TIDMHGT
RNS Number : 1793S
HgCapital Trust PLC
15 March 2021
H gCapital Trust plc
ANNUAL Results for the YEAR ended 31 DECEMBER 2020
Legal Entity Identifier: 213800J7QUJJBEFSIN38
London, 15 March 2021: HgCapital Trust plc ("HGT"), today
announces its annual results for the year ended 31 December 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 second largest and the fastest growing
technology firm in Europe(1) .
(1) By Enterprise Value, Source: Hg, Factset
ROBUST PERFORMANCE shown by portfolio DURING 2020
WITH a NAV INCREASE of 24% to a new high of 310 PENCE per
share
with net assets of GBP1.29 billion
RECORD LEVELS OF PORTFOLIO activity OVER THE YEAR WITH GBP403
MILLION INVESTED and GBP364 Million realised on behalf OF HGT
continued AND SIGNIFICANT outperformance of the FTSE All-share
over
one, three, five, ten and twenty-year periods
SUMMARY performance
28 February % Total 31 December 31 December % Total
2021 return(2) 2020 2019 return(2)
---------------- ------------- ------------ ------------- ------------- ------------
NAV per share 305.2p -1.7% 310.3p 255.1p +24.0%
Share price 332.5p +9.0% 305.0p 257.5p +20.9%
FTSE All-Share
Index +1.2% -9.8%
---------------- ------------- ------------ ------------- ------------- ------------
YTD 2021 2020
Movement Movement
Net Asset Value GBP1.27bn -GBP21m GBP1.29bn GBP1.04bn +GBP252m
---------------- ------------- ------------ ------------- ------------- ------------
Source: Hg, Factset
Note: Hg undertakes full revaluations of the portfolio on a
quarterly basis, the next process being 31 March 2021, therefore
the movement in unrealised value of the portfolio to the end of
February 2021 is attributable to FX only.
Jim Strang, Chairman of HGT, commented:
"This last year has proven to be a uniquely challenging one with
great difficulties, many hardships and sadly, for many, personal
tragedy. Against this background HGT has performed extremely well,
as the resilience and attractiveness of the investment model and
the underlying investments have been proven. While 2021 seems set
to be a year of further challenges, HGT is well placed to continue
the progress of recent years in what will hopefully be an improving
climate."
Luke Finch, Partner and Head of Client Services, Hg,
commented:
"We are pleased that all of our most recent platform investments
across our three fund families have been into companies where
founders and management teams own significant stakes in their
businesses. They have chosen to partner with Hg, and we believe
this is testament to the focused scale and expertise which we have
built in our defined end market 'clusters' and the strong network
effect which has developed across the portfolio over the last two
decades."
KEY HIGHLIGHTS 2020
! Net assets of close to GBP1.3 billion, with continued
outperformance of the FTSE All-Share over one, three, five, ten and
twenty-year periods
- NAV per share of 310p, a total return of 24% to 31 December 2020.
- Share price total return of +21% over the year.
- Proposed final dividend of 3.0p per share (full year dividend of 5.0p per share).
- An investment of GBP1,000 made 20 years ago would now be worth
GBP14,799, a total return of 1,380%. An
equivalent investment in the FTSE All-Share Index would be worth GBP2,463(2) .
! Strong double-digit growth from the realised and unrealised
portfolio
- Revenue and EBITDA growth of 22% and 31% respectively across
the top 20 investments (83% of the portfolio) over the last twelve
months.
- GBP364 million of cash returned to HGT through realisations at
uplifts to book value and refinancings.
- Valuation multiple (EV/EBITDA) of 22.1x and net debt to EBITDA
ratio of 6.4x for the top 20 investments.
! Continued investment and commitments to drive future value
- Continued investment with GBP403 million invested 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 GBP750 million, with total
outstanding commitments at 31 December 2020 of GBP647 million
(December 2019: GBP336 million). These will be deployed over the
next three to four years.
-- Credit facility and new equity issuance
- In October, the Board of HGT completed a new GBP200 million
multi-currency revolving credit facility.
- GBP25 million of new equity raised over 2020 via tap issues.
(2) All references to total return allow for all historic dividends being reinvested
POST PERIOD EVENTS AS AT 28 FEBRUARY 2021
-- NAV of 305.2p , YTD performance of -1.7% reflecting FX
movements.
-- Current net assets of GBP1.27 billion.
-- Share price of 332.5p , YTD performance of 9.0%.
-- Estimated GBP42 million from the sale of TeamSystem and
A-Plan.
-- Estimated GBP72 million invested by HGT into Benevity,
Geomatikk, Prophix and TeamSystem.
-- Liquid resources post-completion of all announced
transactions and the full year dividend payable in May 2021, are
GBP102 million (8% of 28 February pro-forma NAV).
-- Outstanding commitments of GBP543 million (43% of 28 February
pro-forma NAV). We expect these to be drawn down over the next
three to four years.
Outlook
Commentary from Hg (the Manager):
The combination of the long-term nature of listed private equity
investment with the types of business that Hg invests in, and
robust double-digit trading will continue to drive long-term
growth
-- Against the backdrop of COVID-19, Hg's portfolio has
performed well and contributed positively to stakeholders'
livelihoods and retirements.
-- The overall portfolio valuations were up over 25% for the
year to 31 December 2020, returning over GBP4 billion of liquidity
to Hg investors, including GBP364 million to HGT.
-- As highlighted previously, COVID-19 has had a limited direct
impact on the portfolio, given its defensive growth characteristics
and we believe our investments will continue to benefit from
ongoing trends in the digitalisation of business processes, across
sectors and geographies.
-- The Hg UK-based businesses have seen limited direct
consequences from Brexit. Where regulatory complexity exists,
software typically provides part of the solution and we are seeing
several instances of this across the portfolio.
-- The portfolio 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.
-- Across our funds, we expect investment activity in the next
12 months to continue - cautiously and with discipline - into
businesses that we have tracked for many years.
-- It has been a record year for realisations and further
liquidity events are expected over the next twelve months.
-- 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.
- Ends -
The Company's 2020 Annual Report and a video from the Chairman
and Hg to accompany the results are available to view at:
http://www.hgcapitaltrust.com/ .
For further details:
HgCapital Trust plc
Laura Dixon (Senior Investor Relations +44 (0) 78 2459
Manager, Hg) 2894
Brunswick
+44 (0)20 7404
Samantha Chiene 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
Annual report and accounts
31 December 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 annual 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 annual report and accounts to 'total return'
refer to a return where it is assumed that an investor has
reinvested all historic dividends at the time when they were paid.
References in this annual report and accounts to pounds sterling
have been abbreviated to 'sterling'.
Extracts from the Strategic Report
Financial and performance highlights
Annualised share price total return over the last 20 years:
+14%
2020 performance:
NAV per share
at 31 December 2020 was 310.3p a total return for the year
of:
+24.0%
(31 December 2019: +20.8%)
Please refer to note 10(b) on page 94 of the full annual report
and accounts for further detail on the calculation of NAV per
share
Net assets
The total NAV of HGT at 31 December 2020 was:
GBP1.29bn
(31 December 2019: GBP1.04bn)
Share price
at 31 December 2020 was 305.0p a total return for the year
of:
+20.9%
(31 December 2019: +47.5%)
Market capitalisation
The market capitalisation of HGT at 31 December 2020 was:
GBP1.27bn
(31 December 2019: GBP1.05bn)
Full-year dividend
5.0p
(31 December 2019: 4.8p)
Total ongoing charges
1.8%
for the year to 31 December 2020: (31 December 2019: 1.6%)
Please refer to page 118 of the full annual report and accounts
for further detail on the calculation of ongoing charges.
Top 20 investments as at 31 December 2020:
Representing 83% by value of HGT's investments
LTM sales growth
+22%
(31 December 2019: +24%)
LTM EBITDA growth
+31%
(31 December 2019: +35%)
EV to EBITDA multiple
22.1x
(31 December 2019: 19.8x)
Net debt to EBITDA ratio
6.4x
(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
(and on pages 46-47 of the full annual report and accounts .)
Balance sheet analysis as at 31 December 2020:
Liquid resources
(15% of NAV)
GBP188m
(31 December 2019: GBP189m)
HGT has an undrawn bank facility of GBP200 million.
Outstanding commitments
(50% of NAV)
GBP647m
(31 December 2019: GBP336m)
These commitments will be drawn down over the next four years
(2021-25) 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.
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 year:
Realisations for the benefit of HGT
GBP364m
Cash invested on behalf of HGT
GBP403m
Further information on all investments and realisations is
provided on pages 50-56 in the full annual 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.
One Three Five 10 20
year years years years years
% % p.a. % p.a. % p.a. % p.a.
----------------------------------- ----- ------- ------- ------- ---------
NAV per share* 24.0 19.7 20.0 13.5 13.2
Share price 20.9 22.7 25.8 14.8 14.4
FTSE All-Share Index (9.8) (0.9) 5.1 5.6 4.6
----------------------------------- ----- ------- ------- ------- -------
NAV per share performance relative
to the FTSE All-Share Index 33.8 20.6 14.9 7.9 8.6
----------------------------------- ----- ------- ------- ------- -------
Share price performance relative
to the FTSE All-Share Index 30.7 23.6 20.7 9.2 9.8
----------------------------------- ----- ------- ------- ------- -------
*Please refer to note 10(b) on page 94 of the full annual report
and accounts for further detail on the calculation of NAV per
share.
Based on HGT's share price at 31 December 2020 and allowing for
all historic dividends being reinvested, an investment of GBP1,000
made 20 years ago would now be worth GBP14,799, a total return of
1,380% . An equivalent investment in the FTSE All-Share Index would
be worth GBP2,463.
Long-term performance record
2011 GBP7m raised from subscription shares
2012 GBP36m raised from subscription shares
2013 GBP18m raised from subscription shares
2018 FTSE 250 Promotion to the FTSE 250
2019 10:1 10:1 share-split
2019 GBP75m equity raised
2020 GBP25m equity raised
Chairman's statement
"This last year has proven to be a uniquely challenging one with
great difficulties, many hardships and sadly, for many, personal
tragedy. Against this background, HGT has performed extremely well,
as the resilience and attractiveness of the investment model and
the underlying investments have been proven. While 2021 seems set
to be a year of further challenges, HGT is well placed to continue
the progress of recent years in what will hopefully be an improving
climate."
Jim Strang, Chairman, HgCapital Trust plc
Dear shareholder,
This past year, I am sure, will be one which we will all be glad
to see behind us. It brought extreme uncertainty, disruption,
hardship and tragedy to many. For us all, it has proven a most
challenging time. Hopefully, with a new year upon us and progress
with the vaccine development, we may be able to return to some
semblance of normality and start on a path to recovery from the
COVID-19 pandemic. In that spirit, please allow me to pass on the
best wishes of us all at HGT to our shareholders for the year
ahead.
Despite these unprecedented times, I am pleased to report that
HGT weathered this last year extremely well and delivered a very
strong performance in 2020.
Highlights in 2020 included:
-- 24% NAV per share growth, with net assets attaining a record
level of GBP1.29 billion at 31 December 2020;
-- 21% share price growth resulting in a market capitalisation
of GBP1.27 billion at 31 December 2020;
-- A total of GBP750 million committed to Hg funds, securing
HGT's access to the Hg investment platform;
-- A record GBP403 million of new and further investments by HGT
into 15 businesses across the core investment clusters targeted by
Hg;
-- A record GBP364 million (net of carry) of proceeds returned
to HGT, primarily from six realisations;
-- A further strengthening of HGT's balance sheet through the
issuance of new equity of GBP25 million and the formalisation of
new and extended banking arrangements in the form of a GBP200
million revolving credit facility.
Performance
Despite the significant challenges which the year has brought, I
am happy to report a very commendable performance from HGT. In
2020, the NAV per share of HGT increased from GBP2.55 to GBP3.10,
an increase of 24.0% on a total return basis. The share price
improved from GBP2.57 to GBP3.05, a total return of 20.9%. HGT
benefited from strong fundamental business performance from the
underlying portfolio companies, as well as the attractive stance
which the stock market continues to take towards technology
investments and, in particular, software.
We have long spoken of the resilient nature of the types of
company held within the HGT portfolio, reflecting the investment
positioning of the Manager - Hg. If ever there were an acid test of
this feature, then the past year would have been just that. The
portfolio performed well, with the underlying companies generating
year-on-year growth of 22% in revenue terms and 31% in EBITDA.
These businesses continue to trade successfully and, with their
significant and predictable forward cash flows, are appropriately
financed, with an average net debt-to-EBITDA ratio of 6.4x.
Currently, only 3 of the total 36 companies held within the HGT
portfolio are valued at less than their cost of acquisition,
excluding the impact of currency movements.
Investments and realisations
Despite the obvious challenges to deal-making and the move to
operating 'virtually', it is very pleasing to report that the flow
of investments and exits continued throughout 2020.
The Hg investment model is built around deep knowledge and
understanding of the dynamics of target investment clusters and the
attractive companies within them. As many of these companies have
long-standing engagements with Hg, this allowed the Hg deal team to
continue to function effectively, despite having to pivot to a more
'virtual' way of operating. Furthermore, the reputation of Hg for
building high-quality, market-leading businesses, with strong
growth profiles, has allowed a series of lucrative exits to be
achieved over the year.
HGT invested more than GBP400 million in 15 new and further
investments in the year, including: Visma, Sovos, Septeo, Argus
Media, P&I, Intelerad and CaseWare. All of these new portfolio
investments share the characteristics of previous successful Hg
investments. These new transactions are a result of long-term
engagement with their respective management teams. Notably, the
further investment in Visma, a leading provider of
business-critical software to private and public enterprises in the
Baltic, Benelux and Nordic regions, valued the business at US$12.2
billion and was the world's largest-ever software buyout.
For further information about new and further investments,
please see pages 50 - 53 of the full annual report and
accounts.
A key part of HGT's investment strategy is to make use of
co-investments: investments directly into certain deals completed
by Hg, as opposed to via a commitment to an Hg fund. Such
co-investments allow HGT to manage its balance sheet in a more
effective manner. Additionally, since these investments typically
do not bear any management or performance fees, they reduce the
total fee load on HGT. HGT recently agreed on a new co-investment
framework with Hg which aims to allocate 10%-15% of HGT's balance
sheet to co-investments in future. Currently, co-investments are
valued at GBP80.2 million, representing 6.2% of NAV at 31 December
2020.
As regards realisations, the high-quality assets within the
portfolio proved to be attractive acquisition targets for strategic
acquirers and other private equity managers alike. Consequently, it
was a very strong year for exits, with proceeds of GBP364 million
(net of carry) delivered from six transactions. These included
Visma, Sovos, The Citation Group, STP, Eucon and Evaluate.
The average multiple of cost achieved on exits, within the
period, was an impressive 3.5x, with the average uplift to the last
carrying value of those investments being 25%, reinforcing the
rigour of the valuation process, but also the value which buyers
placed on the quality assets within the portfolio.
For further information on realisations over the year, please
see pages 54-56 of the full annual report and accounts.
New commitments
Shareholders will be familiar with the
commitment-investment-realisation cycle which underpins the HGT
investment model. Every three to four years, HGT and Hg's other
institutional clients make commitments to invest in funds which
seek to make investments over the following four to five years. HGT
thereby enables shareholders to invest alongside the world's
largest institutional investors in businesses which would otherwise
be inaccessible to public market investors.
In 2020, HGT committed GBP750 million to new Hg funds across Hg
Saturn 2, Hg Genesis 9 and Hg Mercury 3, ensuring that HGT can
continue to participate in the investments made by Hg. Further
detail on all commitments to Hg funds can be found on page 48 of
the Manager's Review in the full annual report and accounts. Across
all funds, HGT will continue to have the benefit of an 'opt-out'
from the commitment to invest in any individual new transaction, if
HGT does not have sufficient funds available; this feature, unique
to HGT, is of considerable benefit to managing HGT's balance sheet
efficiently.
Impact and responsible investment
While the pure financial returns of the year have been
commendable, I would like to draw your attention to the continued
and ever-increasing effort which your Board and the Manager, Hg,
apply to how they do business. The Board of HGT and the Manager
share a firmly held perspective that not only should the financial
returns to you, the shareholders, be attractive, but these must be
delivered in a manner which is consistent with our responsibility
to society.
2020 has been a year when this focus on responsibility,
sustainability and the overall commitment to ESG is more important
than ever. As a technology investor, we understand the need to
ensure that those businesses in which we invest reduce their carbon
footprint and contribute to tackling climate change. During 2020,
Hg was, itself, independently certified as a carbon-neutral
company. I am pleased to report that the UNPRI assessment of Hg's
approach to responsible investment has remained at AA++ during the
year. The Board of HGT meets with the Hg responsible investment
team to ensure that Hg's work is fully understood and endorsed by
the Board.
In July 2020, Hg launched The Hg Foundation - a new charitable
initiative to provide funding and operational support to schemes
across Europe, the UK and the US - 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 pages 39-41 of the Manager's
Review in the full annual report and accounts.
Balance sheet
In 2020, with a new commitment programme established, the Board
agreed on a new multi-currency revolving credit facility of GBP200
million, which is currently undrawn. This is in keeping with the
level of these commitments and with optimising the balance sheet
management of HGT.
Over the year, as shares in HGT have traded predominantly at a
premium, HGT has taken the opportunity to increase balance sheet
liquidity through a series of equity tap issuances, raising a
further GBP25 million. This follows on from the successful raising
of GBP75 million in 2019. When possible, the Board will continue to
consider new equity issuance, providing that market conditions
permit, offering existing and new investors the opportunity to
subscribe and increase our equity base, while, at all times,
bearing in mind our current shareholders' interests.
Dividend
Following the increase in the interim dividend from 1.8 pence to
2.0 pence per share in 2020, the Board is proposing a final
dividend of 3.0 pence (subject to shareholder approval), making a
total of 5.0 pence per share, as indicated in the interim
report.
As noted previously, HGT aims to achieve growth in the net asset
value per share and in the share price, rather than to achieve a
specific level of dividend. Furthermore, the ability of HGT to pay
dividends is very much influenced by the capital structures of the
transactions entered into by the Manager and on income received on
any liquid resources being held subject to investment.
Board and corporate governance
I am happy to report that your Board was able to operate
successfully throughout this challenging year, switching rapidly to
'virtual' Board meetings and leveraging technology to ensure HGT's
smooth running. I would like to extend my thanks to the many
involved in ensuring that this all took place. The results of the
annual Board effectiveness evaluation process show the Board to be
operating well; however, we continue to strive for better and will
endeavour to do so in the year ahead.
An important change to the governance of HGT over the reporting
period took place in July as we welcomed a new colleague to the
Board. After an extensive externally facilitated search process,
Mrs Pilar Junco joined the Board of Directors, bringing the number
of Directors back to a total of six. 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, and also from her tenure
at Blackstone, where she served as a Senior Managing Director.
Pilar's joining the Board brings a set of skills which is highly
complementary to those of the rest of the Board and is in keeping
with the skill-mapping exercise undertaken in 2019.
Valuation and risk
Over the course of 2020, the Board has more closely aligned
HGT's risk management and valuation processes, to deepen the
analysis of operational risk and further stress-test the valuation.
An important element of this evolution has been to expand the remit
of the Audit and Valuation Committee which is now named the Audit,
Valuation and Risk Committee, which continues to be chaired by my
Board colleague, Richard Brooman. The Board considers that an
extensive and dynamic risk management framework is an important
tool to underpin the creation of shareholder value, and to provide
resilience against an increasingly volatile external
environment.
I am happy to report that HGT continues to operate within the
bands of this risk framework. As I have noted, to date, HGT has
weathered the challenges of COVID-19. Furthermore, the prospect of
Brexit, which figured prominently on the risk register last year,
has not proven to have created any material difficulties for
HGT.
The valuation of investments remains a key risk, given the
elevated valuations which prevail in the sectors in which HGT
invests. The Board and Hg regularly engage on the manner in which
the valuations of underlying companies are set. Shareholders will
be aware that HGT has increased the cadence with which valuations
are communicated to the market, to improve the transparency of the
valuations within the portfolio. Furthermore, the Board has worked
alongside Hg to develop even more rigorous ways to triangulate
different valuation methodologies to arrive at appropriate
valuations for the portfolio's individual assets.
As a result, the Board considers that the valuation policy,
which conforms with best-practice guidance from the industry body,
IPEV, is robust. It is of further comfort that the appropriateness
of valuations continues to be underpinned by values achieved in
realisations. The average EBITDA valuation multiple for the top 20
investments (83% of the overall portfolio) at 31 December 2020 was
22.1x (19.8x at 31 December 2019). Further detail on the valuation
environment can be found in the Manager's Outlook on page 57 of the
full annual report and accounts.
HGT strategy
Over the course of the year, the Board spent considerable time
and effort reviewing HGT's strategy. While HGT has enjoyed a period
of sustained success over several years, this very fact prompted
the Board to undertake a review, as the best time to undertake such
a task is from a position of relative strength, such as HGT
currently enjoys. I am happy to report that the results of this
rigorous review outlined the validity, scalability and longevity of
the investment strategy which HGT has adopted, along with the
credentials and capability of the Manager, Hg, in being able to
support it. As a result, HGT aims to follow a strategic path which
is consistent with its historical one, retaining the investment
focus and working with Hg to take advantage, selectively, of
opportunities to grow which are consistent with those which have
served HGT so well in the past.
Arrangements for the Annual General Meeting (AGM)
At the time of writing this Annual Report, the UK remains
subject to strict regulations regarding meetings. The Board would
normally welcome the AGM as an opportunity to present to
shareholders and listen to your questions in person. However, given
current circumstances, physical attendance at the AGM this year
will not be possible. Arrangements will be made by HGT to ensure
that the minimum number of shareholders required to form a quorum
will attend the AGM in order that the meeting may proceed to
discuss the formal business of the meeting only.
As shareholders will not be able to attend, alternative
arrangements are being made to enable shareholders to see the AGM
presentation which would otherwise have been given at the meeting
by HGT's investment manager. This will be filmed and published on
our website http://www.hgcapitaltrust.com in advance of the AGM.
Should you wish to ask the Board or HGT's investment manager any
questions, we request that you do so either by email to:
HGTAGM2021@hgcapital.com, or by post, by writing to HGT at 2 More
London Riverside, London, SE1 2AP. Questions submitted before 5 May
2021 will be answered ahead of the AGM, and we will endeavour to
answer any questions subsequently received as soon as possible.
Given the above, we recommend that all shareholders vote by
proxy in advance of the AGM, appointing me, as the Chair of the
meeting, as their proxy. I urge you to submit your proxy votes in
good time for the meeting. Further details of this year's AGM,
including information on how to vote, can be found on pages 148 to
155 of the full annual report and accounts. I hope you will
understand the approach we are taking this year, and we hope to see
shareholders in person at next year's AGM.
Articles of Association
In order to provide the Board with greater flexibility going
forward and to ensure shareholder participation in future AGMs, HGT
is proposing that amended Articles of Association are adopted at
the AGM this year. The principal amendments being proposed to the
Articles of Association are to enable HGT to hold shareholder
meetings using electronic means (as well as physical shareholder
meetings or hybrid meetings). Although the new Articles would
permit shareholder meetings to be conducted by electronic means,
the Directors have no present intention of holding a virtual-only
meeting, unless Government restrictions require them to do so.
Prospects
As I noted at the opening of my statement, current expectations
are that, while 2021 will see its share of challenges, we shall
also see some form of recovery from the COVID-19 pandemic and a
gradual return to a more normal way of life. In this context, the
prospects for HGT remain attractive. As 2020 has proven, not only
are the assets within the portfolio resilient to exogenous shocks,
but Hg is able to pursue its normal course of business in the cycle
of acquiring and disposing of suitable investments, while
generating attractive returns.
Your Board continues to take a positive view of the prospects
for HGT. However, we maintain a clear focus on the many risks which
prevail in the current environment.
Jim Strang
Chairman
12 March 2021
Investment objective and investment policy
The objective of HGT is to provide shareholders with consistent
long-term returns in excess of the FTSE All-Share Index by
investing predominantly in unquoted companies where value can be
created through strategic and operational change.
Investment policy
The policy of HGT is to invest, directly or indirectly, in a
portfolio of unlisted companies where Hg believes that it can add
value through increasing organic growth, generating operational
improvements, driving margin expansion, reorganisation or
acquisition - to achieve scale. HGT seeks to maximise its
opportunities and reduce investment risk by holding a spread of
businesses diversified by end-market and geography.
Risk management
HGT has adopted formal policies to control risk arising through
excessive leverage or concentration. HGT's maximum exposure to
unlisted investments is 100% of the gross assets of HGT from time
to time. On investment, no investment in a single business will
exceed a maximum of 20% of gross assets. HGT may invest in other
listed closed-ended investment funds, up to a maximum at the time
of investment of 15% of gross assets.
Sectors and markets
As HGT's policy is to invest in businesses in which Hg can play
an active role in supporting management, Hg invests primarily in
companies whose operations are headquartered or substantially based
in Europe. These companies operate in a range of countries, but
there is no policy of making allocations to specific countries or
markets. Investments are made across a range of sectors where Hg
believes that its skills can add value, but there is no policy of
making allocations to sectors.
HGT may, from time to time, invest directly in private equity
funds managed by Hg where it is more economical and practical to do
so.
Leverage
Each underlying investment is usually leveraged, but no more
than its own cash flow can support, in order to enhance value
creation; it is impractical to set a maximum for such gearing
across the portfolio as a whole. HGT commits to invest in new
opportunities in order to maintain the proportion of gross assets
which are invested at any time, but monitors such commitments
carefully against projected cash flows.
HGT has the power to borrow and to charge its assets as
security. The Articles restrict HGT's ability (without
shareholders' approval) to borrow to no more than twice HGT's share
capital and reserves, allowing for the deduction of debit balances
on any reserves.
Hedging
Part of HGT's portfolio is located outside of the UK,
predominantly in northern Europe, with a further part in businesses
which operate in US dollars. HGT may therefore hold investments
valued in currencies other than sterling. From time to time, HGT
may put in place hedging arrangements with the objective of
protecting the sterling translation of a valuation in another
currency. Derivatives are also used to protect the sterling value
of the cost of investment made or proceeds from realising
investments in other currencies, between the exchange of contracts
and the completion of a transaction.
Commitment strategy
HGT employs a commitment strategy to ensure that its balance
sheet is managed efficiently. The level of commitment is regularly
reviewed by the Board and Hg.
Liquid funds
HGT maintains a level of liquidity to ensure, as far as can be
forecast, that it can participate in all investments made by Hg
throughout the investment-realisation cycle.
At certain points in that cycle, HGT may hold substantial cash
awaiting investment. HGT may invest its liquid funds in government
or corporate debt securities, or in bank deposits, in each case
with an investment grade rating, or in managed liquidity funds
which hold investments of a similar quality.
If there is surplus capital and conditions for new investment
appear to be unfavourable, the Board will consider returning
capital to shareholders, probably through the market purchase of
shares.
Any material change to HGT's investment objective and policy
will be made only with the approval of shareholders in a general
meeting.
Business model and risk framework
The Board has a clear view of the rationale for investing in
unquoted businesses where the private equity ownership model has
the potential to accelerate the growth in value creation. HGT seeks
to capture this upside, whilst operating within a rigorous
risk-management framework.
The Board believes that there is a convincing rationale for
directly investing in well-researched private businesses where
there is potential for substantial growth in value, notably where
there is the ability to work with management to implement strategic
or operational improvements.
HGT offers a simple and liquid means by which shareholders can
invest in unquoted growth companies, while benefiting from an
investment company's governance model.
Business model
To achieve HGT's investment objective and within the limits set
by the investment policy, HGT is an investor in unquoted businesses
managed, and in most cases controlled, by the Manager. From time to
time, HGT may hold listed securities in pursuit of its investment
policy.
HGT is currently invested in 36 companies (as set out on page 58
of the full annual 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 on
page 118 of the full annual 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 and on pages 25-81 of the full annual
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 which invest in an Hg Limited Partnership Fund. Such
commitments are normally drawn down over three to four years. The
institutional investors and HGT invest on substantially similar
terms.
HGT is usually the largest investor in each business. The Board
has a further objective of keeping HGT as fully invested as is
practicable, while ensuring that it will have the necessary cash
available when a new investment arises.
The Board, on the advice of the Manager, makes assumptions about
the rate of deployment of funds into new investments and the timing
and value of realisations. However, to mitigate the risk of being
unable to fund any draw-down under its commitments to invest, the
Board has negotiated a right to opt out, without penalty, of its
obligation to fund such draw-downs, should the need arise.
HGT may also take up a co-investment in some businesses (in
addition to the investment which it has committed to make).
Typically, HGT has no liability to pay fees on such
co-investment and no carried interest incentive is payable to the
Manager on realisation (currently 6% of HGT's NAV is in
co-investments). HGT may also offer to acquire a limited
partnership interest in any of Hg's funds, in the event that an
institutional investor wishes to realise its partnership
interest.
The Board regularly monitors progress across all of the
businesses in which it is invested as well as their valuation, the
development of the Manager's investment strategy and the resources
and sustainability of the business model.
Investment trust status
As HGT is constituted as an investment trust and its shares are
listed on the London Stock Exchange, it can take advantage of tax
benefits available to investment trusts. This allows HGT to realise
businesses from its portfolio without liability to corporation tax.
The Board intends to retain this status provided that it is in
shareholders' interest to do so. This will require the Board to
declare dividends so that not more than 15% of taxable income is
retained each year.
Performance targets
HGT's aim is to achieve returns in excess of the FTSE All-Share
Index over the long term. To this end, the Board monitors the
performance indicators, as set out above and on pages 5 and 6 of
the full annual report and accounts. In the year to 31 December
2020, HGT's NAV per share increased by 24.0% on a total return
basis. The FTSE All-Share Index decreased by 9.8% on a total return
basis over the period. The annual total return of HGT's share price
was 20.9%. NAV per share has grown by 13.5% p.a. compound over the
last 10 years and 13.2% p.a. compound over the last 20 years. The
share price has seen broadly similar performance growing by 14.8%
p.a. compound over the last 10 years and 14.4% p.a. compound over
the last 20 years.
All of the above returns assume the reinvestment of all
historical dividends. The Board and the Manager aim to continue to
achieve consistent, long-term returns in this range.
HGT is not managed so as to achieve any short-term performance
relative to any index. The Board also compares HGT's NAV and share
price performance versus other comparable indices with similar
characteristics.
Dividends
The Board reviews HGT's dividend policy on a regular basis,
taking into consideration feedback from shareholders and HGT's
ability to pay dividends as its underlying investment structures
continue to evolve. Currently, the Board anticipates being able to
maintain a dividend of at least 5.0p per share, absent any change
in underlying assumptions.
Going concern
HGT's business activities, together with those factors likely to
affect its future development, performance and financial position
are described in the Board's Strategic Report and Hg's Review. The
financial position of HGT, its cash flows, liquidity and borrowing
facilities are described in the Strategic Report. The Directors
have considered the FRC Guidance on Risk Management, Internal
Control and Related Financial and Business Reporting and believe
that HGT is well placed to manage its business risks successfully.
The Directors review cash flow projections regularly, including
important assumptions about future realisations and the rate at
which funds will be deployed into new investments. The Directors
have a reasonable expectation that HGT will have adequate resources
to continue in operational existence for at least the next 12 --
month period from the date of approval of this Report and to be
able to meet its outstanding commitments. Accordingly, they
continue to adopt the going concern basis in preparing these
results.
Long-term viability statement
In accordance with provision 36 of the 2019 revision of the AIC
Code of Corporate Governance, the Directors have assessed the
prospects of HGT over a longer period than the 12 months required
by the 'Going Concern' test. The Board believes that the
appropriate period over which to assess HGT's viability may vary
from year to year, depending on several factors, notably its
outstanding investment commitments which, at year end, run until
2021-25. In addition, the Board believes that it should assess the
viability of HGT over a minimum of five years and, accordingly, has
elected this year to assess HGT's viability over the five-year
period ending December 2025.
The key assumption which underpins our strategic planning is
that HGT's business model remains broadly unchanged and continues
to focus on investing in unquoted businesses managed by Hg.
Assessment of prospects
The Board has assessed HGT's prospects and long-term viability
with due consideration to:
-- HGT's position with reference to the business model (above
and pages 14 and 18 of the full annual report and accounts).
-- the balance sheet, cash flow projections and availability of
funding (below and on pages 47-48, 84 and 98 of the full annual
report and accounts).
-- HGT's contractual commitments (below and on page 104 of the
full annual report and accounts).
-- the principal risks and uncertainties associated with HGT,
including: performance; regulatory; operational; financial;
liquidity; and borrowing, as detailed below and on pages 16 and 17
of the Strategic Report in the full annual report and accounts.
Sensitivity analysis
The Directors of HGT have looked at the sensitivity of the
business model against principal risks likely to have an impact
including:
-- Insufficient funds to meet commitments.
-- A downturn in the macro-economic environment.
-- The effect of Brexit on HGT and the portfolio companies.
Based on this assessment, the Directors of HGT confirm that they
expect HGT to continue to operate and meet its liabilities, as they
fall due, during the five years ending December 2025.
Principal and emerging risks and uncertainties
During 2020, the Audit, Valuation and Risk Committee (AVRC)
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 is achieved by defining HGT's risk appetite and managing
risks within that appetite, particularly those which would threaten
its business model, future performance, solvency, valuation,
liquidity or reputation.
The Board has defined risk appetites for each risk category and
subrisk. By assessing the impact and likelihood of each risk
against appetite, focus is maintained on those risks which require
most attention, with mitigating actions prioritised. This process
involves the maintenance of a risk register which assesses each
risk and classifies the likelihood of the risk and the potential
impact of each risk on HGT. The AVRC regularly reviews the policies
for managing each risk, as summarised below.
HGT considers its principal risks (as well as underlying risks)
to be in four main categories:
Investment: The risk to HGT of an inappropriate investment
strategy or Manager decisions leading to poor performance.
Financial: Valuation risk, liquidity risk and ensuring the
availability of sufficient liquid resources for HGT to meet its
commitments.
Operational: Regulation, Hg's internal systems and controls,
portfolio performance and that of HGT's other service
providers.
External: Macro-economic conditions, financial markets, changing
regulation and other geopolitical uncertainties.
Potential risk Potential impact Mitigation Trend/Appetite
-------------- ---------------------------------------------------------- ----------------------------------------------------------- --------------
Investment
Performance Improving
The underlying * Reduction in NAV * Deployment of capital is a rigorous process Within
portfolio determined by the Hg Investment Committee, operated
companies by experienced investment professionals.
underperform. * Reputation loss
* Shareholders sell shares
* Equity reduced
Improving
* Portfolio performance is reviewed regularly by Hg's Within
Realisation Committee comprising experienced
investment professionals and the HGT AVRC.
* An operational performance group interacts across the
portfolio to drive performance.
Financial
Valuations Improving
In valuing its * Creation of a false market in HGT shares * Valuations are prepared in accordance with IPEV Within
investments guidelines and tested against HGT's Valuation Policy.
and publishing
its NAV, HGT * Reputation loss
relies, to a * The Manager's Valuation Committee, independently
significant chaired, reviews and approves valuations quarterly.
extent, on the * Shareholders sell shares
accuracy of
financial and * The auditors of both Hg funds and HGT review the
other * Impact on liquidity and ability to raise equity valuation and methodology as part of their audit
information procedures.
provided by
the Manager.
Inaccurate
valuations
would lead to
a misleading
NAV.
============== ========================================================== =========================================================== ==============
Balance sheet Improving
The inability * Reputation loss * Borrowing structures and cash flow forecasts are Within
of HGT to make considered at each HGT Board meeting.
investments,
owing to * Risk to future performance
insufficient * An additional GBP200m of liquidity is available
liquid through an undrawn bank facility.
resources
available.
* An opt-out facility is available across all investing
funds.
============== ========================================================== =========================================================== ==============
Balance sheet Improving
Capacity is * Risk to future performance * A bank facility is in place to facilitate orderly Within
insufficient management of the balance sheet.
to underwrite
future * Shareholders sell shares.
commitments * There is an opt-out facility across all investing
to Hg funds. funds.
============== ========================================================== =========================================================== ==============
Operational
Regulation Stable
It is in * Increased corporation tax, leading to higher fees an * The Manager monitors investment movements, forecast Within
shareholders' d income and expenditure and retained income (if any)
interest to potential impact on valuation and performance of HGT to ensure compliance with sections 1158 and 1159 of
retain the tax the CTA.
advantages of
investment * Shareholders sell shares
trust * Continuing investment trust status is certified by
status. the Manager at each meeting of the Board.
============== ========================================================== =========================================================== ==============
Regulation Stable
General * Misunderstood or misreported regulation leading to * Regular compliance and risk reviews are reported to Within
changes reduced demand for shares the Board by the Manager's compliance team.
in
legislation,
regulation or * Lack of adherence to regulation leading to * Strong shareholder engagement through:
government reputational risk
policy
could - dedicated investor relations
influence team
the decisions - corporate broker
of investors. - company secretary.
============== ========================================================== =========================================================== ==============
Manager Improving
internal * Reputation loss * The Manager is regulated and supervised by the FCA. Within
controls and
processes
The risk that * Risk to future performance * The Manager has controls in place, including those
the Manager's related to investment decisions; portfolio reviews;
processes are recruitment, training and promotions; financial
not adequate performance and payments; protection of client
leading to assets; compliance; regulation.
poor
performance
or * The Board of HGT and its auditors regularly review
non-compliance these processes and controls.
to regulation.
============== ========================================================== =========================================================== ==============
Cyber security Stable
Cyber security * Loss of or lack of control over data due to cyber * A portfolio cyber security team monitors cyber Outside
and data loss attacks security across Hg and the portfolio companies and
risk at Hg and drives improvements.
portfolio
companies. * Reputation loss
* Most recently, the GDPR Committee has successfully
implemented mandatory training for all staff.
* Regulatory sanction
External
Political and Worsening
macro-economic * Reduction in demand for shares * Hg's portfolio is diversified with a high degree of Outside
uncertainty recurring revenue.
Impacts from
the UK leaving
the EU * The Manager remains focused on the various issues
affecting which may need to be addressed, including:
HGT and the
portfolio
companies * reduced availability of credit to fund future
in which it investments
is invested.
* regulation, marketing, trade and foreign exchange
movements
These are regularly monitored by
the Board of HGT.
============== ========================================================== =========================================================== ==============
Foreign Improving
exchange * Valuations affected by foreign currency movements * The Board of HGT regularly monitors currency Within
Some Hg fluctuations.
investments
are
denominated * The Hg treasury functions hedge currency exposure and
in other actively mitigate currency risk where appropriate.
currencies,
as well as
sterling.
============== ========================================================== =========================================================== ==============
Global Stable
pandemic * Portfolio companies suffer revenue declines * Portfolio resilience is stress-tested against Outside
Operating and pandemic impacts.
investment
activities * Multiples of listed companies applied to valuations
are disrupted might be adversely affected * The majority of revenues are derived from
by pandemic subscription-based recurring revenues for
events. non-discretionary technology-led services.
-------------- ---------------------------------------------------------- ----------------------------------------------------------- --------------
Environmental, social and governance matters
Socially responsible investment
The Board has endorsed Hg's policy to invest in a socially
responsible manner, as set out below (pages 39-41 of the full
annual report and accounts) and at
www.hgcapital.com/responsibility. Hg's focus is on identifying
high-quality and sustainable businesses and supporting their growth
for the benefit of shareholders and wider society. The Board
monitors investment activity to ensure that it is compatible with
these policies.
HGT has no employees and has limited direct impact on the
environment. HGT aims to conduct itself responsibly, ethically and
fairly and has sought to ensure that Hg's management of investments
takes account of social, environmental and ethical factors where
appropriate. The sectors in which the Manager invests do not
generally raise material ethical issues.
Employees, human rights and community issues
The Board recognises the requirement under section 414C of the
Companies Act 2006 to provide information about employees, human
rights and community issues, including information in respect of
any of its policies in relation to these matters and their
effectiveness. These requirements do not apply to HGT as it has no
employees, all of the Directors are non-executive and it has
outsourced all of its functions to third-party providers. HGT has
not, therefore, reported further in respect of these
provisions.
Modern slavery
HGT has no employees of its own. The Directors are satisfied
that, to the best of their knowledge, Hg complies with the
provisions of the UK Modern Slavery Act 2015. For further
information: www.
hgcapital.com/wp-content/uploads/2020/08/Modern-Slavery-Act-2020.pdf
Diversity
All financial decisions are made under conditions of
uncertainty. The Board recognises the value of both identity and
cognitive diversity in ensuring that varied perspectives are
considered when making decisions.
The Board places value on attracting Directors with diverse
outlooks and experience. The skills and experience which the
current members of the Board bring to HGT's leadership are
described on pages 116 and 117 of the full annual report and
accounts. The Board's policy is to make appointments to the Board
to achieve the balance of skills, outlook and experience needed and
to do so solely on merit. At the end of the year under review, the
Board of Directors of HGT comprised four men and two women. The
Manager has an equal opportunities policy and currently employs 130
men and 97 women. Nic Humphries, Senior Partner, Hg, is a member of
the Level 20 Advisory Council, a not-for-profit organisation which
aims to inspire more women to join and succeed in the European
private equity industry. Details of Hg's diversity and inclusion
initiatives can be found on page 37 of the full annual report and
accounts.
Directors' duties
Section 172 of the Companies Act 2006
Section 172 of the Companies Act 2006 (the 'Act') requires
Directors to act in good faith and in a way which is the most
likely to promote the success of HGT. In doing so, Directors must
take into consideration the interests of the various stakeholders
of HGT and the impact which HGT has on the community and
environment. They must take a long-term view of the consequences of
their decisions, as well as aim to maintain a reputation for high
standards of business conduct and fair treatment among the members
of HGT.
The Directors of HGT have a duty to act in accordance with
Section 172 of the Companies Act, the terms of which are shown
above.
Fulfilling this duty naturally supports HGT in achieving its
investment objective and helps to ensure that all decisions are
made in a responsible and sustainable way. In accordance with the
requirements of the Companies (Miscellaneous Reporting) Regulations
2018, below, the Board explains how the Directors have individually
and collectively discharged their duties under section 172 of the
Act over the course of the reporting period.
To ensure that the Directors are aware of, and understand, their
duties, they are provided (when they first join the Board) with a
tailored induction, including details of all relevant regulatory
and legal duties as a Director of a UK public limited company. They
continue to receive regular and ongoing updates and training on
relevant legislative and regulatory developments. They also have
continued access to the advice and services of the Company
Secretary and, when deemed necessary, can seek independent
professional advice. The schedule of Matters Reserved for the
Board, as well as the terms of reference of its committees is
reviewed annually and further describe Directors' responsibilities
and obligations, including any statutory and regulatory duties.
Purpose
The purpose of HGT is to deliver to shareholders 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. Through its
Manager, HGT provides shareholders with exposure to a fast-growing
network of unquoted investments, primarily in European software and
business service companies. In providing access to investments not
otherwise usually available to its shareholders, HGT's values focus
on transparency and clarity in its reporting, constructive
challenge in maintaining a strong relationship with the Manager,
and mitigating avoidable risk. The Board's strategy is to work
closely with its selected Manager in a long-term relationship
designed to support and encourage the Manager to build and maintain
the skills and resources to deliver long-term, consistent returns
through a concentrated portfolio of carefully selected
businesses.
Decision-making
The importance of stakeholder considerations, in particular in
the context of decision-making, is regularly brought to the Board's
attention by the Company Secretary and taken into account at every
Board meeting, with a paper reminding Directors of that being
reviewed at the start of every Board meeting. For example, the
strategic planning discussions involve careful considerations of
the longer-term consequences of any decisions and their
implications on shareholders and other stakeholders and are
supported by detailed cash flow projections based on various
scenarios, including: assumptions around HGT's contractual
commitments; availability of funding; borrowing; foreign currency
management; wider economic conditions; market performance.
Operation of HGT
The Matters Reserved for the Board, Board committees' terms of
reference, the Share Dealing and other Board policies are all
reviewed at least annually, and the Directors ensure that they
define obligations and correct procedures appropriately. The Report
of the Audit, Valuations and Risk Committee, which can be found on
pages 127-129 of the full annual report and accounts, further
explains how the Committee reviews the risk management and internal
controls of HGT. This includes ensuring that relevant systems and
controls in place remain effective and appropriate, that the
Manager sets an appropriate 'control culture', and that Hg's
whistleblowing procedures, Anti-Bribery and Anti-Corruption
policies are in place. Hg's Compliance Manager attends meetings to
attest to the Board how Hg complies with these polices.
Culture
Last year, the Directors also considered and defined HGT's
culture, purpose and values and, in 2020, reconfirmed that this
remained valid. By formally identifying the important elements of
HGT's culture, the Directors are able to assess and monitor it and
ensure that it remains well aligned with HGT's purpose, values and
strategy.
The culture of an externally managed investment trust is the
product of the Board's diversity and behaviours, the values and
behaviours of the Manager and the way in which the Board and the
Manager interact with each other and with stakeholders of HGT.
The Directors have worked to incorporate these behaviours and
processes into the annual review of the Manager, strategic
planning, the annual evaluation of Board effectiveness and
reporting to stakeholders - thus embedding consideration of
stakeholders' interests, long-term perspective, maintaining
reputation for fairness and high standards of governance, corporate
reporting and business conduct more generally in HGT's culture and
processes.
The Directors recognise the value in sustaining a culture which
contributes to achieving the purpose of HGT in a way which is
consistent with its values and strategy. Elements of culture
include:
-- Encouraging open and timely discussion within the Board and
with the Manager, allowing time and space
for original and innovative thinking.
-- Ensuring that the interests of shareholders and the Manager
(and its other clients) are well aligned, adopting a tone of
constructive challenge, balanced when those interests are not fully
congruent by robust negotiation of the Manager's terms of
engagement.
-- Drawing on Board Members' individual experience to support
the Manager in its monitoring and change
management of portfolio companies, for the benefit of all of the Manager's clients.
-- Willingness to make the Board Members' experience available
to support the Manager in the sound long-term development of its
business and resources, recognising that the long-term health of
the Manager is in the interests of shareholders in HGT.
-- Appreciating that the asset class, as well as the individual
businesses in which HGT invests, is not well understood by all
shareholders, adopting a policy of maximum transparency, consistent
with the commercial interests of the portfolio companies, and
clarity in reporting.
-- Willingness to use all available means to communicate with
shareholders and potential investors, and to
meet shareholders and consider their views.
-- Acceptance that the prime purpose of HGT is to provide an
efficient vehicle through which shareholders gain exposure to a
well-managed, concentrated and leveraged portfolio and that the
Board should not seek to add further investment risk.
A healthy corporate culture contributes to the long-term success
of HGT. The following observable outcomes may be indicative of the
Directors' success in embedding a healthy corporate culture in
HGT's processes and policies, and actively promoting it through
their behaviours:
-- Continued support for HGT's shares and good, consistent trading performance;
-- The breadth and quality of the share register, including
willingness of shareholders to maintain their
holdings over the long term rather than trade them short term.
-- The extent to which the partners and staff of the Manager are
willing to be long-term shareholders in HGT.
-- Recognition of the transparency and clarity of reporting in
HGT's reports to shareholders and content disclosed on its
website.
-- Recognition of the quality of HGT's shares as an investment
by the number of broker recommendations as a long-term hold.
Social responsibility
The Board recognises that HGT has a responsibility to its
shareholders, stakeholders and the wider society. The Board
endorses Hg's policy to invest HGT's funds in a socially
responsible manner. This includes the desire that those businesses
in which Hg invests are genuinely focused on making a positive
contribution to all stakeholders including employees, customers,
suppliers, shareholders and the wider society. Hg has been a
signatory of the UN Principles for Responsible Investment (UNPRI)
since 2012 and the Board has welcomed Hg's continuing commitment to
set ambitious goals for various aspects of environmental, social
and governance (ESG) matters. Further details on how Hg integrates
responsible investing into the investment process can be found on
page 39 of the full annual report and accounts.
Under listing rule 15.4.29(R), HGT, as a closed-ended investment
fund, is exempt from complying with the Task Force on
Climate-related Financial Disclosures; however, information on Hg's
efforts on climate change can be found on page 41 of the full
annual report and accounts. The Board and Hg recognise the impact
which climate change has on the environment and society. The
Manager is committed to measuring and managing the carbon emissions
associated with its business operations, as well as the portfolio
companies. Therefore, Hg continues to work with them to raise
awareness on climate change risks, carbon emission and energy
efficiency. Hg is a certified carbon neutral company, committing to
zero emissions by offsetting its entire carbon footprint.
The Board monitors investment activity to ensure that it is
compatible with the policy and receives periodic updates from the
Manager on its initiatives and performance against its ESG goals.
The Board last received an ESG presentation at its meeting in
January 2021, which was given by Hg's Head of Responsible
Investment. The Hg Responsible Investment Report 2019, Hg
Responsible Investment Policy 2020 and Hg 2019/20 Carbon Footprint
Report can be found on Hg's website:
www.hgcapital.com/responsibility.
Stakeholders
The Board seeks to understand the needs and priorities of HGT's
stakeholders - and these are taken into account during all of its
discussions and as part of its decision-making. While, as an
externally managed investment firm HGT does not have any employees
or customers, the Board recognises its key stakeholders - and the
Board's beliefs and actions in relation to each group of
stakeholders are described in the following table:
Stakeholders Why they are important Board engagement
---------------- ---------------------------- ------------------------------------------------------------
Shareholders Continued shareholder HGT has 958 shareholders, including
support and engagement institutional and retail investors.
are critical to Over the years, HGT has developed various
the continuing existence ways of engaging with its shareholders,
of the business in order to gain an understanding of
and the delivery their views. These include:
of its long-term -- Annual General Meeting (AGM): HGT
strategy of its welcomes attendance and participation
business. from shareholders at the AGM. If attending,
A resolution to shareholders have the opportunity to
continue the life meet the Directors and ask questions
of HGT is put to at the AGM. The Board values the feedback
the shareholders and questions which it receives from
every five years. shareholders. With the exception of
Having last been 2020, the Manager delivers a presentation
approved by shareholders at the AGM. In 2021, in light of the
at its AGM in 2020, ongoing pandemic, the usual presentation
a similar resolution will be filmed and placed on HGT's website.
will be put to shareholders For further information about the 2021
for approval at AGM, please refer to the Chairman's
the AGM in 2025. statement above.
-- Publications: The annual and interim
results presentations, as well as quarterly
reports and factsheets, are available
on HGT's website, with their availability
announced via the stock exchange. Feedback
and/or questions which HGT receives
from its shareholders enable HGT to
evolve its reporting which, in turn,
helps to deliver transparent and understandable
updates.
-- Shareholder communication: The Manager
communicates with shareholders periodically.
During the period, the Manager has held
over 50 meetings with current and potential
investors including more than 300 people.
All investors are offered the opportunity
to meet the Chairman or other Board
members.
-- Investor Relations updates: At every
Board meeting, the Directors receive
updates on the share trading activity,
share price performance and any shareholders'
feedback, as well as any publications
or comments in the press. To gain a
deeper understanding of the views of
its shareholders and potential investors,
the Manager also undertakes Investor
Roadshows following publication of HGT's
results and an annual Capital Markets
event. From time to time, the Board
also commissions a perception study
based on in-depth interviews of shareholders,
analysts and other stakeholders. Their
feedback is then taken into account
when Directors discuss the share capital,
any possible fundraisings or the dividend
policy and put them into action, if
appropriate. The willingness of the
shareholders, including the partners
and staff of the Manager, to maintain
their holdings over the long-term period
is another way for the Board to gauge
how HGT is meeting its objectives.
-- Working with external partners:
the Board also engages some external
providers, such as investor communications
advisors to obtain a more detailed view
on specific aspects of shareholder communications,
such as developing more effective ways
to communicate with investors.
An example of how the investment community
feedback was heard and acted upon was
the Board's decision to publish a dividend
policy and introduce interim dividends
in 2017. At the time, the Board recognised
that, while HGT's assets are managed
to achieve long-term growth in shareholder
value, in a period of low interest rates
and yields many shareholders wished
to have some certainty about the likely
levels of dividend payments. More recently,
the Board also initiated a 10 for 1
share split to make trading in the shares
easier, especially for retail investors.
---------------- ---------------------------- ------------------------------------------------------------
The Manager Holding HGT's shares Maintaining a close and constructive
offers working relationship with the Manager
investors a liquid is crucial as the Board and the Manager
investment both aim to continue to achieve consistent,
vehicle through long-term returns in line with HGT's
which they investment objective. The Board invites
can obtain exposure the Manager to attend all Board and
to Hg's certain Committee meetings in order
diversified portfolio to update the Directors on the performance
of private of the investments and the implementation
equity investments. of HGT's investment strategy and objective.
The Important components in the collaboration
Manager's performance with the Manager, consistent with the
is critical Board's culture, are:
for HGT to deliver * Encouraging open discussion with the Manager.
its investment
strategy successfully
and meet its * Recognising that the interests of shareholders and
objective to provide the Manager (as well as of its other clients) are,
shareholders for the most part, well aligned, adopting a tone of
with consistent constructive challenge, balanced when those interests
long-term returns are not fully congruent by robust negotiation of the
in excess of the Manager's terms of engagement.
FTSE All-Share
Index.
* Drawing on Board Members' individual experience to
support the Manager in its monitoring and change
management of portfolio companies, for the benefit of
all of the Managers' clients.
* Willingness to make the Board Members' experience
available to support the Manager in the sound,
long-term development of its business and resources,
recognising that the long-term health of the Manager
is in the interests of shareholders in HGT.
---------------- ---------------------------- ------------------------------------------------------------
The Company In order to function The Board maintains regular contact
Secretary, as an investment with its key external providers, both
the Registrar, trust with a premium through the Board and Committee meetings,
the Depositary, listing on the London as well as outside of the regular meeting
the Broker, Stock Exchange, cycle. Their advice, as well as their
the AIFM HGT relies on a needs and views, are routinely taken
diverse range of into account. In addition, the Management
advisers to support Engagement Committee, tasked with periodic
meeting all relevant reviews of the external service providers,
obligations. also holds relationship meetings and
formally hears, and acts on, their feedback,
as appropriate. During the period, the
Management Engagement Committee continued
to undertake reviews of the third-party
service providers and agreed that their
continued appointment remained in the
best interests of HGT and its shareholders.
---------------- ---------------------------- ------------------------------------------------------------
Lenders Availability of Considering how important the availability
funding and liquidity of funding is, HGT aims to demonstrate
are crucial to HGT's to lenders that it is a well-managed
ability to take business and, in particular, that the
advantage of investment Board focuses regularly and carefully
opportunities as on the management of risk.
they arise.
---------------- ---------------------------- ------------------------------------------------------------
Institutional The evolving practice Recognising the principles of stewardship,
Investors and support of the as promoted by The UK Stewardship Code
and proxy major institutional 2020, the Board welcomes engagement
advisers investors and proxy with all of its investors. The Board
adviser agencies recognises that the views, questions
are important to from and recommendations of many institutional
the Directors, as investors and proxy adviser agencies
HGT aims to maintain provide a valuable feedback mechanism
its reputation for and play a part in highlighting evolving
high standards of shareholders' expectations and concerns.
corporate governance,
which contributes
to the long-term
sustainable success
of HGT.
---------------- ---------------------------- ------------------------------------------------------------
Regulators HGT can operate HGT regularly considers how it meets
only with the approval various regulatory and statutory obligations
of its regulators and follows voluntary and best-practice
which have a legitimate guidance, while being mindful of how
interest in how any governance decisions which it makes
HGT operates in can affect its shareholders and wider
the market and treats stakeholders, in the short and in the
its shareholders. long term.
The Board receives reports from the
Manager and Auditor on their respective
regulatory compliance and any inspections
or reviews commissioned by regulatory
bodies.
---------------- ---------------------------- ------------------------------------------------------------
Principal Decisions in 2020
Examples of the Board's principal decisions during the year, how
the Board fulfilled its duties under Section 172 of the Act and the
related engagement activities are set out below:
Principal Long-term impact Stakeholder Considerations and Engagement
decision
------------- -------------------------- --------------------------------------------
To undertake Reviewing strategy The Board undertook a thorough strategy
a strategy and setting a clear review exercise in 2020. The goals of
review for strategic direction this process were to understand and
HGT for HGT is key to agree on suitable metrics to frame a
the long term ability long-term 'ambition' for the company;
of the Company to to validate the current investment model
deliver compelling and its likely ability to continue to
returns to shareholders. deliver returns to shareholders and
to validate the capability of Hg in
the role of investment manager.
------------- -------------------------- --------------------------------------------
To make Commitments made, Consistent with its strategy and business
commitments totalling GBP750 model, HGT periodically enters into
into new million across Hg formal commitments to invest in certain
Hg funds Saturn 2, Hg Genesis investment vehicles raised by Hg. HGT
9 and Hg Mercury is the largest such investor in these
3 funds, support vehicles and shareholders benefit from
the long term growth the ability to deploy substantial capital
in the NAV of HGT in this manner in vehicles which would
and further strengthen otherwise be inaccessible. Furthermore,
the relationship HGT retains a unique 'opt-out' right
with the manager, associated with these investments which
Hg. is further to the benefit of shareholders.
------------- -------------------------- --------------------------------------------
To renew In line with its The Board regularly reviews HGT's cash
and extend approach to position and commitments taking into
HGT's credit balance sheet management, consideration the impact on shareholders.
facility HGT increased its The revised banking facility will be
multi-currency used to support the long-term growth
revolving credit of HGT, to help facilitate the programme
facility to GBP200 of investments undertaken by HGT over
million. This provides the coming years.
additional
flexibility to
manage HGT's balance
sheet to support
the growth of NAV.
------------- -------------------------- --------------------------------------------
To issue Issuing new shares The Board regularly reviews the capital
new shares allows HGT to increase structure of HGT and seeks to issue
in HGT its liquidity in new equity when market conditions allow
the market - an and where such action would, in the
important consideration view of the Board, be in the best interests
for shareholders. of HGT. When evaluating such decisions,
Furthermore, successful the Board takes full account of the
investment of the impact of any such capital raising on
capital raised in the existing shareholder base. The Board
new issuances will takes into consideration the ability
promote further of HGT to deploy any additional funds
growth in HGT's in a timely and successful manner.
NAV.
------------- -------------------------- --------------------------------------------
To make new Continuing to develop During the year, two Board appointments
appointments and evolve the Board were made. Namely the appointment of
to the Board so that it contains Pilar Junco as a member of the Board
of HGT an appropriate mix and the appointment of Jim Strang to
of skills, diversity the role of Chairman of the Board. These
and experience is appointments were made to promote the
important to promote best long-term interests of HGT, to
the long-term success bring requisite skills to the Board
of HGT. and in full compliance with HGT's policy
on Board development and evolution.
------------- -------------------------- --------------------------------------------
For and on behalf of the Board
Jim Strang
Chairman of the Board
12 March 2021
Extracts from 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 annual 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,
HGT Genesis 9 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 6 E LP ('Hg 6 E'), 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 138-140 of the full annual report and
accounts.
About Hg
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.
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 c.230 employees, representing the largest
technology investment team in Europe.
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.
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
GBP100 million to over GBP10 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: GBP100m-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 GBP100 million
to over GBP10 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 software
business in Europe, but also the second-largest.
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 30 software investments in
our portfolio, we bring a unique set of networks and insights to
help to support value creation in our businesses.
Tech-enabled services
Our business services investments focus on companies with high
levels of intellectual property, large fragmented customer bases
and long-term and stable customer relationships - and businesses
which provide business-critical services, preferably on a repeat or
recurrent basis.
We target businesses with strong reputations within a niche and
aim to grow and scale these businesses, either organically within
existing markets or through acquisitions.
Deep knowledge and networks within our end-market clusters
Hg has a unique approach and strategy, with a focus on achieving
scale in tightly defined clusters of expertise. This specialisation
helps us to build deep know-how.
Tax & Accounting
17+ years
TeamSystem, Visma, Iris, Sovos, Azets, Silverfin, Prophix,
CaseWare, Gen II
ERP & Payroll
17+ years
TeamSystem, Visma, Iris, Access, Transporeon, P&I,
BrightPay, Benevity
Legal & Regulatory Compliance
14+ years
Achilles, TraceOne, Mitratech, Litera, Septeo
Automotive
12+ years
MeinAuto
SME Tech & Services
11+ years
Commify, IT Relation, team.blue, Register, F24, Geomatikk, The
Citation Group
Capital Markets & Wealth Management IT
7+ years
FE Fundinfo, Argus, SmartTrade
Insurance
7+ years
GGW Holding, Howden Group
Healthcare IT
6+ years
Evaluate, Allocate, Medifox, 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 invests repeatedly 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, transformation, technology, cyber
security, data analytics, ESG and talent. For each of these levers,
the portfolio team has the experience and deep knowledge of best
practices to help to drive value creation, in collaboration with
management.
Every company can access the team, yet the nature of support can
take a variety of forms. Often, our portfolio team members 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.
"What's been remarkable is how the connectivity has increased
across the Hg portfolio of companies. Everyone's in it together.
There has also been a notable increase in the speed at which
innovation and positive change is taking place. I've been so
impressed with the rate at which our companies have adapted to, and
made the most of, this new environment we find ourselves in."
Dawn Marriott, Partner and Head of Portfolio Team, Hg
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.
-- Technology & Cybersecurity
-- ESG
-- Talent
-- Growth
-- Data Analytics
-- Transformation
For further information, please visit :
hgcapital.com/working-together
The Hg portfolio community
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 network of external experts. In
2020, we 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. In total, we hosted over 75 online events, with
1,500 attending.
Virtual events
From March 2020, to ensure we were engaging with our portfolio
and creating multiple touch points, we used the Hive platform and
hosted a number of tailored webinars for our portfolio contacts. In
August 2020, Hg then partnered with Welcome, a virtual event
platform which enables the creation of high-quality events, thereby
creating a truly differentiated experience for those attending.
Since September 2020, Hg has partnered with Welcome to successfully
host five virtual summits and three tailored virtual roundtables,
with NPS scores of over 80% being obtained. Hg can attribute this
success to not only a combination of hitting the right tone with
the format and relevant content, but also the creation of a
tailor-made dedicated experience for each person attending.
75 Portfolio team-led online events, with many more in the
diary
1,500 total in attendance
Hive - Hg's online community for everyday collaboration
Hive is Hg's online collaboration platform. It connects
thousands of senior executives across the Hg portfolio through
multiple functional communities. Individuals can post questions,
start discussions, share content and gain access to best --
practice methodologies from world -- class experts. With digital
engagement being the most utilised format to engage with our
portfolio through the pandemic, Hive is thriving more than ever. In
2020, we welcomed 800 new members, with over 22,000 interactions
captured across the year. This highlighted a 689% increase in total
usage by our members. With this huge increase in members, several
developments are being implemented across the Hive platform to
further enhance collaboration and engagement.
>95% members are from our portfolio companies
27 live communities
>2,500 active members and growing!
For further information, please visit : hive.hgcapital.com
Our team
c.230 members of the team
3 investment offices in London, Munich and New York
140 investment and portfolio management executives
8 clusters of expertise
"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
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 c.230
people, including 140 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 substantial experience in their respective
specialist operational and strategic roles. Investing primarily in
European businesses, many of which have a global footprint,
requires time and a deep understanding of local cultures.
Accordingly, our people come from around the globe, including 16
European countries, Asia, Africa 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, vibrant culture and only working with recruitment
partners who ensure that their search methodology is inclusive,
providing diverse talent - allow us to attract and hire the best
talent in our industry.
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. We know that longevity of
success means doing it the right way, thinking long term and always
being willing to listen and learn. These values can be seen and
felt everywhere you look, around our offices and in everyday
interactions - it's really what makes us Hg.
A description of Hg's key staff is available at :
hgcapital.com/our-people
"With diversity, you source and analyse deals, ask and answer
questions and manage teams differently. It adds up to better
investment and business decisions. The more complex the challenge
at hand, the greater the returns."
Nic Humphries, Senior Partner, Hg
Diversity and inclusion
Hg has introduced several new policies, over the past 12 months,
as part of a wider initiative around diversity and inclusion. We
have an established D&I steering group, comprising a range of
individuals from across the firm. Its aim is to promote a culture
of inclusion which clearly values diversity in all of its forms. We
have several global initiatives - gender balance, flexible working,
mentoring programmes, training and awareness events - to drive
internal change. This is also echoed and supported through our HR
learning and development initiatives, including structured
mentoring programmes, recruitment processes and training, embedding
awareness of unconscious bias and inclusion.
Hg will maintain its commitment to industry -- wide initiatives
such as Level 20, a not -- for -- profit organisation aligned
around a common vision to inspire more women to join the industry.
Hg senior partner Nic Humphries continues his role on Level 20's
advisory council.
Hg has also signed up to new and exciting programmes, including
the Institutional Limited Partners Association's 'diversity in
action' initiative, acknowledging our ongoing commitment to take
concrete steps to advance diversity, equity and inclusion across
our organisation and the industry more broadly. In addition, we
look forward to welcoming our first interns through the
#100blackinterns programme, helping black students to kick-start
their career in investment management.
In October, Hg were proud to sponsor the PEI 'Women in PE'
Forum, featuring a keynote from Nic Humphries on 'Working to create
a diverse and inclusive environment' and Elizabeth Wallace and
Martina Sanow hosting the workshop 'Women and Diversity: what does
it mean?' alongside Pamela and Dorett Jones of Genesis Consultancy.
This workshop pushed attendees to consider where we are today on
gender parity and identify where there are still gaps.
Hg is now a member of the LGBT Great network and as part of this
partnership has contributed to two of their research projects:
LGBT+ investing lens: research exploring the practice of investing
for financial return while also considering the benefits to those
who identify as LGBT+, such as improving economic opportunities or
social inclusion for the LGBT+ community.
Diversity Data: research exploring the concept of extending
mandatory organisational diversity reporting beyond gender to other
diversity dimensions such as ethnicity and sexuality.
Hg hopes that this research will be a catalyst for positive
change and are proud to be a part of it.
"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 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.
The foundation aims to achieve this by providing funding and
operational support to charitable schemes across Europe, the UK and
US, where its long-term, measurable and scalable impact can be
demonstrated to make a difference to those who need it most.
Since its launch in 2020, the foundation has formed three key
strategic partnerships, representing an initial total commitment of
GBP2.3 million, to be delivered over the first three years.
Alongside Imperial College London , a global top-10 university,
the foundation has committed funding to advance and scale the
college's current mA*ths outreach programme to incorporate A-level
further maths, supporting the development of a skill critical to
employment within technology.
The SEO Tech Developer programme in the US addresses the
technology diversity gap for black, Latinx and native American
undergraduate students majoring in computer science, engineering
and related STEM fields.
The foundation was one of the initial funders of an online
tutoring pilot commissioned in spring 2020 by Impetus , the EEF,
Nesta and The Sutton Trust, the findings of which fed into the
National Tutoring Programme (NTP) rolled out later in 2020 by the
UK Government.
Through The Tutor Trust , an established tutoring charity and
delivery partner of the NTP pilot, the foundation is supporting a
further pilot initiative to test the efficacy of a hybrid model of
online and face-to-face tutoring for disadvantaged students.
The foundation is 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 GBP3-4
million annual commitments over the first 10 years.
The Hg Foundation is a UK-registered charity, run by an
independent board of trustees, including 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.
For more information, please visit the Hg Foundation website:
www.thehgfoundation.com
Responsible investment
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.
We recognise that climate change is one of the most important
topics in the ESG space and at the top of the agenda for society,
Hg and our investors, especially with the forthcoming COP26
conference. As a result, Hg joined the UK network of the Initiative
Climat International (iCI) as a founding member in 2020. This
European initiative on climate change was created recognising that
climate change will have an adverse effect on the global economy.
It is supported by the UNPRI and the UK network comprises a
collaborative network of over 20 Private Equity firms who are all
working towards best practices for carbon footprinting and climate
change.
As part of our efforts on climate change, 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. As a result of our comprehensive review, we 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 page
41 in the full annual 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. For details about how Hg and our
portfolio responded to the pandemic, please see pages 42-43 in the
full annual report and accounts .
ESG in the deal process
ESG is embedded into the entire deal process, from screening to
exit. We are very clear, as outlined in our exclusion list, on the
types of business in which we do not invest. During due diligence,
we assess companies for compliance with relevant laws in relation
to ESG, H&S, bribery and corruption.
We also consider the inherent ESG risk of the company and carry
out an associated review, detailing risks and opportunities in
relation to our sustainable business framework (see page 40 in the
full annual report and accounts ), taking an active approach to
managing ESG during our ownership.
This starts with an onboarding and maturity assessment, within
the first months of acquisition, to identify areas for ESG
improvement where Hg can support the companies to realise their
ambitions within, and beyond, our sustainable business framework.
As part of our ongoing responsible business engagement, each
business is reassessed annually with regular follow-ups to ensure
that appropriate actions are taken to improve, as required.
In 2020, we conducted our third ESG assessment of our portfolio
companies, all of which have been assigned a score of 0-10. This
assessment is made against our sustainable business framework. We
are delighted to report that the average score across the portfolio
is eight, with an average improvement of 22%, compared with the
first time assessed three years ago (or more recently, depending on
when each company joined the Hg family). This reassures us that the
ESG interaction and support to our portfolio companies helps to
increase performance in this space. Our target is, by the second
year of assessment, to increase all companies' scores to at least
eight.
PRI
A signatory to the UNPRI since 2012.
AA++ 2020 PRI assessment score:
'A+' for strategy and governance and
'A+' for private equity ownership
Our sustainable business framework
Hg's sustainable business framework outlines key ESG areas of
focus for software and service companies. This 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 & safety, whistle-blowing and grievance procedures;
-- Legal, compliance and risk , including compliance functions
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;
-- Growing 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: www.
hgcapital.com/responsibility
To watch our R esponsible I nvest ment video, please visit: www.
hgcapital.com/responsibility
Certified Carbon Neutral Company
CarbonNeutral.com
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 in which 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 also reduced
significantly. However, our business has grown, too. In 2019/20,
Hg's headcount increased by around 25%, while, 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
and 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 as heat within the Earth's
atmosphere. 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 2019/2020 2018/2019 Y-o-Y Change
---------------------------- --------- --------- ------------
Refrigerant gas 1.9 0 1.9
Mains gas 35.9 50.7 -14.8
Electricity Inc. T&D
losses 128.0 210.7 -82.7
Water and wastewater 2.0 6.1 -4.1
Waste 1.6 0.7 0.9
Business travel 1,973.0 1345.7 +627.3
Hotel stays 38.2 19.3 +18.9
Staff commuting 63.9 21.8 +42.1
Outbound courier deliveries 4.6 0.7 3.9
---------------------------- --------- --------- ------------
Total 2,249.1 1,655.7 +593.4
---------------------------- --------- --------- ------------
Emissions Metrics
Emissions / FTE 11.42 10.28 +1.14
Emissions / m2 0.68 0.60 +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
-- 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 have seen the businesses which we
back providing the efficiency tools and expertise to help their
customers to best navigate this unique crisis and, in some cases,
actively help 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.
Link to full webpage:
www.hgcapital.com/covid-19-update-resources-and-information-from-across-the-hg-portfolio
Allocate
In 2020, Allocate, a leading international provider of
workforce- and resource-planning solutions, was deployed to help
solve 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 and was prepared to deliver rostering for up
to 30,000 staff at the 4,000-bed field hospital. The Allocate team
have been ready to provide 24/7 operational roster management both
onsite and remotely - putting on significant extra staff to handle
the system. Hg has also assigned over 20 of their own employees to
help manage the rostering support centre which was set up to help
nurses, physicians and other medical staff to manage their shifts.
Allocate responded to a further 7 field hospital requests in the UK
and had other discussions in Germany and Australia.
Evaluate
In 2020, 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 event,
aimed at accelerating the industry's ability to find the right
partner in developing diagnostics, drug treatments and a COVID-19
vaccine. 3,200 participants from over 80 countries and representing
more than 2,140 life science companies came together, resulting in
over 2,600 partnering meetings in just three days.
Intelerad
In 2020, Intelerad, a leading global provider of medical imaging
software and enterprise workflow solutions, committed to providing
the radiology community with technology which makes a difference
and information which really matters to its sector during the
pandemic. The 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.
The Citation Group
The Citation Group ('Citation') 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
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.
F24
F24, the pan European leading SaaS provider for proactive crisis
management, emergency notification and critical communications,
supports its more than 2,500 customers in managing critical
communication and processes during the pandemic.
With FACT24, F24 provides its customers a secure and reliable
platform for emergency notification and crisis management to handle
the COVID-19 pandemic. In addition, F24 created a smart and simple
method for recording and tracing personal contacts with its
business messaging service eCall very quickly after the pandemic
started. The solution is based on SMS and works without an app,
which means it is very easy to access for everyone, e.g. in
restaurants, shops or for companies to enable tracing of their
employees' personal contacts within the work environment.
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.
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.
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.
smartTrade
smartTrade have dedicated specific hardware to assist in the C19
research of Folding@Home, a distributed computing project for
simulating protein dynamics behind many diseases to help understand
better the virus and, ultimately, to find a viable treatment.
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.
Sovos
Sovos offered free filing support at the start of the crisis and
ran a live blog in the spring and summer of COVID-related tax
regulation changes around the world. Changes since are reported on
their regulatory analysis feed by their global team of tax
attorneys and analysts.
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.
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.
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.
Lyniate
Lyniate partnered with Nova Scotia Health Authority to
facilitate faster delivery of negative C19 test results. Lyniate's
products can be used to enable workers to be screened to ensure a
safe return to work and report the results to the Centers for
Disease Control & Prevention for analysis and action. Drew
Ivan, Chief Product and Strategy Officer, also wrote about
facilitating the vaccine rollout.
Access Group
Access Group regularly updates their COVID-19 information hubs
for companies in sectors including Health & Social Care,
Hospitality and Not-for-profit. Practical guides, virtual events
and blogs offer support for their customers' fast adapting business
models. The Access EarlyPay app gives employees access to earned
pay as and when they need it, which reduces staff financial
pressure, resulting in reductions in staff turnover.
FE fundinfo
FE fundinfo provided free training for Financial Advisers using
their FE Analytics tool, to help them advise investors during the
financial market turbulence seen as a result of the pandemic. 1,700
Advisers were trained on how to use FE Analytics more effectively
to give informed investment advice to their clients.
Year in review
Net asset value (NAV)
During the year, the NAV of HGT increased by GBP252 million,
from GBP1,039 million at 31 December 2019 to GBP1,291 million at 31
December 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 4,713 100,334 105,047
Net unrealised capital and income appreciation
of investment portfolio 30,012 195,054 225,066
Net realised and unrealised gains from
liquid resources 1,395 103 1,498
Share issue - 25,162 25,162
Dividend paid (20,399) - (20,399)
Expenditure (7,871) (1,536) (9,407)
Taxation (2) - (2)
Investment management costs:
Priority profit share - current year
paid (14,614) - (14,614)
Priority profit share - reallocation
between capital and income 3,176 (3,176) -
Carried interest - current year paid - (37,204) (37,204)
Carried interest - current year provision - (23,429) (23,429)
----------------------------------------------- -------- --------- ---------
Closing NAV as at 31 December 2020 19,946 1,271,070 1,291,016
----------------------------------------------- -------- --------- ---------
Analysis of NAV movements
Several underlying factors contributed to the increase in NAV.
Positive impacts were the GBP225.1 million revaluation of the
unquoted portfolio and uplifts of GBP105.0 million on the
realisation of investments, compared with their carrying value at
the start of the year. Shares issued during the year contributed a
further GBP25.2 million.
Reductions in NAV included: the payment of GBP20.4 million of
dividends to shareholders, carried interest paid of GBP37.2 million
and a GBP23.4 million increase in the provision for future carried
interest.
Attribution analysis of movements in the value of
investments
During the year, the value of the unrealised investments
increased by GBP228.8 million, before the provision for carried
interest. The majority of the increase, GBP284.5 million, relates
to increases from profit growth in the underlying investments. An
increase in valuation multiples increased the value of investments
by GBP33.2 million.
Acquisitions net of realisations at carrying value of GBP107.2
million increased the value further. Unfavourable currency
movements of GBP23.4 million and an increase in net debt of GBP64.8
million contributed negatively to the unrealised portfolio.
Top 20 portfolio trading performance as at 31 December 2020
The top 20 investments (representing 83% of total investments by
value) have delivered strong sales growth of 22% and EBITDA growth
of 31% over the last 12 months ('LTM').
The business model characteristics of the companies in which we
are invested give us confidence that sustainable growth can be
achieved consistently, going forward.
More than 70% 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 grown 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
Mitratech, Allocate, Access, IT Relation, Intelerad, Visma and FE
fundinfo. Whilst new to the portfolio, Septeo is also displaying
robust growth.
Where a company has not performed as well as we would like, we
have reflected this in its valuation. During 2020, we took the
decision to write down EidosMedia.
Overall, continued robust earnings growth and strong cash
generation continue to drive equity value in our investments.
Distribution of top 20 LTM sales growth: +22%
Sales growth LTM Number % of
Sales of investments top
20
------------------ ------- ---------------- -----
<10% p.a. 1,272 6 26%
------------------ ------- ---------------- -----
10% to <15% p.a. 418 6 23%
------------------ ------- ---------------- -----
15% to <25% p.a. 902 6 23%
------------------ ------- ---------------- -----
>25% p.a. 1,929 2 28%
------------------ ------- ---------------- -----
Distribution of top 20 LTM EBITDA growth: +31%
EBITDA growth LTM EBITDA Number % of
of investments top
20
------------------ ----------- ---------------- -----
<10% p.a. 94 2 6%
------------------ ----------- ---------------- -----
10% to <20% p.a. 352 6 27%
------------------ ----------- ---------------- -----
20% to <30% p.a. 260 4 20%
------------------ ----------- ---------------- -----
>30% p.a. 763 8 47%
------------------ ----------- ---------------- -----
Valuation and net debt analysis as at 31 December 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 22.1x
(19.8x at 31 December 2019). We have made incremental improvements
to our methodology during the year in order to add further rigour
to our valuations. These include the use of multiple valuation
techniques as a cross-check to the existing valuation methodology
and expanding the number of comparable businesses used to calculate
the multiples for each individual investment.
There remains an ongoing 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.
The basis of the approach continues to be to apply a relevant
multiple to a suitable earnings-based performance metric. We 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 30 November 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 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 6.4x 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: 22.1x
EV to EBITDA LTM EBITDA Number % of
of investments top
20
----------------- ----------- ---------------- -----
<15.0x 211 3 10%
----------------- ----------- ---------------- -----
15.0x to <20.0x 135 4 12%
----------------- ----------- ---------------- -----
20.0x to <23.0x 830 6 47%
----------------- ----------- ---------------- -----
23.0x to <25.0x 72 3 11%
----------------- ----------- ---------------- -----
Distribution of net debt to EBITDA ratios: 6.4x
Debt to EBITDA Debt Number % of
of investments top
20
---------------- ------ ---------------- -----
<4.0x 1,921 3 23%
---------------- ------ ---------------- -----
4.0x to <6.0x 466 4 12%
---------------- ------ ---------------- -----
6.0x to <7.0x 1,996 5 20%
---------------- ------ ---------------- -----
7.0x to <9.0x 3,549 7 39%
---------------- ------ ---------------- -----
Outstanding commitments of HGT
At 31 December 2020, HGT held liquid resources of GBP188 million
and had outstanding commitments of GBP647 million, as listed below.
We anticipate the majority of these outstanding commitments will be
drawn down over the next three to four years (2021-25) and are
likely to be partly financed by cash flows from future
realisations. Additionally, to mitigate the risk of being unable to
fund any draw-down under its commitments to invest alongside Hg's
funds, the Board has negotiated a right to opt out, without
penalty, of HGT's obligation to fund such commitments, where it
does not have the funds to do so or certain other conditions exist.
HGT also has access to an GBP200 million bank facility which was
undrawn as at 31 December 2020.
Outstanding commitments Outstanding commitments
as at 31 December as at 31 December
2020 2019
----------------------- --------- ----------- ----
Original
Fund commitment % of % of
Fund vintage GBPmillion (1) GBPmillion NAV GBPmillion NAV
----------------------- --------- ----------- ---- ---------------- ------- ----------------- --------
HGT Genesis 9 LP 2020 322.2 (2) 263.2 20.4 - -
HGT Saturn 2 LP 2020 292.6 (3) 200.6 15.5 - -
HGT Mercury 3 LP 2020 102.9 (4) 102.9 8.0 - -
HGT Transition Capital
LP 2018 75.0 49.6 3.8 59.1 5.7
HGT 8 LP 2018 350.0 9.7 0.8 143.5 13.8
HGT Saturn LP 2018 150.0 7.9 0.6 69.3 6.7
HGT Mercury 2 LP 2017 80.0 4.7 0.4 36.7 3.5
HgCapital Mercury
D LP 2011 60.0 3.3 0.3 3.3 0.3
HGT 6 LP 2009 285.0 2.3 0.2 2.4 0.3
HGT LP pre-2009 120.0 1.3 0.1 1.3 0.1
HGT 7 LP 2013 200.0 1.2 0.1 20.0 1.9
Asper RPP I LP 2006 19.4 (5) 0.6 - 0.6 0.1
Hg 6 E LP 2009 15.0 (6) 0.1 - 0.1 -
----------------------- --------- ----------- ---- ---------------- ------- ----------------- ------
Total 647.4 50.2 336.3 32.4
---------------------------------- ----------- ---- ---------------- ------- ----------------- ------
Liquid resources 187.6 14.5 189.3 18.2
---------------------------------- ----------- ---- ---------------- ------- ----------------- ------
Net outstanding commitments unfunded
by liquid resources 459.8 35.67 147.0 14.2
----------------------------------------------- ---- ---------------- ------- ----------------- ------
(1) Excluding any co-investment participations made through HGT
LP.
(2) Sterling equivalent of EUR360 million.
(3) Sterling equivalent of $400 million.
(4) Sterling equivalent of EUR115 million.
(5) Partnership interest acquired during 2011.
(6) Sterling equivalent of EUR21.6 million.
Outstanding commitments unfunded by available resources as % of
NAV
Investment portfolio of HGT
Portfolio
Residual Total valuation(1) value
Fund limited partnerships cost GBP000 GBP000 %
------------------------------------------ ------------ ------------------ -----------
Primary buyout funds:
HGT 8 LP 311,357 454,762 39.4
HGT 8 LP - Provision for carried interest - (23,576) (2.0)
HGT Saturn LP 137,298 221,379 19.2
HGT Saturn LP - Provision for carried
interest - (17,919) (1.7)
HGT 7 LP 48,739 114,420 9.9
HGT 7 LP - Provision for carried interest - (22,885) (2.0)
HGT Saturn 2 LP 90,499 112,992 9.8
HGT Mercury 2 LP 56,026 100,783 8.7
HGT LP 74,638 81,975 7.1
HGT Genesis 9 LP 58,465 57,749 5.0
HgCapital Mercury D LP 4,672 33,868 2.9
HgCapital Mercury D LP - Provision
for carried interest - (12,067) (1.0)
HGT 6 LP 14,861 24,086 2.1
HGT 6 LP - Provision for carried interest - (4,815) (0.4)
------------------------------------------ ------------ ------------------ ---------
Total primary buyout funds 796,555 1,120,752 97.0
------------------------------------------ ------------ ------------------ ---------
Secondary buyout funds:
HgCapital 6 E LP - 1,268 0.1
HgCapital 6 E LP - Provision for carried
interest - (254) -
------------------------------------------ ------------ ------------------ ---------
Total secondary buyout funds - 1,014 0.1
------------------------------------------ ------------ ------------------ ---------
Total buyout funds 796,555 1,121,766 97.1
------------------------------------------ ------------ ------------------ ---------
Transition capital funds:
HGT Transition Capital LP 24,311 32,102 2.8
------------------------------------------ ------------ ------------------ ---------
Total transition capital funds 24,311 32,102 2.8
------------------------------------------ ------------ ------------------ ---------
Renewable energy funds:
Asper RPP I 5,040 972 0.1
------------------------------------------ ------------ ------------------ ---------
Total investments net of carried interest
provision 825,906 1,154,840 100.0
------------------------------------------ ------------ ------------------ ---------
(1) Includes accrued income but is before the deduction of the
fund level facility.
Investment vintage by value
37% 2020
13% 2019
30% 2018
10% 2017
3% 2016
7% pre-2016
Analysis by value of investment return relative to its original
cost(2)
97% Above
3% Below
(2) Representing aggregate realised proceeds and unrealised
valuations of an investment
Investments and realisations
Investments
Over the course of the year, Hg invested a total of GBP4.5
billion on behalf of its clients, with HGT's share being GBP403
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 year to 31 December 2020
Visma
GBP48.1m invested on behalf of HGT
Over 2020, Hg completed two further investments 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. New investors, Warburg Pincus and TPG have
also invested in the business for the first time, acquiring
minority stakes, CPPIB, an existing investor has also acquired an
additional stake.
Sovos
GBP44.3m invested on behalf of HGT
In September, Hg completed an investment in Sovos, a global tax
software provider, via the Hg Saturn 2 Fund, alongside TA
Associates, a leading global private equity firm with more than
four decades of software investing experience, as a significant
minority investor to support the next wave of Sovos' growth.
Septeo
GBP38.5m invested on behalf of HGT
In December, Hg completed an investment into The Septeo Group
('Septeo'), a European leader in LegalTech. Septeo is a leading
LegalTech provider supporting professions including notaries, law
firms, corporate legal departments and real estate property
managers in France, Belgium, Canada and the US. Founded in 1988,
Septeo now has over 12,000 clients and more than 120,000 users,
served by over 1,400 employees. This investment reinforces Hg's
focus on legal and regulatory compliance tech, representing the
11th investment in this sector across Europe and North America,
with over EUR1.5bn invested in the sector to date.
Argus Media
GBP34.9m 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.
Intelerad
GBP34.3m 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. 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.
CaseWare
GBP28.6m invested on behalf of HGT
In December, Hg completed an investment in CaseWare
International Inc ('CaseWare'), a global leader in audit and
assurance software. CaseWare is based in Toronto, Canada, and
develops cutting-edge audit software solutions for accounting
firms, corporations and governments. CaseWare's platforms - Working
Papers and IDEA - aim to change the future of audit and audit
analytics by adopting cloud technology as well as artificial
intelligence and machine learning, enabling measurable returns on
efficiency, quality and value, for customers and their clients. For
over 30 years CaseWare has been a technology leader in the sector
and has grown organically to over 500,000 users in 130 countries
today, serving 16 different languages.
The Citation Group
GBP21.8m invested on behalf of HGT
In December, Hg completed an investment in The Citation Group
('Citation'), a leading provider of tech-enabled,
subscription-based HR and Employment law, Health & Safety, and
ISO services to SMEs. Citation provides tech-enabled compliance and
quality related subscription services to over 40,000 SMEs across
the UK. Citation helps these SMEs to comply with relevant
regulations and ensure certain levels of quality and standards are
met, in areas such as Health & Safety, HR / Employment Law, 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.
Gen II
GBP19.9m invested on behalf of HGT
In December, Hg completed an investment in Gen II Fund Services,
LLC ('Gen II'), a leading independent private equity fund
administrator. Gen II is a leading pure-play provider of
alternative asset fund administration services. Headquartered in
New York and Luxembourg with a global customer base, the company
administers over $375 billion of private capital on behalf of its
clients across more than 500 funds and their 25,000 investors,
spanning various investment strategies including Buyout, Real
Estate and Infrastructure.
smartTrade
GBP17.4m invested on behalf of HGT, including GBP10m in
co-investment
In March 2020, Hg completed an investment in smartTrade
Technologies ('smartTrade'), a leader in multi -- asset electronic
trading solutions, 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 & 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.
Evaluate
GBP11.5m invested on behalf of HGT, including GBP2.5m in
co-investment
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. Hg's backing will help
Evaluate to continue to build out capabilities that support
pharmaceutical portfolio optimisation and R&D productivity,
accelerating investment in innovation and data science
capabilities.
F24
GBP10.5m invested on behalf of HGT, including GBP2.5m in
co-investment
In August, Hg completed an investment in F24, a pan-European
sector leader for emergency notification, crisis and incident
management and critical communications, headquartered in Munich,
Germany. Hg has invested in a stake currently owned alongside
Armira and co-founder Ralf Meister, becoming the majority
shareholder in the business.
GGW Holding
GBP4.3m invested on behalf of HGT
In 2020, Hg began to build a substantial Property & Casualty
('P&C') insurance broking group now called GGW Holding (GGW).
By now, GGW spans several B2B insurance brokers across Germany and
intends to make further acquisitions.
Follow-on investments
Access
GBP39.0m invested on behalf of HGT
In December, Hg completed a further investment in The Access
Group, a leading provider of business management software to
mid-market organisations. Access is a leading UK mid-market
Enterprise Resource Planning business, providing financial
management systems and human capital management software, as well
as industry-specific software solutions. The company's software
helps over 20,000 UK businesses and not-for-profit organisations to
work efficiently, with expertise across numerous industries. Hg are
co-control shareholders in the company alongside TA Associates.
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 year end
Benevity
GBP30.9m invested on behalf of HGT including GBP3.6m in
co-investment
In January 2021, Hg completed an investment in Benevity, Inc.
('Benevity'), a global leader in global corporate purpose cloud
software. Hg will lead the investment, to be made from the Hg
Saturn 2 Fund, in partnership with Benevity's current investors,
General Atlantic and JMI Equity, which will remain significant
investors in the business, alongside the Benevity management team.
This investment comes at a time when environment, social and
governance (ESG) , corporate purpose and stakeholder capitalism are
taking root in companies of all sizes across the globe and as
employee, consumer and public expectations grow for business to
help in solving the complex issues facing society. Benevity's
all-in-one, global platform enables purpose-driven brands to engage
these stakeholders in supporting the causes and issues they care
about through a database of nearly 2 million vetted non-profit
organizations worldwide.
Geomatikk
GBP11.4m invested on behalf of HGT including GBP4.0m in
co-investment
In February 2021, Hg completed an investment in Geomatikk Group,
a tech-enabled services champion, managing critical
'check-before-you-dig' safety assessments to network owners,
contractors and consulting engineers within Norway, Sweden and
Finland. Hg will support Geomatikk with its extensive experience in
scaling tech champions across Europe. Hg will become the majority
investor, with founders and management remaining as significant
investors in the business.
Prophix
GBP15.7m invested on behalf of HGT
In February 2021, Hg completed an investment in Prophix, a
global leader in corporate performance management (CPM) software.
Founded in 1987 and based in Ontario, Canada, Prophix is a leading
provider of CPM software serving mid-market companies across
multiple industries worldwide, providing planning, budgeting and
financial reporting software into the 'office of the CFO'.
Prophix's software allows organisations to improve their financial
reporting capabilities, while also standardising and streamlining
the budgeting process to generate significant ROI through a faster
time to close, reduction in budgeting errors and an ability to
reforecast in a more agile way.
TeamSystem
Estimated GBP14.3m invested on behalf of HGT
In February 2021, Hg completed the sale of its minority holding
in TeamSystem, an Italian provider of ERP and business management
software to SMEs and professionals and a further investment via the
Hg Genesis 8 fund. Hg has held a minority position in TeamSystem
since 2015, following its majority exit to a vehicle indirectly
held by Hellman & Friedman Capital Partners VII, L.P.
Howden Group Holdings
Estimated GBP33.1m invested on behalf of HGT
In September 2020, Hg announced an investment in Howden Group
Holdings (Howden Group) (formerly Hyperion Insurance Group
Limited), the international insurance intermediary. Founded in 1994
and headquartered in London, Howden Group is a leading
international insurance distribution group. Through its core
activities of retail, speciality and reinsurance broking and
through DUAL, one of the world's leading international MGAs, it
facilitates the provision of B2B insurance across a wide geographic
footprint. The group operates across 250+ global offices in 40
countries and employs around 8,500 people to manage around $9
billion of gross written premium on behalf of its clients. It is
the fifth largest employee-owned business in the UK, with a
differentiated position as a leading international insurance
intermediary.
Realisations
Over the course of the year, Hg has returned a total of GBP4.2
billion to its clients, including GBP364 million to HGT.
While exits over the first six months of 2020 were slower in
pace than previous years there were a number of significant
realisations over the second half of the year.
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 year to 31 December 2020
Visma
GBP193.3m returned to HGT
Over 2020, HGT completed both the sale of a portion of its
co-investment and 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 Baltic, Benelux and Nordic regions.
This has helped to reduce HGT's portfolio concentration level of
Visma, as well as supporting future investments' funding. The sale
of the Hg Genesis 7 stake represented an uplift of 22% to the 31
December 2019 valuation of HGT's stake.
Sovos
GBP139.4m returned to HGT
In September, Hg completed 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 reinvesting in Sovos
alongside TA Associates, via the Hg Saturn 2 Fund.
The Citation Group
GBP25.8m returned to HGT
In September, Hg completed the sale of The 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.
STP
GBP14.8m returned to HGT
In December, Hg completed the sale of STP, a leading DACH-based
provider of legal tech solutions, to Bregal Unternehmerkapital.
Founded in 1993 and headquartered in Karlsruhe, Germany, STP is a
leading one-stop shop solution provider, empowering the
digitisation of insolvency and legal practitioners. It provides a
fully integrated legal tech platform comprising workflow
automation, ERP software, specialist technical outsourcing and data
businesses. STP's solutions are deeply embedded in the insolvency
ecosystem and commercial law segment, with a dedicated full-suite
offering. The business employs around 200 people, serving over
1,800 customers with critical software and services for their daily
workflow. This realisation was at an uplift of 86% to the 31
December 2019 valuation.
Eucon
GBP11.5m returned to HGT
In December, Hg completed the sale of Eucon Group, a leading
provider of automotive parts pricing data and claims management
services, to VHV Group, a leading insurance group in Germany. Hg
partnered with Eucon Group in 2015 having recognised that the
business sits at the intersection of two key growth drivers for Hg:
the value of big data in the automotive sector and the increasing
digitisation of the insurance sector. With digital solutions and
platform-based business models, Eucon helps to make the world
simpler, faster and improves the experience of its customers. This
realisation was at an uplift of 73% to the 31 December 2019
valuation.
Evaluate
GBP10.8m returned to 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.
Exits since the year end
APG
Estimated GBP21.5m returned to HGT
In October, Hg announced the sale of APG, one of the UK's
largest specialist insurance intermediaries, to Howden, the
international insurance broking group. Hg partnered with APG in
2015, recognising the business's best-in-class customer success
model - a personal, service-oriented approach, leading to very high
levels of customer satisfaction alongside strong organic growth.
Since then, Hg has worked with management to transform APG from a
predominantly branch-based, personal lines insurance broker, to a
business with a national footprint across multiple lines of
business, supported by industry-leading data and analytics
capabilities.
TeamSystem
Estimated GBP21.3m returned to HGT
In February 2021, Hg completed the sale of TeamSystem, an
Italian provider of ERP and business management software to SMEs
and professionals, from the Hg Genesis 6 fund.
To view our press releases, please visit
https://www.hgcapitaltrust.com/news-insights/press-releases/year/2020
Summary of investment and realisation activity
Investments made during the year
Cost
Company Cluster Location GBP'000
------------ ------------------------------------ -------------- --------
Visma Tax & Accounting/ERP & Payroll Scandinavia 48,116
Sovos Tax & Accounting North America 44,325
Septeo Legal & Regulatory Compliance France 38,545
Capital Markets & Wealth Management
Argus Media IT UK 34,869
P&I ERP & Payroll Germany 34,571
Intelerad Healthcare IT North America 34,303
CaseWare Tax & Accounting North America 28,612
Citation SME Tech & Services UK 21,824
Gen II Tax & Accounting North America 19,921
Capital Markets & Wealth Management
smartTrade IT France 17,386
Evaluate Healthcare IT UK 11,536
F24 SME Tech & Services Germany 10,523
GGW Holding Insurance Germany 4,274
------------ ------------------------------------ -------------- --------
New investments 348,805
-------------------------------------------------- -------------- --------
Access ERP & Payroll UK 39,009
Achilles Legal & Regulatory Compliance UK 11,031
Other 4,370
------------------------------------------------------------------ --------
Follow-on investments 54,410
-------------------------------------------------- -------------- --------
Total investments on behalf of HGT 403,215
-------------------------------------------------- -------------- --------
Realisations made during the year
Proceeds(1)
Company Cluster Exit route GBP000
--------------------- ------------------------------- --------------- -----------
Visma Tax & Accounting/ERP & Payroll Secondary sale 193,328
Sovos Tax & Accounting Secondary sale 139,374
Citation SME Tech & Services Secondary sale 25,771
STP Legal & Regulatory Compliance Secondary sale 14,811
Eucon Insurance Trade sale 11,479
Evaluate Healthcare IT Secondary sale 10,771
--------------------- ------------------------------- --------------- -----------
Full realisations 395,534
------------------------------------------------------ --------------- -----------
Other 5,531
----------------------------------------------------------------------- -----------
Partial realisations 5,531
----------------------------------------------------------------------- -----------
Total proceeds from
realisations 401,065
----------------------------------------------------------------------- -----------
Carried interest paid to the Manager (37,204)
------------------------------------------------------ --------------- -----------
Total proceeds from realisations received by
HGT 363,861
------------------------------------------------------ --------------- -----------
(1) Includes gross revenue received of GBP18.0m during the year
ended 31 December 2020.
Hg's outlook
"We are pleased that all of our most recent platform investments
across our three fund families have been into companies where
founders and management teams own significant stakes in their
businesses. They've chosen to partner with Hg, and we believe this
is testament to the focused scale and expertise which we have built
in our defined end market 'clusters' and the strong network effect
which has developed across the portfolio over the last two
decades."
Luke Finch, Partner and Head of Client Services, Hg
Outlook
For many, 2020 was one of the most challenging years in recent
history. Against this backdrop, we are pleased with how Hg's funds
and portfolio performed and contributed positively to our
stakeholders' livelihoods and retirements. Our overall portfolio
valuations were up over 25% for the year to December 2020, while we
have returned over GBP4 billion of liquidity to our investors,
across our funds and co-investments, including GBP364 million to
HGT.
In December 2020, Hg celebrated its 20th anniversary as a
partner-owned investment manager, capping off our busiest-ever year
of activity for both investments and realisations. As we
highlighted in the interim and Q3 reports, the COVID-19 pandemic
has had a limited direct impact on Hg's portfolio, given its
defensive growth characteristics. We believe our investments will
continue to benefit from ongoing trends in the digitalisation of
business processes, with COVID-19 accelerating such trends across
sectors and geographies.
Similarly, our UK-based businesses have seen limited direct
consequences from Brexit. Sales of software do not get snared up in
paperwork at the port. Instead, software can be delivered at the
click of a mouse or, in the case of SaaS products, not delivered at
all, but logged into. Furthermore, tech-enabled services (and
business services more generally) were typically already outside of
most existing EU trade legislation. Where regulatory complexity
exists (or, in the case of Brexit, increases), software typically
provides part of the solution for business clients - and we are
seeing several instances across our portfolio where Brexit is
leading to an increased need for our businesses' software.
Activity levels
Over 2020, we made a total of 15 new and further investments
including Septeo, Howden, CaseWare, Intelerad and Gen II. After the
end of the reporting period, we also announced new platform
investments into Benevity, Geomatikk and Prophix (please see page
53 of the full annual report and accounts for further information
on these companies). We are confident in the robustness of the
business models of the companies in which we have invested and in
their future growth prospects in these uncertain times.
In a typical 12-month period, we make between 8 and 16 new
platform investments across the active Hg Saturn, Hg Genesis and Hg
Mercury funds, along with multiples of this in terms of bolt-on
M&A across the portfolio. We also generally seek to deliver
similar numbers of liquidity events (sales or partial sales of
portfolio companies and refinancings) each year.
We expect 2021 to follow a similar cadence. We will continue to
invest across our clearly defined 'clusters' into companies which
we have tracked for many years and which focus on managing business
-- critical activities for their end customers. 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.
Over 2020, we also consistently stated that we would focus on
opportunities to crystallise value across our portfolio and return
money to Hg's clients, including HGT. We have seen several exit and
refinancing processes announced over the year, with more currently
under way or specifically planned for 2021.
In total, during 2020, we saw a record year of returns,
including the sale of Visma, Sovos, The Citation Group, STP,
Evaluate and Eucon - all at a significant uplift to their 31
December book value (an average of 49% across these six
realisations).
Valuation environment
The overall environment has been one of net valuation expansion,
albeit with significant volatility en route. On an EV/LTM-EBITDA
basis (enterprise value divided by last twelve months' earnings
before interest, tax, depreciation and amortisation), the valuation
of the S&P 500 moved from 12.5x at the start of the year to end
the year on 18.0x, up 26% - via a low of under 10x at the March
nadir. The pattern was similar in Europe, with the valuation of the
Euro Stoxx index up 19% over the course of the year.
Looking more specifically at our target sectors, the S&P 500
Software & Services index has historically been a good
valuation proxy for Hg's software and services portfolio. The
overall shape of its valuation performance was similar to the
broader market - starting the year at 21.4x LTM EBITDA, falling to
16.2x in March and staging a steady recovery to end the year at
25.3x, 18% up on its starting level.
Combining the valuation movements with the change in total
return for the respective indices, exposes some significant
differences in the performance and its components. The total return
of the software and services index, at 35%, was well ahead of its
valuation expansion, demonstrating the power of earnings growth
combined with valuation expansion - a trend from which Hg has also
benefited. In contrast, and unsurprisingly, given the 5.4% GDP
drop[1] during 2020, broad indices delivered total returns of 8-20%
below their valuation expansion as the earnings of their
constituent companies declined, in some cases quite materially,
attenuating some of the benefit of rising valuations.
(1) Source: The World Bank: Global Economic Prospects, January
2021. Retrieved on 8/2/2021
https://openknowledge.worldbank.org/bitstream/handle/10986/34710/9781464816123-Ch01.pdf
Overview of the underlying investments
held through HGT's limited partnerships
Investments Residual Total Portfolio Cum.
(in order Year cost valuation(1) value Value
of value) Fund Sector Location invested GBP000 GBP000 % %
--------------- --------------- -------------- ----------- -------- -------- ------------ ----------- --------
HGT 7/HGT Tax &
Saturn/HGT Accounting/ERP
1 Visma Saturn 2 & Payroll Scandinavia 2020 89,761 154,171 12.5 12.5
2 Access HGT 8 ERP & Payroll UK 2018 69,500 131,548 10.6 23.1
Tax &
Accounting/ERP
3 IRIS HGT Saturn & Payroll UK 2018 36,380 76,855 6.2 29.3
4 P&I HGT Saturn/HGT ERP & Payroll Germany 2020 36,367 64,295 5.2 34.5
5 Transporeon HGT 8/HGT ERP & Payroll Germany 2019 41,968 56,492 4.6 39.1
Legal &
Regulatory
6 Litera HGT 8 Compliance N. America 2019 34,242 49,771 4.0 43.1
7 Intelerad HGT 8 Healthcare IT N. America 2020 34,303 48,598 3.9 47.0
Capital Mkts
& Wealth Mgmt
8 Argus Media HGT Saturn/HGT IT UK 2020 34,869 45,822 3.7 50.7
HGT8/Mercury SME Tech &
9 team.blue 2 Services Benelux 2019 24,238 43,909 3.6 54.3
Tax &
10 Sovos HGT Saturn 2 Accounting N. America 2020 44,325 43,176 3.5 57.8
11 MeinAuto HGT 8 Automotive Germany 2017 33,967 39,428 3.2 61.0
Legal &
Regulatory
12 Septeo HGT 9 Compliance France 2020 38,545 39,075 3.2 64.2
Tax &
13 Azets HGT 7/HGT Accounting UK 2016 20,966 37,873 3.1 67.3
Capital Mkts
Mercury/Mercury & Wealth Mgmt
14 FE fundinfo 2 IT UK 2017 6,687 34,720 2.8 70.1
15 Allocate HGT 8 Healthcare IT UK 2018 13,959 34,137 2.8 72.9
Legal &
Regulatory
16 Mitratech HGT 7/HGT Compliance N. America 2017 22,258 33,307 2.7 75.6
Tax &
17 CaseWare HGT 8 Accounting N. America 2020 28,612 29,080 2.4 78.0
18 Medifox Mercury 2/HGT Healthcare IT Germany 2018 11,824 24,190 2.0 80.0
SME Tech &
19 Citation HGT 8 Services UK 2020 21,824 22,523 1.8 81.8
SME Tech &
20 IT Relation HGT 8 Services Scandinavia 2018 16,037 21,525 1.7 83.5
21 APG HGT 7 Insurance UK 2015 1,697 21,396 1.7 85.2
Tax &
Accounting/ERP
22 TeamSystem HGT 6 & Payroll Italy 2010 144 21,331 1.7 86.9
SME Tech &
23 Commify Mercury/HGT Services UK 2017 4,080 20,798 1.7 88.6
24 BrightPay Transition ERP & Payroll Ireland 2018 14,533 19,927 1.6 90.2
Tax &
25 Gen II HGT 9 Accounting N. America 2020 19,921 18,707 1.5 91.7
26 Lyniate Mercury 2 Healthcare IT N. America 2018 10,528 18,448 1.5 93.2
Capital Mkts
& Wealth Mgmt
27 smartTrade Mercury 2/HGT IT France 2020 17,386 18,327 1.5 94.7
Legal &
Regulatory
28 Achilles HGT/Transition Compliance UK 2008 28,328 17,701 1.4 96.1
29 Evaluate Mercury 2/HGT Healthcare IT UK 2020 11,536 12,547 1.0 97.1
SME Tech &
30 F24 Mercury 2/HGT Services Germany 2020 10,523 10,704 0.9 98.0
31 GGW Holding Mercury 2 Insurance Germany 2020 4,274 5,646 0.5 98.5
Legal &
Regulatory
32 Trace One Mercury Compliance France 2016 493 4,328 0.4 98.9
Tax &
33 Silverfin Mercury 2 Accounting Benelux 2019 3,214 4,228 0.3 99.2
34 Noventic HGT 6 Other Germany 2012 922 2,755 0.2 99.4
35 GenTrack HGT 7 Other N. Zealand 2017 2,686 948 0.1 99.5
SME Tech &
36 EidosMedia HGT 7 Services Italy 2015 7,467 442 - 99.5
Non-active investments
(3) 22,502 - - 99.5
---------------------------- -------------- ----------- -------- -------- ------------ --------- ------
Total buyout investments
(39) 820,866 1,228,728 99.5
---------------------------- -------------- ----------- -------- -------- ------------ --------- --------
Currency Forward sale of US$ and
hedges Various EUR - 5,388 0.3 99.8
Secondary
fund Hg 6 E Secondary fund interests - 1,268 0.1 99.9
Renewable
energy Asper I Renewable energy 5,040 972 0.1 100.0
----------- --------------- ------------------------------------- -------- ------------ --------- ------
Total all investments 825,906 1,236,356 100.0
---------------------------- -------------- ----------- -------- -------- ------------ --------- --------
(1) Including accrued income, but before the provision for
carried interest of GBP81,516,000 and the fund level facility of
GBP59,771,000.
Non-Statutory Accounts
The financial information set out below does not constitute the
Company's statutory accounts for the years ended 31 December 2019
and 2020 but is derived from those accounts. Statutory accounts for
2019 have been delivered to the Registrar of Companies, and those
for 2020 will be delivered in due course. The Auditors have
reported on those accounts; their report was (i) unqualified, (ii)
did not include a reference to any matters to which the Auditors
drew attention by way of emphasis without qualifying their report
and (iii) did not contain a statement under Section 498 (2) or (3)
of the Companies Act 2006. The text of the Auditors' report can be
found in the Company's full Annual Report and Accounts at
www.hgcapitaltrust.com
Financial statements
Income statement
for the year ended 31 December 2020
Notes Revenue return Capital return Total return
----------------------------------- -----
2020 2019 2020 2019 2020 2019
-----
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------------- ----- -------- -------- -------- -------- -------- ----------
Gains on investments and liquidity
funds 13 - - 233,322 161,389 233,322 161,389
(Losses)/gains on priority
profit share loans
advanced to general partners 5(b) - - (3,176) 4,679 (3,176) 4,679
Net income 4 24,682 15,549 - - 24,682 15,549
Other expenses 6(a) (4,846) (3,288) - - (4,846) (3,288)
----------------------------------- ----- ------- ------- ------- ------- ------- -------
Net return before finance
costs and taxation 19,836 12,261 230,146 166,068 249,982 178,329
----------------------------------- ----- ------- ------- ------- ------- ------- -------
Finance costs 6(b) (3,025) (755) - - (3,025) (755)
----------------------------------- ----- ------- ------- ------- ------- ------- -------
Net return before taxation 16,811 11,506 230,146 166,068 246,957 177,574
----------------------------------- ----- ------- ------- ------- ------- ------- -------
Taxation 9 (2) (80) - - (2) (80)
----------------------------------- ----- ------- ------- ------- ------- ------- -------
Net return after taxation 16,809 11,426 230,146 166,068 246,955 177,494
----------------------------------- ----- ------- ------- ------- ------- ------- -------
Return per ordinary share 10(a) 4.11 p 2.94 p 56.30 p 42.77 p 60.41 p 45.71 p
----------------------------------- ----- ------- ------- ------- ------- ------- -------
The total return column of this statement represents HGT's
income statement. The supplementary revenue and capital return
columns are both prepared under guidance published by the
Association of Investment Companies ('AIC'). All recognised gains
and losses are disclosed in the revenue and capital columns of the
income statement and as a consequence, no statement of
comprehensive income has been presented.
The movements in reserves are set out in note 21 to the
financial statements.
All revenue and capital items in the above statement derive from
continuing operations.
No operations were acquired or discontinued during the year.
The following notes form part of these financial statements.
Balance sheet
as at 31 December 2020
Notes 2020 2019
GBP000 GBP000
------------------------------------------- ----- ------------ --------------
Fixed asset investments
Investments at fair value through profit
or loss:
Unquoted investments 12 1,024,116 788,013
------------------------------------------- ----- ----------- -----------
Total fixed asset investments 1,024,116 788,013
------------------------------------------- ----- ----------- -----------
Current assets - amounts receivable
after one year:
Accrued income on fixed assets 14 70,953 54,266
Current assets - amounts receivable
within one year:
Debtors 14 9,528 8,961
Investments at fair value through profit
or loss:
Liquidity funds 15 139,470 184,505
Uninvested capital in limited partnerships 12(a) 26,471 226
Cash at bank 16 21,648 4,558
------------------------------------------- ----- ----------- -----------
Total current assets 268,070 252,516
------------------------------------------- ----- ----------- -----------
Creditors - amounts falling due within
one year 17 (1,170) (1,231)
------------------------------------------- ----- ----------- -----------
Net current assets 266,900 251,285
------------------------------------------- ----- ----------- -----------
Net assets 1,291,016 1,039,298
------------------------------------------- ----- ----------- -----------
Capital and reserves:
Called-up share capital 20 10,400 10,186
Share premium account 21 219,722 194,774
Capital redemption reserve 21 1,248 1,248
Capital reserve - unrealised 21 240,712 264,953
Capital reserve - realised 21 798,988 544,601
Revenue reserve 21 19,946 23,536
------------------------------------------- ----- ----------- -----------
Total equity shareholders' funds 1,291,016 1,039,298
------------------------------------------- ----- ----------- -----------
Net asset value per ordinary share 10(b) 310.3 p 255.1 p
------------------------------------------- ----- ----------- -----------
Ordinary shares in issue at 31 December 415,999,808 407,424,808
------------------------------------------- ----- ----------- -----------
The financial statements of HgCapital Trust plc (registered
number 01525583) above (or on pages 82-105 in the full annual
report and accounts ) were approved and authorised for issue by the
Board of Directors on 12 March 2021 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 year ended 31 December 2020
Notes 2020 2019
GBP000 GBP000
------------------------------------------- ----- --------- -----------
Net cash outflow from operating activities 7 (69,041) (4,657)
------------------------------------------- ----- --------- ---------
Investing activities:
Purchase of fixed asset investments 12 (403,215) (117,284)
Proceeds from the sale of fixed asset
investments 441,359 96,621
Purchase of liquidity funds 15 (271,900) (90,000)
Redemption of liquidity funds 15 318,149 61,100
------------------------------------------- ----- --------- ---------
Net cash inflow/(outflow) from investing
activities 84,393 (49,563)
------------------------------------------- ----- --------- ---------
Financing activities:
Servicing of finance (3,025) (1,475)
Equity dividends paid 11 (20,399) (18,444)
Proceeds from issue of shares 25,162 75,261
------------------------------------------- ----- --------- ---------
Net cash inflow from financing activities 1,738 55,342
------------------------------------------- ----- --------- ---------
Increase in cash and cash equivalents
in the year 16 17,090 1,122
------------------------------------------- ----- --------- ---------
Cash and cash equivalents at 1 January 16 4,558 3,436
------------------------------------------- ----- --------- ---------
Cash and cash equivalents at 31 December 16 21,648 4,558
------------------------------------------- ----- --------- ---------
The following notes form part of these financial statements.
Statement of changes in equity
for the year ended 31 December 2020
Non-distributable Distributable
Notes Capital Capital
Share Capital reserve reserve
Share premium redemption - - Revenue
capital account reserve unrealised realised reserve Total
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 - - - (24,241) 254,387 16,809 246,955
Contributions of
equity
net of transaction
costs 214 24,948 - - - - 25,162
Equity dividends
paid 4 - - - - - (20,399) (20,399)
------------------- ----- -------- -------- ----------- ----------- --------- -------- ---------
At 31 December 2020 10,400 219,722 1,248 240,712 798,988 19,946 1,291,016
------------------- ----- -------- -------- ----------- ----------- --------- -------- ---------
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 ten 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, HGT Saturn 2 LP and HGT Genesis 9 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 on page 49 in the full annual report and accounts . The
underlying investments which are held indirectly are included in
the overview of investments on page 58 in the full annual 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 6 E LP'), one of the partnerships which
comprise the Hg 6 Fund, in which HGT is now a limited partner pari
passu with other limited partners. This is a direct investment in
the Hg 6 E LP Fund, as shown on the balance sheet and in the table
of investments on page 49 in the full annual 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 on page 49 in the full annual 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.
Investment income and interest receivable
As stated above, all income that is recognised by the primary
buyout funds, net of PPS, is allocated to HGT and recognised when
the right to this income is established. Income from Hg 6 E LP and
the renewable energy funds would normally consist of income
distributions and these distributions are recognised as income in
the financial statements of HGT when the right to such distribution
is established.
The accounting policies below apply to the recognition of income
by the primary buyout funds, prior to allocation between the
Partners:
Interest income on non-equity shares and fixed income securities
is recognised on a time apportionment basis so as to reflect the
effective yield when it is probable that it will be realised.
Dividends receivable on unlisted equity shares where there is no
ex-dividend date and on non-equity shares are brought into account
when the right to receive payment is established.
Income from listed equity investments, including taxes deducted
at source, is included in revenue by reference to the date on which
the investment is quoted ex-dividend. Where dividends are received
in the form of additional shares rather than cash dividends, the
equivalent of the cash dividend is recognised as the income in the
revenue account and any excess in the value of the shares received
over the amount of the cash dividend is recognised in the capital
reserve - realised.
Expenses
All expenses are accounted for on an accruals basis. All
administrative expenses are charged wholly to the revenue
account.
Dividends
Dividend distributions to shareholders are recognised as a
liability in the year that they are approved unconditionally.
Current and other non-current assets
Financial assets and financial liabilities are recognised in
HGT's balance sheet when HGT becomes a party to the contractual
provisions of the instrument. Trade receivables are stated at
nominal value. Appropriate allowances for estimated irrecoverable
amounts are recognised in the revenue return on the income
statement.
Cash comprises current accounts held with banks.
Foreign currency
The functional and presentation currency is pounds sterling,
reflecting the economic environment in which HGT predominantly
operates. All transactions in foreign currencies are translated
into sterling at the rates of exchange ruling at the dates of such
transactions and the resulting exchange differences are taken to
the capital reserve - realised or revenue, as appropriate. Foreign
currency assets and liabilities at the balance sheet date are
translated into sterling at the exchange rates ruling at that date
and the resulting exchange differences are taken to the capital
reserve - unrealised or revenue as appropriate.
Taxation
Income taxes represent the sum of the tax currently payable,
withholding taxes suffered and deferred tax. Tax is charged or
credited in the income statement. Deferred tax is recognised on all
timing differences at the reporting date. These timing differences
arise from the inclusion of income and expenses in tax assessments
in periods different from those in which they are recognised in the
financial statements.
Investments
The principle applied is that investments should be reported at
'fair value', in accordance with Sections 11 and 12 of FRS 102 and
the International Private Equity and Venture Capital ('IPEV')
Valuation Guidelines, December 2018 edition. Where relevant, HGT
applies the policies stated below to the investments held by the
primary buyout funds, in order to determine the fair value of its
investments in these limited partnerships.
Purchases of investments are recognised on a trade date basis.
Sales of investments held through the primary buyout funds are
recognised at the trade date of the disposal. Sales from the
investments in Hg 6 E LP and the renewable energy funds would
normally consist of capital distributions and these distributions
are recognised as a realisation when the right to such distribution
is established. Proceeds are measured at fair value, which is
regarded as the proceeds of sale less any transaction costs.
Quoted: Quoted investments are held at fair value, which is
deemed to be their bid price.
Unquoted: Unquoted investments are also held at fair value and
are valued using the following guidelines:
(i) initially, investments are valued at the price of recent
investments less fees. Subsequently, investments are valued based
on (ii) to (iv) below;
(ii) the level of maintainable earnings or revenue and an
appropriate earnings or revenue multiple, unless (iv) is
required;
(iii) where more appropriate, investments can be valued based on
other methodologies, including using their net assets or discounted
cash flows, rather than on their earnings or revenue; and
(iv) appropriate fair value movements are made against all
individual valuations where necessary to reflect unsatisfactory
financial performance or a fall in comparable ratings.
Limited partnership funds: these are investments that are set up
by a manager in which HGT has a direct investment, but is not the
sole limited partner and does not hold a majority share. These
investments are valued at fair value, based on the Manager's
valuation after any adjustment required by the Directors.
Liquidity funds: these are short-term investments made in a
combination of fixed and floating rate securities and are valued at
the current fair value as determined by the manager of the fund.
They can be realised at short notice.
Derivative financial instruments: derivative financial
instruments are held at fair value and are valued using quoted
market prices for financial instruments traded in active markets,
or dealer price quotations for financial instruments that are not
actively traded.
Both realised and unrealised gains and losses arising on fixed
asset investments, financial assets and liabilities and derivative
financial instruments, are taken to the capital reserves.
Capital reserves
Capital reserve - realised
The following are accounted for in this reserve:
(i) gains and losses on the realisation of investments;
(ii) attribution of gains to the founder partners for carried
interest;
(ii) losses on investments where there is little prospect of
realisation or recovering any value;
(iv) realised exchange differences of a capital nature; and
(v) expenses, together with the related taxation effect, charged
to this reserve in accordance with the above policies.
Capital reserve - unrealised
The following are accounted for in this reserve:
(i) increases and decreases in the valuation of investments held at the year-end;
(ii) increases and decreases in the valuation of the loans to
general partners; and
(iii) unrealised exchange differences of a capital nature.
Share capital
Ordinary shares issued are recognised based on the proceeds or
fair value received, with the excess of the amount received over
their nominal value being credited to the share premium account.
Direct issue costs are deducted from equity.
Critical accounting estimates and key sources of estimation
uncertainty
The preparation of these financial statements requires the use
of estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reported
year. Although these estimates are based on management's best
knowledge of the amount, event or actions, actual results may
ultimately differ from those estimates.
The estimates and assumptions are reviewed on an on-going basis.
Revisions to accounting estimates are recognised in the period in
which the estimate is revised if the revision affects only that
period, or in the period of the revision and future periods if the
revision affects both current and future periods.
The key accounting estimate is in respect of the determination
of the fair value of financial assets classified as fair value
through profit or loss (FVTPL). The methodology used in determining
fair values is disclosed above. An attribution analysis of
movements in the fair value of investments can be found on page 45
in the full annual report and accounts and an analysis of the
trading performance and valuation and gearing analysis of the top
20 buyout investments by value can be found on pages 59 and 79 in
the full annual report and accounts . A sensitivity analysis to
equity price risk can be found in note 19.
4. Income
Revenue return
2020 2019
GBP000 GBP000
---------------------------- ------- ---------
Total net income comprises:
Interest 24,682 15,549
---------------------------- ------- -------
Total net income 24,682 15,549
---------------------------- ------- -------
All income that is recognised by the primary buyout funds, net
of PPS, is allocated to HGT and recognised when the right to this
income is established. This income and PPS is analysed further
below.
Revenue return
2020 2019
GBP000 GBP000
--------------------------------------------------- -------- ----------
Income from investments held by the primary buyout
funds
Unquoted investment income 34,725 27,847
Other investment income:
Unquoted investment income - 1,378
Liquidity funds income 1,335 1,788
--------------------------------------------------- -------- --------
Total investment income 36,060 31,013
--------------------------------------------------- -------- --------
Total other income 60 46
--------------------------------------------------- -------- --------
Total income 36,120 31,059
--------------------------------------------------- -------- --------
Priority profit share charge against income:
Current year - HGT 8 LP (5,711) (10,463)
Current year - HGT Mercury 2 LP (2,092) (1,654)
Current year - HGT 7 LP (1,756) (2,148)
Current year - HGT Saturn LP (1,281) (665)
Current year - HgCapital Mercury D LP (371) (392)
Current year - HGT Transition Capital LP (187) (188)
Current year - HGT LP (40) -
Total priority profit share charge against income
(note 5(a)) (11,438) (15,510)
--------------------------------------------------- -------- --------
Total net income 24,682 15,549
--------------------------------------------------- -------- --------
5. Priority profit share and carried interest
Revenue return
2020 2019
(a) Priority profit share payable to general
partners GBP000 GBP000
-------------------------------------------------- -------- --------
Priority profit share payable:
Current year amount 14,614 10,831
Less: Current year loans advanced to general
partners (note 5(b)) (3,922) (31)
Add: Prior year loans recovered from general
partners (note 5(b)) 746 4,710
-------------------------------------------------- -------- ------
Current year charge against income 11,438 15,510
-------------------------------------------------- -------- ------
Total priority profit share charge against income 11,438 15,510
-------------------------------------------------- -------- ------
The priority profit share payable on the primary buyout funds
rank as a first appropriation of net income from investments held
in these partnerships respectively and is deducted prior to such
income being attributed to HGT in its capacity as a Limited
Partner. The net income of the primary buyout funds earned during
the year, after the deduction of the priority profit share, is
shown on the income statement. Details of these arrangements are
disclosed in the Directors' report on page 118 in the full annual
report and accounts .
The terms of the above priority profit share arrangements during
2020 were:
Fund partnership Priority profit share (% p.a)
---------------------- ---------------------------------------------------
HGT 8 LP 1.75% on the fund commitment during the investment
period, stepping down to 1.5% on invested capital
HGT Mercury 2 LP 1.75% on the fund commitment during the investment
period
HGT Saturn 2 LP 1.0% on the fund commitment during the investment
period
HGT Genesis 9 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
that have been realised or written off
HgCapital Mercury D LP 1.5% of original cost of investments in the
fund less the original cost of investments
that 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
that have been realised or written off
HGT Saturn LP 1.0% on invested capital
HGT Transition Capital 1.25% on invested capital during the investment
LP period, stepping down to 0.75% on invested
capital
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
Partners LP fund, less the original cost of investments
that have been realised or written off.
Capital return
2020 2019
(b) Priority profit share loans to general partners GBP000 GBP000
----------------------------------------------------- --------- --------
Movement on loans to general partners:
Losses on current-year loans advanced to general
partners (3,922) (31)
Gains on prior-year loans recovered from general
partners 746 4,710
----------------------------------------------------- --------- ------
Total (losses)/gains on priority profit share
loans (advanced to)/recovered from general partners (3,176) 4,679
----------------------------------------------------- --------- ------
In years in which the funds described in note 5(a) have not yet
earned sufficient net income to satisfy the priority profit share,
the entitlement is carried forward to the following years. The
priority profit share is payable quarterly in advance, even if
insufficient net income has been earned. Where the cash amount paid
exceeds the net income, an interest free loan is advanced to the
general partner by these primary buyout funds, which is funded via
a loan from HGT. Such loan is only recoverable from the general
partner by an appropriation of net income, until sufficient net
income is earned, no value is attributed to this loan and hence an
unrealised capital loss is recognised and reversed if sufficient
income is subsequently generated.
Capital return
2020 2019
(c) Carried interest to founder partners GBP000 GBP000
----------------------------------------------- ------- ---------
Carried interest charge against capital gains:
Current period charge against realised capital
gains 37,204 1,511
Current year charge against unrealised capital
gains 23,429 15,775
----------------------------------------------- ------- -------
Total carried-interest charge against capital
gains 60,633 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 prior to such gains
being paid to HGT in its capacity as a Limited Partner. The net
amount of capital gains of the primary buyout funds during the
year, 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 118 in the full annual report and
accounts , state that carried interest is payable once a certain
level of repayments have been made to HGT. Based on the repayments
made during 2020, GBP37,204,000 (2019: GBP1,511,000) of carried
interest was paid in respect of the current financial year. If the
investments in HGT 6 LP, HGT 7 LP, HGT 8 LP, HGT Saturn LP,
HgCapital Mercury D LP and Hg 6 E LP are realised at the current
fair value and then distributed to Partners, an amount of
GBP81,515,738 will be payable to the Founder Partner (2019:
GBP58,087,167 payable to the Founder Partner) and therefore the
Directors have made a provision for this amount (see note 12). No
provision is required in respect of HGT's investment in the other
fund limited partnerships, because they are still in their
investment period.
6. Other expenses
Revenue return
2020 2019
(a) Operating expenses GBP000 GBP000
-------------------------------------------------- -------- --------
Registrar, management and administration fees 1,108 975
Directors remuneration (note 8) 292 284
Legal and other administration costs(1) 3,340 1,927
-------------------------------------------------- -------- ------
4,740 3,186
-------------------------------------------------- -------- ------
Fees payable to the Company's auditor in relation
to the Company:
Audit fees(2) 106 102
-------------------------------------------------- -------- ------
Total fees payable to HGT's auditor 106 102
-------------------------------------------------- -------- ------
Total other expenses 4,846 3,288
(1) Includes employer's National Insurance contributions of
GBP34,030 (2019: GBP31,838).
(2) In addition to the audit fees payable to the auditor in
relation to HGT, audit fees payable to the auditor in respect of
the audit of the primary buyout funds were GBP69,000 (2019:
GBP55,200) inclusive of VAT.
Revenue return
2020 2019
(b) Finance costs GBP000 GBP000
Interest paid 1,444 -
Non-utilisation fees and other expenses 717 755
Arrangement fees 864 -
---------------------------------------- ---------- ------
Total finance costs 3,025 755
---------------------------------------- ---------- ------
7. Cash flow from operating activities
2020 2019
------------------------------------------------------
Reconciliation of net return before finance
costs and taxation
to net cash flow from operating activities GBP000 GBP000
------------------------------------------------------ --------- -----------
Net return before finance costs and taxation 249,982 178,329
Gains on investments held at fair value and liquidity
funds (260,351) (179,785)
Carried interest paid (37,204) (1,511)
Increase in carried interest provision 23,429 15,775
Increase in accrued income from liquidity funds (1,335) (1,788)
Increase in prepayments, accrued income and other
debtors (17,254) (15,989)
(Decrease)/increase in creditors (61) 288
Increase in uninvested capital (26,245) -
Taxation (paid)/received (2) 24
------------------------------------------------------ --------- ---------
Net cash outflow from operating activities (69,041) (4,657)
------------------------------------------------------ --------- ---------
8. Directors' remuneration
The aggregate remuneration of the Directors for the year to 31
December 2020 was GBP291,684 (2019: GBP284,000). Further
information on the Directors' remuneration is disclosed in the
Directors' remuneration report on pages 134-136 in the full annual
report and accounts .
9. Taxation
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 reported in the capital return during the year. To the extent
possible, HGT will elect to designate all of the proposed dividend
(see note 4) as an interest distribution to its shareholders. This
distribution is treated as a tax deduction against taxable income
in the revenue return and results in a reduction of corporation tax
being payable by HGT at 31 December 2020.
The rate of corporation tax in the UK for a company was 19%
during the year (2019: tax rate of 19%). However, the tax charge in
the current and previous year was lower than the standard and
effective tax rate, owing largely to the reduction in corporation
tax from the interest distribution noted above. The effect of this
and other items affecting the tax charge is shown in note 9(b)
below.
Revenue return
2020 2019
(a) Analysis of charge in the year GBP000 GBP000
------------------------------------------------- ------- ---------
Current tax:
UK corporation tax 2,798 1,626
Income streaming relief (2,802) (1,626)
Prior year adjustment 6 (24)
------------------------------------------------- ------- -------
Current revenue tax charge/(credit) for the year 2 (24)
------------------------------------------------- ------- -------
Deferred tax:
Reversal of timing differences - 104
------------------------------------------------- ------- -------
Total deferred tax charge for the year (note
9(c)) - 104
------------------------------------------------- ------- -------
Total taxation charge 2 80
------------------------------------------------- ------- -------
Revenue return
2020 2019
(b) Factors affecting tax charge for the year GBP000 GBP000
------------------------------------------------ ------- ---------
Net revenue return before taxation 16,811 11,506
------------------------------------------------ ------- -------
UK corporation tax charge at 19% thereon (2019:
19%) 3,194 2,186
------------------------------------------------ ------- -------
Effects of:
Tax relief from interest distribution (2,802) (1,626)
Tax relief from expenses allocated to capital (396) (456)
Prior year tax adjustment 6 (24)
------------------------------------------------ ------- -------
Total differences (3,192) (2,106)
------------------------------------------------ ------- -------
Total taxation charge 2 80
------------------------------------------------ ------- -------
Revenue return
2020 2019
(c) Deferred tax GBP000 GBP000
--------------------------------------------- -------- --------
Deferred tax:
Movement in taxable income not recognised in
revenue return - 104
--------------------------------------------- -------- ------
Total deferred tax charge for the year (note
9(a)) - 104
--------------------------------------------- -------- ------
Deferred tax recoverable:
Recoverable deferred tax at 31 December - 104
Deferred tax charge for the year - (104)
--------------------------------------------- -------- ------
Recoverable deferred tax at end of year - -
--------------------------------------------- -------- ------
Deferred tax assets of GBPnil were recognised at 31 December
2020 (2019: GBPnil at a 19% tax rate)
10. Return and net asset value per Ordinary share
Revenue return Capital return
(a) Return per ordinary share 2020 2019 2020 2019
------------------------------ ------- ------- ------- ---------
Amount (GBP000):
Net return after taxation 16,809 11,426 230,146 166,068
------------------------------ ------- ------- ------- -------
Weighted average number of
ordinary shares ('000):
Weighted average number of
ordinary shares in issue 408,765 388,267 408,765 388,267
------------------------------ ------- ------- ------- -------
Return per ordinary share
(pence) 4.11 2.94 56.30 42.77
------------------------------ ------- ------- ------- -------
Capital return
(b) Net asset value per ordinary share 2020 2019
------------------------------------------- --------- -----------
Amount (GBP000):
Net assets 1,291,016 1,039,298
------------------------------------------- --------- ---------
Number of ordinary shares ('000):
Number of ordinary shares in issue 416,000 407,425
------------------------------------------- --------- ---------
Net asset value per ordinary share (pence) 310.3 255.1
------------------------------------------- --------- ---------
11. Dividends on ordinary shares
2020 2019
Record date Payment date GBP000 GBP000
--------------------------------- -------------- ------------- ------ --------
Interim Dividend of 2.0p for the 24 September 28 October
year ended 31 December 2020 2020 2020 8,176 -
Final Dividend of 3.0p for the
year ended 31 December 2019 19 March 2020 15 May 2020 12,223 -
Interim Dividend of 1.8p for the 20 September 25 October
year ended 31 December 2019 2019 2019 - 7,247
Final Dividend of 30.0p for the 30 April
year ended 31 December 2018 22 March 2019 2019 - 11,197
--------------------------------- -------------- ------------- ------ ------
Total equity dividends paid 20,399 18,444
---------------------------------------------------------------- ------ ------
The proposed final dividend of 3.0p per ordinary share for the
year ended 31 December 2020 is subject to approval by the
shareholders at the annual general meeting and has not been
included as a liability in these financial statements. The total
dividends payable in respect of the financial year, which form the
basis of the retention test as set out in Section 1159 of the CTA
2010, are set out below:
2020 2019
GBP000 GBP000
----------------------------------------------- -------- ----------
Revenue available for distribution by way of
dividend for the year 16,809 11,426
Interim dividend of 2.0p for the year ended 31
December 2020 (paid on 28 October 2020) (12,223) (7,247)
Proposed final dividend of 3.0p for the year
ended 31 December 2020 (based on 415,999,808
ordinary shares in issue at 31 December 2020) (12,480) (12,223)
----------------------------------------------- -------- --------
Distributions in excess of revenue for Section
1159 purposes* (7,894) (8,044)
----------------------------------------------- -------- --------
*Distributions in excess of revenue are financed by the revenue
reserve
12. Fixed asset investments
2020 2019
GBP000 GBP000
---------------------------------------------------- --------- ----------
Investments held at fair value through profit
and loss:
Unquoted investments held in HGT 8 LP 431,092 217,635
Unquoted investments held in HGT Saturn LP 208,138 114,981
Unquoted investments held in HGT Saturn 2 LP 112,992 -
Unquoted investments held in HGT 7 LP 103,527 255,127
Unquoted investments held in HGT Mercury 2 LP 94,659 39,679
Unquoted investments held in HGT LP 71,108 137,075
Unquoted investments held in HGT Genesis 9 LP 57,734 -
Unquoted investments held in HgCapital Mercury
D LP 30,702 38,432
Unquoted investments held in HGT Transition Capital
LP 29,126 16,049
Unquoted investments held in HGT 6 LP 24,086 24,099
Other unquoted investments held by the company 2,239 3,023
---------------------------------------------------- --------- --------
Total fixed asset investments gross of carried
interest provision 1,165,403 846,100
---------------------------------------------------- --------- --------
Carried interest provision (note 5(c)) (81,516) (58,087)
Fund level facility (HGT 8 LP) (59,771) -
---------------------------------------------------- --------- --------
Total fixed asset investments 1,024,116 788,013
---------------------------------------------------- --------- --------
Total fixed asset investments consist of:
---------------------------------------------------- --------- ----------
Fund limited partnerships 1,024,116 788,013
---------------------------------------------------- --------- --------
2020 2019
GBP000 GBP000
------------------------- -------------------------- --------- -----------
Opening valuation
as at 1 January 788,013 609,663
Opening unrealised
appreciation -investments (329,086) (173,265)
Opening carried interest
provision 58,087 42,312
----------------------------------------------------- --------- ---------
Opening book cost
as at 1 January 517,014 478,710
----------------------------------------------------- --------- ---------
Movements in the year:
Additions at cost 403,215 117,284
Disposals - proceeds (383,025) (103,558)
- realised gains on sales 288,702 24,578
---------------------------------------------------- --------- ---------
Closing book cost
of investments 825,906 517,014
----------------------------------------------------- --------- ---------
Add: closing unrealised
appreciation - investments 339,497 329,086
Less: closing carried
interest provision (81,516) (58,087)
Less: advanced proceeds
(HGT 8 LP) (59,771) -
----------------------------------------------------- --------- ---------
Closing valuation of investments at 31 December 1,024,116 788,013
----------------------------------------------------- --------- ---------
The investments above include investments in companies that are
indirectly held by HGT through its investment in the primary buyout
funds as set out in note 3 on page 87 in the full annual report and
accounts , and investments in fund limited partnerships in Hg 6 E
LP and Asper Renewable Power Partners LP. The net assets
attributable to partners at 31 December 2019, being the date of the
last audited balance sheet, of these primary buyout funds were
GBP146,183,838 (HGT LP), GBP24,089,389 (HGT 6 LP), GBP269,630,378
(HGT 7 LP), GBP45,548,750 (HgCapital Mercury D LP), GBP232,766,673
(HGT 8 LP), GBP41,530,217 (HGT Mercury 2 LP), GBP120,618,165 (HGT
Saturn LP) and GBP16,889,216 (HGT Transition Capital LP).
a) Uninvested capital in limited partnerships
Uninvested capital in the limited partnerships relates to cash
held in the underlying limited partnerships as a result of timing
differences before an investment or after a realisation. Cash held
at the fund level at the 31 December 2020 was GBP26.5 million
(2019: GBP0.2 million).
13. Gains on investments and liquidity funds
Capital return
2020 2019
GBP000 GBP000
---------------------------- -------------------------- -------- ----------
Realised:
Realised gains/(losses) - fixed asset investments 288,702 24,578
- liquidity funds 2,117 408
- aborted deal fees 548 (2,402)
- loan facility 224 -
------------------------------------------------------- -------- --------
291,591 22,584
------------------------------------------------------- -------- --------
Carried interest charge against realised capital
gains (note 5(c)) (37,204) (1,511)
-------------------------------------------------------- -------- --------
Net realised gains 254,387 21,073
-------------------------------------------------------- -------- --------
Unrealised:
Unrealised gains/(losses) - fixed asset investments 10,411 155,821
- foreign exchange
on investments (2,288) -
- liquidity funds (2,238) 489
- aborted deal fees (2,084) (219)
------------------------------------------------------- -------- --------
3,801 156,091
------------------------------------------------------- -------- --------
Carried interest charge against unrealised capital
gains (note 5(c)) (23,429) (15,775)
Fund level refinancing (HGT
8 LP) (1,437) -
-------------------------------------------------------- -------- --------
Net unrealised (losses) /
gains (21,065) 140,316
-------------------------------------------------------- -------- --------
Total gains 233,322 161,389
-------------------------------------------------------- -------- --------
Page 45 of the Manager's Review in the full annual report and
accounts contains an analysis of all material realised and
unrealised movements in value of individual investments held as
fixed asset investments, in accordance with paragraph 28 and 29 of
the 'SORP'.
14. Debtors and accrued income
2020 2019
GBP000 GBP000
----------------------------------------- ------ --------
Amounts receivable after one year:
Accrued income on fixed assets 70,953 54,266
----------------------------------------- ------ ------
Amounts receivable within one year:
Prepayments and other debtors 9,528 2,024
Deferred consideration - 6,937
----------------------------------------- ------ ------
Total amounts receivable within one year 9,528 8,961
----------------------------------------- ------ ------
Total debtors 80,481 63,227
----------------------------------------- ------ ------
The Directors consider that the carrying amount of debtors
approximates their fair value.
15. Liquidity funds
2020 2019
GBP000 GBP000
---------------------------------------------- --------- ----------
Investments held at fair value through profit
or loss:
Opening valuation 184,505 152,920
Purchases at cost 271,900 90,000
Redemptions (318,149) (61,100)
Movement in unrealised capital (losses)/gains (2,238) 489
Movement in accrued income 1,335 1,788
Realised capital gains 2,117 408
---------------------------------------------- --------- --------
Closing valuation 139,470 184,505
---------------------------------------------- --------- --------
16. Movement in net funds
2020 2019
GBP000 GBP000
------------------------------------------ ------ --------
Analysis and reconciliation of net funds:
Change in cash 17,090 1,122
Net funds at 1 January 4,558 3,436
------------------------------------------ ------ ------
Net funds at 31 December 21,648 4,558
------------------------------------------ ------ ------
Net funds comprise:
------------------------------------------ ------ --------
Cash 21,648 4,558
------------------------------------------ ------ ------
17. Creditors - amounts falling due within one year
2020 2019
GBP000 GBP000
---------------- ------ --------
Accruals 1,170 1,231
---------------- ------ ------
Total creditors 1,170 1,231
---------------- ------ ------
The Directors consider that the carrying amount of creditors
approximates their fair value.
18. Bank facility
On 24 August 2011, HGT entered into a GBP40,000,000
multi-currency revolving credit standby facility on an unsecured
basis. In December 2015, the facility was extended by a further
three and a half years to 30 June 2019. In addition, the facility
was increased to GBP80,000,000. In October 2020 this facility was
repaid in full and a revised facility agreed for GBP200,000,000.
Under the facility agreement, HGT is liable to pay interest on any
drawn amount at LIBOR plus a margin of 3.25%. A commitment fee of
1.15% is liable on any undrawn commitment. The term of this
facility is four years. The facility was undrawn as at the end of
the year.
19. Financial risk
The following disclosures relating to the risks faced by HGT are
provided in accordance with sections 11 and 12 of FRS 102. The
reference to investments in this note is in relation to HGT's
direct investments in Asper RPP I LP, Hg 6 E LP and the underlying
investments in HGT LP, HGT 6 LP, HGT 7 LP, HGT 8 LP, HgCapital
Mercury D LP, HGT Mercury 2 LP, HGT Saturn LP, HGT Saturn 2 LP, HGT
Genesis 9 LP and HGT Transition Capital LP as described in note 3
above (on page 87 in the full annual report and accounts ).
Financial instruments and risk profile
HGT's investment objective is to achieve long-term capital
appreciation by indirectly investing in unquoted companies. It does
this through its investments in fund partnerships, mostly in the UK
and Europe. Additionally, HGT holds UK Government securities, cash,
liquidity funds and items such as debtors and creditors arising
directly from its operations. In pursuing its investment objective,
HGT is exposed to a variety of risks that could result in either a
reduction of HGT's net assets or a reduction in the profits
available for distribution by way of dividends. Valuation risk,
market risk (comprising currency risk and interest rate risk),
liquidity risk and credit risk, and the Directors' approach to the
management of them, are described below. The Board and Hg
coordinate HGT's risk management. The objectives, policies and
processes for managing the risks, and the methods used to manage
the risks, that are set out below, have not changed from the
previous accounting period.
Valuation risk
HGT's exposure to valuation risk arises mainly from movements in
the value of the underlying investments (held through fund
partnerships), the majority of which are unquoted. A breakdown of
HGT's portfolio is given on page 49 in the full annual report and
accounts and a breakdown of the most significant underlying
investments is given on page 58 in the full annual report and
accounts . In accordance with HGT's accounting policies, the
investments in fund limited partnerships are valued by reference to
their underlying unquoted investments, which are valued by the
Directors following the IPEV Valuation Guidelines. Page 47 in the
full annual report and accounts includes details of the most
significant assumptions included in the valuations. HGT does not
hedge against movements in the value of these investments, apart
from foreign exchange movements as explained below, though the
borrowing arranged to fund these investments is normally
denominated in the currency in which the business is operating and
valued (see page 101 in the full annual report and accounts ). HGT
has exposure to interest rate movements, through bank deposits and
liquidity funds.
In the opinion of the Directors, the diversified nature of HGT's
investments significantly reduces the risks of investing in
unquoted companies.
FRS 102 requires HGT to classify fair value measurements using a
fair value hierarchy that reflects the significance of the inputs
used in making the measurements. The fair value hierarchy has the
following levels:
-- Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
-- Inputs other than quoted prices included within level 1 that
are observable for the asset or liability, either directly (that
is, as prices) or indirectly (that is, derived from prices) (level
2).
-- Inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs) (level
3).
The level in the fair value hierarchy, within which the fair
value measurement is categorised in its entirety, is determined on
the basis of the lowest level input that is significant to the fair
value measurement in its entirety. For this purpose, the
significance of an input is assessed against the fair value
measurement in its entirety. If a fair value measurement uses
observable inputs that require significant adjustment based on
unobservable inputs, that is a level 3 measurement. Assessing the
significance of a particular input to the fair value measurement in
its entirety requires judgement, considering factors specific to
the asset or liability.
The determination of what constitutes an 'observable' input
requires significant judgement by the Board. The Board considers
observable data relating to investments actively traded in
organised financial markets, in which case fair value is generally
determined by reference to stock exchange quoted market bid prices
at the close of business on the balance sheet date, without
adjustment for transaction costs necessary to realise the
asset.
The following table analyses, within the fair value hierarchy,
the fund's financial assets (by class) measured at fair value at 31
December.
Level
1 Level 2 Level 3 Total
GBP000 GBP000 GBP000 GBP000
--------------------------------------------- ------ ------- --------- -----------
Investments held at fair value through
profit and loss:
Unquoted investments
- Investment in HGT 8 LP - - 431,092 431,092
- Investment in HGT Saturn LP - - 208,138 208,138
- Investment in HGT Saturn 2 LP - - 112,992 112,992
- Investment in HGT 7 LP - - 103,527 103,527
- Investment in HGT Mercury 2 LP - - 94,659 94,659
- Investment in HGT LP - - 71,108 71,108
- Investment in HGT Genesis 9 LP - - 57,734 57,734
- Investment in Hg Mercury D LP - - 30,702 30,702
- Investment in HGT Transition Capital
LP - - 29,126 29,126
- Investment in HGT 6 LP - - 24,086 24,086
- Investment in Hg 6 E LP - - 1,267 1,267
- Investment in Asper RPP I LP - - 972 972
- Liquidity funds - 139,470 - 139,470
- Carried interest provision - - (81,516) (81,516)
- Fund level refinancing - - (59,771) (59,771)
- Uninvested capital in limited partnerships - - 26,471 26,471
--------------------------------------------- ------ ------- --------- ---------
As at 31 December 2020 - 139,470 1,050,587 1,190,057
--------------------------------------------- ------ ------- --------- ---------
Level
1 Level 2 Level 3 Total
GBP000 GBP000 GBP000 GBP000
--------------------------------------------- ------ ------- -------- ----------
Investments held at fair value through
profit and loss:
Unquoted investments
- Investment in HGT 7 LP - - 255,127 255,127
- Investment in HGT 8 LP - - 217,635 217,635
- Investment in HGT LP - - 137,075 137,075
- Investment in HGT Saturn LP - - 114,981 114,981
- Investment in HGT Mercury 2 LP - - 39,679 39,679
- Investment in Hg Mercury D LP - - 38,432 38,432
- Investment in HGT 6 LP - - 24,099 24,099
- Investment in HGT Transition Capital
LP - - 16,049 16,049
- Investment in Asper RPP I LP - - 1,808 1,808
- Investment in Hg 6 E LP - - 1,215 1,215
- Liquidity funds - 184,505 - 184,505
- Carried interest provision - - (58,087) (58,087)
- Uninvested capital in limited partnerships - - 226 226
--------------------------------------------- ------ ------- -------- --------
As at 31 December 2019 - 184,505 788,239 972,744
--------------------------------------------- ------ ------- -------- --------
Investments whose values are based on quoted market prices in
active markets, and therefore classified within level 1, include
government securities and actively traded listed equities. HGT does
not adjust the quoted bid price of these investments.
Financial instruments that trade in markets that are not
considered to be active, but are valued based on quoted market
prices, dealer quotations or alternative pricing sources supported
by observable inputs, are classified within level 2. As level 2
investments include positions that are not traded in active markets
and/or are subject to transfer restrictions, valuations may be
adjusted to reflect illiquidity and/or non-transferability, which
are generally based on available market information.
Investments classified within level 3 have significant
unobservable inputs. Level 3 instruments include private equity and
corporate debt securities. As observable prices are not available
for these securities, the Board has used valuation techniques to
derive the fair value. In respect of unquoted instruments, or where
the market for a financial instrument is not active, fair value is
established by using recognised valuation methodologies, in
accordance with IPEV Valuation Guidelines. Fair value is the amount
for which an asset could be exchanged between knowledgeable,
willing parties in an arm's length transaction.
There were no transfers of assets from level 1 to level 2 or 3,
level 2 to level 1 or 3 and level 3 to level 1 or 2.
The following table presents the movement in level 3 investments
for the year ended 31 December 2020 by class of financial
instrument.
Total investments in limited partnerships 2020 2019
GBP000 GBP000
---------------------------------------------------- --------- ----------
Unquoted investments:
Opening balance 788,013 609,663
Purchases 403,215 117,284
Realisations at 31 December 2019 valuation 94,046 (78,630)
Unrealised appreciation of fixed asset investments (177,958) 155,471
Movement in net carried interest provision (23,429) (15,775)
Fund level refinancing (59,771) -
---------------------------------------------------- --------- --------
Closing unrealised valuation of level 3 investments 1,024,116 788,013
---------------------------------------------------- --------- --------
Equity price risk
Equity price risk is the risk of a fall in the fair value of
HGT's ownership interests (comprising equities and shareholder
loans) held by HGT indirectly through its direct investments in
fund limited partnerships. The Board revalues each investment on a
quarterly basis. The Board manages the risks inherent in HGT's
investment activities by ensuring full and timely access to
relevant information from Hg. The Board meets regularly and at each
meeting reviews the trading performance of the principal underlying
investments. If there appears to the Board to be a fair value
movement in value between regular valuations, it can revalue the
investment. The Board also monitors Hg's compliance with HGT's
investment objective and investment policy.
For unquoted equity investments, the market risk variable is
deemed to be the multiples applied to a maintainable earnings
figure to calculate the individual investment valuations within
each of the primary buyout funds; borrowing is then deducted to
arrive at a valuation of the net equity held by HGT. These
multiples are largely based on the historic trading multiples of
comparable businesses and therefore there is a potential impact on
the valuation of unquoted investments of a fall in global equity
markets. Hg's best estimate of the effect on the net assets of HGT
due to a 1x reduction in the multiples applied to calculate the
enterprise value of all unquoted investments, with all other
variables held constant, is as follows:
2020 2019
NAV per NAV per
ordinary ordinary
share share
GBP000 Pence GBP000 Pence
-------------------------------- -------- --------- -------- -----------
Sensitivity to equity price
risk:
1x reduction in EV to EBITDA
multiple applied to unquoted
investments
Change in the value of unquoted
investments (85,197) (20.0) (59,864) (14.7)
-------------------------------- -------- --------- -------- ---------
A fall in the value of unquoted investments could be mitigated
to some degree by a reduction in the provision for carried interest
(GBP82 million at 31 December 2020), but only in funds where an
adjustment for carried interest is required (Hg Genesis 6, Hg
Genesis 7, Mercury 1, Hg Genesis 8 and Hg Saturn, see note 5(c) or
on page 92 in the full annual report and accounts ). Hg's best
estimate of the impact on the carried interest provision of the
above change in value of unquoted investments is a reduction in the
provision of GBP17,715,000, 4.3 pence per ordinary share (2019:
GBP5,722,000, 1.4 pence per ordinary share). There are likely to be
other correlations (either positive or negative) between the
assumptions and other factors. Other inputs, such as the earnings
of individual investments within the primary buyout funds are
likely to have a significant impact on the value of unquoted
investments. See page 46 of the Manager's report in the full annual
report and accounts for an analysis of the portfolio trading
performance as at 31 December 2020. The Board regularly stress
tests the NAV.
Credit risk
Credit risk is the risk of financial loss in the event that any
of HGT's market counterparties fail to fulfil their contractual
obligations to HGT. HGT's financial assets (excluding fixed asset
investments) that are subject to credit risk, were neither impaired
nor overdue at the year-end. HGT's cash balances were held with the
Royal Bank of Scotland International and amounts not required for
day-to-day use were invested in liquidity funds managed by Royal
London Asset Management which are rated AAA by Fitch. Foreign
exchange forward contracts and options are held with counterparties
which have credit ratings which the Board considers to be adequate.
The Board regularly monitors the credit quality and financial
position of these market counterparties. The credit quality of the
above mentioned financial assets was deemed satisfactory.
Market risk
The fair value of future cash flows of a financial instrument
held by HGT may fluctuate due to changes in market prices of
comparable businesses. This market risk may comprise: currency risk
(see below), interest rate risk and/or equity price risk (see
above). The Board of Directors reviews and agrees policies for
managing these risks. Hg assesses the exposure to market risk when
making each investment decision, and monitors the overall level of
market risk across all of HGT's investments on an ongoing
basis.
Currency risk and sensitivity
HGT is exposed to currency risk as a result of investing in fund
partnerships which invest in companies that operate and are
therefore valued in currencies other than sterling. The value of
these assets in sterling, being HGT's functional currency, can be
significantly influenced by movements in foreign exchange rates.
Borrowing raised to fund each acquisition in such companies is
normally denominated in the currency in which the business is
operating and valued, thus limiting HGT's exposure to the value of
its investments, rather than the gross enterprise value. From time
to time, HGT is partially hedged against movements in the value of
foreign currency against sterling where a movement in exchange rate
could affect the value of an investment, as explained below. Hg
monitors HGT's exposure to foreign currencies and reports to the
Board on a regular basis. The following table illustrates the
sensitivity of the revenue and capital return for the year in
relation to HGT's year-end financial exposure to movements in
foreign exchange rates against sterling. The rates represent the
range of movements against sterling over the current year for the
currencies listed, and are considered the best estimate for
movements looking forward.
In the opinion of the Directors, the sensitivity analysis below
may not be representative of the year as a whole, since the level
of exposure changes as HGT's holdings change through the purchase
and realisation of investments to meet HGT's objectives.
2020 2019
Revenue Revenue
return Capital return return Capital return
NAV NAV NAV NAV
per per per per
ordinary ordinary ordinary ordinary
share share share share
GBP000 Pence GBP000 Pence GBP000 Pence GBP000 Pence
------------------- ------- --------- -------- --------- ------ --------- -------- -----------
Highest value
against sterling
during the year:
Danish krone 119 0.3 793 1.9 141 0.3 2,034 5.0
Euro 1,375 3.3 16,436 39.5 1,554 3.8 22,091 54.2
New Zealand dollar - - 17 - - - 102 0.3
Norwegian krone - - 2,262 5.4 - - 20,095 49.3
US dollar 356 0.9 31,134 74.8 276 0.7 15,751 38.7
Canadian dollar 6 - 3,293 7.9 - - - -
------------------- ------- --------- -------- --------- ------ --------- -------- ---------
1,856 4.5 53,935 129.7 1,971 4.8 60,073 147.5
------------------- ------- --------- -------- --------- ------ --------- -------- ---------
Lowest value
against sterling
during the year:
Danish krone (213) (0.5) (1,420) (3.4) (22) (0.1) (319) (0.8)
Euro (2,165) (5.2) (25,874) (62.2) (246) (0.6) (3,502) (8.6)
New Zealand dollar - - (90) (0.2) - - (59) (0.1)
Norwegian krone - - (21,219) (51.0) - - (7,393) (18.1)
US dollar - - 6 - (20) - (1,159) (2.8)
Canadian dollar (3) - (1,758) (4.2) - - - -
------------------- ------- --------- -------- --------- ------ --------- -------- ---------
(2,381) (5.7) (50,355) (121.0) (288) (0.7) (12,432) (30.4)
------------------- ------- --------- -------- --------- ------ --------- -------- ---------
At 31 December 2020, the following rates were applied to convert
foreign denominated assets into sterling: Danish krone (8.3158);
euro (1.1172); New Zealand dollar (1.8986); Norwegian krone
(11.7038); US dollar (1.3670) and Canadian dollar (1.7415).
Hedging
At times, HGT uses derivative financial instruments such as
forward foreign currency contracts and option contracts to manage
the currency risks associated with its underlying investment
activities. The contracts entered into by HGT are denominated in
the foreign currency of the geographic areas in which HGT has
significant exposure against its reporting currency. The contracts
are used for hedging and the fair values thereof are recorded in
the balance sheet as investments held at fair value. Unrealised
gains and losses are taken to capital reserves. At the balance
sheet date, there were no outstanding derivative financial
instruments (2019: nil).
HGT does not trade in derivatives but may hold them from time to
time to hedge specific exposures with maturities designed to match
the exposures they are hedging. It is the intention to hold both
the financial investments giving rise to the exposure and the
derivatives hedging them until maturity and therefore no net gain
or loss is expected to be realised.
Derivatives are held at fair value, which represents the
replacement cost of the instruments at the balance sheet date.
Movements in the fair value of derivatives are included in the
income statement. HGT does not adopt hedge accounting in the
financial statements.
Interest rate risk and sensitivity
HGT has exposure to interest rate movements as this may affect
the fair value of funds awaiting investment, interest receivable on
liquid assets and managed liquidity funds, and interest payable on
borrowings. HGT has little immediate direct exposure to interest
rates on its fixed assets, as the majority of the underlying
investments are fixed rate loans or equity shares that do not pay
interest. Therefore, and given that HGT has no borrowings and
maintains low cash levels, HGT's revenue return is not materially
affected by changes in interest rates.
However, funds awaiting investment have been invested in managed
liquidity funds and, as stated above, their valuation is affected
by movements in interest rates. The sensitivity of the capital
return of HGT to movements in interest rates has been based on the
UK base rate. With all other variables constant, a 0.25% decrease
in the UK base rate should increase the capital return in a full
year by about GBP350,000, with a corresponding decrease if the UK
base rate were to increase by 0.25%. In the opinion of the
Directors, the above sensitivity analyses may not be representative
of the year as a whole, since the level of exposure changes as
investments are made and realised throughout the year.
Liquidity risk
Investments in unquoted companies, which form the majority of
HGT's investments, may not be as readily realisable as investments
in quoted companies, which might result in HGT having difficulty in
meeting its obligations. Liquidity risk is currently not
significant as 15% of HGT's net assets at the year-end are liquid
resources and, in addition, HGT has an GBP200 million
multi-currency undrawn bank facility available. The Board gives
guidance to Hg as to the maximum amount of HGT's resources that
should be invested in any one company. For further details refer to
HGT's Investment Policy on page 13 in the full annual report and
accounts .
Currency and interest rate exposure
HGT's financial assets that are subject to currency and interest
rate risk are analysed below:
2020 2019
Fixed Non Fixed Non
and floating interest- and floating interest-
rate bearing Total Total rate bearing Total Total
GBP000 GBP000 GBP000 % GBP000 GBP000 GBP000 %
------------ ------------ ---------- --------- ----- ------------ ---------- --------- -------
Sterling 187,589 375,482 563,071 41.4 189,289 201,388 390,677 37.9
Euro - 386,450 386,450 28.4 - 247,475 247,475 24.0
Norwegian
krone - 144,646 144,646 10.6 - 206,393 206,393 20.0
US dollar - 166,018 166,018 12.2 - 163,075 163,075 15.8
Danish krone - 21,525 21,525 1.6 - 22,440 22,440 2.2
New Zealand
dollar - 948 948 0.1 - 1,508 1,508 0.1
Canadian
dollar - 77,678 77,678 5.7 - - - -
------------ ------------ ---------- --------- ----- ------------ ---------- --------- -----
Total 187,589 1,172,747 1,360,336 100.0 189,289 842,279 1,031,568 100.0
------------ ------------ ---------- --------- ----- ------------ ---------- --------- -----
Short-term debtors and creditors, which are excluded, are mostly
denominated in sterling, the functional currency of HGT. The fixed
and floating rate assets consisted of cash and liquidity funds, of
which the underlying investments are a combination of fixed and
floating rate. The non-interest-bearing assets represent the
investments held in fund limited partnerships, net of the provision
for carried interest.
Capital management policies and procedures
HGT's capital management objectives are to ensure that it will
be able to finance its business as a going concern and to maximise
the revenue and capital return to its equity shareholders.
HGT's capital at 31 December comprised:
2020 2019
GBP000 GBP000
------------------------------------- --------- -----------
Equity:
Equity share capital 10,400 10,186
Share premium 219,722 194,774
Capital redemption reserve 1,248 1,248
Retained earnings and other reserves 1,059,646 833,090
------------------------------------- --------- ---------
Total capital 1,291,016 1,039,298
------------------------------------- --------- ---------
With the assistance of Hg, the Board monitors and reviews the
broad structure of HGT's capital on an ongoing basis. This review
covers:
-- the projected level of liquid funds (including access to bank facilities);
-- the desirability of buying back equity shares, either for
cancellation or to hold in treasury, balancing the effect (if any)
this may have on the discount at which shares in HGT are trading
against the advantages of retaining cash for investment;
-- the opportunity to raise funds by an issue of equity shares; and
-- the extent to which revenue in excess of that which is
required to be distributed should be retained, whilst maintaining
its status under Section 1158 of the CTA 2010.
HGT's objectives, policies and processes for managing capital
are unchanged from the preceding accounting period.
20. Called-up share capital
2020 2019
------------------------------------
No. 000 GBP000 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
Sub-division of ordinary shares - - 335,922 -
Issues of ordinary shares 8,575 214 34,178 855
------------------------------------ ------- ------ ------- ------
At 31 December 416,000 10,400 407,425 10,186
------------------------------------ ------- ------ ------- ------
Total called-up share capital 416,000 10,400 407,425 10,186
------------------------------------ ------- ------ ------- ------
Whilst HGT no longer has an authorised share capital, the
Directors will still be limited as to the number of shares they can
at any time allot, as the Companies Act 2006 requires that
Directors seek authority from shareholders for the allotment of new
shares. Share issue costs incurred during the year were GBP254,167
(2019: 690,546). Total proceeds received from the issuance of
shares during the year were GBP25,162,000 (2019:
GBP75,261,000).
21. Share premium account and reserves
Share Capital Capital Capital
premium redemption reserve reserve Revenue
account reserve unrealised realised reserve
GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------------------- -------- ----------- ----------- --------- ----------
As at 1 January 2020 194,774 1,248 264,953 544,601 23,536
Issues of ordinary shares 24,948 - - - -
Transfer on disposal of investments - - (188,368) 188,368 -
(Losses)/gains on liquidity
funds - - (2,238) 2,117 -
(Losses)/gains on aborted deal
fees - - (2,084) 548 -
Foreign exchange gain on loan
facility - - - 224 -
Net movement on sale of fixed
asset investments - - - 100,334 -
Net movement in unrealised appreciation
of fixed asset investments - - 197,342 - -
Foreign exchange gain/(loss)
on fixed asset investments - - (2,288) - -
Dividend paid - - - - (20,399)
Net revenue return - - - - 16,809
Net loans recovered from General
Partners - - (3,176) - -
Carried interest - - (23,429) (37,204) -
---------------------------------------- -------- ----------- ----------- --------- --------
As at 31 December 2020 219,722 1,248 240,712 798,988 19,946
---------------------------------------- -------- ----------- ----------- --------- --------
22. Commitment in fund partnerships and contingent
liabilities
Outstanding at
(1) 31 Dec
------------------------------
Original
commitment 2020 2019
Fund GBP000 GBP000 GBP000
------------------------------ ----------- --- ------- --- ---------
HGT Genesis 9 LP 322,234 (2) 263,218 -
HGT Saturn 2 LP 292,612 (3) 200,605 -
HGT Mercury 3 LP 102,936 (4) 102,936 -
HGT Transition Capital LP 75,000 49,600 59,122
HGT 8 LP 350,000 9,709 143,542
HGT Saturn LP 150,000 7,932 69,276
HGT Mercury 2 LP 80,000 4,711 36,690
HgCapital Mercury D LP 60,000 (5) 3,277 3,277
HGT 6 LP 285,029 (5) 2,250 2,380
HGT LP 120,000 (5) 1,261 1,261
HGT 7 LP 200,000 (5) 1,232 19,979
Asper RPP I LP 19,370 (6) 620 (7) 587
Hg 6 E LP 15,000 (5) 118 118
------------------------------ ----------- --- ------- --- -------
Total outstanding commitments 647,469 336,232
------------------------------ ----------- --- ------- --- -------
(1) HGT has the benefit of an opt-out provision in connection
with its commitments to invest alongside Hg Genesis 8, Hg Mercury
2, Hg Saturn, Transition Capital, Hg Saturn 2, Hg Genesis 9 and Hg
Mercury 3 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, 7.6% of the GBP60 million to the Mercury 1 Fund
and 12.4% of the original GBP200 million to the HgCapital 7 Fund
have subsequently been cancelled, as the Manager deemed that it was
unlikely to be required.
(6) Sterling equivalent of EUR21,640,000.
(7) Sterling equivalent of EUR692,000 (2019: EUR834,000).
23. Key agreements, related party transactions and ultimate
controlling party
Key agreements, related party transactions and ultimate
controlling party
Hg acts as Manager of HGT through a management agreement and
indirectly participates through fund limited partnership agreements
as the general partners and, alongside a number of Hg's executives
(past and present), as the founder partners of the fund
partnerships in which HGT invests. In addition, Hg acts as
Administrator of HGT.
HGT has no ultimate controlling party.
HGT's related parties are its Directors. Fees paid to HGT's
Board are disclosed in the Directors' Remuneration Report on page
134 in the full annual report and accounts and employer's National
Insurance contributions are disclosed in note 6(a). There are no
other identified related parties at the year-end, and as of 12
March 2021.
24. Post balance sheet events
Since 31 December 2020, there have been no significant post
balance sheet events.
Independent auditor's report
to the members of HgCapital Trust plc
The Company's financial statements for the year ended 31
December 2020 have been audited by Grant Thornton UK LLP. The text
of the Auditor's Report can be found on pages 106 to 113 of the
full annual report and accounts.
Extracts from full Annual Report and Accounts
The Directors present the Annual Report and Accounts of
HgCapital Trust plc (HGT) (registered number 1525583) for the year
ended 31 December 2020.
The Corporate Governance Report forms part of this Directors'
Report on pages 115 to 122 in the full annual report and accounts .
Information about future developments and important events since
the year end are included in the Chairman's statement above and on
pages 10-12 in the full annual report and accounts .
Results and dividend
The total return after taxation for the year was GBP246,955,000
(2019: GBP177,494,000) of which the revenue return was
GBP16,809,000 (2019: revenue return of GBP11,426,000). Following
payment of an interim dividend of 2.0 pence per ordinary share in
October 2020, the Directors recommend the payment of a final
dividend of 3.0 pence per ordinary share for the year ended 31
December 2020, making a total of 5.0 pence (2019: 4.8 pence,
adjusted for the share-split). Subject to the approval of this
dividend at the forthcoming Annual General Meeting (AGM), it will
be paid on 28 May 2021 to shareholders on the register of members
at the close of business on 30 April 2021.
Stewardship
For Hg, responsible investing means growing sustainable
businesses which are great employers and good corporate citizens,
whilst also generating superior risk adjusted returns for the
shareholders of HGT, as well as other pensioners and savers who are
invested with Hg. Hg seeks to invest HGT's funds in businesses
which are well managed, with high standards of corporate
governance. The Directors of HGT believe this creates the proper
conditions to enhance long-term shareholder value and to achieve a
high level of corporate performance.
The exercise of voting rights attached to HGT's underlying
investments lies with Hg. Hg has a policy of active portfolio
management and ensures that significant time and resource are
dedicated to every investment, with Hg executives and Operating
Partners typically being appointed to investee company Boards, in
order to ensure the application of active, results-orientated
corporate governance. Further information about the stewardship of
investee companies by Hg can be found in their review on pages
25-81 in the full annual report and accounts .
Greenhouse gas emissions
HGT has no greenhouse gas emissions to report from the
operations of HGT, nor does it have responsibility for any other
emissions producing sources or energy consumed reportable under the
Companies Act 2006 (Strategic Report and Directors' Report)
Regulations 2013 or the Companies (Directors' Report) and Limited
Liability Partnerships (Energy and Carbon Report) Regulations 2018,
implementing the UK Government's policy on Streamlined Energy and
Carbon Reporting. Information on our Manager's value chain carbon
footprint can be found on page 41 of the full annual report and
accounts , and online at www.hgcapital.com/responsibility.
Financial instruments
HGT had no outstanding derivative contracts at 31 December 2020.
Note 19 to the financial statements describes the financial risk
management objectives and HGT's exposures to credit risk and
liquidity risk.
Annual General Meeting (AGM)
The AGM of HGT will be held at the offices of Dickson Minto, at
16 Charlotte Square, Edinburgh, EH2 4DF on 11 May 2021 at 11.00am.
At the time of writing, the UK remains subject to strict
regulations regarding meetings. The Board would normally welcome
the AGM as an opportunity to present to shareholders and listen to
their questions in person. However, the health and safety of our
Board, Manager and all shareholders is of paramount importance, as
is complying with regulations. We have therefore decided that
physical attendance at the AGM this year will not be possible.
Arrangements will be made by HGT to ensure that the minimum number
of shareholders required to form a quorum will attend the AGM, in
order that the meeting may proceed to discuss the formal business
of the meeting only.
Details of shareholder engagement and how to vote at this year's
AGM are contained in the Notice of AGM on pages 148-155 in the full
annual report and accounts .
The Board is of the opinion that the passing of all resolutions
being put to the AGM would be in the best interests of HGT and its
shareholders. The Directors therefore recommend that shareholders
vote in favour of resolutions 1 to 15, as set out in the Notice of
Meeting as they intend to do in respect of their own
shareholdings.
Directors' responsibility statement
in respect of the annual report and accounts
The Directors are responsible for preparing the Annual Report
and Accounts in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law, the Directors
have elected to prepare the financial statements in accordance with
United Kingdom Generally Accepted Accounting Practice (United
Kingdom Accounting Standards and applicable law), including FRS
102, the Financial Reporting Standard applicable in the UK and
Ireland.
Under company law the Directors must not approve the financial
statements, unless they are satisfied that they give a true and
fair view of the state of affairs of HGT and of the profit or loss
of HGT for that period. In preparing these financial statements,
the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and accounting estimates that are reasonable and prudent;
-- state whether applicable UK Accounting Standards have been followed;
-- assess HGT's ability to continue as a going concern,
disclosing, as applicable, matters relating to going concern;
and
-- use the going concern basis of accounting unless they either
intend to liquidate HGT or to cease operations, or have no
realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain HGT's transactions
and disclose with reasonable accuracy at any time the financial
position of HGT and enable them to ensure that the financial
statements comply with the Companies Act 2006.
They are responsible for such internal control as they determine
necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error,
and have responsibility for taking such steps as are reasonably
open to them to safeguard the assets of HGT and to prevent and
detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors' Report,
Directors' Remuneration Report and Corporate Governance Statements
that comply with that law and those regulations.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on HGT's
website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Responsibility statement
The Directors of HGT, whose names are shown on pages 116-117 of
the full annual report and accounts , each confirm to the best of
their knowledge that:
-- the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of HGT taken as a whole; and
-- the Strategic Report and Hg's Review include a fair review of
the development and performance of the business and the position of
HGT, together with a description of the principal risks and
uncertainties that it faces.
The Directors consider the Annual Report and Accounts, taken as
a whole, are fair, balanced and understandable and the information
provided to shareholders is sufficient to allow them to assess
HGT's position, performance, business model and strategy.
On behalf of the Board
Jim Strang
Chairman
12 March 2021
Dividend
The final dividend proposed in respect of the year ended 31
December 2020 is 3.0p per share.
Ex-dividend date 29 April
(date from which shares 2021
are transferred without
dividend)
--------------------------- -----------
Record date 30 April
(last date for registering 2021
transfers to receive
the dividend)
--------------------------- -----------
Last date for registering 7 May 2021
DRIP instructions
--------------------------- -----------
Dividend payment date 28 May 2021
--------------------------- -----------
The final dividend is subject to approval of the shareholders at
the forthcoming AGM.
Directors:
Jim Strang
Richard Brooman
Peter Dunscombe
Pilar Junco
Guy Wakeley
Anne West
National Storage Mechanism
A copy of the Annual Report and Accounts will be submitted
shortly to the National Storage Mechanism ("NSM") and will be
available for inspection there, situated at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
A copy of the Annual Report and Accounts, which includes the
Notice of Annual General Meeting, will be delivered to shareholders
shortly and can also be found at
https://www.hgcapitaltrust.com/
END
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END
FR FLFIAVSIFLIL
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