominantly in unquoted software and service businesses in
expanding sectors and provides portfolio management support. Hg's
review further below in this Announcement 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 it 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 an Hg Limited Partnership
Fund. Such commitments are normally drawn down over three to four
years. The institutional investors and the Company invest on
substantially identical terms.
The Company is usually the largest investor in each business.
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 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; the resources and sustainability of
the 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' interest 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 this
Announcement. In the six months to 30 June 2019, the Company's NAV
per share increased by 13.9% on a total return basis. In
comparison, the FTSE All--Share Index increased by 13.0% on a total
return basis. The six month total return of the Company's share
price was 22.5%.
NAV per share has grown by 13.5% p.a. compound over the last ten
years and 13.5% p.a. compound over the last twenty years. The share
price has seen broadly similar performance growing by 13.7% p.a.
compound over the last ten years and 14.6% 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
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 below.
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 2018. A detailed
explanation of the risks summarised below can be found on pages 16
to 18 of the 2018 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 2018 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 6 September 2019.
Roger Mountford
Chairman
6 September 2019
Hg's review
Building businesses that change how we all do business
Hg is an investor predominantly in unquoted software and service
businesses.
Our business model combines deep sector specialisation with
dedicated portfolio management support. Hg invests in growth
companies in expanding sectors, primarily 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 Announcement to the 'portfolio',
'investments', 'companies' or 'businesses', refer to a number of
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'), HGT Mercury 2
LP, HGT Saturn LP and HGT Transition Capital 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, alongside other institutional investors; 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, alongside other
institutional investors.
Hg Pooled Management Limited was authorised as an Alternative
Investment Fund Manager with effect from 22 July 2014.
For further details, refer to pages 122 to 124 of the 2018
Annual Report.
About Hg
_____________________________________________________________________________________________________
Years of investing
>25
_____________________________________________________________________________________________________
Staff
>170
_____________________________________________________________________________________________________
Investment professionals
>90
_____________________________________________________________________________________________________
Funds under management
>GBP10bn
_____________________________________________________________________________________________________
Overview
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 software and services
space.
With investment offices in London, Munich and New York and over
170 employees, including more than 90 investment professionals,
further enhanced by the considerable experience of close to 20
Operating Partners, we have funds of more than 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.
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 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 a Board of
independent Directors and corporate governance. The Company is
committed to invest in parallel with all of Hg's current funds.
One strategy over four funds across the size range in software
and service businesses
Fundraising activity has seen Hg close on c. GBP4.5 billion of
institutional capital in the last three years, across four distinct
funds. The Company has made commitments to invest on the same
financial terms as institutional investors in all of these Hg
funds.
Team Year Focus Characteristics
-------------- ----- ---------------------------- ----------------------------------
Hg Saturn 2018 Large--cap -- Fund size: GBP1.5 billion
(EVs focus: >GBP1 billion) -- Typical hold: GBP400
million - GBP500 million
-- Target number of investments:
c. 4
-------------- ----- ---------------------------- ----------------------------------
Hg Genesis(1) 2017 Mid--market -- Fund size: GBP2.5 billion
(EVs: GBP250 million - -- Typical hold: GBP100
GBP1 billion) million - GBP250 million
-- Target number of investments:
c. 12
-------------- ----- ---------------------------- ----------------------------------
Hg Mercury 2017 Lower mid--market -- Fund size: GBP575 million
(EVs: GBP50 million - -- Typical hold: GBP30 million
GBP250 million) - GBP60 million
-- Target number of investments:
c. 12
-------------- ----- ---------------------------- ----------------------------------
Transistion 2018 Lower mid--market -- Fund size: GBP75 million
Capital(2) (EVs: GBP50 million - -- Typical hold: GBP15 million
GBP250 million) - GBP30 million
-- Target number of investments:
c. 3
-------------- ----- ---------------------------- ----------------------------------
(1) The Genesis team are currently working on investing the Hg8 fund.
(2) The Company is the sole investor in this strategy.
---------------------------------------------------------------------------------------
"We focus our investments in software and service 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
______________________________________________________________________________________________________
Investment strategy
Hg has a flexible approach to investing, primarily focused on
defensive growth buyouts in software and service businesses in
specific end--market 'clusters' with enterprise values ('EVs') of
GBP50 million to over GBP5 billion predominantly, but not
exclusively, in the UK and Northern Europe.
These companies typically provide opportunities for strategic
and operational improvement and 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 such companies have the potential for
significant performance improvement.
The 'Hg sweet-spot' business model
A clear and robust business model focused on long--term
consistent growth predominantly through investment in buyouts with
a Northern European angle.
Sector specialists in software and services
Our experience means we can recognise the specific challenges
faced by management teams and the know--how required to support
them to deliver business success.
We specialise in investing in software and service businesses
focused on eight core end markets (or 'clusters'), with enterprise
values of between GBP50 million and more than GBP5 billion. Hg
offers a deep level of understanding and expertise in these
businesses.
We invest primarily in two main market sectors:
Software
Software is our largest sector of investment. We focus on
businesses providing B2B vertical market application software and
data, regulatory software and fintech and internet
infrastructure.
We have invested in high--quality, market leaders which have
strong sector reputations, diverse customer bases, and which
feature subscription--based business models generating predictable
revenues and cash flows. With more than 25 software investments in
our portfolio, we bring a unique set of networks and insights to
help support value creation in our businesses.
Services
Our services investments focus on companies with high levels of
intellectual property, large fragmented customer bases, long--term
and stable customer relationships, and businesses which provide
business--critical services, preferably on a repeat or recurrent
basis.
We target businesses with strong reputations within a niche, and
we aim to grow and scale these businesses, either organically
within existing markets or through acquisitions.
We primarily focus on eight core end markets to build deep
know--how
Cluster Portfolio
------------------------------------ -----------------------------------------------
Tax & Accounting TeamSystem, Visma, Sovos, Cogital Group,
15 years IRIS
------------------------------------ -----------------------------------------------
ERP & Payroll TeamSystem, P&I, Visma, Access, IRIS,
15 years Transporeon
------------------------------------ -----------------------------------------------
Legal & Regulatory Compliance Achilles, Trace One, STP, Citation, Mitratech,
12 years Litera Microsystems
------------------------------------ -----------------------------------------------
Automotive Eucon, Mobility Holding
11 years
------------------------------------ -----------------------------------------------
SME Tech & Services Commify, Register, IT Relation, team.blue
9 years
------------------------------------ -----------------------------------------------
Capital Markets & Wealth Management FE Fundinfo
IT
6 years
------------------------------------ -----------------------------------------------
Insurance A-Plan, Eucon
6 years
------------------------------------ -----------------------------------------------
Healthcare IT Evaluate, Allocate, Medifox, Rhapsody
5 years
------------------------------------ -----------------------------------------------
Tech Sector Insight
Software at the All-You-Can-Eat Buffet
In the eight years following Marc Andreessen's seminal Wall
Street Journal article 'Why Software Is Eating The World',
technology has continued its onward march and is now the single
largest sector by market value in the US, having been the smallest
just 25 years ago.
After such a strong run for the technology industry and its
investors, why are we still so excited about the opportunity for
software and services?
At Hg, we see generationally sustained secular trends, driving
and shaping technology spend and the accompanying investment
landscape.
In particular we observe four important trends:
1 Rising labour costs driving accelerating software and services
spend and specialisation;
2 Hardware productivity growth (Moore's Law) releasing spend for
software and services;
3 Cloud reducing friction, accelerating growth, and moving spend
to software;
4 'Private for longer' trend compounding growth of the
opportunity pool.
At the all-you-can-eat buffet of software opportunity, we are
still on the first course. Our undiminished excitement for the
investment road ahead is supported by strong evidence for the scale
of opportunity, fuelled by economic development, and catalysed by
growth in hardware capacity. Cloud technologies ease the sales and
implementation process further, with lower friction benefiting both
customers and vendors.
Finally, from a PE perspective, the growing relative
attractiveness of private markets helps drive these investment
opportunities in our direction, at valuations that are consistent
with the broader market.
For the full insight, please go to
hgcapital.com/insight/software-at-the-all-you-can-eat-buffet
Working together
By virtue of the fact that Hg repeatedly invests in specific
business models, our dedicated Portfolio Team has been able to
tailor a differentiated approach to driving value creation during
our ownership. Following each investment, our Portfolio Team works
with the management of our investee companies to focus on a set of
operational levers that are key to performance in an 'Hg
sweet-spot' business model: sales, digital marketing, value
optimisation, customer success, IT, data analytics and talent. For
each of these levers, the Portfolio Team has codified the Hg
experience and best--practices into set 'plays' that are deployed
in collaboration with management.
Every company gets full access to the team up--front, but the
nature of support can take a variety of forms. Often, members of
our Portfolio Team provide direct support, taking on roles to help
the company pursue growth more quickly. Other times, our
experienced operators will mentor senior executives, helping them
build more scalable functions (through our Operating Partner
relationships). In other instances, most of the support comes
through introducing management teams to their counterparts in other
companies that Hg invests in, specifically those who have faced the
same challenges.
One of the most powerful ways the Portfolio Team motivates
change is through peer--to--peer collaboration. In 2018, over 700
portfolio company executives attended 14 forums hosted by Hg. These
executives spent time together sharing and adopting each other's
best practices. For example, at these Hg forums, Allocate explained
how they achieved a tremendous step forward in Customer Success,
Visma explained how to build in--house capabilities to complete and
integrate 20 acquisitions a year and Sovos presented a methodology
to hire and retain the very best technology talent. In addition, we
also hosted a diversity forum, specifically focused on rising
female leaders in our portfolio companies.
______________________________________________________________________________________________________
"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
______________________________________________________________________________________________________
Collaboration
To enable the continued collaboration across the portfolio, Hg
launched 'Hive', its online trusted environment, in 2018. Hive far
exceeds the capabilities that any other private equity firm
currently offers to its portfolio. With 15 live communities and
over 1000 members, peer--to--peer collaboration is unparalleled.
Individuals are able to pose questions, start discussions, share
and collaborate on content, and have access to best practice
methodologies from world--class experts. This is a clear
differentiator in the market.
For further information, please visit hive.hgcapital.com
Working together
Hg hosts a number of targeted functional forums across the year
where the management teams of our portfolio companies have the
ability to exchange ideas, insights, share best practice and
learnings with others in the Hg portfolio.
Over 2019, we will host 15 forums and will welcome over 800
portfolio employees at forums covering Data Analytics, Sales,
Marketing, Women in Leadership, Product and HR & Talent,
bringing together the portfolio and our external network of
experts.
______________________________________________________________________________________________________
"...a truly inspirational day."
Sophia Ramsbottom, Marketing Manager at Citation
______________________________________________________________________________________________________
A Path to Power: Hg's Women in Leadership Forum
Pricing Forum
Building the Revenue Engine: Hg's Sales & Marketing
Forum
AI in the Real World: Hg's CIO & CTO Forum
HR & Talent
From Chaos to Order: Hg's Data Analytics Forum
The Product of Understanding: Hg's Product Forum
Hg CEO and Chair Forum
For further information, please visit
hgcapital.com/hg-insights/
______________________________________________________________________________________________________
" By continuing to invest in our people and our expertise, we
are able to work with the best management teams in our target
clusters and actively help them to build great businesses"
Steven Batchelor, Chief Operating Officer, Hg
______________________________________________________________________________________________________
Our team
Hg succeeds through the analysis and understanding of new and
emerging dynamics in the clusters in which it invests. This
requires profound knowledge of technology, markets and business
practices. To this end, we employ diverse and exceptionally
talented teams to identify and execute investment opportunities and
accelerate value creation during our ownership.
This specialisation - both in investment selection and portfolio
management - requires significant resources and we have built a
business employing 170 people, including over 90 investment
executives, and other professionals supported by a team of close to
20 operating partners.
Our investment and portfolio executives come from a range of
backgrounds and experience including private equity, consulting,
investment banking, accounting and industry specialists. Our
Portfolio Team is comprised of a mix of senior operators and
functional specialists, who typically have many years of experience
in their respective specialist operational and strategic roles.
Supporting these in--house resources are Hg's Operating Partners, a
complementary group of senior and experienced managers. In
addition, 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 sixteen European countries and the USA. Our Partners
have, on average, fifteen 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 strong brand, leadership, sector focus, fund
performance and vibrant culture, allows us to attract and hire the
best talent in our industry.
Improving our ability to identify talent
We have enhanced our talent processes so that we can identify
and accelerate the development of our top performers and high
potential talent within the business. We believe that this is the
basis of effective career and 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 and reward
structures.
Hg works hard to ensure our employees are engaged. We use
independent external benchmarks to gauge levels of engagement and
take appropriate actions to ensure highest possible levels of
engagement.
We have a strong focus on career and personal development and
provide a range of development opportunities to enable our talent
to reach their full potential and perform at their best.
Developing future leaders
We are explicit about the behaviours we wish to encourage at Hg
and have aligned recruitment, training, coaching, performance and
rewards to our values - for everybody across the organisation,
including our leadership.
A description of Hg's key staff is available at
www.hgcapital.com/meet-us/
Level 20
Level 20 is a not--for--profit organisation that was started a
few years ago with the aim of inspiring more women to join and
succeed in the European private equity industry. Nic Humphries,
Senior Partner, Hg, is a member of the Level 20 Advisory
Council.
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 whose funds are invested with Hg.
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 define 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. All businesses get a score from 1 - 10 (10 being the best)
and a list of opportunities to consider. In 2018, the average score
across the portfolio was 8.6. This is a good reflection of the
performance of our companies and demonstrates the low level of
inherent ESG risks across the sectors and geographies we invest
in.
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 to prioritise ESG topics and agree an action plan.
-- We conduct an annual ESG assessment 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.
A signatory to the UNPRI since 2012. AA+ 2019 PRI Assessment
Score: 'A+' for Strategy & Governance, and 'A+' for PE
For more information, please go to
www.hgcapital.com/responsibility
To watch the video, please go to
hgcapital.com/responsibility/
Foundry
Case study: Creating a highly innovative segment leader in the
film post-production VFX (visual effects) software space
Hg first invested in Foundry in 2015, a business with an
excellent reputation in its industry, particularly within the film
post production VFX (visual effects) software space and a track
record of growth - both organically and through product
acquisition.
website: www.foundry.com Investment sector: Software Location:
United Kingdom
About Foundry
Foundry has been developing creative software for the Digital
Design, Media and Entertainment industries for over 20 years. Its
products are used to create visual effects sequences on a wide
range of feature films, video-on-demand, television and
commercials.
Foundry's clients and partners include major feature film
studios and post-production houses such as Pixar, ILM, MPC, Walt
Disney Animation, Weta Digital, DNEG, and Framestore as well as
automotive, footwear, apparel and technology companies such as
Mercedes, New Balance, Adidas and Nike.
Founded in 1996, Foundry is headquartered in London, with 300
staff and a presence in the US, China, Japan, Australia and
Europe.
Why did we invest in Foundry?
In May 2015, at the time of Hg's investment in Foundry, the
business had an excellent reputation in its industry, particularly
within the film post-production VFX (visual effects) software space
through its NUKE product range and a series of related products.
Foundry had a track record of growth - both organically and through
product acquisition. Moreover, the end market was exposed to
powerful secular growth drivers and was projected to continue to
grow at c.3x GDP (7%+ CAGR).
The investment process
The Genesis team partnered with Foundry via Hg7 in May 2015. The
investment thesis for the business was centred around
professionalising a founder-run business, continuing to grow the
profitable and industry-leading core media business, transitioning
a collection of small loss-making products to profitability and
driving M&A consolidation in a fragmented sector.
The investment was originally acquired for a consideration of
GBP154 million, of which the Company's share was GBP15.2 million,
at an enterprise value of GBP200 million.
______________________________________________________________________________________________________
"Hg has been a great partner to Foundry over the last few years,
helping us to evolve from a number of category-leading products
into a truly cloud-enabled platform positioned for growth across
industry segments and geographies."
Craig Rodgerson, CEO, Foundry
How did we support them and create value?
The CEO of Foundry retired post-investment and Hg took the
opportunity to strengthen the management team by recruiting a new
CEO, CFO and Head of Sales, Marketing and Design, complementing the
incumbent COO, CTO, as well as promoting a new Head of
Engineering.
The new management team, especially the CEO, transformed Foundry
from a fragmented range of products into a coherent platform,
offering cutting-edge solutions across both Media &
Entertainment ('M&E') and Design.
Under Hg's ownership, Foundry developed blue-chip customers in
Design, scaled Katana (its second key M&E product) and
introduced Athera, the first fully cloud-based solution for the
M&E sector. The new CEO revitalised Foundry's sales and oversaw
a subscription transition within the Modo product.
These changes had a profound impact on the company and drove a
major improvement in the quality of earnings during Hg's ownership.
Foundry's recurring revenue increased from 38% in 2014 to c.70% at
exit, with the business generating a 108% Net Recurring Revenue
('NRR'). Recurring revenue grew at an 18% CAGR, while operating
leverage drove EBITDA margins north of 40% and underlying cash
conversion improved to c.100%.
Throughout the course of Hg's investment in Foundry, it
succeeded in building a strong management team, improving the
go-to-market strategy, shutting down loss making products and
transforming a fragmented set of products into a coherent platform
across both divisions.
How did we realise the value?
In March 2019, Hg agreed the sale of Foundry to US listed trade
buyer Roper Technologies (NYSE ROP) - sourced by Hg - for an EV of
GBP414 million and an overall return of 2.1x original cost and a
22% gross IRR.
This represented an uplift of nearly 80% on the investment's
prior book value and values the company at 23.3x FY18A EBITDA.
2.1x Investment return multiple of cost
22% p.a. Gross IRR
Review of the period
Net asset value (NAV)
Over the first six months of 2019, the NAV of the Company
increased by GBP170 million, from GBP805 million to GBP975 million
at 30 June 2019.
Attribution analysis of movements in NAV
Revenue Capital Total
GBP'000 GBP'000 GBP'000
------------------------------------------------ ---------- ---------- ----------
Opening NAV as at 1 January 2019 30,554 774,433 804,987
Realised capital and income proceeds
from investment portfolio in excess of
31 December 2018 book value 928 13,277 14,205
Net unrealised capital and income appreciation
of investment portfolio 15,067 108,976 124,043
Net realised and unrealised gains from
liquid resources 959 703 1,662
Net proceeds from share issue - 63,157 63,157
Dividend paid (11,197) - (11,197)
Expenditure (2,472) (1,452) (3,924)
Taxation - - -
Investment management costs:
Priority profit share - current period
paid (5,431) - (5,431)
Priority profit share - reallocation
between revenue and capital (1,618) 1,618 -
Carried interest - current period provision - (12,371) (12,371)
------------------------------------------------ ---------- ---------- ----------
Closing NAV as at 30 June 2019 26,790 948,341 975,131
------------------------------------------------ ---------- ---------- ----------
Analysis of NAV movements
There were a number of underlying factors contributing to the
increase in the NAV. Positive impacts were the GBP124.0 million
revaluation of the unquoted portfolio and uplifts of GBP14.2
million on the realisation of investments compared with their
carrying value at the start of the year.
The share issue in June 2019 contributed GBP63.2 million.
Reductions in the NAV included: the payment of GBP11.2 million of
dividends to shareholders and Hg's remuneration (GBP5.4 million and
a GBP12.4 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 2019
------------------------------------------------ ---------------
Visma (1) 32.7
Sovos Compliance (2) 15.2
Foundry (sold) 12.5
IRIS (3) 10.6
Access (4) 10.3
CogitalGroup (6) 8.7
Other 7.4
Citation (17) 6.0
Register (11) 5.4
Rhapsody (16) 4.5
FE fundinfo (13) 3.5
IT Relation (12) 3.5
Mobility Holding (7) 3.4
A-Plan (14) 2.8
TeamSystem (20) 2.8
Transporeon (5) 2.7
Allocate Software (18) 2.4
P&I (23) 2.4
EidosMedia (24) 1.6
Commify (9) 1.2
Mitratech (10) (1.5)
------------------------------------------------ ---------------
Attribution analysis of movements in the value of
investments
During the period, the value of the unrealised investments
increased by GBP124.0 million, before the provision for carried
interest. Much of the increase (GBP82.1 million) relates to
increases from profit growth in the underlying investments and
GBP69.8 million from increased ratings.
Acquisitions net of realisations at carrying value added GBP56.7
million. This was partially offset by an increase in net debt of
GBP32.7 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 2019
The top 20 investments of the Company (representing 88% of total
investments by value) have delivered strong sales growth of 26% and
EBITDA growth of 35% over the last twelve months ('LTM').
The business model characteristics of these companies give us
confidence that this double digit growth can be achieved
consistently going forward.
80% of the top 20 businesses we are invested in are seeing
double digit revenue growth, and 88% of the portfolio has delivered
double digit EBITDA growth over the last twelve months.
Profits have grown at a faster rate than revenues. Investments
made over the last few years 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,
continues to bear fruit.
We have seen robust and consistent double--digit trading
performance from the majority of the portfolio including: FE
fundinfo, Access, Register, Visma, IRIS and Sovos in the software
sector; and Citation, CogitalGroup, and A--Plan in the services
sector.
Of the smaller investments, TeamSystem, P&I, Medifox and
EidosMedia are all trading well. Whilst new to the portfolio,
Litera and Transporeon have seen a good start to their partnership
with Hg.
In June 2019, we took the decision to write down Mitratech, 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: +26%
Number of investments % of top 20 portfolio
LTM Sales within associated by value within
Growth rates GBP million band associated band
------------------ ------------- ---------------------- ----------------------
<0% p.a. 74 1 3%
0% to <10% p.a. 410 5 17%
10% to <20% p.a. 826 5 29%
>20% p.a. 2,348 9 51%
------------------ ------------- ---------------------- ----------------------
Top 20 LTM profit growth: +35%
Number of investments % of top 20 portfolio
LTM EBITDA within associated by value within
Growth rates GBP million band associated band
------------------ ------------- ---------------------- ----------------------
<0% p.a. 30 1 3%
0% to <10% p.a. 69 4 9%
10% to <25% p.a. 276 7 37%
>25% p.a. 632 8 51%
------------------ ------------- ---------------------- ----------------------
Valuation and gearing analysis as at 30 June 2019
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
19.5x.
There remains a continued shift in the mix of the portfolio to
higher growth businesses, in particular in the software 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 20x (Transporeon, Visma, Litera,
Access, IRIS, Sovos and TeamSystem).
All have attractive business models, are growing strongly and
generating cash, and are in demand from investors.
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 2019, 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 6.3x 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 A-Plan,
Sovos and team.blue as detailed below.
Top 20 EV to EBITDA valuation multiple: 19.5x
Number of investments % of top 20 portfolio
EBITDA within associated by value within
Growth rates GBP million band associated band
----------------- ------------- ---------------------- ----------------------
<14.0x p.a. 219 6 18%
14.0x to <17.0x
p.a. 126 5 15%
17.0x to <20.0x
p.a. 54 2 5%
20.0x to <22.0x
p.a. 320 4 26%
>22.0x 330 3 36%
----------------- ------------- ---------------------- ----------------------
Top 20 net debt to EBITDA ratio: 6.3x
Number of investments % of top 20 portfolio
Debt within associated by value within
Growth rates GBP million band associated band
--------------- ------------- ---------------------- ----------------------
<4.0x p.a. 240 4 12%
4.0x to <6.0x
p.a. 1,831 3 31%
6.0x to <7.0x
p.a. 1,799 5 15%
7.0x to <8.0x
p.a. 1,463 5 19%
>8.0x 1,415 3 23%
--------------- ------------- ---------------------- ----------------------
Outstanding commitments of the Company
The period ended with liquid resources of GBP159 million,
supported by an undrawn bank facility of GBP80 million. Outstanding
commitments as at 30 June 2019 were GBP341 million, as listed
below. We anticipate that the majority of these outstanding
commitments will be drawn down progressively over the next two
years and are likely to be partly financed by future cash flows
from realisations.
Additionally, the Board has negotiated a right for the Company
to opt out of its obligation to fund any investments, without
penalty, if it does not have the resources to do so.
Fund Fund Original Outstanding commitments Outstanding commitments
vintage commitment as at 30 June as at 31 December
GBP'million 2019 2018
----------------------------- ---------- -------------
GBP'million % of NAV GBP'million % of NAV
----------------------------- ---------- ------------- -------------- ---------- -------------- ----------
Hg8 2018 350.0 146.9 15.1% 247.9 30.8%
---------- ------------- -------------- ---------- -------------- ----------
Hg Saturn 2018 150.0 71.7 7.4% 92.4 11.5%
---------- ------------- -------------- ---------- -------------- ----------
Transition Capital 2018 75.0 59.2 6.1% 59.5 7.4%
---------- ------------- -------------- ---------- -------------- ----------
Hg Mercury 2 2017 80.0 42.1 4.3% 49.8 6.2%
---------- ------------- -------------- ---------- -------------- ----------
Asper RPP II 2010 35.8(1) 6.5 0.7% 6.5 0.8%
---------- ------------- -------------- ---------- -------------- ----------
Hg7 2013 200.0 5.3 0.5% 5.5 0.7%
---------- ------------- -------------- ---------- -------------- ----------
Hg6 2009 285.0 3.8 0.4% 3.8 0.5%
---------- ------------- -------------- ---------- -------------- ----------
Hg Mercury 1 2011 60.0 3.0 0.3% 3.2 0.4%
---------- ------------- -------------- ---------- -------------- ----------
Pre-Hg6 vintage pre-2009 120.0(2) 1.3 0.1% 1.3 0.2%
---------- ------------- -------------- ---------- -------------- ----------
Asper RPP I 2006 19.4(3) 0.6 0.1% 0.7 -
---------- ------------- -------------- ---------- -------------- ----------
Hg6E 2009 15.0(4) 0.2 - 0.2 -
----------------------------- ---------- ------------- -------------- ---------- -------------- ----------
Total 340.6 35.0% 470.8 58.5%
----------------------------------------- ------------- -------------- ---------- -------------- ----------
Liquid resources(5) 158.8 16.3% 156.5 19.4%
----------------------------------------- ------------- -------------- ---------- -------------- ----------
Net outstanding commitments
unfunded by liquid
resources 181.8 18.7% 314.3 39.1%
----------------------------------------- ------------- -------------- ---------- -------------- ----------
(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.
(5) Excludes undrawn bank standby facility
Investment portfolio of the Company
Residual
cost Total valuation(1) Value
Fund limited partnerships GBP'000 GBP'000 %
------------------------------------------------ --------- ------------------- -------
Primary buyout funds:
HGT 7 LP 96,091 247,859 30.3%
HGT 7 LP - Provision for carried interest - (40,411) (4.9%)
HGT 8 LP 183,833 211,725 25.9%
HGT LP 77,999 141,479 17.3%
HGT Saturn LP 76,686 105,603 12.9%
HGT Mercury 2 LP 31,111 55,977 6.8%
HgCapital Mercury D LP 23,781 48,135 5.9%
HgCapital Mercury D LP - Provision for carried
interest - (9,665) (1.2%)
HGT 6 LP 14,861 21,864 2.7%
HGT 6 LP - Provision for carried interest - (4,377) (0.5%)
------------------------------------------------ --------- ------------------- -------
Total primary buyout funds 504,362 778,189 95.2%
------------------------------------------------ --------- ------------------- -------
Secondary buyout funds:
HgCapital 6 E LP - 1,151 0.1%
HgCapital 6 E LP - Provision for carried - (230) -
interest
------------------------------------------------ --------- ------------------- -------
Total secondary buyout funds - 921 0.1%
------------------------------------------------ --------- ------------------- -------
Total buyout funds 504,362 779,110 95.3%
------------------------------------------------ --------- ------------------- -------
Transition capital funds:
HGT Transition Capital LP 14,864 15,584 1.9%
------------------------------------------------ --------- ------------------- -------
Total transition capital funds 14,864 15,584 1.9%
Renewable energy funds:
Asper RPP II 21,043 20,962 2.6%
Asper RPP I 5,040 1,881 0.2%
------------------------------------------------ --------- ------------------- -------
Total renewable energy funds 26,083 22,843 2.8%
------------------------------------------------ --------- ------------------- -------
Total investments net of carried interest
provision 545,309 817,537 100.0%
------------------------------------------------ --------- ------------------- -------
(1) Includes accrued income.
Sector by value
86% Software
14% Services
Geographic spread by value
30% UK
26% Scandinavia
19% North America
15% Germany
10% Other Europe
Investment vintage by value
12% 2019
32% 2018
8% 2017
19% 2016
4% 2015
25% pre 2015
Analysis by value of investment return relative to its original
cost(2)
96% Above
4% Below
(2) Excluding carried interest provision.
Investments and realisations
Investments
During the period, Hg has invested a total of GBP690 million on
behalf of its clients, with the Company's share being GBP107
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
Transporeon - GBP42m invested on behalf of the Company,
including GBP6m in co-investment
Transporeon - In March, Hg completed an investment in
Transporeon Group ('Transporeon'), one of the world's leading
cloud--based logistics platforms, via the Hg8 Fund. Founded in 2000
and headquartered in Ulm, Germany, Transporeon connects a global
network of over 1,200 shippers and >90k carriers, enabling them
to source, communicate, collaborate and transact more efficiently,
whilst also helping to lower CO2 emissions by reducing empty
back-haul journeys. This investment represents another example of
Hg's focus on Cloud--based software and network companies,
providing SaaS solutions to the business community.
Litera Microsystems - GBP34m invested on behalf of the
Company
Litera - Litera Microsystems ('Litera') is based in Chicago, New
York and London and provides a leading suite of legal document
productivity applications, delivered as an end-to-end platform to
more than 1,300 organisations across the globe. Litera provides a
suite of best-in-class productivity tools that help customers to
focus on what matters: creating the highest quality documents.
The investment in Litera follows one of Hg's core investment
theses, focused on the secular growth of software suppliers for
business-critical functions in the legal and regulatory compliance
sector. Hg has been actively following this theme for over 15
years, with Litera representing the sixth legal and compliance
business currently in Hg's portfolio, with other current
investments including STP, a leading provider of insolvency and law
practice software in Germany; and Mitratech, a leading global
provider of Enterprise Legal Management ('ELM') software to
corporate legal departments, based in Austin, Texas. Hg's team has
known Litera for several years, recognising it as a business that
solves mission-critical workflows for its customers, leading to
strong recurring revenues and displaying the same growth
characteristics as many others in the Hg portfolio.
team.blue - GBP24m invested on behalf of the Company
team.blue - In March, Hg completed an investment in Combell
Group, now rebranded as
team.blue a mass hosting provider offering web enablement
solutions to SMEs across Europe, via the Hg8 Fund. Established in
1999, team.blue is a leading mass hosting player in Belgium and
Denmark, with growing positions in the Netherlands, Sweden and
Switzerland. team.blue has over 800,000 SME and Small Office/Home
Office ('SoHo') customers and is a one--stop partner for web
hosting, domains, e--commerce and application solutions. This
represents Hg's 8th investment in the technology services sector,
with other recent hosting investments including Zitcom (2015),
Register (2017) and most recently, IT Relation (2018). team.blue
shows similar characteristics to these businesses, having
consistently delivered strong organic revenue growth,
best--in--class customer satisfaction metrics and an exceptional
M&A track record.
______________________________________________________________________________________________________
Further investments in the six months to 30 June
Visma - GBP11m invested on behalf of the Company
Visma - In May, Hg made a further investment in Visma, a leading
provider of business--critical business software to SMEs in the
Scandinavian region via the Hg Saturn Fund. In 2002, Hg 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 150 companies over our ownership period to
become one of today's leading and largest SaaS companies in Europe,
with more than GBP500 million of pure SaaS revenues.
Rhapsody - GBP6m invested on behalf of the Company
Rhapsody - In June, the Hg Mercury 2 Fund completed the
acquisition of Corepoint, a leading US provider of healthcare
integration and interoperability solutions, which will be merged
with Rhapsody, an existing Hg Mercury 2 investment, to create a
leading independent global provider of healthcare interoperability
software. Headquartered in Texas, Corepoint is a well-established
player in the US interoperability segment, with a strong position
in a fragmented and growing sector. The business serves a
diversified customer base including hospitals, third-party OEM
vendors, clinics and laboratories, with low customer concentration,
high customer loyalty and strong recurring revenues.
______________________________________________________________________________________________________
Further investment since the period end
team.blue
team.blue - In September 2019, Hg announced the acquisition of
Register Group by team.blue, a mass hosting provider offering web
enablement solutions to SMEs across Europe. The Company is also
invested in team.blue, in parallel with other institutional clients
of Hg, investing through the Hg8 Fund.
______________________________________________________________________________________________________
Further detail on investments as at 30 June 2019 can be found
below.
To view our press releases, please visit
hgcapitaltrust.com/news-and-media/press-releases/pr-2019.aspx
Realisations
Over the first six months of 2019, Hg has returned a total of
GBP630 million to its clients, including GBP65 million to the
Company.
Whilst exits over the period have been slower in pace than over
the very active prior two years, we continue to look at
opportunities to realise proceeds for our investors.
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
Foundry - GBP28m returned to the Company
Foundry - In April, Hg completed the sale of Foundry, a UK
headquartered leading global developer of high-end visual effects
('VFX') and 3D design software to Roper Technologies Inc., a
leading diversified technology company. Hg invested in Foundry from
the Hg7 fund in 2015, recognising the company as a leading global
provider of vertical market application software, with rich
intellectual property, strong positioning within its business
segments and the potential to enter new market segments. Over the
course of the investment, Hg worked with the company's management
team to broaden Foundry's go-to-market strategy, invest in its
cutting-edge Media & Entertainment product offering and
accelerate the growth of the company's Digital Design division.
The sale of Foundry delivered a 2.1x investment multiple and a
22% gross IRR over the investment period. This transaction resulted
in an uplift of 79% over the carrying value of the business at 31
December 2018.
______________________________________________________________________________________________________
Partial exits in the six months to 30 June
Raet - GBP10m returned to the Company
Raet - As reported in the 2018 full year accounts, last year Hg
agreed to the sale of Raet's operations to Visma. During the
period, GBP10.3 million of deferred proceeds were received in
respect of this investment.
Visma - GBP3m returned to the Company
Visma - In February 2019, Hg completed the part--realisation of
Visma, a leading provider of business--critical software to private
and public enterprises in the Scandinavian region, from the Hg7
Fund, to the Canada Pension Plan Investment Board (CPPIB).
Following completion of this transaction, Hg will remain the lead
investor in Visma alongside some of the world's largest
institutional investors. Together, Visma and its strong investor
base will continue to reinforce Visma's position as a leading SaaS
business in Europe and one of the world's most successful SaaS
companies.
Further exits since the period end
Register
Register - In September, team.blue (formerly Combell Group), a
leading mass hosting business in Belgium and Denmark, announced the
acquisition of Register (formerly DADA), a pan-European mass
hosting company headquartered in Italy. On completion, team.blue
will be the third largest shared hosting business in Europe with
more than 2 million customers across 10 countries.
Asper - An estimated GBP21m returned to the Company
Asper RPP II - In September, the Company agreed the sale of the
Asper RPP II assets to two strategic buyers, as part of a wider
secondary sale process.
Refinancings in the six months to 30 June
A-Plan - GBP14m returned to the Company
A--Plan - In March, the Genesis team completed the refinancing
of A-Plan, a leading independent high--street insurance broker in
the UK. A--Plan has now returned 1.4x the original investment made
in April 2015 to the Hg7 fund.
team.blue - GBP5m returned to the Company
team.blue - In June, team.blue (formerly Combell Group), a a
mass hosting provider offering web enablement solutions to SMEs
across Europe, merged with TransIP, a leading hosting and Virtual
Private Server ('VPS') provider based in the Netherlands.
Subsequently, Hg completed a refinancing of the enlarged business,
repaying a portion of Hg's original loan notes.
Sovos Compliance - GBP2m returned to the Company
Sovos Compliance - In April, Hg completed the refinancing of
Sovos, a leading global provider of tax compliance software
solutions in Hg7. This was driven by strong trading performance,
which has seen Sovos deliver robust double digit revenue and EBITDA
compound growth since acquisition.
Further detail on investments as at 30 June 2019 can be found
below.
To view our press releases, please visit
hgcapitaltrust.com/news-and-media/press-releases/pr-2019.aspx
Summary of investment and realisation activity
Investments made during the period
Company Sector Geography Activity Cost
GBP'000
--------------------- ---------- --------------- ------------------------------------- ------------
Transporeon Software Germany Cloud-based logistics platform 42,377
Provider of legal document
Litera Software North America applications 34,284
European hosting services for
team.blue Software Belgium SMEs 23,539
--------------------- ---------- --------------- ------------------------------------- ------------
New investments 100,200
----------------------------------------------------------------------------------------- ------------
Provider of business software
Visma Software Scandinavia to SMEs 10,877
Software provider to the healthcare
Rhapsody Software North America sector 6,356
Other 2,164
Global provider of tax compliance
Sovos Compliance Software North America software solutions (12,332)(1)
--------------------- ---------- --------------- ------------------------------------- ------------
Further investments 7,065
----------------------------------------------------------------------------------------- ------------
Total investments on behalf of
the Company 107,265
-------------------------------------------------- ------------------------------------- ------------
(1) Figure is negative due to a refinancing which is accounted
for as a reduction of original cost if completed with 18 months of
original acquisition.
Realisations made during the period
Company Sector Exit route Proceeds(2)
GBP'000
-------------------------------- -------------- ---------------- ------------
Foundry Software Trade sale 28,227
Full realisations 28,227
------------------------------------------------------------------ ------------
A-Plan Services Refinancing 13,615
Raet Software Secondary sale 10,307
team.blue Software Refinancing 5,374
Visma Software Partial sale 2,510
Sovos Compliance Software Refinancing 2,025
Other 2,741
------------------------------------------------------------------ ------------
Partial realisations 36,572
------------------------------------------------------------------ ------------
Total proceeds from realisations received
by the Company 64,799
------------------------------------------------ ---------------- ------------
(2) Includes gross revenue received during
the period ended 30 June 2019.
Hg's outlook
Strong trading from the unrealised portfolio, realisations at
uplifts to carrying value, refinancing activity and the continuous
improvement of businesses we back should continue to drive value
for shareholders in HgCapital Trust plc.
Realisations
Over the first half of 2019, Hg has returned over GBP600 million
to clients through the sales of Foundry and Raet, a partial sale of
Visma and additional returns from the refinancings of A-Plan, Sovos
and team.blue.
This realisation activity has continued to demonstrate the
attractiveness of 'Hg's sweet-spot' business model investments to
both trade and financial buyers, as most recently evidenced by the
sale of Foundry to Roper Technologies Inc., which completed in
April 2019.
Going forward we will continue to focus on opportunities to
crystallise value across our portfolio, with further exit and
refinancing processes currently underway.
Investments
We have an active pipeline of investments which has been
demonstrated over the first six months of 2019 with the
acquisitions of Transporeon, Litera and team.blue (formerly
Combell) as well as further investments into Visma and Rhapsody,
deploying a total of almost GBP700 million of Hg client funds. We
believe that, in the current market environment, the clarity and
distinctive focus of our strategy provides us with several clear
advantages as a cautious and disciplined investor. Specifically, we
will continue to concentrate on companies that provide a
non-discretionary, 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 that will generate strong, risk adjusted returns for
our clients.
The scale and reach of Hg's network within the global software
and service sectors is now broader and deeper than ever before.
Despite the persisting heat of the current market, we do
continue to see attractive investment opportunities in our target
clusters, just as we did in the closing stages of the last period
of high valuations, in 2005 to 2008. Hg will continue to invest
selectively, capitalising on situations where we have a specific
angle and have built many years of knowledge of the business and
its end market clusters, and strong relationships with the founders
and management teams. Indeed, the relative de-risking of our
existing portfolio over the past 18 months gives our investment
teams more time and space to consider attractive new investments in
our core areas of focus, across our funds and the size
spectrum.
We are also highly focused in this market environment on making
accretive bolt-on acquisitions into our existing portfolio
companies. So far in 2019, we supported bolt on activity at Visma
(12 acquisitions), IRIS (2 acquisitions), Sovos (2 acquisitions),
Access (6 acquisitions), CogitalGroup (9 acquisitions), team.blue
(merger with TransIP and acquisition of Register), Litera
(acquiring Workshare), and Rhapsody (acquiring Corepoint), among
others. We expect this portfolio M&A activity to continue in
line with recent activity levels.
Prospects
The portfolio is in good health overall and growing strongly.
Trading over the first half of 2019 has continued to generate
double digit sales and EBITDA growth across almost all the
businesses. 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.
We continue to consider the UK's forthcoming exit from the EU
and our prognosis remains that this will have a relatively limited
specific impact on our current portfolio given the characteristics
of these businesses, their geographic profile and their relatively
protected nature. Hg's pan-European focus and our offices in Munich
and New York also offer flexibility in terms of the breadth of our
future investment focus, regulatory regime and general fund
management approach.
We remain confident in our strong group of businesses with
resilient, recurring growth characteristics that are benefiting
from the wealth of expertise in the areas in which we invest and
the scale to continue to be one of the largest software investors
in Europe. The drive for operational improvements in our
investments, aligned with the efforts of our dedicated Portfolio
Team, means that we believe we can continue to generate significant
long-term value across the portfolio on a repeatable basis,
irrespective of the challenges of the broader macro-environment.
From pricing analysis and customer success, to cybersecurity and
bolt on M&A, these initiatives will continue to remain an area
of real focus going forward.
______________________________________________________________________________________________________
"There has been continued portfolio activity over the first half
of 2019, both in terms of investment and returns, and we expect
this to continue into the second half of the year. We have a young,
focused portfolio where we are active in driving further growth
through trading performance, business improvement initiatives and
accretive M&A."
Matthew Brockman, Managing Partner, Hg
Overview of the underlying investments
held through the Company's limited partnerships
Investments Year Residual Unrealised Cum.
(in order of value) Fund Sector Location of investment cost Value(1) Value value
GBP'000 GBP'000 % %
------------------------- ----------- -------- ----------- -------------- -------- ---------- ------- ------
HGT 7/HGT/
1 Visma HGT Saturn Software Scandinavia 2014 80,782 197,374 22.7% 22.7%
2 Sovos Compliance HGT 7/HGT Software N. America 2016 26,177 85,570 9.8% 32.5%
3 IRIS HGT Saturn Software UK 2018 36,380 55,964 6.4% 38.9%
4 Access HGT 8 Software UK 2018 30,491 45,654 5.2% 44.1%
5 Transporeon HGT 8/HGT Software Germany 2019 42,377 45,042 5.2% 49.3%
6 CogitalGroup HGT 7/HGT Services UK 2016 20,966 41,803 4.8% 54.1%
7 Mobility Holding HGT 8 Services Germany 2018 33,967 37,856 4.3% 58.4%
8 Litera HGT 8 Software N. America 2019 34,284 35,188 4.0% 62.4%
9 Commify Mercury/HGT Software UK 2017 12,548 23,308 2.7% 65.1%
10 Mitratech HGT 7/HGT Software N. America 2017 22,258 21,974 2.5% 67.6%
Mercury
11 Register 2 Software Italy 2017 3,391 19,902 2.3% 69.9%
12 IT Relation HGT 8 Services Scandinavia 2018 16,037 19,570 2.2% 72.1%
Mercury/
Mercury
13 FE fundinfo 2 Software UK 2018 11,407 19,154 2.2% 74.3%
14 A-Plan HGT 7 Services UK 2015 1,697 18,655 2.2% 76.5%
15 team.blue HGT 8 Software Benelux 2019 18,718 18,200 2.1% 78.6%
Mercury
16 Rhapsody 2 Software N. America 2018 13,045 17,764 2.0% 80.6%
17 Citation HGT 7 Services UK 2016 7,904 17,520 2.0% 82.6%
18 Allocate HGT 8 Software UK 2018 13,959 16,594 1.9% 84.5%
Transition
19 BrightPay Capital Software Ireland 2018 14,864 15,522 1.8% 86.3%
20 TeamSystem HGT 6 Software Italy 2010 144 14,982 1.7% 88.0%
Mercury
21 MediFox 2/HGT Software Germany 2018 11,687 13,902 1.6% 89.6%
22 Achilles HGT Software UK 2008 17,298 11,352 1.3% 90.9%
23 P&I HGT 7/HGT Software Germany 2013 1,796 10,946 1.3% 92.2%
24 EidosMedia HGT 7 Software Italy 2015 8,414 8,068 0.9% 93.1%
25 STP Mercury Software Germany 2016 4,260 7,732 0.9% 94.0%
26 Eucon Mercury Software Germany 2015 4,658 6,936 0.8% 94.8%
27 Evaluate Mercury Software UK 2016 3,733 6,225 0.7% 95.5%
28 Noventic HGT 6 Software Germany 2012 922 5,338 0.7% 96.2%
29 Trace One Mercury Software France 2016 493 4,707 0.5% 96.7%
30 Gentrack HGT 7 Software New Zealand 2017 2,069 3,021 0.3% 97.0%
31 e-conomic HGT 6 Software Scandinavia 2013 - 1,003 0.1% 97.1%
Non-active investments
(7) 22,501 1,618 0.2% 97.3%
---------------------------------- -------- ----------- -------------- -------- ---------- ------- ------
Total investments (38) 519,227 848,444 97.3%
---------------------------------- -------- ----------- -------------- -------- ---------- ------- ------
Forward sale of US$
Currency hedges Various and EUR - (218) - 97.3%
Secondary fund
interests Hg 6E Secondary fund interests - 1,151 0.1% 97.4%
Asper RPP
Renewable energy I / II Renewable energy 26,082 22,843 2.6% 100.0%
--------------------- ----------- ------------------------------------- -------- ---------- ------- ------
Total all investments 545,309 872,220 100.0%
--------------------- ----------- -------- ----------- -------------- -------- ---------- ------- ------
(1) Including accrued income but before the provision for
carried interest of GBP54,683,000
Top 10 investments
The Company's top 10 investments represent 68% 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 institutional 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 more than GBP5 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 investment through HGT 7 LP, HGT Saturn LP and
co--investment through HGT LP
website: www.visma.com
Investment sector: Software
Cluster: Tax & Accounting
Location: Scandinavia
Investment date: Aug 2014
Hg clients' total equity: 63.1%
Residual cost (GBP'000): 80,782
Unrealised value (GBP'000): 197,374
Business description
Visma is a leading provider of business--critical software to
SMEs and the public sector in the Nordic region. Headquartered in
Oslo with significant revenues in Norway, Sweden, Finland, Denmark
and the Netherlands, the company provides the following services to
its customer base of above 900,000 enterprises: accounting;
resource planning and payroll software; and transaction process
outsourcing, such as debt collection and procurement services.
Visma produces detailed reporting on its website on a quarterly
basis:
www.visma.com/investors-relations/results-figures/overview/
Why did we invest?
Visma was an early example of Hg partnering with a business
showing recurring revenues, offering business-critical application
software, supplying a fragmented SME customer base and their
advisers - a focus which forms some of our key 'sweet-spot'
investment criteria today. At the time of our initial acquisition,
in 2006, we had identified opportunities for Visma not only to grow
its existing segments and acquire new segments, but also to further
transition the business to a SaaS focused model.
How do we intend to create value?
Visma has consistently exceeded our investment plans. In April
2014, following a decision by the then 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. In 2019, Visma welcomed
the Canada Pension Plan Investment Board (CPPIB) as an investor
valuing the business at NOK 63 billion (GBP5.5 billion), and later
Hg Saturn purchased the entire Cinven stake alongside CPPIB and
GIC. 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 150 companies across the
Nordic and Benelux regions. These transactions have 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 GBP500 million of
annualised recurring pure-SaaS revenues.
How is it performing?
Visma continues to see year--on--year strong double--digit
growth with revenue and EBITDA growth of 29% and 42% respectively
over the last twelve months to 30 June 2019. This has led to the
Company's valuation of its stake in Visma rising by GBP32.7 million
over the first six months of 2019.
How will we crystallise value?
Hg wants to continue to support Visma's next stage of
development given a number of attractive elements of the company's
business model, strength of the management team, and upside
potential from the SaaS transition. 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.
For a full case study on Visma please visit:
hgcapital.com/wp-content/uploads/2018/10/Visma-Case-Study-FINAL.pdf
2. Sovos Compliance
The Company's underlying investment through HGT 7 LP and
co--investment through HGT LP
website: www.sovos.com
Investment sector: Software
Cluster: Tax & Accounting
Location: North America
Investment date: Mar 2016
Hg clients' total equity: 91.4%
Residual cost (GBP'000): 26,177
Unrealised value (GBP'000): 85,570
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 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. 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. Sovos has also recently completed
two further acquisitions - Foriba (an independent provider of
e-transformation products to enterprise customers across Turkey,
Italy, Hungary and Spain to aid real-time tax reporting) and Eagle
Technology Management (a US based provider of unclaimed property
reporting, insurance premium tax and statutory reporting
solutions). Hg has supported the management team at Sovos in key
pricing improvement initiatives 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 see
a number of additional opportunities ahead of us. The Company has
benefited from an increase of GBP15.2 million in the Company's
valuation of its stake over the first half of 2019.
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 and strong market positioning;
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.
3. IRIS
The Company's investment through HGT Saturn LP
website: www.iris.co.uk
Investment sector: Software
Cluster: Tax & Accounting
Location: UK
Investment date: Sept 2018
Hg clients' total equity: 65.0%
Residual cost (GBP'000): 36,380
Unrealised value (GBP'000): 55,964
Business description
IRIS is a UK-based software company, serving over 100,000
customers in the Accountancy, human capital management ('HCM'),
Education, and Bookkeeping segment. It is a leading provider of
core application software to UK accountants and payroll
applications to UK SMEs. Over 4 million parents or guardians use
IRIS apps each year to connect with their child's school, 2.3
million employees are paid using IRIS payroll software and 15
million payment transactions are made per month using IRIS
solutions. The business operates a highly recurring business model
with >85% of revenues from software subscriptions, much of which
is based on annual renewals paid in advance. IRIS continues to
deliver ongoing value-add to its existing customers through regular
regulatory and feature updates, leading to high customer loyalty.
The level of re-investment into new product development and
outstanding customer support continues to fuel outperformance
compared with other providers.
Why did we invest?
IRIS is an early example of our focus on firms that provide
business-critical 'daily use' software for professionals and SMB's
in attractive, predictable end markets; the original investment
decision was based on the potential for organic growth and
acquisition-led consolidation opportunities.
How do we intend to create value?
IRIS continues to deliver added value to its existing customers
through regular regulatory and feature updates, leading to high
customer loyalty. The strong level of re-investment into new and
innovative product development and outstanding customer support has
continued to fuel outperformance vs other providers. Combined, this
has delivered organic revenue growth and EBITDA of typically more
than 10% p.a. The UK accountancy and SME software markets remain
fragmented, offering additional acquisition opportunities. We also
think there is a substantial upside in developing or acquiring SaaS
products to target adjacent sectors.
What has been achieved?
The long-standing partnership between Hg and IRIS started with
the 2004 buyout (GBP102 million Enterprise Value) led by Hg
(returning 3.6x and 65% IRR), followed by retaining a minority
shareholding after the sale to Hellman & Friedman in 2007.
In 2011, we again became the majority shareholder through the
Hg6 Fund (GBP425 million EV). In 2018, Hg6 completed the sale of
IRIS (returning 4.2x and 26% IRR) to Hg Saturn and ICG in a joint
control deal, representing an EV of GBP1.3 billion. IRIS has been
successful in expanding its offering, both by organic product
development and by acquisition into contiguous segments such as
payroll, HR and education software. In 2016, IRIS acquired Octopus
HR and PS Financial, then SAAF Analytics, Results Squared and
ParentMail in 2017 to build an Education software division, with
the acquisitions of Contact Group, Taxfiler and STAR Payroll in
2018 to further expand its offering for both smaller and larger
accounting practices. This M&A momentum has continued into 2019
including the acquisitions of Hosted Accountants, Practice Engine
and FMP (international payroll).
How is it performing?
IRIS 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 double-digit growth rates year on year, and the
annual EBITDA margin has consistently been close to 50%. In the
first half of 2019, the Company's valuation of its stake in IRIS
saw an increase of GBP10.6 million.
How will we crystallise value?
We believe IRIS will be an attractive software business
acquisition target for financial buyers as it demonstrates high
levels of organic revenue growth, strong Net Recurring Revenue and
high EBITDA margins and cashflow conversion, coupled with a leading
sector position; however, we also see an IPO as a potential route
to exit given the strong cash generation. Lastly, there are several
potential trade buyers.
For a full case study on IRIS please visit:
www.hgcapitaltrust.com/investment-portfolio/case-studies/iris.aspx
4. Access
The Company's investment through HGT 8 LP
website: www.theaccessgroup.com
Investment sector: Software
Cluster: ERP & Payroll
Location: UK
Investment date: June 2018
Hg clients' total equity: 32.1%
Residual cost (GBP'000): 30,491
Unrealised value (GBP'000): 45,654
Business description
Founded in 1991, the Access Group ('Access') is a leading UK
mid-market Enterprise Resource Planning ('ERP') business, providing
financial management systems ('FMS') and human capital management
('HCM') software; as well as industry specific software solutions.
Access's software helps over 12,000 UK businesses and
not-for-profit organisations to work efficiently, with expertise
across numerous industries. When Hg invested in the business in
June 2018, the prior owners of Access, TA Associates, elected to
roll a material proportion of their existing investment alongside
Hg due to their ongoing belief in the business's potential. Hg are
therefore co-control shareholders in the company alongside TA
Associates.
Why did we invest?
This investment builds on our prior experience in SME software,
accounting & tax software as well as the HR & payroll
software space. Hg has made multiple investments in this space (HR
& payroll: IRIS, P&I, Raet, Visma, SHL; accounting &
tax: Cogital, Visma, TeamSystem, 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. The business benefits
from a high-quality management team, led by a strong CEO and an
impressive team of functional leaders.
How do we intend to create value?
The top priorities for the Board and management team currently
include: integration of recent acquisitions; acceleration in the
pace of transition to subscription sales; building out capabilities
acquired through recent M&A; delivering on bookings growth in
accordance with the management plan; investing in organic growth
through 'Access 4.0' initiatives including new product development,
cloud transition and sales and marketing initiatives; and
continuing to execute M&A in accordance with the M&A
strategy.
What has been achieved?
Following Hg's investment, we have been focused on a number of
workstreams with the business including: M&A support;
encouraging the transition to a fully SaaS and subscription sales
model; continuing to improve customer success; a pricing workstream
project; and developing a data-driven predictive model to support
the company's cross-sell efforts.
How is it performing?
Access is trading well, and booking momentum remained strong
through 2019, driven by 29% organic growth in subscription
bookings. Growth remains robust, with the business growing organic
revenue by 13% and organic recurring revenue by 22%. Recurring
revenue as a percentage of total revenue has increased to 77%
(including the full pro-forma impact of M&A). Strong trading
has led to an increase of GBP10.3 million in the Company's
valuation of its stake over the first six months of 2019.
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 recurring revenue and robust EBITDA margins.
We also see an IPO as a potential route to exit given the business'
growth profile and strong cash generation. Lastly, there are
several notable potential trade buyers.
5. Transporeon
The Company's investment through HGT 8 LP and co-investment
through HGT LP
website: www.transporeon.com
Investment sector: Software
Cluster: ERP & Payroll
Location: Germany
Investment date: March 2019
Hg clients' total equity: 75.3%
Residual cost (GBP'000): 42,377
Unrealised value (GBP'000): 45,042
Business description
Transporeon is a cloud-based logistics network and transport
management software for road freight in Europe. The platform
enables hundreds of thousands of trucks to be booked and tracked as
they haul freight in trailers across Europe. As a leader in the
sector, the business benefits from strong network effects,
connecting 100,000 users across >90,000 carriers and >1,200
shippers using a modern SaaS platform able to serve over 100
countries and available in 24 languages. It offers these customers
a business-critical cloud software platform which enables more
efficient tendering, dispatching, scheduling and better
communication between the hundreds of enterprises (shippers)
looking to move freight by road and the thousands of SME operators
(carriers) that provide the trucks.
Why did we invest?
Transporeon is a highly strategic asset. The business operates
in an industry with material room for growth through new and
existing clients, in line with historical levels. The business has
seen uninterrupted double-digit revenue CAGR for the past 15 years
across different market cycles. Transporeon exhibits a number of
typical 'Hg sweet-spot' business model criteria including: high net
revenue retention; high customer loyalty; a strong position in a
growing sector; and considerable remaining areas for new customers
as well as further adoption from the existing customer base through
upsell and cross-sell.
How do we intend to create value?
In addition to the potential for growth through the new and
existing customers, there are opportunities for further operational
efficiencies and various upsides, as well as the scope to derive
additional value through M&A. We believe the business will
benefit materially from Hg's operational capabilities and expertise
in software sales, marketing, packaging, product management and
development.
What has been achieved?
Current focus areas for Transporeon are: supporting the team in
sales and marketing approach; clearly defining the future product
pipeline in line with ongoing strategy discussions; and looking at
potential M&A.
How is it performing?
Transporeon has only been in the Hg portfolio for just over
three months; so far trading has been in line with
expectations.
How will we crystallise value?
We believe Transporeon will be a highly strategic asset to other
software or service providers in the broader Transportation
Management space. Transporeon is likely also to continue to be a
very attractive company for PE buyers on the back of high net
revenue retention, strong cash conversion and a long-term organic
growth story.
6. CogitalGroup
The Company's investment through HGT 7 LP and co--investment
through HGT LP
website: www.cogitalgroup.com
Investment sector: Services
Cluster: Tax & Accounting
Location: UK
Investment date: Oct 2016
Hg clients' total equity: 76.3%
Residual cost (GBP'000): 20,966
Unrealised value (GBP'000): 41,803
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 firms Baldwins and Blick Rothenberg.
The Group's focus is the provision of critical business 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. 110,000 customers with more than
5,500 employees operating from 184 offices in the UK, Norway,
Sweden, Denmark and Finland. The Group also has nearly 800
employees based in Romania and Lithuania.
To view Cogital's Annual Review 2018, please visit:
cdn.cogitalgroup.com/Cogital-Group-Annual-Review-2018.pdf
Why did we invest?
Cogital continues the Genesis 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
business--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, nearshoring 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, tax & payroll offices; and improving
EBITDA margins through technology and nearshoring.
What has been achieved?
Since Hg invested in December 2016, Cogital has completed over
50 acquisitions (including six over the last quarter), successfully
increased its acquisition facilities and rolled out a group--wide
incentive scheme. Hg is additionally supporting the management team
to improve their data analytics and management information.
How is it performing?
Cogital is seeing good organic growth, having seen double--digit
revenue and EBITDA growth over the last year. Since the business
launched in December 2016 it has seen a more than 60% increase in
its sales and profits.
This trading has led to an increase in the Company's valuation
of its stake of GBP8.7 million over the first half of 2019.
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.
7. Mobility Holding
The Company's investment through HGT 8 LP
website: www.mobility--holding.de
Investment sector: Services
Cluster: Automotive
Location: Germany
Investment date: May 2018
Hg clients' total equity: 81.8%
Residual cost (GBP'000): 33,967
Unrealised value (GBP'000): 37,856
Business description
Mobility Holding ('MH') is a platform investment for B2B and B2C
car leasing and online distribution. The company's products range
from traditional mobility offerings, such as vehicle purchasing and
leasing, to innovative flat rate offers. Going forward it will
focus on marketing subscription-based car offerings to SME
customers and consumers, as well as the comprehensive digitisation
of car distribution channels and product delivery processes.
Mobility Holding is the combination of MeinAuto ('MA'), Germany's
leading online car sales platform which Hg acquired from its
founders in December 2017, Mobility Concept ('MC'), a leading B2B
leasing company in Germany acquired in a carve-out from HBV
Unicredit in May 2018, and Athletic Sport Sponsoring ('ASS'), a
German provider of flat rate car subscriptions to members of
closed-user groups (e.g. sport associations and civil servants)
acquired from the founding family in September 2018.
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 which will allow for
accelerated growth.
How do we intend to create value?
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?
Mobility Holding shows accelerated growth, and significant
synergies between the group companies ('the Group') have now been
realised. The Group has launched a new online leasing product in
cooperation between MC (full leasing operations and license) and MA
(highly scalable online sales channel). The launch of the new
product has exceeded expectations and the Group will have sold
several thousand leasing contracts online by the end of 2019. To
finance this growth, as well as the strong organic growth of the
traditional ASS and MC product range, the Group has significantly
diversified its provider base for fleet financing.
How is it performing?
FY2018 finished the year ahead of budget. MH is trading well and
with strong LTM trading growth. This has led to the investment
being valued at GBP3.4 million above its December 2018 value within
the Trust's portfolio.
How will we crystallise value?
We believe that a leading platform in online car distribution,
specifically when combined with a direct leasing offering, is of
high relevance to strategic buyers in the mobility ecosystem (e.g.
large leasing companies and automotive OEMs with limited
distribution footprint in Germany) as well as being attractive to
financial sponsors.
8. Litera
The Company's investment through HGT 8 LP
website: www.litera.com
Investment sector Software
Cluster: Legal & Compliance
Location: North America
Investment date: May 2019
Hg clients' total equity: 87.0%
Residual cost (GBP'000): 34,284
Unrealised value (GBP'000): 35,188
Business description
Litera is a leading provider of end-to-end document lifecycle
solutions to the legal and life sciences industries globally. The
company offers an integrated suite of document productivity
applications which is used by lawyers daily to create high quality
documents, and check and compare documents more efficiently. Based
in Chicago, New York and London, Litera is used by c. 1,500
customers globally.
In July 2019, Litera acquired Workshare, a provider of secure
enterprise file sharing and collaboration applications. The
combination will create a leader in document productivity tools and
transaction applications for law firms. On 15 August, Litera
acquired Doxly, a legal transaction management platform based in
Indianapolis.
Why did we invest?
Litera exhibits a number of typical 'Hg sweet-spot' business
model criteria: a leading provider of a differentiated set of
products with a clear ROI for lawyers and other customers; high
customer loyalty; attractive and high-quality recurring revenue
model; potential for M&A, as shown by the recent acquisitions
of Workshare and Doxly; fragmented customer base; cross-sell
opportunities into the established customer set, supplemented by
potential new customers; and high operating leverage which should
provide margin upside as the business grows.
How do we intend to create value?
The top priorities for the Board and management team are: the
successful operational integration of Workshare including joint
go-to-market and product integration; scaling the sales
organisation operations to unlock revenue synergies by
cross-selling; and continuing to develop and manage the product
portfolio based on revenue potential.
What has been achieved?
The team is now focused on working on a number of workstreams
with Litera: supporting successful integration of Litera and
Workshare; supporting the management team on specific operational
initiatives, and continuing to drive add-on acquisitions of
complementary legal software vendors such as Doxly.
How is it performing?
Whilst the business is new to the portfolio, Litera has seen a
strong start to its partnership with Hg, and has completed two
acquisitions since closing.
How will we crystallise value?
Given its attractive characteristics, we believe Litera could be
of interest to both strategic and financial buyers.
9. Commify
The Company's investment through HgCapital Mercury D LP and
co--investment through HGT LP
website: www.commify.com
Investment sector: Software
Cluster: SME Tech Services
Location: UK
Investment date: Jun 2017
Hg clients' total equity: 82.6%
Residual cost (GBP'000): 12,548
Unrealised value (GBP'000): 23,308
Business description
Commify is a leading Application to Person 'A2P' messaging
service in Western Europe. The group is a roll-up 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). 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 purpose of the communication can be
varied, but most messages are mission-critical, operational content
such as appointment reminders and delivery notifications; the
business also supports marketing / promotional messages and
coupons, as well as surveys. The business has grown organically and
through M&A over the past 10 years and now sends over 2 billion
SMS across the UK, Italy, France, Germany, Spain and Australia.
Why did we invest?
The A2P industry is a fast growing segment of the technology
sector but remains fragmented in most geographies and the key bases
of the investment hypothesis are: strong organic growth in the A2P
sector is expected to continue, driven by further use and
increasing adoption across Europe; an opportunity for targeted
M&A; and a wider portfolio of messaging technologies to provide
customers with a channel agnostic platform to communicate with
their customers and employees.
How do we intend to create value?
Our initiatives are targeted at scaling the business and
maximising our strategic value to potential acquirers through
building a robust pan-European business.
Key initiatives are: M&A; supporting the integration of the
existing businesses into a much larger business; and investing
behind product development to capitalise on the multichannel
messaging opportunity.
What has been achieved?
We have supported the team to acquire a further 6 businesses
over the last 18 months across a range of geographies. We've also
invested significantly behind the integration of the technical
platforms and migration of customers to allow them to benefit from
Commify's full product suite. New product investment has also been
a focus given the opportunity to push forward new multi-channel
messaging technologies like RCS and Whatsapp. Commify is uniquely
positioned to support these partners with over 30,000 customers
across Europe.
We also continue to support management on a project by project
basis through access to Hg's portfolio team across a number of
functions such as sales and marketing, and data analytics.
How is it performing?
The business is performing overall in line with its investment
case. We continue to see good adoption and use of Commify's
products with its customers as well as early interest in next
generation messaging technologies. Technology integration is
progressing well and there continues to be a deep pipeline of value
accretive M&A for the business to execute in the remainder of
the year. EBITDA growth in the first six months of the year has led
to a small uplift in value of GBP1.2 million in the Company's
valuation of its interest in Commify.
How will we crystallise value?
At the time of exit, we expect there to be interest in the
business from trade buyers (other consolidators in Europe and the
US). We additionally expect interest from capital markets and
private equity investors given the long runway of organic growth as
well as the availability of M&A targets across Europe.
10. Mitratech
The Company's investment through HGT 7 LP and co--investment
through HGT LP
website: www.mitratech.com
Investment sector: Software
Cluster: Legal & Compliance
Location: North America
Investment date: Apr 2017
Hg clients' total equity: 53.7%
Residual cost (GBP'000): 22,258
Unrealised value (GBP'000): 21,974
Business description
Mitratech is a leading global provider of Enterprise Legal
Management ('ELM') software to corporate legal departments. The
core products are Matter Management software which acts as the
Enterprise Resource Planning software at the heart of in-house
legal teams, and an e-billing solution which provides e-invoicing
capabilities between law departments 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 of the AmLaw 200 and 99% of the Global
100 Law Firms. The company is based in Austin, Texas with further
offices in the US, England, Wales and Australia, employing c. 360
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
Genesis 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. We see Mitratech as the best--placed
platform to drive a global sector roll--up.
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 in this
sector to achieve global scale through M&A. The business has a
strong management team with a best--in--class core product, winning
customers from fragmented competition in a growing market.
What has been achieved?
Hg is supporting Mitratech to source further M&A
opportunities following the acquisition in April 2018 of
ThinkSmart, the workflow automation platform that fits well with
Mitratech's core ELM product, TeamConnect. Hg's Portfolio 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 over FY 2019 was slightly below expectations;
however, trading year to date has been in line with budget. The
business faces an increasingly intense competitive landscape for
bookings in the core ELM segment but continues to display strong
win rates. We have been pleased with cross--selling the newly
acquired ThinkSmart product to key TeamConnect customers. Further,
Mitratech has launched new LegalHold GRC modules. Early 2019 saw
the launch of TeamConnect Essentials, the new cloud platform built
for smaller/ medium--sized corporate legal departments. The early
adoption programme with selected customers has been successful and
Mitratech is looking to increase presence in this market segment
over the next 12 months. Performance over the last 12 months has
led to a small write-down of GBP1.5 million in the valuation of the
Company's stake in Mitratech.
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 ('ECM') and Governance Risk and Compliance
('GRC') 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 recurring
revenue, EBITDA margins and market position.
For a full case study on Mitratech please visit:
www.hgcapitaltrust.com/investment-portfolio/case-studies/mitratech.aspx
Other investments
Many of our businesses outside the top 10 are also performing
very well. Some of these investments are from the Hg Mercury Funds,
which invest in smaller software companies with EVs of between
GBP50 million and GBP250 million.
The Mercury investments are seeing strong 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 of investment
opportunities.
11 Register
web: www.register.eu
sector: Software
Register (formerly DADA) is a leading European mass hosting
business, with a presence across several attractive European
markets including Italy, UK, Spain, Portugal, and France. In March
2018, Mercury 2 completed the purchase of 100% of the shares in
Register SpA, and de-listed the company from the Italian stock
exchange. Register provides domains, website hosting and email
services to more than 900k customers. The Register management team
has built the business through extensive M&A since 2006,
acquiring businesses across Europe. In September, team.blue agreed
to acquire Register.
Strong trading performance over the first six months of 2019 has
led to an increase of GBP5.4 million in the Company's stake of the
business.
12 IT Relation
web: www.itrelation.dk
sector: Services
Founded in 2003, IT Relation provides services which allow SMEs
to move their IT infrastructure and operations into the cloud, as
well as providing end user support and consulting as part of a
full-service IT offering. The company has more than 520 employees
supporting thousands of customers and tens of thousands of users in
Denmark and around the world. 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),
Register (2017) and team.blue (2019), all 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.
Strong trading has led to an increase in the Company's valuation
of its stake of GBP3.5 million over the first six months of
2019.
13 FE fundinfo
web: about.fundinfo.com
sector: Software
FE fundinfo is a global investment fund data business catering
to asset managers and fund distributors. FE fundinfo comprises the
following three heritage businesses: Financial Express (UK-based
provider of fund data to IFAs, platforms, wealth managers and
private investors), fundinfo (Swiss provider of fund data
publication and distribution connecting asset managers and wealth
managers) and F2C (Luxembourg-based SaaS platform for the creation
and dissemination of fund documents).
FE fundinfo has seen robust trading over the first half of 2019
and this has been reflected in the GBP3.5 million uplift in the
valuation of the Company's holding in the business.
14 A-Plan
web: www.aplan.co.uk
sector: Services
A-Plan is a 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
language-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 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.
This continued growth has seen the Company's stake in A-Plan
grow by GBP2.8 million over the first six months of 2019.
15 team.blue
web: www.team.blue
sector: Software
team.blue was established in 2019 from the combination of
Combell group, the market leading mass hosting company in Belgium
and Denmark, and TransIP, the leading cloud server and mass hosting
platform in the Netherlands. team.blue recently partially acquired
Register, which is head-quartered in Italy with a pan-European mass
hosting footprint. Post combination with Register, team.blue has
close to two million SME and Small Office/Home Office ('SoHo') end
customers and is a one--stop partner for web hosting, domains,
e--commerce and application solutions. This represents Hg's 8th
investment in the technology services sector, with other recent
hosting investments including Zitcom (2015), Register (2017) and
most recently, IT Relation (2018). team.blue shows similar
characteristics to these businesses, having consistently delivered
strong organic revenue growth, best--in--class customer
satisfaction metrics and an exceptional M&A track record.
16 Rhapsody
web: www.rhapsody.health
Sector: Software
Headquartered in Boston, USA, Rhapsody is a global leader in
healthcare interoperability and data liquidity solutions.
Their software serves public and private hospitals, health
systems, Health Information Exchanges, OEM vendors, public health
departments and federal government organisations. In June 2019,
Rhapsody acquired Corepoint Health, the supplier of the Best in
KLAS(R) healthcare integration platform, building a global segment
leader in a strategic and attractive sector.
The companies provide integration platforms that power the
complex and critical systems within healthcare, with high-volume
data-acquisition capabilities. The platforms' comprehensive set of
tools help simplify interoperability in complex healthcare
environments. The combined business is global, serving over 1,000
customers in more than 36 countries.
The performance of Rhapsody over the first half of 2019 has led
to an increase of GBP4.5 million in the valuation of the Company's
holding in this business.
Case study:
hgcapital.com/case-studies/rhapsody-building-a-business-to-connect-the-healthcare-continuum/
17 Citation
web: www.citation.co.uk
sector: Services
Citation is a leading provider of tech-enabled compliance and
quality related subscription services to over 40,000 SMEs across
the UK. The business helps its customers comply with relevant
regulations and ensure certain levels of quality and standards are
met, in areas such as HR / Employment Law, Health & Safety, ISO
and industry specific rules and standards by providing a
combination of expert advice, software tools and audits /
assessments, mostly on a long-term subscription basis.
Citation has seen strong performance over the past twelve months
and this has led to an Increase of GBP6.0 million over the period
in the value of the Company's investment.
Case study:
hgcapital.com/case-studies/citation-employee-engagement-at-the-heart-of-the-companys-dynamic-people-strategy/
18 Allocate
web: allocatesoftware.com
sector: Software
Allocate Software ('Allocate') is a leading provider of
workforce management software to the Healthcare sector and other
complex regulated industries. The core product is used for
workforce rostering, time and attendance management, and associated
compliance workflows, such as monitoring and reporting on safe
staffing levels. The product addresses a clear and increasingly
pressing need for improved staff efficiency, regulatory compliance
and safety in the healthcare sector, and results in more effective
healthcare delivery. The company has a leading position in the UK,
Sweden and Australia, and a very strong track record of
renewals.
Continued strong performance over the first half of 2019 has led
to an increase of GBP2.4 million in the Company's valuation of its
stake in Allocate.
Case study:
hgcapital.com/case-studies/allocate-investing-in-rd-to-accelerate-organic-growth/
19 BrightPay
web: www.brightpay.co.uk
sector: Software
Based near Dublin, BrightPay is an award winning software
provider providing easy to use and cutting edge software solutions
to enable payroll bureaus and SMEs to manage payroll, supported by
excellent customer service. BrightPay's software is used by over
200,000 employers across the UK and Ireland under two brands,
BrightPay and Thesaurus Software. This represents the first
investment of Transition Capital, a structured minority investment
strategy and is within a cluster where Hg has invested for many
years. In 2019, payroll in Ireland underwent significant change
when PAYE modernisation was introduced, which requires employers to
report PAYE in real time to the Irish Revenue Commissioners.
BrightPay invested significantly ahead of this change to support
Irish payroll bureaus and SMEs through this transition. In
addition, BrightPay continues its expansion in the UK where its SME
and bureau payroll customer base is growing rapidly. Strong
performance in both the UK and Ireland has led to an uplift of
GBP0.7 million in the value of the Company's stake in the
business.
20 TeamSystem
web: www.teamsystem.com
sector: Software
TeamSystem is a software and services business based in Pesaro,
Italy, which was established in 1979. TeamSystem is the Italian
market leader in its core business of providing regulatory-driven
software applications to accountants, labour professionals and
SMEs. It is also the market leader in the 'micro' SME segment, a
market which is significantly underpenetrated in Italy compared to
other Western economies. The company has a large and diversified
customer base of over c.250,000 customers served by a strong direct
sales force and a distribution platform of over 400 value added
resellers (VARs) and employs c. 1,600 people.
Over the first half of 2019 TeamSystem has continued to perform
well resulting in an uplift in the Company's stake in this business
of GBP2.8 million.
21 MediFox
web: www.medifox.de
sector: Software
MediFox is the leading provider of software solutions to over
7,700 outpatient care services, elderly care homes and therapists
in Germany. The business supports care providers with key
challenges including resource and route planning, care
documentation, regulatory compliance and quality assurance of
services provided, as well as invoicing, reimbursement and
factoring. The business is characterised by a leading position in a
fragmented sector, a robust financial profile, a highly competent
management team and a 'mission-critical' product. The company is
headquartered in Hildesheim, Germany and employs 340 people.
Case study:
hgcapital.com/case-studies/medifox-a-platform-play-in-the-social-economy/
22 Achilles
web: www.achilles.com
sector: Software
Achilles is a mission-critical Data as a Service ('DaaS')
provider of supply chain information that allows global purchasing
organisations in industries with complex regulatory requirements to
drive operational excellence. It is a technology-enabled business
model whereby a network of buyers in a certain vertical industry
(e.g. UK utilities, Scandinavian Natural Resources etc.) require
their key suppliers to qualify to a set of standardised information
in the Achilles DaaS platform.
Such data is critical to support risk management processes
around legislation, health and safety, financial quality and trade
regulation as well as ensuring diversification of supply chain and
thus protect buyers against high cost of failure. Achilles
currently operates more than 30 vertical market communities across
5 continents.
23 P&I
web: www.pi--ag.com
sector: Software
Founded in 1968 and headquartered in Wiesbaden, Germany, P&I
Personal & Informatik AG provides integrated software solutions
and services for human resources management. It consists of four
product lines: P&I LogaAll-in, P&I LOGA, P&I PLUS and
P&I BIG DATA. Over the course of more than four decades,
P&I products have been enriched with information from the
highly diverse tasks and best practices of its more than 15,000
customers (of whom 3,900 are direct). While the customer base is
primarily in Germany, Austria and Switzerland, P&I serves
customers across thirteen countries in Europe via its partners. In
September 2016, Hg announced the sale of P&I to Permira, this
delivered a 35% IRR and 2.4x investment multiple. Hg (including its
co-investors) has retained a minority position in the business. The
business continues to perform well and in the first half of 2019,
the Company's valuation of its stake in P&I saw an increase of
GBP2.4 million.
24 EidosMedia
web: www.eidosmedia.com
sector: Software
EidosMedia is global leader in high value Enterprise Content
Management ('ECM') software, primarily serving Media and Financial
Services verticals. ECM is a platform which enables users to
collaboratively create and customise multi-media content and
disseminate it via various media channels (desktop, mobile, print
etc.). The Company serves 30,000 users at 600 newspapers plus 5,000
research analysts on the core Method product, and 77 distinct
clients. In the past couple of years, EidosMedia successfully
expanded into the financial services market by applying its
software to the production of investment research reports published
by financial institutions. Other verticals that Eidos has been
targeting recently are large corporates and government agencies.
Headquartered in Milan, EidosMedia serves a global client base with
a focus on Western Europe and the US; 92% of its recurring revenues
are generated outside of Italy.
EidosMedia has seen improved performance over the past six
months and this has led to an uplift of GBP1.6 million in the
valuation of the Company's stake in the business.
25 STP
web: www.stp--online.de
sector: Software
STP is a leading provider of insolvency and law practice
software in Germany and Switzerland. Founded in 1993 and
headquartered in Karlsruhe, Germany, the business employs c. 200
FTE serving over 1,200 legal customers with critical software.
STP's core business is providing software solutions for insolvency
law firms where it has a leading market position in the German
market. In recent years, STP launched a legal practice management
software suite for larger law firms which is growing strongly. In
addition, the company offers business information 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.
26 Eucon
web: www.eucon.de
sector: Software
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 with Eucon collecting, processing and
supplying crucial data to support its customers in managing their
parts and aftermarket operations. The Digital Services division
provides highly automated claims management services to insurers in
Germany, helping them achieve lasting reductions in claims
expenditure through the sophisticated automation of claims
processes and application of structured data, for both car and
property insurance claims. In addition to this, Eucon's Digital
Services help 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. The business serves nearly 250 clients operating in 40
countries globally.
Case study:
hgcapital.com/case-studies/eucon-applying-ai-know-how-to-build-a-digital-leader/
27 Evaluate
web: www.evaluategroup.com
sector: Software
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, down
to a product, disease indication and geographic level, which is
important for users in business development, licensing and
corporate strategy.
The business has seen robust performance and this has increased
the valuation of the Company's stake in Evaluate by GBP0.8 million
over the first six months of 2019.
Case study:
hgcapital.com/case-studies/evaluate-accelerating-the-growth-of-a-best-in-class-product/
28 Noventic
web: www.noventic.com
sector: Software
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.
29 Trace One
web: www.traceone.com
sector: Software
Trace One's collaborative platform enables brand owners to
develop and to source higher quality, trusted and compliant
products more quickly, to benefit people and the environment. The
platform connects, streamlines and organises data, teams and
networks, allowing brand owners to overcome complexity and grasp
the opportunities at every stage of the product lifecycle. Trace
One serves the CPG and food suppliers Industry and currently has a
customer base of over 30 global leading retailers and 20,000 CPG's
manufacturers, across Europe, North America and Asia. The business
has seen a small GBP0.4 million uplift in the Company's valuation
of its stake over the first six months of 2019.
30 Gentrack
web: www.gentrack.com
sector: Software
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.
Renewable energy
Website: http://asper-im.com/
Investment sector: Renewable Energy
Location: Europe
Residual cost (GBP'000): 26,082
Unrealised value (GBP'000): 22,843
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.
The NAV increased in 2018, thanks to positive developments in
the arbitrations against Spain, including successful investor
awards in similar claims.
In September 2019, the Company agreed the sale of the Asper RPP
II assets to two strategic buyers, as part of a wider secondary
sale process.
Financial statements
Income statement
for the six months ended 30 June 2019
Revenue return Capital return Total return
--------------- -----
Six months Year Six months Year Six months Year
ended ended ended ended ended ended
---------------
30.6.19 30.6.18 31.12.18 30.6.19 30.6.18 31.12.18 30.6.19 30.6.18 31.12.18
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 - - - 109,133 57,480 93,792 109,133 57,480 93,792
Gains/(losses)
on
priority
profit
share loans
advanced
to General
Partners 7(b) - - - 1,618 (4,296) (6,325) 1,618 (4,296) (6,325)
Net income 6 9,905 7,544 17,128 - - - 9,905 7,544 17,128
Other expenses 8(a) (1,419) (1,383) (2,468) - - - (1,419) (1,383) (2,468)
--------------- ----- ------------ ------------ ---------- ------------ ------------ ---------- ------------ ------------ ----------
Net return
before
finance costs
and
taxation 8,486 6,161 14,660 110,751 53,184 87,467 119,237 59,345 102,127
--------------- ----- ------------ ------------ ---------- ------------ ------------ ---------- ------------ ------------ ----------
Finance costs 8(b) (1,053) (370) (753) - - - (1,053) (370) (753)
--------------- ----- ------------ ------------ ---------- ------------ ------------ ---------- ------------ ------------ ----------
Net return
before
taxation 7,433 5,791 13,907 110,751 53,184 87,467 118,184 58,975 101,374
--------------- ----- ------------ ------------ ---------- ------------ ------------ ---------- ------------ ------------ ----------
Taxation 10 - (141) (242) - - - - (141) (242)
--------------- ----- ------------ ------------ ---------- ------------ ------------ ---------- ------------ ------------ ----------
Net return
after
taxation
attributable
to reserves 7,433 5,650 13,665 110,751 53,184 87,467 118,184 58,834 101,132
--------------- ----- ------------ ------------ ---------- ------------ ------------ ---------- ------------ ------------ ----------
Return per
Ordinary
share 11(a) 1.85p 15.14p 36.61p 27.51p 142.49p 234.34p 29.36p 157.63p 270.95p
--------------- ----- ------------ ------------ ---------- ------------ ------------ ---------- ------------ ------------ ----------
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 2019
Notes 30.06.19 30.06.18 31.12.18
GBP'000 GBP'000 GBP'000
(unaudited) (unaudited) (audited)
------------------------------------------- ----- ------------ ------------ ----------
Fixed asset investments
----- ------------ ------------ ----------
Investments at fair value through profit
or loss:
----- ------------ ------------ ----------
Unquoted investments 772,073 558,676 609,663
------------------------------------------- ----- ------------ ------------ ----------
Total fixed asset investments 772,073 558,676 609,663
------------------------------------------- ----- ------------ ------------ ----------
Current assets - amounts receivable after
one year:
----- ------------ ------------ ----------
Accrued income on fixed assets 45,464 56,643 39,531
----- ------------ ------------ ----------
Current assets - amounts receivable within
one year:
----- ------------ ------------ ----------
Debtors 154 271 154
----- ------------ ------------ ----------
Investments at fair value through profit
or loss:
----- ------------ ------------ ----------
Liquidity funds 153,537 148,459 152,920
----- ------------ ------------ ----------
Uninvested capital in Limited Partnerships 2,045 337 169
----- ------------ ------------ ----------
Cash at bank 3,209 5,127 3,436
------------------------------------------- ----- ------------ ------------ ----------
Total current assets 204,409 210,837 196,210
------------------------------------------- ----- ------------ ------------ ----------
Creditors - amounts falling due within
one year (1,351) (852) (886)
------------------------------------------- ----- ------------ ------------ ----------
Net current assets 203,058 209,985 195,324
------------------------------------------- ----- ------------ ------------ ----------
Net assets 975,131 768,661 804,987
------------------------------------------- ----- ------------ ------------ ----------
Capital and reserves:
----- ------------ ------------ ----------
Called up share capital 10,065 9,331 9,331
----- ------------ ------------ ----------
Share premium account 182,791 120,368 120,368
----- ------------ ------------ ----------
Capital redemption reserve 1,248 1,248 1,248
----- ------------ ------------ ----------
Capital reserve - unrealised 217,374 109,285 119,958
----- ------------ ------------ ----------
Capital reserve - realised 536,863 499,918 523,528
----- ------------ ------------ ----------
Revenue reserve 26,790 28,511 30,554
------------------------------------------- ----- ------------ ------------ ----------
Total equity shareholders' funds 975,131 768,661 804,987
------------------------------------------- ----- ------------ ------------ ----------
Net asset value per Ordinary share 11(b) 242.2p 2,059.4p 2,156.7p
------------------------------------------- ----- ------------ ------------ ----------
Ordinary shares in issue at 30 June /
31 December 402,599,808 37,324,698 37,324,698
------------------------------------------- ----- ------------ ------------ ----------
The financial statements of HgCapital Trust plc (registered
number 01525583) below were approved and authorised for issue by
the Board of Directors on 6 September 2019 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 2019
Six months ended Year ended
Notes 30.06.19 30.06.18 31.12.18
GBP'000 GBP'000 GBP'000
(unaudited) (unaudited) (audited)
----------------------------------------- ----- ------------ ------------ ----------
Net cash inflow/(outflow) from operating
activities 9 394 4,249 (17,850)
----------------------------------------- ----- ------------ ------------ ----------
Investing activities:
----- ------------ ------------ ----------
Purchase of fixed asset investments (107,265) (79,346) (187,338)
----- ------------ ------------ ----------
Proceeds from the sale of fixed asset
investments 54,737 79,971 218,925
----- ------------ ------------ ----------
Purchase of liquidity funds (59,100) (23,900) (222,882)
----- ------------ ------------ ----------
Redemption of liquidity funds 60,100 31,795 226,578
----------------------------------------- ----- ------------ ------------ ----------
Net cash (outflow)/inflow from investing
activities (51,528) 8,520 35,283
----------------------------------------- ----- ------------ ------------ ----------
Financing activities:
----- ------------ ------------ ----------
Servicing of finance (1,053) (370) (753)
----- ------------ ------------ ----------
Equity dividends paid (11,197) (11,197) (17,169)
----- ------------ ------------ ----------
Proceeds from issue of share capital 63,157 - -
----------------------------------------- ----- ------------ ------------ ----------
Net cash inflow/(outflow) from financing
activities 50,907 (11,567) (17,922)
----------------------------------------- ----- ------------ ------------ ----------
(Decrease)/increase in cash and cash
equivalents in the period (227) 1,202 (489)
----------------------------------------- ----- ------------ ------------ ----------
Cash and cash equivalents at 1 January 3,436 3,925 3,925
----------------------------------------- ----- ------------ ------------ ----------
Cash and cash equivalents at 30 June
/ 31 December 3,209 5,127 3,436
----------------------------------------- ----- ------------ ------------ ----------
The following notes form part of these financial statements.
Statement of changes in equity
for six months ended 30 June 2019
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
2018 9,331 120,368 1,248 119,958 523,528 30,554 804,987
Net return - - - 97,416 13,335 7,433 118,184
Issue of Ordinary
shares 734 62,423 - - - - 63,157
Equity dividends
paid 4 - - - - - (11,197) (11,197)
------------------- ----- ---------- --------- ------------ ------------ ------------ ---------- --------
At 30 June 2019 10,065 182,791 1,248 217,374 536,863 26,790 975,131
------------------- ----- ---------- --------- ------------ ------------ ------------ ---------- --------
At 31 December
2017 9,331 120,368 1,248 79,256 476,763 34,058 721,024
Net return - - - 40,702 46,765 13,665 101,132
Equity dividends
paid 4 - - - - - (17,169) (17,169)
------------------- ----- ---------- --------- ------------ ------------ ------------ ---------- --------
At 31 December
2018 9,331 120,368 1,248 119,958 523,528 30,554 804,987
------------------- ----- ---------- --------- ------------ ------------ ------------ ---------- --------
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 February 2018. All of the Company's operations
are of a continuing nature.
The Company has considerable financial resources and, as a
consequence, the Directors believe that the Company is well placed
to manage its business risks. After making enquiries, the Directors
have a reasonable expectation that the Company will have adequate
resources to continue in operational existence for the next twelve
month period from the date of this Report. 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 (see note 7(b)).
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 final dividend of 30.0 pence per share was paid on 30 April
2019 in respect of the year ended 31 December 2018 (2018: interim
dividend in respect of the year ended 31 December 2018 of 16.0
pence per share and final dividend of 30.0 pence per share in
respect of the year ended 31 December 2017).
Note: the above stated figures are prior to the ten for one
share-split in May 2019.
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
30.06.19 30.06.18 (unaudited) 31.12.18
(unaudited) (audited)
No.'000 GBP'000 No.'000 GBP'000 No.'000 GBP'000
-------------------------------- ------------- ------------- ----------- ---------- -------- --------
Ordinary shares of 2.5p each:
(previously 25p each prior
to ten for one share split
in May 2019)
Allotted, called--up and fully
paid:
At 1 January 37,325 9,331 37,325 9,331 37,325 9,331
Ten for one share split 335,922 - - - - -
Issued as part of placing
offer 29,353 734 - - - -
-------------------------------- ------------- ------------- ----------- ---------- -------- --------
At 30 June / 31 December 402,600 10,065 37,325 9,331 37,325 9,331
-------------------------------- ------------- ------------- ----------- ---------- -------- --------
6. Income
Revenue return
Six months ended Year ended
30.06.19 30.06.18 31.12.18
GBP'000 GBP'000 GBP'000
(unaudited) (unaudited) (audited)
--------------------------------------------- -------------- ------------- ----------
Total net income comprises:
Interest 9,905 6,825 16,349
Non--interest income - 13 73
Dividend - 706 706
--------------------------------------------- -------------- ------------- ----------
Total net income 9,905 7,544 17,128
--------------------------------------------- -------------- ------------- ----------
All income that is recognised by the primary buyout funds, net of PPS,
is allocated to the Company and recognised when the right to this income
is established. This income and PPS is analysed further below.
----------------------------------------------------------------------------------------
Income from investments held by the primary
buyout funds:
Unquoted investment income 15,995 7,891 19,453
Dividend income - 706 706
Other investment income:
Unquoted investment income - 530 1,161
Liquidity funds income 914 150 1,033
--------------------------------------------- -------------- ------------- ----------
Total investment income 16,909 9,277 22,353
--------------------------------------------- -------------- ------------- ----------
Total other income 45 13 128
--------------------------------------------- -------------- ------------- ----------
Total income 16,954 9,290 22,481
--------------------------------------------- -------------- ------------- ----------
Priority profit share charge against income:
Current period - HGT 8 LP (4,672) - (1,315)
Current period - HGT 7 LP (1,135) (1,288) (2,445)
Current period - HGT Mercury 2 LP (684) (172) (736)
Current period - HGT Saturn LP (253) - (304)
Current period - HgCapital Mercury D LP (196) (237) (409)
Current period - HGT Transition Capital LP (93) - (52)
Current period - HGT LP (16) (49) (92)
Current period - HGT 6 LP - - -
--------------------------------------------- -------------- ------------- ----------
Total priority profit share charge against
income (note 7(a)) (7,049) (1,746) (5,353)
--------------------------------------------- -------------- ------------- ----------
Total net income 9,905 7,544 17,128
--------------------------------------------- -------------- ------------- ----------
7. Priority profit share and carried interest
Revenue return
Six months ended Year ended
(a) Priority profit share payable to General 30.06.19 30.06.18 31.12.18
Partners
GBP'000 GBP'000 GBP'000
(unaudited) (unaudited) (audited)
----------------------------------------------- ---------------- ---------------- ----------
Priority profit share payable:
Current period amount 5,431 6,042 11,678
Less: Current period loans advanced to General
Partners (7) (4,296) (6,325)
Add: Prior period loans recovered from General
Partners 1,625 - -
----------------------------------------------- ---------------- ---------------- ----------
Current period charge against income 7,049 1,746 5,353
----------------------------------------------- ---------------- ---------------- ----------
Total priority profit share charge against
income 7,049 1,746 5,353
----------------------------------------------- ---------------- ---------------- ----------
The priority profit share payable on the primary buyout funds
ranks 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 30.06.19 30.06.18 31.12.18
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 (7) (4,296) (6,325)
Gains on prior period loans recovered from
General Partners 1,625 - -
----------------------------------------------- ----------------- ---------------- ----------
Total gains/(losses) on priority profit share
loans
recovered from/(advanced to) General Partners 1,618 (4,296) (6,325)
----------------------------------------------- ----------------- ---------------- ----------
In years in which the primary buyout funds 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 30.06.19 30.06.18 31.12.18
GBP'000 GBP'000 GBP'000
(unaudited) (unaudited) (audited)
-------------------------------------------------- --------------- --------------- ----------
Carried interest charge against capital gains:
Current period charge against realised capital
gains - 2,438 55,023
Current period charge/(credit) against unrealised
capital gains 12,371 10,338 (40,599)
-------------------------------------------------- --------------- --------------- ----------
Total carried interest charge against capital
gains 12,371 12,776 14,424
-------------------------------------------------- --------------- --------------- ----------
The carried interest payable to the Founder Partners ranks as a
first appropriation of capital gains on the investments held in
primary buyout funds via 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 106 of the 2018 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,
no 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 GBP54,683,000 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 30.06.19 30.06.18 31.12.18
GBP'000 GBP'000 GBP'000
(unaudited) (unaudited) (audited)
---------------------------------------------- ---------------- ---------------- ----------
Registrar, management and administration fees 436 394 837
Legal and other administration costs(1) 983 989 1,631
---------------------------------------------- ---------------- ---------------- ----------
Total other expenses 1,419 1,383 2,468
---------------------------------------------- ---------------- ---------------- ----------
(1) Includes employer's National Insurance contributions of
GBP15,306 (2018: GBP29,427).
Revenue return
Six months ended Year ended
(b) Finance costs 30.06.19 30.06.18 31.12.18
GBP'000 GBP'000 GBP'000
(unaudited) (unaudited) (audited)
----------------------------------------- ---------------- ---------------- ----------
Arrangement fees 720 - -
Non--utilisation fees and other expenses 333 370 753
----------------------------------------- ---------------- ---------------- ----------
Total finance costs 1,053 370 753
----------------------------------------- ---------------- ---------------- ----------
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 30.06.19 30.06.18 31.12.18
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 119,237 59,345 102,127
Gains on investments held at fair value (122,956) (60,691) (54,297)
Carried interest paid - (10,338) (55,023)
Increase/(decrease) in carried interest provision 12,371 2,438 (40,599)
Increase in accrued income from liquidity
funds (914) (150) (1,033)
(Increase)/decrease in prepayments, accrued
income and other debtors (5,933) 14,466 31,577
Decrease in creditors (1,411) (910) (616)
Taxation received/(paid) - 89 14
---------------------------------------------------- ---------------- --------------- ----------
Net cash inflow/(outflow) from operating activities 394 4,249 (17,850)
---------------------------------------------------- ---------------- --------------- ----------
10. Taxation
Taxation for the six-month period is charged at 19% (31 December
2018: 19%), 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 ended Year ended Six months ended Year ended
30.06.19 30.06.18 31.12.18 30.06.19 30.06.18 31.12.18
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 7,433 5,650 13,665 110,751 53,184 87,467
------------------------------- ------------- ------------ ---------- ------------ ------------ ----------
Number of Ordinary shares
('000):
Weighted average number of
shares in issue 402,600 37,325 37,325 402,600 37,325 37,325
------------------------------- ------------- ------------ ---------- ------------ ------------ ----------
Return per Ordinary share
(pence) 1.85 15.14 36.61 27.51 142.49 234.34
------------------------------- ------------- ------------ ---------- ------------ ------------ ----------
Six months ended Year ended
(b) Net asset value per Ordinary share 30.06.19 30.06.18 31.12.18
GBP'000 GBP'000 GBP'000
(unaudited) (unaudited) (audited)
------------------------------------------- --------------- --------------- ----------
Amount (GBP'000):
Net assets 975,131 768,661 804,987
------------------------------------------- --------------- --------------- ----------
Number of Ordinary shares ('000):
Number of Ordinary shares in issue 402,600 37,325 37,325
------------------------------------------- --------------- --------------- ----------
Net asset value per Ordinary share (pence) 242.2 2,059.4 2,156.7
------------------------------------------- --------------- --------------- ----------
12. Commitment in fund partnerships and contingent
liabilities
Outstanding
Original at
commitment 30.06.19 30.06.18 31.12.18
GBP'000 GBP'000 GBP'000 GBP'000
Fund (unaudited) (unaudited) (audited)
------------------------------ ---------- ------------ ------------ ----------
HGT 8 LP(1) 350,000 146,878 288,295 247,905
HGT Saturn LP(1) 150,000 71,693 124,598 92,411
HGT Transition Capital LP(1) 75,000 59,228 74,862 59,460
HGT Mercury 2 LP(1) 80,000 42,143 69,203 49,774
Asper RPP II LP 35,790(2) 6,520(3) 6,592(3) 6,607(3)
HGT 7 LP 200,000 5,321 1,045 5,451
HGT 6 LP 285,029(4) 3,750 6,000 3,750
Hg Mercury D LP 60,000(4) 3,008 2,368 3,228
HGT LP(6) 120,000(4) 1,261 1,261 1,261
Asper RPP I LP 19,363(5) 619(6) 793(6) 749(6)
Hg 6 E LP 15,000 197 316 197
------------------------------ ---------- ------------ ------------ ----------
Total outstanding commitments 340,618 575,333 470,793
------------------------------ ---------- ------------ ------------ ----------
(1) The Company has the benefit of an opt--out provision in
connection with its commitment alongside Hg8, 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 EUR7,287,000 (2018: EUR7,454,000).
(4) 21.4% of the original GBP120 million commitment to the
HgCapital 5 Fund, 5.0% of the original GBP300 million to the
HgCapital 6 Fund and 7.6% of the GBP60 million to the Mercury 1
Fund, have subsequently been cancelled, as the Manager deemed that
it was unlikely to be required.
(5) Sterling equivalent of EUR21,640,000.
(6) Sterling equivalent of EUR692,000 (2018: 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 2019 and 30 June 2018 has not been
audited. The information for the year ended 31 December 2018 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 2019 in March 2020. The 2019 Annual Report should be
available by the end of March 2020, with the Annual General Meeting
being held in May 2020.
Further information
Investment management and ongoing charges
Over the first six months of 2019, 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
Transition Capital 1.25% on invested capital
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%
p.a.
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, Commify, Medifox and
Transporeon 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 2019, the Company's annualised ongoing
charges were calculated as 1.7% (31 December 2018: 1.9%). 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
---------- ---------------------------------------------------------
May -- Annual General Meeting and payment of final dividend
-- Release of Manager's Quarterly Update with updated
31 March NAV
---------- ---------------------------------------------------------
September -- Interim figures announced and interim report published
---------- ---------------------------------------------------------
October -- Payment of interim dividend
---------- ---------------------------------------------------------
November -- Release of Manager's Quarterly Update with updated
30 September NAV
---------- ---------------------------------------------------------
Dividend
The Interim dividend proposed in respect of the year ended 31
December 2019 is 1.8 pence per share.
Ex--dividend date (date from which shares are transferred 19 September 2019
without dividend)
---------------------------------------------------------- -----------------
Record date (last date for registering transfers to 20 September 2019
receive the dividend)
---------------------------------------------------------- -----------------
Last date for registering DRIP instructions (see below) 4 October 2019
---------------------------------------------------------- -----------------
Dividend payment date 25 October 2019
---------------------------------------------------------- -----------------
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.computershare.co.uk/DRIP. 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 4
October 2019.
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
EC2A 1AG
Administrator
Hg Pooled Management Limited(1)
2 More London Riverside
London
SE1 2AP
Telephone: 020 7089 7888
www.hgcapital.com
Depositary
Apex Depository (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
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intuitive manner.
If you have any suggestions on improvements we can make to the
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IR MMGGLVVDGLZM
(END) Dow Jones Newswires
September 09, 2019 02:00 ET (06:00 GMT)
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