Half-yearly Report
HgCapital Trust plc
Preliminary announcement
Interim report and accounts
30 June 2007
London, 11 September 2007: HgCapital Trust plc ("the Trust" or "the Company"),
the Private Equity Investment Trust managed by HgCapital (or the "Manager"),
the European sector-focused private equity investor, announces interim results
for the six months ended 30 June 2007.
Financial highlights
* Another strong performance: NAV increased by 13.1% to £211.7 million (2006:
£187.1 million).
* Total return to shareholders (NAV plus dividend) over the period was 15.2%
compared with 7.6% for the FTSE All-Share Index and 4.0% for the FTSE
Small-Cap Index.
* Consistent returns: share price growth (total return) over ten-year period
of +18.3% per annum against +7.6% per annum in the FTSE All-Share Index for
the same period.
* £54 million in liquid resources (c. 25% of net assets) places Company in a
good position to take advantage of current market conditions.
Operational highlights
* A strong period for realisations, with proceeds of £38.3 million including
Hirschmann and DocMorris in Germany, and the combined sale of CS Group with
IRIS Software, which completed after the period end.
* Invested £11 million selectively in a high price environment.
* Completed two management buyouts of CS Group plc and Americana.
Post period end
* NAV at 31 August 2007 was 842.6p.
* Completed two investments, SLV and Cornish Bakehouse; investment of £6
million and £4 million respectively.
* Agreed the sale of Schenck, subject to cartel clearance: this will add 58p
per share to the 31 August 2007 NAV.
Investment objective
The objective of the Company is to provide shareholders with long-term capital
appreciation in excess of the FTSE All-Share Index by investing in unquoted
companies.
The Company provides investors with exposure to a diversified portfolio of
private equity investments primarily in the UK and Continental Europe.
Financial highlights
+15.2% - The strong growth in net assets (total return) continues
+16.3% - Share price and dividend (total return) versus the FTSE All-Share
Index total return of 7.6%
+18.3% - Ten year total performance p.a. versus 7.6% p.a. from the FTSE
All-Share Index
>5x - Ten year investment return for every £1 invested
£38m - A strong first half for proceeds from realisations
£11m - Invested selectively in a high price environment
Chairman's statement
Performance
I am pleased to report that in the first six months of 2007 the Company
continued to deliver strong NAV growth compared to the FTSE benchmarks.
Net asset value (NAV) per share increased by 13.1% and total return to
shareholders (NAV plus dividend) over the period was 15.2% compared with 7.6%
for the FTSE All-Share Index and 4.0% for the FTSE Small-Cap Index. The
Company's share price rose by 14.3% from 731.0p to 835.5p.
Quoted equity markets have experienced a correction since the high point
reached in May 2007. Since the end of the period under review the Company's
shares have continued to out-perform their benchmarks, reflecting the quality
of its portfolio and successful realisations achieved despite general market
conditions.
Directors have reviewed the valuations of the Company's investments at 30 June
and these reflect some compression in valuation multiples compared with
previous periods. The Board is aware that in current market conditions, value
creation in the Company's investments will rely all the more on organic growth
and margin enhancement, rather than multiple arbitrage. In addition, it is
possible that in the medium term investments will be held a little longer than
has often been the case in recent years.
Revenue return per share was 12.4p, compared with 4.0p in the same period last
year. As explained in earlier reports to shareholders, the Company's revenue
will vary from year to year in accordance with the structure of the underlying
investments and the Company's holding of liquid funds awaiting reinvestment.
While it is too early in the year to be certain, at this stage it appears that,
for these reasons, the Company's income in the current year may be unusually
high: due to the Company's status as an investment trust this would give rise
to a larger than normal dividend payment early in 2008. Shareholders who wish
to remain fully invested are reminded that the Company operates a Dividend
Reinvestment Scheme.
Realisations
The strong market conditions that have supported realisations continued through
most of the period. The Company made full and partial realisations yielding
proceeds of £38.3 million and contributing more than £8m to the growth in NAV.
Proceeds from every sale of an unquoted investment were achieved significantly
above its year-end book value.
In March the Company sold its interest in DocMorris, an investment that
combined the Manager's focus on healthcare with its active position in the
German market, for proceeds of £4.5 million. The 2.5x increase in value
achieved since acquisition was due largely to internal growth: HgCapital
acquired the company when it was only four years old, since when sales have
risen by around 18% p.a.
The Company also sold the remaining division of Hirschmann Electronics from its
Industrials portfolio, for cash proceeds of £14.9 million. In this case
HgCapital acquired a non-core division of a large German public company,
restructured it, improved efficiencies and then sold its constituent businesses
on to strategic purchasers. The Board believes that the continuing
restructuring of German industry, with greater focus on shareholder value, will
provide more such opportunities for profitable investment.
In June it was agreed to sell both IRIS Software (Blue Minerva) and CS Group
(Guildford) to a single purchaser, realising £27.5 million for the Company.
HgCapital made its initial investment in IRIS in 2004, since when this core
business has recorded organic growth in revenue of 12-13% p.a. In addition,
IRIS acquired four businesses, funded by cash flow and external debt, which
contributed strongly to both sales and profit growth. By selling IRIS and CS
Group simultaneously to a single buyer HgCapital has also realised the marriage
value of these two companies. These transactions, including the unrealised
value, returned 3.6x and 2.2x the Company's original investment. The valuation
of these holdings at the end of June reflects the proceeds of the sale, which
was completed after the period end for a mix of paper and cash consideration.
Other realisations were made, in two cases below original cost. The Board
recognises that in a private equity portfolio, some investments will fall short
of expectations; however, in both of these cases the Manager had worked hard to
protect and rebuild value, and the Directors support the Manager's decision to
sell these assets and free up resources for redeployment.
Since the period end, the Company has agreed to sell its interest in Schenck,
subject to cartel clearance. Completion of this transaction will add 59p per
share to the Directors' valuation at 30 June.
Investments
With equity markets at peak levels for most of the period, investment activity
was lower than previously: the Manager was outbid for several investments. The
proportion by value of the investment portfolio (excluding liquid funds) that
are relatively new investments, and still held at cost, has fallen from around
half at December 2006 to one-third at 30 June 2007.
Two buy-outs were completed, CS Group and Americana, in which the Company
invested
£9.8 million. Further information on these investments can be found on the
Trust's website at www.hgcapitaltrust.com or in the Investment manager's
report.
At the period end the Manager had a good pipeline of potential investments,
especially in the German market. Since the end of the period the Company has
invested £6 million in the acquisition of SLV Group, a German designer and
manufacturer of innovative commercial lighting systems, and £4 million in
Cornish Bakehouse, the UK regional pasty retailer.
Prospects
The recent tightening of credit markets, especially in the market for the
syndication of debt in large, highly leveraged acquisitions and refinancings,
has led to a correction in equity values generally. This change in market
conditions can be expected to have some impact on the level and terms on which
the Manager can raise leverage for acquisitions. However, it has also created
better conditions for the acquisition of good businesses at reasonable prices.
The Company is ungeared and with its strong liquidity is in a good position to
take advantage of a new environment for investment. At 30 June 2007 the Company
had liquid resources of £54 million, representing around 25% of net assets, a
little higher than at the year-end.
The Board is confident that the Manager's specialist sector teams are well
placed to identify a regular flow of opportunities. In addition, with
well-established teams in Germany and Benelux, as well as in the UK, the
Manager has shown a consistent ability to be selected as preferred purchaser
where there is a competitive sale process, and to complete transactions
efficiently. Against this background the Board believes that having access to
substantial liquidity at this point places the Company in a strong position to
take advantage of changing market conditions and thus to continue to reward
long-term investment in the Company's shares.
Roger Mountford
Chairman
10 September 2007
FINANCIAL HIGHLIGHTS
Assets at: 30 June 2007 31 December % change
2006
(unaudited)
(audited)
Net assets (£'000) 211,666 187,135 +13.1
Net assets per share 840.4p 743.0p +13.1
Share price (mid-market) 835.5p 731.0p +14.3
Revenue six months ended: 30 June 2007 30 June 2006 % change
(unaudited) (unaudited)
Net revenue (£'000) 3,118 998 +212.4
Earnings per share 12.4 4.0p +212.4
HISTORICAL TOTAL RETURN* PERFORMANCE
One year Three years Five years Seven Ten years
% pa % pa % pa years % pa
% pa
Share price 32.9 34.8 25.8 18.6 18.3
Net asset value 23.0 28.8 20.7 13.4 15.4
FTSE All-Share 18.4 18.9 12.2 4.9 7.6
Index
FTSE Small Cap 21.0 18.3 14.3 5.1 8.7
Index
Based on the Company's share price at 30 June 2007 and allowing for dividends
to be reinvested, an investment of £1,000 ten years ago would now be worth £
5,378. An equivalent FTSE All-Share Index return would be worth £2,079.
*Total return assumes all dividends have been reinvested. Source: Capital
Economics
INVESTMENT MANAGER'S REVIEW
Attribution analysis of movements in net asset value for the six months ended
30 June 2007
£,000
Opening net asset value as at 1 January 2007 187,135
Gross revenue 5,195
Expenditure (1,981)
Taxation (951)
Dividends paid (3,526)
Realised proceeds in excess of 31 December 2006 book value 8,005
(excludes gross revenue)
Net unrealised appreciation of investments 23,041
Carried interest provision (5,252)
Closing net asset value as at 30 June 2007 211,666
Portfolio
The Company invests alongside other clients of HgCapital. Typically, the
Company's holding forms part of a much larger stake in predominantly buy-out
investments of between £50 million and £350 million enterprise value ("EV"),
controlled by HgCapital. The Investment manager's EV generally refers to each
transaction in its entirety, apart from the tables which detail the Company's
participation, and where this review specifically states otherwise.
The Company's net asset value increased from £187.1 million to £211.7 million
during the period under review. This arose from unrealised movements and
realised proceeds in excess of the book value of £23.0 million and £8.0 million
respectively, following continued strong earnings growth and cash generation
within the portfolio.
The Company's investments in IRIS and CS Group have both been sold since the
period end, having been valued at 30 June 2007 at the agreed sales price with
consideration received in early July. In addition, strong profit growth from
the buy-out portfolio, in particular, Schenck, Addison, The Sanctuary and
Clarion Events have contributed to the increase in value.
Since the period end, an agreement to sell Schenck has been signed, subject to
cartel clearance, and consideration is expected to be received in early
November. The impact on the 30 June carrying value will be 59p per share and
the sale is estimated to realise a total of £33 million for the Company.
A small number of the Company's investments performed below expectations. FTSA
performed below plan, mainly due to a delay in publishing new legislation
regarding the use of side impact dummies; however, a series of initiatives
including a restructuring of the European business has been implemented, which
should improve profitability. Elite is operating in a market that is
experiencing significant price pressure and is focusing on new products to
mitigate this. Axiom's sales pipeline is taking time to convert into firm
orders and our investment has been written down in value.
During the period, the Company invested a total of £11.1 million including
participation in two new buy-out investments. These new investments were made
in Americana (UK, £180 million EV) and CS Group (UK, £112 million EV).
The Company realised proceeds during the period amounting to £38.3 million.
These proceeds arose principally from the sale of Hirschmann, DocMorris,
Worldmark and Bertram, sales of quoted shares in South Wharf and Xyratex and
the recapitalisation of IRIS and Rolfe & Nolan.
Realised and unrealised movements in net asset value during the period
Realised Unrealised
Proceeds* Movements** Total
£m £m £m
Blue Minerva t/a IRIS 11.9 11.9
Guildford t/a CS Group 5.8 5.8
Schenck 5.2 5.2
Hirschmann 4.1 0.7 4.8
Addison 4.0 4.0
DocMorris 2.6 0.3 2.9
The Sanctuary 2.4 2.4
Clarion Events 1.5 1.5
Eagle Rock 0.7 0.7
Other 0.6 (0.4) 0.2
ClinPhone (0.8) (0.8)
Axiom (1.5) (1.5)
Elite (3.0) (3.0)
FTSA (3.1) (3.1)
Total 8.0 23.0 31.0
*Realised proceeds in excess of 31 December 2006 book value £'m (excludes gross
revenue)
**Net unrealised appreciation of investments £'m
Prospects
We have taken advantage of high pricing to secure our realisations at
attractive prices and have sought to withdraw early from excessively price
competitive new investment situations.
A correction in the capital markets, removing excess leverage and more
appropriately pricing equity for risk, if sustained, would be strongly positive
for us in the long term.
The current economic environment in Europe remains stable. However, we will
keep a watching brief particularly in respect of the US and potential
contagion. Germany and Benelux look particularly strong. This said, for new
investments made over the last two years we have been cautious with regard to
cyclical stocks.
Volatility and elements of discontinuity create good private equity
opportunities for an investor with strong liquidity, a sound portfolio and
clear investment strategy.
PORTFOLIO ANALYSIS
"A diverse portfolio, invested along sector lines, with an increasing exposure
to Continental Europe"
At 30 June 2007 the Company's portfolio consisted of 38 investments, of which
the 20 principal investments represented over 95% of the portfolio valuation.
The Company offers both sector and geographic diversification in a portfolio of
fast growing small cap stocks. The portfolio's valuation increased in the first
six months of the year from £148.5 million to £154.2 million, benefiting from
strong profit growth and positive cash flow.
Two new investments were made during the period, both management buy-outs.
These were: the public to private acquisition of CS Group, a UK software
company and the acquisition of Americana, owner of the streetwear brands Bench
and Hooch.
Eight investments were fully realised and six were partially realised, through
the sale of quoted shares, recapitalisation or a trade sale. In aggregate,
capital proceeds from these realisations produced a 39% uplift over the
carrying value and a 94% uplift over cost.
Proceeds from realisations resulted in the Company ending the period with £54
million of liquid assets, which has increased further since the period end
following the most recent disposals. These resources position the Company to
exploit new investment opportunities.
Asset class
Unquoted 70%
Cash & other assets 27%
Quoted 3%
Valuation basis
Cost 33%
Earnings 33%
Third party 17%
transaction
Written down 9%
Quoted 5%
Net assets 3%
Sector by value
TMT 47%
Industrials 20%
Consumer & Leisure 16%
Healthcare 9%
Services 5%
Renewable energy 2%
Fund 1%
Geographic spread
by value
UK 53%
Germany 29%
Norway 8%
Benelux 5%
North America 3%
Europe other 2%
Deal type by value
Buy-out 90%
Expansion 6%
Renewable energy 2%
Fund 1%
Venture 1%
Vintage by value
2007 10%
2006 27%
2005 28%
2004 16%
2003 10%
Pre 2003 9%
INVESTMENTS
In the six months ended 30 June 2007 HgCapital invested £93 million on behalf
of its clients, including £11.1 million on behalf of the Company
Company Sector Activity Deal type Cost
£'000
Americana Consumer & Leisure Wholesaler and Buy-out 4,708
retailer of fashion
apparel
Guildford t/a CS TMT Software services to Buy-out 5,046
Group the legal & not-for
profit sectors
New investments 9,754
HgCapital RPP LP Renewable energy Renewable energy Fund 1,327
fund
Further investments 1,327
Total investment by 11,081
the Company
Figures below refer to the total size of each acquisition, including debt
raised from third parties, made by HgCapital on behalf of its clients,
including the Company.
New investments
Americana International
The £180 million buy-out of Americana completed in March 2007. HgCapital
clients invested a total of £37.6 million.
Americana is a branded apparel business, manufacturing and marketing two brands
targeted at the youth market, Bench and Hooch. The Bench brand is aimed at both
men and women in the 16 to 25 years age group while Hooch is a fashion clothing
brand taking its inspiration from selected music videos, celebrity fashions and
young female entertainment magazines. Revenues are predominately through UK
wholesale channels and the business is increasing its wholesale revenues in
Continental Europe. It is also building a supporting UK retail presence.
Guildford t/a CS Group
The £112 million public-to-private buy-out of CS Group completed in April 2007.
HgCapital clients invested a total of £40.3 million.
CS Group is the UK's leading provider of back-office application software to
the legal and not-for-profit sectors. In addition, the company is the UK market
leader in business application software for customers using IBM i-Series
hardware. CS Group sells principally to small and medium-sized customers who
have little in-house IT expertise. Together with the business-critical
functionality provided by CS Group, this means that customers rarely switch to
other competing vendors, delivering a stable core business.
Since completion CS Group has acquired two further companies: FAST Ltd, a
compliance services business and Mountain Software Ltd, the leading provider of
back office software to the UK barristers and coroners market. Each is expected
to contribute significantly once integration is complete.
On 8 June, we signed a deal to sell CS Group to Hellman & Friedman, a US
private equity firm, in conjunction with their acquisition of IRIS. The
combined EV of the exit was £500 million, of which £195 million was
attributable to CS Group.
Realisations
In the six months ended 30 June 2007 HgCapital realised total proceeds of £229
million on behalf of its clients including £38.3 million for the Company
Company Sector Activity Cost Proceeds 2007
†return â€
£'000
£'000 £'000
Hirschmann Industrials Financial sale 2,669 14,874 12,205
DocMorris Healthcare Trade sale 1,956 4,544 2,588
Worldmark Industrials Financial sale 2,389 3,569 1,180
Bertram Consumer and Trade sale 2,848 2,008 (840)
Leisure
Eagle Rock TMT Sale to 3,856 1,619 (2,237)
management
South Wharf plc Industrials Quoted share sale 47 1,033 986
*
Other (2) 96 349 253
Full 13,861 27,996 14,135
realisations
Xtx t/a Xyratex TMT Quoted share sale 1,895 4,957 3,062
**
Blue Minerva t/ TMT Financial sale 2,811 2,993 182
a IRIS
Rolfe & Nolan TMT Recapitalisation 225 2,093 1,868
Other (3) 333 283 (50)
Partial 5,264 10,326 5,062
realisations
Total 19,125 38,322 19,197
realisations
†Includes gross revenue received during the period. *Listed on the London and
Dublin Stock Exchanges. **Traded on NASDAQ.
Figures below refer to the total value of each realisation, including, where
appropriate, repayment of third party debt. Proceeds to clients including the
Company are stated net of any such repayment.
Full realisations
Hirschmann
Hirschmann is a market-leading global supplier of electronics equipment,
components and related accessories. Hirschmann has manufacturing plants in
Germany and Hungary as well as sales and services operations in Europe, the
USA, the Far East and South America.
The business has been sold with proceeds of €138 million received, with the
potential of a further €12 million over the next two to three years subject to
warranty claims. This investment has returned 5.8x original cost, including the
unrealised value of potential future payments.
DocMorris
Founded in 2000 as a mail order business, DocMorris has grown to become the
largest pharmacy serving the German market, with over 800,000 customers. It
offers prescription drugs at attractive prices by sourcing direct from
pharmaceutical manufacturers.
In April 2007, 3i and HgCapital along with venture capital investor Neuhaus
Partners sold their stakes to Celesio AG, Europe's largest pharmaceutical
distributor, which will become the majority shareholder in DocMorris. The
company's management will continue to hold a stake of just under 10% in
DocMorris. This investment has returned 2.5x original cost, including the
unrealised value of potential future payments.
Worldmark
Worldmark is a leading global supplier of product identification systems,
components and service solutions to the electronics and mobile
telecommunications industries.
The business was sold in January 2007 to a financial buyer. Clients received
proceeds amounting to £29.2 million, representing a 1.5x multiple of cost.
Bertram
The Bertram Group comprises a book wholesaler, a distribution service for
publishers and the leading supplier of books, games and audio-visual titles to
public libraries. In February 2007, the business was sold to Woolworths plc.
Proceeds received for clients were £13.1 million, representing an overall
return of 0.7x original cost.
Eagle Rock
Eagle Rock creates and acquires audio and audio-visual entertainment
productions with a strong focus on rock music by mature and established
international artists. It exploits these intellectual property rights through
DVD, TV licensing and CD.
In April 2007, the company was sold to management and an investment consortium.
Proceeds received for clients were £7.5 million representing a return of 0.4x
original cost.
South Wharf
Following the successful demerger of the glass business, South Wharf became a
property company, owning 26 acres of long-leasehold land and a small glass
trading activity. As part of a tender offer, we sold our quoted shares for
proceeds of £49.8 million. Over its life, this investment has returned a
multiple of 7.3x original cost.
Partial realisations
Xtx t/a Xyratex
Xyratex has been a world-leader in the hard disk and network storage technology
market for over
20 years.
Xyratex completed its IPO on NASDAQ on 24 June 2004 at a price of $14 per
share, realising £10.2 million for HgCapital clients. HgCapital has selectively
sold stock since our lock-up period expired in early 2005.
We sold a further 2.9 million shares during the first six months to June 2007
at an average price of $21 per share. This takes our total cash returned to
clients to £91 million (1.8x cost) with a remaining ownership of 2.7 million
shares which is worth £29 million to clients as at 30 June 2007.
Blue Minerva t/a IRIS
IRIS is the UK's leading provider of financial, practice management and tax
software to accountancy practices. Research confirms that it has the best
product, the largest number of customers and the strongest reputation for
customer support in its sector.
Management releveraged the business with a £95 million new senior and mezzanine
facility in December 2005, returning £26.2 million. A second recapitalisation
completed in March 2007 returning a further £18.8 million to clients. Since the
period end the business has been sold, details of which can be found in the
Review of principal investments.
Rolfe & Nolan
Rolfe & Nolan is the number two global supplier of back-office processing
software to the futures and options industry. It supports over 250 bank,
brokerage and exchange clients in 20 countries. Customers include Deutsche
Bank, HSBC, Goldman Sachs and Lehman Brothers.
Rolfe & Nolan has exceeded all budgets since our investment and did so again in
the year to February 2007. Management has successfully completed a major office
move at low incremental cost and has succeeded in maintaining revenue
performance and increasing profitability in the face of customer consolidation.
The business has been recapitalised a number of times, most recently in June
2007, which returned £12 million to clients. Over its life this investment has
returned 2.2x original cost, including the unrealised value.
REVIEW OF PRINCIPAL INVESTMENTS
1 Schenck
Sector: Industrials Location: Germany
Year of investment: 2005 www.schenck-mpt.de
In December 2005, HgCapital completed the €205 million buy-out of Schenck and
acquired an 85% stake in the business on behalf of clients.
Schenck is the global market leader for high-tech applications and solutions in
industrial weighing, feeding and automation. In June 2006 Schenck completed the
acquisition of Stock Equipment Company (USA) Inc., the world market leader in
handling systems for coal-fired power plants. Schenck has activities in more
than 40 countries and operates 11 state-of-the art assembly facilities
globally.
Since the period end Schenck has been sold to Industri Kapital, returning an
estimated €250 million to clients, representing 2.8x original cost, subject to
cartel clearance. Completion of this sale will add 59p per share to the
valuation at 30 June 2007.
2 Blue Minerva t/a IRIS
Sector: TMT Location: UK
Year of investment: 2004 www.iris.co.uk
The £102 million buy-out of IRIS Software was completed in July 2004. We hold a
60% equity stake in the business on behalf of clients.
IRIS is the UK's leading provider of financial, practice management and tax
software to accountancy practices. Independent research confirms that it has
the best product, the largest number of customers and the strongest reputation
for customer support in its sector. Since the buy-out IRIS has acquired four
companies for a total consideration of £31 million and the core business has
grown revenue by 12-13% over the last three years.
Since the period end IRIS has been sold to Hellman & Friedman in a combined
sale with CS Group, returning £150 million to clients over the life of the
investment, including the residual unrealised value equivalent to 3.6x original
cost.
3 VISMA
Sector: TMT Location: Norway
Year of investment: 2006 www.visma.com
In May 2006, HgCapital completed the £382 million buy-out of Visma, the leading
software company in Norway and the number one company supplying software and
services to SMEs in the Nordic region. HgCapital holds a 57% stake in this
business on behalf of clients.
Since May 2006 the business has acquired two complementary small businesses in
the Nordic region and has bought out several minority stakes in businesses it
already controlled. Most recently, HgCapital and Visma management negotiated
the acquisition of Accountview, a similar business in
the Netherlands. The company is trading in line with expectations.
4 Guildford t/a CS Group
Sector: TMT Location: UK
Year of investment: 2007 www.computersoftware.com
The £112 million public-to-private buy-out of Computer Software Group completed
in April 2007. HgCapital clients invested a total of £40.3 million.
CS Group is the UK's leading provider of back-office application software to
the legal and not-for-profit sectors, selling principally to SMEs with little
in-house IT expertise. Since completion CS Group has acquired two further
companies and each is expected to contribute significantly once integration is
complete.
Since the period end, CS Group has been sold to Hellman & Friedman in a
combined sale with IRIS. The combined EV of the exit was £500 million, of which
£195 million was attributable to CS Group. This has delivered £87.0 million to
clients including the residual unrealised value equivalent to 2.2x original
cost.
5 Paragon
Sector: Healthcare Location: UK
Year of investment: 2006 www.milburycare.com
In April 2006, HgCapital completed the £322 million buy-out of Paragon
Healthcare Group. We hold a 52% stake in the business on behalf of clients.
Paragon owns and operates small community-based homes for adults with learning
disabilities and associated physical disabilities. The company currently
operates 1,700 beds in 263 services across England and Scotland. The company
now has all key posts filled following the group's reorganisation into three
regions.
The company is trading in line with expectations and new roles dedicated to bed
filling are expected to impact occupancy levels positively in the medium term.
6 Addison
Sector: TMT Location: Germany
Year of investment: 2005 www.addison.de
The €78 million management buy-out of Addison was completed in June 2005.
Addison is a leading German software company that provides business-critical
solutions for tax accountants and SMEs and is the fastest-growing player in the
German market. It develops, licenses and manages standard and sector-specific
software for bookkeeping, accounts, tax, cost accounting, payroll and financial
controls.
In December 2005, we made a further investment in Addison of €14 million to
fund the acquisition of PBSG, the number three player in the German tax
accountant software market. The integration of the two businesses is complete
and the company is trading in line with expectations.
7 The Sanctuary Spa
Sector: Consumer and Leisure Location: UK
Year of investment: 1995 www.thesanctuary.co.uk
On 8 July 2005, our investment in the Sanctuary Spa Group was acquired by the
newly incorporated The Sanctuary Spa Holdings Limited (SSHL). Simultaneously,
SSHL acquired the licence to sell beauty products branded The Sanctuary Spa,
the rights to which had previously been held by a third party licensee.
HgCapital has a 79% stake in the business.
The investment strategy was to integrate the two businesses and invest in
product development in order to transform The Sanctuary into a higher margin
beauty products business. Year one focused on building the management team and
improving the core business. Year two saw the launch of a new product range,
which has reversed an underlying decline in the product category together with
improving the trading relationship with Boots.
The business is performing above plan and all of our clients' loan stock has
been repaid ahead of schedule.
8 SHL
Sector: Services Location: UK
Year of investment: 2006 www.shl.com
In November 2006, HgCapital completed the £100 million public-to-private
buy-out of SHL, taking a stake of 72%.
SHL is the UK market leader in objective psychometric testing and has a global
presence. The core business consists of the development and sale of
psychometric tests to corporate clients. SHL also provides psychologists for
the administration and interpretation of tests. The company has produced
consistent revenue growth of 9% per annum for the last five years.
We plan to accelerate the business's move towards test sales, 50% of which are
currently delivered through the internet, and this will continue to be a focus
for growth. The company is trading in line with expectations.
9 Clarion Events
Sector: TMT Location: UK
Year of investment: 2004 www.clarionevents.co.uk
The £45 million buy-out of Clarion Events, the largest independent exhibition
and events business in the UK, completed in October 2004. HgCapital has a 65%
equity stake in the business.
Clarion has a portfolio of 40 business and consumer shows. Although the company
is perceived to be a consumer-weighted business, under our ownership it has
shifted the balance towards business shows, which are valued at a higher level
by potential purchasers.
Since our acquisition we have found the majority of growth potential comes from
incremental acquisitions rather than new launches. The B2B gaming business ATE
acquired in June 2005 is proving highly successful and there is a further B2B
gaming acquisition in the final stages of completion.
10 W.E.T.
Sector: Industrials Location: Germany
Year of investment: 2003 www.wet.de
The €169 million public-to-private transaction to acquire W.E.T. was declared
unconditional in September 2003. HgCapital holds a 70% equity stake in the
business.
W.E.T. is the world market leader for seat-heating systems, supplying most of
the major European and North American passenger car and seat manufacturers. It
has production facilities in the low-cost locations of Mexico, Hungary, Ukraine
and China, a market share of more than 50%, strong relationships with most of
the major vehicle manufacturers in Europe and North America and a reputation
for high-quality products.
Pressure from customers buying lower specification W.E.T.product is being
mitigated by a profit improvement programme, and WET has divested its flat
cables operations following the successful disposal of its sensors business.
TOP 20 INVESTMENT LISTING OF THE COMPANY
Company Sector Residual Valuation Year of Portfolio Cum.
cost £'000 investment value value
£'000 %
%
1 Schenck Process Industrials 11,698 16,778 2005 10.9 10.9
SA
2 Blue Minerva Ltd TMT 146 16,664 2004 10.8 21.7
t/a IRIS
3 VISMA Holdings TMT 13,268 12,598 2006 8.2 29.9
4 Guildford TMT 5,046 10,844 2007 7.0 36.9
Acquisition Co
Ltd
t/a CS Group
5 Paragon Ltd Healthcare 10,746 10,746 2006 7.0 43.9
6 Addison TMT 6,499 10,468 2005 6.8 50.7
Luxembourg SA
7 The Sanctuary Spa Consumer & 631 8,464 1995 5.5 56.2
Holdings Ltd Leisure
8 SHL Group Services 7,534 7,534 2006 4.9 61.1
Holdings I Ltd
9 Clarion Events TMT 4,965 7,214 2004 4.7 65.8
Holdings Ltd
10 W.E.T Holding Industrials 7,590 6,619 2003 4.3 70.1
Luxembourg SA
11 Elite Holding SA TMT 5,749 6,493 2005 4.2 74.3
12 Sporting Index Consumer & 5,428 5,428 2005 3.5 77.8
Group Ltd Leisure
13 Americana Consumer & 4,708 4,708 2007 3.1 80.9
International Leisure
Holdings Limited
14 Hofmann M.M. SA Industrials 4,747 4,668 2005 3.0 83.9
15 Xtx Ltd t/a TMT 1,277 4,639 2003 3.0 86.9
Xyratex*
16 Schleich Consumer & 4,634 4,636 2006 3.0 89.9
Luxembourg SA Leisure
17 FTSA Holdings Ltd Industrials 6,235 2,869 2006 1.9 91.8
18 Hg Renewable Renewable 3,046 2,636 2006 1.7 93.5
Power Partners LP energy
19 Hoseasons Group Consumer & 2,197 1,929 2003 1.3 94.8
Ltd Leisure
20 Classic Copyright TMT 6,033 1,486 2003 1.0 95.8
(Holdings) Ltd
t/a Boosey &
Hawkes
Top 20 112,177 147,421 95.8 95.8
Investments
Other Investments 24,956 6,818 4.2 4.2
(18)
Total Investments 137,133 154,239 100.0 100.0
(38)
*Traded on NASDAQ.
INCOME STATEMENT
for the six months ended 30 June 2007
Revenue return
Note Six months Six months Year ended
ended 30.6.07 ended 30.6.06 31.12.06
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Gains on investments and - - -
government securities
Carried interest provision - - -
Income 5 5,195 2,061 7,769
Investment management fee 6 (407) (353) (730)
Other expenses 7(a) (352) (317) (636)
Net return on ordinary 4,436 1,391 6,403
activities before taxation
Taxation on ordinary activities (1,318) (393) (1,884)
Transfer to reserves 3,118 998 4,519
Return per ordinary share 12.4p 4.0p 17.9p
INCOME STATEMENT (CONTINUED)
for the six months ended 30 June 2007
Capital return
Note Six months Six months Year ended
ended 30.6.07 ended 30.6.06 31.12.06
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Gains on investments and 31,046 25,326 34,919
government securities
Carried interest provision (5,252) (4,230) (4,737)
Income - - -
Investment management fee 6 (1,222) (1,057) (2,191)
Other expenses - - -
Net return on ordinary 24,572 20,039 27,991
activities before taxation
Taxation on ordinary activities 367 317 657
Transfer to reserves 24,939 20,356 28,648
Return per ordinary share 99.0p 80.8p 113.7p
INCOME STATEMENT (CONTINUED)
for the six months ended 30 June 2007
Total return
Note Six months Six months Year ended
ended 30.6.07 ended 30.6.06 31.12.06
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Gains on investments and 31,046 25,326 34,919
government securities
Carried interest provision (5,252) (4,230) (4,737)
Income 5 5,195 2,061 7,769
Investment management fee 6 (1,629) (1,410) (2,921)
Other expenses 7(a) (352) (317) (636)
Net return on ordinary 29,008 21,430 34,394
activities before taxation
Taxation on ordinary activities (951) (76) (1,227)
Transfer to reserves 28,057 21,354 33,167
Return per ordinary share 111.4p 84.8p 131.7p
The total column of this statement represents the Company's income statement.
The supplementary revenue and capital return columns are both prepared under
guidance published by the Association of Investment Companies ("AIC"). All
recognised gains and losses are disclosed in the revenue and capital columns of
the income statement and as a consequence no statement of total recognised
gains and losses has been presented.
All revenue and capital items in the above statement derive from continuing
operations.
Final dividend for the year ended 31 December 2006 of 14.00p (£3,526,000)
declared on 31 March 2007 and paid on 1 May 2007.
Final dividend for the year ended 31 December 2005 of 10.00p (£2,519,000).
BALANCE SHEET
as at 30 June 2007
30.6.07 30.6.06 31.12.06
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Fixed assets
Investments held at fair value
Quoted at market valuation 7,321 15,925 14,255
Unquoted at directors' valuation 146,918 147,387 134,287
154,239 163,312 148,542
Current assets
Debtors 12,684 5,185 10,005
Government securities 50,203 12,447 34,284
Cash 4,098 909 2,268
66,985 18,541 46,557
Creditors - amounts falling due within one (9,558) (6,531) (7,964)
year
Net current assets 57,427 12,010 38,593
Net assets 211,666 175,322 187,135
Capital and reserves
Called up share capital 6,296 6,296 6,296
Share premium account 14,123 14,123 14,123
Capital redemption reserve 1,248 1,248 1,248
Capital reserve - realised 164,354 131,754 152,787
Capital reserve - unrealised 16,357 15,726 2,985
Revenue reserve 9,288 6,175 9,696
Total equity shareholders' funds 211,666 175,322 187,135
Net asset value per ordinary share 840.4p 696.1p 743.0p
CASH FLOW STATEMENT
for the six months ended 30 June 2007
Note Six months Six months Year ended
ended ended
31.12.06
30.6.07 30.6.06
£'000
£'000 £'000
(audited)
(unaudited) (unaudited)
Net cash outflow from operating 7(b) (5,387) (2,806) (2,273)
activities
Taxation (paid)/recovered (8) 3,046 2,666
Capital expenditure and financial
investment
Purchase of fixed asset investments (11,081) (40,292) (45,266)
Proceeds from the sale of fixed 38,390 31,013 59,805
asset investments
Net cash inflow/(outflow) from 27,309 (9,279) 14,539
capital expenditure
and financial investment
Equity dividends paid (3,526) (2,519) (2,519)
Net cash inflow/(outflow) before 18,388 (11,558) 12,413
management of liquid resources
Management of liquid resources (16,558) 11,597 (11,008)
Increase in cash in the period 1,830 39 1,405
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the six months ended 30 June 2007
Note Capital Share Capital Capital Revenue Total
£'000 Premium Redemption Reserves Reserves £'000
Account Reserve £'000 £'000
£'000 £'000
At 31 December 2006 6,296 14,123 1,248 155,772 9,696 187,135
Net return from - - - 24,939 3,118 28,057
ordinary activities1
Dividends paid2 3 - - - - (3,526) (3,526)
At 30 June 2007 6,296 14,123 1,248 180,711 9,288 211,666
At 31 December 2005 6,296 14,123 1,248 127,124 7,696 156,487
Net return from - - - 28,648 4,519 33,167
ordinary activities
Dividends paid3 3 - - - - (2,519) (2,519)
At 31 December 2006 6,296 14,123 1,248 155,772 9,696 187,135
1. Unaudited.
2. Final dividend for the year ended 31 December 2006 of 14.00p (£3,526,000)
declared on 13 March 2007 and paid on 1 May 2007.
3. Final dividend for the year ended 31 December 2005 of 10.00p (£2,519,000)
declared on 13 March 2006 and paid on 2 May 2006.
NOTES TO THE FINANCIAL STATEMENTS
1. Principal activity
The principal activity of the Company is that of an investment company within
the meaning of section 266 of the Companies Act 1985.
2. Basis of preparation
The accounts have been prepared in accordance with applicable Accounting
Standards and with the Statement of Recommended Practice `Financial Statements
of Investment Trust Companies' (SORP), dated January 2003 and revised in
December 2005. All of the Company's operations are of a continuing nature. The
same accounting policies used for the year ended 31 December 2006 have been
applied.
3. Dividends
It is intended that dividends will be declared and paid annually in respect of
each accounting period. A dividend of 14.00p per share, declared as a final
dividend, was paid on 1 May 2007 in respect of the year ended 31 December 2006
(year ended 31 December 2005: 10.00p per share, declared on 13 March 2006 and
paid on 2 May 2006).
4. Issued share capital
There were 25,186,755 ordinary shares in issue for the six months ended 30 June
2007 and 30 June 2006; and the year ended 31 December 2006.
5. Income
Six months Six months Year ended
ended ended
31.12.06
30.6.07 30.6.06
£'000
£'000 £'000
(audited)
(unaudited) (unaudited)
Income from investments
UK and overseas unquoted investment 3,567 1,237 5,370
income
UK dividends from listed companies - 82 82
UK dividends from unquoted investments 42 - -
3,609 1,319 5,452
Other income
Gilt interest 1,539 719 2,056
Deposit interest 47 23 95
Other interest income - - 166
1,586 742 2,317
Total income 5,195 2,061 7,769
6. Investment management fee
Revenue return Capital return
Six months ended Year Six months ended Year
ended ended
30.6.07 30.6.06 31.12.06 30.6.07 30.6.06 31.12.06
£'000 £'000 £'000 £'000 £'000 £'000
(unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited)
Investment 347 300 621 1,040 900 1,865
management fee
Irrecoverable VAT 60 53 109 182 157 326
thereon
407 353 730 1,222 1,057 2,191
The investment management fee is levied quarterly in arrears. Investment
management fees are charged 75% to capital and 25% to revenue. VAT on the
Investment manager's fees is subject to a claim but the outcome is uncertain.
7. Other expenses
(a) Operating expenses
Six months Six months Year ended
ended ended
31 Dec 2006
30.6.07 30.6.06
£'000
£'000 £'000
(audited)
(unaudited) (unaudited)
Custodian and administration fees 111 95 197
Other administration costs 241 222 439
352 317 636
(b) Reconciliation of net revenue return before taxation to net cash flow from
operation activities
Six months Six months Year ended
ended ended
31.12.06
30.6.07 30.6.06
£'000
£'000 £'000
(audited)
(unaudited) (unaudited)
Net return before taxation 29,008 21,430 34,394
Gains on investments held at fair (31,046) (25,326) (34,919)
value
Carried interest provision 515 1,254 1,761
Increase in accrued income (4,000) (134) (3,613)
Increase in debtors - - (20)
Increase in creditors 139 127 385
Tax on investment income included (3) (157) (261)
within gross income
Net cash outflow from operating (5,387) (2,806) (2,273)
activities
8. Transaction costs
During the period the Company incurred transaction costs on the sale of quoted
investments of nil (30 June 2006: £13,000 and 31 December 2006: £33,000).
9. Capital commitments
At 30 June 2007, investment purchases of £11,426,000 (30 June 2006: £607,000
and 31 December 2006: £12,941,000) had been authorised and contractually
committed, including an undrawn commitment to Hg Renewable Power Partners LP.
10. Publication of non-statutory accounts
The financial information contained in this interim report does not constitute
statutory accounts as defined in Section 240 of the Companies Act 1985. The
financial information for the six months ended 30 June 2007 and 2006 has not
been audited. The information for the year ended 31 December 2006 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 237(2) or (3) of
the Companies Act 1985.
CONTACT
Chairman, HgCapital Trust PLC
Roger Mountford 07799 662601
Chairman, HgCapital
Ian Armitage 020 7089 7888
The Maitland Consultancy
Peter Ogden 020 7395 0422
HgCapital Trust PLC
2 More London Riverside
London
SE1 2AP
Telephone: 020 7089 7888
www.hgcapital.com
Friday, 22nd November 2024
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