REG - HgCapital Trust PLC - Half-year Report
12/09/2022 07:01
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RNS Number : 0117Z HgCapital Trust PLC 12 September 2022
HgCapital Trust plc
INTERIM Results FOR THE SIX MONTHS ENDED 30 JUNE 2022
CONTINUED POSITIVE NAV performance
delivered FROM a RESILIENT PORTFOLIO OF software and service businesses
London, 12 September 2022: HgCapital Trust plc ('HGT'), today announces its
interim results for the six months ended 30 June 2022.
HGT provides investors with a listed vehicle to invest in unquoted businesses
managed by Hg, one of Europe's largest and fastest-growing investors in
software & service businesses.
The objective of HGT is to provide shareholders with consistent long‑term
returns in excess of the FTSE All‑Share Index by investing predominantly in
unquoted companies where value can be created through strategic and
operational change.
Highlights over the first six months of 2022 include:
¡ Strong portfolio trading and value creation continues to offset a decline
in valuation multiples of listed comparable companies, leading to a total
return NAV increase of 1.8% to a NAV per share of £4.43 and net assets of
more than £2 billion
¡ £71 million invested alongside Hg's other institutional clients, with an
estimated further £355m invested post-period
¡ £29 million of returns realised on behalf of HGT, with an estimated
further £465m returned post-period at an uplift of c. 29% to December book
value
¡ Continued strong long-term performance driven by robust trading
¡ Performance provided through access to Hg's investment platform, which in
aggregate represents the one of the largest and fastest growing technology
firms in Europe(( 1 )).
An investment of £1,000 made 20 years ago in HGT would now be worth £18,370,
a total return of 1,737% 2 . An equivalent investment in the FTSE All-Share
Index would be worth £3,521.
Jim Strang, Chairman of HGT, commented:
"Despite the obvious challenges and uncertainty presented by the current
macro-economic and geo-political environment, the Board remains optimistic
about the future prospects for HGT. The businesses within the portfolio are
resilient, and in such an environment as today's continue to provide critical
solutions to their clients and reduce the costs and complexity of doing
business. The long-term value creation prospects from owning such a portfolio
remains attractive."
SUMMARY performance
31 August % Total 30 June 31 December % Total
2022
return(2)
2022
2021
return(2)
NAV per share 447.5p 2.7 443.2p 440.4p +1.8
Share price 374.0p -10.0 330.5p 420.5p -20.5
FTSE All-Share Index 2.1 -4.6
YTD 2022 H1 2022
Movement
Movement
Net Asset Value £2.05bn +£44m £2.03bn £2.00bn +£25m
Note: Hg undertakes full revaluations of the portfolio on a quarterly basis,
the next process being 30 September 2022, therefore the movement in unrealised
value of the portfolio to the end of August 2022 is attributable to any
post-period transactions and FX only.
Performance overview
Net assets of more than £2.0 billion, with continued outperformance of the
FTSE All-Share over the long-term:
- NAV per share of 443.2p, a total return of 1.8% to 30 June 2022.
- Share price total return decrease of 20.5% over the period.
- Interim dividend of 2.5p per share (2.0p 30 June 2021) to be paid in
October.
Strong growth in revenue and EBITDA continues across the portfolio offset by
declines in valuation multiples:
- Revenue and EBITDA growth of 31% and 26% respectively across the top
20 investments (79% of the portfolio) over the last twelve months.
- A 13% uplift in the portfolio value was driven by strong trading
performance and partially offset by an 8% reduction, primarily due to a
decline in the trading multiples of publicly listed peers within the
comparable basket of companies
- Valuation multiple (EV/EBITDA) of 27.1x and net debt to EBITDA ratio
of 7.5x for the top 20 investments (79% of the portfolio).
- £29m of cash returned to HGT from liquidity events in the period
Continued investment and commitments to drive future value:
- Investment activity continues, despite challenging market conditions
with £71 million invested on behalf of HGT into companies with proven,
resilience that align to Hg's investment model and where relationships have
been formed over many years.
- New commitments made to the Hg Saturn 3 and Hg Genesis 10 funds,
totalling £530 million.
- Total outstanding commitments at 30 June 2022 of £1.6 billion
(December 2021: £992 million), expected to be drawn down over the next three
to four years.
Credit facility and new equity issuance:
- In 2021, the Board of HGT agreed a further £50 million
multi-currency revolving credit facility bringing the total facility to £250
million, of which £136 million was drawn at 30 June 2022.
- The Board will look to increase further the facility over the course
of 2022.
- £12 million of new equity raised over 2022 via tap issuance.
- HGT retains the ability to opt out of any new investment without
penalty, should it not have the cash available to invest.
POST PERIOD EVENTS AS AT 31 AUGUST 2022
§ Pro-forma NAV of 447.5p, YTD performance of +2.7%
§ Pro-forma Net assets of £2.05 billion.
§ Share price of 374.0p, YTD performance of -10.0%.
§ Estimated £355 million realised post-period at a c.29% uplift to December
book value.
§ Estimated £465 million invested post-period
§ Available liquid resources (including undrawn balance of credit facility),
post-completion of all announced transactions and the interim year dividend
payable in October 2022, are £366 million (18% of 31 August pro-forma NAV).
§ Outstanding commitments of £1.1 billion (54% of 31 August pro-forma NAV)
expected to be drawn down over the next three to four years.
Outlook
David Toms, Head of Research at Hg, commented:
"Increasingly, we see this environment as one of opportunity, as short-term
valuations create space for greater long-term performance for those who have
and will continue to maintain a disciplined approach and strategy."
Portfolio
§ Positive trading outlook underpinned by increasing digitalisation of
business processes
§ Resilient business models with recurring revenues and pricing power
Robust balance sheet
§ Multiple levers in place to manage balance sheet efficiently
§ Further liquidity events expected over next six to 12 months
Investment activity
§ Recent commitments to Hg funds ensure access to deal flow and support long
term NAV growth
§ Attractive pipeline of investment opportunities in Hg's target 'clusters'
- Ends -
The Company's 2022 Interim Report, an animated and full presentation to
accompany the results are available to view at:
http://www.hgcapitaltrust.com/ (http://www.hgcapitaltrust.com/) .
For further details:
HgCapital Trust plc
Laura Dixon (Senior Investor Relations Manager, Hg) +44 (0) 78 2459 2894
Brunswick
Azadeh Varzi +44 (0)20 7404 5959
About HgCapital Trust plc
HgCapital Trust plc, whose shares are listed on the London Stock Exchange
(ticker: HGT.L), gives investors exposure through a liquid vehicle to a
portfolio of high-growth private companies in the software and services
sector. The selection of new investments and creation of value in these
businesses are managed by Hg, 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, please see
www.hgcapitaltrust.com.
For further details, see www.hgcapitaltrust.com
(http://www.hgcapitaltrust.com) and www.hgcapital.com
(http://www.hgcapital.com)
Get connected
to a universe of software and service businesses
HgCapital Trust plc
Interim report and accounts
30 June 2022
The objective of HgCapital Trust ('HGT') is to provide shareholders with
consistent long-term returns in excess of the FTSE All-Share Index by
investing predominantly in unquoted companies where value can be created
through strategic and operational change.
HGT provides investors with unique exposure to a fast-growing portfolio of
unquoted investments, primarily in the software and business services sectors,
located throughout Europe and North America.
References in this interim report and accounts to HgCapital Trust plc have
been abbreviated to 'HgCapital Trust' or 'HGT'. Hg refers to the trading name
of Hg Pooled Management Limited and HgCapital LLP. Hg Pooled Management
Limited is the 'Manager'.
References in this interim report and accounts to 'total return' refer to a
return where it is assumed that
an investor has reinvested all historic dividends at the time when they were
paid.
References in this interim report and accounts to pounds sterling have been
abbreviated to 'sterling'.
Past performance is not a reliable indicator of future results. The value of
shares and the income from them can go down as well as up as a result of
market and currency fluctuations and investors may not get back the amount
they originally invested..
The investment opportunity
HGT provides investors with a unique opportunity to participate in the growth
in value of a portfolio of 46 private companies sourced by Hg. Value is
created through implementing an investment strategy focused on software and
business service companies with resilient, recurring revenue streams and from
leveraging the network and expertise of Hg to support management teams to
deliver the full potential of their respective businesses.
With highly predictable and stable cash flows, the top 20 businesses
(representing 79% by value of HGT's investments) reported aggregate sales of
£7.7 billion(1) and EBITDA of £2.4 billion(1) over the last 12 months,
equating to an EBITDA margin of 31%.
Hg brings to HGT an experienced team of more than 300 employees, including
more than 170 investment and portfolio management professionals, supported by
a network of portfolio partners, all of them seasoned senior managers from
across industry, who work with
the management teams of the companies in which we are invested to create value
for shareholders. At the centre of this network, Hg builds and shares
knowledge and expertise by facilitating the active collaboration of management
teams across sector clusters and geographies.
HGT's funds are invested pro rata alongside those of Hg's other institutional
clients. This enables shareholders to invest, on similar terms, alongside some
of the world's largest investors in private equity, in high-growth private
companies, which might otherwise be inaccessible. This allows HGT to achieve
diversification across markets and geographies and gain exposure to fast
growing portfolio companies at different stages of their development and size
- from an enterprise value of £100 million to over £10 billion.
( )
(1)Source Hg: LTM 30 June 2022 revenue and EBITDA for the Top 20 investments
(79% of the portfolio).
Financial and performance highlights
+1.8%(1)
NAV per share (443.2p)(2)
30 June 2021: +21.4%
£2.0bn
Net assets
31 December 2021: £2.0bn
-20.5%(1)
Share price (330.5p)
30 June 2021: +17.4%
£1.5bn
Market capitalisation
31 December 2021: £1.9bn
2.5p
Interim dividend
30 June 2021: 2.0p
1.3%
Total annualised ongoing charges
30 June 2021: 1.6%(3)
£71m
Cash invested on behalf of HGT
30 June 2021: £165m
£29m
Cash returned to HGT
30 June 2021: £82m
£550m(1)
Available liquid resources
(27% of NAV)
31 December 2021: £470m
This includes a bank facility of £250m of which £114m was undrawn at
30 June.
£1.6bn
Outstanding commitments
(76% of NAV)
31 December 2021: £992m
Commitments will be drawn down over the next three to four years (2022-26) and
are likely to be financed partly by cash from future realisations.
HGT can opt out of a new investment without penalty, should it not have the
cash available to invest.
Top 20 investments (79% of portfolio value)
+31%
Top 20 LTM sales growth
30 June 2021: +20%
+26%
Top 20 LTM EBITDA growth
30 June 2021: +27%
27.1x(4)
Top 20 EV to EBITDA multiple
31 December 2021: 27.4x
7.5x(4)
Top 20 net debt to EBITDA ratio
31 December 2021: 7.1x
(1) NAV per share and share price returns on a total return basis assuming all
historical dividends have been re-invested, available liquid resources
includes liquid resources and the undrawn bank facility. These financial
metrics are Alternative Performance Measures ('APM').
(2) Please refer to note 11(b) on page 71 of the full Interim Report and
Accounts or below for further detail on the calculation of NAV per share.
(3) Please refer to page 74 of the full Interim Report and Accounts or below
for further detail on the calculation of ongoing charges.
(4) These figures are calculated on a value‑weighted basis (not a straight
average). Therefore, larger exposures within HGT's NAV have a higher weighting
in the metrics (e.g. The Access Group). For further information on the
top‑20 portfolio trading performance and valuation and net debt analysis,
please refer to Hg's review below or on pages 34-35 of the full Interim Report
and Accounts.
Past performance is not a reliable indicator of future results. The value of
shares and the income from them can go down as well as up as a result of
market and currency fluctuations and investors may not get back the amount
they originally invested.
Historical total return performance
Both HGT's share price and net asset value per share have continued to
outperform the FTSE All-Share Index over the long-term.
6 months 1 3 5 10 20
to June 2022 year years years years years
% % % p.a. % p.a. % p.a. % p.a.
NAV per share* 1.8 20.6 24.4 22.2 17.0 15.9
Share price (20.5) (5.4) 17.4 16.7 16.9 15.7
FTSE All-Share Index (4.6) 1.6 2.4 3.3 6.9 6.5
NAV per share performance relative to the FTSE All-Share Index 6.4 19.0 22.0 18.9 10.1 9.4
Share price performance relative to the FTSE All-Share Index (15.9) (7.0) 15.0 13.4 10.0 9.2
*Please refer to note 11(b) on page 71 of the full Interim Report and Accounts
or below for further detail on the calculation of NAV per share.
Based on HGT's share price at 30 June 2022 and allowing for all historic
dividends being reinvested, an investment of £1,000 made 20 years ago would
now be worth £18,370, a total return of 1,737%. An equivalent investment in
the FTSE All-Share Index would be worth £3,521.
Long-term net asset growth
2013 £18m £18m raised from subscription shares
2018 FTSE 250 Promotion to the FTSE 250
2019 10:1 10:1 share-split
2019 £75m £75m equity raised
2020 £25m £25m equity raised
2021 £141m £141m equity raised
2022 £12m £12m equity raised
Chairman's statement
"Despite the obvious challenges and uncertainty presented by the current
macro-economic and geo-political environment, the Board remains optimistic
about the future prospects for HGT. The businesses within the portfolio are
resilient, and in such an environment as today's continue to provide critical
solutions to their clients and reduce the costs and complexity of doing
business. The long-term value creation prospects from owning such a portfolio
remains attractive."
Jim Strang, Chairman, HgCapital Trust plc
Dear Shareholder,
The first six months of 2022 have seen a very material increase in the global
risk environment all companies face. As the direct effects of the COVID-19
pandemic recede, new risks, both geo-political and macro-economic, have
emerged in force and seem set to remain for the foreseeable future. The
elevated level of risks that prevail and the changing expectations around
economic growth, levels of inflation and interest rates have had a direct
impact on stock markets around the world, with high growth companies
particularly affected. These factors have dragged on the share price of HGT in
the first half of the year.
Against this very challenging picture, the fundamental performance of HGT has
remained robust with over 95% of the companies that make up HGT's portfolio
demonstrating strong, profitable growth. The nature of these businesses, which
are mission-critical to the hundreds of thousands of business end-customers
they serve, has allowed them to demonstrate their resilience once again in
this challenging environment. Furthermore our Manager, Hg, as a highly
experienced owner of these businesses with significant operating resources,
has been able to make meaningful contributions to further protect and enhance
value across the portfolio.
As I have noted in the past, the investment policy that HGT follows is one of
clear focus and discipline. The clarity of this focus and the effectiveness
that Hg demonstrates in its execution of this investment strategy has allowed
the investment process to continue to function effectively over the course of
the last six months. Three new companies were added to the portfolio during
H1, either as primary platform investments or as value accreting acquisitions
for existing investments, and a further three new investments were announced
that are due to complete over H2 2022. As regards realisation activity, again
2022 has been a productive year-to-date with three full or partial exits
announced validating the prior valuations placed on these businesses. Exits
announced over 2022 have been at an average of 29% over the December 2021
carrying NAV, again highlighting the consistently conservative approach we
have taken to our holding valuations.
The Board speaks regularly to its Manager, Hg, to assess the continued
innovation and improvement in Hg's processes, as well as ensuring a thorough
understanding of the investment strategy, as it continues to evolve, helping
to ensure that Hg's operations are at the forefront of best practice in the
private equity industry. This is a broad-based effort that encompasses not
only the investment and value creation capabilities of Hg but also the
critical topics of Sustainability, Diversity and Inclusion.
Hg's culture of continuous improvement provides the Board of HGT with
confidence to continue to support Hg as it raises new investment funds. In
April 2022, the Board increased the commitment made in 2021 to Hg's latest
large-cap fund, Hg Saturn 3, from $850 million to $1,075 million. The Board
also agreed an initial commitment of €400 million to Hg's latest mid-market
fund, Hg Genesis 10, and anticipates further commitments to follow in the
coming year, as your Board looks to invest across the Hg fund family to
support the long-term growth of HGT's NAV. Through this programme of
commitments, HGT will continue to be Hg's largest client and the most
substantial investor in its funds.
Highlights in the first six months of 2022 included:
• 1.8% NAV per share growth on a total return basis, with net assets
attaining a record level of £2.0 billion;
• £71 million of new and further investments by HGT, primarily into three
new businesses across the core investment clusters targeted by Hg, and
significant investments made post period end;
• £29 million of proceeds returned to HGT, primarily from two refinancings
with further realisations post-period at uplifts to their December 2021 book
value;
• £12 million of new equity issued;
• £530 million newly committed to invest alongside new Hg funds over the
next three to four years.
Performance
Following very strong performance in 2021, the NAV per share over H1 2022 has
seen a small increase from £4.40 to £4.43, representing 1.8% on a total
return basis.
It is important to note that valuations are applied consistently, in
accordance with the IPEV Valuation Guidelines. Each company has been valued
individually, based on the trading multiples of comparable businesses and
relevant and recent M&A activity. Over the first six months of 2022, these
valuations have reflected the impact of declines in the multiples for
comparable public companies, offset by transactions at uplifts to the December
2021 book value and continued strong trading across the portfolio. There is
further colour on this in the Manager's Outlook section later in the report.
The underlying performance of the portfolio saw the top 20 underlying
companies (79% of the portfolio) continue to show strong growth, generating
revenue growth over the last 12 months of 31% (June 2021: 20%) and EBITDA
growth of 26% (June 2021: 27%) reflecting the defensive nature of the
businesses in which HGT is invested.
These businesses have continued to trade successfully, despite the ongoing
disruptions affecting major economies and, with their significant and
predictable forward cash flows, are appropriately financed with significant
covenant flexibility at an average net debt-to-EBITDA ratio of 7.5x.
Currently, 93% of the portfolio by value is held above its original cost of
acquisition. The total net assets of HGT at 30 June 2022 were £2.0 billion,
an increase of £25 million over the reported figures at 31 December 2021. The
analysis of NAV movements and attribution analysis (below or on pages 32-33 of
the full Interim Report and Accounts) set out a breakdown of movements in the
NAV and the underlying investment portfolio.
Over the first half of 2022, HGT's share price has fallen (on a total return
basis) by 20.5%; over the last 10 years the HGT share price has seen a total
return CAGR of 17%, outperforming the FTSE All-Share index by 10% per annum
over the same period.
Investments and realisations
During the first half of 2022, HGT invested £71 million, primarily in three
new investments, LucaNet, Pirum and Fonds Finanz, with further investment made
into existing portfolio companies: Howden; Lyniate and GGW. Since the
period-end, a further £465 million of investment has been made primarily into
three new investments including: IFS/Workwave; Waystone and Ideagen -
businesses that Hg has been tracking closely for several years before
investing - and further investment into The Access Group, team.blue and
Norstella. These investments all fall within Hg's eight focus 'clusters',
solving workflow problems and serving the needs of similar business customer
sets in comparable end-markets. Hg targets businesses with compelling market
positions within these clusters, and while such companies often command a full
price on acquisition, the experience and capability which Hg brings help to
drive these companies to realise their full potential.
It is also worth noting that HGT currently holds around 6% of NAV in
co-investments; these are investments made alongside Hg funds and are free
from any fees or carried interest payable to the Manager. HGT will continue to
take up co-investment opportunities as they arise and will seek to hold 10 to
15% of NAV in this strategy across different fund deployment cycles.
Co-investments provide a useful mechanism to optimise the use of HGT's balance
sheet capital and help reduce overall costs.
Over the first half of 2022, Hg returned £29 million to HGT, through the
re-financing of Lyniate and Argus Media. Post period, Hg has announced several
further exits returning c. £355 million to HGT through the sale of itm8 and
Medifox and cash returns from the partial sale of Intelerad and a refinancing
of The Access Group. Combined, these realisations represent an aggregate
average uplift to their December valuations of 29%, with an average multiple
of cost achieved of 4.2x. This consistent performance continues to reinforce
the value that buyers place on the quality of the businesses within the
portfolio. For further information about investments and realisations, please
refer to pages 38-41 of the full Interim Report and Accounts or below.
New commitments
Long-term shareholders will be familiar with the
commitment-investment-realisation cycle which underpins the HGT investment
model. Every two to four years, HGT and Hg's other institutional investors
make commitments to invest in funds which seek to make investments over the
following three to four years. HGT thereby enables shareholders to invest
alongside the world's largest institutional investors in businesses which
might otherwise be inaccessible to public market investors.
In 2021, HGT committed $850 million to Hg's latest upper mid-market fund, and
made a further $225 million commitment to this in the first half of 2022.
Additionally, the HGT Board agreed a commitment of €400 million to Hg's
latest mid-market fund over the period. We will continue to commit across Hg's
fund family, ensuring that HGT can participate in all the investments made by
Hg. Further detail on all commitments to Hg funds can be found on page 36 of
the Manager's Review in the full Interim Report and Accounts or below.
Across all funds, HGT will continue to have the benefit of an 'opt‑out' from
the commitment to invest in any individual new transaction, if HGT does not
have sufficient funds available; this unique feature, is of considerable
benefit to managing HGT's balance sheet efficiently.
Balance sheet
Given these new commitments, the Board increased the multi-currency revolving
credit facility of £200 million to £250 million in 2021 in order to optimise
balance sheet management and to help manage foreign exchange risk. We will
look to increase further the facility over the course of 2022. A total of
£114 million remained undrawn from this facility at 30 June 2022.
Including cash on the balance sheet, and the undrawn facility above, HGT had
available liquid resources of £550 million at the end of June 2022.
As shares in HGT traded at a premium to NAV over the first quarter of 2022,
HGT took the opportunity to increase balance sheet liquidity further through
equity tap issuance, raising more than £12 million. When possible, the Board
will continue to consider new equity issuance, providing that market
conditions permit, offering existing and new investors the opportunity to
subscribe to and increase HGT's equity base, while always bearing in mind our
current shareholders' interests.
In addition, in recent months the Board has refreshed and updated HGT's
existing share buy-back policy to ensure that the Board has the fullest range
of tools to manage discount levels at its disposal.
The Board regularly reviews the balance sheet, commitment profile and
available liquid resources at hand to optimise this mix for the benefit of HGT
and long-term NAV growth.
Impact and responsible investment
Your Board and the Manager continue to increase their focus on the topics of
ESG and sustainability. We share a firmly held view that not only should the
financial returns to you, the shareholders, be attractive, but these must be
delivered in a manner which is consistent with our responsibility to society.
As a technology investor, we understand the need to ensure that those
businesses in which we invest reduce their carbon footprint and contribute to
tackling climate change. Hg is, itself, independently certified as a
carbon‑neutral company with a UNPRI assessment of Hg's approach to
responsible investment of AA++ (the highest available rating). The Board of
HGT meets regularly with the Hg Responsible Investment team to ensure that
Hg's work is well understood and endorsed by the Board.
As we have previously reported, Hg launched The Hg Foundation in 2020 - a
charitable initiative to provide funding and operational support to
initiatives across Europe, the UK and the US. The Hg Foundation's goal is to
have an impact on the development of those skills and learning most required
for employment within the technology industry, focusing on individuals who
might otherwise experience barriers to access this education. This Foundation
is funded by the Hg management company and its team members. For further
information about this and the responsible investment focus at Hg, please see
pages 28-31 of the Manager's Review of the full Interim Report and Accounts or
below.
Dividend
As noted previously, HGT aims to achieve growth in the net asset value per
share and in the share price, rather than to achieve a specific level of
dividend. Furthermore, the ability of HGT to pay dividends is very much
influenced by the capital structures of the transactions entered into by Hg
and by income received on any liquid resources held subject to investment.
Nevertheless, HGT will continue to provide guidance as to the broad dividend
objectives and, currently, the Board expects to be able to deliver modest
dividend progression.
As regards the current financial year HGT will deliver an interim dividend of
2.5 pence per share (2021: 2.0 pence per share), payable in October, following
the full year dividend of 7.0 pence per share in 2021 (2020: 5.0 pence per
share). The Board keeps the dividend objective of HGT under regular review and
will communicate, to shareholders, further guidance on the dividend when it is
practicable to do so.
For more information on the timing of the dividend and details of the dividend
re-investment plan, please refer to page 13 of the full Interim Report and
Accounts.
Board and corporate governance
As previously communicated, and in line with the Board's succession plan,
Peter Dunscombe retired from the Board at the AGM in May 2022. Consequently,
the Board undertook an externally supported search process to find a new
Non-Executive Director. I am pleased to announce that Erika Schraner joined
the HGT Board on 1 August 2022. Erika has a wealth of technology, software and
digital expertise, as well as extensive experience in M&A, deal value
creation, realisations, and finance.
The process of finding a new Director has been informed by the results of the
regular Board effectiveness review, ensuring that new joiners to the Board
bring with them the most relevant skills and experience for, not only today,
but for the future development of HGT. In closing, I would like to extend my
sincere thanks on behalf of all my Board colleagues to Peter for his many
years of service and for his significant contribution to the success of HGT.
Prospects
Turning to the future, the environment of elevated risk on multiple dimensions
seems set to persist, posing obvious challenges to all businesses. The
companies that constitute HGT's portfolio will have to deal with the impact of
a rising interest rate environment for the first time in more than a decade
and also with the sharp increase in inflation witnessed around the world.
Significantly, the increase in geo-political risk around the world seems set
to persist for some time. While the direct impact on HGT and its underlying
investments is less material than in some other sectors, the collateral risks
and in particular the threat posed by cyber attacks, are of real relevance for
the HGT portfolio and the many cloud software businesses within it. This is an
area of focus for the Board and one that the Hg portfolio team spend
significant time on to mitigate.
Despite these obvious challenges and the uncertainty that current times
present, the Board remains optimistic about the future prospects for HGT. The
companies within the portfolio are resilient and defensive in such an
environment, providing critical solutions to their clients and reducing the
costs and complexity of doing business. Notwithstanding the high multiples
that these types of business continue to attract, the long-term value creation
prospects from owning such a portfolio remain very positive and the machinery
Hg operates to refresh this portfolio while enhancing returns, continues to
improve. The Board continues to work collaboratively with Hg to optimise the
investment opportunity for HGT and shareholders, while always ensuring the
many risks that prevail are as comprehensively and effectively managed as is
possible.
Jim Strang
Chairman
9 September 2022
"In partnership with our Hg colleagues, whose guidance and expertise has been
invaluable, we have driven successful transformation at IRIS in the past two
years. The Hg portfolio team helped us roll out our Quantum Programme, which
has brought disparate divisions onto a single best practice set of processes
and systems, enabling us to vastly improve general efficiency and
effectiveness - with the benefit of also materially improving our commercial
ability to cross-sell and up-sell. Thank you for helping us maximise the
potential of our IRIS success."
Elona Mortimer-Zhika, CEO, IRIS
Investment objective and investment policy
The objective of HGT is to provide shareholders with consistent long-term
returns in excess of the FTSE All-Share Index by investing predominantly in
unquoted companies where value can be created through strategic and
operational change.
Investment policy
The policy of HGT is to invest, directly or indirectly, in a portfolio of
unlisted companies where Hg believes that it can add value through increasing
organic growth, generating operational improvements, driving margin expansion,
reorganisation or acquisition - to achieve scale. HGT seeks to maximise its
opportunities and reduce investment risk by holding a spread of businesses
diversified by end-market and geography.
Risk management
HGT has adopted formal policies to control risk arising through excessive
leverage or concentration. HGT's maximum exposure to unlisted investments is
100% of the gross assets of HGT from time to time. On investment, no
investment in a single business will exceed a maximum of 20% of gross assets.
HGT may invest in other listed closed-ended investment funds, up to a maximum
at the time of investment of 15% of gross assets.
Sectors and markets
As HGT's policy is to invest in businesses in which Hg can play an active role
in supporting management, Hg invests primarily in companies whose operations
are headquartered or substantially based in Europe. These companies operate in
a range of countries, but there is no policy of making allocations to specific
countries or markets. Investments are made across a range of sectors where Hg
believes that its skills can add value, but there is no policy of making
allocations to sectors.
HGT may, from time to time, invest directly in private equity funds managed by
Hg where it is more economical and practical to do so.
Leverage
Each underlying investment is usually leveraged, but no more than its own cash
flow can support, in order to enhance value creation; it is impractical to set
a maximum for such gearing across the portfolio as a whole. HGT commits to
invest in new opportunities in order to maintain the proportion of gross
assets which are invested at any time, but monitors such commitments carefully
against projected cash flows.
HGT has the power to borrow and to charge its assets as security. The articles
restrict HGT's ability (without shareholders' approval) to borrow to no more
than twice HGT's share capital and reserves, allowing for the deduction of
debit balances on any reserves.
Hedging
Part of HGT's portfolio is located outside of the UK, predominantly in
northern Europe, with a further part in businesses which operate in US
dollars. HGT may therefore hold investments valued in currencies other than
sterling. From time to time, HGT may put in place hedging arrangements with
the objective of protecting the sterling translation of a valuation in another
currency. Derivatives are also used to protect the sterling value of the cost
of investment made or proceeds from realising investments in other currencies,
between the exchange of contracts and the completion of a transaction.
Commitment strategy
HGT employs a commitment strategy to ensure that its balance sheet is managed
efficiently. The level of commitment is regularly reviewed by the Board and
Hg.
Liquid funds
HGT maintains a level of liquidity to ensure, as far as can be forecast, that
it can participate in all investments made by Hg throughout the
investment-realisation cycle. At certain points in that cycle, HGT may hold
substantial amounts of cash awaiting investment. HGT may invest its liquid
funds in government or corporate debt securities, or in bank deposits, in each
case with an investment grade rating, or in managed liquidity funds which hold
investments of a similar quality.
If there is surplus capital and conditions for new investment appear to be
unfavourable, the Board will consider returning capital to shareholders,
probably through the market purchase of shares.
Any material change to HGT's investment objective and policy will be made only
with the approval of shareholders in a general meeting.
Business model and risk framework
The Board has a clear view of the rationale for investing in unquoted
businesses where the private equity ownership model has the potential to
accelerate the growth in value creation. HGT seeks to capture this upside,
whilst operating within a rigorous risk-management framework.
The Board believes that there is a convincing rationale for directly investing
in well-researched private businesses where there is potential for substantial
growth in value, notably where there is the ability to work with management to
implement strategic or operational improvements.
HGT offers a simple and liquid means by which shareholders can invest in
unquoted growth companies, while benefiting from an investment company's
governance model.
Business model
To achieve HGT's investment objective and within the limits set by the
investment policy, HGT is an investor in unquoted businesses managed, and in
most cases controlled, by the Manager. From time to time, HGT may hold listed
securities in pursuit of its investment policy.
HGT is currently invested in 46 companies (as set out below or on page 44 of
the full Interim Report and Accounts or below), ranging in size, sector and
geography, providing diversification.
The Board has delegated the management of HGT's investments to Hg Pooled
Management Limited (the 'Manager' or 'Hg'). Further details of the terms of
the management agreement are set out on page 74 of the full Interim Report and
Accounts or below. The Manager invests predominantly in unquoted software and
business service companies in expanding sectors and provides portfolio
management support. Hg's review on pages 32-37 of the full Interim Report and
Accounts or below outlines how HGT's investments are managed on behalf of HGT.
Most of HGT's investments are held through special-purpose partnerships, of
which it is the sole limited partner.
Periodically, HGT enters into a formal commitment to invest in businesses
identified by the Manager, alongside institutional investors which invest in
an Hg Limited Partnership Fund. Such commitments are normally drawn down over
three to four years. The institutional investors and HGT invest on similar
terms.
HGT is usually the largest investor in each business. The Board has a further
objective of keeping HGT as fully invested as is practicable, while ensuring
that it will have the necessary cash available when a new investment arises.
The Board, on the advice of the Manager, makes assumptions about the rate of
deployment of funds into new investments and the timing and value of
realisations. However, to mitigate the risk of being unable to fund any
draw-down under its commitments to invest, the Board has negotiated a right to
opt out, without penalty, of its obligation to fund such draw-downs, should
the need arise.
HGT may also take up a co-investment in some businesses (in addition to the
investment which it has committed to make).
Typically, HGT has no liability to pay fees on such co-investment and no
carried interest incentive is payable to the Manager on realisation (currently
6% of HGT's NAV is in co-investments). HGT may also offer to acquire a limited
partnership interest in any of Hg's funds, in the event that an institutional
investor wishes to realise its partnership interest.
The Board regularly monitors progress across all of the businesses in which it
is invested as well as their valuation, the development of the Manager's
investment strategy and the resources and sustainability of the business
model.
Investment trust status
As HGT is constituted as an investment trust and its shares are listed on the
London Stock Exchange, it can take advantage of tax benefits available to
investment trusts. This allows HGT to realise investments from its portfolio
without liability to corporation tax. The Board intends to retain this status
provided that it is in shareholders' interest to do so. This will require the
Board to declare dividends so that not more than 15% of taxable income is
retained each year.
Performance targets
HGT's aim is to achieve returns in excess of the FTSE All-Share Index over the
long term. In the year to 30 June 2022, HGT's NAV per share increased by 1.8%
on a total return basis. The FTSE All-Share Index decreased by 4.6% on a total
return basis over the period. The year to date total return of HGT's share
price decreased by 20.5%. NAV per share has grown by 17.0% p.a. compound over
the last 10 years and 15.9% p.a. compound over the last 20 years. The share
price has seen broadly similar performance growing by 16.9% p.a. compound over
the last 10 years and 15.7% p.a. compound over the last 20 years.
All of the above returns assume the reinvestment of all historical dividends.
The Board and the Manager aim to continue to achieve consistent, long-term
returns in this range.
HGT is not managed so as to achieve any short-term performance relative to any
index. The Board also compares HGT's NAV and share price performance versus
other comparable indices with similar characteristics.
Dividend
The Board reviews HGT's approach to dividends on a regular basis, taking into
consideration feedback from shareholders and the evolving nature of HGT's
income streams, which are driven by the investment structures Hg utilises in
its various transactions. In the 2021 Annual Report, the Board stated that it
regarded a 5.0 pence full year dividend as a sustainable level, absent some
material shift in underlying deal structures. From time to time, the pattern
of deployment and the income which arises may allow for a higher level of
dividend to be supported, and 2021 was an example of this, with a full year
dividend of 7.0 pence. The Board has declared an interim dividend in 2022 of
2.5 pence (2021: 2.0 pence).
It is important to note that HGT, in order to qualify for investment trust tax
status, can retain no more than 15% of its gross income.
Going concern
HGT's business activities, together with those factors likely to affect its
future development, performance and financial position are described in the
Board's Strategic Report and Hg's Review. The financial position of HGT, its
cash flows, liquidity and borrowing facilities are described in the Strategic
Report. The Directors have considered the FRC Guidance on Risk Management,
Internal Control and Related Financial and Business Reporting and believe that
HGT is well placed to manage its business risks successfully. The Directors
review cash flow projections regularly, including important assumptions about
future realisations and the rate at which funds will be deployed into new
investments. The Directors have a reasonable expectation that HGT will have
adequate resources to continue in operational existence for at least the next
12‑month period from the date of approval of this Report and to be able to
meet its outstanding commitments. Accordingly, they continue to adopt the
going concern basis in preparing these results.
Past performance is not a reliable indicator of future results. The value of
shares and the income from them can go down as well as up as a result of
market and currency fluctuations and investors may not get back the amount
they originally invested.
Principal and emerging risks and uncertainties
During the period, the Board has continued to develop and refine a
comprehensive Risk Management Framework to assess the principal and emerging
risks facing HGT. Managing risk is fundamental to the sustainable long-term
delivery of HGT's strategy and this framework provides the objective context
for decisions taken by the Board, particularly as they relate to performance,
liquidity, valuation and business model.
The Risk Management Framework is dynamic and used by the Audit, Valuations and
Risk Committee ('AVRC') to assess the probability and likely impact of
principal risks, to ensure that HGT operates within a defined risk appetite
for each risk category, and that focus is maintained upon those risks which
require attention, prioritising mitigating actions from both HGT and the
Manager. This risk register is regularly stress-tested, providing assurance
that the performance of HGT is insulated, as far as practical, from exogenous
factors in the operating environment.
The Risk Management Framework provides the toolkit to measure and stress test
HGT's business planning against a rapidly changing global backdrop. During
2021, the resilience of HGT's investment model was thoroughly tested by the
conditions of the global pandemic, as was the performance of the portfolio
companies.
In the 2021 annual report, the potential effects of increasing interest rates,
cost inflation and a tightening fiscal environment were discussed, and in H1
2022, the UK economy has experienced the compounding effects of accelerating
inflation, interest rate rises and a tightening of the markets for new debt
and equity issuance. Against this environment, the resilience of the portfolio
investments and their valuations has continued to be demonstrated although the
overall level of risk is now beyond the Board's stated risk appetite.
Looking forward, the Board and AVRC recognise that the more challenging
environment is likely to cause the level of mitigated risk to remain elevated
throughout 2022. Whilst the revenues and operations of Hg's portfolio
companies are not significantly reliant upon the economies of Russia or
Ukraine, the heightened geo-political uncertainty in Eastern Europe is a
continuing risk that has been seen to lead to broader economic impacts,
including material increases in energy costs and cyber-crime. The Board and
AVRC, following careful consideration, have determined that it is appropriate
to accept this elevated level of risk on a temporary basis and remain
confident in the resilience of the business models of the underlying portfolio
investments. Further mitigating actions will be taken should the overall level
of risk continue to remain beyond the Board's stated risk appetite.
HGT considers the principal risks to be in four main categories:
Investment Risk: the risk to HGT that inappropriate investment or realisation
decisions reduce the returns made.
Financial Risk: the risk that HGT's valuation, liquidity or resources are
insufficient to allow HGT to invest.
Operational Risk: the risk of changing regulation: failure of Hg's processes
and internal control systems and underlying portfolio performance.
External Risk: the risk of adverse macro-economic, regulatory or geo-political
change.
Risk trend: ↑improving -
stable ↓ worsening
Appetite: √ within X
outside
Potential risk Potential impact Mitigation
Trend/Appetite
Investment
Performance • Reduction in NAV • Deployment of capital is a rigorous process determined by the Hg
Investment Committee, operated by experienced investment professionals.
Risk that underlying portfolio companies underperform. • Reduction in share price
• Portfolio performance is reviewed regularly by Hg's Realisation Committee
• Reputational damage comprising experienced investment professionals and the HGT AVRC. -
• An operational performance group interacts across the portfolio to drive √
performance.
• Realisations continue to be made at or above valuation.
Financial
Valuations • False market in HGT shares • Valuations are prepared in accordance with IPEV guidelines and tested
against HGT's Valuation Policy.
Risk that inaccurate valuations would lead to a misleading NAV. • Reputational damage
• The Manager's Valuation Committee, independently chaired, reviews and
• Reduction in share price approves valuations quarterly. -
• Constrained access to capital • The auditors of both Hg funds and HGT review the valuation and methodology √
as part of their audit procedures.
• The AVRC reviews and cross-checks valuations against a broad range of
objective valuation methodologies.
Liquidity • Reputational damage • Borrowing structures and cash flow forecasts are considered at each HGT
Board meeting.
Risk that insufficient liquid resources are available to make investments. • Reduced NAV growth
-
• An additional £250 million of liquidity is available through a bank
• Reduced shareholder return facility, which was 54% drawn at 30 June 2022. √
• An opt-out facility is available across all investing funds.
Commitment • Reduced shareholder return • A bank facility is in place to facilitate orderly management of the
balance sheet.
Risk that capacity is insufficient to underwrite future commitments to Hg • Reduction in share-price
-
funds.
• There is an opt-out facility across all investing funds.
√
• A five year cash and commitment forecast is independently reviewed by the
AVRC.
Operational
Regulation • Increased corporation tax, leading to higher fees and potential impact on • The Manager monitors investment movements, forecast income and expenditure
valuation and retained income (if any) to ensure compliance with sections 1158 and 1159
Risk that regulation changes affect investment trust status.
of the CTA. -
• Reduction in share price
• Continuing investment trust status is certified by the Manager √
at each meeting of the Board.
Regulation • Misunderstood or misreported regulation leading to reduced demand for • Regular compliance and risk reviews are reported to the Board by the
shares Manager's compliance team.
Risk that other changes in legislation, regulation or government policy could
influence the decisions of investors. • Lack of adherence to regulation leading to reputational risk • Strong shareholder engagement through:
-
- dedicated investor relations team
√
- corporate broker
- company secretary
Manager internal controls and processes • Reputational damage • The Manager is regulated and supervised by the FCA.
Risk that control weaknesses of the Manager lead to poor performance or • Reduced shareholder returns • The Manager has controls in place, including those related to investment
non-compliance with regulations. decisions; portfolio reviews; recruitment, training and promotions; financial
performance and payments; protection of client assets; compliance; regulation. -
• The Board of HGT and its auditors regularly review these processes and √
controls.
Cyber security • Loss of or lack of control over data due to cyber attacks • Increased investment in the portfolio cyber security team to monitor
cyber security across Hg and the portfolio companies and mandate improvements.
Risk of cyber attack and data loss at Hg and portfolio companies. • Reputational damage
-
• The GDPR Committee has successfully implemented mandatory training for all
• Regulatory sanction staff. X
External
Political and macro-economic uncertainty • reduction in valuation of portfolio investments • Hg's portfolio is diversified with a high degree of recurring revenue.
Risk arising from geo-political instability and conflict. • disruption to capital markets • The Manager remains focused on the various issues which may need to be
addressed, including:
-
- reduced availability of credit to fund future investments
X
- regulation, marketing, trade and foreign exchange movements
• These are regularly monitored by the Board of HGT, considering a range of
downturn scenarios in our business planning.
Foreign exchange • Reduction in shareholder returns • The Board of HGT regularly monitors currency fluctuations.
Risk of foreign exchange movements affecting investments made in currencies • The Hg treasury functions hedge currency exposure and actively mitigate -
other than Sterling. currency risk where appropriate.
√
Global pandemic • Portfolio companies suffer revenue declines • Portfolio resilience is stress-tested against pandemic impacts.
Risk of performance and investment disruption from current and future pandemic • Earnings multiples of listed companies applied to valuations might be • The majority of revenues are derived from subscription-based recurring
events. adversely affected revenues for non-discretionary technology-led services.
↑
• Operational performance, valuations and investment deal flow have shown
resilience to pandemic disruptions. √
• All operating territories are now free from material restrictions.
Interim management report and responsibility statement
Interim management report
The important events which have occurred during the period under review are
described in the Chairman's Statement and in the Manager's Review - these also
include the key factors influencing the financial statements.
Statement of Principal Risks and Uncertainties
The principal risks faced by HGT can be found under the heading 'Principal and
Emerging Risks and Uncertainties' within the Rationale and business model
section above or on pages 14-18 of the full Interim Report and Accounts. HGT's
principal risks and uncertainties have not changed materially since the last
annual report and are not expected to change materially for the second half of
HGT's financial year. The Directors have ensured that all principal risks will
be kept under review throughout the year.
Related party transactions
There have been no material changes in the related party transactions
described in the last annual report.
Going concern
As stated in note 2 to the condensed financial statements, the Directors are
satisfied that HGT has sufficient resources to continue in operation for the
foreseeable future, a period of not less than 12 months from the date of this
report. Accordingly, they continue to adopt the going concern basis in
preparing the condensed financial statements.
Responsibility statement
The Directors confirm that, to the best of their knowledge,:
• the condensed set of Financial Statements has been prepared in
accordance with FRS 104 'Interim Financial Reporting' and gives a true and
fair view of the assets, liabilities, financial position and return of HGT.
• the interim management report (incorporating the Chairman's Statement
and the Manager's review) includes a fair review of the information required
by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an
indication of important events which have occurred during the first six months
of the financial year and their impact on the condensed set of financial
statements - and a description of the principal risks and uncertainties for
the remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being
related-party transactions which have taken place in the first six months of
the current financial year and which have materially affected the financial
position or performance of HGT during that period - and any changes in the
related-party transactions described in the 2021 annual report which could
have a material effect on the financial position or performance of HGT in the
first six months of the current financial year.
We consider the interim report and accounts, taken as a whole, to be fair,
balanced and understandable and to provide the information necessary for
shareholders to assess HGT's position and performance, business model and
strategy.
This interim financial report was approved by the Board of Directors on
9 September 2022.
Jim Strang
Chairman
9 September 2022
Hg's review
Building businesses which change how we all do business
Hg is a specialist private equity investor focused on software and business
service companies.
Our business model combines deep sector specialisation with dedicated
operational support.
Hg invests in growth companies in expanding sectors, primarily via leveraged
buyouts in businesses with operations in or across Europe.
Hg's vision is to be the most sought-after private equity investor within our
sector focus,
being a partner of choice for management teams, to provide consistent,
superior returns for HGT and our other clients, while providing a rewarding
environment for Hg colleagues.
References in this interim report and accounts to the 'portfolio',
'investments', 'companies' or 'businesses' refer
to a number of investments, held as:
• indirect investments by HGT through its direct investments in
fund-limited partnerships (HGT LP, HGT 6 LP ('G6'),
HGT 7 LP ('G7'), HGT 8 LP ('G8'), HGT Genesis 9 LP ('G9'), HgCapital Mercury D
LP ('M1'), HGT Mercury 2 LP ('M2'), HGT Mercury 3 LP ('M3'), HGT Saturn LP
('S1'), HGT Saturn 2 LP ('S2') and HGT Saturn 3 LP ('S3').
• direct investments in renewable energy fund limited partnerships,
Asper Renewable Power Partners LP
('Asper RPP I LP'), of which HGT is a limited partner.
Hg Pooled Management Limited was authorised as an alternative investment fund
manager with effect from
22 July 2014. For further details, refer to pages 132-134 of the 2021 Annual
report
https://www.hgcapitaltrust.com/sites/hgcapital-trust/files/all-pdf/full-year-results-2021/hgt-annual-report-and-accounts-2021.pdf.
Past performance is not a reliable indicator of future results. The value of
shares and the income from them can go down as well as up as a result of
market and currency fluctuations and investors may not get back the amount
they originally invested.
About Hg
Europe's largest software and services investor with a transatlantic network
>25
years of investment
>300
employees across London, Munich, New York, San Francisco and Paris
>200
highly regarded institutional investors
>$55bn
funds under management
Overview
Hg is, itself, an entrepreneurially led, fast-growing business, 100% owned and
managed by its partners.
Hg began life as Mercury Private Equity, the private equity arm of Mercury
Asset Management plc. Mercury Asset Management was acquired by Merrill Lynch
in 1997. In December 2000, the executives of Mercury Private Equity negotiated
independence from Merrill Lynch, and Hg was established as a fully independent
partnership.
Since then, Hg has worked hard to develop a unique culture and approach -
setting us apart from other investors. We are committed to building businesses
which change the way we all do business, through deep sector specialisation
and dedicated, strategic and operational support.
Today, Hg has more than 300 employees, representing the largest technology
investment team in Europe.
We have five investment offices, which are in London, Munich, New York, San
Francisco and Paris, with funds under management of more than $55 billion
(£45 billion) and serving more than 200 highly regarded institutional
investors, including private and public pension funds, insurance companies,
endowments and foundations.
HGT is the largest client of Hg, which has been contracted to manage HGT's
assets since 1994 and offers investors a liquid investment vehicle, through
which they can obtain exposure to Hg's diversified network of unquoted
investments with minimal administrative burdens, no long-term lock up or
minimum size of investment - and with the benefit of a Board of independent
Directors and corporate governance. HGT's strategy is to invest in parallel
with all of Hg's current funds.
Investment strategy
Hg's investments are focused primarily on defensive growth buyouts in software
and business service companies operating in specific end-market 'clusters'
with enterprise values ('EVs') of £100 million to over £10 billion,
growing faster than the broader economy. We predominantly seek controlling
equity buyout investments in businesses headquartered in Europe and North
America, though such companies will often have a global footprint and customer
base.
Hg's objective is to pursue investment theses supporting long-term growth,
leveraging its expertise working in these sectors to implement initiatives
designed to maximise organic expansion, as well as through rolling up
fragmented sectors, over typical hold periods of approximately five years.
Hg has led over 175 investments in the software and service sector during the
last 25 years. This focus means that we have developed an institutional
expertise and a deep understanding of the markets and businesses in which we
invest.
Hg applies a rigorous approach when evaluating all investment opportunities.
Our objective is to invest in the most attractive businesses, rather than be
constrained by a top-down asset allocation.
This flexible approach to investment means that, at any given time, the Hg
portfolio is likely to comprise over 40 software and tech-enabled business
service companies with similar characteristics, but of different sizes,
end-market focus and maturity profiles.
Hg's offices in New York and San Francisco enhance the ability to crystallise
and develop transatlantic investment opportunities, manage existing
investments and make bolt-on acquisitions, as well as continue to engage with
- and ultimately sell - portfolio companies to North American trade buyers. As
the US has the largest technology sector, this also helps to consolidate Hg's
position as Europe's leading software investor.
Note: All figures as at 30 June 2022.
Hg Mercury
Lower mid-market
EVs: £100m-£450m
Hg Genesis
Mid-market
EVs: £450m-£1.3bn
Hg Saturn
Upper mid-market
EVs: >£1.3bn
One strategy over three funds across the size range in software and service
businesses
HGT has made commitments to invest on the same financial terms as all
institutional investors in Hg funds, with investments made into businesses
with enterprise values ranging from £100 million to over £10 billion.
The power of the portfolio
Hg has a unique approach and strategy, with a focus on achieving scale in
tightly defined clusters of expertise.
As a result, we have assembled a portfolio of 46 companies, sharing similar
characteristics, yet differing in size and maturity. This creates a natural
environment for knowledge-sharing, creating a network effect to drive best
practices and value-creation initiatives. This is why we believe in
collaboration and the 'power of the portfolio'.
This scale and focus enable our businesses to benefit from being part of one
larger organisation, while retaining their own identity with each management
team, incentivised by their own success.
The Hg portfolio, if taken as one company, would be one of the largest and
fastest-growing software companies in Europe.
The 'Hg sweet-spot' business model
Hg has a clear and robust business model, focused on long-term, consistent and
defensive growth, predominantly through investment in buyouts located
throughout Europe and North America. We seek companies which share similar
characteristics, often providing a platform for merger and acquisition
('M&A') opportunities.
We believe that such companies have the potential for significant performance
improvement.
We invest primarily in two main market sectors:
Software
Software is our largest sector of investment. We focus on businesses providing
B2B vertical market application software and data, regulatory software and
fintech and internet infrastructure.
We have invested in high-quality industry champions which have strong sector
reputations and diverse customer bases and which feature subscription-based
business models generating predictable revenues and cash flows. With more than
40 software investments in our portfolio, we bring a unique set of networks
and insights to help to support value creation in our businesses.
Tech-enabled services
Our business services investments focus on companies with high levels of
intellectual property, large fragmented customer bases and long-term and
stable customer relationships - and businesses which provide business-critical
services, preferably on a repeat or recurrent basis.
We target businesses with strong reputations within a niche and aim to grow
and scale these businesses, either organically within existing markets or
through acquisitions.
Deep knowledge and networks within our end-market clusters
Hg has a unique approach and strategy, with a focus on achieving scale in
tightly defined clusters of expertise. This specialisation helps us to build
deep know-how.
Tax & Accounting
18+ years
TeamSystem • Visma • Iris • Sovos • Azets • Silverfin • Prophix
• CaseWare • Bright • insightsoftware • Serrala • LucaNet
ERP & Payroll
18+ years
TeamSystem • Visma • Iris • Access • Transporeon • P&I •
Benevity • Revalize • Bright • IFS/Workwave
Legal & Regulatory Compliance
15+ years
The Citation Group • Litera • Septeo • ProcessMap • waystone
Automation and Engineering
14+ years
MeinAuto • Trackunit • AUVESY-MDT • Geomatikk • revalize
SME Technology Services
12+ years
Commify • team.blue • F24 • The Citation Group
Capital Markets & Wealth Management IT
9+ years
FE Fundinfo • Argus • SmartTrade • Gen II • Riskalyze • Pirum
• waystone
Insurance
8+ years
GGW Holding • Howden Group • Fonds Finanz
Healthcare IT
7+ years
Lyniate • Medifox •Intelerad • HHAeXchange • norstella
Note: Number of years refers to the number of years for which Hg has invested
in each cluster. As at 30 June 2022.
Working together
"With our focused yet scaled portfolio, we have a unique opportunity to
provide deep, systematic support to management across all the key value
creation levers our types of businesses offer."
Christopher Kindt, Head of Value Creation, Hg
Sharing Hg know-how and experience
By virtue of the fact that Hg invests repeatedly in specific business models,
our dedicated Portfolio Team has been able to develop an approach to drive
value creation during our ownership. Following each investment, our portfolio
team works with the management of our investee companies to focus on a set of
operational levers which is key to performance in an 'Hg sweet‑spot'
business model: growth, technology & product, business systems and
processes, cyber security, data and AI, ESG, talent, planning and finance. For
each of these levers, the portfolio team has the experience and deep knowledge
of best practices to help drive value creation.
Every company can access the team and their IP, yet the nature of support can
take a variety of forms. Often, our Portfolio Team members provide direct
support, co-owning and driving specific initiatives to help the business
create value more quickly. Another option is for our experienced industry
experts to mentor senior executives, helping them to build more scalable
functions. In other instances, the support comes through introducing
management teams to their counterparts in other companies in which Hg is
invested, specifically those who have faced comparable challenges.
66
C-suite and board placements led by in-house talent team over last 3 years
>$30m
of software cost savings for our portfolio from Hg's collective deals
>$40m
ARR delivered through the data monetisation driven by Hg Data Scientists
Value creation
• We have over 50 senior operational specialists who work with our
portfolio management teams to drive impact through specific value creation
projects. Each specialist maintains a network of trusted third party
associates and partners to further drive execution.
• The Portfolio Team continually invests in codifying operational best
practices, developing IP that represents decades of accumulated expertise.
This yields templates and blueprints that enable best practices to be
implemented swiftly. Increasingly, these are embedded in proprietary Hg
software tools and services to deliver value even more rapidly.
• We seek to use our collective scale to access better commercial terms
with key partners and vendors. For example, Hg collective deals are saving
more than $30 million p.a. of cost on back-office system license costs alone
across our portfolio.
• We conduct value creation diagnostics upfront, benchmarking a company's
operational maturity against our database of KPIs and best practices, to
identify the highest potential projects to pursue.
• We then support the company in building a value creation plan to help
achieve those enhancements. As part of this planning we identify where our IP
and experts can help the company sharpen and accelerate their improvements.
Portfolio Team days worked on the portfolio, April to June 2022, annualised
Data 1,355
Tech 926
BST(1) 839
Talent 818
Growth 685
VCP(2) 648
(1) Business Systems & Transformation (2) Value Creation Planning
"We joined the Hg Portfolio family at the end of 2021, and we are definitely
proud to be a part of it now. Our experience with the entire team has been
beyond cooperative. The network and expertise the Hg Portfolio Team offers is
exceptional and will certainly help us to improve in some aspects of our
business."
Markus Kiener & Norbert Porazik, CEOs, Fonds Finanz
Portfolio events
The Portfolio Engagement team runs an extensive calendar of virtual and
in-person events for executives from across the portfolio. By bringing
together the management teams of portfolio companies with similar business
models, the Hg portfolio events provide attendees with invaluable
opportunities to build connections, problem-solve, and share experiences. In
2021, the Portfolio Team held 88 events overall reaching close to 6,000 people
and driving engagement across the entire portfolio.
Our focus areas
From sharing best practice and resources, through to tailored teams of
technical experts, we work closely with the companies in which we invest to
ensure that they gain the tools and guidance required for business success.
Growth
Sales
Marketing
Pricing
Customer Success & Operations
Tech, Product, Cyber
R&D and tech platform
Right-shoring
Product management
Cyber security
Data
BI, warehousing, snowballs
Data cleansing & enrichment
ML driven optimisations
Data monetisation
Projects Support
First 100-days, onboarding
Value Creation Planning
PMO and governance
DSP Accelerator Program
Talent and Org
Exec search
Management assessments
Org design and structure
CHRO topics: hiring, L&D, etc
Finance and FP&A
Reporting and analysis
CFO & Finance team set-up
Special projects (e.g. exit prep)
ERP implementation
ESG and Legal
Assessments & reporting
Legal support, strategic projects
Professionalising GC office
Carbon reduction, ESG support
Business Systems
Enterprise Systems Architecture
Systems selection, vendor deals
Implementation support
Process design & transformation
Geographic Coverage
UK, Europe, US
In-person when needed
Multi-lingual2022 YTD:
35
Portfolio team-led online and in-person events
>1,000
total people in attendance
The Hg Portfolio community
We view all our business management teams as a part of the Hg portfolio
community and that means promoting a culture of working together to problem
solve and innovate more rapidly. One of the most powerful ways in which we
motivate change is through peer‑to‑peer collaboration, allowing management
teams the opportunity to exchange ideas and insights, and learn from others
across the Hg portfolio and our network of experts. In the last year, we've
offered portfolio companies a full end‑to‑end digital engagement
experience, by hosting virtual events and facilitating an increase in activity
on the Hg online collaboration platform, Hive.
Hive
Hg's online community for everyday collaboration
Hive, Hg's online portfolio engagement platform, enables collaboration at
scale across the entire Hg family and plays a central role in Hg's value-add
proposition to portfolio companies. By facilitating engagement opportunities
across the thousands of people who are a part of the portfolio of Hg-invested
businesses, Hive provides members with a space to network with peers, and
share specialist knowledge, experience and expertise.
Spotlight on our CEO community
Our CEO community has gone from strength to strength over the last few years.
We held our first in-person CEO event in France earlier this year and in
October will launch our inaugural Hg North America CEO & Chair Forum in
the US. The CEO hangouts have proven an invaluable touchpoint for the
community and continue on a monthly basis. These virtual meetings provide an
opportunity for our CEOs to share live experiences, problem-solve and seek
advice from one another, with many CEOs now referring to the virtual
gatherings as a chance to connect with a 'group of friends'.
2022 YTD:
3,000
active members and growing
21
Live communities
For further information, please visit hive.hgcapital.com
For further information, please visit hgcapital.com/working-together
"Over the last few years we have continued to invest in our people and our
expertise, especially given our focus on working with the very best management
teams in our target clusters and to actively help them to build great
businesses."
Steven Batchelor, Chief Operating Officer, Hg
>300
members of the team
5
investment offices in London, Munich, New York, San Francisco and Paris
>170
investment and portfolio management executives
8
clusters of expertise
Our team
Hg succeeds through the analysis and understanding of new and emerging
dynamics in the clusters in which it invests. This requires profound knowledge
of technology, markets and business practices. To this end, we employ diverse
and exceptionally talented teams to identify and execute investment
opportunities and accelerate value creation during our ownership. This
specialisation - in both investment selection and portfolio management -
requires significant resources, and we have built a business employing more
than 300 people, including more than 170 investment, portfolio management
executives and other professionals. Our investment and portfolio management
executives come from a range of backgrounds and experience, including private
equity, consulting, investment banking, accounting and industry specialists.
Our portfolio team comprises a mix of senior operators and functional
specialists, typically with substantial experience in their respective
specialist operational and strategic roles. Investing primarily in European
businesses, many of which have a global footprint, requires time and a deep
understanding of local cultures. Accordingly, our people come from around the
globe, and have representation of 42 different nationalities. On average, our
partners have 15 years' experience in the management of private businesses.
In September 2022 we opened two new investment offices in San Francisco and
Paris increasing our global reach.
Talent attraction and talent development
To position ourselves as a best-in-class recruiter, Hg's recruitment and
selection processes are rigorous and agile. These, along with our strong
brand, leadership, sector focus, fund performance, vibrant culture and only
working with recruitment partners who ensure that their search methodology is
inclusive, providing diverse talent, allow us to attract and hire the best
talent in our industry.
We have enhanced our talent processes so that we can identify and accelerate
the development of our top performers and high‑potential talent within the
business. We believe this to be the basis of effective career and
succession‑planning which is led by our Head of Talent, who joined in
January this year to focus on and to continue to build and enhance our
practices.
Employee engagement
Our people are highly motivated by, and committed to, delivering outstanding
value to HGT, our other institutional clients and our portfolio company
leadership teams. They participate through their work, our values and the
opportunity to grow to their full potential within Hg. Our values have evolved
over many years and are embodied in our working culture; these are aligned
with our performance and reward structures. Hg works hard to ensure that our
employees are fully involved. We use independent external benchmarks to gauge
levels of engagement and take appropriate actions to ensure the highest
possible levels of commitment here. We have a strong focus on career and
personal development, providing a range of development opportunities to enable
our talent to reach their full potential and perform at their best.
Developing future leaders
We are explicit about those behaviours which we wish to encourage at Hg and
have aligned recruitment, learning and development, coaching, performance and
rewards to our values for everybody across the organisation, including our
leadership. We know that longevity of success means doing it the right way,
thinking long term and always being willing to listen and learn. These values
can be seen and felt everywhere you look, around our offices and in everyday
interactions - it's really what makes us Hg.
For a description of Hg's key staff please visit: hgcapital.com/our-people
"With diversity, you source and analyse deals, ask and answer questions and
manage teams differently. It adds up to better investment and business
decisions. The more complex the challenge at hand, the greater the returns."
Nic Humphries, Senior Partner, Hg
Diversity and inclusion
Hg has introduced several new policies and built on its existing ones, as part
of a wider initiative around diversity and inclusion. We have an established
D&I steering group, comprising a range of individuals from across the
firm. Its aim is to promote a culture of inclusion which clearly values
diversity in all of its forms. We have several global initiatives - with four
networks covering gender, ethnicity, socio-economic and LGBTQ+, flexible
working, mentoring programmes, education and awareness events - to drive
internal change. We also look to support events such as Black History month,
International Women's day and Mental Health Awareness week. This is also
echoed and supported through our HR learning and development initiatives,
including structured mentoring programmes, recruitment processes and training,
embedding awareness of unconscious bias and inclusion.
Hg will maintain its commitment to industry-wide initiatives such as Level 20,
a not‑for‑profit organisation aligned around a common vision to inspire
more women to join the industry.
Hg senior partner Nic Humphries continues his role on Level 20's advisory
council.
Hg is an active participant in the Institutional Limited Partners
Association's 'diversity in action' initiative, acknowledging our ongoing
commitment to take concrete steps to advance diversity, equity and inclusion
across our organisation and the industry more broadly.
In addition, in our second year working with #10000 Black Interns we welcomed
several interns through the programme, helping black students gain experience
and kick‑start their career in investment management. This year we have
increased the number of interns we have recruited and expanded the number of
areas of the business that they will gain experience in.
We are also excited to partner with Sponsors for Educational Opportunity (SEO)
in London and New York as they help prepare talented students from ethnic
minority or low socio-economic backgrounds for career success.
"At Hg, our ambition is to be the employer of choice in private equity and we
have a robust strategy enabling us to attract, develop and retain world class
diverse talent. Everybody at Hg is accountable for contributing to our
inclusive culture, and ensuring people can be their whole self at work."
Kerry Heaton, Head of Talent, Hg
Hg is now a member of the LGBT Great network and as part of this partnership
has contributed to two of their research projects: LGBT+ investing lens,
research exploring the practice of investing for financial return while also
considering the benefits to those who identify as LGBT+, such as improving
economic opportunities or social inclusion for the LGBT+ community.
Responsible investment
"In the past six months, Hg has focused on a number of initiatives to advance
our ESG performance. We made some big commitments in 2021, including setting
targets approved by the Science Based Target initiative. We are now focused on
delivering against these commitments. I am delighted to have had the
opportunity to grow our ESG team from two to four members, which means more
time can be spent delivering additional impact across the Hg portfolio and
providing further transparency to our investors. For example, we now collect
scope 1, 2 and 3 emissions data for our portfolio companies and are supporting
them with benchmarking and identifying reduction opportunities."
Caroline Löfgren, Chief Sustainability Officer, Hg
Why responsible investment is important to us
Hg engages in Responsible Investment because it sits right at the core of its
Purpose:
Hg is trusted to improve the future of millions of investors by building
sustainable businesses for tomorrow. These are carefully chosen words - trust,
future, sustainable, tomorrow. Choosing how we do business.
What this means in practice is that Hg looks to grow sustainable businesses
which are great employers and good corporate citizens, whilst also generating
strong returns for the millions of pensioners and savers who are invested in
the Hg funds. Everyone at Hg is ultimately pulling together towards this
goal.
This commitment supports the backbone of Hg's investment philosophy and has
helped the firm to determine a very focused approach, which has evolved over
the last 20 years. Hg's focus is to invest exclusively in growing software and
services businesses. They look to ensure that both time and capital support
the sustainable growth of these knowledge businesses. These businesses then
contribute to society by changing and modernising how their customers work,
whilst providing quality employment opportunities for thousands of people
worldwide, across innovative and growing sectors.
Stable growth is crucial to Hg. It provides stability to those beneficiaries
that Hg serves including teachers, public servants, first-responders and
charities - there are pension savers all around them who are benefitting from
this stability for their future.
As with other operations and functions, Hg takes an active interest in how its
portfolio companies manage Environment, Society and Governance ('ESG') risks
and opportunities. Hg's portfolio team consist of over 50 experts, four of
whom are specialists in ESG and provide support to portfolio companies to help
them advance their ESG agenda. Hg's sector focus and expertise mean that they
have a good understanding of which ESG metrics are most material to service
and software companies. The team focuses on these metrics to help build
best-in-class ESG practices across the Hg portfolio.
Finally, Hg actively champions this topic and talks about its approach openly
both internally and externally. They want all their employees to be proud of
what they do, because they should be, and they want their investors to be
confident in Hg's intentions when they commit capital to them for ten years or
more.
Matthew Brockman, Managing Partner, Hg
For more information and to watch our Responsible Investing video, please go
to hgcapital.com/responsibility
Climate Change
Hg recognises that climate change is one of the most pressing topics today. It
is at the top of the agenda for society, regulators, Hg and its investors.
Acting on climate change is important and working collaboratively is critical
to driving material change. Hg is a founding member of the UK network of the
Initiative Climat International ('iCI') which is a network of Private Equity
firms working collaboratively to tackle climate change in its industry
endorsed by the UNPRI. Hg is a member of the UK Operating Committee of iCI and
the NetZero and Carbon Footprint working groups. In 2021, Hg worked with its
peers in the iCI to fund and develop guidance on how PE firms can set
science-based targets and Hg became one of the first PE firms globally to get
approved Science Based Targets in line with this standard [add hyperlink:
hgcapital.com/hg-joins-group-of-six-pioneering-firms-representing-e133bn-aum-to-combat-climate-change-by-setting-ambitious-science-based-targets-for-the-industry/].
As a member of the NZAMi [add hyperlink
hgcapital.com/hg-joins-leading-private-equity-investors-commit-to-net-zero],
Hg recognises the importance of setting short-term targets to limit warming to
1.5 degrees Celsius and the firm is targeting net zero across all portfolio
companies within the next 30 years.
For more information about Hg's commitment to climate change, please see Hg's
TCFD report and annual carbon footprint report here:
[https://hgcapital.com/responsibility/]
As for HgCapital Trust, it has no carbon footprint to report as the Trust has
no employees, fleet, premises or other emission sources.
Diversity, Equity and Inclusion ('DEI')
Hg believes that having a diverse workforce deepens its talent pool and brings
a wider range of perspectives. It manifests in how they navigate the business
world, including investment decisions. Not only is it fundamentally the
right thing to do, but Hg has also seen first-hand how diversity and inclusion
('D&I') create a virtuous cycle: the more diverse and inclusive a company
is, the more each individual can add value. That translates to a greater
impact for all stakeholders - investors, portfolio companies, employees and
the communities in which we work and live. Hg is proud to have 48% female
employees across the firm and 35% female executives.
To encourage diversity and inclusion across Hg's portfolio, Hg's Portfolio DEI
Council, a group of 10 portfolio companies representing different regions and
sizes, co-developed a DEI toolkit which was launched in May 2022. The toolkit
is a 100-page long guide, covering all aspects of diversity, equity and
inclusion, which is split into four sections - DEI strategy, People, Culture
and Communication. It has been shared across the Hg portfolio for all
companies to leverage.
In 2020, Hg broadened its DEI focus externally by launching the Hg Foundation.
Through the Hg Foundation, Hg takes action to remove barriers to education and
skills in technology, encouraging a greater diversity of entrants into tech
careers.
For more information and our latest DEI report please see
hgcapital.com/diversity-and-inclusion/
ESG in the deal process
ESG is embedded into the entire deal process, from screening to exit. Hg is
very clear, as outlined in their exclusion list, on the types of businesses in
which they do not invest. During due diligence, Hg assesses companies for
compliance with relevant laws about ESG, H&S, bribery and corruption.
Once invested, all Hg's businesses are assessed against their Sustainable
Business Framework as part of onboarding and annually thereafter. Hg's
assessment is very comprehensive; covering over 170 metrics across key areas
that are most relevant to tech businesses. It takes external frameworks, such
as SASB, ILPA's diversity in action initiative and the ESG Data Convergence
initiative into account.
However, Hg's ESG onboarding is not limited to the Sustainable Business
Framework. In addition, they conduct separate assessments on cyber security,
data privacy, carbon footprints and climate change risks.
Each year Hg reviews and updates its ESG assessment to account for new topics,
trends and regulations. In 2021, they included 20 additional questions to
cover further aspects of data privacy, anti-competitive behaviour, diversity
and inclusion and climate change. All portfolio companies are assigned a score
from 0-10 and receive an action list to support improvement. Hg's ESG team
provide support to help advance the business's ESG performance and each
business is then reassessed on an annual basis.
Hg's Sustainable Business Framework
Hg's Sustainable Business Framework outlines key ESG focus areas for Software
and Services companies. Please see https://hgcapital.com/responsibility/
(https://hgcapital.com/responsibility/) for further details about the
framework.
A signatory to the UNPRI since 2012.
A+A+ 2022 PRI assessment score:
'A+' for strategy and governance and
'A+' for private equity ownership
Hg is a founding member of the UK network of the Initiative Climate
International (iCI)
Hg is one of the first PE firms globally to have committed to and had targets
approved in line with the SBTi.
Hg is committed to report our ESG progress in line with several recognised
external standards.
Winner of The Private Equity Award's Diversity and Inclusion Leader of the
Year in 2021 and 2022
For more information and to watch our Responsible Investing video, please go
to hgcapital.com/responsibility
The Hg Foundation
Removing barriers to education & skills in technology
The Hg Foundation has committed to nine partnerships since its launch in 2020,
all with the aim of supporting the development of skills required for
employment within the technology industry, focusing on individuals who may
otherwise experience barriers to access.
The most recent partnership in July 2022 was a commitment of over $4 million
to Cornerstone VC, a new seed-stage UK Technology VC firm, born out of black
led angel group Cornerstone Partners.
At Hg we have learned that, time and time again, diversity leads to better
investment and business decisions. This is why diversity in our own firm,
across our portfolio and in the technology sector more generally continues to
be one of the highest strategic priorities for Hg and is at the heart of The
Hg Foundation's goals.
The Hg Foundation is funded by Hg through a proportion of carried interest
from current and future Hg funds, a proportion of Hg's annual profits and also
through charitable activities carried out across the firm. The Foundation acts
independently of Hg and grant decisions are made by the Board of Trustees.
$12.5m
committed to date
9
partnerships
>8,000
students directly supported
For more information, please visit the Hg Foundation's website:
www.thehgfoundation.com
Net asset value (NAV)
During the period, the NAV of HGT increased by £25 million, from
£2.01 billion at 31 December 2021 to £2.03 billion at 30 June 2022.
Attribution analysis of movements in NAV
Revenue Capital Total
£000 £000 £000
Opening NAV as at 1 January 2022 35,114 1,970,610 2,005,724
Realised capital and income proceeds from investment portfolio in excess of 31 (32) 1,849 1,817
December 2021 book value
Net unrealised capital and income appreciation of investment portfolio 27,817 84,070 111,887
Net realised and unrealised gains from liquid resources 794 (22,964) (22,170)
Share issue - 12,324 12,324
Dividend paid (22,764) - (22,764)
Expenditure (4,306) (746) (5,052)
Taxation - - -
Investment management costs:
Priority profit share - current year paid (10,382) - (10,382)
Priority profit share - reallocation between capital and income 4,320 (4,320) -
Carried interest - current year paid - - -
Carried interest - current year provision - (40,942) (40,942)
Closing NAV as at 30 June 2022 30,561 1,999,881 2,030,442
Analysis of NAV movements
Several underlying factors contributed to the increase in NAV. Positive
impacts were the £111.9 million revaluation of the unquoted portfolio and
uplifts of £1.8 million on the realisation of investments, compared with
their carrying value at the start of the period. Shares issued during the
period contributed a further £12.3 million.
Reductions in NAV included: the payment of £22.8 million of dividends to
shareholders and a £40.9 million increase in the provision for future
carried interest.
Past performance is not a reliable indicator of future results. The value of
shares and the income from them can go down as well as up as a result of
market and currency fluctuations and investors may not get back the amount
they originally invested.
Attribution analysis of movements in the value of investments
During the year, the value of the unrealised investments increased by
£111.9 million, before the provision for carried interest. The majority of
the increase, £280.5 million, relates to increases from profit growth in the
underlying investments. A decrease in valuation multiples reduced the value of
investments by £160.7 million.
Acquisitions net of realisations at carrying value of £43.5 million
increased the value further and positive currency movements of £71.9 million
increased the value of the unrealised portfolio. An increase in net debt of
£83.0 million contributed negatively to the unrealised portfolio.
Top 20 portfolio trading performance as at 30 June 2022
With highly predictable and stable cash flows, the top 20 businesses
(representing 79% by value of HGT's investments) have delivered strong sales
growth of 31% (June 2021: 20%) and EBITDA growth of 26% (June 2021:27%) over
the last 12 months ('LTM'), reflecting the defensive and resilient nature of
the businesses in which HGT is invested. This represents reported aggregate
sales of £7.7 billion and EBITDA of £2.4 billion over the last 12 months,
equating to an EBITDA margin of 31%.
This is consistent with the high double-digit trading performance that the HGT
portfolio has demonstrated over many years. Over the last five years, the
EBITDA growth of the top 20 companies has been at an average of 25% LTM.
The business model characteristics of the companies in which we are invested
give us confidence that this sustainable growth can be achieved consistently,
going forward.
More than 95% by value of the top 20 businesses within the portfolio achieved
double-digit revenue growth, and more than 75% have delivered double-digit
EBITDA growth over the last 12 months.
We have seen very robust and consistent trading performance from the majority
of the portfolio, with particularly strong growth from Intelerad, Litera, The
Access Group, Howden, Septeo, Sovos and FE fundinfo.
Where a company does not perform as well, it is reflected in its valuation.
For further information on how individual companies have performed over 2022,
please refer to the realised and unrealised valuations table on page 33 of the
full Interim Report and Accounts.
Valuation and net debt analysis as at 30 June 2022
Our valuation policy is applied consistently, in accordance with the IPEV
Valuation Guidelines. Each company has been valued based on the trading
multiples of comparable businesses and recent M&A activity; the average
EBITDA multiple for the top 20 investments is 27.1x (27.4x at 31 December
2021).
The basis of this approach is to apply a relevant multiple to a suitable
earnings-based performance metric. We take a considered approach in
determining the level of maintainable earnings in each valuation: an
earnings-based valuation being most appropriate. Where a company has negative
or significantly depressed earnings, a revenue-based valuation can be used.
Most holdings have been valued using LTM earnings, or available information at
the reporting date. The earnings figure used may be adjusted on a pro-forma
basis reflecting acquisitions, disposals or other adjustments to the extent a
buyer would make these.
The multiple is derived by reference to market-based multiples. This will be a
weighted combination of a quoted and M&A comparable basket and the
multiple at which the company transacted. These weightings can be adjusted as
necessary to address risk and broader economic challenges. When constructing
the basket, we look to identify companies that are similar, in terms of risk
and growth attributes, to the company being valued. This is more likely to be
the case where the companies are similar in terms of business activities,
market and geography.
We then cross-check the existing valuation against a range of other valuation
techniques, and also use back testing to understand substantive differences
that may legitimately occur between an exit price and the previous fair value
assessment, to inform our valuation policy.
Our companies make appropriate use of gearing, with a weighted average net
debt to EBITDA ratio for the top 20 of 7.5x LTM (7.1x at 31 December 2021).
Many of our businesses have highly predictable revenues, strong earnings
growth and are very cash generative, enabling us to use debt to reduce their
cost of capital and improve returns.
Outstanding commitments of HGT
At 30 June 2022, HGT held liquid resources of £435 million and had
outstanding commitments of £1,550 million, as listed below. We anticipate
the majority of these outstanding commitments will be drawn down over the next
three to four years (2022-26) and are likely to be partly financed by cash
flows from future realisations. Additionally, to mitigate the risk of being
unable to fund any draw-down under its commitments to invest alongside Hg's
funds, the Board has negotiated a right to opt out, without penalty, of HGT's
obligation to fund such commitments, where it does not have the funds to do so
or certain other conditions exist. HGT also has access to a £250 million
bank facility which was 54% drawn as at 30 June 2022.
Fund Fund Original commitment £million (1) Outstanding commitments as at 30 June 2022 Outstanding commitments as at 31 December 2021
vintage
£million % of NAV £million % of NAV
S3 2022 885.1 (2) 883.4 43.5 627.5 31.3
G10 2022 344.3 (3) 344.3 17.0 - -
HGT Various 102.9 (4) 102.9 5.1 92.3 4.6
S2 2020 329.4 (5) 63.6 3.1 67.8 3.4
G9 2020 309.9 (6) 50.6 2.5 66.2 3.3
G8 2018 350.0 48.9 2.4 51.5 2.6
M3 2020 99.0 (7) 35.3 1.7 64.0 3.2
S1 2018 150.0 15.1 0.7 15.9 0.8
M1 2011 60.0 3.3 0.2 3.3 0.2
M2 2017 80.0 1.6 0.1 1.8 0.1
G7 2013 200.0 0.8 - 1.0 -
Asper RPP I 2006 18.6 (8) 0.6 - 0.6 -
Total 1,550.4 76.3 991.9 49.5
Liquid resources 435.4 21.4 371.5 18.5
Net outstanding commitments unfunded by liquid resources 1,115.0 54.9 620.4 31.0
( )
(1) Excluding any co-investment participations made through HGT LP.
(2) Sterling equivalent of $1.1 billion.
(3) Sterling equivalent of €400 million.
(4) Sterling equivalent of $125 million of junior debt.
(5) Sterling equivalent of $400 million.
(6) Sterling equivalent of €360 million.
(7) Sterling equivalent of €115 million.
(8) Sterling equivalent of €21.6 million.
( )
( )
Investment portfolio of HGT
Fund limited partnerships Residual Total Portfolio
valuation(1)
cost
£000 value
£000 %
Primary buyout funds:
HGT 8 LP 252,956 871,182 42.4
HGT 8 LP - Provision for carried interest - (125,342) (6.1)
HGT Saturn 2 LP 223,889 333,373 16.3
HGT Saturn 2 LP - Provision for carried interest - (18,752) (0.9)
HGT Genesis 9 LP 250,726 290,640 14.2
HGT Genesis 9 LP - Provision for carried interest - (5,760) (0.3)
HGT Saturn LP 136,361 260,053 12.7
HGT Saturn LP - Provision for carried interest - (18,088) (0.9)
HGT LP 142,324 189,469 9.2
HGT Mercury 2 LP 57,688 159,579 7.8
HGT Mercury 2 LP - Provision for carried interest - (25,776) (1.3)
HGT 7 LP 24,226 83,752 4.1
HGT 7 LP - Provision for carried interest - (16,754) (0.8)
HGT Mercury 3 LP 58,576 65,415 3.2
HgCapital Mercury D LP 2,316 10,153 0.5
HgCapital Mercury D LP - Provision for carried interest - (2,049) (0.1)
Total buyout funds 1,149,062 2,051,095 100.0
Renewable energy funds:
Asper RPP I 5,039 367 -
Total investments net of carried interest provision 1,154,101 2,051,462 100.0
( )
(1)Includes accrued income of £128,585,000 and the carried interest provision
as referenced but before the deduction of the fund level facility of
£325,311,000.
Hg cluster by value
29% ERP & Payroll
28% Tax & Accounting
10% Healthcare IT
8% Legal & Regulatory Compliance
7% SME Technology Services
7% Capital Markets & Wealth Management IT
6% Insurance
5% Automation & Engineering
Investment vintage by value
2% 2022
26% 2021
28% 2020
7% 2019
37% pre-2019
Geographic spread by value
39% UK
24% North America
17% Germany
13% Scandinavia
7% Other Europe
Investments and realisations
Investments
Over the course of the period, Hg invested a total of £826 million on behalf
of its clients, with HGT's share being £71 million. HGT has made significant
new and further investments post 30 June.
The vast majority of our investments are generated by establishing and
developing relationships with companies over the longer term and typically
pursuing opportunities where we have a strong relationship with a founder or
management team. By doing this, we believe that we can invest in the very best
businesses within our chosen clusters.
We continue to look for businesses which share similar underlying business
model characteristics, such as: high levels of recurring revenues; a product
or service which is business critical, but typically low spend; low customer
concentration and low sensitivity to market cycles. This is a theme which runs
through many of our new investments - and we believe that companies with these
characteristics will remain in high demand across market cycles.
New investments in the six months to 30 June 2022
LucaNet
£15.6m invested on behalf of HGT
In June, Hg completed an investment in LucaNet AG ('LucaNet'), a leading
German headquartered financial consolidation and planning software business.
Founded in 1999, LucaNet began with a vision to create a one-stop-shop
software solution, bringing together financial control, planning and
consolidation. Since then, the company has evolved into a leader in its core
segment, the Office of the CFO for mid-sized companies. With a loyal customer
base of more than 3,500 organizations in over 50 countries, offices
in China, Singapore and the Americas as well as a strong European base,
LucaNet employs around 500 people worldwide.
Pirum
£13.9m invested on behalf of HGT, including £4.5m in co-investment
In June, Hg completed an investment in Pirum Systems, a leading provider of
post-trade automation and collateral management technology for the global
securities finance industry. Pirum's software provides a secure processing hub
which seamlessly links industry participants, allowing them to process and
verify key transaction details electronically. This delivers significant trade
and collateral efficiency, lowers costs and enhances regulatory compliance for
its network of clients. Pirum's products assist 90 of the most prestigious
global financial institutions to process over $3 trillion of transactions
daily.
Fonds Finanz
£7.9m invested on behalf of HGT
In February, Hg completed an investment in Fonds Finanz, a leading
tech-enabled financial intermediary pool in the German insurance sector.
Founded in 1996 and headquartered in Munich, Fonds Finanz serves more than
28,000 customers including brokers, distributors, insureTechs and banks across
Germany. With a comprehensive software, advisory and service offering, Fonds
Finanz gives customers access to a full-service platform, comprising products
from more than 500 insurance and financial product vendors in Life, Health,
Property & Casualty and Investment funds.
Further investments in the six months to 30 June 2022
Howden
£21.4m invested on behalf of HGT, including £11.6m in co-investment
Over the first half of the year, Hg made a further investment in Howden Group
Holdings ('Howden').
Hg announced its original investment in Howden, a leading international
insurance group (previously known as Hyperion Insurance Group Limited), in
2020.
Lyniate
£12.1m invested on behalf of HGT, including £4.0m in co-investment
In January, Hg completed an additional investment into Lyniate, a leader in
healthcare data interoperability. Over 1,300 healthcare organisations around
the globe rely on Lyniate interoperability solutions to connect people through
increased access to data.
GGW
£2.1m invested on behalf of HGT
In January, due to the continued strong opportunity to acquire high quality
and accretive brokers, Hg completed a further investment in GGW, a leading
Property & Casualty focused insurance broker principally serving SMEs in
the DACH region, to fund recent larger M&A.
New investments since the period end
IFS Workwave
£148.2m invested on behalf of HGT, including £12.6m in co-investment
In July, Hg completed a significant minority investment, alongside EQT and TA
Associates, in IFS and WorkWave, valuing the company at $10bn. IFS is a
leading software vendor for organisations who want to differentiate on
service. With thousands of the world's most respected brands as customers, IFS
is a recognised provider across multiple sectors including Service Management
(both Field Service Management and Enterprise Service Management), Enterprise
Asset Management (EAM) and Enterprise Resource Planning (ERP). WorkWave's
suite of products empower service-oriented companies in its target verticals
to reach their full potential through scalable, cloud-based software solutions
that support every stage of a business life cycle, including marketing, sales,
service delivery, customer interaction and financial transactions.
Ideagen
£71.5m invested on behalf of HGT
In June, Ideagen, a leader in compliance software for regulated industries,
delisted from the London Stock Exchange's Alternative Investment Market,
following a positive shareholder meeting, which showed support for Hg's offer
for the business.
Established in 1993 and headquartered in Nottingham, UK, Ideagen's software
helps companies comply with regulation and manage risk. It is a leader in the
regulatory and compliance software sector, serving highly regulated industries
such as life sciences, healthcare, banking and finance and insurance.
Waystone
Estimated £32.0m invested on behalf of HGT
In January, Hg announced an investment in Waystone Group, a leading provider
of institutional governance, risk and compliance services to the asset
management industry. This investment is via the Hg Saturn 2 fund, alongside
Montagu, a leading private equity firm; Hg will join as a strategic investor
and joint shareholder. Montagu first announced its investment in Waystone in
July 2021. Hg's investment is subject to regulatory approval and customary
closing conditions.
Further investments since the period end
The Access Group
Estimated £176.6m invested on behalf of HGT
In June, Hg announced a further investment in The Access Group ('Access'), a
leading provider of business management solutions to mid-market organisations
in the UK, Ireland and Asia Pacific via the Hg Saturn Fund.
This further strategic investment from Hg, and TA Associates, a leading global
growth private equity firm, is significant. In addition, GIC, a global
institutional investor, has confirmed a new investment to become a minority
shareholder in the company.
Team.blue
Estimated £32.4m invested on behalf of HGT
In July, Hg announced a further investment in team.blue, a leading digital
enabler for companies and entrepreneurs across Europe. This investment will
help to supercharge the business and enable team.blue to implement ambitious
plans for further expansion in its product offering of online solutions, as
well as increase its local presence across more countries in Europe.
Norstella
Estimated £4.7m invested on behalf of HGT
In June, Hg, via the Hg Genesis 9 Fund announced an investment in Citeline
(formerly Pharma Intelligence) - a leading provider of specialist
intelligence, data and software for clinical trials, drug development and
regulatory compliance - which has announced an agreement to merge with
Norstella, an organisation that helps life sciences companies navigate the
complexities of the drug life cycle.
Realisations
Over the course of the period, Hg has returned a total of £260 million to
its clients, including £30 million to HGT.
Hg has seen some significant exits post June at an average c.29% uplift to
their December carrying value and we will continue to assess further
opportunities to return cash proceeds to our clients, including HGT.
Refinancings in the six months to 30 June 2022
Lyniate
£19.8m returned to HGT
In January, Hg completed a refinancing of Lyniate, a global leader in
healthcare data interoperability and data liquidity solutions. Over 1,300
healthcare organisations around the globe rely on Lyniate interoperability
solutions to connect people through increased access to data. Hg retains a
majority stake in Lyniate.
Argus Media
£8.6m returned to HGT
In June, the Hg Saturn team completed the refinancing of Argus Media, a
provider of independent price assessments, essential data and analysis of the
international energy and commodity sectors. With over 160 publications and
26,000 price assessments, Argus is one of the two largest price reporting
agencies globally.
Full exits since the period end
Medifox
Estimated £47.0m returned to HGT
In June, Hg announced that it had agreed the sale of MEDIFOX DAN, a leading
provider of digital solutions for the German care and therapy sectors, to
ResMed, a global leader in cloud-connected medical devices and out-of-hospital
software-as-a-service (SaaS) business solutions, in a transaction valuing the
business at an enterprise value of around $1 billion.
This transaction represents an uplift of £15.0 million (47%) over HGT's
carrying value at 31 December 2021.
Itm8
Estimated £32.7m returned to HGT
In May Hg announced that it had agreed the sale of itm8, a leading supplier of
IT services for private businesses and the public sector in Europe to Axcel, a
Nordic private equity fund.
This transaction represents an uplift of £2.6 million (9%) over HGT's
carrying value at 31 December 2021.
Partial exits since the period end
Intelerad
£27.5m returned to HGT
In August, Hg completed a partial sale of Intelerad, a leading global provider
of enterprise medical imaging solutions, to TA Associates ('TA'), a leading
global growth private equity firm. TA joins Hg and ST6 in supporting Intelerad
to accelerate growth.
This transaction represents an estimated uplift of £17.8 million (26%) over
HGT's carrying value at 31 December 2021.
Team.blue
Estimated £16.0m returned to HGT
In July, Hg announced the partial sale of team.blue, a leading digital enabler
for companies and entrepreneurs across Europe.
This transaction valued HGT's existing investments in the business at
£51.3 million representing an uplift of £11.1 million (28%) over the
carrying value at 31 December 2021.
Refinancings since the period end
The Access Group
Estimated £232.2m returned to HGT
In June, Hg announced the recapitalisation of The Access Group ('Access'), a
leading provider of business management solutions to mid-market organisations
in the UK, Ireland and Asia Pacific.
This transaction valued Access at 42% over the carrying value at 31 December
2021.
To view our press releases, please visit
www.hgcapitaltrust.com/news-insights/press-releases/year/2022
Summary of investment and realisation activity
Investments made during the period
Company Cluster Location Cost
£000
LucaNet Tax & Accounting Germany 15,649
Pirum Capital Markets & Wealth Management IT UK 13,928
Fonds Finanz Insurance Germany 7,864
New investments 37,441
Howden Insurance UK 21,374
Lyniate Healthcare IT North America 12,068
GGW Insurance Germany 2,136
Other(2) (1,892)
Follow-on investments 33,686
Total investments on behalf of HGT 71,127
( )
( )
( )
Realisations made during the period
Company Cluster Exit route Proceeds(1) £000
Lyniate Healthcare IT Refinancing 19,796
Argus Media Capital Markets & Wealth Management IT Refinancing 8,636
Other(2) 1,005
Partial realisations 29,437
Total proceeds from realisations 29,437
Carried interest paid to the Manager -
Total proceeds from realisations received by HGT 29,437
( )
(1)Includes gross revenue received of £1.4 million during the period ended
30 June 2022.
(2)Other investments and realisations includes immaterial transactions in
relation to the remaining portfolio.
( )
Hg's outlook
"Increasingly, we see this environment as one of opportunity, as short-term
valuations create space for greater long-term performance."
David Toms, Director of Research, Hg
Market Update / Outlook
We remain of the view that market concerns about inflation will have muted
long-term impacts on our businesses. However, we are also aware that events
rarely align perfectly along a timeline, and there is a risk that a
combination of geo-political challenges, fiscal tightening, supply chain
constraints, and cost increases, cause broad economic challenges to which our
portfolio's end customers may respond with temporarily lower investment
(postponing investments in systems and software) before the structural factors
that drive the need for software reassert themselves. To claim immunity from
any potential macro downturn or recession would be naïve, and we are alert to
the risks of near-term volatility in the general economic backdrop, as well as
to the structural opportunities this could create for an investor like Hg with
long-term horizons.
Q2 in the public markets saw a faster rate of valuation and price decline than
Q1, as investors continued to reprice equities in light of higher interest
rates, geo-political instability and a growing expectation of recession. A
'typical' downturn (if there really is such a thing) tends to lead with
multiple contraction, followed by earnings contraction, and an eventual
recovery catalysed either, in recent downturns, by central bank stimulus, or
historically, earnings recovery. Assuming that inflation leaves central
bankers with fewer options than the GFC and COVID downturns, earnings momentum
could be the most important indicator over the next 12-24 months.
As we move into Q2 reporting season, we are starting to see a slightly mixed
picture emerging from software and services majors. Some have sounded a
moderately more cautious note whereas others have reiterated a robust
underlying outlook for the next 3-6 months. This variability does not surprise
us; in the main, macro changes are outweighing underlying trading,
particularly in the US where overseas earnings are impacted by the
near-unprecedented strength of the US Dollar. In addition, cyclical pressures
are growing, but not evenly - for example, whilst there is clear evidence of
lengthening sales cycles, this is currently focused on larger deals at the
'enterprise' end of the market. However, what is also clear to us is that the
structural drivers of our sector are intact and, if anything, enhanced by the
macro-economic shifts we see, as companies invest in technology in order to
help offset cost inflation.
Note; Based on R3K listed US software & Services sector, c.400 companies
in total dataset. Unprofitable = EV:EBITDA >50 or negative.
Source: Factset, Hg analysis
Valuation environment
Despite the positive structural drivers for the sector, public market
investors remain focused on current macro concerns. A striking pattern,
consistent with the theme of macro-driven sentiment shifts, can be seen in
public market valuation movements over the past 12 months. In the second half
of 2021, 'unprofitable software' was impacted hard. Moving into the first
quarter of 2022, this spread to 'profitable software', and in Q2-22, the
impact spread across most other sectors of public markets.
The pendulum of public market valuations has swung from the SPAC-fuelled
euphoria of 2021 to a more downbeat perspective in 2022, (the archetypal
illustration of Ben Graham's manic-depressive 'Mr Market'). The same lack of
selectivity that occurred on the way up in 2020 and 2021, is now impacting in
the opposite direction.
We see this valuation environment as one of emerging opportunity as the dust
settles. Our existing platform businesses, particularly those with significant
M&A machines (Access and Visma being the most impressive examples), should
be able to capitalise on more attractive prices and thus potential returns.
Entry points for new platforms should be lower, and possibly most importantly,
there will be opportunities to invest in high-quality businesses that are
otherwise inaccessible. We have already seen this with recent investments into
businesses that we have been tracking for years, but only now have become
amenable to partner with us.
Although our valuation process is based partly on public comparators, as with
our companies, the vast majority of these are profitable, established
businesses. As we have shown, such businesses have shown much more limited
valuation volatility than the high growth, low/no profit businesses that
headline more often in the media.
Consistent with our previous commentary, in any quarter, there are two main
factors influencing our valuations: earnings multiple change in public
comparators, and growth in actual earnings. Our companies typically grow their
EBITDA by c.10-15% organically each year, i.e. c.3% each quarter, and
approximately double this on an 'all in' basis including M&A. In addition,
our valuations are also affected by changes in private markets comparators,
which have a smoothing effect against public market equivalents.
The latter two factors have meant that our funds have been less exposed to
public market volatility during challenging periods, as well as providing some
protection against broader de-rating in the long term. The relative pace of
movements (public rating changes can be relatively rapid; earnings growth and
private comparators tend to be much steadier) dictates movements in any one
quarter, but over the long term, earnings growth tends to dominate.
Activity levels
Over the first half of 2022, Hg has invested more than £826 million,
primarily into 6 new and further investments, including
£71 million on behalf of HGT. Following the period end Hg deployed a further
£3.2 billion into new and existing companies, including £252 million from
HGT. All these investments sit firmly within Hg's 'sweet-spot' in software and
service businesses across eight industry verticals or 'clusters'. This
investment continues to cement Hg's role as one of the largest software groups
in the world, whether measured as an investor, or as an industry participant.
We have commented previously that in any 12-month period, the investment teams
across Hg aim to make between 8 and 16 new platform investments in total
across the active Hg Saturn, Hg Genesis and Hg Mercury funds, and that we also
generally seek to deliver similar numbers of liquidity events (sales or
partial sales of portfolio companies and refinancings) each year. We believe
the pace of investment should continue at broadly this level over the medium
term. However, while we continue to see many compelling opportunities, we may
well see a period of reduced activity through to the end of this financial
year as seller expectations adjust and react to the macro-outlook.
From these investments, there is a further cascade of M&A opportunities,
adding to the breadth and depth of our organic development and catalysing
cross sales to existing and acquired customers. On average, our portfolio
companies may acquire two to three businesses a year, meaning across a
portfolio of more than 46 B2B software and services companies we would
typically expect to make more than 100 M&A investments each year (and to
diligence and reject many more). To give a further sense of this scale, Hg's
combined portfolio enterprise value has risen from c. $100 billion in December
2021 to over $115 billion at 30 June 2022.
"...we are alert to the risks of near-term volatility in the general economic
backdrop, as well as to the structural opportunities this could create for an
investor like Hg with long-term horizons."
( )
https://www.hgcapitaltrust.com/news-insights/video-library?vid=1539
https://hgcapital.com/insight/bitesize-tech-sector-insight-from-david-toms/
Overview of the underlying investments
held through HGT's limited partnerships
Investments Fund Sector Location Vintage Residual Total Portfolio Cum.
(in order of value) cost valuation(1) value Value
£000 £000 % %
1 Access G8/HGT ERP & Payroll UK 2018 60,653 428,794 19.0 19.0
2 Visma G7/S1/S2/HGT Tax & Accounting/ERP & Payroll Scandinavia 2020 90,332 221,903 9.8 28.8
3 Howden S2/HGT Insurance UK 2021 63,401 101,809 4.5 33.3
4 Litera G8/G9 Legal & Regulatory Compliance N.America 2019 28,999 99,319 4.4 37.7
5 Transporeon G8/HGT ERP & Payroll Germany 2019 41,993 87,370 3.9 41.6
6 Intelerad G8 Healthcare IT N.America 2020 32,885 87,136 3.8 45.4
7 IRIS S1 Tax & Accounting/ERP & Payroll UK 2018 36,380 83,082 3.7 49.1
8 P&I G7/S1/HGT ERP & Payroll Germany 2020 36,347 80,612 3.6 52.7
9 Sovos S2/HGT Tax & Accounting N.America 2020 54,455 72,923 3.2 55.9
10 MeinAuto G8 Automation & Engineering Germany 2017 33,967 63,626 2.8 58.7
11 insightsoftware S2/HGT Tax & Accounting N.America 2021 55,071 63,227 2.8 61.5
12 Septeo G9 Legal & Regulatory Compliance France 2020 38,545 61,814 2.7 64.2
13 team.blue G8/M2 SME Technology Services Benelux 2019 16,530 51,069 2.3 66.5
14 Medifox M2/HGT Healthcare IT Germany 2018 11,659 47,027 2.1 68.6
15 FE fundinfo M2/G9 Capital Mkts & Wealth Mgmt IT UK 2021 22,090 44,166 2.0 70.6
16 Norstella M2/G9/HGT Healthcare IT UK 2021 24,595 42,311 1.9 72.5
17 Argus Media S1/HGT Capital Mkts & Wealth Mgmt IT UK 2020 31,725 39,389 1.7 74.2
18 Azets G7/HGT Tax & Accounting UK 2016 20,966 39,285 1.7 75.9
19 Lyniate M2/M3/HGT Healthcare IT N.America 2018 17,866 35,536 1.6 77.5
20 Caseware G8 Tax & Accounting N.America 2020 28,612 34,908 1.5 79.0
21 Benevity S2/HGT ERP & Payroll N.America 2021 32,079 33,323 1.5 80.5
22 itm8 G8 SME Technology Services Scandinavia 2018 16,069 32,709 1.4 81.9
23 Trackunit G9 Automation & Engineering Scandinavia 2021 26,593 32,159 1.4 83.3
24 Citation G8 SME Technology Services UK 2020 21,998 31,726 1.4 84.7
25 GGW M2/M3 Insurance Germany 2020 11,280 26,766 1.2 85.9
26 Gen II G9 Capital Mkts & Wealth Mgmt IT N.America 2020 19,921 25,830 1.1 87.0
27 Prophix G9 Tax & Accounting N.America 2021 17,139 24,640 1.1 88.1
28 HHA G9 Healthcare IT N.America 2021 24,035 22,390 1.0 89.1
29 Revalize G9 ERP & Payroll N.America 2021 18,686 20,933 0.9 90.0
30 TeamSystem G8 Tax & Accounting/ERP & Payroll Italy 2021 14,250 19,695 0.9 90.9
31 Riskalyze M3/HGT Capital Mkts & Wealth Mgmt IT N.America 2021 15,868 19,214 0.8 91.7
32 DEXT S1/HGT Tax & Accounting UK 2021 15,620 18,417 0.8 92.5
33 Project CH S2 Tax & Accounting Germany 2021 18,647 18,163 0.8 93.3
34 Commify M1/HGT SME Technology Services UK 2017 4,080 18,029 0.8 94.1
35 Serrala G9 Tax & Accounting Germany 2021 23,086 16,235 0.7 94.8
36 LucaNet G9 Tax & Accounting Germany 2022 15,649 16,228 0.7 95.5
37 smartTrade M2/HGT Capital Mkts & Wealth Mgmt IT France 2020 18,821 14,782 0.7 96.2
38 Silverfin M2/HGT Tax & Accounting Benelux 2019 11,387 13,961 0.6 96.8
39 Pirum M3/HGT Capital Mkts & Wealth Mgmt IT UK 2022 13,928 13,575 0.6 97.4
40 F24 M2/HGT SME Technology Services Germany 2020 10,458 12,370 0.5 97.9
41 Geomatikk M2/HGT SME Technology Services Scandinavia 2021 11,392 10,894 0.5 98.4
42 Auvesy M3 Automation & Engineering Germany 2021 8,204 10,461 0.5 98.9
43 Mitratech G7/HGT Legal & Regulatory Compliance N.America 2017 3,328 9,375 0.4 99.3
44 Fonds Finanz M3 Insurance Germany 2022 7,864 7,634 0.3 99.6
45 Bright M3 ERP & Payroll Ireland 2021 6,529 7,532 0.3 99.9
46 ProcessMAP M3 Legal & Regulatory Compliance N.America 2021 5,249 5,515 0.2 100.1
Non-active investments (2) 9,833 - - 100.1
Total buyout investments (48) 1,149,064 2,267,862 100.1
Currency hedges Various Forward sale of US$ and € - (4,246) (0.1) 100.0
Renewable energy Asper I Renewable energy 5,040 367 - 100.0
Total all investments 1,154,104 2,263,983 100.0
(1)Including accrued income of £128,585,000, but before a deduction for the
provision for carried interest of £212,521,000 and fund level facility of
£325,311,000. Note that the investments held at fair within the Balance Sheet
on page 62 of the full Interim Report and Accounts or below exclude accrued
income but include the deduction for carried interest and the fund level
facilities.
Top 10 investments
representing 59% of the value of HGT's investments
Investments are held through limited partnerships, of which HGT is the sole
limited partner. HGT invests alongside other clients of Hg. Typically, HGT's
holding forms part of a much larger majority interest held by Hg's clients in
buyout investments in companies with an enterprise value ('EV') of between
£100 million and over £10 billion.
Hg's review generally refers to each transaction in its entirety, apart from
the tables detailing HGT's participation or where it specifically says
otherwise.
Past performance is not a reliable indicator of future results. The value of
shares and the income from them can go down as well as up as a result of
market and currency fluctuations and investors may not get back the amount
they originally invested.
The Access Group
a leading provider of fully integrated business-management software to UK
mid-market organisations
01 Investment date Location Cluster Website
June 2018 UK ERP & Payroll theaccessgroup.com
HGT's investment through G8 and HGT LP
Hg clients' total equity: 51.3%
Unrealised value (£000): 428,794
% of NAV: 21.1%
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Recurring revenue
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Long-term growth
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Thousands of customers
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Platform for M&A
Business description
Founded in 1991, the Access Group ('Access') is a leading enterprise
resource‑planning ('ERP') business, providing financial management systems
('FMS') and human capital management ('HCM') software, as well as industry
specific software solutions. Access' software helps over 60,000 UK businesses
and not-for-profit organisations to work efficiently, with expertise across
numerous industries, SME, mid‑market and enterprise customers in Australia,
Ireland, and the UK.
Hg first invested in Access in June 2018, alongside TA Associates and the
management team. In October 2020, we agreed to reinvest to acquire a further
stake in the business, with existing shareholders TA Associates and management
selling down a net portion of their stakes, with Hg becoming the majority
shareholder. In 2022, Hg signed the refinancing of its Access stake and the
partial exit of Hg Genesis 8's stake with a further investment made via Hg's
latest upper middle-market fund, Hg Saturn 3. This transaction valued Access
at an EV of £9 billion.
Why we invested
The investment in Access builds on Hg's previous experience in the SME, tax,
accounting, HR and payroll software spaces. Access demonstrates many of the
characteristics which Hg seeks in an investment, including business‑critical
software and potential for M&A. Access benefits from a high‑quality
management team, led by a strong CEO and an impressive team of functional
leaders. Our further investment in Access, in 2020 and 2022, reflects our
continued conviction in our investment hypothesis.
Value creation
Following Hg's investment, we have been focused on several work streams with
the business, including: M&A support; encouraging the transition to a
fully SaaS and subscription sales model; continuing to improve customer
success; developing a data‑driven predictive model to support the company's
cross‑sell efforts.
Performance
Access has traded well since our investment, with bookings momentum remaining
strong throughout FY22. Growth remains robust, with the business seeing
>20% organic recurring revenue growth in FY22. With the partial exit,
refinancing and reinvestment in the business in 2022, this has led to HGT's
valuation of its stake in Access rising by £128.1 million over the first
half of 2022.
Exit
We believe that Access will be an attractive acquisition target for private
equity buyers, as it demonstrates high levels of organic revenue growth,
strong recurring revenue and robust EBITDA margins. We also see an IPO as a
potential route to exit, given the business growth profile and strong cash
generation. Lastly, there are several notable potential trade buyers.
Visma
a leading provider of mission-critical business software to SMEs in Northern
Europe
02 Investment date Location Cluster Website
August 2020 Scandinavia Tax & Accounting/ERP & Payroll visma.com
HGT's investment through G7, S1, S2 and HGT LP
Hg clients' total equity: 54.8%
Unrealised value (£000): 221,903
% of NAV: 10.9%
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Recurring revenue
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Long-term growth
llll
Thousands of customers
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Platform for M&A
Business description
Providing business‑critical software to SMEs and the public sector in the
Benelux and Nordic regions and headquartered in Oslo, Visma provides c.
1.3 million enterprise customers with: accounting; resource‑planning and
payroll software; transaction process-outsourcing, such as debt collection and
procurement services. It is the largest European provider of SaaS to these
sectors, with over £1.1 billion in pure SaaS revenues.
Why we invested
Visma is a business with recurring revenues, offering business‑critical
application software, supplying a fragmented customer base - a focus which
forms some of the 'Hg sweet‑spot' investment criteria today. At the time of
our initial 2006 acquisition, we had identified opportunities for Visma to
grow its existing segments and acquire new ones - and to further transition
the business to a SaaS‑focused model.
Value creation
Visma has consistently outperformed, generating a total return between 2006
and 2014 of 5.2x original cost and a gross IRR of 33%. Hg's 2014 investment
was fully exited in 2020 and delivered 4.2x original cost and a gross IRR of
30%.
Year Transaction
Implied EV
2014 Hg reinvested in the business, via Hg Genesis 7 and co-investment, alongside £2.1bn
KKR and Cinven
2017 Hg completed a further investment in Visma £4.2bn
2019 Hg acquired the remaining Cinven stake, alongside the Canada Pension Plan £5.5bn
Investment Board
2020 Further investments from TPG, Warburg Pincus and GA as new minority £9.5bn
shareholders, while existing CPPIB and GIC increased their stake.
2021 Expansion of shareholder base through a secondary sale to Aeternum Capital, €16bn
Government Pension Fund Norway, Vind & GIC.
Performance
Since 2006, Visma has acquired more than 270 companies across the Benelux and
Nordic regions, strengthening organic growth from innovation in new products,
as well as driving margin improvement through a reorganisation of internal
processes and is now positioned as one of the leading and largest SaaS
companies in Europe. Over the first half of 2022, Visma has seen a small
reduction in ratings leading to HGT's valuation of its stake in Visma reducing
by £5.9 million.
Exit
The scale and growth profile of Visma would make it an attractive candidate
for an initial public offering (IPO) or a large private IPO.
Visma produces detailed reporting on its website on a quarterly basis:
www.visma.com/investors/financial-reports
(https://www.visma.com/investors/financial-reports/)
Visma case study:
www.hgcapital.com/case-studies/visma-joining-the-fight-against-unconscious-discrimination-towards-women-in-business
Howden Group Holdings
a leading tech-enabled insurance distribution group, serving clients across
North America, Europe, the Middle East and Asia Pacific
03 Investment date Location Cluster Website
March 2021 UK Insurance howdengroup.com
HGT's investment through S2 and HGT LP
Hg clients' total equity: 22.6%
Unrealised value (£000): 101,809
% of NAV: 5.0%
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Recurring revenue
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Long-term growth
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Thousands of customers
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Platform for M&A
Business description
Founded in 1994 and headquartered in London, UK, Howden Group Holdings
('Howden') is the largest European headquartered insurance intermediary,
serving an international client base. Howden is a tech-enabled insurance
distributor, which has a differentiated position as one of the top brokers
internationally and within the Lloyd's of London market. Following Howden's
acquisition of APG and Aston Lark, the combined Howden UK business today is a
Top 5 UK insurance broker.
Howden facilitates the provision of B2B insurance through its core activities
of retail insurance broking, specialty and reinsurance broking and managed
agency underwriting. The group operates across >250 offices in 45
countries, managing $30 billion of Gross Written Premium.
Why we invested
Hg's investment in Howden represents our sixth investment in the insurance
cluster and is the culmination of a process that first began in late 2019. We
identified Howden as a leader in what is a large and defensible sector,
well-positioned across specialty lines of insurance in which clients rely
deeply on Howden's expertise to navigate the complex insurance value chain.
Benefiting from over 150 hours with management during the diligence process,
we were able to build conviction in the company's differentiated pool of
talent and entrepreneurial culture, which will be key enablers for continued
outperformance and strong growth.
Value creation
Product expertise and innovation is a core pillar of Howden's strategy, and
there is further headroom to drive organic growth through a continued focus on
the rollout of specialty expertise in order to better serve clients across the
group's global footprint. In addition, the acquisition and retention of top
talent through leveraging Howden's unique culture remains key to achieving
differentiated outperformance. Inorganically, there is a significant
opportunity to grow through the execution of strategic M&A to enhance
scale and the breadth of the product offering. Finally, the business will also
continue to invest into technology and Howden X ('Hx'), with the ambition to
be a thought-leader across digital and data-driven initiatives in insurance.
Performance
In 2022, Hg made a further investment into Howden. This transaction combined
with strong performance over the year-to-date period has led to an increase in
the valuation of HGT's stake since December 2021 of £8.9 million.
Exit
Given the unique strategic positioning of Howden as a leading independent
insurance intermediary, we believe that the business will be an attractive
potential IPO candidate. In addition, through continuing to grow organically
and via M&A, maintaining long-standing client relationships and strong
levels of revenue retention and margins, and bolstering its leading position
across key geographies and lines of business, Howden will also be an
attractive target for a secondary sponsor buyout.
Litera
scaled legal-tech platform helping lawyers focus on what matters
04 Investment date Location Cluster Website
May 2019 North America Legal & Regulatory Compliance litera.com
HGT's investment through G8 and G9
Hg clients' total equity: 92.3%
Unrealised value (£000): 99,319
% of NAV: 4.9%
llll
Recurring revenue
llll
Long-term growth
llll
Thousands of customers
llll
Platform for M&A
Business description
Litera is a leading provider of end-to-end document lifecycle solutions to the
legal and life sciences industries globally. Litera has developed a suite of
legal document productivity applications, delivered as an end-to-end platform
to more than 1,300 organisations across the globe. Based in Chicago, New York
and London, Litera provides a suite of best-in-class productivity tools that
help customers to focus on what matters: creating the highest quality
documents.
Why we invested
Litera exhibits several typical 'Hg sweet‑spot' business model criteria: a
leading provider of a differentiated set of products with a clear ROI for
lawyers and other customers; high customer loyalty; attractive, high‑quality
recurring revenue model; potential for M&A; a fragmented customer base;
cross‑sell opportunities into the established customer set, supplemented by
potential new customers; high operating leverage which should provide margin
upside as the business grows.
Value creation
Since our investment in May 2019, we have supported Litera on 16 add‑on
acquisitions, focused on acquiring high-quality legal SaaS and AI-enabled
workflow products to provide customers with best-in-class tools. Most
prominent acquisitions include Workshare, a UK provider of secure enterprise
file‑sharing and collaboration applications, in July 2019; Foundation
Software Group, a leading provider of experience‑management software, in
December 2020; Kira, a leader in machine learning enabled contract analytics
in August 2021; and Prosperoware, a leading governance and collaboration
software in January 2022.
Hg is focused on supporting the board and management team in the successful
operational integration of its acquisitions, driving further add‑on
acquisitions of complementary legal software vendors and implementing
operational excellence across functions.
Performance
Litera has continued to see robust trading over the first half of 2022, and
HGT's stake in the business is currently valued at £99.3 million.
Exit
We believe the scalability of the business, its sustained revenue growth and
strong recurring revenue profile should allow for meaningful exit discussions
with large trade players and technology consolidators; we also believe the
business could be very attractive to other financial sponsors.
Transporeon
a European SaaS logistics connectivity platform
05 Investment date Location Cluster Website
March 2019 Germany ERP & Payroll transporeon.com
HGT's investment through G8 and co-investment through HGT LP
Hg clients' total equity: 75.3%
Unrealised value (£000): 87,370
% of NAV: 4.3%
llll
Recurring revenue
llll
Long-term growth
lll¡
Thousands of customers
lll¡
Platform for M&A
Business description
Transporeon is a leading cloud-based logistics network and transport
management software for road freight in Europe. The platform enables thousands
of trucks to be booked and tracked as they haul freight across the continent.
As a sector leader, the business benefits from favourable industry dynamics,
connecting 145,000 carriers and 1,400 shippers using a modern SaaS platform
able to serve 100 countries and available in 25 languages. It serves these
customers with a mission-critical cloud software platform which enables more
efficient tendering, dispatching, scheduling, and better communication between
the hundreds of enterprises looking to move freight by road, air and ocean,
and the thousands of SME operators that provide the trucks.
Why we invested
Transporeon is a highly strategic asset, operating in an industry with
material room for growth, through new and existing clients, underpinning
future growth in line with historical levels. The business has seen
uninterrupted double‑digit revenue CAGR for the past 20 years across all
market cycles. Transporeon exhibits several 'Hg sweet‑spot' business model
criteria, including: business-critical, high quality software product suite;
high net revenue retention; high customer loyalty; a strong position in an
expanding sector; considerable growth opportunities from new customers, as
well as broader adoption, through up- and cross-sell, by its current customer
base.
Value creation
Transporeon has undergone major management change under Hg's ownership (new
CEO, CFO, CCO, CHRO and CMO). With the new team in place, we now view the
company as well placed to capitalise on opportunities for further operational
efficiencies. Additionally, certain learnings from COVID‑19 have been
introduced permanently, resulting in lower costs (e.g. remote
implementations). Furthermore, as of 2021, Transporeon embedded its
proprietary Real Time Visibility ('RTV') feature in its core platform, thereby
delivering additional value to all network participants and contributing to
Transporeon's strategic profile while driving revenue growth via bundling of
RTV capabilities and the offering. Further to operational improvements, we
executed four acquisitions in 2021/2022, including TNX, SupplyStack, Nexogen
and LogitOne, to complement Transporeon's offering and strengthen its
strategic positioning. Additionally, we have identified multiple other M&A
targets which could drive value creation further.
Performance
Coming out of a strong 2021, the business continues to perform well, expecting
c.20% organic growth in FY22. HGT's investment in Transporeon is currently
valued at £87.4 million representing a small uplift since the 2021 year end.
Exit
We believe Transporeon will be a highly strategic asset to other software or
service providers in the broader Transportation Management space. In addition,
Transporeon will continue to be a very attractive company from a PE
perspective due to its high net recurring revenue, strong cash conversion, and
a long-term organic growth story.
"At Transporeon we work intensively with several members of Hg's portfolio
team. We closely collaborate on growth themes in sales and marketing, have
jointly developed the most comprehensive data lake in the transportation
industry with Hg's experts in data science, we benefited from Hg's talent team
support in strengthening our senior management team and benefit greatly from
Hg's regular assessments in cyber security and ESG."
Stephen Sieber, CEO, Transporeon
Intelerad
provides medical imaging software that specialises in diagnostic viewing,
reporting and collaboration solutions for radiologists
06 Investment date Location Cluster Website
February 2020 North America Healthcare IT intelerad.com
HGT's investment through G8
Hg clients' total equity: 82.0%
Unrealised value (£000): 87,136
% of NAV: 4.3%
llll
Recurring revenue
llll
Long-term growth
lll¡
Thousands of customers
lll¡
Platform for M&A
Business description
Founded in 1999, Intelerad is a leading global provider of enterprise workflow
and medical imaging software solutions that enhance productivity and
information accessibility for radiologists. The core product is a Picture
Archiving and Communication System that helps radiologists and physicians view
and interpret medical images, enabling faster and more accurate diagnoses.
Headquartered in Montreal, Canada, Intelerad employs over 700 staff across the
globe and serves a customer base of c. 1,500 healthcare organisations,
including radiology groups, imaging centres, health systems and life science
companies. Intelerad's software is critical to the operations of more than
7,000 radiologists globally and has achieved over 15% organic revenue CAGR in
recent years driven by overall market scan volume growth plus ongoing
consolidation within the radiology services market to the major players.
Why we invested
Hg recognises Intelerad's leading role in supporting radiologists globally to
deliver highly accurate diagnoses at optimum productivity. The business is a
key enabler of healthcare delivery against a backdrop of increasing global
demands, in radiology, for scalable and more efficient imaging, data
management and workflow solutions. Intelerad is led by a highly talented team
who have developed powerful solutions for radiologists that create superior
outcomes for both patients and healthcare providers. Healthcare technology is
a core sector for Hg, with an investment focus on healthcare operations, core
systems, life sciences digitisation, interoperability and population health.
Intelerad represents the fourth healthcare technology investment in Hg's
current portfolio.
Value creation
The Hg team, including the portfolio team, is focused on several work streams
with Intelerad, including:
• M&A support: helping to source potential opportunities and assess
possible sizable additions to the group, resulting in seven acquisitions
closed during Hg's ownership.
• Continued expansion to new markets and product capabilities.
• Continued build out of Intelerad's enterprise imaging platform, with
deeper hospital and health system penetration.
Performance
Volumes have continued to increase in the last six months with a rise in
earnings. This has led to an increase in HGT's stake in the business of
£17.9 million over the period.
Exit
We believe Intelerad will be an attractive acquisition target for private
equity buyers as it demonstrates strong recurring revenue and robust EBITDA
margins. An IPO is also a possible route to exit given the business' growth
profile and strong cash generation. Lastly, there are several potential trade
buyers that would likely be interested and have previously expressed interest.
IRIS
A leading transatlantic provider of business-critical software solutions
focused on accountants and their end-customers
07 Investment date Location Cluster Website
September 2018 UK Tax & Accounting/ERP & Payroll iris.co.uk
HGT's investment through S1
Hg clients' total equity: 65.0%
Unrealised value (£000): 83,082
% of NAV: 4.1%
llll
Recurring revenue
llll
Long-term growth
llll
Thousands of customers
llll
Platform for M&A
Business description
IRIS is a leading transatlantic provider of business-critical software
solutions, serving over 100,000 customers and three million users. It is one
of the UK's largest software companies and North America now makes up c. 20%
of group revenues. Focused on software solutions for accounting practices and
their connected SME customers, IRIS delivers a suite of software that provides
business-critical record systems with regulatory and compliance driven
updates. IRIS empowers accountants to deliver both regulatory compliance
services and value-added 'Client Accounting Services' to improve SME's
planning and performance.
Why we invested
IRIS was one of our first investments in the Tax and Accounting segment and is
an early example of our focus on firms which provide business‑critical,
daily‑use software for professionals and SMEs in attractive, predictable end
markets. The original investment decision was based on the potential for
organic growth and acquisition‑led consolidation opportunities. With strong
business model characteristics, IRIS has grown organically every year over the
last 20 years.
Value creation
The long‑standing partnership between Hg and IRIS started with the 2004
buyout (£102 million EV) led by Hg, followed by retaining a minority
position after the sale to Hellman & Friedman in 2007. In 2011, we again
became the majority shareholder through the Hg Genesis 6 Fund. In 2018, Hg
agreed on the sale of IRIS to Hg Saturn and ICG, in a joint‑control deal,
representing an EV of £1.3 billion.
IRIS has succeeded in expanding its offering, both organically and by
acquisition into segments such as payroll, HR and education software and
continues to deliver value to its customers, through regular regulatory and
feature updates, leading to high customer loyalty. The strong level of
reinvestment into innovative product development and outstanding customer
support continues to fuel outperformance.
IRIS continues to build its position as a leading transatlantic software
provider, implementing best-in-class systems, processes and cloud development
infrastructure to support growth over the next decade, with M&A enabling
IRIS to unlock a higher TAM into North America and expand its product
offering, this underpins a long-term track record of high-single digit %
organic growth.
Performance
IRIS consistently delivers strong organic revenue growth, driven by secular
growth and cross-sell and upsell initiatives into a highly loyal base, and
expansion into North America. Over H1 2022, a decline in public ratings, used
in the valuation process, has led to a decrease of £8.3 million in HGT's
position in IRIS.
Exit
We believe IRIS will be an attractive software business acquisition target for
private equity buyers as it demonstrates high levels of organic revenue
growth, strong net recurring revenue and high EBITDA margins, coupled with a
leading sector position and large growth opportunity, particularly in USA.
For a full case study on IRIS, please visit:
www.hgcapitaltrust.com/investment-portfolio/case-studies/iris.aspx
P&I
providing integrated software for human resources management to the German and
European Mittelstand
08 Investment date Location Cluster Website
March 2020 Germany ERP & Payroll pi-ag.com
HGT's investment through G7, S1 and co-investment through HGT LP
Hg clients' total equity: 64.4%
Unrealised value (£000): 80,612
% of NAV: 4.0%
llll
Recurring revenue
llll
Long-term growth
llll
Thousands of customers
lll¡
Platform for M&A
Business description
Founded in 1968 and headquartered in Wiesbaden, Germany, Personal &
Informatik AG ('P&I') is a leading provider of payroll and strategic HR
software and services. A full suite provider of cloud-based HR software
solutions, P&I's mission-critical integrated SaaS platforms allow HR
functions to be managed efficiently, delivering strong value for its customers
and a truly differentiated experience for its users. Through constant
innovation, and with its fully integrated, end-to end SaaS suite, P&I
provides technologically advanced HR software to its clients with a superior
level of service.
P&I has secured its position as a leader in its segment and serves over
15,000 end customers, ranging from small and medium-sized private businesses
(SMB) to public sector organisations of all sizes, mainly in Germany,
Switzerland and Austria (DACH region).
Why we invested
Hg is a serial investor in the regulatory‑driven software space and
continues to see attractive, long‑term growth for leading and innovative
players in the sector. P&I's scalable subscription‑based platform
exhibited characteristics within Hg's core focus: a broad, diversified and
loyal customer base; strong position in the DACH payroll and HR market;
exceptional historical operating performance, with over 10 years' consistent
revenue and EBITDA growth. We believe that the SaaS migration of the existing
customer base and the expansion of the HRaaS offering, complemented by
value‑accretive M&A, will contribute to driving highly profitable growth
over the next few years.
Value creation
Hg initially invested in P&I in 2013 and retained a minority investment in
2016, following its majority sale to funds advised by Permira - which
delivered a 36% IRR and 2.3x original cost investment multiple. P&I is a
driver of innovation in HR technology and stands out in the German HR software
space as the only provider of a fully integrated payroll and HCM SaaS suite
for the mid-market. Its advanced SaaS product set allows HR tasks to be
managed in the most modern and efficient manner, delivering strong value to
its customers and a truly differentiated experience to its users. In March
2020, Hg completed an investment, via the Hg Saturn Fund, to become the
majority shareholder again, valuing the company at an enterprise value of
around €2 billion.
Performance
Whilst P&I has continued to see very positive trading performance over
year-to-date 2022, the EV to EBITDA multiple has reduced slightly, and this
has led to a decrease of £5.8 million in the valuation of HGT's stake since
December 2021.
Exit
We believe that the combination of an increase in recurring revenues, high
cash flow conversion and a strong product will be highly attractive at exit
for both trade and financial buyers, as well as public market investors.
Sovos
Sovos is a Leading Provider of Comprehensive Global Tax and Regulatory
Compliance Software
09 Investment date Location Cluster Website
September 2020 North America Tax & Accounting sovos.com
HGT's investment through S2 and HGT LP
Hg clients' total equity: 57.1%
Unrealised value (£000): 72,923
% of NAV: 3.6%
llll
Recurring revenue
llll
Long-term growth
llll
Thousands of customers
llll
Platform for M&A
Business description
A leading global provider of tax compliance software solutions that helps
customers manage an increasingly complex end-to-end tax determination and
regulatory reporting process. Sovos' solutions manage all aspects of the tax
compliance process from tax calculation, forms completion, and ultra-high
volume filing to state and local revenue departments. At the heart of the
Sovos software suite is a powerful tax-calculating engine, leveraging the
industry's most comprehensive repository of over 210 million tax rules, in
more than 19k jurisdictions, across more than 200 countries.
Headquartered in Boston, US with over 2,200 employees spread across 14
countries, Sovos has a growing presence in Europe and Latin America, with over
100k customers globally and products capable of serving both large enterprises
and SMEs.
Why we invested
Hg had tracked Sovos for several years, investing initially in 2016. In 2020,
Hg Genesis 7 exited its investment and Hg Saturn 2 acquired a majority stake
in the company alongside TA Associates. We identified Sovos initially as a
scale specialist in tax compliance for enterprise customers, with the
opportunity to expand outside of the US market. This has played out and we
will continue to build on this during the next leg of growth via Hg Saturn 2.
Sovos sits right in the 'Hg sweet‑spot', with a strong and predictable
business model, including c. 93% contractually recurring revenue, a fragmented
loyal customer base, and high margins.
Value creation
In addition to continuing to grow revenues organically, Sovos has a strong
track record of M&A. The market remains fragmented and we believe that
there are many attractive opportunities for Sovos to grow by acquisition, with
additional potential through further margin improvement. Sovos has completed
several acquisitions since 2016, while Hg continues to support management in
further M&A opportunities, as well as key pricing-improvement initiatives
and in operationalising the customer success team, leading to higher customer
loyalty.
Sovos underwent rapid internationalisation under Hg's leadership in the first
leg of its journey and is well-positioned to continue to benefit from long
term global trends in tax compliance and regulation.
Performance
Sovos has seen rapid growth since our initial investment driven by a
combination of organic and inorganic growth. We have been successful in
deploying material capital into M&A and see several additional
opportunities ahead of us. Whilst performance remains strong, lower public
market comparators have led to a decrease of £5.6 million in the valuation
of HGT's stake over the period.
Exit
We believe Sovos will be an attractive acquisition target for private equity
buyers given its robust revenue growth, EBITDA margins, and strong market
positioning. Other potential routes to exit include an IPO or selling to
several potential trade buyers.
MeinAuto Group
the leading online retailer for new cars in Germany
10 Investment date Location Cluster Website
December 2017 Germany Automation & Engineering meinauto.de
HGT's investment through G8
Hg clients' total equity: 82.5%
Unrealised value (£000): 63,626
% of NAV: 3.1%
llll
Recurring revenue
llll
Long-term growth
llll
Thousands of customers
lll¡
Platform for M&A
Business description
MeinAuto Group ('MeinAuto') provides customers with easy access to automotive
subscriptions via end-to-end online journeys. It is transforming the
traditional approach of vehicle retailing, from an offline service to an
integrated digital delivery model.
MeinAuto operates three brands and the company's products range from
traditional mobility offerings, such as vehicle purchasing, to innovative flat
rate offers. Its operations are highly automated, including tailored online
front ends, as well as digital back-end processes, allowing it to capture
significant economies of scale. The unique selling point for the customer is a
richness of choice (unique multibrand offer), ease of use (fast and hassle
free) and attractive value (transparent, all-inclusive price).
MeinAuto Group was established following our investment in both MeinAuto.de
and Athletic Sport Sponsoring, both leading B2C online platforms for car and
mobility subscriptions, and Mobility Concept, a leading bank and
OEM-independent fleet leasing provider to B2B customers in Germany.
Why we invested
This continues Hg's strategy to develop technology‑enabled service providers
in the automotive financing and distribution space and is the result of
considerable sector work undertaken in recent years, including previous
investments in Epyx, Eucon, Parts Alliance and Zenith. The €80‑billion
German new car market is at a tipping point for online and subscription
disruption. Automotive distribution is moving from a traditional, offline,
dealership-centric model to a multichannel, online‑enabled structure.
MeinAuto actively addresses this transformation - and its product IP and
customer access, combined with strong growth and profitability, make it an
attractive investment, with a strong management team of visionary leaders in
the online car industry.
Value creation
MeinAuto continues to execute its plan formulated in 2018. Current key focus
areas include increasing customer reach, additional partnerships and brand
marketing. Furthermore, the team is optimising lead conversion through smart
pricing algorithms (Deal Machine) and optimised customer journeys. As such,
MeinAuto is the ideal platform for growth, combining highly recurring revenues
and a resilient risk profile. Hg is supporting the management of the business
in several specific operational areas, while also helping to realise several
synergies across the group and additionally looking at further strategic
M&A opportunities.
Performance
MeinAuto continues to show strong trading growth, with its car orders
outperforming sector growth at very stable margins. HGT's holding in the
company is currently valued at £63.6 million.
Exit
We are firmly convinced that a leading platform in online car distribution,
specifically when combined with a fully transactional and vertically
integrated offering, is of high relevance to strategic buyers in the mobility
ecosystem (e.g. large leasing companies and automotive OEMs) and also
attractive to financial sponsors.
Other investments
For information regarding Hg's other investments, please visit:
hgcapital.com/our-portfolio/
11 insightsoftware
Cluster: Tax & Accounting
Web: insightsoftware.com
Date of investment: September 2021
Unrealised value (£000): 63,227
% of NAV: 3.1%
insightsoftware ('ISW') is a leading provider of reporting, planning and
analytics tools into the 'Office of the CFO'. ISW provides a variety of
software products/modules that sit around and interact with the core ERP
system (SAP, Oracle, Microsoft Dynamics, Infor, etc.) for medium and large
enterprise customers.
Headquartered in Raleigh, North Carolina, ISW has significant revenues and
operations in Europe, and European and global expansion is a core part of its
growth plans.
Initiated by TA Associates and ST6 in 2018 as a consolidation platform for
financial reporting software, ISW has built up a suite of products via M&A
across reporting, budgeting & planning, consolidation, tax, disclosure and
equity management and currently services over 28,000 customers on more than
140 ERP systems globally.
12 Septeo
Cluster: Legal & Regulatory Compliance
Web: septeo.fr
Date of investment: December 2020
Unrealised value (£000): 61,814
% of NAV: 3.0%
Founded in 1988, The Septeo Group ('Septeo') is a French provider of ERP
software for notaries, law firms, corporate legal departments, bailiffs, real
estate professionals, accountants as well as HR solution to SMEs in France.
Headquartered in Montpellier and founder owned prior to our investment, the
acquisition of Septeo is another example of how Hg's cluster strategy can
deliver bilateral opportunities to invest, having tracked the business for
many years.
Septeo has over 17,000 clients operating in France, Belgium, Canada and the
US.
By putting innovation, long-term vision and customer relationships at the
heart of its strategy, Septeo enables expert SMEs to make the most of digital
transformation and has a constant stream of new solutions for its clients.
13 teamblue
Cluster: SME Technology Services
Web: team.blue
Date of investment: March 2019
Unrealised value (£000): 51,069
% of NAV: 2.5%
team.blue is a leading European provider of mass hosting services to small
offices/home offices and SMEs active across Europe. The business has c.
2.5 million customers and is a one‑stop partner for web hosting, domains,
e‑commerce and application solutions.
Hg initially invested in Combell Group, which was focused mainly on the
Belgian and Danish sectors with a smaller presence in the Netherlands, in
March 2019, before supporting the transformational acquisition of TransIP
Group, also focused on the Netherlands, in June 2019. Finally, in September
2019, team.blue acquired Register Group, which focuses on growth sectors in
Southern Europe, Italy and Spain, as well the UK and Ireland). Following these
acquisitions, the combined group rebranded as team.blue.
In July 2022, Hg Genesis 10 acquired a c.28% stake in team.blue, alongside Hg
Genesis 8.
14 Medifox DAN
Cluster: Healthcare IT
Web: medifox.de
Date of investment: October 2018
Unrealised value (£000): 47,027
% of NAV: 2.3%
Medifox DAN ('Medifox') is a leading provider of software solutions to
>16,000 outpatient care services, elderly care homes, therapist practices,
youth care institutions and non-professional care-givers in Germany. The
business supports care providers with key challenges including resource and
route planning, care documentation, regulatory compliance and quality
assurance of services provided, as well as invoicing, reimbursement and
factoring. Medifox is headquartered in Hildesheim, Germany, and employs
>500 people across six locations.
In June, Hg announced the sale of Medifox to ResMed, a global leader in
cloud-connected medical devices and out-of-hospital software-as-a-service
(SaaS) business solutions, in a transaction valuing the business at an
enterprise value of around US $1 billion. This was at an uplift of 47% to the
carrying value at the end of 2021.
15 FE fundinfo
Cluster: Capital Markets & Wealth Management IT
Web: fefundinfo.com
Date of investment: January 2017
Unrealised value (£000): 44,166
% of NAV: 2.2%
FE fundinfo is a leading provider of data, analytics software and
infrastructure for the global funds industry, facilitating the distribution of
retail funds and investment decision-making by banks, asset and wealth
managers. The business connects fund managers and fund distributors and
enables them to share and act on trusted, insightful data.
Initially formed via three Hg-led acquisitions (the merger of FE, fundinfo and
F2C). The business has also executed on more than five M&A deals under
Hg's ownership, with four strategic M&A deals over 2020-H1 2022 (CSSP,
CashCalc, Zenith and FundConnect).
The business is headquartered in London, with other key offices in Luxembourg,
Zurich and Sydney, and has >900 employees today.
16 Norstella
Cluster: Healthcare IT
Web: norstella.com
Date of investment: September 2021
Unrealised value (£000): 42,311
% of NAV: 2.1%
MMIT Evaluate combined MMIT, a leading provider of US 'gold standard'
pharmaceutical data and Evaluate, a UK based provider of commercial data to
the Life Sciences industry. In Q2 2022, the Group rebranded as Norstella and
entered into a transformative merger with Pharma Intelligence (Informa), a
leader in clinical trials pharma intelligence.
Together, Norstella is one of the top 5 global providers of commercial
pharmaceutical data. The business improves patient access to medications and
enables PharmaCos to forecast performance and develop strategy.
17 Argus Media
Cluster: Capital Markets & Wealth Management IT
Web: argusmedia.com
Date of investment: January 2020
Unrealised value (£000): 39,389
% of NAV: 1.9%
Founded in 1970, Argus Media ('Argus') produces independent price assessments,
essential data and analysis on the international energy and commodity sectors,
anchoring physical commodity trade throughout global supply chains and
underpinning financial derivatives markets. With over 160 publications and
26,000 price assessments, Argus is one of the two largest price reporting
agencies globally and has delivered over 15 years of consistent growth above
sector peers, with its offering of critical, proprietary information stemming
from significant investment in developing new benchmarks and proven
methodologies. Argus provides pricing data and high-quality editorial content
to a diverse, global customer base across 140 countries.
18 Azets
Cluster: Tax and Accounting
Web: azets.co.uk
Date of investment: October 2016
Unrealised value (£000): 39,285
% of NAV: 1.9%
Following years of development, Azets (formerly Cogital) was launched in 2017
through the acquisitions and merger of Visma BPO, Baldwins and Blick
Rothenberg to form a platform providing various business services to SMEs in
Northern Europe.
Azets is the only modern, integrated, scaled provider of business-critical
accounting, tax, payroll, audit and advisory services to SMEs, with
considerable opportunity to become the clear leader across Northern Europe in
a large market with strong regulatory and technology growth drivers, and
resilience to macroeconomic cycles. In the UK, Azets is one of the top 10
national accountancy firms, as defined by Accountancy Age. The Group now has
c.100,000 customers with c.7,000 employees operating from offices in the UK,
Norway, Sweden, Denmark and Finland, with >800 offshore employees based
in Romania and Estonia, as well as a significant technology team focused on
the automation of such services.
19 Lyniate
Cluster: Healthcare IT
Web: lyniate.com
Date of investment: October 2018
Unrealised value (£000): 35,536
% of NAV: 1.8%
Headquartered in Boston, USA, Lyniate is a global leader in healthcare
interoperability and data liquidity solutions providing software that serves
hospitals, health systems, Health Information Exchanges, Original Equipment
Manufacture vendors, public health departments and federal government
organisations. In 2019, Rhapsody acquired Corepoint Health, building a global
segment leader in a strategic and attractive sector; the combined business
subsequently rebranded as Lyniate. Lyniate is truly global, serving c.1,300
customers in more than 36 countries.
In January 2022, the Hg Mercury 3 Fund agreed to invest in Lyniate alongside
Hg Mercury 2. This investment will help continue to build a unique and
strategically important global champion in healthcare software.
20 caseware
Cluster: Tax and Accounting
Web: caseware.co.uk
Date of investment: December 2020
Unrealised value (£000): 34,908
% of NAV: 1.7%
Founded in 1988, caseware is a global provider of innovative compliance
workflow and data analytics software solutions for Certified Public
Accountants ('CPAs') and in-house auditors worldwide.
Based in Toronto, Canada, caseware's primary product is Working Papers which
assists in compliance and non-compliance workflows such as audits, statutory
accounts, tax and financial statement production, and IDEA, an internal and
external financial audit analytics software primarily used by corporates and
Governments.
The business has expanded strongly in recent years and now has a global client
base across Europe (c.30% revenues and increasing), North America (c.30%
revenues) and the Rest of the World (c.40% revenues).
21 Benevity
Cluster: ERP & Payroll
Web: benevity.com
Date of investment: January 2021
Unrealised value (£000): 33,323
% of NAV: 1.6%
Founded in 2008 and headquartered in Calgary, Canada, Benevity is a leading
provider of Corporate Social Responsibility ('CSR') SaaS solutions, serving a
global client base of c. 900 customers.
The business' unique solutions enable clients to grow their CSR programs,
which drive strategic value by improving reputation / brand equity;
attracting, motivating and retaining talent; and improving operational
efficiency. Benevity's positioning and leading product (modern, pure SaaS with
integrated payments) creates a powerful network effect: Benevity has more high
quality, large brands as clients than anyone else and more vetted charity
links (with automated electronic payment capability) than peers.
Altogether, the business connects c. 900 corporations and their 13.9 million
users with more than 2.2 million charities globally in a single scalable
platform with unique content and drives annual donation volumes of more than
CAD $2.5 billion.
22 itm8
Cluster: SME & Tech Services
Web: itm8.com
Date of investment: August 2018
Unrealised value (£000): 32,709
% of NAV: 1.6%
Founded in 2003, itm8 (formerly IT Relation) provides services which allow
SMEs to move their IT infrastructure and operations into the cloud, as well as
providing end user support and consulting as part of a full-service IT
offering. The company has >1,100 employees across 14 offices supporting
thousands of customers and tens of thousands of users in Denmark, Sweden and
around the world.
This investment is consistent with Hg's focus on SME Technology Services in
Europe, with other activity in this sector including investments in Zitcom
(2015), Register (2017) and team.blue (2019), all providers of online hosting
services to SMEs.
In 2022 Hg announced the sale of itm8 to Axcel at a 9% uplift to its December
value. At 30 June HGT's investment in itm8 rose by £2.6 million from its
December 2021 carrying value.
23 Trackunit
Cluster: Automation & Engineering
Web: trackunit.com
Date of investment: June 2021
Unrealised value (£000): 32,159
% of NAV: 1.6%
Founded in 1998, Trackunit is a leading provider of SaaS-based 'Internet of
Things' ('IoT') solutions and machine insights to the global construction
industry.
The business' solutions allow users to collect and analyse machine data in
real-time to deliver actionable, proactive and predictive information,
empowering customers with data-driven foresight. From operator safety and
machine health to business optimisation, Trackunit's industry-leading SaaS
products and services benefit the everyday operations of customers worldwide.
Trackunit is headquartered in Denmark, with offices in the US, Canada, Sweden,
Norway, France, the Netherlands, Germany, the UK, Australia, Japan and
Singapore.
In November 2021 Trackunit completed the merger with the Industrial IoT
division of ZTR, a leading off-highway IoT provider in North America.
24 The Citation Group
Cluster: SME Technology Services
Web: citation.co.uk
Date of investment: December 2020
Unrealised value (£000): 31,726
% of NAV: 1.6%
Founded in 1996, the Citation Group provides long-term, subscription-based
Compliance (HR/Employment Law, Health & Safety) and Quality (ISO
certification, supplier verification) solutions to over 70,000 SMEs in the UK
and Australia. In doing so, it helps SMEs navigate the critical and complex
regulatory environment with which they need to comply through its proprietary
'Atlas' technology platform and by providing 24/7 advice from highly skilled
and qualified experts.
Hg first invested in Citation in 2016 via the Hg Genesis 7 Fund. Following the
exit of the business to KKR in August 2020, we exercised an option to
re-invest in the business as a co-controlling stakeholder alongside KKR in
December 2020.
25 GGW Holding
Cluster: Insurance
Web: ggw.de
Date of investment: February 2020
Unrealised value (£000): 26,766
% of NAV: 1.3%
GGW Holding ('GGW') is a leading Property & Casualty focused insurance
broker mainly serving SMEs in the DACH region. The company spans several B2B
insurance brokers across Germany and Austria. To date, 29 platform add-ons
have been acquired and now has more than 850 employees. The business plans to
acquire further high-quality brokers across the DACH region and has
aspirations to expand further beyond DACH.
In September 2021, the Mercury 3 Fund agreed to invest in GGW alongside
Mercury 2. The initial equity investment will be used to fund near term
M&A in this roll-up of the DACH broker market. Due to continued strong
opportunity to acquire high quality and accretive brokers, a further
investment was made in January 2022 to fund recent larger M&A.
26 Gen II
Cluster: Capital Markets & Wealth Mgmt IT
Web: gen2fund.com
Date of investment: December 2020
Unrealised value (£000): 25,830
% of NAV: 1.3%
Founded in 2009 and serving a global customer base, Gen II is a transatlantic
business with offices in the US (New York, Denver) and Europe (Luxembourg). It
is a leading pure-play provider of alternative asset fund administration
services, with a diverse customer base of c. 220 clients across different
investment strategies including Buyout, Real Estate and Infrastructure.
The business differentiates itself by providing a high-touch and high-quality
service to its clients in fund administration, accounting, reporting and
regulatory compliance, having shown consistent uninterrupted double-digit
growth in revenue and EBITDA over the last 10 years.
27 Prophix
Cluster: Tax & Accounting
Web: prophix.com
Date of investment: February 2021
Unrealised value (£000): 24,640
% of NAV: 1.2%
Founded in 1987 and based in Toronto, Prophix is a leading player in CPM
software, serving mid-market companies across multiple industries worldwide -
providing planning, budgeting, financial reporting and consolidation software
into the 'office of the CFO'.
Prophix's software allows organisations to improve their financial reporting
capabilities, while also standardising and streamlining the budgeting process,
to generate ROI through a faster time to close, reducing budgeting errors and
enabling companies to reforecast in a more agile way.
Prophix is a leader in its segment with a global customer base of 2,300+
customers, industry-leading retention rates (>107% NRR) and a consistently
high customer NPS (70+).
28 HHAeXchange
Cluster: Healthcare IT
Web: hhaexchange.com
Date of investment: October 2021
Unrealised value (£000): 22,390
% of NAV: 1.1%
Founded in 2008, HHAX is a leading vendor of state, payer and provider
management software in the US homecare space. Its comprehensive solution helps
to improve patient outcomes, drive operational efficiency and increase
compliance across the homecare ecosystem.
HHAX offers a unique value proposition by addressing the needs of both sides
of the payer-provider segments by allowing states' Medicaid offices, payers
and providers to interact in real-time, driving automation around core
workflows and network effects (i.e. billing, claims management, workforce
management, care coordination and documentation, and visit compliance).
With over 1,700 customers, HHAX is a leading player in a vital and growing
segment of US healthcare, facilitating over 125 million annual home care
visits and driving better outcomes for the most vulnerable and fragile members
of society.
29 Revalize
Cluster: ERP & Payroll
Web: revalizesoftware.com
Date of investment: December 2021
Unrealised value (£000): 20,933
% of NAV: 1.0%
Revalize is a platform of niche vertical manufacturing configure, price, quote
('CPQ') solutions providers that was launched in April 2021. With 13
acquisitions of complementary targets in 2021, Revalize has become one of the
largest vertically focused vendors in this fragmented category.
It is a leading global provider of software solutions helping manufacturers
and distributors optimise revenue operations through design applications,
engineering simulations, product selection, visualisations, and data
analytics.
Revalize serves over 10,000 customers across North America and Europe, with
the aim of becoming a one-stop shop for complex manufacturers who need
specialised software to manage the end-to-end process, across the design to
sale value chain.
30 TeamSystem
Cluster: Tax & Accounting/ERP & Payroll
Web: teamsystem.com
Date of investment: February 2021
Unrealised value (£000): 19,695
% of NAV: 1.0%
Headquartered in Pesaro, Italy, TeamSystem is a leader in its core business of
providing regulatory‑driven software applications to accountants, labour
professionals and SMEs. In recent years, it has built a cloud product
portfolio with multiple products targeting the micro SME segment, as well as
migrating existing on‑premises customers. The company is well positioned to
capture the large cloud opportunity in Italy, which is early in cloud
adoption, compared with that of other western economies. TeamSystem has a
large and diversified customer base, with c 1.5 million customers served by
a strong direct sales force and a distribution platform of over 350 software
partners. In 2021, HGT sold its minority investment through Hg Genesis 6 and
invested £14.3 million through the Hg Genesis 8 Fund.
Financial statements
Income statement
for the six months ended 30 June 2022
Notes Revenue return Capital return Total return
Six months ended Year ended Six months ended Year ended Six months ended Year ended
30.6.22 30.6.21 31.12.21 30.6.22 30.6.21 31.12.21 30.6.22 30.6.21 31.12.21
£000 £000 £000 £000 £000 £000 £000 £000 £000
(unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited)
Gains on investments and liquidity funds - - - 21,267 272,292 566,130 21,267 272,292 566,130
Losses on priority profit share calls 7(b) - - - (4,320) (3,964) (7,821) (4,320) (3,964) (7,821)
Net income 6 22,517 22,046 47,433 - - - 22,517 22,046 47,433
Other expenses 8(a) (2,836) (3,524) (5,703) - - - (2,836) (3,524) (5,703)
Net return before finance costs and taxation 19,681 18,522 41,730 16,947 268,328 558,309 36,628 286,850 600,039
Finance costs 8(b) (1,470) (629) (5,094) - - - (1,470) (629) (5,094)
Net return before taxation 18,211 17,893 36,636 16,947 268,328 558,309 35,158 286,221 594,945
Taxation 10 - - 192 - - - - - 192
Net return after taxation 18,211 17,893 36,828 16,947 268,328 558,309 35,158 286,221 595,137
Basic and diluted return per ordinary share 11(a) 3.99 p 4.22 p 8.49 p 3.71 p 63.34 p 128.70 p 7.70 p 67.56 p 137.19 p
The total return column of this statement represents HGT'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 comprehensive
income has been presented.
All revenue and capital items in the above statement derive from continuing
operations.
No operations were acquired or discontinued during the period.
The following notes form part of these financial statements.
Balance sheet
as at 30 June 2022
Notes 30.6.22 30.6.21 31.12.21
£000 £000 £000
(unaudited) (unaudited) (audited)
Fixed asset investments
Investments at fair value through profit or loss:
Unquoted investments 1,597,566 1,343,772 1,678,008
Total fixed asset investments 1,597,566 1,343,772 1,678,008
Current assets - amounts receivable after one year:
Accrued income on fixed assets 128,585 88,271 102,166
Current assets - amounts receivable within one year:
Debtors 7,095 5,637 8,090
Investments at fair value through profit or loss:
Liquidity funds 202,224 217,310 277,049
Uninvested capital in limited partnerships 963 9,835 160
Cash at bank 232,189 11,366 94,280
Total current assets 571,056 332,419 481,745
Creditors - amounts falling due within one year (2,053) (1,392) (2,887)
Net current assets 569,003 331,027 478,858
Creditors - amounts falling due after one year (136,127) (35,192) (151,142)
Net assets 2,030,442 1,639,607 2,005,724
Capital and reserves:
Called-up share capital 11,453 10,976 11,382
Share premium account 372,224 294,344 359,971
Capital redemption reserve 1,248 1,248 1,248
Capital reserve - unrealised 710,013 466,851 712,188
Capital reserve - realised 904,943 841,177 885,821
Revenue reserve 30,561 25,011 35,114
Total equity shareholders funds 2,030,442 1,639,607 2,005,724
Net asset value per ordinary share 11(b) 443.2 p 373.4 p 440.5 p
Ordinary shares in issue at 31 December 458,129,808 439,054,808 455,279,808
The financial statements of HgCapital Trust plc (registered number 01525583)
in this announcement (or on pages 60-72 of the full Interim Report and
Accounts) were approved and authorised for issue by the Board of Directors on
9 September 2022 and signed on its behalf by:
Jim Strang, Chairman
Richard Brooman, Director
The following notes form part of these financial statements.
Statement of cash flows
for the six months ended 30 June 2022
Six months ended Year ended
Notes 30.6.22 30.6.21 31.12.21
£000 £000 £000
(unaudited) (unaudited) (audited)
Net cash outflow from operating activities 9 (25,490) (3,787) (2,088)
Investing activities:
Purchase of fixed asset investments (71,127) (164,881) (424,336)
Proceeds from the sale of fixed asset investments 28,074 138,987 279,628
Proceeds from fund level refinancing 160,877 - 90,180
Purchase of liquidity funds - (135,200) (195,200)
Redemption of liquidity funds 72,500 57,490 57,490
Net cash inflow/(outflow) from investing activities 190,324 (103,604) (192,238)
Financing activities:
(Repayment)/Drawdown of loan facility (15,015) 35,368 152,481
Servicing of finance (1,470) (629) (5,094)
Equity dividends paid (22,764) (12,828) (21,660)
Proceeds from issue of shares 12,324 75,198 141,231
Net cash (outflow) / inflow from financing activities (26,925) 97,109 266,958
Increase/(decrease) in cash and cash equivalents in the period 137,909 (10,282) 72,632
Cash and cash equivalents at 1 January 94,280 21,648 21,648
Cash and cash equivalents at 30 June/31 December 232,189 11,366 94,280
The following notes form part of these financial statements.
Statement of changes in equity
for six months ended 30 June 2022
Non-distributable Distributable
Notes Share Share Capital Capital Capital Revenue Total
capital premium redemption reserve - reserve - reserve £000
£000 account reserve unrealised realised £000
£000 £000 £000 £000
At 1 January 2021 10,400 219,722 1,248 240,712 798,988 19,946 1,291,016
Net return after taxation - - - 226,139 42,189 17,893 286,221
Contributions of equity net of transaction costs 576 74,622 - - - - 75,198
Equity dividends paid 4 - - - - - (12,828) (12,828)
At 30 June 2021 10,976 294,344 1,248 466,851 841,177 25,011 1,639,607
At 1 July 2021 10,976 294,344 1,248 466,851 841,177 25,011 1,639,607
Net return after taxation - - - 245,337 44,644 18,935 308,916
Contributions of equity net of transaction costs 406 65,627 - - - - 66,033
Equity dividends paid 4 - - - - - (8,832) (8,832)
At 31 December 2021 11,382 359,971 1,248 712,188 885,821 35,114 2,005,724
At 1 January 2022 11,382 359,971 1,248 712,188 885,821 35,114 2,005,724
Net return after taxation - - - (2,175) 19,122 18,211 35,158
Contributions of equity 71 12,253 - - - - 12,324
net of transaction costs
Equity dividends paid 4 - - - - - (22,764) (22,764)
At 30 June 2022 11,453 372,224 1,248 710,013 904,943 30,561 2,030,442
The following notes form part of these financial statements.
Notes to the financial statements
1. Principal activity
The principal activity of HGT is investment. HGT is an investment company as
defined by section 833 of the Companies Act 2006 and an investment trust under
sections 1158 and 1159 of the Corporation Tax Act 2010 ('CTA 2010') and is
registered as a company in England and Wales under number 01525583, with its
registered office at 2 More London Riverside, London, SE1 2AP.
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'), including Financial Reporting
Standard 104 (FRS 104) 'Interim Financial Reporting' and the AIC's Statement
of Recommended Practice issued in November 2014 and updated in October 2019
and April 2021.
After making enquiries, the Directors have a reasonable expectation that HGT
will have adequate resources to continue in operational existence for the next
12-month period from the date of approval of this report. Accordingly, they
continue to adopt the going-concern basis in preparing these financial
statements.
The same accounting policies, presentation and methods of computation are
followed in these financial statements as were applied in HGT's previous
annual audited report and accounts.
3. Organisational structure and accounting policies
Partnerships where HGT is the sole limited partner
HGT entered into eleven separate partnership agreements with general and
founder partners in May 2003 (subsequently revised in January 2009), January
2009, July 2011, March 2013, December 2016, February 2017, January 2018,
February 2018, February 2020, December 2021 and April 2022; at each point, an
investment-holding limited partnership was established to carry on the
business of an investor, with HGT being the sole limited partner in these
entities.
The purpose of these partnerships, HGT LP, HGT 6 LP, HGT 7 LP, HGT 8 LP,
HgCapital Mercury D LP, HGT Mercury 2 LP, HGT Saturn LP, HGT Transition
Capital LP, HGT Saturn 2 LP, HGT Genesis 9 LP, HGT Mercury 3 LP, HGT Saturn 3
LP and HGT Genesis 10 LP (together the 'primary buyout funds'), is to hold all
of HGT's investments in primary buyouts. Under the partnership agreements, HGT
made capital commitments into the primary buyout funds, with the result that
HGT now holds direct investments in the primary buyout funds and an indirect
investment in the fixed-asset investments which 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 table of investments
above or on page 37 of the full Interim Report and Accounts. The underlying
investments which are held indirectly are included in the overview of
investments above or on page 44 of the full Interim Report and Accounts.
HGT does not have control over the operating, financial or governance
activities of the limited partnerships in which it is the sole limited
partner. The general partner of these partnerships has the day to day control
and ultimate decision making powers over the activities of these partnerships.
As a result, these limited partnerships are not consolidated in the financial
statements.
Partnerships where HGT is a minority limited partner
In July 2011, HGT acquired a direct secondary investment in
HgCapital 6 E LP ('Hg 6 E LP'), one of the partnerships which comprise
the Hg 6 Fund, in which HGT is now a limited partner pari passu with other
limited partners. This is a direct investment in the Hg 6 E LP Fund.
HGT also entered into partnership agreements with other limited partners, with
the purpose of investing in renewable energy projects, by making capital
commitments in Asper Renewable Power Partners LP ('Asper RPP I LP'). This
is a direct investment in the renewable funds, as shown on the balance sheet
and in the table of investments above or on page 37 of the full Interim Report
and Accounts.
Priority profit share and other operating expenses, payable by partnerships in
which HGT is a minority limited partner, are recognised as unrealised losses
in the capital return section of the income statement and are not separately
disclosed within other expenses.
Priority profit share and carried interest under the primary buyout limited
partnership agreements
Under the terms of the primary buyout fund limited partnership agreements
('LPAs'), each general partner (see note 7) is entitled to appropriate, as a
first charge on the net income of the funds, an amount equivalent to its
priority profit share ('PPS'). HGT 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 by a capital call from HGT. Such loan is recoverable
from the general partner only by an appropriation of net income until net
income is earned. At the HGT level such a call is expensed in the capital
column as these amounts are not recoverable (see note 7(b)).
Furthermore, under the primary buyout funds' LPAs, each founder partner (see
note 7(c)) 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
allocated to HGT, when the right to these returns is established.
Accordingly, HGT's entitlement to net income and net capital gains is shown in
the appropriate lines of the income statement. Notes 6, 7 and 9 to the
financial statements disclose the gross income and gross capital gains of the
primary buyout funds and also reflect the proportion of net income and capital
gains in the buyout funds which has 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, where there is insufficient income PPS 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 allocated to HGT and recognised when the right to this income
is established. Income from Hg 6 E LP and the renewable energy funds would
normally consist of income distributions and these distributions are
recognised as income in the financial statements of HGT when the right to such
distribution is established.
The accounting policies below apply to the recognition of income by the
primary buyout funds, prior to allocation between the Partners:
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. Dividends receivable on unlisted equity
shares where there is no ex-dividend date and on non-equity shares are brought
into account when the 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 dividends are received in the form of additional shares
rather than cash dividends, the equivalent of the cash dividend is recognised
as the 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 the capital
reserve - realised.
4. Dividends
A final dividend of 5.0p per share was paid on 13 May 2022 in respect of the
year ended 31 December 2021 (2021: interim dividend in respect of the year
ended 31 December 2021 of 2.0p per share and final dividend of 3.0p per share
in respect of the year ended 31 December 2020).
5. Issued share capital
While HGT no longer has an authorised share capital, the Directors will still
be limited as to the number of shares they can allot at any time, as the
Companies Act 2006 requires that Directors seek authority from shareholders
for the allotment of new shares.
Six months ended Year ended
30.6.22 30.6.21 31.12.21
(unaudited) (unaudited) (a
ud
it
ed
)
No. 000 £000 No. 000 £000 No. 000 £000
Ordinary shares of 2.5p each:
Allotted, called up and fully paid:
At 1 January 455,280 11,382 416,000 10,400 416,000 10,400
Sub-division of ordinary shares - - - - - -
Issues of ordinary shares 2,850 71 23,055 576 39,280 982
At 30 June/31 December 458,130 11,453 439,055 10,976 455,280 11,382
Total called-up share capital 458,130 11,453 439,055 10,976 455,280 11,382
6. Income
Revenue return
Six months ended Year ended
30.6.22 30.6.21 31.12.21
£000 £000 £000
(unaudited) (unaudited) (audited)
Total net income comprises:
Interest 22,517 22,046 44,954
Dividend - - 2,479
Total net income 22,517 22,046 47,433
All income which is recognised by the primary buyout funds, net of PPS, is
allocated to HGT and recognised when the right to this income is established.
This income and PPS are analysed further below.
Revenue return
Six months ended Year ended
30.6.22 30.6.21 31.12.21
£000 £000 £000
(unaudited) (unaudited) (audited)
Income from investments held by the primary buyout funds
Unquoted investment income 27,785 25,512 52,862
Dividend Income - - 2,479
Other investment income:
Unquoted investment income - 8 8
Liquidity funds income 798 206 648
Total investment income 28,583 25,726 55,997
Total other income (4) (6) -
Total income 28,579 25,720 55,997
Priority profit share charge against income:
Current year - HGT Genesis 9 LP (2,258) (396) (1,440)
Current year - HGT 8 LP (2,119) (1,568) (3,946)
Current year - HGT Saturn LP (710) (649) (1,388)
Current year - HGT Mercury 3 LP (631) - -
Current year - HGT Titan 1 LP (183) - (55)
Current year - HGT 7 LP (113) (396) (400)
Current year - HgCapital Mercury D LP (48) (95) (154)
Current year - HGT Mercury 2 LP - (548) (1,154)
Current year - HGT LP - (22) (27)
Total priority profit share charge against income (note 7(a)) (6,062) (3,674) (8,564)
Total net income 22,517 22,046 47,433
7. Priority profit share and carried interest
(a) Priority profit share payable to general partners Revenue return
Six months ended Y
e
a
r
e
n
d
e
d
30.6.22 30.6.21 31.12.21
£000 £000 £000
(unaudited) (unaudited) (audited)
Priority profit share payable:
Current period amount 10,382 7,639 16,385
Less: Current period loans advanced to general partners (note 7(b)) (4,320) (4,296) (8,153)
Add: Prior period loans recovered from general partners (note 7(b)) - 332 332
Current period charge against income 6,062 3,675 8,564
Total priority profit share charge against income 6,062 3,675 8,564
The priority profit share payable on the primary buyout funds ranks as a first
appropriation of net income from investments held in these partnerships
respectively and is deducted before such income is attributed to HGT in its
capacity as a limited partner. The net income of the primary buyout funds
earned during the period, after the deduction of the priority profit share, is
shown on the income statement.
The terms of the above priority profit share arrangements during 2022 were:
Primary buyout fund partnership Priority profit share
HGT Genesis 10 LP 1.75% on the fund commitment during the investment period
HGT Genesis 9 LP 1.75% on the fund commitment during the investment period
HGT Mercury 3 LP 1.75% on the fund commitment during the investment period
HGT 8 LP 1.5% of original cost of investments in the fund, less the original cost of
investments which have been realised or written off
HGT Mercury 2 LP 1.5% of original cost of investments in the fund, less the original cost of
investments which have been realised or written off
HGT 7 LP 1.5% of original cost of investments in the fund, less the original cost of
investments which have been realised or written off
HgCapital Mercury D LP 1.5% of original cost of investments in the fund, less the original cost of
investments which have been realised or written off
HGT Saturn 3 LP 1.0% on the fund commitment during the investment period
HGT Saturn 2 LP 1.0% on the fund commitment during the investment period
HGT Saturn LP 1.0% on invested capital
HGT LP 1.0% on invested capital excluding co-investment
Capital return
(b) Priority profit share loans to general partners within the underlying
limited partnerships
Six months ended Y
e
a
r
e
n
d
e
d
30.6.22 30.6.21 31.12.21
£000 £000 £000
(unaudited) (unaudited) (audited)
Movement on loans to general partners:
Losses on current-period loans advanced to general partners (4,320) (4,296) (8,153)
Gains on prior-period loans recovered from general partners - 332 332
Total losses on priority profit share loans advanced to general partners (4,320) (3,964) (7,821)
In years in which the funds 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 HGT.
Such loan is recoverable from the general partner only 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
Six months ended Y
e
a
r
e
n
d
e
d
30.6.22 30.6.21 31.12.21
£000 £000 £000
(unaudited) (unaudited) (audited)
Carried interest charge against capital gains:
Current year charge against realised capital gains - 20,910 32,472
Current period charge against unrealised capital gains 40,942 42,460 90,063
Total carried-interest charge against capital gains 40,942 63,370 122,535
The carried interest payable ranks as a first appropriation of capital gains,
after preferred return, on the investments held in the primary buyout funds,
limited partnerships established solely to hold HGT's investments, and is
deducted before such gains are paid to HGT in its capacity as a limited
partner. The net amount of capital gains of the primary buyout funds during
the period, after the deduction of carried interest, is shown in the income
statement.
The details of the carried-interest contracts, disclosed in the Directors'
report on page 114 in the full 2021 annual report and accounts, state that
carried interest is payable once a certain level of repayments has been made
to HGT. Based on the repayments made during 2022, nil (2021: £32,472,000) of
carried interest was paid in respect of the current financial year. If the
investments in HGT 6 LP, HGT 7 LP, HgCapital Mercury D LP, Hg 6 E LP, HGT 8
LP, HGT Mercury 2 LP, HGT Saturn LP, HGT Genesis 9 LP and HGT Saturn 2 LP are
realised at the current fair value and then distributed to partners, an amount
of £212,521,000 will be payable to the founder partner (2021: £171,579,000
payable to the founder partner); therefore, the Directors have made a
provision for this amount. No provision is required in respect of HGT's
investment in the other fund-limited partnerships, because they are still in
their investment period.
8. Other expenses
(a) Operating expenses Revenue return
Six months ended Y
e
a
r
e
n
d
e
d
30.6.22 30.6.21 31.12.21
£000 £000 £000
(unaudited) (unaudited) (audited)
Registrar, management and administration fees 616 358 1,544
Legal and other administration costs¹ 2,220 3,166 4,159
Total other expenses 2,836 3,524 5,703
(1)Includes employer's National Insurance contributions year to date of
£29,000 (Full year 2021: £38,000).
Revenue return
Six months ended Year ended
(b) Finance costs 30.6.22 30.6.21 31.12.21
£000 £000 £000
(unaudited) (unaudited) (audited)
Interest paid 537 142 1,677
Non-utilisation fees and other expenses 2,142 16 2,279
Arrangement fees (1,209) 471 1,138
Total finance costs 1,470 629 5,094
9. Cash flow from operating activities
Reconciliation of net return before finance costs and taxation Six months ended Year ended
to net cash flow from operating activities
30.6.22 30.6.21 31.12.21
£000 £000 £000
(unaudited) (unaudited) (audited)
Net return before finance costs and taxation 36,628 286,850 600,039
Gains on investments held at fair value and liquidity funds (75,201) (315,412) (657,515)
Carried interest paid - (20,910) (32,472)
Increase in carried interest provision 40,942 42,460 90,063
Increase in accrued income from liquidity funds (798) (206) (648)
Increase in accrued income and other debtors (25,424) (13,427) (29,775)
(Decrease)/increase in creditors (834) 222 1,717
(Increase)/decrease in uninvested capital (803) 16,636 26,311
Taxation (paid)/received - - 192
Net cash outflow from operating activities (25,490) (3,787) (2,088)
Gains on investments held at fair value and liquidity funds includes realised
and unrealised gains of £85.9 million in relation to gains on investments,
and losses of £10.7 million in relation to liquidity funds and fund level
facilities.
10. Taxation
Taxation for the six-month period is charged at 19% (31 December 2021: 19%),
representing the best estimate of the average annual effective tax rate
expected for the full year, applied to the pre-tax income of the six-month
period.
In the opinion of the Directors, HGT 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 period. Where possible,
HGT aims to designate all of any dividends declared in respect of this
financial year as interest distributions to its shareholders. These
distributions are treated as a tax deduction against taxable income, resulting
in no corporation tax being payable by HGT on any interest income designated
as a dividend.
11. Return and net asset value per Ordinary share
(a) Basic and diluted return per ordinary share Revenue return Capital return
Six months ended Year ended Six months ended Y
e
a
r
e
n
d
e
d
30.6.22 30.6.21 31.12.21 30.6.22 30.6.21 31.12.21
(unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited)
Amount (£000):
Net return after taxation 18,211 17,893 36,828 16,947 268,328 558,309
Weighted average number of ordinary shares (000):
Weighted average number of ordinary shares in issue 456,727 423,616 433,799 456,727 423,616 433,799
Basic and diluted return per ordinary share (pence) 3.99 4.22 8.49 3.71 63.34 128.70
Capital return
Six months ended Year ended
(b) Net asset value per ordinary share 30.6.22 30.6.21 31.12.21
(unaudited) (unaudited) (audited)
Amount (£000):
Net assets 2,030,442 1,639,607 2,005,724
Number of ordinary shares (000):
Number of ordinary shares in issue 458,130 439,055 455,280
Net asset value per ordinary share (pence) 443.2 373.4 440.5
12. Commitment in fund partnerships and contingent liabilities
Fund Original Outstanding at
commitment
(1) 30.6.22 30.6.21 31.12.21
£000 £000 £000 £000
(unaudited) (unaudited) (audited)
HGT Saturn 3 LP 883,355 (2) 883,355 - 627,538
HGT Genesis 10 LP 344,323 (3) 344,323 - -
HGT LP 102,923 (4) 102,923 72,385 92,285
HGT Saturn 2 LP 329,354 (5) 63,583 131,191 67,835
HGT Genesis 9 LP 309,891 (6) 50,624 208,107 66,162
HGT 8 LP 350,000 48,872 51,394 51,499
HGT Mercury 3 LP 98,993 (7) 35,282 89,609 64,033
HGT Saturn LP 150,000 15,134 8,057 15,944
HgCapital Mercury D LP 60,000 (9) 3,265 3,277 3,265
HGT Mercury 2 LP 80,000 1,566 5,087 1,849
Asper RPP I LP 18,628 (8) 596 (10) 594 581
HGT 7 LP 200,000 (9) 829 987 992
HGT Transition Capital LP 75,000 - 49,551 -
HGT 6 LP 285,029 (9) - 2,250 -
Hg6E 15,000 (9) - 118 -
Total outstanding commitments 1,550,349 622,607 991,983
(1) HGT has the benefit of an opt-out provision in connection with its
commitments to invest alongside Hg Mercury 2, Hg Mercury 3, Hg Saturn, Hg
Saturn 2, Hg Saturn 3, Hg Genesis 8, Hg Genesis 9 and Hg Genesis 10, allowing
it to opt out of its obligation to fund draw-downs under its commitments,
without penalty, where certain conditions exist.
(2) Sterling equivalent of $1,075 million.
(3) Sterling equivalent of €400 million.
(4) Sterling equivalent of $125 million of junior debt.
(5) Sterling equivalent of $400 million.
(6) Sterling equivalent of €360 million.
(7) Sterling equivalent of €115 million.
(8) Sterling equivalent of €21.6 million.
(9) 5.5% of the original £300 million to the HgCapital 6 Fund, 7.6% of the
£60 million to the Mercury 1 Fund and 12.4% of the original £200 million
to the HgCapital 7 Fund have subsequently been cancelled, as the Manager
deemed that it was unlikely to be required.
(10)Sterling equivalent of €692,000 (2021: €692,000).
13. Publication of non-statutory accounts
The financial information contained in this half-yearly financial report does
not constitute statutory accounts as defined in section 434 of the Companies
Act 2006. The financial information for the six months ended 30 June 2022 and
30 June 2021 has not been audited or reviewed by the Audtior pursuant to the
Auditing Practices Board Guidance on 'Review of Interim Financial
Information'. The information for the year ended 31 December 2021 has been
extracted from the latest published audited financial statements, which have
been filed with the Registrar of Companies. The Auditors' Report on those
accounts was not qualified, did not include a reference to any matters to
which the Auditors drew attention by way of emphasis without qualifying its
report and did not contain statements under sections 498 (2) or (3) of the
Companies Act 2006.
14. Annual results
The Board expects to announce the results for the year ending 31 December
2022 in March 2023. The 2022 annual report should be available by the end of
March 2023, with the annual general meeting being held in May 2023.
Further information
Investment management and ongoing charges
Over the first six months of 2022, HGT's assets were managed by Hg Pooled
Management Limited ('Hg'). HGT pays a priority profit share in respect of
either its commitments to or invested capital alongside Hg funds, on similar
terms as those payable by all institutional investors in these funds as listed
below:
Fund partnership Priority profit share (% p.a)
HGT Genesis 10 LP 1.75% on the fund commitment during the investment period
HGT Genesis 9 LP 1.75% on the fund commitment during the investment period
HGT Mercury 3 LP 1.75% on the fund commitment during the investment period
HGT 8 LP 1.5% of original cost of investments in the fund, less the original cost of
investments which have been realised or written off
HGT Mercury 2 LP 1.5% of original cost of investments in the fund, less the original cost of
investments which have been realised or written off
HGT 7 LP 1.5% of original cost of investments in the fund, less the original cost of
investments which have been realised or written off
HgCapital Mercury D LP 1.5% of original cost of investments in the fund, less the original cost of
investments which have been realised or written off
HGT Saturn 3 LP 1.0% on the fund commitment during the investment period
HGT Saturn 2 LP 1.0% on the fund commitment during the investment period
HGT Saturn LP 1.0% on invested capital
HGT LP 1.0% on invested capital excluding co-investment
For HGT's investment alongside the Hg Genesis 6, Hg Genesis 7,
Hg Genesis 8, Hg Genesis 9, Hg Genesis 10, Hg Mercury, Hg Mercury 2, Hg
Mercury 3, Hg Saturn 2 and Hg Saturn 3 funds, the carried interest
arrangements are identical to that which applies to all limited partners in
these funds. Under these arrangements, carried interest is payable based on
20% of the aggregate profits, but only after the repayment to HGT of its
invested capital and a preferred return, based on 8% p.a., calculated daily,
on the aggregate of its net cumulative cash flows in each fund and such
preferred return amount which is capitalised annually.
For HGT's investment alongside the Hg Saturn fund, the carried interest
arrangement is also identical to that which applies to all limited partners in
this fund. Under this arrangement, carried interest is payable based on 12% of
the aggregate profits, payable after the repayment to HGT of its invested
capital and a preferred return based on 8% p.a. or 20% of the aggregate
profits, payable after the repayment to HGT of its invested capital and a
preferred return of 12% p.a..
No priority profit share or carried interest will apply to any co-investment
made alongside Hg Genesis 5, Hg Genesis 6, Hg Mercury, Hg Genesis 7, Hg
Mercury 2, Hg Genesis 8, Hg Saturn 2, Hg Genesis 9, Hg Mercury 3, Hg Saturn 3
and Hg Genesis 10 in excess of HGT's pro-rata commitment. Therefore, the
co-investments made by HGT in P&I, Visma, Azets (formerly CogitalGroup),
Mitratech, Commify, MediFox, Argus Media, smartTrade, Transporeon, Norstella,
F24, Geomatikk, Benevity, Silverfin, Dext,insightsoftware, Lyniate, Riskalyze
and Pirum do not entitle Hg to any priority profit share or carried interest.
No compensation would be due to Hg on termination of the agreement.
Hg has also been appointed as administrator of HGT for a fee equal to 0.1%
p.a. of the NAV.
Link Company Matters Limited was appointed as company secretary on 13 May
2015.
Calculation of ongoing charges
For the period to 30 June 2022, HGT's annualised ongoing charges were
calculated as 1.3% (30 June 2021: 1.6%).
The calculation is based on the ongoing charges (numerator) expressed as a
percentage of the average published NAV (denominator) over the relevant year.
The ongoing charges, in accordance with guidelines issued by The Association
of Investment Companies ('AIC'), are the annualised expenses which are
operational and recurring by nature and specifically exclude, among others,
the expenses and gains or losses relating to the acquisition or disposal of
investments, performance-related fees (such as carried interest), taxation and
financing charges.
HGT's ongoing charges consist of its current year priority profit share
payable of £10.4 million and operating expenses of £2.8 million as
described in notes 7 and 8 to the financial statements respectively. The
average NAV for the period to 30 June 2022 was £2.0 billion. This has been
annualised for the full year 2022.
Shareholder information
Financial calendar
The announcement and publication of HGT's results may normally be expected in
the months shown below:
March • Final results for year announced
• Annual report and accounts published
May • Annual general meeting and payment of final dividend
• Release of Manager's quarterly update with updated 31 March NAV
September • Interim figures announced and interim report published
October • Payment of interim dividend
November • Release of Manager's quarterly update with updated 30 September NAV
Dividend
The interim dividend proposed in respect of the year ended 31 December 2022
is 2.5 pence per share.
Ex-dividend date 22 September 2022
(date from which shares are transferred without dividend)
Record date 23 September 2022
(last date for registering transfers to receive the dividend)
Last date for registering DRIP instructions (see below) 3 October 2022
Dividend payment date 24 October 2022
Payment of dividends
Cash dividends will be sent by cheque to the first-named shareholder at their
registered address, to arrive on the payment date. Alternatively, dividends
may be paid direct into a shareholder's bank account. This may be arranged by
contacting HGT's registrar, Computershare Investor Services PLC
('Computershare'), on 0370 707 1037.
Dividend re-investment plan ('DRIP')
Shareholders may request that their dividends be used to purchase further
shares in HGT.
Dividend re-investment forms may be obtained from Computershare on 0370 707
1037 or may be downloaded from www.computershare.co.uk/DRIP. Shareholders who
have already opted for dividend re-investment do not need to re-apply. The
last date for registering for this service for the forthcoming dividend is 3
October 2022.
Directors
Jim Strang
(Chairman)
Richard Brooman
(Chairman of the Audit, Valuations and Risk Committee)
Pilar Junco
Guy Wakeley
Anne West
(Senior Independent Director)
Erika Schraner
(Chair of the Management Engagement Committee, appointed on 1 August 2022)
Company secretary
Link Company Matters Limited
65 Gresham Street
London
EC2V 7NQ
Telephone: 020 7954 9531
Registered office
2 More London Riverside
London
SE1 2AP
Registered number
01525583
Website
www.hgcapitaltrust.com
Investment manager
Hg Pooled Management Limited(1)
2 More London Riverside
London
SE1 2AP
Telephone: 020 8396 0930
www.hgcapital.com
Registrars and transfer office
Computershare Investor Services PLC(1)
The Pavilions
Bridgwater Road
Bristol
BS99 6ZZ
Telephone: 0370 707 1037
www.computershare.com/uk
Broker
Numis Securities Ltd(1
) 45 Gresham Street
London
EC2V 7BF
Telephone: 020 7260 1000
www.numiscorp.com
Auditor
Grant Thornton UK LLP(1
) 30 Finsbury Square
London
EC2A 1AG
Telephone: 020 7383 5100
www.grantthornton.co.uk
Legal adviser
Dickson Minto
16 Charlotte Square
Edinburgh
EH2 4DF
Telephone: 0131 225 4455
www.dicksonminto.com
Bank
The Royal Bank of Scotland International
7th Floor
1 Princes Street
London
EC2R 8BP
Telephone: 020 7085 5000
www.rbsinternational.com
Administrator
Hg Pooled Management Limited(1
) 2 More London Riverside
London
SE1 2AP
Telephone: 020 8396 0930
www.hgcapital.com
Depositary
Apex Depositary (UK) Limited(1)
6th Floor
140 London Wall
London
EC2Y 5DN
Telephone: 020 3697 5353
www.theapexgroup.com
AIC
Association of Investment Companies www.theaic.co.uk
The AIC represents closed-ended investment companies. It helps its member
companies through lobbying, media engagement, technical advice, training and
events.
The AIC's website includes information about investments via investment
companies, including investments in listed private equity companies.
(1) Authorised and regulated by the Financial Conduct Authority.
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on this announcement (or any other website) is
incorporated into, or forms part of, this announcement.
1 By Enterprise Value, Source: Hg, Factset
2 All references to total return allow for all historic dividends being
reinvested
Please note: Past performance is not a reliable indicator of future results.
The value of shares and the income from them can go down as well as up as a
result of market and currency fluctuations. You may not get back the amount
you invest.
(#_ftnref2) LEI: 213800J7QUJJBEFSIN38
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