TIDMHGT
RNS Number : 8141Y
HgCapital Trust PLC
14 September 2020
H gCapital Trust plc
INTERIM Results FOR THE SIX MONTHSED 30 JUNE 2020
London, 14 September 2020: HgCapital Trust plc ("HGT"), today
announces its interim results for the six months ended 30 June
2020. HGT provides investors with a listed vehicle to invest in
unquoted businesses managed by Hg, Europe's largest investor 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.
HGT provides listed access to Hg's investments, which would in
aggregate represent the third largest and the fastest growing
technology firm in Europe(1) .
ROBUST PERFORMANCE shown by portfolio DURING H1 2020
WITH a NAV Uplift of 7%
significant PORTFOLIO activity SINCE OF PERIOD, RESULTING IN
Year-To-date uplift to 31 August 2020 of 12% to a new high of
282.2p per share
with current pro-forma net assets of GBP1.15 billion
HGT has shown continued outperformance of the FTSE All-share
over one, three, five, ten and twenty-year periods
SUMMARY performance
31 August % Total 30 June 31 December % Total
2020 return(2) 2020 2019 return(2)
---------------- ----------- ------------ ---------- ------------- ------------
NAV per share 282.2p +12.0% 268.5p 255.1p +6.6%
235 .
Share price 273.5p +7.6% 5p 257.5p -7.3%
FTSE All-Share
Index -18.5% -17.5%
---------------- ----------- ------------ ---------- ------------- ------------
YTD 2020 H1 2020
Movement Movement
Net Asset Value GBP1.15bn +GBP113m GBP1.10bn GBP1.04bn +GBP57m
---------------- ----------- ------------ ---------- ------------- ------------
Source: Hg, Factset
Jim Strang, Chairman of HGT, commented:
"HGT has delivered strong performance in the first half of the
financial year, despite a very challenging external environment.
The nature of the businesses in which we invest and the
operating model of the Manager, Hg, have served HGT well. While
the COVID -- 19 crisis will have a material impact on the economies
where our companies trade, the longer -- term prospects for HGT
remain very sound."
Luke Finch, Partner and Head of Client Services, Hg,
commented:
"The continued double-digit trading performance demonstrated by
the Hg portfolio during a very challenging environment again
reinforces our thinking and focus on software and service
businesses selling critical and quality services. This focus has
led to a very strong year-to-date for realisations, whilst also
giving Hg the conviction to deploy significant capital during this
period. We expect headwinds from lower global growth in 2020, but
believe that the portfolio will, in aggregate, continue to deliver
growth over the long-term."
(1) By Enterprise Value, Source: Hg, Factset
(2) All references to total return allow for all historic
dividends being reinvested
KEY HIGHLIGHTS of THE SIX MONTHS TO 30 JUNE 2020
! Net assets of more than GBP1 billion, with continued
outperformance of the FTSE All-Share over one, three, five, ten and
twenty-year periods
- NAV per share of 268.5p, a total return of 6.6% to 30 June 2020.
- Share price total return of -7.3% over the period.
- Interim dividend of 2.0p per share (2019 interim dividend of 1.8p per share).
- An investment of GBP1,000 made 20 years ago would now be worth
GBP13,262, a total return of 1,226%. An equivalent investment in
the FTSE All-Share Index would be worth GBP2,242.
! Strong double-digit growth from the realised and unrealised
portfolio
- Revenue and EBITDA growth of 23% and 27% respectively across
the top 20 investments (88% of the portfolio) over the last twelve
months.
- GBP51 million of cash returned to HGT through realisations at
uplifts to book value and refinancings.
- Valuation multiple (EV/EBITDA) of 20.6x and net debt to EBITDA
ratio of 6.1x for the top 20 investments.
! Continued investment and commitments to drive future value
- Continued investment with GBP169 million deployed on behalf of
HGT into companies that Hg (the Manager) has known for many years
and have demonstrated a track record of strong performance across
market cycles.
- New commitments were made to the Hg Saturn 2, Hg Genesis 9,
and Hg Mercury 3 funds, totalling GBP755 million, which led to
total outstanding commitments at 30 June of GBP935 million
(December 2019: GBP336 million). These will be deployed over the
next four to five years. Portfolio activity over July and August
has lowered this figure as detailed in the post-period section
below.
POST PERIOD EVENTS AS AT 31 AUGUST 2020
! Significant transaction activity post 30 June 2020 has
resulted in further NAV increase
- Pro-forma NAV of 282.2p , YTD performance of 12.0%.
- Current pro-forma net assets of GBP1.15 billion.
- Share price of 273.5p , YTD performance of 7.6%.
- Over GBP250 million (net of carried interest) returned to HGT
through the full exits of Evaluate, Citation and Sovos in addition
to the partial sale of Visma, all at strong uplifts to book
value.
-- The partial sale of Visma was the world's largest-ever
software buyout, valuing the company at US$12.2 billion, and
represented an uplift of 22% over the Dec-19 book value.
-- Sovos was exited at an uplift of 55% over the Dec-19 book value.
-- The sale of Citation Group saw an uplift of 26% over the Dec-19 book value
- Further GBP90m invested by HGT into companies well -- known to
the Manager. These include Sovos, Visma, Evaluate and F24.
- Pro-forma liquid resources post-completion of all announced
transactions and the interim dividend payable in October 2020, are
GBP314 million (27% of 31 August pro-forma NAV).
- Pro-forma outstanding commitments of GBP814 million (71% of 31
August pro-forma NAV). We expect these to be drawn down over the
next four to five years.
- The Board of HGT are in advanced negotiations on a further
GBP200m debt facility with term sheets approved. More updates will
follow once this agreement has completed.
Outlook
Strong earnings, realisations at uplifts to book value and
supporting the management teams of the underlying portfolio
businesses will continue to drive value for shareholders in
HGT.
Commentary from Hg (the Manager):
- Robust double-digit trading performance continues to underpin
the ongoing growth of a defensive portfolio.
- Our companies remain focused on selling business-critical and
non-discretionary software and services to their underlying
customers, typically with highly predictable business models and
robust levels of recurring revenue.
- Given the defensive growth characteristics of the portfolio
and our low exposure to the most immediately affected industries,
the pandemic has had a limited direct impact on Hg's portfolio.
- We expect headwinds from lower global growth in 2020, but
believe that the portfolio will, in aggregate, continue to deliver
growth over the long-term.
- By the end of June 2020, the S&P500 Software and Services
index, which has historically correlated well with our portfolio,
was above December-2019 valuation multiples.
- Across our funds, we expect investment activity in 2020 to
continue - cautiously and with discipline - into companies that we
have tracked for many years.
- Bolt-ons and strategic M&A within the portfolio remain a
key focus and across the current portfolio we have multiple live
M&A situations.
- The combination of the long-term nature of listed private
equity investment with the types of business that Hg invests in,
will continue to drive long-term growth.
- Hg will maintain a focus on the best course of action for
society, for employees, their families and for the staff and
businesses in which they invest and continue to review the risk
profile as the pandemic situation develops A focus on operational
improvement continues to drive performance and deliver significant
network benefits.
- It has been a very strong year-to-date for realisations and
further liquidity events are expected over the next twelve months
through both exits and refinancings.
- Ends -
The Company's 2020 Interim Report and a video from the Chairman
to accompany the results are available to view at:
http://www.hgcapitaltrust.com/ .
For further details:
HgCapital Trust plc
Laura Dixon (Senior Investor Relations
Manager, Hg) +44 78 2459 2894
Brunswick
Samantha Chiene +44 (0)20 7404 5959
About HgCapital Trust plc
HgCapital Trust plc is an investment company whose shares are
listed on the London Stock Exchange (HGT.L). HGT gives investors
exposure, through a liquid vehicle, to a portfolio of high-growth
unquoted companies, 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, see www.hgcapitaltrust.com and www.hgcapital.com
HgCapital Trust plc
Interim report and accounts
30 June 2020
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 exposure to a fast-growing
network of unquoted investments, primarily in software and
business services across Europe.
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 re-invested 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'.
Financial highlights
Annualised share price total return over the last 10 and 20
years: +14%
Six-month performance:
NAV per share
at 30 June 2020 was 268.5p a total return for the period of:
+ 6.6 %
(30 June 2019: +13.9%)
Please refer to note 11(b) below or on page 77 of the Interim
Report and Accounts for further detail on the calculation of NAV
per share
Share price
at 30 June 2020 was 235.5p a total return for the period of:
- 7.3 %
(30 June 2019: +22.5%)
Interim dividend
2.0 p
(30 June 2019: 1.8p)
Market capitalisation
The market capitalisation of HGT at 30 June 2020 was:
GBP 0.96 bn
(31 December 2019: GBP1.05bn)
Net assets
The total NAV of HGT at 30 June 2020 was:
GBP 1.10 bn
(31 December 2019: GBP1.04bn)
Total annualised ongoing charges
1.8 %
for the period to 30 June 2020: (31 December 2019: 1.6%)
Please refer to page 80 of the Interim Report and Accounts for
further detail on the calculation of ongoing charges or see
below.
Top 20 investments as at 30 June 2020:
LTM sales growth
+ 23 %
(31 December 2019: +24%)
EV to EBITDA multiple
20.6 x
(31 December 2019: 19.8x)
LTM EBITDA growth
+ 27 %
(31 December 2019: +35%)
Net debt to EBITDA ratio
6.1 x
(31 December 2019: 6.2x)
These figures are calculated on a value-weighted basis. 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 40-41 of the Interim Report and Accounts.
Balance sheet analysis as at 30 June 2020:
Liquid resources (12% of NAV)
GBP 131 m
(31 December 2019: GBP189 million)
HGT has a fully drawn bank facility of GBP80 million.
Outstanding commitments (85% of NAV)
GBP 935 m
(31 December 2019: GBP336 million)
These commitments will be drawn down over the next four to five
years (2020-2025) 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.
Based on the 30 June 2020 NAV (including all transactions
announced since 30 June 2020), HGT's liquid resources available for
future deployment are
estimated to be GBP314 million and HGT's outstanding commitments
to invest in Hg transactions are reduced to approximately GBP814
million.
An active pipeline of investment opportunities led to new and
follow-on investments, while returning cash to HGT through both
realisations and refinancing.
Investment and realisation activity over the period:
Realisations for the benefit of HGT
GBP51m
Cash invested on behalf of HGT
GBP169m
HGT has seen significant portfolio activity post 30 June 2020,
further information on all investments and realisations are
provided below or on pages 44- 47 of the Interim Report and
Accounts.
Historical total return performance
Both HGT's share price and net asset value per share have
continued to outperform the FTSE All-Share Index.
Six months One Three Five 10 20
to June
2020
% year years years years years
% % p.a. % p.a. % p.a. % p.a.
------------------------------------ ---------- ------ -------- -------- -------- ----------
NAV per share* 6.6 13.1 16.9 18.6 13.8 12.5
Share price (7.3) 11.6 14.3 19.6 14.4 13.8
FTSE All-Share Index (17.5) (13.0) (1.6) 2.9 6.7 4.1
NAV per share performance relative
to the FTSE All-Share Index 24.1 26.1 18.5 15.7 7.1 8.4
------------------------------------ ---------- ------ -------- -------- -------- --------
Share price performance relative to
the FTSE All-Share Index 10.2 24.6 15.9 16.7 7.7 9.7
------------------------------------ ---------- ------ -------- -------- -------- --------
*Please refer to note 11(b) below or page 77 of the Interim
Report and Accounts for further detail on the calculation of NAV
per share.
Based on HGT's share price at 30 June 2020 and allowing for all
historic dividends being reinvested,
an investment of GBP1,000 made 20 years ago would now be worth
GBP13,262, a total return of 1,226% . An equivalent investment in
the FTSE All-Share Index would be worth GBP2,242.
Long-term performance - 10-year share price total return: +14.4%
p.a.
Chairman's statement
"HGT has delivered a strong performance in the first half of the
financial year, despite a very challenging environment. The nature
of the businesses in which HGT invests and the operating model of
the Manager, Hg, have served HGT well. While the COVID-19 crisis
will have a material impact on the economies where our companies
trade, the longer-term prospects for HGT remain very sound ."
Jim Strang, Chairman, HgCapital Trust plc
I write to you as Chairman for the first time amid the COVID-19
pandemic and while HGT is operating through the most uncertain
period in its 31-year history. All of those involved with HGT are
acutely aware of the challenges and tragedy which these times have
brought, and the Board of HGT's thoughts go out to all shareholders
in these very difficult times.
The first six months of 2020 have seen HGT operate through a
very volatile and uncertain period, notably in the second quarter
of the year. Nevertheless, despite the obvious challenges which
COVID-19 has presented, HGT and its underlying investments have
proven very resilient, with much positive news to report.
The top 20 companies in the portfolio, representing 88% of NAV
as at 30 June 2020, continued to grow through the first six months
of the year, reporting sales growth of 17% and EBITDA growth of
27%, versus the previous six-month comparable period in 2019. These
trading figures are a testament to the relative strength of these
companies and the resilience of their business models. By way of
comparison, over the past 12 months to 30 June 2020, the top 20
companies reported sales and EBITDA growth of 23% and 27%,
respectively, showing the resilience of trading during the early
stages of the pandemic.
Shareholders will undoubtedly be interested to understand the
performance of portfolio companies in the second quarter of the
financial year, from April through to June, as this reflects the
period when many economies entered lockdown. Unsurprisingly, there
was a slowdown in M&A activity across the platform investments
in the portfolio; however, in aggregate, the portfolio traded very
well through this period and in line with its business plans, with
only a modest reduction in organic growth.
The strength of HGT has also been reflected in considerable
portfolio activity, both within the period under review and,
notably, after the reporting date. Hg has been able to deliver
several successful exits at a premium to previous valuations, not
only delivering strong returns to HGT but also generating
significant cash. Furthermore, as Hg has chosen to reinvest in
several of these successful businesses alongside their new
investors, HGT will benefit from 'running its winners' for
longer.
I am also happy to report that HGT completed its programme of
commitments to the latest generation of vehicles raised by Hg in
the period, setting the course of investment activity for the next
four- to five-year cycle. HGT is also taking significant steps to
complete the necessary capital markets work to ensure that the
balance sheet is appropriately structured to deliver strong returns
to shareholders.
HGT's performance in the first half
In the first half of 2020, HGT delivered a total return in net
asset value per share of 6.6%, with the net asset value per share
reaching a new all-time high of 269p (allowing for the share-split
in 2019 and after the payment of a final dividend of 3.0p).
The FTSE All-Share index recorded a fall of 17.5% over the same
period, consequently HGT's NAV per share outperformed the FTSE
All-Share by 24% in the period under review.
The share price of HGT also reached a new high in the period
under review (adjusting for the share-split), reaching a level of
272p per share in February.
The total net assets of HGT at 30 June reached GBP1.1 billion,
an increase of GBP60 million over the previously reported figures
as at the end of the last financial year on 31 December 2019.
These figures also reflect the dividend payment of GBP12.3
million in May and proceeds from the tap issuance of shares over
the first six months of 2020 of GBP2.4 million.
Over the period, HGT has seen share price performance (on a
total return basis) of -7.3%, outperforming the FTSE All-Share
index by more than 10%.
Portfolio performance
Hg targets investments into several 'clusters' across two
specific industry verticals, namely software and business services
for which technology is a fundamental enabler of the business
model. Over 95% of investments held by HGT now reflect this
sector-based approach. The investment model favoured by Hg allows
each portfolio company to benefit from being part of a similar
network of investments. Furthermore, as Hg increases its knowledge
and experience of these verticals, the investment performance
improves.
The appreciation in value achieved in the first half of 2020
reflected further strong growth in sales and earnings across the
businesses in which HGT is invested. Over the 12 months to 30 June
2020, the top 20 companies, making up 88% of the portfolio by
value, reported sales growth of 23% and EBITDA growth of 27%.
GBP110 million of the uplift in the value of the unrealised
portfolio (12% in total or 26.9p per share) in the first half of
the year has come from this growth in profits.
Gains over carrying value on the realisation of investments
contributed GBP0.2 million (0.4p per share) to growth in NAV and
contributed to total proceeds over the period of GBP51 million for
reinvestment. The analysis of NAV movements and attribution
analysis (below or on pages 38 and 39 of the Interim Report and
Accounts) set out a breakdown of movements in the NAV and the
underlying investment portfolio.
Investments
Over the first six months of the year, HGT put to work GBP169
million across new investments, including Argus Media, P&I,
Intelerad and smartTrade, as well as follow-on investments. In July
and August, several new and further investments have been made,
deploying GBP90 million into companies well known to the Manager.
These include Sovos, Visma, Evaluate and F24. For further
information about investments, please see below or pages 44-45 of
the Interim Report and Accounts.
These recent investments are all squarely in Hg's focus
'clusters', solving workflow problems and serving the needs of
similar business customer sets in comparable end markets. Hg
targets market-leading businesses within these clusters, and while
such assets often command a healthy price on acquisition, the
experience and capability which Hg brings help to drive these
companies to their full potential. Furthermore, as the end markets
which these businesses serve are usually highly fragmented, Hg can
build further scale through M&A. Such M&A is usually
completed at a materially lower price than that paid for the
original platform, providing an additional source of value
creation.
It is also worth noting that HGT currently holds around 11% of
NAV in co-investments; these 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 look to maintain
10-15% of NAV in this strategy across different fund deployment
cycles.
Realisations
In the first half of the year, Hg returned GBP51 million to HGT,
primarily through the opportunistic sale of a portion of its
co-investment in Visma. This sale enabled a reduction of the
concentration level of Visma within the portfolio and provided
additional liquidity to HGT.
Post the reporting period, there have been several very
significant realisations announced, including further realisations
at Visma and a realisation of Sovos, the two largest investments
held by HGT. In aggregate, these realisations were completed at
material uplifts to the June valuations of the assets and returned
over GBP310 million of gross proceeds to HGT. Specifically,
realisations were achieved via the partial exit of Visma, in
addition to the full exits of Sovos, Citation and Evaluate. We are
pleased to note that HGT is reinvesting GBP82 million in Sovos,
Visma and Evaluate.
Given the significant size of these realisations, HGT will be
publishing a pro -- forma NAV per share in our August fact sheet of
282.2p, an uplift of 5.0% to that published here in these interim
accounts. For further information about realisations, please see
below or pages 46-47 of the Interim Report and Accounts.
Impact and social responsibility
While shareholders can be reassured by strong returns and by the
health of HGT and its underlying investments, there are clearly
many others in the wider society for whom current times have proven
harrowing and, in some cases, tragic.
In July 2020, our Manager, Hg, launched The Hg Foundation - a
new charitable initiative to provide funding and operational
support to schemes across the UK, US and Europe whose goal is to
have an impact on the development of those skills most required for
employment within the technology industry, focusing on individuals
who may 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 below or pages 32 -35 of the
Interim Report and Accounts in the Manager's review.
New commitments
In the period since the last report to shareholders, HGT
successfully concluded its programme of commitments to the various
investment vehicles (limited partnerships) raised by the Manager.
Shareholders will be aware of the $400 million commitment which HGT
had already made to Hg Saturn 2, the upper-mid-market buyout
strategy, reported in March. Additionally, as reported in May, HGT
has now committed a further EUR360 million to Hg Genesis 9 and
EUR115 million to Hg Mercury 3, the mid-market and lower-mid-market
strategies.
As a result, as at 30 June 2020, HGT now has total commitments
of GBP935 million to Hg's fund strategies, representing 85% of the
NAV. Consequently, HGT remains the single-largest investor in the
Hg fund family, representing more than 8% of the c.GBP9 billion of
funds raised by Hg over the first half of the year. This represents
a significant increase in commitments when compared with the last
commitment cycle.
In keeping with the previous commitments made by HGT to funds
managed by Hg, these latest investments benefit from the unique
opt-out clause which allows HGT to be excused from any specific
investment without penalty, in the unlikely event that there is
insufficient liquidity within HGT with which to complete it.
Dividend
The extremely uncertain times in which HGT is currently
operating present obvious challenges to investment companies,
regarding forming a dividend policy.
As a result of the COVID-19 crisis and the challenges which this
has posed for all public companies, HGT chose to declare a second
interim dividend of 3.0p at the time of the annual results
announcement in May of this year. This gave a full-year total
dividend for 2019 of 4.8p (4.6p in 2018). The fact that HGT was
able to increase its level of dividend from the previous year
further demonstrates the resilience of the underlying
portfolio.
As noted in the past, 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 the Manager and on
income received on any liquid resources being held subject to
investment.
Nevertheless, HGT will continue to provide guidance as to the
broad objectives of the dividend policy, despite the challenging
circumstances. Subject to no material changes in the operating
assumptions which HGT is currently using, the Board expects to be
able to deliver modest dividend progression.
As regards the current financial year, assuming no further
fundamental shift in the operating environment, HGT plans to be
able to deliver a total dividend of 5.0p per share. The Board keeps
the dividend policy of the company HGT under frequent review and
will communicate, to shareholders, further guidance on dividend
policy when it is practicable to do so.
Capital structure
Shareholders will be aware that, in 2019, HGT refreshed its
banking agreement with Lloyds Banking Group. Currently HGT has
access to up to GBP80-million of capital, with a further GBP80
million 'accordion' facility also available, subject to the bank's
discretion. This initial GBP80-million facility is currently fully
drawn, in part to provide some currency hedging for USD-based
investments. With the new commitment programme now established, the
Board has re-engaged with banks to structure a new enlarged banking
agreement of GBP200 million which is in keeping with the level of
these commitments, and with optimising the balance sheet management
of HGT. Discussions on these updated banking agreements are at an
advanced stage - and the reaction of the banking markets to HGT has
been very encouraging. We therefore anticipate that new agreements
will be completed in the near future.
Governance
This report marks the first in which I write to you having taken
over the chair, at the conclusion of the last AGM, from Roger
Mountford. On behalf of the Board, I would like to thank Roger for
his 16 years' service to HGT and for the exemplary standards which
he brought to all matters concerning HGT's business and the
workings of the Board.
In addition, I am delighted that HGT has been able to recruit
Mrs Pilar Junco to join the Board of Directors, which she duly did
in July of this year. Pilar brings a wealth of relevant skills and
knowledge to HGT from her career at Altamar Capital Partners, where
she currently serves as Managing Partner, Chief Strategy and Chief
Client Officer, Blackstone, the Boston Consulting Group and JP
Morgan. Pilar's skills are highly complementary to those of the
rest of the Board and we look forward to working together for the
benefit of HGT.
Prospects
Events over the last six months have been the most disruptive
which any of us have seen in generations. The effect on business,
and more so on people's lives and livelihoods, has been without
precedent in living memory and this pattern of disruption and
uncertainty, sadly, appears set to remain with us for some time to
come.
Despite this very challenging backdrop, it is extremely
heartening to be able to report such strong performance by HGT and
its constituent investments over the period under review.
As my predecessor noted often in his communications with you,
the assets which HGT owns are, by their very nature, extremely
resilient to external shocks, such as those posed by the current
crisis. The kind of mission-critical software supplied by the likes
of Visma, Sovos and IRIS not only improves the commercial
effectiveness of those businesses which choose to install their
products, but, in so doing, the product becomes entwined with their
customers' core operating model.
Implementing the solutions provided by these companies improves
the ways in which 'businesses do business', something which current
times make even more of an imperative than before. Thus, while the
current crisis will undoubtedly affect the short-term growth of
these businesses, their fundamental long-term prospects remain very
robust.
The assets Hg targets for investment have several attractive
qualities which, as we have seen, make them much sought after at
the time of exit. This also means that acquiring new businesses
which meet the same exacting criteria is a challenging job.
Thankfully, through its sector-based model, Hg is organised to be
able to identify and acquire attractive assets, despite the
challenges which current times bring - and, thus, the pace of new
investment is expected to continue.
In closing, HGT has performed well over the first half of 2020.
Significant progress has been made, setting the course for the next
investment cycle alongside Hg. However, there still remains
significant uncertainty in investment markets and in the broader
economy as a result of the ongoing COVID-19 pandemic and an
elevated level of risk.
The Board is acutely focused on maintaining HGT's record of
delivering attractive returns to investors, despite the prevailing
challenges, and on doing so with an even keener focus on the many
risks which may impinge on achieving that goal.
Jim Strang
Chairman
11 September 2020
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 it can add value
through increasing organic growth, generating operational
improvements, driving margin expansion, reorganisation or by
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 primarily invests 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 so to
do.
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 that 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 shareholder
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 the UK, predominantly
in Northern Europe, and a further part in businesses that 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 HGT's 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, so 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 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 that
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.
Rationale and business model
The Board has a clear view of the rationale for investing in
unquoted businesses where there is the potential for accelerating
the growth in value through a private equity approach. This informs
its decisions on the operation of HGT and the evolution of HGT's
Business Model.
Rationale
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, especially
where there is the ability to work with management to implement
strategic or operational improvements.
By taking on the burdens of administration, monitoring and
accounting that such investments require, HGT offers a simple and
liquid means by which shareholders can achieve an investment in
unquoted growth companies, monitored by a Board of independent
Directors.
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 more than 30 companies (as set out
below or on page 50 of the Interim Report and Accounts), 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 below
or on page 80 the Interim Report and Accounts. The Manager invests
predominantly in unquoted software and business service companies
in expanding sectors and provides portfolio management support.
Hg's review below or on pages 19-65 of the Interim Report and
Accounts 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 who 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 substantially identical
terms.
HGT is usually the largest investor in each business. The Board
has a further objective of keeping HGT as fully invested as is
practical, 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 where certain conditions
exist.
HGT may also take up a co-investment in some businesses (in
addition to the investment it has committed to make).
HGT has no liability to pay fees on such co-investment and no
carried interest incentive is payable to the Manager on realisation
(currently 11% 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 in all the businesses in
which it is invested, and their valuation; the development of the
Manager's investment strategy; 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
businesses from its portfolio without liability to corporation tax.
The Board intends to retain this status so long as 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. To this end, the Board monitors the Key
Performance Indicators, as set out above or on pages 5 and 6 of the
Interim Report and Accounts. In the year to 30 June 2020, HGT's NAV
per share increased by 6.6% on a total return basis. The FTSE
All-Share Index decreased by 17.5% on a total return basis over the
period. The year to date total return of HGT's share price was
(7.3)%. NAV per share has grown by 13.8% p.a. compound over the
last ten years and 12.5% p.a. compound over the last twenty years.
The share price has seen broadly similar performance growing by
14.4% p.a. compound over the last ten years and 13.8% p.a. compound
over the last twenty 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 reflect short-term movements in any
Index. The Board also regularly compares HGT's NAV and share price
performance against a basket of broadly comparable companies with
similar characteristics, listed on the London Stock Exchange.
Dividends
In 2019, the Board announced that it anticipated that future
dividends would be no less than 4.8p per share and that these would
be split between an interim distribution made in or around October,
and a final distribution made in or around May.
Where possible, the Trust has elected to 'stream' its income
from interest-bearing investments as dividends for tax efficiency
purposes. More details can be found below or on page 82 of the
Interim Report and Accounts.
Going concern
HGT's business activities, together with the factors likely to
affect its future development, performance and financial position
are described in the Board's Strategic Report and 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 as to 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 twelve
-- month period from the date of approval of this Report and be
able to meet its outstanding commitments. Accordingly, they
continue to adopt the going concern basis in preparing these
results
Principal and emerging risks and uncertainties
During 2019 the Audit and Valuation Committee ('AVC') supported
the Board in the creation of a strengthened Risk Management
Framework, undertaking a robust assessment of the principal and
emerging risks facing HGT.
Managing risk is fundamental to the delivery of HGT's strategy,
and this framework provides the rigour to assess and manage these
risks, the controls in place to mitigate them, including those that
would threaten its business model, future performance, solvency,
valuation, liquidity or reputation.
The Board has defined risk appetite statements for each of the
risks faced during the course of business. By assessing the impact
and likelihood of each risk against HGT's appetite, we ensure that
focus is maintained on the risks that require most attention, and
that mitigating actions are progressed.
This process involves the maintenance of a risk register, which
identifies the risks facing HGT and assesses each risk and
classifies the likelihood of the risk and the potential impact of
each risk on HGT. The Board has established controls to mitigate
against risk faced by HGT. The AVC regularly reviews the policies
for managing each risk, as summarised below.
HGT considers its principal risks (as well as underlying risks)
in four main categories:
Investment - the risk to HGT of an inappropriate investment
strategy or Manager decisions leading to poor performance.
Financial - a range of risks that include valuation risk and
liquidity risk ensuring the availability of sufficient liquid
resources for HGT to meet its commitments.
Operational - the monitoring of regulation, Hg's internal
controls systems and those of HGT's other service providers.
External - macro-economic conditions, foreign currency,
availability of credit.
Potential risk Potential impact Mitigation Trend
------------------------- -------------------------- ----------------------------------------- ----------
Investment
Performance: -- Reduction in -- Deployment of capital is a Neutral
The underlying NAV rigorous process determined by
portfolio companies -- Reputation loss the Hg Investment Committee operated
underperform due -- Shareholders by experienced investment professionals.
to poor Manager sell shares -- The HGT AVC values the portfolio
investment decisions. -- Equity reduced quarterly.
Performance: -- Reduction in -- Portfolio performance is reviewed Reducing
The underlying NAV regularly by Hg's Realisation
companies underperform -- Reputation loss Committee comprised of experienced
due to weak operational -- Shareholders investment professionals.
support from the sell shares -- The Board monitors the performance
Manager. -- Equity reduced of Hg's portfolio through regular
reporting (including trading,
compliance and finance).
-- An operational performance
group interacts across the portfolio
to drive performance.
Financial
Valuations: -- Create a false -- All valuations are prepared Neutral
In valuing its market in HGT shares in accordance with IPEV guidelines,
investments and -- Reputation loss unless these differ from UK GAAP
publishing its -- Reduced shareholder or company law when the accounting
NAV, HGT relies loyalty standards apply.
to a significant -- Impact on liquidity -- The Manager's Valuation Committee,
extent on the and ability to raise independently chaired, reviews
accuracy of financial equity and approves valuations on a
and other information quarterly basis.
provided by the -- The auditors of both Hg and
Manager. Wrong HGT review the valuation and
valuations would methodology as part of their
lead to a misleading audit procedures which are reviewed
NAV. in detail by the HGT AVC and
put to the Board of HGT for approval.
-- Hg's finance team conducts
detailed reviews of all reporting
materials published to ensure
their accuracy.
The Balance Sheet: -- Reputation -- Forward cash flows are closely Neutral
The inability -- Risk to future monitored by the Board and Hg.
of HGT to make performance -- Borrowing structures and cash
investments due flow forecasts are considered
to insufficient at each HGT Board meeting.
liquid resources -- Current GBP80m bank facility
available. as a short-term bridge if required,
and currently fully drawn. We
are in advanced negotiations
for a significantly enhanced
facility.
-- There is the opt-out facility
available across all investing
funds.
-- See above or page 6 of the
Interim Report and Accounts for
a summary balance sheet analysis.
The Balance Sheet: -- Insufficient -- A bank facility is in place Neutral
Borrowing facilities borrowing to meet to facilitate orderly management
are not available commitments of the balance sheet.
to potentially -- Potential for -- There is the opt-out facility
underwrite future rising interest across all investing funds.
commitments made rates
by the Board of -- Increased cost
HGT.
Operational
Regulation: -- Increased corporation -- The Manager monitors investment Neutral
It is in shareholders' tax leading to higher movements, the level and type
interests to retain fees and potential of forecast income and expenditure,
the tax advantages impact on valuation and the amount of retained income
that flow from and performance (if any) to ensure that the provisions
meeting the requirements of HGT of Sections 1158 and 1159 of
for an investment the CTA are not breached. HGT's
trust under the compliance with the conditions
Corporation Tax for retaining investment trust
Act 2010. status is certified by the Manager
at each meeting of the Board.
Regulation: -- Misunderstood -- Strong shareholder engagement Neutral
General changes or misreported regulation from:
in legislation, leading to reduced - Dedicated investor relations
regulation or demand for shares team
government policy -- Lack of adherence - Corporate Broker
could influence to regulation leading - Company Secretary
the decisions to Reputational -- All these are regularly reviewed
of investors. risk by the Board.
Lack of adherence
to changing regulations.
Manager Internal -- Reputational -- The Manager is regulated by Neutral
Controls and Processes: risk the FCA, whose rules and regulations
The risk that -- Shareholders impose exacting behavioural standards
the Manager's sell shares on Hg.
processes are -- Equity reduced -- The Manager has controls in
not adequate leading place including those related
to poor performance, to investment decisions; portfolio
weak service or reviews; recruitment, training
non-compliance & promotions; financial performance
to regulation. and payments; protection of client
assets; compliance; and regulation.
-- The Board of HGT regularly
reviews these processes and controls.
Cyber security: -- Loss of or lack -- A cyber security team is in Increasing
Cyber security of control over place at the Manager to monitor
risk at Hg and data due to cyber and recommend improvements in
portfolio level attacks cyber security across Hg and
given increasing -- Reputational the portfolio companies.
sophistication risk -- Most recently, the GDPR committee
of threats in -- Regulatory risk has successfully implemented
this area and mandatory training for all staff.
the types of companies
in which HGT invests.
External
Political and -- Reduction in -- Hg's portfolio is well protected Neutral
macro-economic demand for shares given focus on mission critical
uncertainty: based on lack of products with a fragmented customer
Impacts from confidence in listed base.
the UK leaving markets -- The Manager remains focused
the EU affecting on the various issues that may
HGT and the portfolio need to be addressed, including:
companies in which - Reduced availability of credit
it is invested. to fund future investments
- Regulation, marketing, trade
and foreign exchange movements
These are regularly monitored
by the Board of HGT.
Foreign exchange: -- Valuations lowered -- The Board of HGT regularly Neutral
Hg has continued by negative currency monitors currency fluctuations.
to expand its movements -- All transactions are hedged
geographic diversity, -- Valuations increased between signing and exit.
accordingly, some by positive currency
investments are movements
denominated in
other currencies
as well as sterling.
Global pandemic: -- Operations disrupted -- The majority of revenues are Increasing
by reduced resources derived from subscription based,
-- Revenues decrease recurring revenues for non-discretionary
due to reduced sales technology platforms.
effectiveness -- The Manager is focusing on
-- Multiples of the mid to longer term effects
listed companies of the global pandemic
applied to valuations
might be adversely
affected
-- The projected
reduction in GDP
creates continuing
disruption to the
customer base
------------------------- -------------------------- ----------------------------------------- ----------
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.
Performance risk
An inappropriate investment strategy may lead to poor
performance. The Board is responsible for deciding on the
investment strategy to fulfil HGT's objectives and for monitoring
the performance of the Manager.
Financial risks
HGT's investment activities expose it to a variety of financial
risks which include valuation risk, liquidity risk, market price
risk, credit risk, foreign exchange risk and interest-rate
risk.
Liquidity risks
HGT, by the very nature of its investment objective, invests
predominantly in companies whose shares are not traded on a market.
The Manager has the benefit of control over most of the companies,
but, to realise its investment, would require negotiation of a sale
to a purchaser or a flotation on the stock market, which might not
be achievable at the Directors' published valuation.
Borrowing risk
The Board and the Manager agree that prudent use of borrowing to
fund acquisitions can increase rates of return to shareholders.
Businesses held in the underlying portfolio usually utilise bank
borrowing - and this is raised at levels which can be serviced from
the cash flows generated within that business.
Regulatory risk
HGT operates as an investment trust in accordance with sections
1158 and 1159 of the Corporation Tax Act 2010 ('CTA 2010').
As such, HGT is exempt from corporation tax on capital gains
realised from the sale of its investments, so the impact of losing
investment company status would be significant to HGT.
Operational risk
In common with most other investment trust companies, HGT has no
employees. HGT relies, therefore, on the services provided by third
parties and is dependent on the internal control systems of the
Manager and HGT's other service providers.
Responsibility statement
The Directors confirm that to the best of their knowledge,:
-- the condensed set of interim financial statements has been
prepared in accordance with the statement on half-yearly financial
reports issued by the UK Accounting Standards Board 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 2019 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 & 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 11 September 2020.
Jim Strang
Chairman
11 September 2020
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, HGT 7 LP, HGT 8 LP,
HgCapital Mercury D LP ('Hg Mercury'), HGT Mercury 2 LP, HGT Saturn
LP, HGT Saturn 2 LP and HGT Transition Capital LP) of which HGT is
the sole limited partner.
-- a secondary purchase of a direct interest in Hg's Genesis 6
fund through HgCapital 6E LP ('Hg6E'), in which HGT is a limited
partner.
-- 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 130 to 132 of
the 2019 annual report.
About Hg
Europe's largest software and services investor with a
transatlantic network
> 25 years of investment
c. 200 employees across London, Munich and New York
> 150 highly regarded institutional investors
>$ 30 bn funds under management
Overview
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,
owned entirely by its partners and employees.
We have three investment offices, which are in London, Munich
and New York, with funds under management of around $30 billion and
serving more than 150 highly regarded institutional investors,
including private and public pension funds, insurance companies,
endowments and foundations.
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 200 employees representing the largest
technology investment team in Europe.
Hg is, itself, an entrepreneurially led, fast-growing business,
100% owned and managed by its partners.
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
GBP75 million to over GBP5 billion, growing faster than the broader
economy. We predominantly seek controlling buyout investments in
Northern European-headquartered businesses, 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 100 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 30 software and
business service companies with similar characteristics, but of
different sizes, end-market focus and maturity profiles.
Hg's office in New York enhances 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.
Hg Mercury
Lower mid market
EVs: GBP75m-GBP450m
Hg Genesis
Mid-market
EVs: GBP450m-GBP1.3bn
Hg Saturn
Large-cap
EVs focus: >GBP1.3bn
One strategy over three funds across the size range in software
and business service companies
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 GBP75 million
to over GBP5 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 large portfolio of companies
and business models, 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 is not only the fastest-growing but also the
third-largest software business 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 with a Northern European angle. 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 25 software investments in
our portfolio, we bring a unique set of networks and insights to
help to support value creation in our businesses.
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.
Cluster Portfolio
Tax & Accounting TeamSystem -- Visma -- Sovos --
16 years Azets -- Iris -- Silverfin
------------------------------------ ------------------------------------
ERP & Payroll TeamSystem -- Visma -- Access
16 years -- Transporeon -- P&I
------------------------------------ ------------------------------------
Legal & Regulatory Compliance Achilles -- TraceOne -- STP --
13 years Citation -- Mitratech -- Litera
------------------------------------ ------------------------------------
Automotive Eucon -- Mobility Holding
12 years
------------------------------------ ------------------------------------
SME Tech & Services Commify -- IT Relation -- team.blue
10 years -- Register
------------------------------------ ------------------------------------
Capital Markets & Wealth Management FE Fundinfo -- Argus -- SmartTrade
IT
7 years
------------------------------------ ------------------------------------
Insurance A-Plan Group -- Eucon
6 years
------------------------------------ ------------------------------------
Healthcare IT Evaluate -- Allocated -- Medifox
5 years -- Lyniate -- Intelerad
Note: Number of years refers to the number of years for which Hg
has invested in each cluster
Working together
Sharing Hg know-how and experience
By virtue of the fact that Hg repeatedly invests in specific
business models, our dedicated portfolio team has been able to
tailor a differentiated approach to driving 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, digital marketing, value
creation, customer success, technology, cyber security, product
data analytics and talent. For each of these levers, the portfolio
team has codified the Hg experience and best practices into set
'plays' which are deployed in collaboration with management.
Every company can access the team, yet the nature of support can
take a variety of forms. Often, members of our portfolio team
provide direct support, taking on roles to help the business to
pursue growth 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.
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.
For further information, please visit :
hgcapital.com/working-together/
Working together
We view all of our business management teams as a part of the Hg
portfolio community - and that means promoting a culture of working
together to share ideas, experiences, advice and best practice.
One of the most powerful ways in which the portfolio team
motivates change is through peer -- to -- peer collaboration. This
gives the management teams of our portfolio companies the ability
to exchange ideas and insights and to share best practice and
learnings with others in the Hg portfolio and our external network
of experts.
In 2019, over 700 portfolio company executives attended 50
forums hosted by Hg, covering topics such as employee engagement,
neurodiversity, finance function excellence, product strategy,
women in leadership, sales and marketing and data analytics - to
name a few.
We had over 60 such engagements planned for 2020. However, in
response to the COVID pandemic, we rapidly innovated our approach:
instead, we have offered portfolio companies a full end-to-end
digital engagement experience, hosting virtual events and
facilitating an increase in activity on the Hg online collaboration
platform - Hive.
During the COVID-19 lockdown, Hg's talent team, alongside the
rest of the portfolio team, has been hosting webinars for the
portfolio to discuss, advise and present on how to optimise people
in business during these unusual times.
Twelve sessions have been hosted by the portfolio team over the
last eight weeks and attended by over 450 participants, across
subjects such as people, sales excellence, crisis management, tech
leadership and cybersecurity, with many more planned over the
coming weeks.
YTD: 45 Portfolio team-led events, with many more in the diary
1,000+ total attendees
"What's been positively remarkable is how the connectivity has
increased across the Hg family of companies. Everyone's in it
together - and there has been a notable ability to innovate and
react quickly to this new and uncertain environment."
Elizabeth Wallace, Head of Portfolio Talent
Hive
Hg's online community for everyday collaboration
Hg launched Hive - its online trusted environment - in 2018, to
encourage and facilitate collaboration across our portfolio of
global companies.
Hive connects thousands of senior executives across the Hg
portfolio through multiple communities to discuss best practice
across those disciplines important to the success of their
business. Individuals are able to post questions, start
discussions, share and collaborate on content and gain access to
best-practice methodologies from world-class experts.
During the COVID pandemic, we launched communities dedicated to
supporting our businesses specifically on aspects relating to, but
not limited to, business continuity- and scenario-planning,
employee engagement, working from home, crisis management, cash
flow and legal advice and, most recently, 'returning to work' - in
addition to opportunities to innovate and thrive as we move out of
the downturn.
>90% members are from our portfolio companies
23 live communities
>1,800 active members and growing!
For further information, please visit : hive.hgcapital.com/
Insight:
Hiring Mx Right
What sales leaders should look for in their next hire
COVID-19 has brought a unique challenge to many businesses over
the last few months and those focusing on revenue growth and
customer retention are certainly no exception.
By definition, the mission of these functions is to attract and
persuade prospective and existing customers to invest in their
company's products and services. Not an easy task against the
uncertainty the next few years may bring.
Here at Hg, we have a Growth Team covering the often disparate
and disconnected practices of Strategy, Attracting & Retaining
Customers, and Delivering Value.
We use the combination of this expertise to support our
portfolio companies in their growth aims as we believe that
aligning these areas is the key to growth success.
Now, more than ever, we urge you to avoid allowing these
different departments to tackle their problems separately. With
resources and budgets under pressure for buyers and sellers alike,
the time for mismatched objectives, inconsistent messaging, an
unplanned customer journey and departments butting heads is
over.
In the first of a series of Growth Insights, Luca Smuraglia, our
resident expert in Sales, looks at the usual mistakes made when
hiring your next Sales Superstar and how to get it right this
time.
Mark Fulford,
Head of Hg's Portfolio Growth Team
"Ensuring the right talent in your salesforce can make or break
your revenue stream. COVID-19 and its consequences have provided
new challenges to getting this right. Hg's Luca Smuraglia discusses
the risks and opportunities of hiring 'Mx Right' into sales during
the new normal."
Luca Smuraglia, Sales Specialist in Hg's Portfolio Growth
Team
If you have a sales vacancy to fill and you're fretting about
it, it's because hiring the right person for you, your team, and
your business is critical and extremely challenging to get
right.
No doubt your aim is to hire someone who:
-- will be able to achieve their target, consistently, sooner rather than later;
-- is easy to work with, and who can help you raise the bar and
foster a high-performance culture in your team;
-- has the will and skill to cope with the inefficiencies, constraints and weaknesses of your organisation.
So, what should your strategy be to minimise the risk of making
a bad hire?
Who should you be looking for? Candidates with a demonstrable,
relevant track record, subject matter expertise, and a rolodex of
prospective clients ready to buy?
Despite what recruitment agencies want you to believe, those
candidates are either too hard or expensive to attract, not
available when needed, or simply do not exist. And if they did, it
is not guaranteed that they could replicate their past and current
success in your organisation anyway.
In fact, a better hypothesis is that every candidate is flawed,
someone else's bad hire, and therefore the right hiring strategy is
to search for and assess candidates using a broader set of personal
characteristics that are better predictors of future success, and
to select those whose identified flaws you have the time, will and
skill to work with and fix, and for which your team and your
organisation can provide the right support and environment to
nurture.
So, which personal characteristics are more reliable predictors
of how a candidate is likely to perform in their new role,
considering your expectations, management and leadership
competencies and style, your team culture, and your organisation's
weaknesses, inefficiencies and constraints?
What should you look for to avoid making a bad hiring
decision?
Our research into the science of performance, behavioural, sport
and positive psychology, and experience as managers, leaders, and
performance coaches tell us that the set of personal
characteristics that better predict an individual's performance and
development potential are:
Aptitude / Attitude / Ability / Appetite / Adaptability /
Achievement
Below is a high-level explanation of each, and why they
matter.
Aptitude
Aptitude is by far the most dangerous blind spot for hiring
managers.
It is an individual's natural disposition towards performing a
task, which for a salesperson is primarily down to cognitive skills
and personality traits, both of which are generally set by
adulthood and cannot be changed.
A salesperson's job is complex. Good cognitive skills are
therefore a critical requirement for anyone in a sales role.
Cognitive skills can be assessed by measuring IQ, fluid
intelligence and crystallised intelligence, mental agility, working
memory, numeracy and literacy, all which, according to research,
may be the best predictor of job performance.
On the other hand, personality traits manifest as the
characteristic patterns of thinking, feeling and behaving that an
individual tends to adopt in given situations, and which depend on
their level of openness, conscientiousness, extraversion,
agreeableness and neuroticism.
A salesperson requires a healthy level of extraversion and
agreeableness to build rapport with customers; openness to adapt to
new situations; conscientiousness to do the right things right, no
matter what; and a low level of neuroticism to cope with the stress
typical of the sales profession.
In a nutshell, a salesperson's aptitude will either facilitate
or constrain their ability to sell. That's why it's critical to
assess it.
Also, cognitive skills and personality traits determine a
candidate's developmental potential, and therefore set the upper
limit of performance and results an individual can achieve in their
role.
Attitude
Another typical blind spot for hiring managers is a candidate's
attitude.
US billionaire businessman Herb Kelleher's mantra was: "Hire for
attitude, train for skill". It's good advice. In his book Hiring
for attitude, Mark Murphy tracked 20,000 new hires. A staggering
46% of them failed within 18 months. But even more surprising was
that 89% of the time they failed for attitudinal reasons and only
11% for a lack of skill.
Attitude is our mental disposition, our typical way of thinking
or feeling towards people, situations, the things we do and the
context in which we do them. As such, attitude can be a reliable
predictor of the behaviours an individual is likely to display in
performing a job in a certain organisational environment.
In particular, it is important to assess a salesperson's
attitude towards the purpose of their role, their role as a team
member, their target, their accountabilities and responsibilities,
towards success and failure, personal development, towards
compliance with processes, methodologies, and policies, towards the
organisation's strengths and weaknesses, and market opportunities
and threats.
Unlike aptitude, attitude is malleable, either through coaching
or external conditioning. For example, a new hire's attitude can be
moulded by a team's strong and well-rooted culture, as long as the
individual is adaptable, i.e. open and willing to change.
Ability
Usually the main focus of hiring managers, and the easiest to
assess, ability is a candidate's level of proficiency in performing
a job. In other words, the extent to which an individual will be
able to do the right things right in their role.
A candidate's ability determines whether they will be able to
hit the ground running, and it depends on their foundational
knowledge, specialist knowledge and expertise.
Foundational knowledge consists of awareness of the right things
to do and how to do them. In essence, it's the mental model of
performance that we try and apply in practice. Poor foundational
knowledge, for example of listening, questioning, objections
handling, and value selling best practices, results in poor
execution and results.
Specialist knowledge is understanding of and familiarity with
the subject matter specific to one's role. In the case of a sales
professional, specialist knowledge would include knowledge of
products, services, solutions, value proposition, etc., as well as
market knowledge.
Expertise is a factor of quantity (measured in length of time
and continuity in performing a role) and quality (relevance and
complexity) of performance.
Appetite
Appetite is the willingness to apply and sustain the effort
required to achieve goals and meet expectations, no matter
what.
The personal characteristics that more than anything determine
an individual's "appetite" are motivation, drive,
conscientiousness, confidence, resilience. and self-management.
They are all linked. For example, increased motivation is likely
to result in a stronger drive, which in turn will improve
conscientiousness, boost confidence and encourage us to develop our
competencies, resulting in greater resilience.
Adaptability
Adaptability is the extent to which a candidate is willing and
able to develop their attitude, ability and appetite to the level
required by the role.
It manifests in a commitment to personal growth, the ability to
handle constructive criticism, and openness in regard to exploring
alternative ideas.
Adaptability requires self-awareness and self-management, a
willingness to be taught and to handle mistakes while being
motivated to do better.
Appetite and adaptability are pretty important personal
characteristics to assess in a candidate, right? Especially in a
"new normal" hiring scenario where any recent blemishes to a
candidate's track record and tenure could too easily be blamed on
COVID-19.
Achievement
Finally, whilst past performance is no guarantee for future
results, there is some truth in the say "Success breeds success".
Indeed, the more success an individual has experienced in their
personal or professional life the more likely they are to be able
to visualise future success, to be confident in their ability to
achieve it, and to be resilient in the face of initial setbacks,
either independently or through coaching.
Key takeaways
The risk and cost of making a bad hiring decision is very high,
especially in the "new normal" hiring scenario where COVID-19 has
provided candidates and recruitment agencies with a catch-all alibi
for failure and inadequacy. To avoid it, your hiring strategy and
capabilities (skills, process, methodologies and tools) must be
adapted to better search for and assess personal characteristics
that are more reliable predictors of how a candidate is likely to
perform in their new role, considering your expectations,
management and leadership competencies and style, your team
culture, and your organisation's weaknesses, inefficiencies and
constraints.
With the exception of aptitude and achievement, all other
personal characteristics can be developed through tailored personal
development interventions (training, coaching and mentoring) in the
right organisational environment.
Your Mx Right is that candidate who meets your minimum
requirements for aptitude and achievement, and whose identified
strengths and weaknesses in terms of attitude, abilities, appetite
and adaptability you have the time, will and skill to work with and
fix, and for which your team and your organisation can provide the
right support and environment to nurture.
Please visit
https://hgcapital.com/insight/hiring-mx-right-what-sales-leaders-should-look-for-in-their-next-hire
>200 members of the team
3 investment offices in London, Munich and New York
c.120 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 200 people, including nearly 120
investment and 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 many years' 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,
including 16 European countries and the USA. On average, our
partners have 15 years' experience in the management of private
businesses.
Positioning 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 and vibrant culture, allow us to attract and hire the
best talent in our industry.
Improving our ability to identify talent
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.
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 are engaged by 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 engaged. We use
independent external benchmarks to gauge levels of engagement and
take appropriate actions to ensure the highest-possible levels of
engagement.
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, training, coaching,
performance and rewards to our values - for everybody across the
organisation, including our leadership.
For a description of Hg's key staff please visit:
hgcapital.com/our-people/
By continuing to invest in our people and our expertise, we are
able to work with the best management teams in our target clusters
and actively help them to build great businesses
Steven Batchelor, Chief Operating Officer, Hg
Diversity and inclusion
Hg has introduced several new policies, over the past 12 months,
as part of a wider initiative around diversity and inclusion.
In line with this wider initiative, Hg has formed its first-ever
Diversity and Inclusion Steering Group, comprising representatives
from across the firm. The steering group promotes a culture of
inclusion which clearly values diversity in all of its forms,
including several global initiatives around gender balance and
flexible working, along with training and awareness events. 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 the Level
20 Advisory Council.
At Hg, we aim to attract and maintain a team of the
best-possible investment and operational talent. To do this, we
need to ensure that we're building this team from the broadest
range of potential employees.
Having a clear strategy and committed team looking at diversity
and inclusion, with full support from the firm's senior leadership
team, is crucial.
Martina Sanow, Partner and Deputy Chief Operating Officer,
Hg
Removing barriers to education & skills in technology
The Hg Foundation
The Hg Foundation's goal is to make an impact on the development
of skills most required for employment within the technology
industry, focusing on individuals who may otherwise experience
barriers to access this education.
The foundation aims to achieve this by providing funding and
operational support to charitable schemes across the UK, US and
Europe, where measurable, long-term and scalable impact can be
demonstrated to make a difference to those who need it most.
The foundation has already formed its first two partnerships,
representing an initial total commitment of GBP1 million to be
delivered over the first two to three years: Imperial College
London, a global top-10 university with a world-class reputation in
science, engineering, business and medicine; The Tutor Trust, a
founding contributor to the UK Government's National Tutoring Fund,
including an additional donation to Impetus, a leading contributor
to this initiative.
The foundation will be funded 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's ambition is to reach an average
of GBP3 million annual commitments over the first 10 years.
The Hg Foundation is a UK-registered charity, run by an
independent Board of trustees: Tom Attwood (chair) and Sir Kevan
Collins. Tom Attwood is the former chair of the Academy and Free
School Board at the DfE. Sir Kevan Collins was the first chief
executive of The Education Endowment Foundation during 2011-19 and
is a visiting professor at the UCL Institute of Education
(IOE).
Hg Foundation partners: Imperial College London, Impetus, The
Tutor Group
For more information, please visit the Hg Foundation's website:
www.thehgfoundation.com
Responsible investment
Growing sustainable businesses which are great employers, have a
low environmental impact and are good corporate citizens
Why responsible investment is important to us
For Hg, responsible investment ('RI') means growing sustainable
businesses which are great employers, have a low environmental
impact and are good corporate citizens, while generating superior
risk-adjusted returns for the millions of pensioners and savers
globally whose funds are invested with Hg.
We want the businesses in which we invest to be genuinely
focused on doing well for all stakeholders, including employees,
customers, suppliers, shareholders and the wider society. We firmly
believe that responsible business practices help to generate
superior long-term performance.
Our responsible investment journey
We continue to demonstrate our commitment to RI publicly -
through our relationship with the United Nations-supported
principles for responsible investment (UNPRI). We have been
signatories since 2012 and are proud to have retained the top
score, AA++, for a second successive year, cementing our reputation
as a leader in ESG initiatives and innovation.
Hg has joined the UK network of the Initiative Climat
International (iCI), as a launch member. This global organisation
has been created recognising that climate change will have adverse
effects on the global economy, to join forces to contribute to the
objective of the Paris Agreement and to engage actively with
portfolio companies to reduce their greenhouse gas emissions,
contributing to an overall improvement in sustainability
performance. The iCI is officially endorsed by the principles for
responsible investment (PRI).
Hg has undertaken a full climate change risk assessment across
our portfolio, using our PwC-developed climate change risk tool.
This concludes that none of Hg's businesses faces high transition
or physical risk relating to its operations. We take the risk of
climate change very seriously and now, as a result of our
comprehensive review, have practical opportunities to reduce risks
and increase resilience, both within Hg and across the
portfolio.
Hg has been recertified as carbon neutral - our FY 2019/20
carbon footprint report, see below or page 35 of the Interim Report
and Accounts, shows Hg's value chain carbon footprint and what we
have done to offset our emissions. Our planned carbon reduction
strategy will set targets and identify opportunities to further
reduce our carbon emissions, helping Hg to transform our
environmental impact.
Since March 2020, the COVID-19 pandemic has presented challenges
to both Hg and our portfolio - and we have been quick to act.
Please see below or pages 36-37 of the Interim Report and Accounts
for details on how Hg and our portfolio responded to the
pandemic.
ESG in the deal process
ESG is embedded into the entire deal process, from screening to
exit. As a first step, we are very clear on the types of business
in which we do not invest - outlined in our exclusion list. During
due diligence, we assess companies for compliance with relevant
laws in relation to environmental, social, governance, health and
safety, bribery and corruption issues.
We also consider the inherent ESG risk of the company and carry
out an associated ESG review, detailing risks and opportunities in
relation to our responsible business framework (see below or page
34 of the Interim Report and Accounts).
We take an active approach to managing ESG during our ownership.
This starts with a responsible business onboarding and maturity
assessment, within the first months of acquisition, to identify
areas for improvement where Hg can support the companies to realise
their ambitions within and beyond our responsible business
framework.
As part of our ongoing engagement on responsible business, each
business is reassessed annually - and we follow up to ensure that
appropriate actions are taken to improve, as required.
PRI
A signatory to the UNPRI since 2012.
AA++ 2020 PRI assessment score: 'A+' for strategy and governance
and 'A+' for private equity ownership
Hg has joined the UK network of the Initiative Climat
International (iCI)
Our responsible business framework
Hg's responsible business framework outlines key ESG areas of
focus for software and service companies.
The framework is based on extensive research and forms the
foundation for the ESG assessments which we conduct of our
businesses as part of onboarding - and annually thereafter.
Essentials
There are certain minimum ESG requirements which Hg expects from
all of our businesses. These include:
Governance and business integrity , such as a company code of
conduct, appropriate controls, Board composition and appropriate
health and safety and grievance procedures.
Legal, compliance and risk , including compliance with all laws
and regulations and active risk management, as well as standards
and policies to combat bribery, corruption, money-laundering,
anticompetitive behaviour and other malpractice.
Data and cyber security , including Hg's minimum standards for
cyber security, along with appropriate information protection
practices and GDPR compliance.
Employees
One of the most important assets of our businesses is our
employees. A diverse workplace with engaged and motivated staff is
vital for growth and business success. We look at employees from
four aspects:
Purpose and culture , including company vision, mission and
values.
Grow businesses and talent , including job growth, healthy staff
turnover, talent management and succession-planning.
Engagement and motivation by promoting transparent
communications, health and well-being, learning opportunities,
recognition and good leadership.
Diversity of talent and equal opportunities irrespective of
ethnicity, gender, disability or background.
Society
We want all of our businesses to strive for positive external
impact by acting transparently and contributing to society through
their business practices, charitable and community support and
external relations. Our businesses affect society in several
ways:
Community engagement, including apprenticeships, charitable
giving and volunteering.
Environmental impact , such as energy use, carbon footprint,
data centre efficiency and waste management.
Positive relationships with key external stakeholders, including
customers and suppliers.
Transparency of company commitments and progress, including
external reporting and sustainability communications.
For more information, please visit:
hgcapital.com/responsibility
To watch our r esponsible i nvest ment video, please visit:
hgcapital.com/responsibility
Hg has been recertified as a carbon-neutral company and
continues to offset all carbon emissions.
With greater transparency, more accurate data and a new carbon
reduction strategy for 2020/21, we are making environmental
responsibility a crucial part of the way we do business.
In the past year, we have focused on reducing our emissions in
our office utilities and are proud to report good progress. Our
water emissions have dropped by two-thirds, while both our
electricity and mains gas emissions have reduced significantly
too.
However, our business has also grown. In 2019/20, Hg's headcount
increased by around 25% and, in April 2019, we opened our New York
office, both factors contributing to an increase in our
office-related emissions, business travel, hotel stays and staff
commuting.
With this in mind, we are creating a carbon reduction and
management strategy for 2020/21, with the aim of reducing our
footprint across all areas over the next 12 months. In particular,
we are examining how we can learn lessons from the new working
practices introduced during the COVID-19 pandemic, to translate
them into long-term policies which will help to transform our
environmental impact.
The issue
In 1994, the United Nations Framework Convention on Climate
Change recognised that the climate system can be affected by
greenhouse gas (GHG) emissions and ozone-depleting substances
(ODS). The consumption of fossil fuels, other industrial activities
and deforestation generate the majority of GHGs, such as carbon
dioxide, nitrous oxide, methane, chlorofluorocarbon (CFC),
hydrochlorofluorocarbon (HCFC) and hydrofluorocarbon (HFC). These
gases are collectively known as greenhouse gases, since they do not
interact with short-wave radiation from the sun; instead, they
absorb the reflected long-wave radiation from the Earth's surface
and reradiate this energy within the Earth's atmosphere as
heat.
Unless we take radical action, our lives - including our
resources, economies and businesses - are going to be profoundly
affected. Hg is taking very seriously indeed our responsibility to
be part of that action. By measuring and offsetting our carbon
footprint, we aim to do our part in tackling the global climate
emergency, while also supporting sustainable development in local
communities. We strive to lead by example and are working actively
with our portfolio companies to raise awareness and support urgent
positive change.
Methodology
This report outlines Hg's carbon footprint for the financial
year 2019/20. It has been prepared by external consultant Natural
Capital Partners and includes our scope one, two and three
emissions.
Premises:
These include mains gas and electricity consumption,
transmission and distribution losses, water consumption and waste
water leaving premises for treatment, as well as waste.
Business travel:
Air travel, including short- and long-haul flights. Rail,
including domestic journeys and Eurostar. Other forms of travel
include taxi, as well as hotel stays.
Other:
Staff commuting, including by car, rail, underground and taxi,
as well as couriers' deliveries.
GHG Emissions (tCO2e)
----------------------
Emissions Source 2018/2019 2019/2020 Year-on-Year Change
---------------------- ---------- ---------- --------------------
Refrigerant gas 0.0 1.9 +1.9
---------------------- ---------- ---------- --------------------
Mains gas 50.7 35.9 -14.8
---------------------- ---------- ---------- --------------------
Electricity Inc.
T&D losses 210.7 128.0 -82.7
---------------------- ---------- ---------- --------------------
Water and wastewater 6.1 2.0 -4.1
---------------------- ---------- ---------- --------------------
Waste 0.7 1.6 +0.9
---------------------- ---------- ---------- --------------------
Business Travel 1,345.70 1,973.0 +627.3
---------------------- ---------- ---------- --------------------
Hotel stays 19.3 38.2 +18.9
---------------------- ---------- ---------- --------------------
Staff commuting 21.8 63.9 +42.1
---------------------- ---------- ---------- --------------------
Outbound courier
deliveries 0.7 4.6 +3.9
---------------------- ---------- ---------- --------------------
Total 1,655.70 2,249.1 +593.4
---------------------- ---------- ---------- --------------------
Emissions Metrics
--------------------------------------------------------------------
Emissions / FTE 10.28 11.42 +1.14
---------------------- ---------- ---------- --------------------
Emissions / m2 0.60 0.68 +0.08
---------------------- ---------- ---------- --------------------
Offset and reduction
Hg continues to offset all carbon emissions by supporting the
Acre Amazonian Rainforest project. This prevents deforestation and
promotes sustainable economic livelihoods in the Brazilian
Amazon(1) .
With the funds of carbon finance, the project works with local
communities to create models of economic development which avoid
deforestation and protect the ecosystem. The project delivers four
of the 17 sustainable development goals: No Poverty, Zero Hunger,
Good Health and Well-Being and Life on Land.
(1)
https://www.naturalcapitalpartners.com/projects/project/acre-amazonian-rainforest-conservation
COVID-19 update :
Resources and information from across the Hg portfolio
With the COVID-19 pandemic affecting every aspect of business
and society, Hg is pleased to see that the businesses which we back
are providing the efficiency tools and expertise to help their
customers to best navigate this unique crisis and, in some cases,
actively helping our frontline carers to combat the impact of the
virus.
There have been some impressive and often critical efforts all
round - and we are proud to present a few of these.
Allocate
https://www.allocatesoftware.co.uk/healthroster-optima-deployed-to-e-roster-staff-at-nhs-nightingale-hospital-london/
Allocate, a leading international provider of workforce- and
resource-planning solutions, has been deployed to help to solve any
staffing issues at several of the UK's dedicated COVID-19 field
hospitals, with Allocate's HealthRoster Optima software being used
to e-roster staff. The SaaS solution was deployed in just nine days
at London Excel, as a starting point, and has been prepared to
deliver rostering for up to 30,000 staff at the 4,000-bed field
hospital.
Allocate has also created a dedicated COVID-19 hub for customers
on its website.
Evaluate
https://www.evaluate.com/covid-19-daily-update
Evaluate, a leading provider of commercial intelligence and
predictive analytics to the pharmaceutical industry, co-hosted a
virtual conference to bring together the life sciences industry to
support the fight against COVID-19.
With physical conferences impossible, #PartneringAgainstCOVID19
was a unique virtual-only event, aimed at accelerating the
industry's ability to find the right partner in developing
diagnostics, drug treatments and, ultimately, a COVID-19
vaccine.
Intelerad
https://www.intelerad.com/rally-against-covid19/#podcast
Intelerad, a leading global provider of medical imaging software
and enterprise workflow solutions, has committed to provide the
radiology community with technology which makes a difference and
information which really matters to its sector during this time.
The new podcast series, Rallying Against COVID-19, brings in
experts and external guests to discuss hot topics, including remote
readings tips, innovative solutions to the COVID-19 challenges and
more.
Citation
https://www.citation.co.uk/coronavirus-advice/
Citation Group provides tech-enabled compliance and
quality-related subscription services to SMEs across the UK. During
this crisis, Citation is helping over 40,000 SMEs in the UK to
navigate the HR and H&S issues related to COVID-19. Citation's
experts have also created an online hub and back-to-business
toolkit for the next phase of lockdown. Both are updated with the
latest government measures in the fight against the disease,
including live Q&A sessions with experts.
Transporeon
https://www.transporeon.com/en/expertise/corona-update/
Transporeon is a cloud-based logistics platform with strong
network effects, connecting over 1,200 shippers and almost 100,000
carriers worldwide. Transporeon has developed an amazing online
resource, including real-time cross-border traffic-tracking, to
help to navigate the logistics industry during the COVID-19
pandemic. This includes several services which Transporeon has made
freely available during this time, such as free access to regular
webinars with its supply-chain experts, free access to the
Transport Market Monitor (TMM) (enabling access to current market
trends and developments), free access to Ticontract Spot Tendering
(enabling quick access to freight capacity info) and free access to
a new portal, Transporeon Insights, where the team curates relevant
supply-chain content and data daily for supply-chain and logistics
leaders.
Visma
Admincontrol (Visma) is offering its online portal products
free, during this challenging time, to enable businesses to
communicate through a secure and encrypted platform.
Medifox
Medifox: The Medifox Connect product is free for six months, at
a time when visiting family in nursing homes or with home care
isn't easy. Using its family portal, relatives can easily exchange
personal messages, pictures and videos with loved-ones.
Azets (formerly CogitalGroup)
Blick Rothenberg: (Azets) has created an up-to-date guidance
hub, with advice on tax, contracts, government schemes and cash
flow management, among many other topics.
Lyniate
Lyniate is participating in the US SANER project, an industry
collaboration to revolutionise data-sharing and awareness of
healthcare capacity, during the pandemic and beyond.
Sovos
Sovos is offering free filing support for companies affected by
COVID-19 and is tracking governments' tax responses to the crisis
in real time.
Litera
Litera is offering Litera Transact free during the crisis,
helping legal teams to carry out several processes online, allowing
them to work, while reducing the need for, and risk of, physical
contact.
IRIS
IRIS has been updating its blog hub with practical advice on HR,
compliance, payroll and accounting for businesses. It launched a
free business-to-employee comms tool to help HR teams to engage
simply and securely with staff during COVID-19 isolation.
team.blue
team.blue helps over 2 million SMEs across Europe to create and
maintain their digital presence. This has proven crucial in keeping
businesses moving during the COVID-19 pandemic. The firm's Italian
division, Register, has been particularly active - also donating
actively to heavily affected Italian regions.
Commify
Commify has been offering free SMS messaging to healthcare
providers to make emergency communications easier.
EidosMedia
The speedy deployment of EidosMedia's mobile newsroom app has
enabled news rooms to work remotely during the crisis. EidosMedia
has also been fundraising in its Milan office, collecting and
donating around EUR13,000 to CESVI for Bergamo's Hospital Giovanni
XXIII.
Access Group
Access Group has active information hubs for the sectors which
it serves, including health and social care, hospitality and
recruitment - with more to come. All give guidance on combating the
spread of COVID-19 and how to meet staffing demands in a
crisis.
Mitratech
Mitratech has been rolling out new workflows, free of charge,
for TAP Workflow Automation clients, helping clients to manage the
new world, including self-reporting COVID-19 cases, a remote-work
tracker and travel approval requests.
Endsleigh (APG)
Endsleigh will pay the excess for NHS staff during lockdown and
they will pay no cancellation fees, should they choose to
cancel.
IT Relation
IT Relation will allow customers to make hardware purchases now
- and not pay until 2021.
Achilles
Achilles has built an action plan for buyers needing better
supply-chain visibility during the crisis and beyond. Achilles has
also created a COVID-19 resource centre and partnered with leading
law firm Schjødt - to offer customers free initial consultation on
new legislation.
https://hgcapital.com/covid-19-update-resources-and-information-from-across-the-hg-portfolio
Review of the period
Net asset value (NAV)
During the period, the NAV of HGT increased by GBP57 million,
from GBP1,039 million at 31 December 2019 to GBP1,096 million at 30
June 2020.
Attribution analysis of movements in NAV Revenue Capital Total
GBP000 GBP000 GBP000
Opening NAV as at 1 January 2020 23,536 1,015,762 1,039,298
Realised capital and income proceeds from
investment portfolio in excess of 31 December
2019 book value - 241 241
Net unrealised capital and income appreciation
of investment portfolio 21,105 71,718 92,823
Net realised and unrealised gains from liquid
resources 916 (1,662) (746)
Share issue - 2,368 2,368
Dividend paid (12,223) - (12,223)
Expenditure (3,400) (1,301) (4,701)
Taxation (559) - (559)
Investment management costs:
Priority profit share - current year paid (6,721) - (6,721)
Priority profit share - reallocation between
capital and income 566 (566) -
Carried interest - current period paid - - -
Carried interest - current period provision - (13,287) (13,287)
Closing NAV as at 30 June 2020 23,220 1,073,273 1,096,493
----------------------------------------------- -------- --------- ---------
Several underlying factors contributed to the increase in NAV.
Positive impacts were the GBP92.8 million revaluation of the
unquoted portfolio and uplifts of GBP0.2 million on the realisation
of investments, compared with their carrying value at the start of
the period. Shares issued during the year contributed a further
GBP2.4 million.
Reductions in NAV included: the payment of GBP12.2 million of
dividends to shareholders and a GBP13.3 million increase in the
provision for future carried interest.
Realised and unrealised movements in GBP'million
the value of investments Investment name
and ranking by value at 30 June 2020
------------------------------------------- ------------
Visma (1) 65.3
Sovos Compliance (2) 23.0
Litera (6) 9.3
P&I (5) 7.0
Access (4) 7.0
BrightPay (19) 6.0
Allocate (14) 5.5
FE fundinfo (15) 5.2
Medifox (20) 4.8
team.blue (8) 4.2
Transporeon (7) 3.5
Mitratech (13) 3.4
TeamSystem (18) 3.2
Citation (16) 2.7
Argus Media (11) 2.5
Other 0.1
Azets (9) (2.7)
Commify (24) (4.5)
------------------------------------------- ------------
During the period, the value of the unrealised investments
increased by GBP92.8 million, before the provision for carried
interest. The majority of the increase, GBP110.0 million, relates
to increases from profit growth in the underlying investments. A
decrease in valuation multiples reduced the value of investments by
GBP33.3 million.
Acquisitions net of realisations at carrying value of GBP118.7
million and GBP34.1 million of favourable currency movements
increased the value further. An increase in net debt of GBP17.0
million contributed negatively to the unrealised portfolio.
Top 20 portfolio trading performance as at 30 June 2020
The top 20 investments (representing 88% of total investments by
value) have delivered strong sales growth of 23% and EBITDA growth
of 27% over the last 12 months ('LTM').
The business model characteristics of the companies in which we
are invested give us confidence that double-digit growth can be
achieved consistently going forward.
More than 80% by value of the top 20 businesses within the
portfolio are seeing double-digit revenue growth, and more than 90%
have delivered double-digit EBITDA growth over the last 12
months.
Profits have gr own at a faster rate than revenues, with
continued investment made into the cost base of several companies,
for example, to finance increased sales and marketing capabilities
and strengthen management and new product development, continuing
to drive future performance.
We have seen very robust and consistent trading performance from
the majority of the portfolio, with particularly strong growth from
Litera, IT Relation, Mitratech, Citation, Access and Visma.
Where a company has not performed as well as we would like, we
have reflected this in its valuation. During the first six months
of 2020, we took the decision to write down Commify, Azets and
Intelerad - we have a strong path to recovery, going forward, for
all of these investments.
Overall, continued robust earnings growth and strong cash
generation continue to drive equity value in our investments.
Distribution of top 20 LTM sales growth: +23%
Number of investments % of top 20 portfolio
LTM Sales within associated by value within
Growth rates GBP' million band associated band
------------------ -------------- ---------------------- ----------------------
<10% p.a. 537 4 1 6%
10% to <15% p.a. 1,325 6 1 9%
15% to <25% p.a. 598 6 27%
>25% p.a. 1,992 4 38%
------------------ -------------- ---------------------- ----------------------
Distribution of top 20 LTM EBITDA growth: +27%
Number of investments % of top 20 portfolio
LTM EBITDA within associated by value within
Growth rates GBP' million band associated band
------------------ -------------- ---------------------- ----------------------
<10% p.a. 69 1 4%
10% to <20% p.a. 402 7 36%
20% to <30% p.a. 706 6 39%
>30% p.a. 229 6 21%
------------------ -------------- ---------------------- ----------------------
Valuation and net debt analysis as at 30 June 2020
Our valuation policy is 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; this resulted
in an average EBITDA multiple for the top 20 investments of 20.6x
(19.8x at 31 December 2019).
There remains a continued shift in the mix of the portfolio to
higher growth businesses, in particular in the software sector,
where we hold a number of companies with substantial opportunities
to grow their Software as a Service ('SaaS') business.
We contin ue to take a considered approach in determining the
level of maintainable earnings to use in each valuation, in line
with the IPEV Valuation Guidelines. Most holdings have been valued
using the LTM earnings to 31 May 2020, unless we have anticipated
that the outlook for the full current financial year is likely to
be lower, in which case we have used forecast earnings. The
earnings figure used may be adjusted on a pro-forma basis
reflecting any acquisitions, disposals or other adjustments to the
extent a buyer would make such adjustments. In selecting an
appropriate multiple to apply to a company's earnings, we look at a
basket of comparable companies, primarily from the quoted sector,
but also making use of M&A data. We also use back testing to
understand substantive differences that 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 for the top 20 of 6.1x LTM EBITDA (6.2x at 31
December 2019). Many of our businesses have highly predictable,
strong earnings growth and are very cash generative, enabling us to
use debt to reduce their cost of capital and improve returns on the
equity we hold.
Distribution of EV to EBITDA valuation multiples
20.6x top 20 EV to EBITDA multiple
% of top 20
portfolio by
Number of investments value within
EBITDA within associated associated
EV to EBITDA bands GBP' million band band
-------------------- -------------- ---------------------- --------------
<15.0x 213 4 12%
15.0x to <18.0x 122 4 11%
18.0x to <20.0x 172 3 7%
20.0x to <22.0x 670 5 53%
>22.0x 204 4 17%
-------------------- -------------- ---------------------- --------------
Distribution of net debt to EBITDA ratios
6.1x top 20 debt to EBITDA ratio
% of top 20
portfolio by
Number of investments value within
Debt within associated associated
Debt to EBITDA bands GBP' million band band
---------------------- -------------- ---------------------- --------------
<4.0x 1,455 3 29%
4.0x to <6.0x 1,534 6 15%
6.0x to <7.0x 2,006 6 22%
7.0x to <9.0x 2,471 3 25%
>9.0x 833 2 9%
---------------------- -------------- ---------------------- --------------
Outstanding commitments of HGT
At the end of 30 June 2020, HGT held liquid resources of GBP131
million and had outstanding commitments of GBP935 million, as
listed below. We anticipate the majority of these outstanding
commitments will be drawn down over the next four to five years
(2020 - 2025) and are likely to be partly financed by cash flows
from future realisations. Future commitments are likely to be drawn
down over a period of four to five years (2021-26). 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 an GBP80
million bank facility which was fully drawn as at 30 June 2020.
Fund Fund vintage Original Outstanding commitments Outstanding commitments
commitment as at 30 June 2020 as at 30 June 2019
GBPmillion
GBPmillion % of NAV GBPmillion % of NAV
Hg Genesis 9 2020 327.2(1) 327.2 29.8 - -
Hg Saturn 2 2020 323.7(2) 290.5 26.5 - -
Hg Mercury 3 2020 104.5(3) 104.5 9.5 - -
Hg Genesis 8 2018 350.0 105.5 9.6 143.5 13.8
Transition Capital 2018 75.0 49.4 4.5 59.1 5.7
Hg Mercury 2 2017 80.0 21.8 2.0 36.7 3.5
Hg Genesis 7 2013 200.0 18.2 1.7 20.0 1.9
Hg Saturn 2018 150.0 8.0 0.7 69.3 6.7
Hg Genesis 6 2009 285.0 4.0 0.4 2.4 0.3
Hg Mercury 2011 60.0 3.1 0.3 3.3 0.3
Pre-Hg Genesis 6
vintage pre-2009 120.0(4) 1.3 0.1 1.3 0.1
Hg6E 2009 15.0(5) 1.0 0.1 0.1 -
Asper RPP I 2006 19.7(6) 0.6 0.1 0.6 0.1
Total 935.1 85.3 336.3 32.4
Liquid resources 130.5 11.9 189.3 18.2
Net outstanding commitments
unfunded by liquid
resources 804.6 73.4 147.0 14.2
------------------------------------------- ----------- ----------------- -------- ----------------- --------
(1) Sterling equivalent of EUR360 million.
(2) Sterling equivalent of $400 million.
(3) Sterling equivalent of EUR115 million.
(4) Excluding any co-investment participations made through HGT
LP.
(5) Partnership interest acquired during 2011..
(6) Sterling equivalent of EUR21.6 million.
Investment portfolio of HGT
Fund limited partnerships Residual Total valuation(1)
cost GBP000 GBP000 Value %
Primary buyout funds:
HGT 7 LP 99,322 291,219 28.0
HGT 7 LP - Provision for carried interest - (47,901) (4.6)
HGT 8 LP 218,986 291,127 28.0
HGT Saturn LP 139,197 192,031 18.4
HGT Saturn LP - Provision for carried interest - (7,749) (0.7)
HGT LP 83,854 126,319 12.1
HGT Mercury 2 LP 38,969 64,137 6.2
HgCapital Mercury D LP 17,335 51,856 5.0
HgCapital Mercury D LP - Provision for
carried interest - (10,408) (1.0)
HGT Saturn 2 LP 31,617 38,181 3.7
HGT 6 LP 14,861 24,438 2.3
HGT 6 LP - Provision for carried interest - (5,059) (0.5)
Total primary buyout funds 644,141 1,008,191 96.9
Secondary buyout funds:
HgCapital 6 E LP 5,039 816 0.1
HgCapital 6 E LP - Provision for carried
interest - (257) -
Total secondary buyout funds 5,039 559 0.1
Total buyout funds 649,180 1,008,750 97.0
Transition capital funds:
HGT Transition Capital LP 24,462 30,517 2.9
Total transition capital funds 24,462 30,517 2.9
Renewable energy funds:
Asper RPP I 5,039 816 0.1
Total investments net of carried interest
provision 678,681 1,040,083 100.0
----------------------------------------------- ------------ ------------------ -------
(1) Includes accrued income.
Portfolio diversification and performance
Hg cluster by value
42% Tax & Accounting
17% ERP & Payroll
12% Legal & Regulatory
9% Healthcare IT
7% SME Tech & Services
4% Automotive
2% Insurance
7% Capital Markets & Wealth Management IT
Geographic spread by value
30% UK
22% Scandinavia
21% North America
17% Germany
10% Other Europe
Investment vintage by value
15% 2020
12% 2019
23% 2018
10% 2017
18% 2016
22% pre 2016
Analysis by value of investment return relative to its original
cost(2)
96% Above
4% Below
(2) Representing aggregate realised proceeds and unrealised
valuations of an investment
Investments and realisations
Investments
Over the course of the period, Hg invested a total of GBP1.4
billion on behalf of its clients, with HGT's share being GBP169
million.
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
Argus Media
GBP34.8m invested on behalf of HGT, including GBP4m in
co-investment
In January 2020, Hg completed an investment in Argus Media
('Argus'), a leading global provider of energy and commodity price
reporting, via the Hg Saturn Fund. Founded in 1970, Argus is an
independent media organisation headquartered in London. Companies
in 140 countries around the world use Argus data to index physical
trade and as benchmarks in financial derivative markets, as well as
for analysis and planning purposes.
P&I
GBP34.6m invested on behalf of HGT, including GBP5m in
co-investment
In March 2020, Hg completed an investment in Personal &
Informatik AG ('P&I'), a leading provider of cloud-based HR
software, headquartered in Germany. This acquisition, via the Hg
Saturn Fund, valued the business at an enterprise value of EUR2
billion. The seller, Permira, will remain invested in P&I, with
a substantial minority stake.
Visma
GBP31.6m invested on behalf of HGT
In June 2020, Hg completed a further investment in Visma, a
leading provider of business-critical software to private and
public enterprises in the Nordic, Benelux and Baltic regions, via
the Hg Saturn 2 Fund.
Intelerad
GBP31.2m invested on behalf of HGT
In February 2020, Hg completed an investment in Intelerad
Medical Systems ('Intelerad'), a leading global provider of medical
imaging software and enterprise workflow solutions, via the Hg
Genesis 8 Fund. Founded in 1999, Intelerad specialises in
diagnostic viewing, reporting and collaboration solutions for
radiologists. Headquartered in Montreal, the business has over 400
employees located in offices in Canada, the US, the UK and
Australia. The company serves over 300 healthcare organisations
around the world, including radiology groups, imaging centres,
clinics and reading groups, with a strong and growing presence in
hospital imaging departments. Healthcare IT 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 fifth healthcare
technology investment in Hg's current portfolio.
smartTrade
GBP17.5m invested on behalf of HGT, including GBP10m in
co-investment
In February 2020, Hg announced an investment in smartTrade
Technologies ('smartTrade'), a leader in multi-asset electronic
trading solutions, via the Hg Mercury 2 Fund. The transaction
completed in March 2020. Headquartered in France, smartTrade is a
managed services and hosted software provider for trading desks,
enabling its global client base of financial institutions to
develop and run high-performance trading platforms throughout the
world. Hg has been investing in capital markets & wealth and
asset management technology for almost 20 years and has known the
smartTrade team since 2015. During this time, Hg has recognised
smartTrade as a truly innovative business with an exceptional
leadership team, which has developed leading modular solutions used
by sell-side and buy-side market participants. With continued
potential for growth, smartTrade is a compelling fit with Hg's
expertise and capabilities.
Further investments
Achilles
GBP11.0m invested on behalf of HGT
In January 2020, HGT made a further investment in Achilles,
structured as a debt instrument via the Transition Capital Fund.
This will be used to implement the roll-out of new technology which
will complete the migration of the business onto a new platform
called 'my.Achilles'.
New investments since the period end
Sovos
Estimated GBP43.6m invested on behalf of HGT
In August 2020, Hg announced an investment in Sovos, a global
tax software provider, via the Hg Saturn 2 Fund, alongside TA
Associates.
F24
Estimated GBP10.5m invested on behalf of HGT, including GBP2.5m
in co-investment
In July, Hg announced that it had entered into an agreement to
invest in F24, a pan-European sector leader for emergency
notification, crisis and incident management and critical
communications, headquartered in Munich, Germany. Hg will invest in
a stake currently owned by Armira and co-founder Ralf Meister, to
become the majority shareholder in the business.
Evaluate
GBP11.5m invested on behalf of HGT, including GBP2.5 m in
co-investment
In August, Hg completed an investment in Evaluate Ltd, a leading
provider of commercial intelligence and predictive analytics to the
pharmaceutical industry. This investment is to continue to build
out capabilities which support pharmaceutical portfolio
optimisation and R&D productivity, accelerating investment in
innovation and data science capabilities and enabling options for
further expansion. Hg will now become the majority shareholder in
Evaluate.
Further investments since the period end
Visma
Estimated GBP24.3m invested on behalf of HGT
In August 2020, Hg announced a further majority investment in
Visma, a leading provider of business-critical software to private
and public enterprises in the Nordic, Benelux and Baltic regions,
valuing the company at US$12.2 billion, in the world's largest-ever
software buyout. This investment was made alongside new investors,
Warburg Pincus and TPG, as well as existing investor CPPIB.
Realisations
Over the course of the period, Hg has returned a total of GBP106
million to its clients, including GBP51 million to HGT.
While exits over the first 6 months of 2020 were slower in pace
than over the very active last few years, we continue to look at
opportunities to realise proceeds for our investors.
We have also taken advantage of buoyant debt markets during the
period by refinancing investments where we have good visibility of
their future earnings, returning cash proceeds to our clients,
including HGT, and we will continue to assess further
opportunities.
Full exits in the six months to 30 June 2020
e-conomic
GBP2.3m returned to HGT
In January 2020, Hg realised its residual holding in e-conomic,
a leading European software as a service ('SaaS') accounting
solutions provider to SMEs based in Denmark.
Partial exits in the six months to 30 June 2020
Visma
GBP47.0m returned to HGT
In June, HGT completed the sale of a portion of its
co-investment in Visma, a leading provider of business-critical
software to private and public enterprises in the Nordic, Benelux
and Baltic regions, in order to help to fund future investments and
additionally to reduce concentration levels within the
portfolio.
Full exits since the period end
Sovos
Estimated GBP139.2m realised on behalf of HGT
In August, Hg announced the sale of Sovos, a global tax software
provider, from the Hg Genesis 7 Fund, at an uplift of 55% to the 31
December 2019 book value. Hg will be re-investing in Sovos
alongside TA Associates, via the Hg Saturn 2 Fund.
Citation
Estimated GBP25.8m realised on behalf of HGT
In August, Hg announced the sale of Citation Group - a leading
provider of subscription-based HR and employment law, health and
safety and ISO services to SMEs - to KKR, a leading global
investment firm. This realisation was at an uplift of 26% to the 31
December 2019 valuation.
Evaluate
Estimated GBP10.8m realised on behalf of HGT
In August, Hg completed the sale of and investment in Evaluate
Ltd, a leading provider of commercial intelligence and predictive
analytics to the pharmaceutical industry. The sale of Evaluate
represented an uplift of 40% to the 31 December 2019 valuation of
HGT's stake.
Partial exits since the period end
Visma
Estimated GBP135.0m realised on behalf of HGT
In August, Hg announced the partial sale of Hg Genesis 7's
investment in Visma, a leading provider of business-critical
software to private and public enterprises in the Nordic, Benelux
and Baltic regions. This will represent an uplift of 22% to the 31
December 2019 valuation of HGT's stake.
Further detail on investments as at 30 June 2020 can be found
above or on pages 44-45 of the Interim Report and Accounts.
To view our press releases, please visit
hgcapitaltrust.com/news-and-media/press-releases/pr-2019.aspx
Summary of investment and realisation activity
Investments made during the period
Cost
Company Cluster Location GBP'000
Capital Markets & Wealth Management
Argus Media IT UK 34,807
P&I ERP & Payroll Germany 34,584
Visma Tax & Accounting/ERP & Payroll Scandinavia 31,617
Intelerad Healthcare IT North America 31,152
Capital Markets & Wealth Management
smartTrade IT France 17,458
Other 4,273
New investments 153,891
Achilles Legal & Regulatory Compliance UK 11,031
Other 4,546
Further investments 15,577
Total investments on behalf of HGT 169,468
================================================== ============== ========
Realisations made during the period
Proceeds(1)
Company Cluster Exit route GBP000
e-conomic Tax & Accounting Deferred proceeds 2,319
Full realisations 2,319
Visma Tax & Accounting/ERP & Payroll Secondary sale 47,036
Other 1,615
Partial realisations 48,651
Total proceeds from realisations 50,970
Carried interest paid to the Manager -
Total proceeds from realisations received by
HGT 50,970
=================================================== ================== =============
(1) Includes gross revenue received during the period ended 30
June 2020.
Hg's outlook
" All businesses have been affected by the global COVID-19
pandemic over the first half of 2020. However, we remain confident
that, for shareholders with a long-term investment horizon, our
distinctive style of private equity investing will continue to
deliver outperformance for HGT's shareholders ."
Luke Finch, Partner and Head of Client Services, Hg
Investments
Hg invests in companies across eight clearly identified
'clusters' which focus on managing business-critical activities for
their end customers, such as delivering legal and health and safety
advice to many thousands of businesses globally, helping companies
to pay taxes and payroll, deliver healthcare services or manage
supply chains. By their nature, these types of company and their
business models are highly resilient and should prove themselves to
be less disrupted by the macro-economic backdrop (pandemic induced
or otherwise) than is the broader economy. So far, these businesses
have, indeed, weathered the storm of COVID very well, yet,
nonetheless, with a severe global recession now the backdrop for
the rest of 2020 and beyond, it is important to note the potential
challenges ahead.
Within the private equity markets as a whole, deal activity has,
understandably, reduced. However, such activity has tended to focus
on the types of business we own: those with clearly identified
business drivers, the strongest of market positions and with
attractive growth prospects to continue to trade - and we have
benefited from this.
We expect this investment activity to continue as we seek to
back the types of company described above - businesses which, in
many cases, we have been tracking for several years. In 2020, we
have already announced or closed investments in Argus Media,
P&I, Visma, Intelerad and smartTrade - across the Saturn,
Genesis and Mercury funds. In all cases, we have leveraged our
increasing knowledge and experience into our investment judgement
and sought to complete only those deals with compelling return
prospects and where we are cognisant of the risks involved.
As ever, bolt-ons and more strategic M&A within the
portfolio remain a key focus for our deal teams. Across the current
portfolio, we have multiple live M&A situations, while MediFox,
Access, Visma, Mitratech, Sovos and IT Relation have already signed
meaningful bolt-ons in 2020. M&A remains a highly effective
tool for value creation in the fragmented markets in which our
market-leading platforms tend to operate.
In addition to the investment activity outlined above during the
first half of the year, we have announced new investments into
Evaluate, Sovos and Visma, over the last few weeks. These three
businesses are all companies in which Hg has previously been
invested. We are confident, therefore, in the robustness of their
business models and their future growth prospects in these
uncertain times. We will continue to support companies we know well
and have already backed for several years - providing fresh capital
to buy out other shareholders or to fund M&A - which remains a
major theme in our deployment for the next 12 months.
Realisations
Reporting to you in May 2020, we stated that we would continue
to focus on opportunities to crystallise value across our portfolio
and return money to our clients, including HGT. We have several
exit and refinancing processes already announced, currently under
way or specifically planned for the coming months.
A handful of these processes was planned for Q2 2020 and was
then delayed by the rapid deterioration of the COVID-19 crisis.
However, we are very pleased to see that buyers' appetite for the
types of business in which Hg invests has quickly returned. Post 30
June, we have signed the exits of four portfolio companies. These
exits will see GBP2.4 billion returned to clients of Hg, including
over GBP250 million net of carried interest to HGT through the
sales of Visma, Sovos, Citation and Evaluate - all at significant
uplifts to their 30-June book value (an average of 34% across these
four realisations).
Buyers of these businesses include some of the largest private
equity investment firms in the world, such as KKR, Warburg Pincus,
TPG and TA Associates, and some major institutional investors like
GIC and Canada Pension Plan, reflecting the appetite which these
large investment firms have to invest their capital into proven,
resilient businesses which have demonstrated the ability to drive
organic growth throughout the COVID-19 crisis so far, as have these
four companies.
We anticipate further exits to a mix of trade and financial
investors in the coming quarters.
Outlook
HGT published its annual report and accounts on 9 March as the
COVID-19 situation was starting to escalate. As we highlighted at
that time and iterated in our Q1 report, we expected the pandemic
to have a limited direct impact on Hg's portfolio, given the
defensive growth characteristics of the portfolio and our low
exposure to the most immediately affected industries, such as
travel and retail.
Our companies remain focused on selling business-critical and
non-discretionary software and services to their underlying
customers, typically with highly predictable business models and
high levels of robust, recurring revenue. Nevertheless, we do
expect to encounter the headwinds of lower global growth in 2020,
with the latest (June) IMF forecast for 2020 showing an 8.0% GDP
decline for advanced economies (mainly US, Europe and Japan). This
is materially worse than the global financial crisis and also a
significant worsening versus the April forecast of a 6.1% decline.
While it is possible that some of our investments may deliver
year-on-year declines in organic performance against this backdrop,
we still expect that the portfolio will, in aggregate, continue to
deliver growth over the medium and long term. Our companies
typically benefit from compelling market positions in their
respective verticals; so, we would expect any market weakness to
allow our companies to not only take relative market share, but
also benefit further from M&A opportunities which present
themselves.
The public markets are demonstrating confidence in the growth
prospects of listed businesses similar to ours. Although public
market valuations were unusually volatile in the first half of the
year, these have now recovered. By 30 June, the S&P500 Software
and Services Index (which has historically correlated well with our
portfolio) was above its December-2019 valuation on an LTM
EV:EBITDA basis. EBITDA growth over the first half has driven index
performance ahead of the valuation movement, and the overall index
level at 30 June 2020 was at February-2020 pre-COVID-19 peak
levels.
While COVID-19 has induced significant short-term volatility, we
also see clear evidence that it is accelerating the structural
trends which underpin Hg's long-term investment philosophy.
Microsoft's CEO, Satya Nadella, in its April earnings call, stated:
"We've seen two years' worth of digital transformation in two
months."(1) This was backed up by data such as Microsoft Teams
meetings usage increasing (measured by total minutes of meetings)
by nearly 400% in under three weeks during the US's pre- to
post-lockdown(2) . In its April quarter, Zoom took on approximately
six years' worth of customers in just three months. Across the Hg
portfolio, we have seen similar trends, with a rapid shift, for
example, towards e-invoicing, as customers look to reduce physical
contact levels.
The impact of cloud technologies is not only the improved
financial and operational characteristics of delivering software to
end customers, but also the ability to sell and implement customer
solutions an order of magnitude faster than previously achievable.
By way of a single example in our portfolio: alongside the immense
achievement of constructing the NHS Nightingale Hospital, London,
in under two weeks, came the need to deploy a software platform to
roster up to 30,000 staff at the hospital - we are extremely proud
that Hg portfolio company Allocate was able to implement its
Healthroster Optima SaaS solution in just a few days, in time to
have the hospital fully staffed for opening(3) .
Summary
In summary, despite these uniquely challenging times, Hg
believes that the combination of the long-term nature of private
equity investment, the unique Hg investment model, the types of
business in which Hg invests and the scale of the structural
opportunities which these can deliver will continue to drive
long-term growth for investors.
As we manage through this crisis, Hg will maintain a focus on
the best course of action for society, not only for our investors,
but also for all of the stakeholders towards which we, as a
responsible investor, have a duty of care.
(1)
https://www.microsoft.com/en-us/microsoft-365/blog/2020/04/30/2-years-digital-transformation-2-months/
(2)
https://www.microsoft.com/en-us/microsoft-365/blog/2020/04/09/remote-work-trend-report-meetings/
(3)
https://www.allocatesoftware.co.uk/healthroster-optima-deployed-to-e-roster-staff-at-nhs-nightingale-hospital-london/
Overview of the underlying investments
held through HGT's limited partnerships
Investments Year Residual Unrealised Cum.
(in order of cost value(1) Value value%
of value) Fund Cluster Location investment GBP000 GBP000 % %
HGT 7/HGT/ Tax & Accounting/ERP
1 Visma HGT Saturn & Payroll Scandinavia 2014 107,849 224,602 20.2 20.2
Sovos North
2 Compliance HGT 7/HGT Tax & Accounting America 2016 26,177 112,563 10.1 30.3
Tax & Accounting/ERP
3 IRIS HGT Saturn & Payroll UK 2018 36,380 64,921 5.8 36.1
4 Access HGT 8 ERP & Payroll UK 2018 30,491 63,955 5.8 41.9
HGT Saturn/HGT
5 P&I 7/HGT ERP & Payroll Germany 2020 36,380 61,526 5.5 47.4
Legal & Regulatory North
6 Litera HGT 8 Compliance America 2019 34,242 49,192 4.4 51.8
7 Transporeon HGT 8/HGT ERP & Payroll Germany 2019 42,192 46,044 4.1 55.9
HGT8/Mercury
8 team.blue 2 SME Tech & Services Benelux 2019 24,240 39,521 3.6 59.5
9 Azets(2) HGT 7/HGT Tax & Accounting UK 2016 20,966 37,757 3.4 62.9
Mobility
10 Holding HGT 8 Automotive Germany 2017 33,967 37,241 3.3 66.2
Capital Mrkts
& Wealth Mgmt
11 Argus Media HGT Saturn/HGT IT UK 2020 34,807 36,961 3.3 69.5
North
12 Intelerad HGT 8 Healthcare IT America 2020 31,152 28,795 2.6 72.1
Legal & Regulatory North
13 Mitratech HGT 7/HGT Compliance America 2017 22,258 27,076 2.4 74.5
14 Allocate HGT 8 Healthcare IT UK 2018 13,959 24,688 2.2 76.7
Capital Mrkts
Mercury/Mercury & Wealth Mgmt
15 FE fundinfo 2 IT UK 2017 6,687 23,223 2.1 78.8
Legal & Regulatory
16 Citation HGT 7 Compliance UK 2016 7,904 23,103 2.1 80.9
17 IT Relation HGT 8 SME Tech & Services Scandinavia 2018 16,037 21,105 1.9 82.8
Tax & Accounting/ERP
18 TeamSystem HGT 6 & Payroll Italy 2010 144 20,000 1.8 84.6
Transition
19 BrightPay Capital ERP & Payroll Ireland 2018 14,683 19,830 1.8 86.4
20 MediFox Mercury 2/HGT Healthcare IT Germany 2018 11,776 19,027 1.7 88.1
21 APG HGT 7 Insurance UK 2015 1,697 18,252 1.6 89.7
Capital Mrkts
& Wealth Mgmt
22 smartTrade Mercury 2/HGT IT France 2020 17,458 17,412 1.6 91.3
Legal & Regulatory
23 Achilles HGT Compliance UK 2008 28,328 16,500 1.5 92.8
24 Commify Mercury/HGT SME Tech & Services UK 2017 4,080 13,467 1.2 94.0
North
25 Lyniate Mercury 2 Healthcare IT America 2018 10,528 12,014 1.1 95.1
26 Evaluate Mercury Healthcare IT UK 2016 3,745 9,840 0.9 96.0
Legal & Regulatory
27 STP Mercury Compliance Germany 2016 4,260 9,631 0.9 96.9
28 Eucon Mercury Automotive/Insurance Germany 2015 4,658 7,774 0.7 97.6
Legal & Regulatory
29 Trace One Mercury Compliance France 2016 493 5,371 0.5 98.1
Project
30 Road Mercury 2 Insurance Germany 2020 4,274 4,709 0.4 98.5
31 Silverfin Mercury 2 Tax & Accounting Benelux 2019 3,214 3,608 0.3 98.8
32 EidosMedia HGT 7 SME Tech & Services Italy 2015 7,467 2,603 0.2 99.0
Non-active investments
(5) 26,110 5,309 0.5 99.5
Total buyout investments
(37) 668,603 1,107,620 99.5
Currency
hedges Various Forward sale of US$ and EUR - 2,205 0.2 99.7
Secondary
fund
interests Hg 6E Secondary fund interests - 1,286 0.2 99.9
Renewable
energy Asper I Renewable energy 5,039 816 0.1 100.0
Total all investments 673,642 1,111,927 100.0
---------------------------- -------------------- ----------- ---------- -------- ---------- ------ --------
(1) Including accrued income, but before the provision for
carried interest of GBP71,374,000.
(2) Formerly Cogital Group
Top 10 investments
representing 66% 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 GBP75 million and over
GBP5 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.
01 Visma
a leading provider of mission-critical business software to SMEs
in Northern Europe
Investment date August 2014
Location Scandinavia
Cluster Tax & Accounting/ERP & Payroll
Website visma.com
HGT's investment through HGT 7 LP, HGT Saturn LP, HGT Saturn 2
LP and co-investment through HGT LP
Hg clients' total equity: 62.7%
Unrealised value (GBP000): 224,602
% of NAV: 20.5%
l l l GBP
Recurring revenue
l l l l
Long-term growth
l l l l
Thousands of customers
l l l l
Platform for M&A
Business description
Visma provides business-critical software to SMEs and the public
sector in the Nordic and Benelux regions. Headquartered in Oslo,
with significant revenues in Scandinavia and the Netherlands, Visma
provides the following services to its customer base of more than a
million enterprise customers: 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 EUR850 million in pure
SaaS revenues.
Why we invested
Visma is an early example of Hg partnering with a business with
recurring revenues, offering business-critical application
software, supplying a fragmented customer base - a focus which
forms some of our key '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
during 2006-14 of 5.2x original cost and a gross IRR of 33%. In
2014, Hg reinvested in the business for a 31% stake, via Hg Genesis
7 and co-investment, alongside KKR and Cinven, valuing the business
at an EV of GBP2.1 billion. In 2017, Hg announced a further
investment in Visma, valuing the business at an EV of GBP4.2
billion. In 2018, Hg made an additional investment in Visma via Hg
Saturn. In 2019, Hg agreed to acquire the remaining Cinven stake,
alongside the Canada Pension Plan Investment Board, at an implied
EV of GBP5.5 billion. In 2020, Hg Saturn 2 Fund acquired around a
further 8% of Visma at an EV of NOK 83 billion. Following the
partial sale of HGT's co-investment in June, August 2020 saw Hg
lead the partial sale and further majority investment in Visma,
valuing the company at US$12.2 billion, in the world's largest-ever
software buyout. This valued the company at 22% over its carrying
value as at 31 December 2019.
Since 2006, Visma has acquired over 180 companies across the
Nordic and Benelux regions. These transactions have strengthened
organic growth from innovation in new products, as well as driving
margin improvement through a reorganisation of Visma's internal
processes. Visma is now positioned as one of the leading and
largest SaaS companies in Europe.
Performance
Visma continues to see strong double-digit revenue and EBITDA
growth year on year. This has led to HGT's valuation of its stake
in Visma rising by GBP65 million over the first six months of
2020.
Exit
Given the attractive elements of Visma's business model, the
management strength and upside potential from the SaaS transition,
Hg would like to continue to support Visma's next stage of
development. 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: https://www.visma.com/investors/financial-reports/
Visma case study:
hgcapital.com/case-studies/visma-joining-the-fight-against-unconscious-discrimination-towards-women-in-business/
02 Sovos
managing all aspects of the tax compliance process, from tax
calculation to secure funds transfer
Investment date March 2016
Location North America
Cluster Tax & Accounting
Website sovos.com
HGT's investment through HGT 7 LP and co-investment through HGT
LP
Hg clients' total equity: 91.7%
Unrealised value (GBP000): 112,563
% of NAV: 10.3%
l l l l
Recurring revenue
l l l l
Long-term growth
l l l GBP
Thousands of customers
l l l l
Platform for M&A
Business description
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 the Sovos
software suite is a powerful tax calculation engine which leverages
the industry's most comprehensive repository of over 210 million
tax rules, in more than 13,500 jurisdictions, across in excess of
200 countries. Sovos is headquartered in Boston, US, with a
presence in Europe and Latin America, with most of the revenue
generated from a US customer base of around 4,500 predominantly
large enterprises.
Why we invested
Hg tracked Sovos 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 of the US
market. Sovos sits right in the 'Hg sweet-spot', with a strong and
predictable business model, including around 95% contractually
recurring revenue; a fragmented, loyal customer base; high margins;
robust cash conversion. Sovos's largest, core products have
achieved close to double-digit organic revenue growth.
Value creation
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 that there are many attractive opportunities
for Sovos to grow by acquisition. There is additional potential
through further margin improvement.
Sovos has completed several acquisitions since partnering with
Hg in 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.
In August 2020, Hg announced the sale of Hg Genesis 7's
investment and associated co-investment in Sovos and a further
investment in the business, alongside TA Associates, at an uplift
of 55% to its holding value as at 31 December 2019.
Performance
Sovos has seen rapid growth since our initial investment, driven
by strong organic growth in its core products. We have also been
successful in deploying material capital into M&A and see
several additional opportunities ahead of us. HGT has benefited
from an increase of GBP23.0 million in the valuation of its stake
over the first half of 2020.
Exit
We believe that Sovos will be an attractive acquisition target
for private equity buyers, given its high levels of organic revenue
growth, EBITDA margins and market positioning; however, with strong
cash generation, we also see an IPO as a potential route to exit.
Lastly, there are several notable potential trade buyers.
03 IRIS
business-critical software & services to liberate the time,
talent & energy of UK businesses
Investment date September 2018
Location UK
Cluster Tax & Accounting/ERP & Payroll
Website iris.co.uk
HGT's investment through HGT 7 LP, HGT Saturn LP
Hg clients' total equity: 65.0%
Unrealised value (GBP000): 64,921
% of NAV: 5.9%
l l l l
Recurring revenue
l l l l
Long-term growth
l l l l
Thousands of customers
l l l l
Platform for M&A
Business description
IRIS is a UK-based software company, serving over 60,000
customers in the accountancy, human capital management, education
and bookkeeping segments.
It is a leading provider of core application software to UK and
US accountants and of payroll applications to UK SMEs, including
general practitioners.
With a highly recurring business model, over 85% of IRIS's
revenues are from software and managed service subscriptions, many
based on annual renewals paid in advance.
Why we invested
IRIS 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.
Value creation
The long-standing partnership between Hg and IRIS started with
the 2004 buyout (GBP102 million EV) led by Hg, followed by
retaining a minority shareholding after the sale to Hellman &
Friedman in 2007. In 2011, we again became the majority shareholder
through the Hg Genesis 6 Fund. In May 2018, Hg Genesis 6 agreed on
the sale of IRIS to Hg Saturn and ICG, in a joint-control deal
which completed in September 2018, representing an EV of GBP1.3
billion.
IRIS has been successful in expanding its offering, both
organically and by acquisition into segments such as payroll, HR
and education software. It continues to deliver added 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 has
continued to fuel outperformance, compared with other providers.
The UK accountancy and SME software markets remain fragmented,
offering further M&A opportunities, and we believe there to be
a substantial upside in developing or acquiring SaaS products to
target adjacent sectors.
Performance
IRIS has been able to maintain strong levels of organic revenue
and EBITDA growth across market cycles. For the past few years,
revenues have seen double-digit growth rates year on year.
Exit
We believe that IRIS will be an attractive acquisition target
for financial buyers, as it demonstrates high levels of organic
revenue growth, strong net recurring revenue and high EBITDA
margins, coupled with a leading sector position. We also see an IPO
as a potential route to exit, given predictable growth and strong
cash generation. Lastly, there are several potential strategic
buyers. For a full case study on IRIS, please visit:
www.hgcapitaltrust.com/investment-portfolio/case-studies/iris.aspx
04 Access
a leading provider of fully-integrated business management
software to UK mid-market organisations
Investment date June 2018
Location UK
Cluster ERP & Payroll
Website theaccessgroup.com
HGT's investment through HGT 8 LP
Hg clients' total equity: 32.1%
Unrealised value (GBP000): 63,955
% of NAV: 5.8%
l l l GBP
Recurring revenue
l l l l
Long-term growth
l l l l
Thousands of customers
l l l l
Platform for M&A
Business description
Founded in 1991, the Access Group ('Access') is a leading
enterprise resource-planning ('ERP') business, providing a range of
horizontal and industry-specific software solutions to SME,
mid-market and enterprise customers in the UK, Ireland and
Australia. Access's software helps over 35,000 businesses,
public-sector and not-for-profit organisations to work efficiently,
with expertise across numerous industries. When Hg invested in the
business in June 2018, the previous owner of Access, TA Associates,
elected to roll a material proportion of its existing investment
alongside Hg, because of its ongoing belief in the business's
potential. Hg is, therefore, a co-control shareholder in the
company, alongside TA Associates.
Why we invested
The investment in Access builds on Hg's previous experience in
the SME software, tax & accounting software and HR &
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.
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 through FY20, despite headwinds from
COVID-19. Growth remains robust, with the business seeing
double-digit organic recurring revenue growth in FY20. This has led
to HGT's valuation of its stake in Access rising by GBP7.0 million
for the year to date.
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's growth profile and strong cash generation. Lastly, there
are several notable potential trade buyers.
05 P&I
PURE HR providing integrated software for human resources
management to the German and European Mittelstand
Investment date March 2020
Location Germany
Cluster ERP & Payroll
Website pi-ag.com
HGT's investment through HGT 7 LP, HGT Saturn LP and
co-investment through HGT LP
Hg clients' total equity: 64.4%
Unrealised value (GBP000): 61,526
% of NAV: 5.6%
l l l l
Recurring revenue
l l l l
Long-term growth
l l l l
Thousands of customers
l l l GBP
Platform for M&A
Business description
Founded in 1968 and headquartered in Wiesbaden, Germany,
Personal & Informatik AG ('P&I') provides integrated
software solutions and services for human resources management.
P&I offers a fully integrated SaaS-based HR suite, including
payroll, core HR, human capital management and analytics, serving
more than 15,000 customers, ranging from SMEs to large enterprises
and public sector organisations of all sizes. While the customer
base is primarily in Germany, Austria and Switzerland, P&I also
serves customers, via its partners, across 13 countries in
Europe.
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;
exceptional historical operating performance; over 10 years'
consistent revenue and EBITDA growth.
P&I is highly rated among both its customers and the market
for the quality of its products. The organisation (particularly the
sales force) is very well managed and highly efficient.
Value creation
Hg initially took P&I private via a public takeover offer in
2013 and retained a residual 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 Mittelstand 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, which valued the company
at an enterprise value of around EUR2 billion.
Performance
P&I continues to perform well and has seen strong growth
over the last year. This performance and the transaction completed
in March 2020 have led to an increase of GBP7.0 million in the
valuation of HGT's stake since December 2019.
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.
For a full case study on P&l, please visit:
https://www.hgcapitaltrust.com/disclaimer-main-country.aspx
06 Litera
changes the way organisations perfect their documents and manage
transactions
Investment date May 2019
Location North America
Cluster Legal & Regulatory Compliance
Website litera.com
HGT's investment through HGT 8 LP
Hg clients' total equity: 87.0%
Unrealised value (GBP000): 49,192
% of NAV: 4.5%
l l l l
Recurring revenue
l l l l
Long-term growth
l l l GBP
Thousands of customers
l l l l
Platform for M&A
Business description
Litera is a leading provider of software for law firms and
document-intensive organisations across the globe, helping them to
satisfy clients' demands. Its core products empower users to draft,
proofread, compare, clean and distribute high-quality content,
quickly and securely, from any device. Litera Transact converts the
manual, tedious process of managing transactions by creating a
secure, collaborative workspace and automating the entire signature
process.
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 and 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
In July 2019, Litera acquired Workshare, a UK provider of secure
enterprise file-sharing and collaboration applications. The
combination has created a leader in document productivity tools and
transaction applications for law firms. Litera has since acquired
Doxly (a legal transaction management platform based in
Indianapolis), Best Authority (a legal drafting application for
legal citation management) and BestPractix (an AI-powered
contract-drafting application). Hg is focused on supporting the
Board and management team in the successful operational integration
of Workshare and Doxly, specific operational initiatives and
continuing to drive further add-on acquisitions of complementary
legal software vendors.
Performance
Litera has seen a strong start to its partnership with Hg with
the four completed acquisitions. The business is seeing strong
trading - and this has led to an increase of GBP9.3 million in
HGT's valuation of its stake over the first half of 2020.
Exit
Given its attractive characteristics, we believe that Litera
could be of interest to both strategic and financial buyers.
07 Transporeon
a cloud logistics platform with strong network effects,
connecting shippers & carriers world-wide
Investment date March 2019
Location Germany
Cluster ERP & Payroll
Website transporeon.com
HGT's investment through HGT 8 LP and co-investment through HGT
LP
Hg clients' total equity: 75.3%
Unrealised value (GBP000): 46,044
% of NAV: 4.2%
l l l l
Recurring revenue
l l l l
Long-term growth
l l l GBP
Thousands of customers
l l l GBP
Platform for M&A
Business description
Transporeon provides cloud-based logistics network and
transport-management software for road freight in Europe. The
platform enables hundreds of thousands of trucks to be booked and
tracked as they haul freight in trailers across the Continent.
As a leader in the sector, the business benefits from strong
network effects, connecting 100,000 users across over 90,000
carriers and more than 1,200 shippers, using a modern SaaS platform
available in over 100 countries and 24 languages. Its software
offers customers more efficient tendering, dispatching and
scheduling, along with better communication between the shippers
looking to move freight by road and the carriers providing 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, in line with historical levels. The business has seen
uninterrupted double-digit revenue CAGR for the past 15 years
across all market cycles. Transporeon exhibits several 'Hg
sweet-spot' business model criteria, including: 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 by its current customer base through up-
and cross-sell.
Value creation
Transporeon has undergone major management change under Hg's
ownership (new CEO, CFO, CCO 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 will be introduced permanently and
should result in lower costs (eg remote implementations). Further
to operational improvements, we identified M&A targets - this
could drive value creation further.
Performance
Transporeon had a strong start to 2020; however, the second
quarter was affected by COVID-19. Overall, the business performed
very resiliently and continued to grow throughout the first half of
2020, albeit more slowly than had been anticipated. The business is
now returning to the pre-COVID-19 growth trajectory. HGT has
benefited from an increase of GBP3.5 million in the valuation of
its stake over the period.
Exit
We believe that Transporeon will be a highly strategic asset to
other software or service providers in the broader transportation
management space and is also likely to continue to be a very
attractive company for PE buyers on the back of high net revenue
retention, strong cash conversion and a long-term organic growth
story.
08 team.blue
a leading digital enabler for companies and entrepreneurs across
Europe
Investment date March 2019
Location Benelux
Cluster SME Tech & Services
Website team.blue
HGT's investment through HGT 8 LP and HGT Mercury 2 LP
Hg clients' total equity: 30.0%
Unrealised value (GBP000): 39,521
% of NAV: 3.6%
l l l l
Recurring revenue
l l l l
Long-term growth
l l l l
Thousands of customers
l l l l
Platform for M&A
Business description
team.blue is a leading European provider of mass hosting
services to SoHos (small offices/home offices) and SMEs active
across Europe (the Netherlands, Belgium, Denmark, Ireland, the UK,
Italy, Portugal, Turkey and Bulgaria), with a growing presence in
Sweden, Switzerland and Spain. The business has more than 2 million
customers and is a one-stop partner for web hosting, domains,
e-commerce and application solutions.
Hg invested initially in Combell Group in March 2019 - focused
mainly on the Belgian and Danish markets, with a smaller presence
in the Netherlands, before supporting the transformational
acquisition of TransIP Group in June 2019, also focused on the
Netherlands. Finally, in September 2019, team.blue acquired
Register Group (a Mercury 2 portfolio company) - focused on growth
markets in Southern Europe, Italy and Spain, as well the UK and
Ireland. Following these acquisitions, the combined group rebranded
as team.blue.
Why we invested
This investment represents Hg's eighth investment in the SME
tech services cluster, with other recent hosting investments
including Zitcom (2015), DADA (2017) and IT Relation (2018).
team.blue shows similar characteristics to these businesses, having
consistently delivered strong organic revenue growth, best-in-class
customer satisfaction metrics and an exceptional M&A track
record. TransIP is a leading Dutch hosting and virtual private
server ('VPS') provider which we had been tracking for several
years, before our investment in Combell. It has highly attractive
consolidation potential and similarly positive financial
characteristics: high recurring revenues; robust underlying organic
growth; strong EBITDA margins.
Value creation
Our future focus will be on accelerating organic growth in the
core business, supported by commercial initiatives (eg packaging),
while continuing roll-up M&A in the fragmented European hosting
segment as it delivers on its differentiated strategy of being 'the
champion of the smaller countries in Europe'.
Performance
team.blue is trading in line with expectations, with COVID-19
having not adversely affected the company. This positive
performance has led to a GBP4.2 million uplift in the valuation of
HGT's stake in the business over the first half of 2020.
Exit
We believe that team.blue will be an attractive acquisition
target for financial buyers, as it has high levels of organic
revenue growth, strong net revenue retention and high EBITDA
margins. There are also several notable potential trade buyers -
and IPO is an option, given size and growth profile.
Interview with team.blue
CEO:https://hgcapital.com/insight/holding-on-to-your-entrepreneurial-spirit-a-view-from-the-top-with-jonas-dhaenens/
team.blue case
study:https://hgcapital.com/case-studies/team-blue-bringing-together-entrepreneurs-to-create-a-new-leader/
9 Azets
providing critical business support, BPO and advisory services
internationally
Investment date October 2016
Location UK
Cluster Tax & Accounting
Website azets.com
HGT's investment through HGT 7 LP and co investment through HGT
LP
Hg clients' total equity: 76.3%
Unrealised value (GBP000): 37,757
% of NAV: 3.4%
l l l GBP
Recurring revenue
l l l l
Long-term growth
l l l l
Thousands of customers
l l l l
Platform for M&A
Business description
Following years of development, Azets (formerly CogitalGroup)
was formally launched in 2017 through the acquisitions and merger
of Nordic-based Azets and UK-based Baldwins and Blick Rothenberg -
to form a platform providing various business services to SMEs in
Northern Europe. The group's focus is the provision of critical
business support, BPO and advisory services to the entrepreneurial
and private company business segments, together with their owners
and managers. Azets now has around 110,000 customers, with more
than 6,500 employees operating from 184 offices in the UK and
Scandinavia. The group also has 800 offshore employees based in
Romania and Lithuania, as well as a significant technology team,
focused on automation.
Why we invested
Azets continues Hg's focus of investing in regulatory-driven
businesses with 'sweet-spot' business model characteristics
including a diversified customer base, existing IP and recurring
revenues. We have been tracking the SME accountancy and advisory
services sector for many years, as it exhibits several attractive
criteria. These include: a high share of repeatable revenue; high
customer retention rates; a fragmented customer base and a
fragmented competitive landscape of founder-led businesses,
allowing for significant M&A opportunities. We believe there to
be significant market opportunity, as payroll, accounts
preparation, tax, audit, estate-planning and HR compliance services
underpin thousands of small businesses in every European country.
Based on our investments in other providers in the same sector, we
see an opportunity to create a scaled European service provider
which uses automation, technology, nearshoring and product scale to
drive significant value. Having built the core of Azets via
M&A, we are now building that champion via a
business-transformation process led by the Hg portfolio team.
Value creation
We are focused principally on three value-creation levers:
delivering long-term organic growth across the group; operational
transformation across the UK and Nordics; pursuing the acquisition
of high-quality accounting services businesses, as well as other
adjacent service providers. Hg has supported these value-creation
levers by adding experienced leadership and updated business
strategy and corporate structure, along with improved business
processes and management information.
Performance
Azets saw some underperformance in FY20 as a result of COVID-19,
owing to various short-term impacts on customers, particularly in
non-recurring revenue lines. However, the business still saw
year-on-year growth as a result of organic growth in some regions
and M&A.
Exit
We expect the business model characteristics of Azets to be
appealing to a wide range of financial investors at exit. Azets is
the scale platform to further consolidate this market across
Europe. We also expect an IPO to represent an attractive exit
opportunity.
10 Mobility Holding
a platform investment for B2B and B2C car leasing and online
distribution
Investment date May 2018
Location Germany
Cluster Automotive
Website mobilityholding.de
HGT's investment through HGT 8 LP
Hg clients' total equity: 84.2%
Unrealised value (GBP000): 37,241
% of NAV: 3.4%
l l l l
Recurring revenue
l l l l
Long-term growth
l l l l
Thousands of customers
l l l GBP
Platform for M&A
Business description
Mobility Holding operates platforms for B2B and B2C car-leasing
and online distribution. The company's products range from
traditional mobility offerings, such as vehicle-purchasing and
-leasing, 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 (low, all-inclusive price). Mobility
Holding was established following our investments in MeinAuto.de
('MA') and Athletic Sport Sponsoring ('ASS'), both leading B2C
online platforms for car purchases or leasing, and Mobility Concept
('MC'), a leading B2B fleet-leasing company. All investments took
place in 2018.
Why we invested
This investment 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
Zenith, Epyx, Eucon and Parts Alliance. Automotive distribution is
in the process of a fundamental transformation, moving from a
traditional, offline, dealership centric model to a multichannel,
online-enabled structure. Mobility Holding actively addresses this
transformation - and its product IP and customer access, combined
with strong growth and profitability, make it an attractive
investment. The business has a strong management team, with
significant experience in the German automotive leasing and online
distribution space and together, the group will benefit from strong
synergies among the three initial investments.
Value creation
Mobility Holding continues to execute the investment plan
formulated in 2018. Current key focus areas include optimisation of
lead conversion and efficiency enhancements. These should result in
several cost synergies being realised across the group. In
addition, the new 'used-car-leasing product' will be driven further
to create an additional remarketing channel for those cars which
are returned. Hg is supporting the management of Mobility Holding
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
In light of the COVID-19-affected automotive end market,
Mobility Holding displayed resilience and continued growth
throughout the first half of 2020. Recent developments further
point towards a fairly quick recovery, especially of the online
leasing segment.
The current valuation level didn't move materially throughout
the reporting period.
Exit
We are evaluating various exit routes and are firmly convinced
that a leading platform in online car distribution, specifically
when combined with a direct leasing offering, is of high relevance
to i) strategic buyers in the mobility ecosystem (eg large leasing
companies and automotive OEMs with a limited distribution footprint
in Germany) and also attractive to ii) financial sponsors.
Other investments
Many of our investments outside of the top 20 are also
performing well. Some of these are from the Hg Mercury funds which
invest in smaller software companies (GBP75 million to GBP450
million EVs) and are seeing strong double-digit growth in both
revenues and profits across its portfolio.
11 Argus
Cluster: Capital Markets & Wealth Management IT
Web: www.argusmedia.com
Date of investment: January 2020
Unrealised value (GBP000): 36,961
% of NAV: 3.4%
In January 2020, Hg completed an investment in Argus Media, a
leading global provider of energy and commodity price-reporting. Hg
became a joint shareholder in Argus, alongside Adrian Binks, chief
executive and chairman, General Atlantic (GA) and the management
team. Argus is new to the Hg portfolio and is currently valued at
GBP2.5 million above cost.
12 Intelerad
Cluster: Healthcare IT
Web: www.intelerad.com
Date of investment: February 2020
Unrealised value (GBP000): 28,795
% of NAV: 2.6%
In February 2020, Hg completed an investment in Intelerad
Medical Systems ('Intelerad'), a leading global provider of medical
imaging software and enterprise workflow solutions, via the Hg
Genesis 8 Fund. Founded in 1999, Intelerad specialises in
diagnostic viewing, reporting and collaboration solutions for
radiologists. The company serves over 300 healthcare organisations
around the world, including radiology groups, imaging centres,
clinics and reading groups, with a strong and growing presence in
hospital imaging departments. Healthcare IT 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 fifth healthcare
technology investment in Hg's current portfolio.
13 Mitratech
Cluster: Legal & Regulatory Compliance
Web: www.mitratech.com
Date of investment: April 2017
Unrealised value (GBP000): 27,076
% of NAV: 2.5%
Mitratech is a leading global provider of enterprise legal
management ('ELM') software to corporate legal departments. The
core products are matter-management software, which acts as the ERP
software at the heart of in-house legal teams, and an e-billing
solution, which provides e-invoicing capabilities between law
departments and external counsel, with automatic invoice review.
Mitratech serves a wide customer base of around 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. The company is headquartered in Texas, with further
offices in the US, England, Wales and Australia, employing around
400.
Mitratech case study:
https://hgcapital.com/case-studies/mitratech-building-a-global-technology-partner-for-the-legal-profession/
14 Allocate
Cluster: Healthcare IT
Web: www.allocatesoftware.com
Date of investment: August 2018
Unrealised value (GBP000): 24,688
% of NAV: 2.3%
Allocate Software ('Allocate') is a leading provider of
workforce-management software to the healthcare sector and other
complex regulated industries. The core product is used for
workforce-rostering, time and attendance management and associated
compliance workflows, such as monitoring and reporting on safe
staffing levels. The product addresses a clear and increasingly
pressing need for improved staff efficiency, regulatory compliance
and safety in the healthcare sector and also results in more
effective healthcare delivery. Allocate has seen an uplift in its
valuation over the first half of 2020 of GBP5.5 million.
For a video on Allocate, please visit:
hgcapital.com/case-studies/allocate-investing-in-rd-to-accelerate-organic-growth/
15 FE fundinfo
Cluster: Capital Markets & Wealth Management IT
Web: www.fefundinfo.com
Date of investment: November 2018
Unrealised value (GBP000): 23,223
% of NAV: 2.1%
Built from the merger of Financial Express, fundinfo and F2C, FE
fundinfo facilitates more efficient investing across the globe by
connecting fund managers and fund distributors, enabling them to
share and act on trusted, insightful information. It brings
together all of FE, fundinfo and F2C's many years of investment
expertise, technology, software and services into a combined and
holistic fund data and technology provider. With roots stretching
back to 1996, FE fundinfo has offices in the UK, Switzerland,
Luxembourg, India, Czech Republic, Singapore, Australia, Hong Kong,
Germany, Spain, France and Italy. With more than 650 staff members
across these offices, the organisation is truly global in its
outlook and capability. Performance over the first six months of
2020 has led to an uplift in HGT's stake in FE fundinfo of GBP5.2
million.
16 Citation
Cluster: Legal & Regulatory Compliance
Web: www.citation.co.uk
Date of investment: March 2016
Unrealised value (GBP000): 23,103
% of NAV: 2.1%
The Citation Group ('Citation') provides tech-enabled compliance
and quality-related subscription services to over 40,000 SMEs
across the UK. Citation helps SMEs to comply with relevant
regulations and to ensure that certain levels of quality and
standards are met, in areas such as HR/employment law, health and
safety, ISO and industry-specific rules and standards, by providing
a combination of expert advice, software tools and
audits/assessments, mostly on a long-term subscription basis.
Citation has seen an increase in its valuation within the HGT
portfolio of GBP2.7 million since the end of 2019.
In August, Hg announced the sale of Citation to KKR at an uplift
of 26% to its value at the end of December 2019.
17 IT Relation
Cluster: SME Tech & Services
Web: www.itrelation.dk
Date of investment: August 2018
Unrealised value (GBP000): 21,105
% of NAV: 1.9%
Founded in 2003, 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 more than 650 employees
supporting thousands of customers and tens of thousands of users in
Denmark and around the world.
18 TeamSystem
Cluster: Tax & Accounting/ERP & Payroll
Web: www.teamsystem.com
Date of investment: September 2010
Unrealised value (GBP000): 20,000
% of NAV: 1.8%
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 other western economies. TeamSystem has a
large and diversified customer base, with around 1.5 million
customers served by a strong direct sales force and a distribution
platform of over 350 software partners. TeamSystem continues to
perform and has seen an uplift of GBP3.2 million in its valuation
over the first half of 2020.
19 BrightPay
Cluster: ERP & Payroll
Web: www.brightpay.ie
Date of investment: August 2018
Unrealised value (GBP000): 19,830
% of NAV: 1.8%
Based outside Dublin, BrightPay provides payroll solutions to
SMEs and payroll bureaus in the UK and Ireland. BrightPay's
software is used by over 250,000 employers across the UK and
Ireland - under two brands: BrightPay and Thesaurus Software.
Strong performance to 30 June 2020 has led to an increase in HGT's
valuation in BrightPay of GBP6.0 million.
20 MediFox
Cluster: Healthcare IT
Web: www.medifox.de
Date of investment: October 2018
Unrealised value (GBP000): 19,027
% of NAV: 1.7%
MediFox DAN Group ('MediFox') is the leading provider of
software solutions to around 12,800 outpatient care services,
elderly care homes and therapists 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,
reimbursing and factoring. The company is headquartered in
Hildesheim, Germany, employing around 470 people. Strong
performance in the first six months of 2020 has led to an increase
in HGT's stake of GBP4.8 million.
21 APG
Cluster: Insurance
Web: www.aplan.co.uk
Date of investment: April 2015
Unrealised value (GBP000): 18,252
% of NAV: 1.7%
A-Plan Group ('APG') is one of the UK's largest specialist
insurance distribution groups, providing commercial and
personal-lines cover for those target segments which mainstream
providers are typically unable to reach, such as high-net-worth
individuals, students, micro-commercial owners and those needing to
insure specialist vehicles and homes. APG has a long heritage of
successfully taking care of its clients. This client-first approach
has been bolstered by the new capabilities and additional customer
segments which acquired businesses brought to the group. Recent
years have seen high-acquisition activity enabling the group to
achieve significant growth and build a position of strength and
stability.
For a video on A-Plan Group, please visit:
https://hgcapital.com/case-studies/a-plans-service-oriented-approach-to-insurance/
For a full case study on A-Plan Group, please visit:
hgcapital.com/case-studies/#overlay/case/343
22 smartTrade
Cluster: Capital Markets & Wealth Management IT
Web: www.smart-trade.net
Date of investment: March 2020
Unrealised value (GBP000): 17,412
% of NAV: 1.6%
In February 2020, Hg completed an investment in smartTrade
Technologies ('smartTrade'), a leader in multiasset class trading
solutions, with a focus on FX, via the Hg Mercury 2 Fund.
Headquartered in France, smartTrade is a managed services and
hosted software provider for trading desks, enabling its global
client base of financial institutions to develop and run
high-performance trading platforms throughout the world. Hg has
been investing in capital markets and wealth & asset management
technology for almost 20 years and has known the smartTrade team
since 2015. During this time, Hg has recognised smartTrade as a
truly innovative business, with an exceptional leadership team,
which has developed leading modular solutions, used by sell-side
and buy-side market participants.
23 Achilles
Cluster: Legal & Regulatory Compliance
Web: www.achilles.com
Date of investment: July 2008
Unrealised value (GBP000): 16,500
% of NAV: 1.5%
Achilles is a mission-critical provider of supply-chain
assurance solutions, allowing global purchasing organisations, in
industries with complex regulatory requirements, to drive
operational excellence. It is a technology-enabled business model,
whereby a network of buyers in a certain vertical industry (eg UK
utility companies, Scandinavian natural resources etc) requires its
key suppliers to qualify to a set of standardised information -
which suppliers submit via the my.Achilles platform. Such data is
critical to support risk-management processes around legislation,
health and safety, financial quality and trade regulation, as well
as ensuring diversification of the supply chain and so protecting
buyers against the high cost of failure. Achilles currently
operates more than 30 vertical market communities across five
continents.
24 Commify
Cluster: SME Tech & Services
Web: www.commify.com
Date of investment: January 2017
Unrealised value (GBP000): 13,467
% of NAV: 1.2%
Commify is a leading application-to-person ('A2P') messaging
service in Western Europe. The group is a roll-up of four
businesses: Mobyt (Q4 2016), SMS Envoi (Q2 2017), Esendex (Q2 2017)
and SMS Publi (Q2 2017). The group has since made a further seven
acquisitions across the UK, Spain and Germany. The customer base is
mainly SMEs and some larger enterprises which use Commify's
services to communicate with their end customers through messages,
voice and other media. The purpose of the communications can be
varied, but most messages are mission-critical, operational
content, such as appointment reminders and delivery notifications.
The business also supports marketing/promotional messages and
coupons, as well as surveys. Commify has grown organically and
through M&A over the past 10 years and now sends over 3 billion
SMS messages across the UK, Italy, France, Germany, Spain and
Australia.
25 Lyniate
Cluster: Healthcare IT
Web: www.lyniate.com
Date of investment: October 2018
Unrealised value (GBP000): 12,014
% of NAV: 1.1%
Lyniate (formerly Rhapsody) is a global leader in healthcare
interoperability and data liquidity solutions, with over 1,000
customers in 36 countries. Its software solutions serve public and
private hospitals, health systems, labs and clinics, health
information exchanges, healthcare IT and equipment vendors,
telemedicine vendors, public health departments and federal
government organisations. Lyniate provides an integration platform
which powers the complex and critical systems within healthcare,
with high-volume data-acquisition and data-integration
capabilities. The platform's comprehensive set of tools helps to
simplify interoperability in complex healthcare environments,
enabling seamless integration with electronic medical records.
During the COVID-19 pandemic, Lyniate served as the keystone of
pandemic reporting and agility, enabling the timely sharing of
critical data.
26 Evaluate
Cluster: Healthcare IT
Web: www.evaluate.com
Date of investment: November 2016
Unrealised value (GBP000): 9,840
% of NAV: 0.9%
Evaluate is a leading provider of commercial data to the life
science industry, supplying critical information for complex
commercial decisions to pharmaceutical companies and their
advisers. The core data around which the business has been built is
the supply of third-party research analyst consensus forecasting,
down to a product, disease indication and geographic level - which
is important for users in business development, licensing and
corporate strategy. Data is collected from around 200 organisations
(directly and indirectly), company reports and government data
sources, then Evaluate creates value by normalising, structuring
and updating this information continuously into a single,
consistent dataset, delivered in an easy-to-consume format to key
decision-makers.
In August 2020, Hg completed the sale of Evaluate at an uplift
of GBP3.1 million (40%) or 1.0p per share over the carrying value
of GBP7.7 million in the NAV of HGT at 31 December 2019. Hg has
taken the opportunity to make a further investment in the business,
alongside other institutional clients of Hg, via the Hg Mercury 2
Fund.
Video on Evaluate: https://
https://hgcapital.com/case-studies/evaluate-vision-harnessing-data-science-to-quantify-technical-and-regulatory-success/
For a full case study on Evaluate, please visit:
http://hgcapital.com/case-studies/evaluate-accelerating-the-growth-of-a-best-in-class-product/
27 STP
Cluster: Legal & Regulatory Compliance
Web: www.stp-online.de
Date of investment: June 2016
Unrealised value (GBP000): 9,631
% of NAV: 0.9%
STP is a leading provider of insolvency and law practice
software in Germany and Switzerland. Founded in 1993 and
headquartered in Karlsruhe, Germany, the business employs around
200 FTEs, serving over 1,200 legal customers with critical
software. STP's core business, with its leading market position in
the German market, is providing software solutions for insolvency
law firms. In recent years, STP launched a legal
practice-management software suite for larger law firms which is
growing strongly. In addition, the company offers business
information in the insolvency space and has a document-management
software product which it sells into the insolvency market, as well
as in combination with its practice-management software.
28 Eucon
Cluster: Automotive/Insurance
Web: www.eucon.com
Date of investment: May 2015
Unrealised value (GBP000): 7,774
% of NAV: 0.7%
Eucon comprises two business units: automotive and digital
services. The automotive division is a leading provider of
automotive parts-pricing and reference data to vehicle and parts
manufacturers globally. Eucon collects, processes and supplies
crucial data to support its customers in managing their parts and
aftermarket operations. The digital services division is a highly
automated claims-management service to insurers in Germany, as well
as providing data extraction tools for real-estate clients. In the
insurance claims management business, Eucon assists insurers in
achieving lasting reductions in claims expenditure through the
sophisticated automation of claims processes and the application of
structured data, for both car insurance and property insurance
claims. In addition to this, the digital services division helps
real-estate clients to automate data extraction, leveraging AI and
machine-learning capabilities. Eucon has around 400 staff and is
headquartered in Germany, with an additional office in the USA. The
business serves nearly 250 clients, operating in 40 countries.
For a full case study on Eucon, please visit:
http://hgcapital.com/case-studies/eucon-applying-ai-know-how-to-build-a-digital-leader/
Asper
Cluster: Renewable energy
Web: www.asper-im.com
Unrealised value (GBP000): 1,286
% of NAV: 0.1%
HGT has a small investment in a renewable energy fund. This fund
investment continues to be overseen by the Manager, but is managed
by a specialised renewable energy team formerly at Hg (Asper).
Financial statements
Income statement for the six months ended 30 June 2020
Revenue return Capital return Total return
Six months ended Year ended Six months ended Year Six months ended Year ended
ended
30.6.20 30.6.19 31.12.19 30.6.20 30.6.19 31.12.19 30.6.20 30.6.19 31.12.19
Notes GBP000 GBP000 GBP000 GBP000 GBP'000 GBP000 GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited)
Gains on
investments
and liquidity
funds - - - 55,563 109,133 161,389 55,563 109,133 161,389
(Losses)/gains
on priority
profit
share loans
advanced to
general
partners 7(b) - - - (566) 1,618 4,679 (566) 1,618 4,679
Net income 6 15,866 9,905 15,549 - - - 15,866 9,905 15,549
Other expenses 8(a) (2,213) (1,419) (3,288) - - - (2,213) (1,419) (3,288)
Net return
before finance
costs
and taxation 13,653 8,486 12,261 54,997 110,751 166,068 68,650 119,237 178,329
Finance costs 8(b) (1,187) (1,053) (755) - - - (1,187) (1,053) (755)
Net return
before
taxation 12,466 7,433 11,506 54,997 110,751 166,068 67,463 118,184 177,574
Taxation 10 (559) - (80) - - - (559) - (80)
Net return
after taxation
attributable
to reserves 11,907 7,433 11,426 54,997 110,751 166,068 66,904 118,184 177,494
Return per
ordinary
share* 11(a) 2.92 p 1.98 p 2.94 p 13.49 p 29.52 p 42.77 p 16.41 p 31.50 p 45.71 p
--------------- ----- ------- ---- ------- ---- ------- -------- --- -------- --- -------- -------- --- -------- --- --------
All per share workings have been restated for the 10:1
share-split in May 2019.
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 2020 Notes 30.6.20 30.6.19 31.12.19
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
Fixed asset investments
Investments at fair value through profit
or loss:
Unquoted investments 966,167 772,073 788,013
Total fixed asset investments 966,167 772,073 788,013
Current assets - amounts receivable after
one year:
Accrued income on fixed assets 74,386 45,464 54,266
Current assets - amounts receivable within
one year:
Debtors 7,716 154 8,961
Investments at fair value through profit
or loss:
Liquidity funds 76,227 153,537 184,505
Uninvested capital in limited partnerships 49,816 2,045 226
Cash at bank 4,503 3,209 4,558
Total current assets 212,648 204,409 252,516
Creditors - amounts falling due within
one year (2,026) (1,351) (1,231)
------------------------------------------- ----- ----------- ----------- -------------
Net current assets 210,622 203,058 251,285
------------------------------------------- ----- ----------- ----------- -------------
Creditors - amounts falling due after
one year (80,296) - -
Net assets 1,096,493 975,131 1,039,298
Capital and reserves:
Called-up share capital 10,211 10,065 10,186
Share premium account 197,117 182,791 194,774
Capital redemption reserve 1,248 1,248 1,248
Capital reserve - unrealised 281,469 217,374 264,953
Capital reserve - realised 583,228 536,863 544,601
Revenue reserve 23,220 26,790 23,536
-----------
Total equity shareholders funds 1,096,493 975,131 1,039,298
-----------
Net asset value per ordinary share* 11(b) 268.5 p 242.2 p 255.1 p
Ordinary shares in issue at 30 June/31
December 408,424,808 402,599,808 407,424,808
------------------------------------------- ----- ----------- ----------- -------------
*All per share workings have been restated for the 10:1
share-split in May 2019.
The financial statements of HgCapital Trust plc (registered
number 01525583) in this announcement and on pages 66-78 of the
Interim Report and Accounts were approved and authorised for issue
by the Board of Directors on 11 September 2020 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
2020
Six months ended Year ended
Notes 30.6.20 30.6.19 31.12.19
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
Net cash (outflow)/inflow from operating
activities 9 (57,167) 394 (4,657)
Investing activities:
Purchase of fixed asset investments (169,468) (107,265) (117,284)
Proceeds from the sale of fixed asset
investments 49,985 54,737 96,621
Purchase of liquidity funds (46,500) (59,100) (90,000)
Redemption of liquidity funds 155,378 60,100 61,100
Net cash outflow from investing activities (10,605) (51,528) (49,563)
Financing activities:
Drawdown of loan facility 78,759 - -
Servicing of finance (1,187) (1,053) (1,475)
Equity dividends paid (12,223) (11,197) (18,444)
Proceeds from issue of shares 2,368 63,157 75,261
Net cash inflow from financing activities 67,717 50,907 55,342
(Decrease)/increase in cash and cash equivalents
in the period (55) (227) 1,122
Cash and cash equivalents at 1 January 4,558 3,436 3,436
Cash and cash equivalents at 30 June 4,503 3,209 4,558
------------------------------------------------- ----- ----------- ----------- ----------
The following notes form part of these financial statements.
Statement of changes in equity
for six months ended 30 June 2020
Non-distributable Distributable
Share Capital Capital Capital
Share premium redemption reserve reserve Revenue
capital account reserve - unrealised - realised reserve Total
Notes GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 1 January 2020 10,186 194,774 1,248 264,953 544,601 23,536 1,039,298
Net return after
taxation - - - 16,516 38,626 11,907 67,050
Contributions of
equity net of transaction
costs 25 2,343 - - - - 2,368
Equity dividends
paid 4 - - - - - (12,223) (12,223)
At 30 June 2020 10,211 197,117 1,248 281,469 583,227 23,220 1,096,493
At 1 January 2019 9,331 120,368 1,248 119,958 523,528 30,554 804,987
Net return after
taxation - - - 144,995 21,073 11,426 177,494
Contributions of
equity net of transaction
costs 855 74,406 - - - - 75,261
Equity dividends
paid 4 - - - - - (18,444) (18,444)
At 31 December
2019 10,186 194,774 1,248 264,953 544,601 23,536 1,039,298
--------------------------- ----- -------- -------- ----------- ------------- ----------- -------- ---------
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 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'), issued in October
2019. All of HGT's operations are of a continuing nature.
HGT has considerable financial resources and, as a consequence,
the Directors believe that HGT is well placed to manage its
business risks. 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 nine 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 and February 2020; 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 and HGT Saturn 2 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 47
of the Interim Report and Accounts. The underlying investments
which are held indirectly are included in the overview of
investments above or on page 50 of the Interim Report and
Accounts.
Consolidated financial statements have not been prepared because
HGT does not have control over the operating or financial
activities of the underlying investment-holding limited
partnerships, as the general partners are responsible for the
management of their activities.
Partnerships where HGT is a minority limited partner
In July 2011, HGT acquired a direct secondary investment in
HgCapital 6 E LP ('Hg 6E 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 6E LP Fund, as shown on the balance sheet and in the table
of investments above on page 47 of the Interim Report and
Accounts.
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 on page 50 of the 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
via a loan from HGT. Such loan is recoverable from the general
partner only by an appropriation of net income; until net income is
earned, no value is attributed to this loan (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, whereas PPS paid as an interest-free loan,
if any, is charged as an unrealised depreciation to the capital
return on the income statement.
The carried-interest payments made from net income and capital
gains are charged to the revenue and capital account respectively
on the income statement.
4. Dividends
A final dividend of 3.0p per share was paid (as a second
interim) on 12 May 2020 in respect of the year ended 31 December
2019 (2019: interim dividend in respect of the year ended 31
December 2019 of 16.0p per share and final dividend of 30.0p per
share in respect of the year ended 31 December 2018).
Note: the above stated figures are prior to the 10:1 share-split
in May 2019.
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
30.6.20 30.6.19 31.12.19
(unaudited) (unaudited) (audited)
No. 000 GBP000 No. '000 GBP'000 No. 000 GBP000
Ordinary shares of 2.5p each:
Allotted, called up and fully
paid:
At 1 January 407,425 10,186 37,325 9,331 37,325 9,331
Sub-division of ordinary shares - - 335,922 - 335,922 -
Issues of ordinary shares 1,000 25 29,353 734 34,178 734
At 30 June/31 December 408,425 10,211 402,600 10,065 407,425 10,186
Total called-up share capital 408,425 10,211 402,600 10,065 407,425 10,186
-------------------------------- ------- ------ -------- ------- ------- ------
6. Income
Revenue return
Six months ended Year ended
30.6.20 30.6.19 31.12.19
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
Total net income comprises:
Interest 15,866 9,905 15,549
Total net income 15,866 9,905 15,549
---------------------------- ----------- ----------- ----------
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.
Income from investments held by the primary
buyout funds
Unquoted investment income 21,105 15,995 27,847
Other investment income:
Unquoted investment income - - 1,378
Liquidity funds income 870 914 1,788
Total investment income 21,975 16,909 31,013
Total other income 46 45 46
Total income 22,021 16,954 31,059
Priority profit share charge against income:
Current period - HGT 8 LP (3,020) (4,672) (10,463)
Current period - HGT Mercury 2 LP (1,155) (684) (1,654)
Current period - HGT 7 LP (1,063) (1,135) (2,148)
Current period - HGT Saturn LP (590) (253) (665)
Current period - HgCapital Mercury D LP (194) (196) (392)
Current period - HGT Transition Capital LP (94) (93) (188)
Current period - HGT LP (39) (16) -
--------------------------------------------- ------- ------- --------
Total priority profit share charge against
income (note 7(a)) (6,155) (7,049) (15,510)
--------------------------------------------- ------- ------- --------
Total net income 15,866 9,905 15,549
--------------------------------------------- ------- ------- --------
7. Priority profit share and carried interest
(a) Priority profit share payable to general
partners Revenue return
Six months ended Year ended
30.6.20 30.6.19 31.12.19
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
Priority profit share payable:
Current period amount 6,721 5,431 10,831
Less: Current period loans advanced to general
partners (note 7(b)) (1,065) (7) (31)
Add: Prior period loans recovered from general
partners (note 7(b)) 499 1,625 4,710
Current period charge against income 6,155 7,049 15,510
Total priority profit share charge against
income 6,155 7,049 15,510
----------------------------------------------- ----------- ----------- ----------
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
2020 were:
Primary buyout fund Priority profit share
partnership
HGT 8 LP 1.75% on the fund commitment during the investment
period
HGT Mercury 2 LP 1.75% on the fund commitment during the investment
period
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 1.5% of original cost of investments in the fund,
LP less the original cost of investments which have
been realised or written off
HGT 6 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 2 LP 1.0% on the fund commitment during the investment
period
HGT Saturn LP 1.0% on invested capital
HGT Transition Capital 1.25% on invested capital
LP
HGT LP 0.5% on the value of investments in fund, excluding
co-investments
---------------------- ---------------------------------------------------
In addition, priority profit shares are payable on partnerships
where HGT is a minority limited partner invested pari passu with
other institutional investors. These amounts are initially and
indirectly funded by HGT through the amounts invested in these
partnerships, and these amounts are recognised as unrealised losses
in the capital account in the income statement.
Fund partnership Priority profit share
Hg 6 E LP 1.5% of original cost of investments in the fund,
less the original cost of investments that have
been realised or written off
Asper Renewable Power 1.5% of original cost of investments in the fund,
Partners LP less the original cost of investments that have
been realised or written off
--------------------- -------------------------------------------------
(b) Priority profit share loans to general
partners Capital return
Six months ended Year ended
30.6.20 30.6.19 31.12.19
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
Movement on loans to general partners:
Losses on current-period loans advanced to
general partners (1,065) (7) (31)
Gains on prior-period loans recovered from
general partners 499 1,625 4,710
Total (losses)/gains on priority profit share
loans (advanced to)/recovered from general
partners (566) 1,618 4,679
---------------------------------------------- ----------- ----------- ----------
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 Year ended
30.6.20 30.6.19 31.12.19
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
Carried interest charge against capital gains:
Current period charge against realised capital
gains - - 1,511
Current period charge against unrealised capital
gains 13,287 12,371 15,775
Total carried-interest charge against capital
gains 13,287 12,371 17,286
------------------------------------------------- ----------- ----------- ----------
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 110 in the full 2019 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 2020, GBPnil (2019: GBP1,511,000) of carried interest
was paid in respect of the current financial period. If the
investments in HGT 6 LP, HGT 7 LP, HgCapital Mercury D LP, Hg 6 E
LP and HGT Saturn LP are realised at the current fair value and
then distributed to partners, an amount of GBP71,374,000 will be
payable to the founder partner (2019: GBP58,087,000 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 Year ended
30.6.20 30.6.19 31.12.19
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
Registrar, management and administration fees 539 436 975
Legal and other administration costs(1) 1,562 983 2,211
---------------------------------------------- ----------- ----------- ----------
Total other expenses 2,101 1,419 3,186
---------------------------------------------- ----------- ----------- ----------
(1) Includes employer's National Insurance contributions of
GBP17,000 (2019: GBP32,000).
Revenue return
Six months ended Year ended
(b) Finance costs 30.6.20 30.6.19 31.12.19
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
---------------------------------------- ----------- ----------- ----------
Interest paid 864 - -
Non-utilisation fees and other expenses 224 333 755
Arrangement fees 99 720 -
---------------------------------------- ----------- ----------- ----------
Total finance costs 1,187 1,053 755
---------------------------------------- ----------- ----------- ----------
9. Cash flow from operating activities
Reconciliation of net return before finance
costs and taxation to net cash flow from operating
activities Six months ended Year ended
----------------------------------------------------
30.6.20 30.6.19 31.12.19
----------------------------------------------------
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
---------------------------------------------------- ----------- ----------- ----------
Net return before finance costs and taxation 68,650 119,237 178,329
Gains on investments held at fair value and
liquidity funds (70,151) (122,956) (179,785)
Carried interest paid - - (1,511)
Increase in carried-interest provision 13,287 12,371 15,775
Increase in accrued income from liquidity funds (870) (914) (1,788)
Increase in prepayments, accrued income and
other debtors (18,729) (5,933) (15,989)
(Decrease)/increase in creditors (49,353) (1,411) 288
Taxation (paid)/received (1) - 24
Net cash (outflow)/inflow from operating activities (57,167) 394 (4,657)
---------------------------------------------------- ----------- ----------- ----------
10. Taxation
Taxation for the six-month period is charged at 19% (31 December
2019: 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) Return per ordinary Revenue return Capital return
share
Six months ended Year ended Six months ended Year ended
30.6.20 30.6.19 31.12.19 30.6.20 30.6.19 31.12.19
(unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited)
Amount (GBP000):
Net return after taxation 11,907 7,433 11,426 54,997 110,751 166,068
Weighted average number
of ordinary shares
(000):
Weighted average number
of ordinary shares
in issue 407,538 375,204 388,267 407,538 375,204 388,267
Return per ordinary
share (pence)* 2.92 1.98 2.94 13.49 29.52 42.77
-------------------------- ----------- ----------- ---------- ----------- ----------- ----------
All per share workings have been restated for the 10:1
share-split in May 2019.
Capital return
Six months ended Year ended
(b) Net asset value per ordinary share 30.6.20 30.6.19 31.12.19
(unaudited) (unaudited) (audited)
Amount (GBP000):
Net assets 1,096,493 975,131 1,039,298
Number of ordinary shares ('000):
Number of ordinary shares in issue 408,425 402,600 407,425
Net asset value per ordinary share (pence)* 268.5 242.2 255.1
-------------------------------------------- ----------- ----------- ----------
*All per share workings have been restated for the 10:1
share-split in May 2019.
12. Commitment in fund partnerships and contingent liabilities
Outstanding at
Original 30.6.20 30.6.19 31.12.19
Commitment(1)
GBP000 GBP000 GBP000 GBP000
Fund (unaudited) (unaudited) (audited)
HGT 9 LP 327,243(2) 327,243 - -
HGT Saturn 2 LP 323,729(3) 290,480 - -
HGT 8 LP 350,000 105,492 146,878 143,542
HGT Mercury 3 LP 104,536(4) 104,536 - -
HGT Transition Capital LP 75,000 49,431 59,228 59,122
HGT Mercury 2 LP 80,000 21,779 42,143 36,690
HGT 7 LP 200,000 18,250 5,321 19,979
HGT Saturn LP 150,000 7,935 71,693 69,276
HgCapital Mercury D LP(5) 60,000 3,117 3,008 3,277
HGT 6 LP(5) 285,029 4,035 3,750 2,380
HGT LP(5) 120,000 1,261 1,261 1,261
Hg 6 E LP 15,000 940 197 118
Asper RPP I LP 19,671(6) 629(7) 619 587
------------------------------ -------------- ----------- ----------- ---------
Total outstanding commitments 935,126 334,098 336,232
------------------------------ -------------- ----------- ----------- ---------
(1) HGT has the benefit of an opt-out provision in connection
with its commitments to invest alongside Hg Mercury 2, Hg Saturn,
Hg Saturn 2, Hg Genesis 9, Hg Mercury 3, Hg Genesis 8 and in
Transition Capital, 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 EUR360,000,000.
(3) Sterling equivalent of $400,000,000.
(4) Sterling equivalent of EUR115,000,000.
(5) 21.4% of the original GBP120 million commitment to the
HgCapital 5 Fund, 5.5% of the original GBP300 million to the
HgCapital 6 Fund and 7.6% of the GBP60 million to the Mercury 1
Fund have subsequently been cancelled, as the Manager deemed that
it was unlikely to be required.
(6) Sterling equivalent of EUR21.6 million.
(7) Sterling equivalent of EUR692,000 (2019: EUR692,000)
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 2020 and 30 June 2019 has not been
audited. The information for the year ended 31 December 2019 has
been extracted from the latest published audited financial
statements, which have been filed with the Registrar of Companies.
The report of the auditors on those accounts contained no
qualification or statement under section 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 2020 in March 2021. The 2020 annual report should be
available by the end of March 2021, with the annual general meeting
being held in May 2021.
Further information
Investment management and ongoing charges
Over the first six months of 2020, 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 the same terms as those payable by all
institutional investors in these funds as listed below:
Fund partnership Priority profit share (% p.a)
HGT 8 LP 1.75% on the fund commitment during the investment
period
HGT Mercury 2 LP 1.75% on the fund commitment during the investment
period
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 1.5% of original cost of investments in the fund,
LP less the original cost of investments which have
been realised or written off
HGT 6 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 2 LP 1.0% on the fund commitment during the investment
period
HGT Saturn LP 1.0% on invested capital
HGT Transition Capital 1.25% on invested capital
LP
HGT LP 0.5% on the value of investments in fund, excluding
co-investments
====================== ===================================================
For HGT's investment alongside the Hg Genesis 6, Hg Mercury, Hg
Genesis 7, Hg Mercury 2, Hg Genesis 8 and Hg Saturn 2 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. Carried
interest in HGT Transition Capital will be calculated in the same
way.
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 and Hg Genesis 8 in excess of
HGT's pro-rata commitment. Therefore, the co-investments made by
HGT in P&I, Visma, Achilles, Sovos, Azets (formerly
CogitalGroup), Mitratech, Commify, MediFox, Argus Media, smartTrade
and Transporeon 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 2020, HGT's annualised ongoing charges
were calculated as 1.8% (31 December 2019: 1.6%).
The calculation is based on the ongoing charges expressed as a
percentage of the average published monthly NAV 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 comprise its operating expenses and
current-year priority profit share payable, as described in notes 7
and 8 to the financial statements.
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 24 September
proposed in respect of 2020
the year ended 31 December
2020 is 2.0p per share.Ex-dividend
date
(date from which shares
are transferred without
dividend)
Record date 25 September
(last date for registering 2020
transfers to receive
the dividend)
Last date for registering 9 October
DRIP instructions (see 2020
below)
Dividend payment date 30 October
2020
=================================== ============
Payment of dividends
Cash dividends will be sent by cheque to the first-named
shareholder at his/her registered address, together with a tax
voucher, 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 9
October 2020.
Directors
Jim Strang
(Chairman)
Richard Brooman
(Chairman of the Audit and Valuation Committee)
Peter Dunscombe
(Chairman of the Management
Engagement Committee)
Pilar Junco
Guy Wakeley
Anne West
(Senior Independent Director)
Roger Mountford (retired May 2020)
Company secretary
Link Company Matters Limited
65 Gresham Street
London
EC2V 7NQ
Telephone: 0371 664 0300
www.linkassetservices.com/
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 7089 7888
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)
The London Stock Exchange Building
10 Paternoster Square
London
EC4M 7LT
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 7089 7888
www.hgcapital.com
Depositary
Apex Depository (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 FinancialConduct
Authority.
www.hgcapitaltrust.com is constantly updated to ensure that the
you can always access HGT's latest data and information on your
computer or mobile device in a transparent, convenient and
intuitive manner.
If you have any suggestions on improvements we can make to the
site, please do get in touch at
investorrelations@hgcapitaltrust.com
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END
IR FZGMLNMVGGZM
(END) Dow Jones Newswires
September 14, 2020 02:00 ET (06:00 GMT)
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