Interim Management Statement
HgCapital Trust plc
Interim Management Statement
10 May 2012
HgCapital Trust plc (the `Trust'), today issues its Interim Management
Statement in accordance with FSA Disclosure and Transparency Rule 4.3. This
statement relates to the period from 1 January 2012 to 9 May 2012 and
incorporates the Trust's calculation of its Net Asset Value (NAV) at 30 April
2012, in the same form as is issued following the end of each month. The NAV at
30 April 2012 is based on the valuations of unquoted investments as at 31
December 2011, as set out in the annual report issued on 16 March 2012, with
any subsequent investment completed by the date of the announcement accounted
for at cost; adjustments are made for realisations, exchange rates, changes in
the value of quoted securities, dividends payable and net revenues during the
period.
Activity during the period
Investment Environment
The macro-economic environment is weak across Western Europe where the Manager
invests. Consistent with the comments made in the prior reporting period,
since June 2011 we have seen a clear downturn in both key economic indicators
and market sentiment across most of the regions in which our Manager,
HgCapital, invests. However, the Board and the Manager have held a cautious
view of Western European economic prospects since 2009, assuming minimal levels
of GDP growth and more volatility, generally taking a more bearish stance than
most economic commentators over the last three years. The Manager believes,
however, that macro-economic factors have relatively little bearing on its
investment performance over the medium and long-term because its investment
strategy is focused on using its deep sector expertise to identify market
niches that will exhibit strong secular growth despite economic conditions and
provide consistent opportunities to invest in multiple businesses that benefit
from these fundamental growth trends despite a weak overall economy.
Put simply, the Manager uses its sector expertise, developed over 10-15 years
in each sector team, to identify the highest quality and fastest growth
companies in market niches which themselves are growing at typically 2-3 times
GDP driven by fundamental long-term factors. The most obvious example is the
increasing penetration of internet-based transactions for businesses, a trend
identified many years ago by the Manager and exploited in several different
sectors. Companies such as SHL and Visma acquired by the manager in 2006,
Achilles or Epyx acquired in 2008/9, Lumesse in 2010 or GroupNBT acquired in
the last 6 months all benefit from this trend and produce consistent revenue
and profit growth in excess of 10% per annum since 2008 as a result. The
Manager also believes that such companies are more attractive to both trade
investors and other financial acquirers when the time comes to realise its
investments.
The Manager has been relatively cautious on new investment over the last 18
months and will continue to adopt a similar stance, although within its sectors
of expertise it continues to find pockets of opportunity to acquire market
leading businesses at reasonable prices, often where it has had the opportunity
to build relationships with such companies over many years before making an
investment. The Manager continues to see active interest in acquiring a number
of its portfolio companies, as a result of their growth and market positions,
from external trade or financial buyers. It will continue to consider
realising its investments as it has done consistently over several years.
New Investments
Since the year-end, the Trust has announced one new buyout investment alongside
other clients of the Manager. On 3 May 2012, HgCapital announced the
acquisition of Qundis GmbH ("Qundis"), Germany's foremost provider of
submetering devices and systems for consumption-dependent billing of heat and
water. The deal, pending approval by the antitrust authorities, is expected to
complete for approximately £79.0 million. The Trust's share of this will be
approximately £11.8 million.
The Trust has also participated in further small investments in the buy-out and
Renewable Energy funds, to give a total for all investments in the period of £
17.1 million.
Current trading
The Manager is represented on the board of every material investment in the
portfolio and receives monthly management accounts from all the buyouts in
which the Trust is invested. These are regularly discussed with the Board,
together with other information about the trading environment, strategy,
prospects and leadership of each business, and the actions that the Manager is
taking to effect improvements. The latest available trading figures for
companies in the portfolio are for the period ended March 2012.
The top 20 companies in the buyout portfolio have seen average sales growth in
the last twelve months of 12%, down from 13% as reported in the annual results.
Of these investments, 10 increased sales by greater than 10%, including 4 by
20% or more. Only four have reported sales materially below last year.
During the last twelve months, average growth in EBITDA of the top 20 buyout
investments increased by 10%, the same increase as was reported in the annual
results. Of these investments, 8 increased EBITDA by more than 10%, including 6
by more than 20%. Five investments have reported EBITDA materially below the
prior year.
The Trust has a significant exposure to euro denominated assets. As at 30 April
2012, the depreciation of the euro against sterling, by 2.5% since 31 December
2011, has resulted in a decrease in the valuation of that portion of the
portfolio. Similarly, the depreciation of Norwegian Kroner and Swedish Kroner
against sterling of 0.3% and 2.5% respectively, has resulted in a decrease in
the sterling valuation of assets denominated in those currencies.
Investment objective
The Trust gives investors access to a private equity portfolio run by an
experienced and well-resourced Manager that makes investments in private
companies across Northern Europe in the Healthcare, Industrials, Services and
TMT sectors. In addition, the Trust has made a commitment to small-cap TMT
deals, where the Manager has many years of experience, through HgCapital's
Mercury fund. Finally, it also holds investments in the Manager's two renewable
energy funds.
The objective of the Trust is to provide shareholders with long-term capital
appreciation in excess of the FTSE All-Share Index by investing in unquoted
companies. The Trust provides investors with exposure to a diversified
portfolio of private equity investments primarily in the UK and Continental
Europe.
Performance
The Manager's aim is to achieve returns in excess of the FTSE All-Share Index
over the long term, but is not intended to reflect movements in the Index.
Between 31 December and 30 April the total return (diluted NAV plus dividend)
increased by 0.5%, compared with a 5.8% increase in the FTSE All-Share Index.
The Trust's share price at 30 April 2012 was 951.0 pence, a discount of 10.6%
against the diluted NAV of 1,064.3 pence and a discount of 12.3% against the
basic NAV of 1,084.1 pence per share. The Trust's share price (on a total
return basis) decreased by 0.9% over the four months to 30 April 2012, in a
period when the FTSE All-Share Index increased by 5.8%.
These calculations of NAV are based on valuations of the portfolio as at 31
December 2011, using market multiples at that date, and therefore do not
reflect changes in the ratings of comparable listed companies between 1 January
2012 and 30 April 2012. The book value of the unquoted portfolio will next be
reviewed, as usual, at 30 June 2012 in accordance with IPEV guidelines, taking
account of each company's maintainable earnings and ratings of comparable
businesses in the relevant listed markets at that time.
The table below represents the performance at month end with net income
reinvested. All information is at 30 April 2012 and is unaudited.
One month Four One year Three Five Ten years
months years years
p.a. p.a. p.a.
NAV per Ordinary (0.5%) 0.5% (2.1%) 8.0% 9.4% 13.2%
share (diluted)
NAV per Ordinary (0.8%) 0.4% (2.9%) 8.7% 9.8% 13.4%
share (basic)
Ordinary Share 0.3% (0.9%) (15.0%) 8.0% 4.5% 14.5%
price
FTSE All-Share (0.3%) 5.8% (2.0%) 15.0% 1.3% 5.3%
Index
Sources: HgCapital, Factset
Results
At 30 April 2012
NAV per share:(1)
- Diluted (2) 1,064.3p
- Basic 1,084.1p
Share price - ordinary shares: 951.0p
Ordinary share price premium/ (10.6%)
(discount) to NAV (diluted):
Ordinary share price premium/ (12.3%)
(discount) to NAV (basic):
Share price - subscription 51.0p
shares:
Total net assets: £345.0m
Net yield: 1.1%
Gearing: Nil%
Ordinary shares in issue: 31,822,330
Subscription shares in issue: 5,502,368
* includes 4 months net revenue of 12.0p.
Ticker codes:
Ordinary shares HGT
Subscription shares HGTS
1. Post a dividend provision of 10.0 pence announced on 16 March 2012, with an
ex-dividend date of 4 April 2012 and payable on 15 May 2012.
2. The diluted NAV per share calculation is based on the assumption that all
Subscription shares in issue are exercised at the price of 950 pence per
share, which is the exercise price applicable in May and October 2012; the
exercise price in May 2013 (the last date for exercise) will increase to £
10.25.
Unaudited NAV per Share
The investment portfolio has not been revalued at 30 April 2012. The unaudited
NAV at 30 April 2012 is based on the NAV at 31 December 2011, adjusted to
reflect purchases and sales of investments, currency movements and market
prices (at bid) in respect of listed investments.
Net revenue for the four months to 30 April 2012 was 12.0p.
Balance Sheet
At 30 April 2012 the Trust's summary balance sheet was as follows:
£m %
Unquoted investments 265.7 77.0
Accrued income on 36.5 10.6
investments
Total investment 302.2 87.6
portfolio
Cash and other liquid 42.3 12.3
assets (1)
Other net assets 0.5 0.1
NAV 345.0 100.0
1. As at 30 April 2012, adjusting for the impact of the dividend payable in
May 2012.
After adjusting for the impact of the dividend payable in May 2012 and the
recently announced acquisition of Qundis, liquid resources (including a £40
million undrawn loan facility) are estimated to be £67.2 million. The Trust's
undrawn commitments to invest in or alongside the Manager's Hg6, Hg5, Mercury,
RPP and RPP2 funds total £176.8 million.
Portfolio
The twenty largest investments at 30 April 2012 (at valuation including accrued
interest) were:
Investment % of Sector
Total
Assets
1 TeamSystem 7.5 TMT
2 IAS 7.4 TMT
3 VISMA 6.7 TMT
4 SHL 6.2 Services
5 Lumesse 4.8 TMT
6 MercuryPharma (formerly 4.8 Healthcare
Goldshield)
7 Hg Renewable Power Partners 4.7 Renewable Energy
LP
8 Achilles 4.2 TMT
9 ATC 4.2 Services
10 Group NBT 4.1 TMT
11 Epyx 3.7 TMT
12 Manx Telecom 3.4 TMT
13 JLA 3.0 Services
14 HgCapital 6 E 2.7 Fund
15 SimonsVoss 2.5 Industrials
16 Voyage 2.3 Healthcare
17 Mainio Vire 2.2 Healthcare
18 Frosunda 2.0 Healthcare
19 Schleich 2.0 Consumer & Leisure
20 Teufel 1.9 Industrials
Total 80.3%
% of
Total
Sector Assets
TMT 43.3
Services 14.0
Healthcare 12.1
Renewable Energy 6.5
Industrials 5.1
Consumer & Leisure 3.6
Other 3.1
Cash and other liquid assets 12.3
Total 100.0%
This statement is a general description of the financial position and
performance of the Trust for the period from 1 January 2012 to 9 May 2012. It
does not contain any profit forecast or forward looking information. Future
performance and share price are likely to be affected by a number of factors,
including (but not limited to) general economic and market conditions and
specific factors affecting the financial performance or prospects of individual
investments within the Trust's portfolio.
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