REG - HG Capital Trust PLC - Annual Financial Report <Origin Href="QuoteRef">HGT.L</Origin> - Part 4
09/03/2015 07:01
- Part 4: For the preceding part double click ID:nRSI8407Gc
revenue for Section 1159 purposes* 2,897
*Undistributed revenue comprises 12.3% of the estimated total taxable income of £23,471,000.
12. Fixed asset investments
2014£'000 2013£'000
Investments held at fair value through profit and loss
Investments held in HGT 6 LP Unquoted investments 212,406 171,123
Investments held in HGT LP Unquoted investments 54,458 74,825
Investments held in HGT 7 LP Unquoted investments 47,955 15,158
Investments held in HgCapital Mercury D LP Unquoted investments 20,645 6,765
Other investments held by the Trust Unquoted investments 25,554 28,089
Total fixed asset investments 361,018 295,960
Total fixed asset investments consist of:
Fund limited partnerships 361,018 295,960
2014£'000 2013£'000
Opening valuation as at 1 January 295,960 286,026
Add back: opening unrealised depreciation - investments 35,279 7,795
Opening book cost as at 1 January 331,239 293,821
Movements in the year:
Additions at cost 86,962 79,968
Disposals - proceeds (57,752) (52,113)
- realised gains on sales 27,494 9,563
Closing book cost of investments 387,943 331,239
Less: closing unrealised depreciation - investments (26,925) (35,279)
Closing valuation of investments as at 31 December 361,018 295,960
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 above, and investments in fund
limited partnerships in HgCapital 6 E LP, Hg Renewable Power Partners LP and
HgCapital Renewable Power Partners 2 C LP.
13. Gains/(losses) on investments, government securities and liquidity funds
Capital return
2014£'000 2013£'000
Realised:
Realised gains/(losses) on sales - fixed asset investments 27,494 9,563
- liquidity funds 19 -
- government securities (332) (732)
Net realised gains 27,181 8,831
Unrealised:
Change in unrealised gains/(losses) - fixed asset investments 8,354 (27,484)
- liquidity funds 10 -
- government securities 295 (48)
8,659 (27,532)
Carried interest charge against capital gains (note 5(c)) (1,088) -
Net unrealised gains/(losses) 7,571 (27,532)
Total gains/(losses) 34,752 (18,701)
14. Debtors and accrued income
2014£'000 2013£'000
Amounts receivable after one year:
Accrued income on fixed assets 54,311 49,244
Amounts receivable within one year:
Taxation recoverable - 109
Deferred tax recoverable (note 9(c)) 567 624
Accrued income on government securities - 1,056
Prepayments and other accrued income 65 69
Other debtors - 49
Total amounts receivable within one year 632 1,907
Total debtors 54,943 51,151
The Directors consider that the carrying amount of debtors approximates their
fair value.
15. Government securities
2014£'000 2013£'000
Investments held at fair value through profit and loss:
Opening valuation 83,121 108,359
Purchases at cost 62,552 153,375
Sales and redemptions (84,466) (173,401)
Movement in unrealised capital gains/(losses) 305 (48)
Amortisation of premium on acquisition (1,618) (4,432)
Accrued income 278 -
Realised capital losses (313) (732)
Closing valuation 59,859 83,121
16. Movement in net funds
2014£'000 2013£'000
Analysis and reconciliation of net funds:
Change in cash (9,687) 6,841
Net funds at 1 January 12,708 5,867
Net funds at 31 December 3,021 12,708
Net funds comprise:
Cash 3,021 12,708
The prior year cash amount includes £9,915,000 held by the fund limited
partnerships in which the Trust is the sole limited partner.
17. Creditors - amounts falling due within one year
2014£'000 2013£'000
Provision for carried interest ( note 5(c)) 1,088 -
Taxation payable 169 -
Loan facility ( note 18) 237 1,421
Sundry creditors 429 935
Total creditors 1,923 2,356
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 was
initially available for three years before it was extended during August 2014
to 31 December 2015. Under the facility agreement, the Trust is liable to pay
interest on any drawn amount at LIBOR plus a margin of 2.0%. A commitment fee
of 0.9% 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 to
provide short-term funds to facilitate acquisitions. 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, the Trust's indirect share of amounts drawn via HgCapital
Mercury D LP, was £237,000.
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 RPP LP, Hg RPP 2 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 above.
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 UK government securities,
cash, liquidity funds 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 and a
breakdown of the most significant underlying investments are given above. In
accordance with the Trust's accounting policies, the investments in fund
limited partnerships are valued by reference to their 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, though
the borrowing arranged to fund these investments is normally denominated in
the currency in which the business is operating. The Trust has exposure to
interest rate movements, through bank deposits, UK government securities and
liquidity funds.
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.
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 - - 54,458 54,458
- Investment in HGT 6 LP - - 212,406 212,406
- Investment in HGT 7 LP - - 47,955 47,955
- Investment in HgCapital Mercury D LP - - 20,645 20,645
- Investment in Hg 6 E LP - - 13,327 13,327
- Investment in Hg RPP LP - - 2,721 2,721
- Investment in Hg RPP2 LP - - 9,506 9,506
- Liquidity funds - 59,859 - 59,859
Other assets:
Accrued income - - 54,311 54,311
As at 31 December 2014 - 59,859 415,329 475,188
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
- UK 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
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 2014 by class of financial instrument.
Accrued income on investments2014£'000 Investments in limited partnerships2014£'000 Total2014£'000
Unquoted investments:
Opening balance 49,244 295,960 345,204
Purchases - 86,962 86,962
Realisations at 31 December 2013 valuation (14,504) (52,534) (67,038)
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