REG - HG Capital Trust PLC - Interim Report and Accounts <Origin Href="QuoteRef">HGT.L</Origin> - Part 3
11/09/2017 07:06
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Location Date of investment Residual cost Unrealised value
£'000 £'000
TMT Scandinavia Aug 2014 41,396 112,140
2. IRIS
Website: www.iris.co.uk
Original enterprise value: £425 million
HgCapital clients' total equity: 81.5%
Business description
Headquartered in Berkshire, IRIS is a leading provider of business critical
software and services to the UK accountancy market and payroll applications to
key business segments, including the UK general practitioners' market.
Why did we invest?
HgCapital has been an investor in IRIS since 2004, retaining a minority stake
following its sale and merger with CSH in 2007 and becoming a majority
investor again in 2011, when we separated the two businesses. IRIS is one of
the earliest examples of our focus on business critical software firms
operating in attractive, predictable end markets. IRIS operates a business
model with over 80% of revenues coming from subscriptions, and high customer
retention rates, driven by consistent regulatory updates and additional
features as part of their subscription. The investment decision was based on
the potential for organic growth and acquisition-led consolidation
opportunities in the sector.
How do we intend to create value?
The company is achieving strong organic revenue and profit growth through a
combination of market share gains, price optimisation and the ongoing
development of new solutions to sell into the existing customer base.
Furthermore, the UK accountancy and SME software markets remain fragmented,
offering additional acquisition opportunities. IRIS has always been at the
forefront of providing the most innovative products to its customers and will
continue to invest in new technology to meet all of its customers' needs.
In addition, we think there is substantial upside by developing or acquiring
SaaS products to target adjacent markets.
What has been achieved?
IRIS has been successful in broadening its addressable market by expanding its
offering, both by organic product development and by acquisition. The company
has also successfully established a Cloud Division to sell SaaS products to UK
accountants and SMEs. In 2016, IRIS acquired Octopus HR and PS Financial,
further broadening its offering.
In August 2015, IRIS was refinanced on the back of its strong trading
performance.
In December 2016, HgCapital agreed to purchase a further minority stake in
IRIS from Lloyds Development Capital for a total consideration of £29.7
million.
How is it performing?
IRIS is a business which has been able to maintain strong levels of revenue,
EBITDA and cash flow growth across market cycles, with the annual EBITDA
margin consistently close to 50%, excluding the investment in the Cloud
Division. The Cloud Division continues to receive significant investment, as
we believe this is an attractive market with long-term growth potential and
strategic value. Over the last twelve months IRIS has delivered double digit
revenue and EBITDA growth.
The Company's valuation of its stake in IRIS has seen an increase of £11
million over the first six months of 2017, driven by continued strong trading
and high cash conversion.
How will we crystallise value?
IRIS would be an attractive acquisition target to a financial buyer, due to
its strong organic growth, margins, cash conversion and recurring revenue. It
would also represent a strong strategic fit with a number of trade players.
IRIS - The Company's underlying investment through HGT 6 LP
Sector Location Date of investment Residual cost Unrealised value
£'000 £'000
TMT UK Dec 2011 26,109 75,362
3. Sovos Compliance
Website: www.sovos.com
Original enterprise value: $700 million
HgCapital clients' total equity: 74.0%
Business description
Sovos Compliance ('Sovos') is a global provider of compliance solutions,
managing all aspects of the tax compliance process, from tax calculation,
forms completion and ultra high volume filing to secure funds transfer to
state and local revenue departments. At the heart of Sovos' software suite is
a powerful tax calculation engine that leverages the industry's most
comprehensive repository of more than 210 million tax rules, in over 13,500
jurisdictions, across more than 200 countries.
Headquartered in Boston, USA with a presence also in Europe and Latin America,
the majority of revenue is generated in the US from a customer base of c.
4,500 corporates.
Why did we invest?
HgCapital's TMT team tracked Sovos (previously Taxware) for two years, as we
identified the company as a scale specialist in tax compliance for enterprise
customers. We also saw the potential to expand the company outside the US
market.
Sovos sits right in the HgCapital 'sweet spot' with a strong and predictable
business model, including: 96% contractually recurring revenue; a fragmented,
yet loyal customer base; high margins; and robust cash conversion. Sovos'
largest, core products have achieved consistent double digit organic revenue
growth.
How do we intend to create value?
In addition to continuing to grow revenues organically, Sovos has a strong
track record of acquiring and successfully integrating tax compliance software
companies. The market remains fragmented and hence we believe there are many
attractive opportunities for Sovos to grow by acquisition. There is additional
potential through further margin improvement.
What has been achieved?
In June 2016, Sovos announced the acquisition of Invoiceware International,
based in Atlanta and Sao Paulo. This expands the company's capabilities in
Latin America and adds the industry's only solution for handling electronic
invoicing and fiscal reporting in multiple countries from a single platform. A
new Chairman and CFO were also recruited over the year. In August 2017, Sovos
announced the acquisition of Paperless, based in Santiago, Chile, which
complements Invoiceware's product offering and provides Sovos with a
sector-leading solution for business to government reporting - a form of
regulatory compliance which has spread to more than 60 countries.
How is it performing?
Sovos has seen rapid growth since our investment in early 2016, driven by
strong organic growth in its core products. Our current valuation has also
benefited from the weakness of sterling against the dollar since the time of
our investment. We are carefully monitoring the potential impact on Affordable
Care Act ('ACA') revenues following the ongoing attempted changes to this
regulation in the US.
The Company has benefited from a small increase of £1.2 million in the
Company's valuation of its stake over the first six months of 2017.
How will we crystallise value?
We believe Sovos will be an attractive acquisition target for private equity
buyers, as it demonstrates high levels of organic revenue growth, high EBITDA
margins and strong market positioning. However, we also see an IPO as a
potential route to exit, given the strong cash generation and increasingly
international reach. Lastly, there are several potential trade buyers.
Sovos Compliance - The Company's underlying investment through HGT 7 LP and co-investment through HGT LP
Sector Location Date of investment Residual cost Unrealised value
£'000 £'000
TMT North America Mar 2016 24,284 44,466
4. JLA
Website: www.jla.com
Original enterprise value: £150 million
HgCapital clients' total equity: 61.8%
Business description
JLA is a leading provider of 'on premises' laundry, catering and heating
services, providing distribution, rental and servicing of commercial laundry
machines, catering and heating equipment to the UK SME market, mainly to care
homes and boutique hotels, primarily through the 'Total Care' offering (an
eight year rental and service contract of machines/equipment). The company is
also a leading provider of commercial laundry machines into accommodation
units (e.g. universities, worker accommodation units, leisure parks, etc.),
which it serves via its Circuit brand.
Why did we invest?
JLA has enjoyed strong operating performance, including sustained organic
growth through the period 2007-2009 and displayed many of the business model
characteristics that we look for: a diverse customer base that considers
laundry, catering and heating as mission critical parts of their day to day
business; a large proportion of customers in long-term contracts (representing
a high level of revenues and a greater proportion of profits); a high level of
recurring revenues providing good visibility of future revenues; and potential
for selective M&A.
How do we intend to create value?
HgCapital is working alongside management to increase the benefit of selling
new products and services through JLA's existing sales force and service
network. Following the successful extension into the catering industry, the
business is now rolling out a similar proposition in heating, whilst the
management team are working on other new industry verticals where JLA's
service proposition could also add value.
In addition, we plan to continue to make further bolt on acquisitions across
the laundry, catering and heating markets.
What has been achieved?
A number of projects have been initiated covering strategic planning, customer
retention and pricing. Management has been strengthened and fifteen
acquisitions of laundry and catering companies have been completed, all funded
from free cash flow.
The business now has a dedicated M&A team, with three acquisitions completed
in 2016/17 (in both Laundry and Catering) and a pipeline for further
acquisitions under development.
2016 also saw the opening of a second contact centre in Manchester to extend
the existing sales & marketing capabilities. The new site is already
delivering promising results, adding large cohorts of new customers.
In December 2015, HgCapital completed the refinancing of JLA and the sale of a
minority interest to institutional investors, returning £17.3 million of cash
proceeds to the Company. These transactions, together with previous
distributions, have delivered a 1.8x multiple on original investment in cash,
whilst retaining 59% of the equity in the company.
How is it performing?
JLA continues to see year on year organic sales and profit growth driven by
growth in the core Total Care and Circuit divisions. This has been enhanced by
expansion into the catering sector and will be further supported by the
ongoing expansion into the heating sector. Investment into the catering
division and transition of customers to the Total Care offering should
increase margins further.
JLA has continued to grow equity value through robust and consistent
underlying trading, leading to an increase in the value of the Company's stake
of £1.5 million in the first half of 2017.
How will we crystallise value?
HgCapital is focused on positioning JLA as a platform for selling critical
asset maintenance services into SMEs. We believe that the long-term recurring
nature of contracts coupled with strong customer loyalty will support an
attractive rating at exit to a private equity investor or a trade buyer.
JLA - The Company's underlying investment through HGT 6 LP
Sector Location Date of investment Residual cost Unrealised value
£'000 £'000
Services UK Mar 2010 3,511 26,162
5. CogitalGroup
Website: www.cogitalgroup.com
Original enterprise value: £494 million
HgCapital clients' total equity: 82.4%
Business description
CogitalGroup is a provider of regulatory-driven services to SMEs. Core
services include accountancy, payroll and taxation.
The business was formed from three cornerstone investments completed during
2016: (i) Visma's BPO ('Business Process Outsourcing') business, active
throughout the Nordics (now renamed Azets); (ii) Baldwins, based in the
Midlands; and (iii) Blick Rothenberg, based in London.
In total, the combined business operates across six countries, with c. 40,000
(mostly SME) clients, over 125 offices and more than 4,000 employees.
Why did we invest?
CogitalGroup continues the Services team's record of investing in
regulatory-driven businesses within HgCapital's 'sweet spot' business model
focus.
We have been looking at the SME accountancy and advisory services sector for
more than five years, as it satisfies several attractive business model
criteria, including: a high share of repeatable revenue (more than 80%); high
retention rates (c. 90%); opportunity for high margin improvement, with the
potential for efficiency gains through the use of technology, near-shoring and
scale; a fragmented customer base; and fragmented competitive landscape, with
significant M&A opportunities.
How do we intend to create value?
We will focus on organic growth across the Group, continued evolution of the
operating model, including increased use of technology and, also on the
opportunity for M&A.
What has been achieved?
The three businesses are currently undergoing significant integration.
Priorities over the next six to twelve months will include: supporting Azets'
management to accelerate the level of near-shoring; supporting Azets'
management in M&A; supporting Blick Rothenberg in their near/off-shoring
efforts; and building out the Baldwins M&A pipeline.
How is it performing?
All three business are trading in line with expectations.
Given recent trading, our valuation at 30 June 2017 has added an uplift of
£1.7 million in the Company's stake to the value of CogitalGroup.
How will we crystallise value?
We expect the business model characteristics of CogitalGroup to be appealing
to a wide range of financial sponsors at exit. We also think an IPO is a
possible exit strategy.
CogitalGroup - The Company's underlying investment through HGT 7 LP and co-investment through HGT LP
Sector Location Date of investment Residual cost Unrealised value
£'000 £'000
Services UK Oct 2016 20,966 23,281
6. Mitratech
Website: www.mitratech.com
Original enterprise value: $730 million
HgCapital clients' total equity: 61.1%
Business description
Mitratech is a leading global provider of enterprise legal management ('ELM')
software to corporate legal departments. The core product is Matter Management
software which acts as the Enterprise Resource Planning software at the heart
of in-house legal teams, and an e-billing solution which provides e-invoicing
capabilities between law department and external counsel with automatic
invoice review.
Mitratech serves a wide customer base of c. 1,000 corporate customers across
the world, including 40% of the Fortune 500. Over 650 law firms are using the
e-billing platform to transmit invoices to clients, including all of the AmLaw
200 and 99% of the Global 100 Law Firms. The company is based in Austin, Texas
with further offices in the US, England, Wales and Australia, employing c. 370
people.
Why did we invest?
Legal process and regulatory compliance software is a core HgCapital sector,
and one we have invested in before and are currently invested in through STP,
which supports insolvency processes and mid-market practice management in the
DACH region of Europe.
HgCapital's TMT team have looked at many targets in this fragmented sector,
however, Mitratech is one that is sufficiently large and attractive as a
standalone investment. We see Mitratech as the best placed platform to drive a
global sector roll-up.
How do we intend to create value?
HgCapital intends to support Mitratech through both continued organic growth
of the business and as the best placed platform to drive a global sector
roll-up. The business has a strong management team with a best-in-class core
product taking share from weak competition in a growing market. Mitratech has
a proven track record of organic growth and we will look to add to this
through M&A.
What has been achieved?
HgCapital is working with the management of Mitratech to source M&A
opportunities in HgCapital's core markets of Western Europe. HgCapital's
Operational Innovations team is working with management on the proposition and
pricing in particular for the e-billing products.
How is it performing?
It is early in the investment period; however, the company is performing well,
with double-digit EBITDA growth over the last twelve months. The business has
been valued slightly below the original investment cost, due to the
unfavourable translation effect of currency movements.
How will we crystallise value?
We believe Mitratech will present an attractive acquisition target to a number
of trade acquirers in the Legal, Enterprise Content Management ('ECM') and
Governance Risk and Compliance ('GRC') sectors where its position as the
leading ELM vendor holds high strategic value.
Equally, we expect that Mitratech will continue to be attractive to Private
Equity buyers given high organic growth, recurring revenue, EBITDA margins and
market position.
Mitratech - The Company's underlying investment through HGT 7 LP and co-investment through HGT LP
Sector Location Date of investment Residual cost Unrealised value
£'000 £'000
TMT North America April 2017 22,258 21,263
7. Parts Alliance
Website: www.thepartsalliance.com
Original enterprise value: £44 million
HgCapital clients' total equity: 76.0%
Business description
The Parts Alliance is an automotive aftermarket parts distributor. It
currently consists of fourteen parts distributors and a central organisation
which acts as a 'virtual head office', supplying the distributors with a full
suite of central services, such as national sales and marketing, IT,
procurement, product and category management and central warehousing.
We originally acquired seven members of the Parts Alliance (CES, Allparts, SC
Motor Factors, GMF, BMF, CPA and BMS), the central buying group and its IT
development arm (the Parts Alliance and DDS), and 15 branches from the Unipart
estate. In 2015, we announced the acquisition of GSF, and in 2016 we added SAS
Autoparts and Waterloo Ltd.
Customers range from independent garages to multi-branch workshops and
fast-fits, and they are served by a fleet of over 1,000 vehicles and more than
2,900 staff across the group membership.
Why did we invest?
The £5.2 billion UK car parts market is amongst the most fragmented in Europe,
with c. 1,400 participants, and is characterised by high levels of
owner-management. We believe several market, regulatory and commercial
catalysts will encourage consolidation of this sector in both the UK and
Europe, which will offer a number of interesting investment opportunities and
exit options.
How do we intend to create value?
We intend to create value in the investment in three ways: improving gross
margin with better procurement, category management and more effective
pricing; building EBITDA margin by improving productivity, performance
management and customer segmentation; and removing duplication in the back
office.
What has been achieved?
The business has been scaled through M&A and the management team has been
focused on sustainable growth from the core estate, as well as improving the
online offering by utilising DDS (the IT development arm of the Parts
Alliance).
Management's key focus remains: improving gross margin; implementing EBITDA
margin improvement opportunities; and harmonising the management information
systems.
How is it performing?
The Parts Alliance has seen a continuation of its positive trading performance
over the last couple of years driven by scale benefits.
How will we crystallise value?
In June, HgCapital announced the sale of Parts Alliance to Uni-Select Inc., a
listed Canadian distributor of automotive, refinish and industrial paint
products and aftermarket parts, for a transaction value of £205 million.
The sale of Parts Alliance has been fully reflected in the June valuation and
has led to an uplift of £6.5 million in the Company's valuation of its stake.
Parts Alliance - The Company's underlying investment through HGT 6 LP
Sector Location Date of investment Residual cost Unrealised value
£'000 £'000
Services UK Aug 2012 10,495 21,125
8. Achilles
Website: www.achilles.com
Original enterprise value: £75 million
HgCapital clients' total equity: 63.0%
Business description
Achilles manages a global network of collaborative industry communities. The
business provides a cloud-based service, enabling networks of buyers to create
industry standards for collecting and validating supplier information. This is
made available through the Achilles platform, together with search, reporting
and risk management tools.
Suppliers join the platform to gain access to the whole community of buyers
and information to help them achieve and maintain compliance. Both buyers and
suppliers pay annual subscription fees.
The verified data gathered and delivered by Achilles is crucial to support
processes around risk management and compliance with regulatory, social
responsibility and health & safety requirements. Achilles currently operates
more than 30 communities, across 22 countries, in five continents.
Why did we invest?
Achilles is a subscription-based network business model with significant
recurring revenue streams. It is a leading company in supply chain data, with
stable growth driven by the increasing need for risk management.
How do we intend to create value?
With high levels of contracted revenue, Achilles' position as a global,
scalable business model has considerable potential in revenue and margin
growth, as well as multiple opportunities for expansion into new geographies
and industries.
What has been achieved?
We have made a significant investment into the business, focusing on the
development of their technology, processes and sales to support global growth.
The business is currently developing a variety of data products, that will
benefit stakeholders in the supply chains.
During 2015, Achilles raised an additional £40 million of equity (of which the
Company's share was £10 million) to continue to enhance significantly the
global scalability and competitive positioning of the business.
How is it performing?
With the considerable transformation of the business that is underway,
Achilles is experiencing lower than trend revenue growth year-on-year,
influenced in part by macro trends in the Oil & Gas sector. Significant
investment in the company's global infrastructure has reduced profits in the
short-term and we expect to see an improvement in margins over the next year,
as global efficiencies are achieved.
The Company's valuation of its stake in Achilles fell marginally in the first
half of the year, driven in part by the macro headwinds referenced above.
How will we crystallise value?
There has been strong interest in Achilles from both strategic and private
equity buyers and the business's recurring revenue base is likely to maintain
this interest throughout the economic cycle.
Achilles - The Company's underlying investment and co-investment through HGT LP
Sector Location Date of investment Residual cost Unrealised value
£'000 £'000
TMT UK Jul 2008 15,218 20,015
9. A-Plan
Website: www.aplan.co.uk
Original enterprise value: £270 million
HgCapital clients' total equity: 72.2%
Business description
A-Plan is a UK based distributor of motor and household insurance policies to
SMEs and individuals. It also specialises in a number of high net worth and
commercial niches, and in providing policies for foreign language speaking
customers. It has a broad base of over 30 underwriters.
The business currently operates over 85 high street branches nationwide,
focusing on high levels of customer service and more complex cases than online
brokers, serving over 675,000 policies.
Why did we invest?
The Services Team identified the insurance broking sub-sector as attractive
for potential investment in 2011, as it is characterised by businesses with
high levels of recurring revenues, providing a non-discretionary purchase for
customers, with strong cash generation and opportunities for bolt on M&A.
A-Plan was identified as part of this market mapping exercise, and had been
tracked by the Services Team for three years, prior to our investment in the
business.
A-Plan has a personal, service oriented approach leading to best in class
levels of customer satisfaction, driving high retention rates and low customer
acquisition costs, due to a high referral rate.
How do we intend to create value?
HgCapital intends to support A-Plan's experienced management through organic
growth of its current business volumes in the existing branches and assisting
with the roll out of new branches. Additionally, there are potential
opportunities for further growth, through selective M&A and new product
lines.
What has been achieved?
HgCapital is supporting A-Plan with ongoing and future projects, including:
sales and marketing initiatives, such as direct mail campaigns and the
contracting of a search engine optimisation agency; recruitment of senior
executives; support on M&A development; and an upgrade of the legacy broking
administration system.
In March 2017 the Services team completed a refinancing of A-Plan, returning
£52 million to clients including £5.2 million to the Company (35% of the
original investment made).
How is it performing?
A-Plan is performing well and is ahead of our original investment case on both
a revenue and EBITDA basis, with growth over the last twelve months of 13% and
9% respectively.
New business policies are benefiting from the continued branch roll-outs (ten
since HgCapital initially invested in the company) and marketing initiatives
driving new business at existing branches.
Continued growth in equity value from consistent underlying trading growth has
added to the Company's valuation of its interest in A-Plan by £2.4 million
over the period.
How will we crystallise value?
A-Plan appeals to many buyer groups, including a trade or financial buyer. The
company could also be of interest to yield investors or, when it reaches
critical size, an IPO might be feasible.
A-Plan - The Company's underlying investment through HGT 7 LP
Sector Location Date of investment Residual cost Unrealised value
£'000 £'000
Services UK Apr 2015 10,447 19,752
10. Ullink
Website: www.ullink.com
Original enterprise value: $329 million
HgCapital clients' total equity: 63.8%
Business description
Ullink is a leading global provider of electronic trading applications and
connectivity to the financial community. Founded in 2001, Ullink has grown
quickly to become a global provider of multi-asset trading technology and
infrastructure. Ullink has over 2,000 customers from c. 40 countries with
customers ranging from tier 1 global sell-side brokers to regional niche
specialists across Europe, North America and Asia Pacific. The business is
headquartered in France, although c. 75% of staff and c. 90% of revenue are
outside that country.
Why did we invest?
Capital markets software has been a strong focus for HgCapital since 2002 and
the TMT Team has followed Ullink since 2009. This investment is in line with
HgCapital's sector-focused approach of investing in leading global providers
of vertical market application software. Ullink shares many of the core
characteristics that HgCapital looks for: an excellent platform for growth; a
subscription revenue model; and a diversified and loyal client base.
How do we intend to create value?
Ullink has differentiated itself by offering a more modern and flexible
trading system at a lower cost of ownership. HgCapital will help the business
accelerate its strong organic growth, through increased new customer wins
resulting from investment into the sales and marketing functions. We also
believe there is an opportunity to consolidate smaller players in electronic
trading, with the acquisition from The New York Stock Exchange of NYFIX and
Metabit in September 2014, a significant step forward. The acquisition has
given the business a broad international footprint and offers substantial
opportunities to increase sales to the current customer base, as well as
efficiencies in the cost base and shared infrastructure.
What has been achieved?
The acquisition of NYFIX and Metabit was transformative for Ullink and more
than doubled the revenue of the business.
Since then, the new management team, appointed in 2015, has been focused on
the integration of the three businesses and realising the strategic value of
the combination.
HgCapital is currently working with Ullink on the following initiatives:
implementation of a new pricing plan; implementation of detailed customer
satisfaction measures and account management; assessment of further M&A; and a
review of segment profitability and drivers of margin and investment.
How is it performing?
The NYFIX and Metabit acquisitions have been well integrated into Ullink and
its performance has substantially improved.
Investment was made in late 2015 into sales and research and development to
drive increased revenue growth going forward.
We are seeing the benefit of this with stronger revenue and accelerated EBITDA
growth. Ullink is highly cash generative and in May 2017 we returned £44
million to HgCapital clients, including £4.3 million to the Company, through a
re-financing representing a 43% return on the original investment.
A combination of strong trading, high cash generation and positive currency
movements have led to an increase of £4.3 million in the Company's valuation
of its stake in Ullink over the first half of 2017.
How will we crystallise value?
Ullink has a financial profile that is very attractive, with high levels of
recurring revenue and organic growth, a scalable cost base and a high rate of
cash conversion. We believe the company will be an attractive acquisition for
both trade and financial buyers.
Ullink - The Company's underlying investment through HGT 7 LP
Sector Location Date of investment Residual cost Unrealised value
£'000 £'000
TMT France Mar 2014 7,393 19,163
Many of our companies outside the top 10 are also performing very well. Some
of these are within the Mercury Fund, which invests in TMT companies with EVs
between £20 million and £80 million. The Mercury investments are seeing high
double-digit growth in both revenues and profits across its portfolio.
All of these companies sit firmly in HgCapital's 'sweet spot', with a high
level of recurring revenues, business-critical products, fragmented customer
and competitor bases and low exposure to economic cycles. The vast majority of
our investments have been into founder-owned businesses, reflecting a strong
proprietary pipeline.
Raet (11) TMT www.raet.nl
Headquartered in the Netherlands, Raet is a provider of HR cloud software and
services, serving more than 10,000 customers internationally. Over the period,
the Company raised the valuation of its interest by £1.4 million.
The Foundry (12) TMT www.foundry.com
The Foundry is a global developer of computer graphics, high-end visual
effects and 3D design software for the design, visualisation and entertainment
industries. The firm's core NUKE business continues to perform well and The
Foundry has seen strong trading performance over the last year. This has led
to an increase in the Company's valuation of its interest of £3.6 million in
the period.
Esendex (13) Mercury TMT www.esendex.co.uk
Esendex is a leading, UK-based provider of mission-critical business messaging
services across Europe. On completion in June 2017, Esendex combined with
Mobyt, an existing HgCapital portfolio company which provides similar business
messaging solutions in Italy and France.
Radius (14) Services www.radiusworldwide.com
Radius was established by merging Nair & Co. with High Street Partners. The
business provides tailored solutions for fast growing companies that are
looking to expand into international markets. Radius has underperformed over
the past twelve months and this has led to a write-down in the Company's
valuation of its interest of £8.5 million over the period.
HgCapital continues to support Radius to strengthen its customer proposition.
Allocate Software (15) Mercury TMT www.allocatesoftware.com
Allocate Software is a provider of workforce management software to the
healthcare and other complex regulated industries. The business continues to
perform well and this has led to an uplift of £2.9 million in the Company's
valuation of its interest over the first half of 2017.
Citation (16) Services www.citation.co.uk
Citation is a provider of outsourced HR, employment law, health & safety and
ISO certification services to over 16,000 customers across the UK. Citation
has seen continued positive performance over 2017 year-to-date and HgCapital
has focused its support on: improving and professionalising current
operations; building the accretive M&A function; and identifying areas to
cross-sell services.
Lumesse (17) TMT www.lumesse.com
Lumesse is a European provider of strategic HR software (for recruiting,
talent management and learning) to medium and large enterprises in Europe.
Lumesse has historically underperformed; however, we have started to see good
progress over the last 12 months. HgCapital continues to support Lumesse and
the return to profitability is encouraging.
Trace One (18) Mercury TMT www.traceone.com
Trace One is a SaaS-based platform for the design and management of private
label products headquartered in Paris. It serves customers across Europe and
North America. Whilst these are early days within the HgCapital portfolio, we
are pleased to see significant growth in EBITDA over the last twelve months.
The Company's valuation of its stake in Trace One has increased by £2.2
million over the first six months of 2017.
Intelliflo (19) Mercury TMT www.intelliflo.com
Intelliflo is a UK SaaS provider of front and back-office software solutions
to financial intermediaries including SME IFAs, wealth managers, advisor
networks, insurance/life companies and brokers. Led by a strong management
team, Intelliflo's performance has remained robust over the first half of
2017. This has led to a small uplift in the Company's valuation of its
interest over the period.
Sequel Business Solutions (20) Mercury TMT www.sequel.com
Sequel is a provider of software and services to the Lloyd's of London and the
broader London insurance market. We continue to invest into new innovative
products and the business continues to see very strong sales growth. This has
led to an uplift of £1.2 million in the Company's valuation of its interest in
Sequel over the period. The business was subsequently sold in August 2017 at a
premium over the June valuation (see above).
OTHER INVESTMENTS: RENEWABLE ENERGY
HgCapital's specialist Renewable Energy team use private equity skills to
identify and acquire high quality European renewable energy projects with
limited GDP risk, favourable inflation links and the use of proven
technologies.
Investment returns in this asset class are generated through a combination of
yield during operation and capital gain at refinancing or exit. By bringing
individual investments together into platforms, we can enhance value through
economies of scale, shared expertise and aggregated generation capacity.
A portfolio of high quality projects has been built on time and on budget and
operational performance is ahead of the investment case. However, valuations
have been materially reduced by retroactive tariff changes in Spain and
depressed power prices in Sweden since 2010-2013.
The investment team is working on a value recovery plan centred on:
• investments in, and realisations from the portfolio assets unaffected by the
adverse events;
• arbitration proceedings against Spain for the retroactive tariff changes;
and
• debt restructuring of distressed projects
REALISATION SINCE THE PERIOD-END
In July 2017, it was announced that Invis Energy (Irish Onshore Wind) had
agreed the sale of a 60% stake in five wind farms to a consortium comprising
Sojitz Corporation, Kansai Electric Power Co. Inc and Mitsubishi UFJ Lease &
Finance Co. Ltd.
DIVERSIFICATION BY VALUE OF INVESTMENTS
Geography
77% Ireland
15% Sweden
7% Spain
1% UK
Resource
83% Onshore Wind
9% District Heating
5% Solar
3% Hydro
PRINCIPAL INVESTMENTS BY PLATFORM Total valuation
£'000
Irish Onshore Wind 17,036
Swedish District Heating 2,066
Swedish Onshore Wind 1,317
Spanish Hydro 643
Other 301
RPP2 Fund 21,363
Spanish Solar 992
Other 21
RPP1 Fund 1,013
Total renewable energy investments 22,376
FINANCIAL STATEMENTS
INCOME STATEMENT
FOR THE SIX MONTHS ENDED 30 JUNE 2017
Notes Revenue return Capital return Total return
Six months ended Year ended Six months ended Year ended Six months ended Year ended
30.6.2017£'000(unaudited) 30.6.2016£'000(unaudited) 31.12.2016£'000(audited) 30.6.2017£'000(unaudited) 30.6.2016£'000(unaudited) 31.12.2016£'000(audited) 30.6.2017£'000(unaudited) 30.6.2016£'000(unaudited) 31.12.2016£'000(audited)
Gains on investments and liquidity funds net - - - 65,736 49,961 76,667 65,736 49,961 76,667
of carried interest provision
Gains on priority profit share loans recovered 7(b) - - - 510 2,609 3,856 510 2,609 3,856
from General Partners
Net income 6 7,937 12,260 23,326 - - - 7,937 12,260 23,326
Other expenses 8(a) (1,492) (1,633) (1,772) - - - (1,492) (1,633) (1,772)
Net return before finance costs and taxation 6,445 10,627 21,554 66,246 52,570 80,523 72,691 63,197 102,077
Finance costs 8(b) (408) (315) (833) - - - (408) (315) (833)
Net return from ordinary activities before 6,037 10,312 20,721 66,246 52,570 80,523 72,283 62,882 101,244
taxation
Taxation charge on ordinary activities 10 (18) (369) (581) - - - (18) (369) (581)
Net return from ordinary activities after 6,019 9,943 20,140 66,246 52,570 80,523 72,265 62,513 100,663
taxation attributable to reserves
Return per Ordinary share 11(a) 16.13p 26.64p 53.96p 177.49p 140.85p 215.74p 193.62p 167.49p 269.70p
The total return column of this statement
represents the Company's income statement. The
supplementary revenue and capital return
columns are prepared under guidance published
by the Association of Investment Companies
('AIC'). All recognised gains and losses are
disclosed in the revenue and capital columns
of the income statement and as a consequence
no statement of total recognised gains and
losses has been presented. All revenue and
capital items in the above statement derive
from continuing operations. No operations were
acquired or discontinued during the period.
The notes below form part of these financial
statements.
BALANCE SHEET
AS AT 30 JUNE 2017
Notes 30.6.2017£'000(unaudited) 30.6.2016£'000(unaudited) 31.12.2016£'000(audited)
Fixed asset investments
Investments at fair value through profit and loss:
Unquoted investments 491,013 503,385 506,961
Total fixed asset investments 491,013 503,385 506,961
Current assets - amounts receivable after one year:
Accrued income on fixed assets 65,176 59,493 65,280
Current assets - amounts receivable within one year:
Debtors 490 650 572
Investments at fair value through profit and loss:
Liquidity funds 106,716 15,575 39,590
Cash 12,707 5,604 6,180
Total current assets 185,089 81,322 111,622
Creditors - amounts falling due within one year (5,250) (7,101) (2,827)
Net current assets 179,839 74,221 108,795
Net assets 670,852 577,606 615,756
Capital and reserves:
Called up share capital 9,331 9,331 9,331
Share premium account 120,368 120,368 120,368
Capital redemption reserve 1,248 1,248 1,248
Capital reserve - unrealised 78,455 72,108 81,061
Capital reserve - realised 435,444 347,592 366,592
Revenue reserve 26,006 26,959 37,156
Total equity shareholders' funds 670,852 577,606 615,756
Net asset value per Ordinary share 11(b) 1,797.3p 1,547.5p 1,649.7p
Ordinary shares in issue at 30 June / 31 December 11(b) 37,324,698 37,324,698 37,324,698
These financial statements of HgCapital Trust plc (registered number 01525583)
were approved and authorised for issue by the Board of Directors on 8
September 2017 and signed on its behalf by:
Roger Mountford, Chairman
Richard Brooman, Director
The notes below form part of these financial statements.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED 30 JUNE 2017
Six months ended Year ended
Note 30.6.2017£'000(unaudited) 30.6.2016£'000(unaudited) 31.12.2016 '000 (audited)
Net cash inflow from operating activities 9 6,861 18,100 22,903
Investing activities:
Purchase of fixed asset investments (40,315) (72,779) (104,100)
Proceeds from the sale of fixed asset investments 122,014 47,779 102,193
Purchase of liquidity funds (93,609) (48,124) (88,737)
Redemption of liquidity funds 26,700 63,500 80,200
Net cash inflow/(outflow) from investing activities 14,790 (9,624) (10,444)
Financing activities:
Proceeds from/(repayment of) loan facility 2,453 2,861 (28)
Servicing of finance (408) (315) (833)
Equity dividends paid (17,169) (14,930) (14,930)
Net cash outflow from financing activities (15,124) (12,384) (15,791)
Increase/(decrease) in cash and cash equivalents in the period 6,527 (3,908) (3,332)
Cash and cash equivalents at 1 January 6,180 9,512 9,512
Cash and cash equivalents at 30 June / 31 December 12,707 5,604 6,180
The notes below form part of these financial statements.
STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 30 JUNE 2017
Non-distributable Distributable
Notes Sharecapital£'000 Sharepremiumaccount£'000 Capitalredemptionreserve£'000 Capital reserve - unrealised£'000 Capital reserve - realised £'000 Revenuereserve£'000 Total£'000
At 31 December 2016 9,331 120,368 1,248 81,061 366,592 37,156 615,756
Net return from ordinary activities - - - (2,606) 68,852 6,019 72,265
Equity dividends paid 4 - - - - - (17,169) (17,169)
At 30 June 2017 9,331 120,368 1,248 78,455 435,444 26,006 670,852
At 31 December 2015 9,331 120,368 1,248 14,023 353,107 31,946 530,023
Net return from ordinary activities - - - 67,038 13,485 20,140 100,663
Equity dividend paid 4 - - - - - (14,930) (14,930)
At 31 December 2016 9,331 120,368 1,248 81,061 366,592 37,156 615,756
The notes below form part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
1. Principal activity
The principal activity of the Company is investment. The Company is an
investment company, as defined by Section 833 of the Companies Act 2006 and
qualifies as an investment trust, in accordance with Sections 1158 and 1159 of
the Corporation Tax Act 2010 ('CTA 2010'). It is registered as a public
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 102 - 'The Financial Reporting Standard applicable in the United
Kingdom and Republic of Ireland' ('FRS 102') and with the Statement of
Recommended Practice 'Financial Statements of Investment Trust Companies and
Venture Capital Trusts' ('SORP'), dated November 2014. All of the Company's
operations are of a continuing nature.
The Company has considerable financial and management resources and, as a
consequence, the Directors believe that the Company is well placed to manage
its business risks. After making enquiries, the Directors have a reasonable
expectation that the Company will have adequate financial resources to
continue in operational existence for the foreseeable future.
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 applied in the Company's previous
annual audited report and accounts.
3. Organisational structure, manager arrangements and accounting policies
Partnerships where the Company is the sole limited partner
The Company entered into six separate partnership agreements with general and
founder partners in May 2003 (subsequently revised in January 2009), January
2009, July 2011, March 2013, December 2016 and February 2017; at each point an
investment holding limited partnership was established to carry on the
business of an investor, with the Company being the sole limited partner in
these entities.
The purpose of these partnerships, HGT LP, HGT 6 LP, HgCapital Mercury D LP,
HGT 7 LP, HGT 8 LP and HGT Mercury 2 LP (together the 'primary buyout funds'),
is to hold all the Company's investments in primary buyouts. Under the
partnership agreements, the Company made capital commitments into the primary
buyout funds, with the result that the Company now holds direct investments in
the primary buyout funds and an indirect investment in the fixed asset
investments that are held by these funds, as it is the sole limited partner.
These direct investments are included under fixed asset investments on the
balance sheet and in the investment portfolio above. The underlying
investments that are held indirectly are included in the overview of
investments above.
Partnerships where the Company is a minority limited partner
In July 2011, the Company made a direct secondary investment in HgCapital 6 E
LP ('Hg6 E LP'), one of the partnerships that comprise the Hg6 Fund, in which
the Company is now a limited partner pari passu with other limited partners.
This is a direct investment in the HgCapital 6 E LP Fund, as shown on the
balance sheet and in the investment portfolio above.
The Company also entered into partnership agreements with the purpose of
investing in renewable energy projects by making capital commitments with
other limited partners in Hg Renewable Power Partners LP ('Hg RPP LP') and
HgCapital Renewable Power Partners 2 C LP ('Hg RPP2 LP') (together the
'renewable funds'). These are direct investments in the renewable funds, as
shown on the
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