Annual Financial Report
HgCapital Trust plc
Final results for the year ended 31 December 2013
London, 10 March 2014: HgCapital Trust plc ("the Trust"), which provides investors with a listed vehicle to invest in all private equity deals managed by HgCapital, today announces its full year results to 31 December 2013.
Summary performance
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28 February |
31 December |
31 December |
% Total return* 2013 |
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Share price |
1,068.5p |
1,010.0p |
1,016.0p |
+1.4% |
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NAV per share (diluted) |
1,180.6p |
1,180.4p |
1,221.7p |
-1.6% |
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FTSE All-Share Index |
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+20.8% |
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|
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2013 Movement |
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Net Asset Value |
£440.7m |
£440.6m |
£438.0m |
+£2.6m |
* Assuming reinvestment of all dividends
Financial Highlights
§ Share price +1.4% on a total return basis to 1,010.0p.
§ NAV per share -1.6% on a total return basis to 1,180.4p.
§ Proposed final dividend for the year of 29.0 pence per ordinary share (2012: 23.0 pence) to be paid on 15 May 2014, subject to shareholder approval.
§ Strong revenue growth of 9% (2012: 9%) and EBITDA growth of 9% (2012: 6%) across the top 20 buyout investments over the last twelve months to 31 December 2013, with an improving trend in the second half of the year.
§ An EV/EBITDA valuation multiple of 11.6x and debt/EBITDA multiple of 4.3x as at 31 December 2013.
§ Net liquid resources available for deployment were £95m (22% of NAV) with outstanding commitments of £279m (63% of NAV).
§ +16.0% p.a. 10-year compound annual growth rate of the share price vs. +8.8% p.a. from the FTSE All-Share Index, both calculated on a total return basis to 31 December 2013.
Investment Activity
§ £80m invested over the year, principally in five new buyout investments (P&I, Nair & Co, Leasedrive,
e-conomic and Intelliflo).
§ £66m of cash returned to the Trust including three full buyout exits (Epyx, ATC and CSH) at a 20% aggregate uplift to the 31 December 2012 book value.
Events since 31 December 2013
§ The acquisition of Zenith, one of the UK's largest independent leasing, fleet management and vehicle outsourcing businesses, completed in February. As planned, Zenith and Leasedrive (acquired in December 2013) started operating as a single entity at the beginning of March. The Trust's share of the combined investment is £24.0 million.
§ Completed IPO of Manx on AIM in February at a market capitalisation of £160 million. The proceeds to the Trust were £13.1m, a £3 million uplift to the book value at 31 December 2013, representing an investment multiple of 2.1x and gross IRR of 26% p.a.
§ In February, the Mercury Fund announced an investment in Relay Software, a provider of software to insurance brokers, underwriters and insurers in the Republic of Ireland. The Trust contributed a total of £2.2 million to this investment.
§ Also, in February, HgCapital agreed the sale of Americana, An apparel company, to EMERAM Capital Partners, a Munich-based private equity fund. As a result of difficult trading, a full provision had been taken against the investment in June 2013, but the sale has returned immediate proceeds of £0.6 million to the Trust, with a continuing interest in the ongoing recovery of the business.
§ In March, the TMT team agreed the acquisition of Ullink, a leading global provider of electronic trading applications and connectivity to the financial community. The Trust's share of this investment is £7.7 million.
§ Adjusting for these transactions, net liquid resources are estimated to be £85m (19% of NAV) and outstanding commitments of £253m (57% of NAV), all as at 28 February 2014.
Manager Outlook
§ We have made a number of new investments over the last nine months and would expect to see some further deployment of capital in the next six months.
§ On the existing portfolio:
- We are happy with the level of revenue growth, and are starting to see the benefit that we would expect from operational leverage coming through from portfolio companies where we have made substantial investment;
- We see opportunities to put further capital to work through bolt-on acquisitions; and
- We will continue to work alongside the management of our portfolio companies in order to increase efficiency and deliver growth.
§ We believe that the above, together with consistently realising investments for good value, will deliver steady NAV progression over the next couple of years and therefore we are confident that we will continue to reward our investors with long-term superior returns.
Roger Mountford, Chairman of the Trust, commented:
"The store of value that continues to be created within the Trust is the foundation for attractive long-term returns, and diversification from listed equities, as an element of the portfolio of a patient, long-term investor".
- Ends -
The Trust's 2013 Annual Report and a webcast from the Manager to accompany the results are available to view at: http://www.hgcapitaltrust.com/.
For further details:
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HgCapital |
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Nic Humphries (CEO, HgCapital) |
+44 (0)20 7089 7888 |
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Roger Mountford (Chairman, HgCapital Trust plc)
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+44 (0) 77996 626 01 |
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Tom Eckersley Peter Ogden
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+44 (0)20 7379 5151 +44 (0)20 7379 5151
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About HgCapital Trust plc
HgCapital Trust plc is an investment trust whose shares are listed on the London Stock Exchange. The Trust gives investors exposure, through a liquid vehicle, to a portfolio of high-growth private companies, managed by HgCapital, 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, see www.hgcapitaltrust.com and www.hgcapital.com
Neither the contents of HgCapital's website, HgCapital Trust's website nor the contents of any website accessible from hyperlinks on the websites (or any other website) is incorporated into, or forms part of, this announcement.
HgCapital Trust plc
Annual report and accounts
31 December 2013
HgCapital Trust plc announces that the annual report and accounts of the Trust for the year ended 31 December 2013 have been published. The full annual report and accounts can be accessed via the Trust's website at http://hgcapitaltrust.com/sites/default/files/HgT2011.pdf or by contacting the Company's Registrar (Computershare Investor Services plc) on telephone number 0870 707 1037.
In order to meet the disclosure requirements of DTR 6.3.5(2), this announcement includes certain extracts from the annual report below. Any references to page numbers, sections or notes in the following text are references to the annual report and accounts, which can be accessed via the Trust's website as noted above.
References in this announcement to 'HgCapital Trust plc' have been abbreviated to 'HgCapital Trust' or the 'Trust'. HgCapital refers to the trading name of HgPooled Management Limited and HgCapital LLP, who act as the 'Manager'.
References in this announcement to 'Total Return' refer to a return where the reinvestment of all dividends is assumed.
References in this announcement to "the Trust's Annual Report" or "the Annual Report" refer to the Trust's annual report and accounts for the year ended 31 December 2013.
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.
FINANCIAL HIGHLIGHTS
2013 PERFORMANCE
MARKET CAPITALISATION £377 MILLION
The ordinary share price at 31 December 2013 was £10.10, a total return for the year of: +1.4%
NET ASSET VALUE ('NAV') £441 MILLION
The diluted NAV per ordinary share at 31 December 2013 was £11.80, a total return for the year of: -1.6%
CASH DEPLOYED ON BEHALF OF THE TRUST
£80m - The amount of capital invested in 2013 that funded both new investments and further investment within the existing underlying portfolio.
CASH REALISED FOR THE BENEFIT OF THE TRUST
£66m - Cash distributions received in 2013, resulting primarily from three full realisations of buyouts and two refinancings.
LONG-TERM PERFORMANCE - 10 YEAR TOTAL RETURN
COMPOUND ANNUAL GROWTH RATE
16.0% p.a.
The compound annual growth rate of the Trust's ordinary share price over the last 10 years.
10 YEAR TOTAL RETURN ON £1,000
£4,394
How much an investment of £1,000 made ten years ago in theTrust would now be worth.
An equivalent investment in the FTSE All-Share Index would be worth £2,316.
BALANCE SHEET ANALYSIS
£441m - The NAV of the Trust as at 31 December 2013, representing a NAV per ordinary share of £11.80.
£95m - The net liquid resources available for deployment as at 31 December 2013, representing 22% of NAV.
£279m - The amount of outstanding commitments as at 31 December 2013, representing 63% of NAV.
THE PORTFOLIO
HgCapital Trust plc gives investors access to a private equity portfolio of currently 27 active companies, managed by an experienced and well-resourced Manager. Investments are indirectly made in private companies primarily across Northern Europe in selected parts of the TMT, Services, Industrials and Healthcare sectors.
An investment in the Trust provides exposure to a portfolio of fast growing companies. The top 20 mid-cap buyout investments currently account for 87% of the portfolio value. These companies have aggregate revenues -of £2.2 billion and EBITDA of £468 million with margins of 21%.
In addition, the Trust holds investments in the Manager's two renewable energy funds.
EBITDA refers to Earnings Before Interest, Tax, Depreciation and Amortisation
+9% p.a.
REVENUE GROWTH
The average growth in revenues of the top 20 mid-cap buyout investments for the twelve months ended 31 December 2013.
+9% p.a.
PROFIT GROWTH
The average growth in profits (EBITDA) of the top 20 mid-cap buyout investments for the twelve months ended 31 December 2013.
11.6x
EV/EBITDA MULTIPLE
The average multiple used to value the top 20 mid-cap buyout investments at 31 December 2013.
4.3x
NET DEBT/EBITDA
The average net debt/EBITDA multiple of the top 20 mid-cap buyout investments at 31 December 2013.
LONG-TERM PERFORMANCE RECORD
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PERFORMANCE RECORD |
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Year ended 31 December |
Net assets attributable to ordinary shareholders £'000 |
NAV per ordinary share (diluted) 1 p |
NAV per ordinary share (basic) p |
Ordinary share price p |
Revenue return / (loss) available for ordinary shareholders £'000 |
Return per |
Dividends ordinary |
|
2004 |
122,040 |
n/a |
484.5 |
451.5 |
2,649 |
10.5 |
8.0 |
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2005 |
156,487 |
n/a |
621.3 |
583.5 |
2,965 |
11.8 |
10.0 |
|
2006 |
187,135 |
n/a |
743.0 |
731.0 |
4,519 |
17.9 |
14.0 |
|
2007 |
238,817 |
n/a |
948.2 |
782.5 |
7,446 |
29.6 |
25.0 |
|
2008 |
234,094 |
n/a |
929.4 |
668.5 |
7,445 |
29.6 |
25.0 |
|
2009 |
236,044 |
n/a |
937.2 |
844.0 |
7,148 |
28.4 |
25.0 |
|
2010 |
347,993 |
1,090.7 |
1,118.8 |
1,006.0 |
10,053 |
34.0 |
28.0 |
|
2011 |
346,832 |
1,069.3 |
1,089.9 |
970.0 |
(645) |
(2.0) |
10.0 |
|
2012 |
437,956 |
1,221.7 |
1,231.5 |
1,016.0 |
10,398 |
32.1 |
23.0 |
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2013 |
440,584 |
1,180.4 |
1,180.4 |
1,010.0 |
12,913 |
35.3 |
29.04 |
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1 Diluted NAV per share assumes that all outstanding subscription shares were converted into ordinary shares at the relevant year-end at the exercise price (£10.25 at 31 December 2012; £9.50 prior to 31 December 2012). No dilution existed until the 2010 financial year, following the issue of Subscription Shares. 2 Based on weighted number of shares in issue during the year. 3 Dividend proposed in respect of reported financial year, but declared and paid in the following year. 4 Proposed dividend for the year ended 31 December 2013, to be paid on 15 May 2014, subject to shareholder approval. |
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HgCapital Trust plc's share price has delivered significant outperformance against the FTSE All-Share Index over the long term.
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HISTORICAL TOTAL RETURN PERFORMANCE |
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One year % p.a. |
Three years % p.a. |
Five years % p.a. |
Seven years % p.a. |
Ten years % p.a. |
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Share price |
1.4 |
2.0 |
11.1 |
7.2 |
16.0 |
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NAV per share (diluted*) |
(1.6) |
4.5 |
7.1 |
9.1 |
13.9 |
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FTSE All-Share Index |
20.8 |
9.4 |
14.3 |
5.3 |
8.8 |
|
Share price performance per annum relative to the FTSE All-Share Index |
(19.4) |
(7.4) |
(3.2) |
1.9 |
7.2 |
|
*The remaining subscription shares were exercised at the end of May 2013. |
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EXTRACT OF THE BOARD'S STRATEGIC REPORT
CHAIRMAN'S STATEMENT
The store of value in the Trust's portfolio is the foundation for attractive long-term returns and diversification
Investment activity and performance during the year
2013 was an active year for HgCapital Trust, both in realising cash from existing portfolio investments and deploying cash into new opportunities. Some £66 million was returned to the Trust, primarily from the sale of three buyouts, delivering impressive gross returns over original cost; all three were realised at prices above the December 2012valuation, in aggregate a gain of more than £7 million over book value. Cash was also returned to the Trust following the refinancing of two cash-generative investments. The Manager drew down some £80 million from the Trust for investment, £71 million of this being deployed into five new buyouts and the balance into the existing portfolio. The comparable figures for 2012 were £80 million received from realisations and £38 million invested. But for the receipt of the last instalment of £18 million from conversion of the subscription shares we issued to shareholders in April 2010, liquid resources would have decreased by £38 million during the year.
It was also a year in which progress was made in the development of the principal businesses in the portfolio. Revenues in the underlying buyout portfolio continued to grow, with revenues in the top 20 investments growing by 9%, in line with 2012. Profits (EBITDA) of the top 20 investments also grew by 9%, representing a material improvement over profits growth in the previous year. Aggregate EBITDA margins of 21% on revenue, across the top 20, show the high quality of the investment portfolio our Manager has assembled.
Across the buyout portfolio, improved ratings of comparable companies (used to value our investments) and growing profits from trading both contributed positively to NAV. Our investments in Iris, Visma, Achilles, JLA and Manx Telecom (successfully floated since the year-end above the December 2013 valuation) appreciated strongly due to both earnings growth and higher multiples; valuations of others, such as Nair & Co, Teufel and Visma, were held back by adverse foreign exchange movements. Within the buyout portfolio, Lumesse, NetNames and Teufel were disappointing and HgCapital is fully engaged with these and other businesses that are operating below potential; since the half-year valuation, NetNames has shown improvements that have already begun to restore value to shareholders. The valuation of renewable generating assets has been adversely affected by unfavourable conditions in the Swedish market for green certificates, which the Manager believes to be temporary.
The result of all these factors was a modest fall in NAV per share, from 1,222 pence to 1,180 pence, after payment of a
23 pence dividend. The Trust's share price at 31 December 2013 stood at £10.10 compared with £10.16 at the end of 2012. This represented a total return to shareholders (including dividend) of 1.4%; though disappointing, the year's return needs to be viewed in the context of the long-term returns achievable in private equity over the investment/realisation cycle.
A private equity portfolio is unlikely to be closely correlated with listed equities in the short term and we do not seek to reflect movements in any index. A new table below illustrates, annually over the last ten years, the lack of correlation between the Trust's performance and short-term movements in the FTSE All-Share Index. Relative performance in recent years should be viewed against the strong recovery of listed markets from the financial crash. The Trust's relative performance over longer periods remains strong.
In line with our policy on dividends (described on under Business Model later in this report) and in order to meet the income retention rules as an investment trust, the Board has proposed payment of a dividend of 29.0 pence per share (2012: 23.0 pence).
One of our objectives is to maintain and encourage good trading volumes in the Trust's shares. The monthly value of shares traded in 2013 averaged £10.2 million, representing further progress (2012: £7.6 million).
At the year-end, the Trust's outstanding commitments to make investments totalled £279 million, against which the Trust held £95 million in liquid resources. Over the last five years, the Trust has invested a total of £346 million and realised a total of £299 million. The Trust now has commitments to invest alongside three of the Manager's active funds, with the result that the rate of new investment is likely to remain high. The relationship between commitments and funds available is a strategic issue that the Board and Manager monitor closely.
At the same time, the Board is keen to keep the balance sheet as fully invested as possible, consistent with the investment/realisation cycle and taking account of changing market conditions for the purchase or sale of businesses. Shareholders will recall that in July 2011 we made our first secondary purchase of a limited partnership interest in one of HgCapital's funds; we intend to seek further such opportunities. More recently, we have agreed with the Manager a new policy under which the Manager may, after consideration is given to any concentration of risk, take up a co-investment interest in a buyout; this would be in addition to the direct interest we will take (which in HgCapital 7 represents 10% of each deal under our commitment of £200 million). The benefits of this are that we will gain some flexibility in the deployment of our liquid funds and that the Manager will charge no fees or carried interest on the amount co-invested, thus helping to reduce the fee drag on returns. Our investment in P&I in December 2013 was our first co-investment under this policy: we invested £15.2 million under our £200 million commitment to the HgCapital 7 vintage and a further £4.5 million by way of co-investment.
Management of liquid funds
As an investor in private equity deals, the Trust needs to maintain a level of liquidity that, after making reasonable assumptions about the investment/realisation cycle across the markets in which it invests, will enable the Trust to meet its commitments without strain. Up to now, these funds have been invested by the Manager in short-term gilts; very low yields and increasing risk of capital loss have made this unrewarding. We have recently agreed to place our liquidity in funds managed by Royal London Asset Management, an experienced money manager. We see no material increase in counterparty risk in this and the funds will remain available for investment at very short notice.
Developments in reporting to shareholders
The Trust has continually improved the scope and clarity of our reporting to shareholders over many years. We have done this not only to fulfil our duties to shareholders, but also in the belief that transparent reporting encourages a better understanding of listed private equity and of our business model, and wider interest in the Trust's shares; this should lead to more liquidity in the trading in our shares and, as a result, the shares should trade closer to NAV than other investment trusts.
This annual report has been redesigned and expanded again this year and, along with our website, continues to incorporate further disclosures in accordance with the latest requirements of corporate governance in the UK. We have endeavoured to accommodate these requirements while retaining and, wherever possible, improving the clarity and openness of our reporting. The Annual Report is now divided more clearly into sections, beginning with a full statistical summary of the Trust's performance and activity during the year set out in the financial highlights on earlier in this report. This is followed by the Board's Strategic Report, of which my statement forms part; this Strategic Report is intended to set out, over some seven pages, the key information that an investor might need in order to understand the investment objective and investment policy of the Trust, how the Trust is managed, how we assess its performance, mitigate its risks, and its future direction. In my statement, I focus on the major decisions made by the Board and report on the Board's stewardship and the strategic development of the Trust.
This is followed by a section in which the Manager, HgCapital, reports on its business strategy, policies and performance; this includes, for the first time, a description of the Manager's resources and policies on recruitment and engagement of staff. Many investment trusts, especially those holding listed securities, are managed by one or two named individuals within an investment management business; but the nature of private equity and our commitment to invest in all of HgCapital's deals mean that the Trust's investment portfolio is managed by the entire professional team at HgCapital. In recognition of this, the Board of the Trust has, for many years, regularly probed the Manager's resources, business strategy, long-term policies on recruitment and training and succession planning-and frequently drawn on its own business experience to alert the Manager to matters it should consider-in order to ensure that the Manager would remain well positioned to manage the Trust's investments over the long term. The expanded section on the Manager in this Report will help shareholders also to consider more deeply the capabilities of the Manager, on which the Trust's success relies.
This Report also contains, for the first time, a letter to shareholders from my colleague Richard Brooman, as the Chairman of the Board's Audit and Valuation Committee. He sets out a detailed account of the membership and activities of the Committee during 2013, the Committee's action plan for 2014, and a description of its work on financial reporting, audit, risk management and internal controls. While the scope of the Committee's work has been growing continually over many years, I hope this addition to our annual report will add to the transparency of our reporting and to shareholders' assurance.
Responsible investment
The Board and Manager have also given thought to the most appropriate way for private equity to adopt policies of socially and ethically responsible investment. The Manager's section of this annual report now also sets out HgCapital's approach to responsible investment. We and the Manager would welcome feedback from investors on the steps we have taken.
Board and governance
Last year I reported that the Board had decided to expand the role of the Management Engagement Committee and to place it under the chairmanship of an independent director, other than the Chairman of the Trust. I was pleased to report late last year that, following an active search, we had appointed Peter Dunscombe to the Board and that he would take up this role. With long experience in the strategic leadership of investment in very large pension schemes, including the selection and monitoring of private equity managers, Peter is very well equipped to carry out this role.
I must also report that Peter Gale, our Deputy Chairman and Senior Independent Director, has decided not to seek re-election at the forthcoming AGM. Peter has served on the Board with great distinction for many years and throughout the evolution of the Trust from Grosvenor Investment Trust into HgCapital Trust. We have benefited greatly from his extensive knowledge of private equity and his wise advice. The Board has agreed that Andrew Murison should fill the role of Senior Independent Director. We anticipate appointing a further director during 2014, thus continuing to refresh the Board.
Implementation of the European Union's Alternative Investment Fund Management directive began in 2013 and will continue in stages this year. After lengthy research into the options for adherence to this Directive, the Board has decided that the Trust will not apply for authorisation as a manager in its own right; HgCapital is applying for this authorisation and the Board can see no benefit at present in duplicating the Manager's application. The relationship between the roles of the Board and the Manager, which we have carefully constructed over years, will not change in any fundamental way; however, it will require some changes to our contractual relationships and a degree of added formality in processes. We had this in mind a year ago when deciding to expand the remit of our Management Engagement Committee and to place the Committee under its own chairman.
Prospects
The Manager sets out its views on prospects later in this report, pointing out the rapid deployment of funds in the second half of 2013 and the first quarter of 2014; this reflects a high rate of conversion of the pipeline of prospective deals reported at the half-year. We anticipate further activity across all three of the strategies where we have made investment commitments, through both new investments and bolt-on acquisitions by portfolio companies. Since the year-end, the Trust has invested a net amount of £24 million in three new buyouts.
With the UK economy showing strong, if vulnerable, signs of growth, and a possible turning-point in the recession in the eurozone, trading in most of our buyout companies is improving; combined with firm equity markets, this solid progress should be reflected in future valuations and realisations. There continue to be a small number of businesses in the portfolio where our investment has had to be written down, or written off completely, but there are signs of recovery and the Manager continues to work hard to restore value; one of these, Americana, has been sold since the year-end, at a small uplift over book value. Subject to market conditions, we anticipate further exits, mainly of businesses from our older vintages. Meanwhile, the early investments made in the HgCapital 7 vintage and Mercury fund will continue to be developed in preparation for their realisation at a later date.
Our portfolio of interests in renewable power projects has had varied success, with the Manager completing a number of profitable exits in the UK. This year's valuation has been affected by unfavourable conditions in the Swedish market for green certificates, but we are hopeful that this will prove temporary. The actions of the Spanish government, in seeking powers to rewrite tariffs on which substantial inward investment has been based, is regrettable; the Manager, along with other international investors, is taking action to mitigate the effects, if possible.
The store of value that continues to be created within the Trust is the foundation for attractive long-term returns, and diversification from listed equities, as an element of the portfolio of a patient, long-term investor.
Roger Mountford
Chairman
7 March 2014
Going concern
The Trust's business activities, together with the factors likely to affect its future development, performance and financial position are described in the Board's Strategic Report and the Manager's Report contained in the Annual Report. The financial position of the Trust, its cash flows, liquidity and borrowing facilities are also described in the Board's Strategic Report. In addition, note 19 to the financial statements describes the Trust's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk. The Directors believe that the Trust is well placed to manage its business risks successfully. The Directors review cash flow projections regularly, including important assumptions as to future realisations and the rate at which funds will be deployed into new investments. The Directors have a reasonable expectation that the Trust will have adequate resources to continue in operational existence for the foreseeable future and be able to meet its outstanding commitments. Accordingly, they continue to adopt the going concern basis in preparing the Trust's Annual Report.
Performance
In the year to 31 December 2013, the Trust's NAV per share (including dividends re-invested) decreased by 1.6%. In comparison, the FTSE All-Share Index increased by 20.8% (total return). The Trust's ordinary share price increased by1.4% on a total return basis.
Key performance indicators
Each Board meeting conducts a detailed review of the portfolio and reviews trading results and ratios to understand the impact on the Trust of the trading performance of the individual portfolio holdings. The KPIs used to measure the progress and performance of the Trust over time and which are comparable to those reported by other investment trusts include NAV per share, share price, total return per share, average monthly trading volumes and cash flow. Further information on KPIs and the Trust's progress against these can be found in the Chairman's statement on and the Manager's review . The Directors recognise that it is in the long term interest of shareholders that shares do not trade at a significant discount to the prevailing NAV and they monitor the Trust's discount or premium regularly.
PRINCIPAL RISKS AND UNCERTAINTIES
The key financial risks faced by the Trust are set out below and in note 19 to the financial statements.
The Board regularly reviews and agrees policies for managing each risk, as summarised below.
Performance
An inappropriate investment strategy may lead to poor performance. The Board is responsible for deciding the investment strategy to fulfil the Trust's objectives and for monitoring the performance of the Manager. To help manage this risk the Manager provides an explanation of all investment decisions and the rationale for the composition of the investment portfolio. The Manager monitors and maintains an adequate spread of investments, based on the diversification requirements inherent in the Trust's investment policy, in order to minimise the risks associated with particular countries or factors specific to particular sectors.
Regulatory
The Trust operates as an investment trust in accordance with Sections 1158 and 1159 of the Corporation Tax Act 2010 ('CTA'). As such, the Trust is exempt from corporation tax on capital gains realised from the sale of its investments, so the impact of losing investment trust status would be significant to the Trust. The Board believes this risk is low. The Manager monitors investment movements, the level and type of forecast income and expenditure, and the amount of retained income (if any) to ensure that the provisions of Sections 1158 and 1159 of CTA are not breached. The Trust's compliance with the conditions for retaining investment trust status are reported to the Board at each meeting.
General changes in legislation, regulation or government policy could significantly influence the decisions of investors or impact upon the markets in which the Trust invests.
Operational
In common with most other investment trust companies, the Trust has no employees. The Trust therefore relies upon the services provided by third parties and is dependent upon the internal control systems of the Manager and the Trust's other service providers. The security of the Trust's assets, dealing procedures, accounting records and maintenance of regulatory and legal requirements, depend on the effective operation of these systems. These are regularly tested and monitored and an internal control report, which includes an assessment of risks together with procedures to mitigate such risks, is prepared by the Manager and reviewed by the Audit & Valuation Committee twice each year.
The Board has considered an Assurance Report on Internal Controls (AAF 01/06) as prepared by the Manager, and independently reviewed by Deloitte LLP, for the year ended 31 December 2012,. The Board will consider the 2013 Assurance Report when issued later in March 2014.
Financial
The Trust'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. Further details are disclosed in note 19 to the financial statements, together with a summary of the policies for managing these risks.
Liquidity
The Trust, by the very nature of its investment objective, predominantly invests in unquoted companies, and liquidity in their securities can be constrained, potentially making the investments difficult to realise at, or near, the Directors' published valuation at any one point in time. The Manager has regard to the liquidity of the portfolio when making investment decisions, and the Trust manages its liquid resources to ensure sufficient cash is available to meet its contractual commitments.
In the event that, after providing for necessary expenditure, the Trust will have insufficient cash resources to fund a new investment, the Manager may exercise an opt-out in respect of new buyout investments alongside HgCapital 7. This helps the Trust to manage the risk of over-commitment.
At certain points in the investment cycle the Trust may hold substantial cash awaiting investment, which it may invest in government or corporate securities, or in bank deposits, or in managed funds. In 2013, the Directors appointed Royal London Asset Management to manage the Trust's liquid assets.
Borrowing
The Board and the Manager agree that prudent use of borrowing to fund acquisitions can increase diversification within the portfolio and increase rates of return to shareholders. Businesses in the underlying portfolio are acquired with the benefit of bank borrowing at levels that can be serviced from the cash flows generated within that business. The Board does not currently see any advantage in using a further level of structural borrowing by the Trust, as this would add risk without any certainty of enhancing returns.
The Board keeps the management of the Trust's resources under constant review and regularly considers long-term cash flow projections for the Trust and the use of gearing.
In August 2011, the Board put in place a £40 million three year multi-currency standby facility with Lloyds TSB Bank plc, on an unsecured basis. The Directors believe the borrowing facility gives the Board further flexibility in managing the Trust's resources, without adding undue risk. The facility was unutilised as at 31 December 2013.
OTHER MATTERS
Employees, human rights and community issues
The Board recognises the requirement under section 414C of the Companies Act 2006 to provide information about employees, human rights and community issues, including information in respect of any policies it has in relation to these matters and their effectiveness. These requirements do not apply to the Trust as it has no employees, all of the Directors are non-executive and it has outsourced all its functions to third party providers. The Trust has therefore not reported further in respect of these provisions.
Gender diversity
At the end of the year under review, the Board of Directors of the Trust comprised five Directors, all of whom are male. The Board's policy is to make appointments to the Board solely on merit and, when selecting potential candidates for the Board, interviews a short-list that always includes well-qualified male and female candidates. The Manager has an equal opportunities policy and currently employs 64 men and 38 women on a permanent basis.
For and on behalf of the Board
Roger Mountford
Chairman of the Board
7 March 2014
THE MANAGER'S REVIEW
OVERVIEW OF THE YEAR
NET ASSET VALUE (NAV)
Over the course of 2013, the NAV of the Trust increased by £2.6 million (0.6%), from £438.0 million to £440.6 million at the year end.
ATTRIBUTION ANALYSIS OF CURRENT YEAR MOVEMENTS IN NAV
|
|
Revenue return £'000 |
Capital return £'000 |
Total return £'000 |
|
Opening NAV as at 1 January 2013 |
17,233 |
420,723 |
437,956 |
|
Dividends paid |
(8,180) |
- |
(8,180) |
|
Proceeds from the final exercise of subscription shares |
- |
18,045 |
18,045 |
|
Realised capital and income proceeds from investment portfolio in excess of 31 December 2012 book value |
7,304 |
937 |
8,241 |
|
Net unrealised capital and income appreciation / (depreciation) of investment portfolio |
15,863 |
(18,858) |
(2,995) |
|
Net realised and unrealised losses from liquid resources* |
(410) |
(780) |
(1,190) |
|
Expenditure and taxation |
(3,769) |
- |
(3,769) |
|
Investment management costs: |
|
|
|
|
Priority profit share - current year charge |
(7,524) |
- |
(7,524) |
|
Priority profit share - net loan allocation |
1,449 |
(1,449) |
- |
|
Closing NAV as at 31 December 2013 |
21,966 |
418,618 |
440,584 |
|
*Liquid resources include cash and government securities |
|||
There were a number of underlying factors contributing to the above movement in the NAV. Positive impacts on the NAV were: the final exercise of subscription shares issued (+£18.0 million); and uplifts on the realisation of investments, compared with their carrying value at the start of the year (+£8.2 million). Reductions in the NAV were caused by: the payment of a dividend to shareholders (-£8.2 million); the Manager's remuneration (-£7.5 million); the revaluation of the unquoted portfolio (-£3.0 million); the loss on liquid resources (-£1.2 million); and operating expenditure and taxation (-£3.8 million).
TOP 20 PORTFOLIO TRADING PERFORMANCE
The top 20 buyouts (representing 87% of the total portfolio) have delivered aggregate sales and EBITDA growth of 9% over the last twelve months ('LTM') to 31 December 2013. This compares with sales growth of 9% and EBITDA growth of 6% as reported at 31 December 2012.
Eighteen companies (93% by value) reported an increase in year-on-year sales, while fifteen out of the 20 companies (85% by value) increased EBITDA. Of these top 20 investments, eight (61% by value) increased sales by greater than 10% and eight (50% by value) grew EBITDA by more than 10% over the last twelve months.
Of the top 20 investments, five have reported a decline in EBITDA year-on-year. For some of these companies, the decline in EBITDA is a function of continued investment in the businesses. For example, Parts Alliance is seeing short-term profits reduced by the significant increase in cost base, as we consolidate the four businesses acquired over the past eighteen months with a centralised infrastructure.
e-conomic, acquired in August 2013, is seeing rapid revenue growth. However, profits are currently in decline due to significant investment to drive future expansion.
Trading at Lumesse remains behind expectations. We are continuing to invest in the business to support the strategy developed by the new management team to drive higher long-term growth.
There has been an improvement in trading compared with 2012 from some companies in the portfolio, in particular Frösunda, which has seen a return to growth. Whilst NetNames remains behind plan, we have seen a good recovery in its year-on-year performance.
A number of businesses within the portfolio have reported continued double-digit growth over the last year, including Visma, IRIS, JLA, Achilles, P&I and Nair & Co.
We are pleased to see a small improvement in our EBITDA figures, as investment made into the portfolio companies to drive growth begins to come through. Trading performance over the past six months suggests that this is continuing.
|
TOP 20 LTM SALES GROWTH Exposure to £2.2 billion of sales that have grown on average at 9% over the last 12 months to December 2013 |
|||
|
Sales growth bands |
LTM Sales £' million |
Number of investments within associated band |
% of top 20 portfolio by value within associated band |
|
(5%) to <0% p.a. |
79 |
2 |
7% |
|
0% to <5% p.a. |
385 |
4 |
18% |
|
5% to <10% p.a. |
585 |
6 |
24% |
|
10% to <15% p.a. |
1,028 |
6 |
41% |
|
>15% p.a. |
105 |
2 |
20% |
|
TOP 20 LTM PROFIT GROWTH Exposure to £468 million of EBITDA that have grown on average at 9% over the last 12 months to December 2013 |
|||
|
EBITDA growth bands |
LTM EBITDA £' million |
Number of investments within associated band |
% of top 20 portfolio by value within associated band |
|
<(25%) p.a. |
4 |
2 |
5% |
|
(25%) to <0% p.a. |
50 |
3 |
10% |
|
0% to <10% p.a. |
146 |
7 |
35% |
|
10% to <15% p.a. |
76 |
3 |
20% |
|
>15% p.a. |
192 |
5 |
30% |
VALUATION AND GEARING ANALYSIS
The portfolio is valued consistently from year to year, applying the IPEV Valuation Guidelines. Our valuation of each company has produced an average EBITDA multiple for the top 20 buyout investments of 11.6x EBITDA.
We continue to take a considered and prudent approach in determining the level of maintainable earnings to use in each investment valuation. The majority of the portfolio is valued using LTM earnings to 30 November 2013, 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 the company's earnings, we look for a basket of comparable companies, primarily from the quoted sector, but where relevant and recent, we will also use private M&A data.
In 2013, a downturn in profits combined with a conservative view as to ratings (compared with recent M&A transactions) led to a material write-down for the Trust in the value of Lumesse (£8.3 million) and NetNames (£3.8 million) totalling £12.1 million. In both cases, we believe that these are short-term issues and we are working with the management teams to get the businesses back on track.
Over half the portfolio has seen an increase in value through strong profit growth and debt reduction: most notably, IRIS, Manx Telecom, Visma, JLA and Frösunda.
Our portfolio companies make appropriate use of gearing, with average gearing for the top 20 of 4.3x LTM EBITDA as at 31 December 2013. A number of the businesses have highly predictable earnings and free cash flows (e.g. Visma, Iris and TeamSystem), enabling us to use debt to gear our returns. A number of our companies were under-geared at the end of 2012 and, in the case of Visma and Manx Telecom, we took the opportunity to refinance these and return cash to our investors.
In 2013, we additionally took advantage of the European bond market by refinancing the bank debt in Voyage Care and TeamSystem; by issuing bonds into the public market we reduced their debt servicing costs and provided financial flexibility to enable future growth through bolt-on acquisitions.
|
TOP 20 EV TO EBITDA VALUATION MULTIPLE - Average ratings multiple of 11.6x |
|||
|
EV to EBITDA bands |
EV £' million |
Number of investments within associated band |
% of top 20 portfolio by value within associated band |
|
7.0x to <8.0x |
37 |
1 |
9% |
|
8.0x to <10.0x |
116 |
6 |
22% |
|
10.0x to <12.0x |
72 |
3 |
19% |
|
12.0x to <14.0x |
181 |
5 |
28% |
|
14.0x to <16.0x |
58 |
2 |
22% |
|
TOP 20 DEBT TO EBITDA RATIO - Average debt ratio of the top 20 buyout investments of 4.3x |
|||
|
Debt to EBITDA bands |
Debt £' million |
Number of investments within associated band |
% of top 20 portfolio by value within associated band |
|
(1.5x) to <2.0x |
80 |
7 |
29% |
|
2.0x to <3.0x |
21 |
1 |
4% |
|
3.0x to <4.0x |
359 |
6 |
24% |
|
4.0x to <6.0x |
910 |
3 |
22% |
|
6.0x to <7.0x |
672 |
3 |
21% |
|
REALISED AND UNREALISED MOVEMENTS IN INVESTMENT PORTFOLIO for the year ended 31 December 2013 |
||
|
Investment name and ranking within investment portfolio at 31 December 2013 |
Net unrealised appreciation/(depreciation) of investments |
Realised proceeds in excess of 31 December 2012 book value (includes gross revenue) |
|
IRIS (1) |
7.3 |
- |
|
Manx Telecom (16) |
3.4 |
0.2 |
|
Visma (2) |
3.5 |
- |
|
ATC (Sold) |
- |
3.4 |
|
JLA (4) |
3.4 |
- |
|
Frösunda (13) |
2.7 |
- |
|
Epyx (Sold) |
- |
2.5 |
|
CSH (Sold) |
- |
1.7 |
|
Other |
0.8 |
1.3 |
|
Investments in the UK Parts Alliance (20) |
(2.0) |
- |
|
Voyage (15) |
(3.1) |
- |
|
Teufel (24) |
(3.4) |
- |
|
NetNames (14) |
(3.8) |
- |
|
RPP1/ RPP2 |
(4.0) |
- |
|
Lumesse (10) |
(8.3) |
- |
During the year, the value of the unrealised portfolio increased by £19.1 million. The majority of the increase (+£22.1 million) relates to the acquisitions made within the portfolio that netted-off against 31 December 2012 carrying value of realisations made during the year. Furthermore, the unrealised active buyout portfolio increased by £2.2 million over the year: increases from profit growth in the underlying portfolio and an increase in ratings (+£3.9 million and +£6.9 million respectively), were partially offset by decreases driven by an increase in net debt (-£4.5 million) and unfavourable foreign exchange movements (-£4.2 million). The RPP1 and RPP2 fund investments decreased by £4.0 million over the year whereas other inactive buyout investments decreased by £1.2 million, largely resulting from a decrease in expected escrow proceeds.
OUTSTANDING COMMITMENTS OF THE TRUST
During the first half of 2013, the Trust made a new commitment of £200 million to invest alongside the Manager's latest buyout fund, HgCapital 7, which closed in April 2013 following strong demand from institutional clients. HgCapital 7 provides the Manager with £2 billion of funds to continue its investment strategy over the next three to four years. As was the case with HgCapital 6, the Trust has the benefit of an opt-out provision in its commitment to invest so that it can opt out of a new investment without penalty, should it not have the cash available to invest.
|
Fund |
Vintage |
Original commitment £'million |
Outstanding commitments as at 31 December 2013 |
Outstanding commitments as at 31 December 2012 |
||
|
£'million |
% of NAV |
£'million |
% of NAV |
|||
|
HGT 7 LP |
2013 |
200.0 |
182.5 |
41.4% |
- |
- |
|
HgCapital Mercury D LP |
2011 |
60.0 |
49.5 |
11.2% |
55.3 |
12.6% |
|
HGT 6 LP |
2009 |
285.0 |
21.1 |
4.8% |
64.5 |
14.8% |
|
HgCapital RPP2 C LP |
2010 |
33.32 |
17.1 |
3.9% |
22.0 |
5.1% |
|
HGT LP (Pre-Hg6 vintage) |
pre-2009 |
120.0 |
6.6 |
1.5% |
15.8 |
3.6% |
|
HgCapital 6 E LP1 |
2009 |
15.0 |
1.5 |
0.3% |
3.6 |
0.8% |
|
RPP LP |
2006 |
18.03 |
1.1 |
0.3% |
1.0 |
0.2% |
|
Total |
|
|
279.4 |
63.4% |
162.2 |
37.1% |
|
Net liquid resources |
|
|
95.5 |
21.7% |
115.8 |
26.5% |
|
Net outstanding commitments unfunded by net liquid resources |
|
|
183.9 |
41.7% |
46.4 |
10.6% |
|
1Partnership interest acquired during 2011. 2Sterling equivalent of €40.0 million. 3Sterling equivalent of €21.6 million.
|
||||||
The period ended with liquid resources of £95.5 million and outstanding commitments of £279.4 million in the funds, as listed above. The Trust also has a £40 million bank facility that is currently undrawn.
|
|
Fund limited partnerships Primary mid-cap buyout funds |
Residual cost £'000 |
Total valuation £'000 |
Portfolio value % |
|
1 |
HGT 6 LP |
208,000 |
199,826 |
57.9% |
|
2 |
HGT LP |
66,997 |
95,177 |
27.6% |
|
3 |
HGT 7 LP |
15,186 |
15,158 |
4.4% |
|
|
Total primary mid-cap buyout funds |
290,183 |
310,161 |
89.9% |
|
|
Secondary mid-cap buyout funds |
|
|
|
|
4 |
HgCapital 6 E LP |
9,167 |
10,209 |
2.9% |
|
|
Total secondary mid-cap buyout funds |
9,167 |
10,209 |
2.9% |
|
|
Primary small-cap buyout funds |
|
|
|
|
5 |
HgCapital Mercury D LP |
8,091 |
6,954 |
2.0% |
|
|
Total primary small-cap buyout funds |
8,091 |
6,954 |
2.0% |
|
|
Total buyout funds |
307,441 |
327,324 |
94.8% |
|
|
Renewable energy funds |
|
|
|
|
6 |
HgCapital Renewable Power Partners 2 C LP |
16,384 |
10,566 |
3.1% |
|
7 |
HgRenewable Power Partners LP |
7,414 |
7,314 |
2.1% |
|
|
Total renewable energy funds |
23,798 |
17,880 |
5.2% |
|
|
Total all investments (7) |
331,239 |
345,204 |
100.0% |
PORTFOLIO OF INVESTMENTS
HgCapital's strategy is to invest in five sectors, four of them (TMT, Services, Industrials and Healthcare) by way of buyouts of businesses. The primary focus is on mid-market buyouts between £50 million and £500 million and also in lower mid-market buyouts in the TMT sector between £20 million and £80 million. The buyout portfolio currently represents 95% of the portfolio by value at the year end.
Investment in the fifth sector, renewable power generation (5%), is made into projects through RPP1 and RPP2.
Deal type by value
93% Buyout - mid-cap
5% Renewable Energy
2% Buyout - small-cap
Analysis by value of investment return* relative to its original cost
68% Above
10% At original cost
22% Below
*Representing aggregate realised proceeds and unrealised valuations of an investment
PRIMARY MID-CAP BUYOUT PORTFOLIO
As at 31 December 2013, the Trust's buyout portfolio comprised of 27 active companies alongside a small number of residual interests in companies that had been sold and were awaiting liquidation and final proceeds. These were mostly valued at, or close to, zero.
TMT
TMT represented 57% of the total primary buyout portfolio.
The majority of this value was represented by companies that are users of technology, rather than developers of technology with the associated frequent challenges of new product development. The common themes that run through each one are highly visible revenues, strong market positions and strong cash conversion that permits debt repayment, whilst the businesses expand and grow.
IRIS, Visma, e-conomic, TeamSystem and P&I are providers of business software and services in the UK, Nordic region, Italy and Germany respectively. These businesses benefit from high recurring revenues and a very large and diversified customer base.
IRIS and Visma have performed well, delivering strong double-digit revenue and profit growth over the last year and continue to expand both organically and through acquisition.
P&I and e-conomic are new investments acquired in the second half of 2013, currently representing 5.7% and 3.4% of the portfolio value respectively. Further detail on these investments can be found in the Trust's Annual Report. TeamSystem, based in Italy, continues to see low single-digit growth but is continuing to win market share in a difficult environment and this trend is improving.
Lumesse, a European provider of strategic HR software, continues to see demand for its products and positive organic growth in recurring software revenues. However, in 2013, strong growth in recurring software revenues was partly off-set by disappointing consulting and bespoke sales. As a result, the business saw a decrease in profits leading to a write-down in its valuation at the end of June 2013. We believe that the investment thesis for this company remains sound and are continuing to work with the management to increase efficiency and reduce costs.
Achilles is an electronic market place, which has delivered strong year-on-year revenue and profit growth in 2013, as it has consistently since acquisition.
NetNames, an internet domain name manager and online brand protection service provider, saw weak trading over the twelve months to the end of June 2013 and was further affected in the period by currency rates and significant investment being made in the business. We wrote the valuation of this business down accordingly at the end of the first half of 2013. Whilst NetNames remains behind plan, we have seen a good recovery in its year-on-year performance in the second half of the year and its value has increased since June.
Manx Telecom, the incumbent integrated fixed and mobile telecom operator on the Isle of Man, traded solidly over 2013 and we announced the IPO of this investment in February 2014. Further detail can be found in the Trust's Annual Report.
Services
Services investments represented 21% of the primary buyout portfolio.
JLA, a leading provider of laundry equipment, finance and maintenance has continued to see strong double-digit growth in the last twelve months, driven both organically by an increase in the rental market, the success of innovative sales initiatives and also through small acquisitions.
The investments in the UK Parts Alliance is a roll-up of firms in the UK automotive after-market parts distribution sector. Investment into the cost base of the companies in order to professionalise the group is holding back short-term profit.
In August, the Services team acquired Nair & Co, a UK headquartered provider of tailored solutions for companies looking to expand into international markets. This company currently represents 5.6% of the portfolio value and further information can be found in the Trust's Annual Report..
In December 2013, we completed the acquisition of Leasedrive, a UK vehicle leasing business currently representing 4.2% of the portfolio value. More information on this new investment can be found in the Trust's Annual Report.
Since the period-end, the Services team has completed a further investment in the UK vehicle leasing business with the acquisition of Zenith. The Trust's share of this business could be up to £21.0 million.
Sector by value of primary buyout portfolio
57% TMT
21% Services
9% Industrials
8% Healthcare
5% Consumer & Leisure
Industrials
Industrials represented 9% of the primary buyout portfolio. Here, the common theme is that we are backing companies that own and develop high quality products, based on technologically advanced German design.
SimonsVoss, a German developer and manufacturer of digital battery-powered locking and access control systems, has started to see a slight recovery in performance in 2013 following a weaker performance in 2012, which was primarily due to a poor economic environment and our continued investment for growth.
QUNDIS is a leading provider of sub-metering devices and services in Germany and Italy with a presence in other European markets. Problems in 2012 with the automated assembly line have now been resolved and the order book is strong. The business has seen modest growth in 2013 with profits held back by continuing investment in the company for future growth.
Teufel is a designer and online direct retailer of loudspeaker systems in Germany. The business performed poorly over the twelve months to the end of June 2013, leading us to apply a full provision against the investment. We have continued to work with the management of this company and have seen some indications of an improvement in trading over the last quarter of 2013, leading us modestly to increase the value of the investment at the year-end.
Net assets by class
78% Unquoted
22% Cash & other assets
Healthcare
Healthcare represented 8% of the primary buyout portfolio. We have previously invested in two areas: long-term care where the payer risks are low, with a preference for specialist care of people with acute disabilities; and low cost pharmaceuticals.
We own long-term care assets in the UK, Germany, Sweden and Finland.
In the UK, the Government's fiscal consolidation translated into a reduction in fees that local authorities and social services will pay for care, which has resulted in a squeeze on margins affecting most care home operators. Voyage Care has a more defensive business model and grew both revenue and EBITDA in the first half of 2013, benefiting from the synergies of recent acquisitions. However, the underlying trading conditions remain tough, both with respect to occupancy and fee rates; the second half of 2013 saw a decline in profits which has been reflected in its valuation at the year end.
In Germany, manpower shortages have generally increased labour costs and squeezed margins. Despite this, Casa Reha has seen an improvement in trading performance in 2013, primarily from: three new homes opened; better operational controls over staff; and tighter cost control overall.
In 2012 Frösunda, a Swedish care home business, went through a period of consolidation following a poorly executed acquisition programme the previous year. This led to damaged margins and revenues and a reduction in the valuation. The business has since stabilised and has seen a return to growth in 2013, reflected in an increase in its valuation at the year-end. We continue to work with the new management team further to improve performance.
Our Finnish investment, Mainio Vire, has reported revenue growth, while profits have been adversely affected by occupancy rates, management problems, higher than budgeted sick leave rates and poor cost control. This investment was further marked down in value at the end of June 2013. More recent figures suggest a small improvement in operating margins.
Consumer and Leisure
Finally, our legacy Consumer and Leisure portfolio represented 5% of the primary buyout portfolio.
Sporting Index, a sports spread betting firm, saw flat growth compared with 2012 and is currently valued at close to cost. We would expect this company to benefit in 2014 from the football World Cup.
Schleich, the German toy figurine producer, suffered weak performance in 2012 but has seen some recovery during 2013.
Americana's continued trading deterioration led us to provide in full against this investment at the half-year stage. In February 2014 this investment was sold to EMERAM Capital Partners, a Munich-based private equity fund returning initial cash proceeds of £0.5 million to the Trust, with further potential proceeds of £0.4 million in three years' time.
PRIMARY SMALL-CAP BUYOUT PORTFOLIO
HgCapital's Mercury Fund specialises in lower mid-market buyouts in the TMT sector with an enterprise value of between £20 million and £80 million. This is an area where the Manager has historically made many profitable investments and has now set up a dedicated team of investment professionals focused on this niche. As at 31 December 2013, the Fund has made two investments, together representing 2% of the portfolio value.
Valueworks is a UK based electronic marketplace serving landlords and contractors in the housing construction and maintenance market. Investment in management and premises in 2012, together with lower revenues from professional services, has materially affected growth, leading to a write-down in the valuation.
Intelliflo, acquired in August 2013, is a UK-based Software as a Service ('SaaS') provider of front and back office software to financial advisors, advisor networks and brokers. Please refer to the Trust's Annual Report for further information.
Since the period-end, the Mercury team has completed a further investment in Relay Software, a provider of software to insurance brokers, underwriters and insurers in the Republic of Ireland. The Trust contributed a total of £2.2 million to this investment.
Renewable energy
The Trust invests in renewable energy projects where HgCapital's management skills can be applied to create and realise value. The Trust is a limited partner in RPP1 and RPP2, two funds managed by our dedicated team of specialists. The underlying portfolios are divided into four platforms: Swedish Onshore Wind, Irish Onshore Wind, Spanish Solar and Spanish Mini-Hydro. The assets are currently split: onshore wind at 61% of value; solar at 20%; and mini-hydro at 19% of value. All of them use proven and commercially viable technologies within the framework of current power price regimes across Europe. Each platform's energy generation, since inception, continues to be in line with our original investment case.
The European power sector is at a cyclical low, with the recession and fall in industrial production reducing the demand for power. Low US gas prices are reducing global coal demand with cheap US coal coming to Europe and displacing gas fired generation, driving down power prices. In turn, this is leading to reduced European utility share prices and write-downs of gas-fired generation assets. How this plays out for renewables differs by market.
As previously reported, the Spanish government has been reviewing power sector regulation as part of its aim to tackle the shortfall between power sector costs and what consumers pay. This follows earlier retroactive regulatory changes to the sector that affected the Trust's investments. Despite earlier statements to the contrary, Spain continues to refuse to pass on power generation costs to consumers in full, and makes retroactive tariff cuts to both renewable and conventionally generated power, in the hope of driving a manufacturing-led recovery.
In July 2013, Spain announced new legislation making further changes which are expected to have a material impact on the value of the Spanish assets. The July 2013 legislation was general in nature. On 3 February 2014, Spain announced the detailed new tariffs under the July 2013 legislation. At 1,700 detailed pages, the regulations cover hundreds of different tariffs based on technology, location and date of operation. HgCapital is currently evaluating the impact on seven solar projects held by RPP1 and 34 hydro projects held by RPP2. The 31 December 2013 valuations do not reflect the changes announced in Spain on 3 February 2014. Once the impact of these changes has been fully worked through, the valuations will be updated accordingly.
In Sweden, lower power demand has made the market in green certificates more volatile than anticipated; however, there appears to be political will to correct the system, which could mitigate the adverse effects on our investments. Power prices are below the five-year average, driven by weak demand and low coal and carbon prices, in what we think is a cyclical trough.
In Germany, Ireland, France and the UK, there remains strong institutional investor interest in yielding, contracted, renewable assets; and policies still favour growth in renewable generation. Investor interest in operating assets comes from both the unlisted and listed markets, creating a new exit market, from which our Irish investments and potentially our Swedish assets might benefit.
Geography and Vintage Analysis
At 31 December 2013, the geographical weighting of the total primary buyout portfolio, including Mercury, was split 56% in the UK, 18% in the Nordic Region and 17% in Germany and one investment, KVT, is based in Switzerland. TeamSystem, which is our sole investment in Italy, accounts for about 8% of the primary buyout value.
Geographic spread by value of primary buyout portfolio
56% UK
18% Nordic Region
17% Germany
8% Italy
1% Switzerland
Vintage by value of primary buyout portfolio
22% 2013
6% 2012
15% 2011
28% 2010
29% pre 2010
Prospects
As we enter 2014 the improvement in the broader macro-economic environment has continued and has slowly gathered momentum in Europe, with improved confidence across all business sectors. The recovery in the UK, in particular, has continued to develop strongly and looks to be gathering pace. Despite these positive lead indicators, the European recovery clearly still remains at a relatively tentative stage, following a long period of recession. Given this, we continue to remain suitably cautious and disciplined in our approach.
Over the course of the last year, we have consistently both deployed and returned capital. We believe that within our sectors of expertise we can continue to find pockets of opportunity to acquire market leading businesses at reasonable prices, usually where there has been the opportunity for us to build relationships with such companies over many years before making an investment. This was borne out over the second half of 2013 and into the first quarter of 2014 with £782 million deployed, primarily into seven new buyout companies, as a strong pipeline of opportunities that we commented on at the beginning of 2013 converted into several new investments. The vast majority of these were generated on a proprietary basis from many years of sector research. Consistent with this, we have tried to avoid full auction processes wherever possible.
This sector expertise, developed over 10-15 years, is used to identify the highest quality growth companies in sub-sectors which themselves are growing at typically 2-3 times GDP, driven by fundamental long-term factors. An example we have often cited is the increasing penetration of internet-based transactions for businesses, a trend we identified many years ago and exploited in several different sectors. Companies such as Visma, IRIS and Achilles all benefit from this and have produced consistently strong growth over the past few years. Less obvious examples include JLA and Nair & Co., both companies providing business critical services to a fragmented customer base and both delivering robust growth.
Trading has also remained robust throughout the downturn, although the first half of 2013 saw growth rates and valuations fall for a small number of our portfolio companies. However, the majority of the unrealised HgCapital portfolio has subsequently demonstrated an acceleration in trading performance, particularly over the last three to six months.
Both trade and financial buyers continue to express interest in acquiring a number of our portfolio companies, as a result of their growth and market positions, as shown by the sale of CSH, ATC and Epyx to trade buyers in 2013. Additionally, in February 2014, a strong equity market environment enabled us to secure a full exit at IPO from our investment in Manx Telecom; this represented the fifth realisation from the 2009 vintage HgCapital 6 Fund.
We believe there will be further opportunities in the short and medium term to continue realising investments as we have done consistently across market cycles.
INVESTMENTS
£80 million invested by the Trust in 2013, primarily in five new buyouts
Five new primary buyout acquisitions were made during 2013 as a strong pipeline of potential opportunities converted into investments. £535 million was deployed on behalf of HgCapital clients, with the Trust's share being £70.5 million.
The TMT team's acquisition of e-conomic was at an enterprise value of DKK 634 million, deploying £11.5 million on behalf of the Trust. e-conomic provides Software as a Service ('SaaS') accounting services to SMEs in its home market of Denmark and in eight other European countries.
The Mercury Fund invested in Intelliflo, a leading UK SaaS provider of front and back office software to financial advisors, advisor networks and brokers at an enterprise value of £43 million. The Trust's share was £5.4 million, £1.4 million of which was funded from a loan facility.
The Services team completed the acquisition of Nair & Co., a UK headquartered provider of international business expansion services, for an enterprise value of $194 million, with the Trust's share being £19.5 million.
The Services team completed the acquisition of Leasedrive, one of the UK's largest independent vehicle leasing businesses, at an enterprise value of £113 million, deploying £14.3 million on behalf of the Trust.
Germany based P&I Personal & Informatik AG ("P&I") was acquired at an enterprise value of €442 million. P&I is a premium developer and vendor of software solutions for SMEs and the public sector, offering HR applications and solutions for the areas of payroll, personnel, and time & attendance management. To date, the Trust has contributed a total of £19.8 million, including £4.6 million as a co-invest participation.
In addition to new investments in the buyout portfolios, the Trust has also participated in further small investments in the buyout and renewable energy funds, to give a total for all investments in 2013 of £80.0 million.
More detailed information on our investments can be found in the Annual Report.
|
INVESTMENTS MADE DURING THE YEAR1 |
||||
|
Company |
Sector |
Geography |
Activity |
Cost £'000 |
|
P&I2 |
TMT |
Germany |
Developer and vendor of HR software |
19,771 |
|
Nair & Co. |
Services |
UK |
Business solutions for international expansion |
19,499 |
|
Leasedrive |
Services |
UK |
Vehicle leasing |
14,325 |
|
e-conomic |
TMT |
Nordic region |
SaaS accountancy provider |
11,496 |
|
Intelliflo |
TMT |
UK |
SaaS provider to the financial services sector |
5,435 |
|
New investments |
|
|
|
70,526 |
|
RPP1 and RPP2 |
Renewable energy |
Europe |
|
5,438 |
|
HgCapital 6 E |
Fund |
Europe |
|
2,100 |
|
Other investments |
|
|
|
1,904 |
|
Further investments |
|
|
|
9,442 |
|
Total on behalf of the Trust |
|
|
|
79,968 |
|
1 The numbers in the table relate to the Trust's share of underlying transactions 2 Investment through HGT 7 LP and co-investment participation through HGT LP |
||||
POST 31 DECEMBER 2013 EVENTS
£23 million invested into two new buyouts since 31 December 2013
In January 2014 the Services team agreed the acquisition of Zenith, subject to regulatory approval, at an enterprise value of £231 million. Zenith is one of the UK's largest independent leasing, fleet management and vehicle outsourcing businesses. At the end of February 2014, Zenith and Leasdrive began operations as a single entity. The Trust's share of the combined business is £24.0 million.
In February, the Mercury Fund announced an investment in Relay Software, a provider of software to insurance brokers, underwriters and insurers in the Republic of Ireland at an enterprise value of £30 million. The Trust contributed a total of £2.2 million to this investment.
In early March 2014. HgCapital announced an investment in Ullink, a leading global provider of electronic trading applications and connectivity to the financial community. The Trust's share of this investment was £7.7 million.
REALISATIONS
£66 million returned to the Trust during 2013
During the year we returned a total of £467 million to clients, with the Trust's share being £66.1 million, primarily from the sale of three buyout investments, with further liquidity from refinancing and the sale of the UK Onshore Wind assets.
In March, Computer Software Holdings Limited ('CSH') was sold to Advanced Computer Software Plc, a trade buyer, at an enterprise value of £110 million. The sale represented an investment multiple of 1.5x original cost and a gross IRR of 36% p.a. over an investment period of fourteen months. The Trust received proceeds of £7.3 million, representing an uplift of £1.7 million over the carrying value of £5.6 million at 31 December 2012.
We completed the sale of ATC in August to Intertrust, a provider of trust and corporate management services, for €303 million. This realisation represented an investment multiple of 2.3x original cost and a gross IRR of 40% p.a. over the less than two-and-a-half year investment period. The Trust received proceeds of £21.9 million, which is an uplift of £3.4 million over the carrying value of £18.5 million at 31 December 2012.
In October, Epyx was sold to Fleetcor LLC, a US-based fuel payment processing business listed on the NYSE, for an enterprise value of £197 million. The Trust's sale proceeds of £13.1 million and £3.0 million of refinancing proceeds already received in April, represent an uplift of £2.5 million over the carrying value of £13.6 million in the NAV of the Trust as at 31 December 2012. This realisation represented a multiple of up to 2.7x original cost and a gross IRR of c. 27% p.a. over the investment period.
The development assets of RPP1's UK Onshore Wind portfolio, including the developer, Ridgewind, were sold to Blue Energy in January, at an investment multiple of 1.6x and a gross IRR of 15% p.a. The proceeds from the sale returned £2.8 million to the Trust, with some residual value expected in the future.
In addition to these realisations, further distributions of £17.0 million were received by the Trust, primarily from the refinancing of Manx Telecom and Visma.
|
REALISATIONS MADE DURING THE YEAR1 |
||||||
|
Company |
Sector |
Exit Route |
Cost £'000 |
Proceeds2 £'000 |
Cumulative gain/(loss)3 £'000 |
Current year gain/(loss)4 £'000 |
|
ATC |
Services |
Trade sale |
9,913 |
21,930 |
12,017 |
3,378 |
|
Epyx |
TMT |
Trade sale |
6,388 |
16,136 |
9,748 |
2,483 |
|
CSH |
TMT |
Trade sale |
5,058 |
7,338 |
2,280 |
1,666 |
|
Other |
|
|
9,446 |
862 |
(8,584) |
43 |
|
Full realisations |
|
|
30,805 |
46,266 |
15,461 |
7,570 |
|
Manx Telecom |
TMT |
Refinancing |
6,569 |
8,548 |
1,979 |
185 |
|
Visma |
TMT |
Refinancing |
- |
4,543 |
4,543 |
- |
|
RPP1 fund |
Renewable energy |
Distribution received |
2,667 |
3,443 |
776 |
- |
|
HgCapital 6 E |
Fund |
Distribution received |
2,435 |
2,435 |
- |
- |
|
Other |
|
|
62 |
861 |
799 |
486 |
|
Partial realisations |
|
|
11,733 |
19,830 |
8,097 |
671 |
|
Total realisations on behalf of the Trust |
|
|
42,538 |
66,096 |
23,558 |
8,241 |
|
1 The numbers in the table relate to the Trust's share of transactions 2 Includes gross revenue received during the year ended 31 December 2012 3 Realised proceeds including gross revenue received, in excess of historic costs 4 Realised proceeds including gross revenue received, in excess of 31 December 2012 book value |
||||||
POST 31 DECEMBER 2013 EVENTS
£13 million returned to the Trust since 31 December 2013
In February 2014 we completed the IPO of Manx Telecom on London's Alternative Investment Market ('AIM') at a market capitalisation of £160 million. The proceeds from the realisation of HgCapital's holding and earlier proceeds from refinancing the business represented an investment multiple of 2.1x original cost and a gross IRR of 26% p.a. over the investment period. The Trust received proceeds on completion of £13.1 million, an uplift of £3.0 million over the carrying value of £10.1 million at 31 December 2013.
Americana, a UK-based apparel company, was sold in February 2014 to EMERAM Capital Partners, a Munich-based private equity fund. Americana was written down to zero in June 2013 and the initial proceeds of this sale will return £0.6 million to the Trust with a further £0.5 million retained in the business.
OVERVIEW OF THE UNDERLYING INVESTMENTS HELD THROUGH FUND LIMITED PARTNERSHIPS
The top 20 primary buyout investments account for 87% of the investments by value
|
|
Investments (in order of value)
Primary mid-cap buyout investments |
Fund |
Sector |
Location |
Year of Investment |
Residual Cost £'000 |
Total valuation £'000 |
Portfolio value % |
Cum. Value % |
|
1 |
IRIS |
HGT 6 LP |
TMT |
UK |
2011 |
25,598 |
32,927 |
9.5% |
9.5% |
|
2 |
Visma |
HGT LP |
TMT |
Nordic Region |
2006 |
701 |
31,656 |
9.2% |
18.7% |
|
3 |
TeamSystem |
HGT 6 LP |
TMT |
Italy |
2010 |
24,432 |
24,831 |
7.2% |
25.9% |
|
4 |
JLA |
HGT 6 LP |
Services |
UK |
2010 |
12,224 |
20,013 |
5.8% |
31.7% |
|
5 |
Achilles |
HGT LP |
TMT |
UK |
2008 |
5,218 |
19,871 |
5.8% |
37.5% |
|
6 |
P&I |
HGT 7 LP/HGT LP1 |
TMT |
Germany |
2013 |
19,771 |
19,734 |
5.7% |
43.2% |
|
7 |
Nair & Co. |
HGT 6 LP |
Services |
UK |
2013 |
19,499 |
19,408 |
5.6% |
48.8% |
|
8 |
Leasedrive |
HGT 6 LP |
Services |
UK |
2013 |
14,325 |
14,325 |
4.2% |
53.0% |
|
9 |
QUNDIS |
HGT 6 LP |
Industrials |
Germany |
2012 |
11,552 |
12,908 |
3.7% |
56.7% |
|
10 |
Lumesse |
HGT 6 LP |
TMT |
UK |
2010 |
20,060 |
11,688 |
3.4% |
60.1% |
|
11 |
e-conomic |
HGT 6 LP |
TMT |
Nordic Region |
2013 |
11,496 |
11,653 |
3.4% |
63.5% |
|
12 |
SimonsVoss |
HGT 6 LP |
Industrials |
Germany |
2010 |
11,936 |
11,407 |
3.3% |
66.8% |
|
13 |
Frösunda |
HGT 6 LP |
Healthcare |
Nordic Region |
2010 |
14,296 |
10,641 |
3.1% |
69.9% |
|
14 |
NetNames |
HGT 6 LP |
TMT |
UK |
2011 |
14,249 |
10,494 |
3.0% |
72.9% |
|
15 |
Voyage |
HGT LP |
Healthcare |
UK |
2006 |
15,336 |
10,320 |
3.0% |
75.9% |
|
16 |
Manx Telecom |
HGT 6 LP |
TMT |
UK |
2010 |
3,274 |
10,113 |
2.9% |
78.8% |
|
17 |
Atlas |
HGT LP |
Services |
UK |
2007 |
9,597 |
8,626 |
2.5% |
81.3% |
|
18 |
Schleich |
HGT LP |
C&L2 |
Germany |
2006 |
4,650 |
7,600 |
2.2% |
83.5% |
|
19 |
Sporting Index |
HGT LP |
C&L2 |
UK |
2005 |
7,440 |
7,355 |
2.1% |
85.6% |
|
20 |
Investments in the UK Parts Alliance |
HGT 6 LP |
Services |
UK |
2012 |
6,596 |
4,624 |
1.3% |
86.9% |
|
21 |
Mainio Vire |
HGT 6 LP |
Healthcare |
Nordic Region |
2011 |
8,307 |
2,923 |
0.9% |
87.8% |
|
22 |
KVT |
HGT LP |
Industrials |
Switzerland |
2008 |
5,829 |
2,738 |
0.8% |
88.6% |
|
23 |
Casa Reha |
HGT LP |
Healthcare |
Germany |
2008 |
8,990 |
2,335 |
0.7% |
89.3% |
|
24 |
Teufel |
HGT 6 LP |
Industrials |
Germany |
2010 |
10,156 |
704 |
0.2% |
89.5% |
|
25 |
Americana International |
HGT LP |
C&L2 |
UK |
2007 |
4,625 |
- |
- |
89.5% |
|
|
Non-active investments3 (5) |
HGT 6 LP/HGT LP |
|
|
|
26 |
1,267 |
0.4% |
89.9% |
|
|
Total primary mid-cap buyout investments (30) |
|
|
|
|
290,183 |
310,161 |
89.9% |
|
|
|
Other buyout investments |
Hg 6E LP/Mercury |
|
|
|
17,258 |
17,163 |
4.9% |
94.8% |
|
|
Renewable energy investments |
RPP1/RPP2 |
Renewable energy |
|
|
23,798 |
17,880 |
5.2% |
100.0% |
|
|
Total all investments |
|
|
|
|
331,239 |
345,204 |
100.0% |
|
|
1 Investment through HGT 7 LP and co-investment participation through HGT LP 2 Consumer and Leisure 3 Residual ownerships in holding company structures, following earlier realisations of underlying operating company groups, awaiting liquidation and final proceeds and a small residual holding, awaiting final realisation by fund manager
|
|||||||||
FINANCIAL STATEMENTS
|
INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2013 |
|||||||
|
|
Notes |
Revenue return |
Capital return |
Total return |
|||
|
2013 £'000 |
2012 £'000 |
2013 £'000 |
2012 £'000 |
2013 £'000 |
2012 £'000 |
||
|
(Losses)/gains on investments and government securities |
13 |
- |
- |
(18,701) |
48,944 |
(18,701) |
48,944 |
|
Losses on priority profit share loans advanced to General Partners |
5(b) |
- |
- |
(1,449) |
(583) |
(1,449) |
(583) |
|
Net income |
4 |
16,682 |
13,600 |
- |
- |
16,682 |
13,600 |
|
Other expenses |
6(a) |
(3,323) |
(2,101) |
- |
- |
(3,323) |
(2,101) |
|
Net return / (loss) before finance costs and taxation |
|
13,359 |
11,499 |
(20,150) |
48,361 |
(6,791) |
59,860 |
|
Finance costs |
6(b) |
(482) |
(501) |
- |
- |
(482) |
(501) |
|
Net return / (loss) on ordinary activities before taxation |
12,877 |
10,998 |
(20,150) |
48,361 |
(7,273) |
59,359 |
|
|
Taxation credit / (charge) on ordinary activities |
9(a) |
36 |
(600) |
- |
- |
36 |
(600) |
|
Net return / (loss) on ordinary activities after taxation attributable to reserves |
|
12,913 |
10,398 |
(20,150) |
48,361 |
(7,237) |
58,759 |
|
Return / (loss) per Ordinary share |
10(a) |
35.34p |
32.13p |
(55.14)p |
149.42p |
(19.80)p |
181.55p |
|
The total return column of this statement represents the Trust'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. The movements in reserves are set out in note 21 to the financial statements. All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year.
The following notes form part of these financial statements. |
|||||||
|
BALANCE SHEET AS AT 31 DECEMBER 2013 |
|||
|
|
Notes |
2013 £'000 |
2012 £'000 |
|
Fixed asset investments |
|
|
|
|
Investments held at fair value |
|
|
|
|
Unquoted at Directors' valuation |
|
295,960 |
286,026 |
|
Total fixed asset investments |
12 |
295,960 |
286,026 |
|
Current assets -amounts receivable after one year |
|
|
|
|
Accrued income on fixed assets |
14 |
49,244 |
40,060 |
|
Current assets -amounts receivable within one year |
|
|
|
|
Debtors |
14 |
1,907 |
2,306 |
|
Government securities |
15 |
83,121 |
108,359 |
|
Cash |
16 |
12,708 |
5,867 |
|
Total current assets |
|
146,980 |
156,592 |
|
Creditors - amounts falling due within one year |
17 |
(2,356) |
(4,662) |
|
Net current assets |
|
144,624 |
151,930 |
|
Net assets |
|
440,584 |
437,956 |
|
Capital and reserves |
|
|
|
|
Called up share capital |
20 |
9,331 |
8,908 |
|
Share premium account |
21 |
120,368 |
102,746 |
|
Capital redemption reserve |
21 |
1,248 |
1,248 |
|
Capital reserve - realised |
21 |
326,197 |
317,366 |
|
Capital reserve - unrealised |
21 |
(38,526) |
(9,545) |
|
Revenue reserve |
21 |
21,966 |
17,233 |
|
Total equity shareholders' funds |
|
440,584 |
437,956 |
|
|
|
|
|
|
Basic net asset value per Ordinary share |
10(b) |
1,180.4p |
1,231.5p |
|
Diluted net asset value per Ordinary share |
10(b) |
1,180.4p |
1,221.7p |
|
Ordinary shares in issue at 31 December |
|
37,324,698 |
35,564,185 |
|
The financial statements were approved and authorised for issue by the Board of Directors on 7 March 2014 and signed on its behalf by: Roger Mountford, Chairman Richard Brooman, Director
The following notes form part of these financial statements. |
|||
|
CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2013 |
|||
|
|
Notes |
2013 £'000 |
2012 £'000 |
|
Net cash inflow from operating activities |
7 |
5,078 |
1,104 |
|
Servicing of finance |
|
(482) |
(501) |
|
Taxation paid |
|
(1,212) |
(78) |
|
Capital expenditure and financial investment |
|
|
|
|
Purchase of fixed asset investments |
12 |
(79,968) |
(37,582) |
|
Proceeds from the sale of fixed asset investments |
12 |
52,113 |
68,939 |
|
Net cash (outflow)/inflow from capital expenditure and financial investment |
|
(27,855) |
31,357 |
|
Financing activities |
|
|
|
|
Proceeds from issue of share capital |
|
18,045 |
35,547 |
|
Proceeds from loan facility |
|
1,421 |
- |
|
Equity dividends paid |
11 |
(8,180) |
(3,182) |
|
Net cash inflow from financing activities |
|
11,286 |
32,365 |
|
Net cash (outflow)/inflow before management of liquid resources |
|
(13,185) |
64,247 |
|
Management of liquid resources |
|
|
|
|
Purchase of government securities |
15 |
(153,375) |
(90,006) |
|
Sale/redemption of government securities |
15 |
173,401 |
27,150 |
|
Net cash inflow/(outflow) from management of liquid resources |
|
20,026 |
(62,856) |
|
Increase in cash and cash equivalents in the year |
16 |
6,841 |
1,391 |
|
Cash and cash equivalents at 1 January |
16 |
5,867 |
4,476 |
|
Cash and cash equivalents at 31 December |
16 |
12,708 |
5,867 |
|
The following notes form part of these financial statements. |
|||
|
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS FOR THE YEAR ENDED 31 DECEMBER 2013 |
|||||||
|
|
Notes |
Share capital £'000 |
Share premium account £'000 |
Capital redemption reserve £'000 |
Capital reserves £'000 |
Revenue reserve £'000 |
Total £'000 |
|
At 31 December 2012 |
|
8,908 |
102,746 |
1,248 |
307,821 |
17,233 |
437,956 |
|
Issue of Ordinary shares |
20,21 |
441 |
17,622 |
- |
- |
- |
18,063 |
|
Conversion upon exercise of Subscription shares |
20 |
(18) |
- |
- |
- |
- |
(18) |
|
Net return from ordinary activities |
|
- |
- |
- |
(20,150) |
12,913 |
(7,237) |
|
Dividends paid |
11 |
- |
- |
- |
- |
(8,180) |
(8,180) |
|
At 31 December 2013 |
20,21 |
9,331 |
120,368 |
1,248 |
287,671 |
21,966 |
440,584 |
|
|
|
|
|
|
|
|
|
|
At 31 December 2011 |
|
8,011 |
68,096 |
1,248 |
259,460 |
10,017 |
346,832 |
|
Issue of Ordinary shares |
20,21 |
934 |
34,650 |
- |
- |
- |
35,584 |
|
Conversion upon exercise of Subscription shares |
20 |
(37) |
- |
- |
- |
- |
(37) |
|
Net return from ordinary activities |
|
- |
- |
- |
48,361 |
10,398 |
58,759 |
|
Dividends paid |
11 |
- |
- |
- |
- |
(3,182) |
(3,182) |
|
At 31 December 2012 |
20,21 |
8,908 |
102,746 |
1,248 |
307,821 |
17,233 |
437,956 |
|
The following notes form part of these financial statements. |
|||||||
NOTES TO THE FINANCIAL STATEMENTS
1. Principal activity
The principal activity of the Trust is that of an investment trust company. The Trust is an investment company as defined by Section 833 of the Companies Act 2006 and an investment trust within the meaning of Sections 1158 and 1159 of the Corporation Tax Act 2010 ('CTA 2010').
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') and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies' ('SORP'), dated January 2009. All of the Trust's operations are of a continuing nature.
The Trust has considerable financial resources and, as a consequence, the Directors believe that the Trust is well placed to manage its business risks successfully despite the current uncertain economic outlook. After making enquiries, the Directors have a reasonable expectation that the Trust will have adequate resources to continue in operational existence for the foreseeable future.
Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.
The same accounting policies, presentation and methods of computation are followed in these financial statements as applied in the Trust's previous annual audited financial statements.
3. Organisational structure, manager arrangements and accounting policies
Partnerships where the Trust is the sole limited partner
The Trust entered into four separate partnership agreements with general and founder partners in May 2003 (subsequently revised in January 2009), January 2009, July 2011 and March 2013, at which point investment holding limited partnerships were established to carry on the business of an investor, with the Trust being the sole limited partner in these entities.
The purpose of these partnerships, HGT LP, HGT 6 LP, HgCapital Mercury D LP and HGT 7 LP (together the 'primary buyout funds') is to hold all the Trust's investments in primary buyouts. Under the partnership agreements, the Trust made capital commitments into the primary buyout funds, with the result that the Trust 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..
Partnerships where the Trust is a minority limited partner
In July 2011, the Trust made a direct secondary investment in HgCapital 6 E LP ('Hg6 E LP'), one of the partnerships that comprise the Hg6 Fund, in which the Trust is now a limited partner alongside other limited partners. This is a direct investment in the HgCapital 6 E LP Fund, as shown on the balance sheet and in the investment portfolio above.
The Trust also entered into partnership agreements with the purpose of investing in renewable energy projects by making capital commitments alongside other limited partners in HgRenewable Power Partners LP ('Hg RPP LP') and HgCapital Renewable Power Partners 2 C LP ('Hg RPP2 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 carried interest per the primary buyout limited partnership agreements
Under the terms of the primary buyout fund limited partnership agreements ('LPAs'), the 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 Trust 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 Trust. Such loan is only recoverable from the general partner by an appropriation of net income; until net income is earned, no value is attributed to this loan.
Furthermore, under the primary buyout funds' LPAs, the 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 distributed to the Trust.
Accordingly, the Trust's entitlement to net income and net capital gains is shown in the appropriate lines of the income statement. Notes 4, 5, 7, 12, 14, 16 and 17 to the financial statements and the cash flow statement disclose the gross income and gross capital gains of the primary buyout funds (including the associated cash flows) 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 on 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.
Investment income and interest receivable
As stated above, all income that is recognised by the primary buyout funds, net of PPS, is attributed to the Trust.
The Trust will recognise such net income and reflect this as income in its financial statements, once recognised in the buyout funds. Income from HgCapital 6 E LP and the renewable funds would normally consist of income distributions and these distributions are recognised as income in the financial statements of the Trust when the right to such distribution is established.
The accounting policies below apply to the recognition of income by the primary buyout funds.
Interest income on non-equity shares and fixed income securities is recognised on a time apportionment basis so as to reflect the effective yield when it is probable that it will be realised. Premiums paid or discounts received with the acquisition of government securities are amortised over the remaining period up to the maturity date and are recognised in interest income on government securities. Dividends receivable on unlisted equity shares where there is no ex-dividend date and on non-equity shares are brought into account when the Trust's right to receive payment is established.
Income from listed equity investments, including taxes deducted at source, is included in revenue by reference to the date on which the investment is quoted ex-dividend. Where the Trust elects to receive dividends in the form of additional shares rather than cash dividends, the equivalent of the cash dividend is recognised as income in the revenue account and any excess in the value of the shares received over the amount of the cash dividend is recognised in capital reserve - realised.
Expenses
All expenses are accounted for on an accruals basis. All administrative expenses are charged wholly to the revenue account.
Dividends
Dividend distributions to shareholders are recognised as a liability in the year that they are approved unconditionally.
Current and other non-current assets
Financial assets and financial liabilities are recognised in the Trust's balance sheet when the Trust becomes a party to the contractual provisions of the instrument. Trade receivables are stated at nominal value. Appropriate allowances for estimated irrecoverable amounts are recognised in the revenue return on the income statement.
Government securities are short-term investments made in fixed rate government gilts. Cash comprises current accounts held with banks.
Foreign currency
All transactions in foreign currencies are translated into pounds sterling at the rates of exchange ruling at the dates of such transactions and the resulting exchange differences are taken to capital reserve - realised. Foreign currency assets and liabilities at the balance sheet date are translated into pounds sterling at the exchange rates ruling at that date and the resulting exchange differences are taken to capital reserve - unrealised.
Taxation
Income taxes represent the sum of the tax currently payable, withholding taxes suffered and deferred tax. Tax is charged or credited in the income statement. Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future, or the right to pay less, have occurred at the balance sheet date. This is subject to deferred assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences can be deducted. Timing differences are differences between the Trust's taxable profits and its results, as stated in the financial statements, which are capable of reversal in subsequent periods.
Investments
The general principle applied is that investments should be reported at 'fair value' in accordance with Financial Instruments: Recognition and Measurement ('FRS26') and the International Private Equity and Venture Capital ('IPEV') Valuation Guidelines, December 2012 edition. Where relevant, the Trust applies the policies stated below to the investments held by HGT LP, HGT 6 LP, HGT 7 LP and HgCapital Mercury D LP, in order to determine the fair value of its investments in these limited partnerships.
Purchases of investments are recognised on a trade date basis. Sales of investments held through the primary buyout funds are recognised at the trade date of the disposal. Sales from the investments in HgCapital 6 E LP and the renewable energy funds would normally consist of capital distributions and these distributions are recognised as a realisation when the right to such distribution is established. Proceeds are measured at fair value, which is regarded as the proceeds of sale less any transaction costs.
Quoted: Quoted investments are designated as held at fair value, which is deemed to be their bid price.
Unquoted: Unquoted investments are also designated as held at fair value and are valued using the following guidelines:
(i) initially, investments are valued at the price of recent investment including fees and transaction costs, unless the prevailing market conditions and/or trading prospects of the investment result in this price being an inappropriate measure of fair value and (ii) or (iv) below is required;
(ii) subsequently, companies are valued based on the level of maintainable earnings and an appropriate earnings multiple, unless (iv) is required;
(iii) where more appropriate, investments are valued with reference to their net assets rather than to their earnings; and
(iv) appropriate provisions are made against all individual valuations where necessary to reflect unsatisfactory financial performance or a fall in comparable ratings, leading to an impairment in value.
Limited partnership funds: These are investments that are set up by a manager in which the Trust has a direct investment, but is not the sole limited partner and does not hold a majority share. These investments are valued at fair value, based on the manager's valuation after any adjustment required by the Directors.
Government securities: These are short-term investments made in fixed rate government gilts and are valued at the current fair market value of the gilt.
Derivative financial instruments: Derivative financial instruments are held at fair value and are valued using quoted market prices for financial instruments traded in active markets, or dealer price quotations for financial instruments that are not actively traded.
Both realised and unrealised gains and losses arising on fixed asset investments, financial assets and liabilities and derivative financial instruments, are taken to capital reserves.
Capital reserves
Capital reserve - realised
The following are accounted for in this reserve:
(i) gains and losses on the realisation of investments;
(ii) attribution of gains to the founder partners for carried interest;
(iii) losses on investments within the portfolio where there is little prospect of realisation or recovering any value;
(iv) realised exchange differences of a capital nature; and
(v) expenses, together with the related taxation effect, charged to this reserve in accordance with the above policies.
Capital reserve - unrealised
The following are accounted for in this reserve:
(i) increases and decreases in the valuation of investments held at the year-end;
(ii) increases and decreases in the valuation of the loans to general partners; and
(iii) unrealised exchange differences of a capital nature.
|
4. Income Revenue return |
||
|
|
2013 £'000 |
2012 £'000 |
|
Income from investments held by HGT LP, HGT 6 LP, HGT 7 LP and HgCapital Mercury D LP |
|
|
|
UK unquoted investment income |
11,546 |
16,258 |
|
Foreign unquoted investment income |
10,911 |
3,260 |
|
Other investment income |
|
|
|
UK unquoted investment income |
710 |
929 |
|
Gilt interest less amortisation of premium |
(482) |
(237) |
|
Total investment income |
22,685 |
20,210 |
|
Other income |
|
|
|
Deposit interest |
16 |
42 |
|
Other interest income |
3 |
- |
|
Other income |
53 |
- |
|
Total other income |
72 |
42 |
|
Total income |
22,757 |
20,252 |
|
Priority profit share charge against income |
|
|
|
Current year - HGT LP |
(1,434) |
(1,383) |
|
Prior year - HGT LP |
- |
(402) |
|
Current year - HGT 6 LP |
(4,641) |
(4,867) |
|
Total priority profit share charge against income |
(6,075) |
(6,652) |
|
Total net income |
16,682 |
13,600 |
|
Total income comprises: |
|
|
|
Interest |
16,629 |
13,600 |
|
Other income |
53 |
- |
|
Total net income |
16,682 |
13,600 |
5. Priority profit share and carried interest
|
(a) Priority profit share payable to General Partners |
Revenue return |
|
|
2013 £'000 |
2012 £'000 |
|
|
Priority profit share payable |
|
|
|
Current year amount |
7,524 |
7,235 |
|
Less: Current year loans advanced to General Partners |
(1,449) |
(985) |
|
Current year charge against income |
6,075 |
6,250 |
|
Add: Prior year loans to General Partners recovered from priority profit share |
- |
402 |
|
Total priority profit share charge against income |
6,075 |
6,652 |
The priority profit share payable on HGT LP, HGT 6 LP, HGT 7 LP and HgCapital Mercury D LP rank as a first appropriation of net income from investments held in HGT LP, HGT 6 LP, HGT 7 LP and HgCapital Mercury D LP respectively and is deducted prior to such income being attributed to the Trust in its capacity as a Limited Partner. The net income of HGT LP, HGT 6 LP, HGT 7 LP and HgCapital Mercury D LP earned during the year, after the deduction of the priority profit share, is shown on the income statement. Details of these arrangements are disclosed below and in the Directors' report in the full Annual Report and Accounts.
The terms of the above priority profit share arrangements during 2013 were:
|
Fund partnership |
Fee per year |
|
HGT LP |
1.5% on the value of investments in fund |
|
HGT 6 LP |
1.75% on the fund commitment during the investment period; post-investment period 1.5% of original cost of investments in fund less the original cost of investments that have been realised or written off1 |
|
HgCapital Mercury D LP |
1.75% on the fund commitment during the investment period |
|
HGT 7 LP |
1.75% on the fund commitment during the investment period |
In addition, priority profit shares are payable on partnerships where the Trust is a minority limited partner. These amounts are initially and indirectly funded by the Trust through the amounts invested in these partnerships and these amounts are recognised as unrealised losses in the capital account in the income statement.
|
Fund partnership |
Fee per year |
|
HgCapital 6 E LP |
1.75% on the fund commitment during the investment period; post-investment period, 1.5% of original cost of investments in fund, less the original cost of investments that have been realised or written off1 |
|
Hg Renewable Power Partners LP |
1.5% of original cost of investments in fund, less the original cost of investments that have been realised or written off (previously 1.75% of the fund commitment during the investment period that ended on 31 May 2010) |
|
HgCapital Renewable Power Partners 2 C LP |
1.64% on the fund commitment during the investment period |
1Investment period ended on 19 November 2013
|
(b) Priority profit share loans to General Partners |
Capital return |
|
|
2013 £'000 |
2012 £'000 |
|
|
Movements on loans to General Partners |
|
|
|
Losses on current year loans advanced to General Partners |
(1,449) |
(985) |
|
Gains on prior year loans to General Partners recovered against income |
- |
402 |
|
Total losses on priority profit share loans advanced to General Partners |
(1,449) |
(583) |
In years in which the funds described in note 5(a) have not yet earned sufficient net income to satisfy the priority profit share, the entitlement is carried forward to the following years. The priority profit share is payable quarterly in advance, even if insufficient net income has been earned. Where the cash amount paid exceeds the net income, an interest free loan is advanced to the general partner by these primary buyout funds, which is funded via a loan from the Trust. 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.
|
(c) Carried interest to Founder Partners |
Capital return |
|
|
2013 £'000 |
2012 £'000 |
|
|
Carried interest payable |
|
|
|
Current year amount |
- |
2,728 |
|
Total carried interest charge against capital gains (note 13) |
- |
2,728 |
The carried interest payable ranks as a first appropriation of capital gains on the investments held in HGT LP, HGT 6 LP, HGT 7 LP and HgCapital Mercury D LP, limited partnerships established solely to hold the Trust's investments, and is deducted prior to such gains being paid to the Trust in its capacity as a Limited Partner. The net amount of capital gains of HGT LP, HGT 6 LP, HGT 7 LP and HgCapital Mercury D LP during the year, after the deduction of carried interest, is shown on the income statement. Details of the carried interest contracts are disclosed in the Directors' report in the full Annual Report and Accounts.
6. Other expenses
(a) Operating expenses Revenue return
|
|
2013 £'000 |
2012 £'000 |
|
Custodian and administration fees |
529 |
479 |
|
Directors' remuneration (note 8) |
187 |
198 |
|
Share of aborted deal fees |
1,965 |
1,077 |
|
Legal and other administration costs |
535 |
278 |
|
|
3,216 |
2,032 |
|
Fees payable to the Trust's auditor in relation to the Trust and Fund Limited Partnerships |
|
|
|
Audit fees |
58 |
51 |
|
Tax compliance services |
35 |
14 |
|
Other non-audit services |
14 |
4 |
|
Total fees payable to the Trust's auditor |
107 |
69 |
|
Total other expenses |
3,323 |
2,101 |
|
The Trust's total expense ratio ('TER'), calculated as total expenses including the priority profit share as a percentage of average net assets was: |
2.47% |
2.38%* |
(b) Finance costs
|
|
2013 £'000 |
2012 £'000 |
|
Interest paid |
22 |
- |
|
Non-utilisation fees and other expenses |
460 |
501* |
|
Total finance costs |
482 |
501 |
* The prior year bank facility fees and related expenses have been reclassified to finance costs. The total expense ratio calculation has also been restated in line with this reclassification. This reclassification has no effect on the prior year return and reserves.
7. Cash flow from operating activities
|
Reconciliation of net (loss) / return before taxation to net cash flow from operating activities |
2013 £'000 |
2012 £'000 |
|
Net (loss) / return before finance costs and taxation |
(6,791) |
59,860 |
|
Add back: Losses/(gains) on investments held at fair value |
18,701 |
(51,672) |
|
(Decrease)/increase in carried interest payable |
(2,728) |
649 |
|
Amortisation of premium on government securities |
4,432 |
2,704 |
|
Increase in prepayments, accrued income and other debtors |
(8,746) |
(10,199) |
|
Increase/(decrease) in creditors |
210 |
(238) |
|
Net cash inflow from operating activities |
5,078 |
1,104 |
8. Directors' remuneration
The aggregate remuneration of the Directors for the year to 31 December 2013 was £186,777 (2012: £197,500).
Further information on the Directors' remuneration is disclosed in the Directors' remuneration report in the full Annual Report and Accounts.
9. Taxation on ordinary activities
Revenue return
|
(a) Analysis of (credit)/charge in the year |
2013 £'000 |
2012 £'000 |
|
Current tax: |
|
|
|
UK corporation tax |
2,696 |
3,213 |
|
Income streaming relief |
(2,515) |
(2,004) |
|
Prior year adjustment |
(287) |
85 |
|
Current revenue tax (credit)/charge for the year (note 9(b)) |
(106) |
1,294 |
|
Deferred tax: |
|
|
|
Reversal/(origination) of timing differences |
70 |
(694) |
|
Total deferred tax charge/(credit) for the year (note 9(c)) |
70 |
(694) |
|
Total taxation (credit) / charge on ordinary activities |
(36) |
600 |
(b) Factors affecting current tax charge for the year
The tax assessed for the year is the same as the standard rate of corporation tax in the UK for a large company (23.25%; 2012: 24.5%).
The differences are explained below:
|
|
2013 £'000 |
2012 £'000 |
|
Net revenue return on ordinary activities before taxation |
12,877 |
10,998 |
|
UK corporation tax charge at 23.25% thereon (2012: 24.5%) |
2,993 |
2,694 |
|
Effects of: |
|
|
|
Tax relief from interest distribution |
(2,515) |
(2,004) |
|
Non-taxable investment income |
(503) |
- |
|
Taxable income not recognised in revenue return |
362 |
519 |
|
Income taxed in prior years |
(165) |
- |
|
Disallowed expenses |
9 |
- |
|
Tax in relation to the prior year |
(287) |
85 |
|
Total differences |
(3,099) |
(1,400) |
|
Current revenue tax (credit)/charge for the year (note 9(a)) |
(106) |
1,294 |
In the opinion of the Directors, the Trust 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. The Trust will elect to designate all of the proposed dividend (see note 11) as an interest distribution to its shareholders. This distribution is treated as a tax deduction against taxable income and results in a reduction of corporation tax being payable by the Trust at 31 December 2013.
Revenue return
|
(c) Deferred tax |
2013 £'000 |
2012 £'000 |
|
Deferred tax: |
|
|
|
Movement in taxable income not recognised in revenue return |
70 |
(694) |
|
Total deferred tax charge/(credit) for the year (note 9(a)) |
70 |
(694) |
|
Deferred tax recoverable: |
|
|
|
Recoverable deferred tax at 31 December |
694 |
- |
|
Deferred tax (charge)/credit for the year |
(70) |
694 |
|
Recoverable deferred tax at end of year |
624 |
694 |
10. Return / (loss) and net asset value per Ordinary share
|
(a) Return / (loss) per Ordinary share |
Revenue return |
Capital return |
||
|
Year ended 31.12.2013 |
Year ended 31.12.2012 |
Year ended 31.12.2013 |
Year ended 31.12.2012 |
|
|
Amount (£'000): |
|
|
|
|
|
Return / (loss) on ordinary activities after taxation |
12,913 |
10,398 |
(20,150) |
48,361 |
|
Number of shares (`000) |
|
|
|
|
|
Weighted average number of shares in issue |
36,543 |
32,366 |
36,543 |
32,366 |
|
Return / (loss) per Ordinary share (pence) |
35.34 |
32.13 |
(55.14) |
149.42 |
At the beginning of the year the Trust had 1,760,513 Subscription shares in issue. On 31 May 2013, 1,760,513 new Ordinary shares were issued pursuant to the exercise of the remaining Subscription shares.
|
(b) Net asset value per Ordinary share |
Year ended 31.12.2013 |
Year ended 31.12.2012 |
|
Amount (£'000) |
|
|
|
Net assets |
440,584 |
437,956 |
|
Assuming exercise of all outstanding Subscription shares |
- |
18,045 |
|
Fully diluted net asset value |
440,584 |
456,001 |
|
Number of Ordinary shares (`000) |
|
|
|
Number of Ordinary shares in issue |
37,325 |
35,564 |
|
Potential issue of new Ordinary shares on exercise of Subscription shares |
- |
1,761 |
|
Ordinary shares in issue following exercise of Subscription shares |
37,325 |
37,325 |
|
Basic net asset value per share (pence) |
1,180.4 |
1,231.5 |
|
Fully diluted net asset value per share (pence) |
1,180.4 |
1,221.7 |
All remaining Subscription shares were exercised on 31 May 2013 and therefore no diluted net asset value calculation is relevant on 31 December 2013. In 2012, the diluted net asset value per share was calculated by adding to the current net asset value (basic) of £437,956,000 the proceeds of £18,045,000 from the exercise of Subscription shares, assuming all outstanding Subscription shares would be exercised at the subscription price of £10.25, and then dividing the adjusted net asset value (diluted) by the adjusted number of Ordinary shares in issue (37,324,698).
11. Dividends on Ordinary shares
|
|
Register date |
Payment date |
2013 £'000 |
2012 £'000 |
|
Dividend of 10.0p for the year ended 31 December 2011 |
10 April 2012 |
15 May 2012 |
- |
3,182 |
|
Dividend of 23.0p for the year ended 31 December 2012 |
5 April 2013 |
15 May 2013 |
8,180 |
- |
|
|
|
|
8,180 |
3,182 |
The proposed dividend of 29.0 pence per Ordinary share for the year ended 31 December 2013 is subject to approval by the shareholders at the annual general meeting and has not been included as a liability in these financial statements. The total dividends payable in respect of the financial year, which form the basis of the retention test as set out in Section 1159 of the CTA 2010, are set out below:
|
|
2013 £'000 |
|
Revenue available for distribution by way of dividend for the year |
12,913 |
|
Proposed dividend of 29.0p for the year ended 31 December 2013 |
(10,824) |
|
Undistributed revenue for Section 1159 purposes* |
2,089 |
|
*Undistributed revenue comprises 13.6% of the estimated total taxable income of £15,367,000. |
|
12. Fixed asset investments
|
|
2013 £'000 |
2012 £'000 |
|
Investments held at fair value through profit and loss |
|
|
|
Investments held in HGT 6 LP |
|
|
|
Unquoted investments |
171,123 |
177,104 |
|
Investments held in HGT LP |
|
|
|
Unquoted investments |
74,825 |
76,258 |
|
Investments held in HGT 7 LP |
|
|
|
Unquoted investments |
15,158 |
- |
|
Investments held in HgCapital Mercury D LP |
|
|
|
Unquoted investments |
6,765 |
2,390 |
|
Other investments held by the Trust |
|
|
|
Unquoted investments |
28,089 |
30,274 |
|
Total fixed asset investments |
295,960 |
286,026 |
|
Total fixed asset investments consist of: |
|
|
|
Fund limited partnerships |
295,960 |
286,026 |
|
|
2013 £'000 |
2012 £'000 |
|
Opening valuation as at 1 January |
286,026 |
265,421 |
|
Add back: opening unrealised depreciation - investments |
7,795 |
22,286 |
|
- financial derivative instruments |
- |
52 |
|
Opening book cost as at 1 January |
293,821 |
287,759 |
|
Movements in the year: |
|
|
|
Additions at cost |
79,968 |
37,582 |
|
Disposals - proceeds |
(52,113) |
(68,939) |
|
- realised gains on sales |
9,563 |
37,419 |
|
Closing book cost of investments |
331,239 |
293,821 |
|
Less: closing unrealised depreciation - investments |
(35,279) |
(7,795) |
|
Closing valuation of investments as at 31 December |
295,960 |
286,026 |
The above investments include investments in companies that are indirectly held by the Trust through its investment in HGT LP, HGT 6 LP, HGT 7 LP and HgCapital Mercury D LP, as set out in note 3 and investments in fund limited partnerships in Hg6 E LP, Hg Renewable Power Partners LP and HgCapital Renewable Power Partners 2 C LP.
Capital Return
|
13. (Losses) / gains on investments and government securities |
2013 £'000 |
2012 £'000 |
|
Realised |
|
|
|
Realised gains/(losses) on sales - fixed asset investments |
9,563 |
37,414 |
|
- financial derivative instruments |
- |
5 |
|
- government securities |
(732) |
(259) |
|
Realised gains before carried interest charge |
8,831 |
37,160 |
|
Carried interest charge against capital gains (note 5(c)) |
- |
(2,728) |
|
Net realised gains |
8,831 |
34,432 |
|
Unrealised |
|
|
|
Change in unrealised (losses)/gains - fixed asset investments |
(27,484) |
14,491 |
|
- financial derivative instruments |
- |
52 |
|
- government securities |
(48) |
(31) |
|
Net unrealised (losses)/gains |
(27,532) |
14,512 |
|
Total (losses)/gains |
(18,701) |
48,944 |
14. Debtors and accrued income
|
|
2013 £'000 |
2012 £'000 |
|
Amounts receivable after one year |
|
|
|
Accrued income on fixed assets |
49,244 |
40,060 |
|
Amounts receivable within one year |
|
|
|
Taxation recoverable |
109 |
- |
|
Deferred tax recoverable (note 9(c)) |
624 |
694 |
|
Accrued income on government securities |
1,056 |
1,538 |
|
Prepayments and other accrued income |
69 |
74 |
|
Other debtors |
49 |
- |
|
Total amounts receivable within one year |
1,907 |
2,306 |
|
Total debtors |
51,151 |
42,366 |
The Directors consider that the carrying amount of debtors approximates their fair value.
15. Government securities
|
|
2013 £'000 |
2012 £'000 |
|
Investments held at fair value through profit and loss |
|
|
|
Opening valuation |
108,359 |
48,497 |
|
Purchases at cost |
153,375 |
90,006 |
|
Sales and redemptions |
(173,401) |
(27,150) |
|
Movement in unrealised capital losses |
(48) |
(31) |
|
Amortisation of premium on acquisition |
(4,432) |
(2,704) |
|
Realised capital losses |
(732) |
(259) |
|
Closing valuation |
83,121 |
108,359 |
16. Movement in net funds
|
Analysis and reconciliation of net funds |
2013 £'000 |
2012 £'000 |
|
Change in cash |
6,841 |
1,391 |
|
Net funds at 1 January |
5,867 |
4,476 |
|
Net funds at 31 December |
12,708 |
5,867 |
|
Net funds comprise: |
|
|
|
Cash |
12,708 |
5,867 |
Cash includes £9,915,000 (2012: £1,849,000) held by the fund limited partnerships in which the Trust is the sole limited partner.
17. Creditors - amounts falling due within one year
|
|
2013 £'000 |
2012 £'000 |
|
Carried interest |
- |
2,728 |
|
Taxation payable |
- |
1,209 |
|
Loan facility (see note 18) |
1,421 |
|
|
Sundry creditors |
935 |
725 |
|
Total creditors |
2,356 |
4,662 |
The Directors consider that the carrying amount of creditors approximate their fair value.
18. Bank facility
On 24 August 2011, the Trust entered into a £40,000,000 multi-currency revolving credit standby facility on an unsecured basis. The facility is available for three years. Under the facility agreement, the Trust is liable to pay interest on any drawn amount at LIBOR plus a margin of 2.75%. A commitment fee of 1.1% p.a. is liable on any undrawn commitment. No amount was drawn during the year under review.
On 28 November 2012, HgCapital Mercury D LP, alongside the other Hg Mercury funds, entered into a four-year multi-currency revolving term loan facility. HgCapital Mercury D LP participated for an amount of £4,736,842. Under the facility agreement, it is liable to pay interest on any drawn amount at base rate plus a margin of 3.00%. A commitment fee of 0.50% p.a. is liable on any undrawn commitment. At the end of the year, an amount of £1,421,053 was drawn.
19. Financial risk
The following disclosures relating to the risks faced by the Trust are provided in accordance with Financial Reporting Standard 29, 'Financial instruments: disclosures'. The reference to investments in this note is in relation to the Trust's direct investments in Hg RPP1 LP, Hg RPP2 LP, Hg6E LP and the underlying investments in HGT LP, HGT 6 LP, HGT 7 LP and HgCapital Mercury D LP as described in note 3..
Financial instruments and risk profile
As a private equity investment trust, the Trust's investment objective is to achieve long-term capital appreciation by indirectly investing in unquoted companies. It does this through its investments in fund partnerships, mostly in the UK and Europe. Additionally, the Trust holds government gilts and cash and items such as debtors and creditors arising directly from its operations. In pursuing its investment objective, the Trust is exposed to a variety of risks that could result in either a reduction of the Trust's net assets or a reduction in the profits available for distribution by way of dividends. Valuation risk, market risk (comprising currency risk and interest rate risk), liquidity risk and credit risk, and the Directors' approach to the management of them, are described below. The Board and the Manager coordinate the Trust's risk management. The objectives, policies and processes for managing the risks, and the methods used to manage the risks, that are set out below, have not changed from the previous accounting period.
Valuation risk
The Trust's exposure to valuation risk arises mainly from movements in the value of the underlying investments (held through fund partnerships), the majority of which are unquoted. A breakdown of the Trust's portfolio is given above. In accordance with the Trust's accounting policies, the investments in fund limited partnerships are valued by reference to all underlying unquoted investments, which are valued by the Directors following the IPEV Valuation Guidelines. The Trust does not hedge against movements in the value of these investments, apart from foreign exchange movements as explained below. The Trust has exposure to interest rate movements, through bank deposits and gilt holdings.
In the opinion of the Directors, the diversified nature of the Trust's portfolio significantly reduces the risks of investing in unquoted companies.
The Trust adopted the amendment to FRS 29, which was effective from 1 January 2009. This requires the Trust to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:
• Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
• Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).
• Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).
The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that is a level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.
The determination of what constitutes an 'observable' input requires significant judgement by the Board. The Board considers observable data relating to investments actively traded in organised financial markets, in which case fair value is generally determined by reference to stock exchange quoted market bid prices at the close of business on the balance sheet date, without adjustment for transaction costs necessary to realise the asset.
The following table analyses, within the fair value hierarchy, the fund's financial assets (by class) measured at fair value at 31 December.
|
Financial assets |
Level 1 £'000 |
Level 2 £'000 |
Level 3 £'000 |
Total £'000 |
|
Investments held at fair value through profit and loss |
|
|
|
|
|
Unquoted investments - Investment in HGT LP |
- |
- |
74,825 |
74,825 |
|
- Investment in HGT 6 LP |
- |
- |
171,123 |
171,123 |
|
- Investment in HGT 7 LP |
- |
- |
15,158 |
15,158 |
|
- Investment in HgCapital Mercury D LP |
- |
- |
6,765 |
6,765 |
|
- Investment in Hg 6 E LP |
- |
- |
10,209 |
10,209 |
|
- Investment in Hg RPP LP |
- |
- |
7,314 |
7,314 |
|
- Investment in Hg RPP2 LP |
- |
- |
10,566 |
10,566 |
|
- Government securities |
83,121 |
- |
- |
83,121 |
|
Other assets |
|
|
|
|
|
Accrued income |
1,056 |
- |
49,244 |
50,300 |
|
As at 31 December 2013 |
84,177 |
- |
345,204 |
429,381 |
|
Financial assets |
Level 1 £'000 |
Level 2 £'000 |
Level 3 £'000 |
Total £'000 |
|
Investments held at fair value through profit and loss |
|
|
|
|
|
Unquoted investments - Investment in HGT LP |
- |
- |
76,258 |
76,258 |
|
- Investment in HGT 6 LP |
- |
- |
177,104 |
177,104 |
|
- Investment in HgCapital Mercury D LP |
- |
- |
2,390 |
2,390 |
|
- Investment in Hg 6 E LP |
- |
- |
10,434 |
10,434 |
|
- Investment in Hg RPP LP |
- |
- |
11,335 |
11,335 |
|
- Investment in Hg RPP2 LP |
- |
- |
8,505 |
8,505 |
|
- Government securities |
108,359 |
- |
- |
108,359 |
|
Other assets |
|
|
|
|
|
Accrued income |
1,538 |
- |
40,060 |
41,598 |
|
As at 31 December 2012 |
109,897 |
- |
326,086 |
435,983 |
Investments whose values are based on quoted market prices in active markets, and therefore classified within level 1, include government securities and actively traded listed equities. The Trust does not adjust the quoted bid price of these investments.
Financial instruments that trade in markets that are not considered to be active, but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs, are classified within level 2. As level 2 investments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.
Investments classified within level 3 have significant unobservable inputs. Level 3 instruments include private equity and corporate debt securities. As observable prices are not available for these securities, the Board has used valuation techniques to derive the fair value. In respect of unquoted instruments, or where the market for a financial instrument is not active, fair value is established by using recognised valuation methodologies, in accordance with IPEV Valuation Guidelines. Fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm's length transaction.
There were no transfers of assets from level 1 to level 2 or 3, level 2 to level 1 or 3 and level 3 to level 1 or 2.
The following table presents the movement in level 3 investments for the year ended 31 December 2013 by class of financial instrument.
|
Unquoted investments |
Accrued income on investments 2013 £'000 |
Investments in limited partnerships 2013 £'000 |
Total 2013 £'000 |
|
Opening balance |
40,060 |
286,026 |
326,086 |
|
Purchases |
- |
79,968 |
79,968 |
|
Realisations at 31 December 2012 valuation |
(6,679) |
(51,176) |
(57,855) |
|
Total gains/(losses) for the year included in the income statement |
15,863 |
(18,858) |
(2,995) |
|
Closing unrealised valuation of level 3 investments |
49,244 |
295,960 |
345,204 |
|
Total gains / (losses) for the year included in the income statement |
21,390 |
(24,410) |
(3,020) |
Equity price risk
Equity price risk is the risk of a fall in the fair value of the Trust's ownership interests (comprising equities and shareholder loans) held by the Trust indirectly through its direct investments in fund limited partnerships. The Board revalues each investment twice each year. The Board manages the risks inherent in the investment portfolio by ensuring full and timely access to relevant information from the Manager. The Board meets regularly and at each meeting reviews the trading performance of the principal underlying investments. If there appears to the Board to be an impairment in value between regular valuations, it can revalue the investment. The Board also monitors the Manager's compliance with the Trust's investment objective and investment policy. The Manager's best estimate of the effect on the net assets and total return due to a reasonably possible change in the value of all unquoted securities, with all other variables held constant, is as follows:
|
|
% change |
£'000 |
NAV per Ordinary share (pence) |
|
Unquoted |
10% |
34,520 |
92.5 |
Credit risk
Credit risk is the risk of financial loss in the event that any of the Trust's market counterparties fail to fulfil their contractual obligations to the Trust. The Trust's financial assets (excluding fixed asset investments) that are subject to credit risk, were neither impaired nor overdue at the year-end. The Trust's cash balances were held with the Bank of New York Mellon and any significant balances were invested in government securities issued by the United Kingdom. Foreign exchange forward contracts and options are held with counterparties which have credit ratings that the Board considers to be adequate. The Board regularly monitors the credit quality and financial position of these market counterparties. The credit quality of the above mentioned financial assets was deemed satisfactory.
Market risk
The fair value of future cash flows of a financial instrument held by the Trust may fluctuate due to changes in market prices of comparable businesses. This market risk may comprise: currency risk (see below), interest rate risk and/or equity price risk (see above). The Board of Directors reviews and agrees policies for managing these risks. The Manager assesses the exposure to market risk when making each investment decision, and monitors the overall level of market risk on the whole of the investment portfolio on an ongoing basis.
Currency risk and sensitivity
The Trust is exposed to currency risk as a result of investing in fund partnerships which invest in companies that operate in currencies other than sterling. The value of these assets in sterling, being the Trust's functional currency, can be significantly influenced by movements in foreign exchange rates. The Trust is partially hedged against movements in the value of the euro against pounds sterling affecting the value of its investments, as explained below. The Manager monitors the Trust's exposure to foreign currencies and reports to the Board on a regular basis. The following table illustrates the sensitivity of the revenue and capital return for the year in relation to the Trust's year-end financial exposure to movements in foreign exchange rates against the Trust's functional currency. The rates represent the range of movements against sterling over the current year for the currencies listed.
In the opinion of the Directors, the sensitivity analysis below may not be representative of the year as a whole, since the level of exposure changes as the portfolio changes through the purchase and realisation of investments to meet the Trust's objectives.
|
|
Revenue return |
Capital return |
||
|
£'000 |
NAV per Ordinary share (pence) |
£'000 |
NAV per Ordinary share (pence) |
|
|
Highest value against sterling during the year |
|
|
|
|
|
Danish krone (8.5119) |
42 |
0.1 |
623 |
1.7 |
|
Euro (1.1417) |
714 |
1.9 |
5,322 |
14.3 |
|
Norwegian krone (8.4974) |
- |
- |
5,777 |
15.5 |
|
Swedish krona (9.4762) |
350 |
0.9 |
954 |
2.6 |
|
Swiss franc (1.4054) |
6 |
- |
126 |
0.3 |
|
US dollar (1.4831) |
87 |
0.2 |
2,179 |
5.8 |
|
|
1,199 |
3.1 |
14,981 |
40.2 |
|
Lowest value against sterling during the year |
|
|
|
|
|
Danish krone (9.2051) |
(20) |
(0.1) |
(301) |
(0.8) |
|
Euro (1.2339) |
(349) |
(0.9) |
(2,607) |
(7.0) |
|
Norwegian krone (10.1034) |
- |
- |
(173) |
(0.5) |
|
Swedish krona (10.7776) |
(37) |
(0.1) |
(101) |
(0.3) |
|
Swiss franc (1.4927) |
(2) |
- |
(35) |
(0.1) |
|
US dollar (1.6563) |
- |
- |
- |
- |
|
|
(408) |
(1.1) |
(3,217) |
(8.7) |
At 31 December 2013, the following rates were applied to convert foreign denominated assets into sterling: Danish krone (8.9671); euro (1.2020); Norwegian krone (10.0482); Swedish krona (10.6374); Swiss franc (1.4730); and US dollar (1.6563).
Portfolio hedging
At times, the Trust uses derivative financial instruments such as forward foreign currency contracts and option contracts to manage the currency risks associated with its underlying investment activities. The contracts entered into by the Trust are denominated in the foreign currency of the geographic areas in which the Trust has significant exposure against its reporting currency. The contracts are designated as a hedge and the fair values thereof are recorded in the balance sheet as investments held at fair value. Unrealised gains and losses are taken to capital reserves. At the balance sheet date, there were no outstanding derivative financial instruments.
The Trust does not trade in derivatives but may hold them from time to time to hedge specific exposures with maturities designed to match the exposures they are hedging. It is the intention to hold both the financial investments giving rise to the exposure and the derivatives hedging them until maturity and therefore no net gain or loss is expected to be realised.
Derivatives are held at fair value which represents the replacement cost of the instruments at the balance sheet date. Movements in the fair value of derivatives are included in the income statement. The Trust does not adopt hedge accounting in the financial statements.
Interest rate risk and sensitivity
The Trust has exposure to interest rate movements as this may affect the fair value of funds awaiting investment, interest receivable on liquid assets and short-dated government securities, and interest payable on borrowings. The Trust has little immediate direct exposure to interest rates on its fixed assets, as the majority of these are fixed rate loans or equity shares that do not pay interest. Therefore, and given that the Trust has no borrowings and maintains low cash levels, the Trust's revenue return is not materially affected by changes in interest rates.
However, funds awaiting investment have been invested in Government securities and, as stated above, the valuation is affected by movements in interest rates. The sensitivity of the capital return of the Trust to movements in interest rates has been based on the UK base rate. With all other variables constant, a 0.5% decrease in the UK base rate should increase the capital return in a full year by about £407,000, with a corresponding decrease if the UK base rate were to increase by 0.5%. In the opinion of the Directors, the above sensitivity analyses may not be representative of the year as a whole, since the level of exposure changes as investments are made and realised throughout the year.
Liquidity risk
Investments in unquoted companies, which form the majority of the Trust's investments, may not be as readily realisable as investments in quoted companies, which might result in the Trust having difficulty in meeting its obligations. Liquidity risk is currently not significant as about 22% of the Trust's net assets at the year-end are liquid resources and, in addition, the Trust has a £40 million multi-currency undrawn bank facility available. The Board gives guidance to the Manager as to the maximum amount of the Trust's resources that should be invested in any one company. For details refer to the investment policy in the full Annual Report and Accounts.
Currency exposure
The currency denominations of the Trust's financial assets, held in fund limited partnerships, are shown below. Short-term debtors and creditors, which are excluded, are mostly denominated in pounds sterling, the functional currency of the Trust.
|
|
2013 |
2012 |
||||||
|
|
Fixed rate £'000 |
Floating rate £'000 |
Non interest-bearing £'000 |
Total £'000 |
Fixed rate £'000 |
Floating rate £'000 |
Non interest-bearing £'000 |
Total £'000 |
|
Pounds sterling |
84,177 |
10,891 |
156,577 |
251,645 |
109,896 |
2,540 |
160,027 |
272,463 |
|
Danish krone |
- |
- |
11,653 |
11,653 |
- |
- |
- |
- |
|
Euro |
- |
1,817 |
112,529 |
114,346 |
- |
3,327 |
122,932 |
126,259 |
|
Norwegian krone |
- |
- |
31,656 |
31,656 |
- |
- |
32,718 |
32,718 |
|
Swedish krona |
- |
- |
10,641 |
10,641 |
- |
- |
7,975 |
7,975 |
|
Swiss franc |
- |
- |
2,739 |
2,739 |
- |
- |
2,103 |
2,103 |
|
US dollar |
- |
- |
19,409 |
19,409 |
- |
- |
332 |
332 |
|
Total |
84,177 |
12,708 |
345,204 |
442,089 |
109,896 |
5,867 |
326,087 |
441,850 |
Fixed rate assets comprised gilts with interest rates of 2.25% per annum and 4.0% per annum which mature in March 2014 and September 2014 respectively. The floating rate assets consisted of cash.
The non interest-bearing assets represent the investment portfolio and the financial derivative instruments held in fund limited partnerships.
Through its investment into the HgCapital Mercury D LP fund, the Trust had outstanding borrowings of £1,421,053 (see note 17 and 18) at the year-end (2012: £nil). The numerical disclosures above exclude short-term debtors and creditors.
Capital management policies and procedures
The Trust's capital management objectives are to ensure that it will be able to finance its business as a going concern and to maximise the revenue and capital return to its equity shareholders.
|
The Trust's capital at 31 December comprised: |
2013 £'000 |
2012 £'000 |
|
Equity: |
|
|
|
Equity share capital |
9,331 |
8,908 |
|
Share premium |
120,368 |
102,746 |
|
Capital redemption reserve |
1,248 |
1,248 |
|
Retained earnings and other reserves |
309,637 |
325,054 |
|
Total capital |
440,584 |
437,956 |
With the assistance of the Manager, the Board monitors and reviews the broad structure of the Trust's capital on an ongoing basis. This review covers:
• the projected level of liquid funds (including access to bank facilities);
• the desirability of buying back equity shares, either for cancellation or to hold in treasury, balancing the effect (if any) this may have on the discount at which shares in the Trust are trading against the advantages of retaining cash for investment;
• the opportunity to raise funds by an issue of equity shares; and
• the extent to which revenue in excess of that which is required to be distributed should be retained, whilst maintaining its status under Section 1158 of the CTA 2010.
The Trust's objectives, policies and processes for managing capital are unchanged from the preceding accounting period.
20. Issued share capital
|
|
2013 |
2012 |
||
|
|
No.'000 |
£'000 |
No.'000 |
£'000 |
|
Ordinary shares of 25p each |
|
|
|
|
|
Allotted, called-up and fully paid |
|
|
|
|
|
At 1 January |
35,564 |
8,890 |
31,822 |
7,956 |
|
Issued following exercise of subscription rights |
1,761 |
441 |
3,742 |
934 |
|
At 31 December |
37,325 |
9,331 |
35,564 |
8,890 |
|
|
|
|
|
|
|
Subscription shares of 1p each |
|
|
|
|
|
Allotted, called-up and fully paid |
|
|
|
|
|
At 1 January |
1,761 |
18 |
5,503 |
55 |
|
Conversion into Ordinary shares upon exercise of subscription rights |
(1,761) |
(18) |
(3,742) |
(37) |
|
At 31 December |
- |
- |
1,761 |
18 |
|
Total share capital |
37,325 |
9,331 |
37,325 |
8,908 |
The Trust's issued share capital at the beginning of the year consisted of 35,564,185 Ordinary shares. On 31 May 2013, 1,760,513 new Ordinary shares were issued pursuant to the exercise of the remaining Subscription shares. The subscription price paid per Ordinary share was £10.25 and total proceeds of £18,045,258 were received by the Trust.
At the beginning of the year, the Trust had 1,760,513 Subscription shares in issue. Each Subscription share entitled the holder to subscribe for one Ordinary share upon exercise of the subscription right and payment of the subscription price. The final opportunity in the current year to exercise such right was on 31 May 2013 when 1,760,513 Subscription shares were exercised at a subscription price of £10.25 per share. The Ordinary shares issued commenced trading on 11 June 2013.
Whilst the Trust 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 shareholders for the allotment of new shares.
21. Share premium account and reserves
|
|
Share premium account £'000 |
Capital redemption reserve £'000 |
Capital reserve realised £'000 |
Capital reserve unrealised £'000 |
Revenue reserve £'000 |
|
As at 1 January 2013 |
102,746 |
1,248 |
317,366 |
(9,545) |
17,233 |
|
Issue of Ordinary shares |
17,622 |
- |
- |
- |
- |
|
Transfer on disposal of investments |
- |
- |
8,626 |
(8,626) |
- |
|
Losses on government securities |
- |
- |
(732) |
(48) |
- |
|
Net gain on sale of fixed asset investments |
- |
- |
937 |
- |
- |
|
Net movement in unrealised depreciation of fixed asset investments |
- |
- |
- |
(18,858) |
- |
|
Dividends paid |
- |
- |
- |
- |
(8,180) |
|
Net return for the year after taxation |
- |
- |
- |
- |
12,913 |
|
Loans advanced to General Partners |
- |
- |
- |
(1,449) |
- |
|
As at 31 December 2013 |
120,368 |
1,248 |
326,197 |
(38,526) |
21,966 |
22. Commitment in fund partnerships and contingent liabilities
|
Original and outstanding commitments in Fund partnerships
Fund |
Original Commitment £'000 |
Outstanding at 31 Dec |
|
|
2013 £'000 |
2012 £'000 |
||
|
HGT 7 LP 1 |
200,000 |
182,477 |
- |
|
HgCapital Mercury D LP |
60,000 |
49,547 |
55,274 |
|
HGT 6 LP |
285,029 |
21,101 |
64,479 |
|
Hg RPP2 LP |
33,2782 |
17,1003 |
22,052 |
|
HGT LP 4 |
120,000 |
6,579 |
15,791 |
|
Hg 6 E LP |
15,000 |
1,485 |
3,586 |
|
Hg RPP LP |
18,0035 |
1,1476 |
985 |
|
Total outstanding commitments |
|
279,436 |
162,167 |
|
1 HgCapital Trust plc has the benefit of an investment opt-out provision in its commitment to invest alongside HgCapital 7, so that it can opt out of a new investment without penalty should it not have the cash available to invest. 2 Sterling equivalent of €40,000,000 3 Sterling equivalent of €20,554,517 (2012: €27,188,000) 4 With effect from 21 October 2011, £12 million (10% of the original £120 million loan commitment to the Hg5 fund) was cancelled and, on 31 March 2013, the commitment was further reduced by £9 million (7.5% of the original £120 million loan commitment). 5 Sterling equivalent of €21,640,088 6 Sterling equivalent of €1,378,180 (2012: €1,215,000) |
|||
23. Key agreements, related party transactions and ultimate controlling party
HgCapital and its subsidiaries act as Manager of the Trust through a management agreement and participate through limited partnership agreements as General and Founder, secretary and administrator partners of the fund partnerships in which the Trust invests.
The Trust has no related parties. The Trust has no ultimate controlling party.
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the Trust's statutory accounts for the years ended 31 December 2013 and 2012 but is derived from those accounts. Statutory accounts for 2012 have been delivered to the Registrar of Companies, and those for 2013 will be delivered in due course. The Auditor had reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498(2) or (3) of the Companies Act 2006. The text of the Auditor's report can be found in the Trust's full Annual Report and Accounts at www.hgcapitaltrust.com
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF HGCAPITAL TRUST PLC
The Trust's financial statements for the year ended 31 December 2013 have been audited by Deloitte LLP. The text of the Auditor's Report can be found on pages 86 to 88 of the Trust's Annual Report and Accounts.
CORPORATE GOVERNANCE
EXTRACT FROM THE DIRECTORS' REPORT
The Directors present the annual report and financial statements of HgCapital Trust plc (the 'Trust') (Reg. No. 1525583) for the year ended 31 December 2013.
The Corporate Governance Statement forms part of this Directors' Report.
RESULTS AND DIVIDEND
The total return for the Trust is set out in the income statement on page 63. The total loss for the year after taxation, was £7,237,000 (2012: total return of £58,759,000) of which the revenue return was £12,913,000 (2012: total revenue of £10,398,000).
The Directors recommend the payment of a dividend of 29.0p per Ordinary share for the year ended 31 December 2013 (2012: 23.0p). Subject to approval of this dividend at the forthcoming annual general meeting ('AGM'), it will be paid on 16 May 2014 to shareholders on the register of members at the close of business on 4 April 2014.
GREENHOUSE GAS EMISSIONS
The Company has no greenhouse gas emissions to report from the operations of the Company, nor does it have responsibility for any other emissions producing sources reportable under the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013.
STEWARDSHIP
Our Manager, HgCapital, seeks to invest in companies that are well managed, with high standards of corporate governance. The Directors of the Trust believe this creates the proper conditions to enhance long-term shareholder value and to achieve a high level of corporate performance.
The exercise of voting rights attached to the Trust's underlying proportion of the portfolio lies with HgCapital. As acknowledged by the Walker Review, the distance between owner and manager within the private equity model is relatively short and the link between the two is an important ingredient in investment performance. HgCapital has a policy of active portfolio management and ensures that significant time and resource is dedicated to every investment, with HgCapital executives typically being appointed to investee company boards, in order to ensure the application of active, results-orientated corporate governance. Further information regarding the stewardship of investee companies by HgCapital can be found in the Manager's review.
DERVIVATIVE TRANSACTIONS
The Trust had no outstanding derivative contracts at 31 December 2013.
ANNUAL GENERAL MEETING (('AGM')
The AGM of the Trust, which will include a presentation by the Manager, will be held at the offices of HgCapital, 2 More London Riverside, London SE1 2AP on Tuesday 13 May 2014 at 12 noon. Light refreshments will be available at the conclusion of the AGM. Notice of the AGM is given on pages 110 to 113.
The Board is of the opinion that the passing of all resolutions being put to the AGM would be in the best interests of the Trust. They therefore recommend that shareholders vote in favour of resolutions 1 to 14, as set out in the Notice of Meeting.
By order of the Board
Hg Pooled Management Ltd
Secretary
7 March 2014
The full Annual Report and Accounts can be accessed via the Trust's website at www.hgcapitaltrust.com or by contacting the Company Secretary by telephone on 020 7089 7888.
The full Annual Report contains the following statements regarding responsibility for the Annual Report and the financial statements (references in the following statements are to pages in the Annual Report).
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT & THE FINANCIAL STATEMENTS
The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements , unless they are satisfied that they give a true and fair view of the state of affairs of the Trust and of the profit or loss of the Trust for that period. In preparing these financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and prudent;
• state whether applicable UK Accounting Standards have been followed; and
• prepare the financial statements on the going concern basis, unless it is inappropriate to presume that the Trust will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Trust's transactions and disclose with reasonable accuracy at any time the financial position of the Trust and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Trust and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Trust's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge:
• the financial statements, prepared in accordance with United Kingdom Generally Accepted Accounting Practice give a true and fair view of the assets, liabilities, financial position and profit or loss of the Trust;
• the Strategic Report and Manager's Review include a fair review of the development and performance of the business and the position of the Trust, together with a description of the principal risks and uncertainties that it faces; and
• the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and the information provided to shareholders is sufficient to allow them to assess the Trust's performance, business model and strategy.
By order of the Board
Roger Mountford, Chairman
7 March 2014
Dividend
The dividend proposed in respect of the year ended 31 December 2013 is 29.0p per share.
Ex-dividend date 2 April 2014
(shares transferred without dividend)
Record date 4 April 2014
(last date for registering transfers to receive the dividend)
Last date for registering
DRIP instructions 2 4 April 2014
Dividend payment date 16 May 2014
The dividend is subject to approval of Shareholders at the forthcoming AGM.
National Storage Mechanism
A copy of the Annual Report and Accounts will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at: www.morningstar.co.uk/uk/nsm
Neither the contents of the Trust's website or the Manager's website, nor the contents of any website accessible from hyperlinks in this announcement or on those websites (or any other website), is incorporated into, or forms part of, this announcement.
This information is provided by RNS
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