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