Annual Report • Dec 31, 2015
Annual Report
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31 December 2015 ANNUAL REPORT AND ACCOUNTS
| About HgCapital Trust plc | |
|---|---|
| Financial highlights | |
| The Board's Strategic Report | |
| – Chairman's statement | |
| – The Trust's Investment Objective and Investment Policy | |
| – The Trust's Rationale and Business Model | |
| The Manager's review | |
| – Responsible investing | |
| – Sector specialisation | |
| – Case study – JLA | |
| – Overview of the year | |
| – Investment portfolio of the Trust | |
| – Investments and realisations during the year | |
| – Outlook | |
| – Overview of underlying investments | |
| – Top 20 buyout investments | |
| – Investments in renewable energy | |
| Financial statements | |
| – Income statement | |
| – Balance sheet | |
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|
| – Statement of changes in equity | |
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|
| Independent auditor's report | |
| Corporate governance | |
| – Directors' Report | |
| – Statement of Directors' Responsibilities | |
| – Corporate Governance Statement | |
| – Audit and Valuation Committee Report | |
| – Directors' Remuneration Report | |
| Alternative Investment Fund Managers Directive | |
| Shareholder information | |
| Notice of Annual General Meeting | |
Board, management and administration
The objective of the Trust is to provide shareholders with long-term returns in excess of the FTSE All-Share Index by investing predominantly in unquoted companies.
The Trust provides investors with H[SRVXUHWRDGLYHUVLÀHGSRUWIROLRRI private equity investments, primarily in the UK and Continental Europe.
References in this Annual Report and Accounts to HgCapital Trust plc have been abbreviated to 'HgCapital Trust' or the 'Trust'. HgCapital 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 re-invested all historic dividends at the time when they were paid.
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38
37
62
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106 112
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HgCapital Trust plc was established in 1989 and is an investment trust listed on the London Stock Exchange. HgCapital was appointed Manager of the Trust in 1994 and seeks to meet the Trust's investment objective through active management of a portfolio of businesses VXLWDEOHIRUVWUDWHJLFDQGRSHUDWLRQDOWUDQVIRUPDWLRQWKDWZLOOJURZUHYHQXHVDQGSURÀWVDQG thus create value for shareholders. To select businesses where the Manager can add substantial value it applies a deep sector focus, primarily targeting middle-market buyouts across TMT, Services and Industrials with enterprise values of between £80 million and £500 million and lower mid-market buyouts in the TMT sector between £20 million and £80 million. These PDUNHWVRIIHUPDQ\FRPSDQLHVZLWKSURYHQÀQDQFLDOSHUIRUPDQFHZLWKLQWKHLUFKRVHQLQGXVWU\ The Trust also invests in renewable power generating projects using proven technologies.
Investments are made predominantly in unquoted companies, across Northern Europe, ZKHUHWKH0DQDJHULVFRQÀGHQWWKDWYDOXHFDQEHFUHDWHGWKURXJKDSURDFWLYHSDUWQHUVKLS with management teams, drawing on both sector and operational expertise to drive consistent growth.
HgCapital is one of the leading mid-market European private equity investors. The Manager is experienced and well-resourced, investing in growth companies with a strong record of returns across all economic cycles.
An investment in the Trust currently provides exposure to an active portfolio of 29 companies ZLWKVWURQJJURZWKLQVDOHVDQGSURÀWDELOLW\7KHWRSEX\RXWLQYHVWPHQWVFXUUHQWO\DFFRXQW for 87% of the portfolio value. These companies have annual aggregate sales of £2.3 billion and EBITDA of £517 million, with EBITDA margins of 23%.
The annualised share price total return over the last twenty years has been +14%.
The NAV per share at 31 December 2015 was £14.20, a total return over the year of:
+14%
The share price at 31 December 2015 was £11.15, a total return for the year of:
+9%
for the year to 31 December 2015:
2.0%
The total NAV of the Trust at 31 December 2015 was:
£530m
The market capitalisation of the Trust at 31 December 2015 was:
£416m
3URSRVHGÀQDOGLYLGHQGVXEMHFWWRVKDUHKROGHUDSSURYDO
40p
TOP 20 INVESTMENTS as at 31 December 2015 (87% of the portfolio value)
over the last twelve months: SALES GROWTH
+10%
14.5x
over the last twelve months: PROFIT GROWTH
+12%
DEBT TO EBITDA RATIO
4.6x
BALANCE SHEET ANALYSIS as at 31 December 2015
£40m 8% of NAV LIQUID RESOURCES
£160m 30% of NAV OUTSTANDING COMMITMENTS
| Year ended 31 December |
Net assets attributable to shareholders £'000 |
NAV per share p |
Share price p |
Revenue return/ (loss) available for shareholders £'000 |
Revenue return/(loss) per share1 p |
Dividends per share2 p |
|---|---|---|---|---|---|---|
| 743.0 | 731.0 | 14.0 | ||||
| 2007 | 782.5 | 25.0 | ||||
| 2008 | 25.0 | |||||
| 844.0 | 28.4 | 25.0 | ||||
| 2010 | 34.0 | 28.0 | ||||
| 2011 | 10.0 | |||||
| 2012 | 32.1 | 23.0 | ||||
| 2013 | 35.3 | |||||
| 2014 | 58.8 | 51.0 | ||||
| 2015 | 530,023 | 1,420.0 | 1,115.0 | 17,907 | 48.0 | 40.03 |
Based on weighted number of shares in issue during the year.
2 -&KXKFGPF-RTQRQUGF-KP-TGURGEV-QH-TGRQTVGF-ƂPCPEKCN-[GCT-DWV-FGENCTGF-CPF-RCKF-KP-VJG-HQNNQYKPI-[GCT
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1 2GTHQTOCPEG-TGEQTF-TGDCUGF-VQ--CV--&GEGODGT--5QWTEG-(CEVUGV-*I%CRKVCN
2 The LPX Europe Index represents the most actively traded listed private equity companies covered by LPX that are listed on a European exchange. For more information visit www.lpx-group.com.
6
| One year % p.a. |
Three years % p.a. |
Five years % p.a. |
Ten years % p.a. |
Twenty years % p.a. |
|
|---|---|---|---|---|---|
| NAV per share | 14.1 | 7.4 | 11.2 | 13.0 | |
| Share price | 4.8 | ||||
| FTSE All-Share Index | 1.0 | 7.3 | |||
| NAV per share performance relative to the FTSE All-Share Index |
13.1 | 0.6 | 1.4 | 5.6 | 6.3 |
| Share price performance relative to the FTSE All-Share Index |
7.6 | (0.8) | (1.2) | 3.8 | 7.2 |
Healthy trading in the portfolio continues to drive a strong performance in NAV growth, well ahead of the wider listed market.
During the year, the NAV per share grew by an impressive 14.1%, on a total return basis, to £14.20 at the year-end, with a particularly strong performance in the second half. This compared to a 1.0% return from the FTSE All-Share Index, a SHUIRUPDQFHWKDWODUJHO\UHÁHFWHGZHDNQHVVLQVHFWRUVLQZKLFK the Trust has no direct exposure, such as banking, mining and oil.
There were three main contributory factors to the growth in NAV: the strong trading performance across the portfolio; realisations from the portfolio; and comparable company ratings.
The revenues of our top 20 investments (which represent 87% by value of the investment portfolio) continued to grow at 10%, in line with the average growth of 10% p.a. over the last three \HDUV\$JJUHJDWHJURZWKLQSURÀWV(%,7'\$ ZDVLQWKH\HDU a substantial increase over the 9% recorded in 2014. Aggregate EBITDA margins of 23% on revenue show the high quality of the investment portfolio our Manager has assembled. This accelerated SURÀWJURZWKUHÁHFWVWKHVXFFHVVRIVLJQLÀFDQWLQYHVWPHQWPDGH into the cost base of several portfolio companies over recent years, which continues in several businesses, in order to build a platform for faster growth in later years.
It was a busy year for realisations, with four businesses realised or partially realised during the year, as described on pages 34 and 35, all at uplifts to the December 2014 valuations. In the case of SimonsVoss, Sporting Index, e-conomic and JLA, these realisations completed during 2015. The Manager also agreed the sale of TeamSystem and Casa Reha towards the end of the year and those sales completed early in 2016; the exit valuation of these LQYHVWPHQWVZDVIXOO\UHÁHFWHGLQWKH1\$9DW'HFHPEHU
The NAV performance was also supported by a rise in the multiples of businesses comparable to much of our portfolio, especially in the software sector. This was offset to a small degree by weakness against sterling of the foreign currencies in which a part of the portfolio is valued. Exchange rates between sterling and these currencies (principally the euro, US dollar and Norwegian kronor) continue to be volatile, due to weakness in the European economies. Nervousness around the referendum in the UK may potentially continue to generate volatility, affecting the NAV in the year ahead.
The share price delivered a total return of 8.6% in the year to 31 December 2015.
While the share price performance exceeded the return on the Index by a wide margin, it was nonetheless disappointing when
compared with the growth in NAV in 2015; this led to a widening of the discount to NAV at which the Trust's shares traded in the market. Global uncertainties since the year-end, and the acute "risk-off" sentiment that has fed on these fears and stimulated further falls in share prices, have since the year-end further exacerbated the disconnect between the Trust's share price and the underlying NAV performance; the NAV at December is, of course, not known to the market until the publication of these results in March.
The graphs on pages 6 and 7 show that, over the majority of periods, the Trust's shares have performed better than the All-Share Index and the LPX Index (that tracks the most actively traded private equity companies listed on a European exchange).
While many long-term investors can ride out these periods of adverse sentiment, the Board is very conscious that any period of material discount or constrained liquidity can have short-term LPSOLFDWLRQVIRUVKDUHKROGHUV7KH%RDUGKDVWRÀQGWKHULJKW balance between competing pressures: on the one hand, knowledge that, at the current price, the shares in the Trust represent good value against NAV and that buying-in shares would be accretive to NAV; on the other, our long-term strategic goals, responding to the expectations of investors over many years, to grow the Trust substantially and to make material commitments to each of our Manager's funds so as to keep the balance sheet as fully invested as we can, while sustaining our GLYHUVLÀFDWLRQDFURVVYLQWDJHV7KH%RDUGFRQWLQXHVWREHOLHYH that, over time, discounts to NAV are minimised through delivering consistently good long-term returns, transparent reporting and the avoidance of adding risk at the Trust level.
In line with our policy on dividends, described on page 14, and in order to meet the income retention rules of an investment trust, the Board is seeking shareholders' approval for a dividend of 40 pence per share, compared with an ordinary dividend of 32 pence in 2014 (which was supplemented by a special GLYLGHQGRISHQFHSHUVKDUHWKDWUHÁHFWHGDRQHRIIUHFHLSW from the sale of Visma in that year).
A table setting out the dividends paid by the Trust over the last ten years is included on page 7. While the Trust's investment objective is expressed in terms of the total return to shareholders (including capital and dividends) the Board is also aware that many shareholders appreciate having some line of sight to the likely level of dividends they may expect. This means that, when necessary, the Board will consider declaring dividends above the level required to maintain investment trust status,
to provide a degree of stability; in doing so, the Board will take into account the extent to which it needs to retain cash for investment.
ZDVDEXV\HDUDFURVVWKHSRU WIROLRZLWKFDVKÁRZEURDGO\ balanced: £65 million was invested and £64 million returned. The 0DQDJHUPDGHÀYHQHZEX\RXWDFTXLVLWLRQVLQYHVWLQJDWRWDORI £48 million on behalf of the Trust and an additional £10 million co-investment in Achilles to support its continuing development. These are described on pages 32 and 33 and on the website.
Two portfolio companies were fully realised, raising £22 million in total. SimonsVoss was sold from our German industrial portfolio at a multiple of 1.5x original cost and the realisation of Sporting Index, a legacy investment from the Manager's FRQVXPHUDQGOHLVXUHVHFWRUUHSUHVHQWHGWKHÀQDOVDOHIURPWKH MUST 4 fund vintage. In addition, more than £42 million was received by the Trust, mainly as a result of the recapitalisation of ÀYHKLJKO\FDVKJHQHUDWLYHEX\RXWLQYHVWPHQWVLQRQHFDVH-/\$ the Manager took advantage of a very attractive offer to sell a minority interest, banking with previous realisations 1.8x our original investment while retaining a 59% stake: overall, the combined return represents a multiple of 3.5x our original investment in a business that looks set to continue delivering attractive growth.
JLA was originally acquired in 2010 and is an example of a business where, even following substantial progress in developing the strategy, building a new management team and delivering H[FHOOHQWUHVXOWVWKH0DQDJHULVFRQÀGHQWWKDWIXU WKHUYDOXH can be created over a holding period longer than the 4-5 years traditionally seen in private equity partnerships. A case study of our investment in JLA is set out on pages 24 and 25 of this Report. Visma, IRIS and Achilles are other examples; in total these four holdings represent around 32% of the Trust's investment SRU WIROLR+RZHYHUVKRXOGDQRIIHUFRPHIRUZDUGWKDWUHÁHFWV the continuing prospects of any of these businesses the Manager will sell (as it did with TeamSystem), or sell a stake in order to bank value and reduce risk, as we did previously with Visma and more recently with JLA. In both cases the Trust retained part of its interest in these very successful businesses and, in the case of the former, took up a co-investment that bears no fees or carried interest. As the Trust is a permanent pool of capital seeking to deliver long-term returns, the Board welcomes this PRUHÁH[LEOHDSSURDFK
In addition to these highly successful investments, there now remain in the portfolio more than a dozen buyouts, representing in aggregate more than a third of the investment portfolio, that are approaching the fourth anniversary of our original purchase: WKHQH[WWZR\HDUVFRXOGVHHDVWHDG\ÁRZRIUHDOLVDWLRQVIURP WKHVHLQYHVWPHQWVDVZHDUHFRQÀGHQWWKDWWKHVHEXVLQHVVHVZLOO attract wide interest from other investors and trade buyers.
The Manager has taken advantage of a window in debt markets and the strong cash generation of underlying investments to UHÀQDQFHDQXPEHURIEXVLQHVVHVZLWKORZFRVWÀQDQFLQJRQ ÁH[LEOHWHUPVWKLVKDVJHQHUDWHGFDVKUHWXUQVWRWKH7UXVWIURP Zenith, JLA, IRIS, Sequel and Relay.
New investments are being made alongside the HgCapital 7 and Mercury funds. The Trust made a £200 million commitment to the HgCapital 7 Fund vintage in 2013 and a £60 million commitment to the Mercury Fund vintage in 2011. Following acquisitions made in early 2016, these are now almost 60% and 45% invested respectively. Both HgCapital 7 and Mercury have a good pipeline of potential investment opportunities.
The Trust now holds sixteen buyout investments across these two most recent vintages, representing with co-investments around 36% of the investment portfolio. The Manager's sector and portfolio teams are working hard to support the management of these and earlier investments to build value that will underpin shareholder returns for several years into the future.
The Trust has commitments to invest alongside three of the Manager's active funds, with the result that the pace of new investment is likely to remain high. At the year-end, the Trust's outstanding commitments totalled £160 million (reduced to £117 million since the year-end), with the majority of this likely to be drawn down over the next two years; at the year-end, the Trust held £40 million in liquid resources to fund these LQYHVWPHQWV7KH7UXVWDOVRKDVWKHEHQHÀWRIDEDQNIDFLOLW\ enabling the Board to manage the balance sheet and remain more fully invested across the cycle of commitment-investmentrealisation. Late last year we agreed with Lloyds to extend the £40 million facility until June 2019, with an increase to £80 million from 31 December 2016. This will provide additional IXQGLQJGXULQJDSHULRGZKHQRXUFDVKÁRZSURMHFWLRQVLQGLFDWH that the balance sheet will be fully invested, pending the start of realisations from the HgCapital 7 vintage. It will also give the %RDUGFRQÀGHQFHZKHQGHFLGLQJRQWKHOHYHORIFRPPLWPHQW to make to the Manager's next buyout fund, a decision we anticipate making later this year. The quality of the underlying portfolio allows the Trust to borrow on an unsecured basis, FUHDWLQJIXU WKHUÁH[LELOLW\VKRXOGLWEHQHHGHG
The relationship between commitments, liquid funds available and anticipated proceeds from selling portfolio companies is a strategic issue that the Board and Manager monitor closely. The Board is keen to keep the balance sheet as fully invested as possible, consistent with the commitment-investment-realisation cycle and taking account of changing market conditions for the purchase or sale of businesses. The Board is well aware that the Trust is a vehicle for shareholders to gain exposure to investments where the Manager's expertise in identifying businesses with potential for rapid growth in value can be expected to grow NAV faster than listed equity markets. The Board remains resolute to maintain this objective and to avoid "style drift" in our strategy and dilution to returns. When opportunities arise to take up co-investments (on which the Trust pays no fees or carried interest) in businesses we already hold, or by acquiring limited partnership interests in the Manager's funds, these are considered on their individual merits and after considering the Trust's available cash. The Trust currently has £39.8 million in co-investments across HgCapital funds.
Given the strong performance of HgCapital 6 over the year, we KDYHVLJQLÀFDQWO\LQFUHDVHGWKHSURYLVLRQIRUFDUULHGLQWHUHVW The alignment of interest between manager and investors is achieved in private equity through payment of a carried interest, ZKLFKVKDUHVWKHSURÀWVRIWKHIXQGEHWZHHQWKHLQYHVWRUVDQG the Manager, provided that a minimum return to investors is DFKLHYHGÀUVW1RFDUULHGLQWHUHVWEHFRPHVSD\DEOHXQWLOWKH repayment to the Trust of its invested capital plus a preferred return of 8% p.a.; a 20% interest in realised and unrealised gains then becomes payable as carried interest. There is a period after the investors' preferred return has been achieved in which the ULJKWWRUHFHLYHRISURÀWVLVFUHGLWHGWRWKHFDUULHGLQWHUHVW XQWLOLWFDWFKHVXSZLWKLQYHVWRUVWKHUHDIWHUSURÀWVDUHVKDUHG 80% to investors and 20% to carried interest. Although no cash is paid to the Manager until, typically, six to eight years after the ÀUVWLQYHVWPHQWLVPDGHWKH%RDUGEHOLHYHVLWLVDSSURSULDWHWR provide for this liability progressively, from the date when the SUHIHUUHGUHWXUQLVÀUVWDFKLHYHGE\UHFRJQLVLQJWKHDPRXQWRI carried interest that would be payable if the investments in the HgCapital 6 vintage were realised at fair value at the balance sheet date. The provision for this catch-up affected returns in 2015, but at 31 December 2015 full provision had been made for carried interest earned on cumulative gains in the HgCapital 6 portfolio. Accordingly, its catch-up has been VDWLVÀHGDQGRILQFUHPHQWDOJDLQVDQGRIJDLQVRQ co-investments) will accrue to shareholders, with the carried interest limited to 20% of gains on investments under the Trust's original commitment to the HgCapital 6 vintage.
The Trust has continually sought to improve the scope and clarity RIUHSRU WLQJWRVKDUHKROGHUV:HKDYHGRQHWKLVQRWRQO\WRIXOÀO our duties to shareholders, but also in the belief that transparent reporting encourages a better understanding of listed private equity and of our business model, and thus may create broader and continuing demand for the Trust's shares, thereby helping to close the discount to NAV. We have continued to improve the clarity of our reporting in this year's annual report, with a view to this being better co-ordinated with our website, which for many investors and analysts is now the preferred source of information about the Trust. Although our website has won awards, we and the Manager decided that further enhancement was desirable; in 2015 we launched a new website, with more information, helping shareholders and potential investors to gain further insights into the investment opportunity we offer, in a site that is easier to navigate. The Board and Manager are always ready to consider suggestions for improving the scope and quality of our reporting.
The Manager's outlook is set out on page 37 of this report, and refers to the uncertainties presented by volatility in equity markets and concerns about macro-economic conditions. 'HVSLWHWKLVWKH0DQDJHUUHPDLQVFRQÀGHQWWKDWLWVIRFXVRQ VSHFLÀFEXVLQHVVPRGHOVFDQLGHQWLI\EXVLQHVVHVWKDWRIIHUVWURQJ risk-adjusted returns, even against the background of a weak global economy. The Manager's pipeline of potential acquisitions include a well-balanced range of opportunities across sectors and geographies. Three new buyout investments have already been announced this year and we anticipate further investment activity during 2016. In addition, the Manager is proactively planning exits for 2016 and beyond. The types of companies in which the Trust holds investments are attractive to a range of potential buyers and we would expect to see further realisations over the next year.
The Board recognises that, for many shareholders, their allocation to the Trust will probably be made from a broadly based equity portfolio. The Board has for some years set out its view that an allocation to private equity is appropriate in the investment portfolio of a patient, long-term investor. The Trust's performance relative to listed markets over longer periods remains strong because it gives exposure to a portfolio of businesses under active, hands-on management as they undergo rapid development or transformation. The total return to shareholders over the last twenty years that HgCapital has managed the Trust was 14% p.a., some 7% p.a. above the All-Share Index. £1,000 invested in the Trust twenty years ago would be worth £13,483 today, compared with £3,675 invested over the same period in the All-Share Index (assuming reinvestment of all historic dividends). In the low-interest rate environment of the last decade, the total return to shareholders has been 9.4% p.a., nearly 4% p.a. ahead of the Index.
Healthy trading in portfolio companies continues to drive strong NAV growth well ahead of the wider listed market, but returns to shareholders have been affected by volatility in equity markets. If macro-economic conditions continue to give rise to concern, then some of the businesses in the portfolio may be affected; however, it is our belief that the business models of the great majority of the companies in which we are invested mean they will continue to prosper even against economic headwinds. *LYHQRXUFRQÀGHQFHLQWKH0DQDJHUZHEHOLHYHWKHUHLV currently an exceptional opportunity for long-term investors to acquire exposure to a portfolio of high quality, growth companies managed by HgCapital, which has an established and successful track record of creating value for shareholders.
Roger Mountford Chairman 4 March 2016
The Investment Objective of the Trust is to provide shareholders with long-term returns in excess of the FTSE All-Share Index by investing predominantly in unquoted companies.
The policy of the Trust is to invest, directly or indirectly, in a portfolio of unlisted companies where the Manager believes it can add value through organic growth, operational improvements, margin expansion, reorganisation or by acquisition. The Trust seeks to spread investment risk through DSSURSULDWHGLYHUVLÀFDWLRQ7KH7UXVW·VPD[LPXPH[SRVXUHWR unlisted investments is 100% of the gross assets of the Trust from time to time. At the time of acquisition, no single investment in an unlisted company, whether made directly or indirectly, will exceed a maximum of 15% of gross assets. The Trust may invest in other listed closed-ended investment funds up to a maximum at the time of acquisition of 15% of gross assets.
Any material change to the Trust's Investment Policy will be made only with the approval of shareholders in a general meeting.
The Trust 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 SROLF\RIPDNLQJDOORFDWLRQVWRVSHFLÀFFRXQWULHVRUPDUNHWV Investments are made across a range of sectors where it believes that its skills can add value, but there is no policy of making allocations to sectors.
Underlying investments are typically leveraged to enhance value creation, but it is impractical to set a maximum for such gearing. The Trust may over-commit to invest in underlying assets in order to maintain the proportion of gross assets that are invested at any time. The Trust has the power to borrow and to charge its assets as security. The Articles currently restrict the Trust's ability to borrow no more than twice the Trust's share capital and reserves, allowing for the deduction of debit balances on any reserves (without shareholder approval).
The Trust offers exposure to a range of businesses predominantly operating in Europe. The Trust does not strategically hedge investments back into sterling. The Manager uses derivatives to hedge tactically with the object of protecting the sterling value of the acquisition cost of investments made or proceeds from realising investments in other currencies.
The Trust maintains a level of liquidity to ensure, so far as can be forecast, that it can participate in all investments made by the Manager throughout the investment/realisation cycle. When appropriate the Trust negotiates a standby bank facility to provide funds for investment.
In December 2015, the Trust extended the £40 million unsecured standby bank facility with Lloyds Bank plc, which had been due to mature at the end of the year, for a further three and a half years to 30 June 2019. At the end of December 2016, the facility will increase to £80 million. At certain points in the investment cycle the Trust may hold substantial cash awaiting investment. The Trust 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 funds that hold investments of a similar quality. To this end, the Trust is invested in the Royal London Asset Management Cash Plus Fund. This deploys funds awaiting investment in private equity deals in a highly liquid portfolio of cash, deposits, money market instruments and short-dated government securities.
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.
The Board has endorsed the Manager's policies to invest the Trust's funds in a socially responsible manner, as set out on page 20. The Trust's focus is on identifying high-quality and sustainable businesses, DQGVXSSRU WLQJWKHLUJURZWKIRUWKHEHQHÀWRIVKDUHKROGHUVDQG wider society. The Board monitors the Manager's investment activity to ensure they are compatible with these policies.
The Trust has no employees and has limited direct impact on the environment. The Trust aims to conduct itself responsibly, ethically and fairly and has sought to ensure that HgCapital's management of the portfolio of investments takes account of social, environmental and ethical factors where appropriate. The Manager seeks investment opportunities on a sector basis. The sectors chosen do not generally raise material ethical issues.
The Manager believes that the transition to a low-carbon HFRQRP\RIIHUVRSSRU WXQLWLHVIRUSURÀWDEOHLQYHVWPHQWDQGWKDW its skills in the deployment of new technology, corporate design and the building of sustainable businesses can be applied in renewable power generation. In 2006 and again in 2010, the Trust committed to invest in the Hg Renewable Power Partners funds.
THE TRUST'S RATIONALE AND BUSINESS MODEL
The Board has a clear view of the rationale for investing in private equity through an investment trust. This informs its decisions on the operation of the Trust and the evolution of the Trust's Business Model.
The Board believes that there is a convincing rationale for investing in well-researched private businesses where there is potential for growth in value, especially where the Manager can work with the management of a business to support technological change and implement strategic or operational improvements. These can result in higher rates of growth in sales DQGHQKDQFHGSURÀWVZKLFKDUHPRUHVXVWDLQDEOHLQWRWKHIXWXUH offering investors capital gains on realisation.
Many large institutional investors have been making an allocation to private equity funds for decades, each time committing to a 10-12 year closed end fund, investing time to select a manager and negotiate complex and lengthy limited partnership agreements and then assuming the burdens of administration, monitoring and accounting that these vehicles impose. In return, the best managers have delivered better performance than most investors have received from their listed equity, bond, hedge fund and property portfolios. This long-term commitment may not be practical for pension schemes - especially if they intend to de-risk over time - or wealth managers, open-ended funds, charities and private individuals. As an alternative, these investors can gain access to the private equity ownership model by buying shares in the Trust. As an investment trust, it has an independent Board and is committed to transparent and regular reporting. The Trust's shares are listed on the London Stock Exchange and it is widely covered by published research.
Working within the framework of the Trust's Investment policy, the Board and the Manager have together developed a business model, which is kept under regular review. The business model evolves as market conditions change and new opportunities appear.
The Trust's objective is to participate in the ownership and development of unquoted businesses. From time to time the Trust may directly or indirectly hold listed securities in pursuit of its investment policy.
The Trust is not a fund of funds and does not invest in other managers' funds. This provides greater transparency for the Board and shareholders in the Trust and avoids the double level of fees common in a fund of funds model.
Most of the Trust's investments are held through partnerships, of which it is the sole limited partner and which invest alongside pooled funds managed by HgCapital. The Trust currently invests alongside the Manager's HgCapital 7 fund. The Trust also invests in smaller TMT buyouts via the Manager's specialist Mercury fund and in renewable energy via its commitment to RPP2. The Trust invests on substantially the same terms as institutional investors.
The Manager is organised in investment teams that focus on business sectors and carry out in-depth research into them. The Manager does not make top-down allocations to these sectors or to particular countries; the balance between sectors and countries may change as investment opportunities appear and portfolio companies are sold.
The Board of the Trust sets the investment parameters for making commitments in, or alongside, any of the Manager's funds in accordance with the investment policy. Such commitments are QRUPDOO\GUDZQGRZQRYHUIRXUWRÀYH\HDUVDVLQYHVWPHQW opportunities arise. Each commitment is set at a reasonable level for the Trust to be able to fund from its own resources or from temporary borrowing. However, to mitigate the risk of being unable to fund any draw-down under its commitment, the Board has negotiated a right to opt-out, without penalty, of any new investment (made by the HgCapital 7 fund) where certain FRQGLWLRQVH[LVWVHHQRWHWRWKHÀQDQFLDOVWDWHPHQWV
The Trust may also take up a co-investment in some buyouts (in addition to investment under its commitment). The Trust may also seek to acquire a limited partnership interest in any of the Manager's funds in the event that any other investor wishes to realise its partnership interest.
In addition, the Trust has invested in renewable power generating projects, an area where the Manager has developed its skills and built a specialist team.
For most shareholders, their investment in the Trust represents a small allocation of funds that would otherwise be invested in UK equities. The Manager's aim is to achieve absolute returns over WKHORQJWHUPDQGWKH7UXVWLVQRWPDQDJHGVRDVWRUHÁHFW short-term movements in any Index. To assess the Manager's performance relative to other private equity managers, the Board regularly compares the Trust's NAV and share price performance against a basket of peers listed on the London Stock Exchange and against the UK and pan-European indices of listed private equity companies published by LPX.
As the rationale for the Trust is to provide investors with a way to invest in an illiquid asset class, through a liquid listed vehicle, the Board has a number of priorities including: retaining the status of an investment trust; maintaining a liquid market in its shares; providing shareholders with transparent reports on the underlying portfolio; publishing valuations that are carefully reviewed and consistently prepared; and avoiding additional risk at the Trust level.
The Trust's business activities, together with the factors likely to DIIHFWLWVIXWXUHGHYHORSPHQWSHUIRUPDQFHDQGÀQDQFLDOSRVLWLRQ are described in the Board's Strategic Report and the Manager's 5HYLHZ7KHÀQDQFLDOSRVLWLRQRIWKH7UXVWLWVFDVKÁRZVOLTXLGLW\ and borrowing facilities are described in this Strategic Report. ,QDGGLWLRQQRWHWRWKHÀQDQFLDOVWDWHPHQWVRIWKH\$QQXDO Report describes the Trust's objectives, policies and processes IRUPDQDJLQJLWVFDSLWDOLWVÀQDQFLDOULVNPDQDJHPHQWREMHFWLYHV GHWDLOVRILWVÀQDQFLDOLQVWUXPHQWVDQGKHGJLQJDFWLYLWLHVDQGLWV exposures to credit risk and liquidity risk. The Directors believe that the Trust is well placed to manage its business risks VXFFHVVIXOO\7KH'LUHFWRUVUHYLHZFDVKÁRZSURMHFWLRQVUHJXODUO\ including important assumptions as to future realisations and the rate at which funds will be deployed into new investments. The Directors have a reasonable expectation that the Trust will have adequate resources to continue in operational existence for the foreseeable future and be able to meet its outstanding commitments, as noted on pages 5 and 30. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and Accounts.
In accordance with provision C.2.2 of the 2014 revision of the UK Corporate Governance Code, the Directors have assessed the prospects of the Trust over a longer period than the twelve months required by the 'Going Concern' provision. The Board believes that the appropriate period over which to assess the Trust's viability may vary from year to year, depending on a number of factors, notably its outstanding investment commitments, which currently run until approximately +RZHYHUWKH%RDUGEHOLHYHVWKDWLWVKRXOGDVVHVVWKHYLDELOLW\RIWKH7UXVWRYHUDPLQLPXPRIÀYH\HDUVDQGDFFRUGLQJO\ KDVHOHFWHGWKLV\HDUWRDVVHVVWKH7UXVW·VYLDELOLW\RYHUWKHÀYH\HDUSHULRGHQGLQJ'HFHPEHU
In their assessment, the Directors have considered the Trust's position with reference to the business model, the balance VKHHWFDVKÁRZSURMHFWLRQVDYDLODELOLW\RIIXQGLQJDQGWKH7UXVW·VFRQWUDFWXDOFRPPLWPHQWV7KLVKDVEHHQXQGHU WDNHQ alongside a detailed review of the principal risks and uncertainties associated with the Trust including: performance; regulatory; RSHUDWLRQDOÀQDQFLDOOLTXLGLW\DQGERUURZLQJDVGHWDLOHGRQSDJHVWRRIWKH6WUDWHJLF5HSRU W7KH'LUHFWRUVUHFRJQLVH the importance of its close working relationship with the Manager and regularly monitor and review the strategy, risks and associated internal controls of the Manager.
%DVHGRQWKLVDVVHVVPHQWWKH'LUHFWRUVRIWKH7UXVWFRQÀUPWKDWWKH\H[SHFWWKH&RPSDQ\ZLOOFRQWLQXHWRRSHUDWHDQG PHHWVLWVOLDELOLWLHVDVWKH\IDOOGXHGXULQJWKHÀYH\HDUVHQGLQJ'HFHPEHU
The Directors of the Board value the portfolio and publish the Trust's NAV as at 30 June and 31 December. Following these GDWHVWKH1\$9ÀJXUHLVSXEOLVKHGPRQWKO\DIWHUDGMXVWPHQWIRU realisations and movements in foreign exchange, the market prices of any listed securities and any dividends payable and expenses incurred.
The Trust's shares trade on the London Stock Exchange at prices WKDWDUHLQGHSHQGHQWRIWKH7UXVW·V1\$9EXWUHÁHFWWKH1\$9 and expectations of future changes in it. The shares have traded at both a discount and a premium to the NAV.
The Board has not attempted to manage any discount through repurchase of shares. The Board believes that discounts to NAV are minimised through consistently good long-term returns, transparent reporting, rigorous valuation and avoidance of risk at the Trust level.
The Manager is responsible for preparing valuations of each of the Trust's investments, which the Board reviews after considering analytical and performance data, and the valuation process. The valuations are carried out in accordance with the International Private Equity and Venture Capital ('IPEV') Valuation Guidelines. Further information can be found at www.privateequityvaluation.com.
The Board does not structure the Trust's balance sheet or underlying investments in order to deliver any target level of dividend. To maintain the Trust's status as an investment trust, annual net revenue retained, after dividend distributions in UHVSHFWRIWKDWÀQDQFLDO\HDUPD\QRWH[FHHGRIWKHDQQXDO WRWDOWD[DEOHLQFRPH7KHWRWDOWD[DEOHLQFRPHIRUDÀQDQFLDO\HDU might be higher or lower than the net income reported in the income statement. The level of the net revenue varies from year to year according to the level of the Trust's liquid funds and the short-term interest rates that can be earned on them, and the structure of the buyouts held at the time; net revenue is also affected by the valuation of accrued, but unpaid, interest on shareholder loans to investee companies. Accordingly, the minimum level of dividends may vary from year to year. Where possible, the Trust has elected to 'stream' its income from interest-bearing investments as dividends that will be taxed in the hands of shareholders as interest income; this reduces the tax charge payable by the Trust.
In the twelve months to 31 December 2015, the Trust's NAV per share increased by 14.1% on a total return basis. In comparison, the FTSE All-Share Index increased by 1.0%. The total return of the Trust's share price was 8.6%. All of the above assume the reinvestment of all historical dividends.
as at 31 December
At each Board meeting the Directors conduct a detailed review of the portfolio and reviews trading results and ratios to understand the impact on the Trust of the trading performance of the individual portfolio holdings.
The KPIs used to measure the progress and performance of the Trust over time and which are comparable to those reported by other investment trusts include NAV per share, share price, total UHWXUQSHUVKDUHDYHUDJHPRQWKO\WUDGLQJYROXPHVDQGFDVKÁRZ Further information on KPIs and the Trust's progress against these can be found in the Chairman's statement on pages 8 to 10 and the Manager's review on pages 17 to 60. The Directors recognise that it is in the long-term interest of shareholders that VKDUHVGRQRWWUDGHDWDVLJQLÀFDQWGLVFRXQWWRWKHSUHYDLOLQJ NAV and they monitor the Trust's discount or premium regularly.
7KHNH\ÀQDQFLDOULVNVIDFHGE\WKH7UXVWDUHVHWRXWEHORZDQG LQQRWHWRWKHÀQDQFLDOVWDWHPHQWV
The Board regularly reviews and agrees policies for managing each risk, as summarised below.
An inappropriate investment strategy may lead to poor performance. The Board is responsible for deciding the LQYHVWPHQWSROLF\WRIXOÀOWKH7UXVW·VREMHFWLYHVDQGIRU monitoring the performance of the Manager. To help manage this risk, the Manager provides an explanation of all investment decisions and the rationale for the composition of the investment portfolio. The Manager monitors and maintains an DGHTXDWHVSUHDGRILQYHVWPHQWVEDVHGRQWKHGLYHUVLÀFDWLRQ requirements inherent in the Trust's investment policy, in order to minimise the risks associated with particular countries or IDFWRUVVSHFLÀFWRSDU WLFXODUVHFWRUV
The Trust operates as an investment trust in accordance with Sections 1158 and 1159 of the Corporation Tax Act 2010 ('CTA'). As such, the Trust is exempt from corporation tax on capital gains realised from the sale of its investments, so the LPSDFWRIORVLQJLQYHVWPHQWWUXVWVWDWXVZRXOGEHVLJQLÀFDQWWR the Trust. The Board believes the likelihood of this risk occurring is low. The Manager monitors investment movements, the level and type of forecast income and expenditure, and the amount of retained income (if any) to ensure that the provisions of Sections 1158 and 1159 of CTA are not breached. The Trust's compliance with the conditions for retaining investment trust status are reported to the Board at each meeting.
General changes in legislation, regulation or government policy FRXOGVLJQLÀFDQWO\LQÁXHQFHWKHGHFLVLRQVRILQYHVWRUVRULPSDFW upon the markets in which the Trust invests.
In common with most other investment trust companies, the Trust has no employees. The Trust therefore relies upon the services provided by third parties and is dependent upon the internal control systems of the Manager and the Trust's other service providers. The security of the Trust's assets, dealing procedures, accounting records and maintenance of regulatory and legal requirements, depend on the effective operation of these systems. These are regularly tested and monitored and an internal control report, which includes an assessment of risks, together with procedures to mitigate such risks, is prepared by the Manager and reviewed by the Board and the Audit & Valuation Committee twice each year.
The Trust is also an Alternative Investment Fund ('AIF') for the purposes of the Alternative Investment Fund Managers Directive (Directive 2011/61/EU) ('AIFMD') and the Manager has been appointed as its Alternative Investment Fund Manager ('AIFM') for the purposes of the AIFMD.
The Board has considered an Assurance Report on Internal Controls (AAF 01/06) as prepared by the Manager, and independently reviewed by Deloitte LLP, for the year ended 31 December 2014. The Board will consider the 2015 Assurance Report when issued later in March 2016.
7KH7UXVW·VLQYHVWPHQWDFWLYLWLHVH[SRVHLWWRDYDULHW\RIÀQDQFLDO risks that include valuation risk, liquidity risk, market price risk, credit risk, foreign exchange risk and interest rate risk. Further GHWDLOVDUHGLVFORVHGLQQRWHWRWKHÀQDQFLDOVWDWHPHQWV together with a summary of the policies for managing these risks.
The Trust, by the very nature of its investment objective, predominantly invests in unquoted companies, and liquidity in their securities can be constrained, potentially making the LQYHVWPHQWVGLIÀFXOWWRUHDOLVHDWRUQHDUWKH'LUHFWRUV·SXEOLVKHG valuation at any one point in time. The Manager has regard to the liquidity of the portfolio when making investment decisions, DQGWKH7UXVWPDQDJHVLWVOLTXLGUHVRXUFHVWRHQVXUHVXIÀFLHQW cash is available to meet its contractual commitments.
In the event that, after providing for necessary expenditure, the 7UXVWZLOOKDYHLQVXIÀFLHQWFDVKUHVRXUFHVWRIXQGDQHZ investment, the Manager may exercise an opt-out in respect of new buyout investments alongside HgCapital 7. This helps the Trust to manage the risks associated with over-commitment.
At certain points in the investment cycle, the Trust may hold substantial amounts of cash awaiting investment, which it may invest in government or corporate securities, or in bank deposits, or in managed funds.
The Board and the Manager agree that prudent use of ERUURZLQJWRIXQGDFTXLVLWLRQVFDQLQFUHDVHGLYHUVLÀFDWLRQ within the portfolio and increase rates of return to shareholders. Businesses in the underlying portfolio are acquired with the EHQHÀWRIEDQNERUURZLQJDWOHYHOVWKDWFDQEHVHUYLFHGIURP WKHFDVKÁRZVJHQHUDWHGZLWKLQWKDWEXVLQHVV7KH%RDUGGRHV not currently see any advantage in using a further level of long-term borrowing by the Trust, as this would add risk without any certainty of enhancing returns, but anticipates making tactical use of bank borrowing from time to time, in order to remain more fully invested.
The Board keeps the management of the Trust's resources under IUHTXHQWUHYLHZDQGUHJXODUO\FRQVLGHUVORQJWHUPFDVKÁRZ projections for the Trust and the use of gearing.
The Trust has extended and increased its multi-currency standby facility with Lloyds Bank plc to 30 June 2019, as described on page 11. The Directors believe the borrowing facility gives WKH%RDUGIXU WKHUÁH[LELOLW\LQPDQDJLQJWKH7UXVW·VUHVRXUFHV without adding undue risk. The facility was undrawn as at 31 December 2015.
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 policies it has in relation to these matters and their effectiveness. These requirements do not apply to the Trust as it has no employees, all of the Directors are non-executive and it has outsourced all its functions to third party providers. The Trust has therefore not reported further in respect of these provisions.
At the end of the year under review, the Board of Directors of the Trust comprised four men and one woman. The Board's policy is to make appointments to the Board solely on merit and, when selecting potential candidates for the Board, looks equally IRUWKHEHVWTXDOLÀHGPDOHDQGIHPDOHFDQGLGDWHV7KH0DQDJHU has an equal opportunities policy and currently employs 71 men and 44 women on a permanent basis.
For and on behalf of the Board
Roger Mountford Chairman of the Board 4 March 2016
17
HgCapital is a private equity investor focused on the European mid-market.
Our business model combines deep sector specialisation with dedicated portfolio management support. HgCapital invests primarily in growth companies in expanding sectors via leveraged buyouts and in renewable energy-generating projects across Europe.
HgCapital's vision is to be the most sought after private equity manager in Europe, being a partner of choice for management teams and renewable power developers, so as to produce consistent superior returns for our clients and a rewarding environment for our staff.
References in this Annual Report and Accounts to the 'portfolio', 'investments', 'companies' or 'businesses', refer to a number of buyout investments, held as:
HgCapital Trust plc is the largest client of HgCapital, which was appointed Manager in 1994. The Trust offers investors a liquid investment vehicle, through which they can obtain an exposure WRRXUGLYHUVLÀHGSRU WIROLRRISULYDWHHTXLW\LQYHVWPHQWVZLWK minimal administrative burdens, no long-term lock-up or PLQLPXPVL]HRILQYHVWPHQWDQGZLWKWKHEHQHÀWRIDQ independent board and associated corporate governance.
We have progressively invested in and strengthened the business RYHUWKH\HDUVWRHVWDEOLVKDVLJQLÀFDQWFRPSHWLWLYHDGYDQWDJH
:LWKRYHUVWDIILQWZRLQYHVWPHQWRIÀFHVLQWKH8.DQG Germany, HgCapital has assets under management of over £5 billion serving a range of highly regarded institutional investors, including private and public pension funds, charitable HQGRZPHQWVLQVXUDQFHFRPSDQLHVDQGIDPLO\RIÀFHV
Hg Pooled Management Limited was authorised as an Alternative Investment Fund Manager with effect from 22 July 2014. For further details, refer to pages 102 to 105.
HgCapital primarily focuses on mid-market buyouts across the TMT, services and industrials sectors, with enterprise values ("EV") of between £80 million and £500 million and lower mid-market buyouts in the TMT sector with enterprise values between £20 million and £80 million.
These companies are small enough to provide opportunities for operational improvement, yet large enough to attract high quality management and to offer multiple exit options across market cycles.
We also invest in specialist infrastructure through renewable power generating projects across Western Europe.
These markets offer a high volume of companies with proven ÀQDQFLDOSHUIRUPDQFHDQGVWURQJPDUNHWSRVLWLRQV
HgCapital's investment strategy provides investors with access to the substantial majority of private equity opportunities within our target size range and across our chosen geographies.
HgCapital applies a rigorous approach when evaluating all investment opportunities. Our objective is to acquire the most attractive investments, rather than be constrained by a top-down asset allocation.
For buyouts, we seek companies across our sectors that share similar characteristics, such as: high levels of recurring or contracted revenues, a product or service that is businesscritical but typically low spend; low customer concentration, high customer loyalty and low sensitivity to market cycles, often providing a platform for mergers and acquisitions ("M&A") opportunities. We believe that these companies have the SRWHQWLDOIRUVLJQLÀFDQWSHUIRUPDQFHLPSURYHPHQW
We target situations where our specialist knowledge and skills can make a real difference in supporting management to grow industry champions.
HgCapital's sector teams combine the domain knowledge and expertise of a trade buyer – giving them enhanced credibility DQGWKHDELOLW\WRPDNHFRQÀGHQWGHFLVLRQV²ZLWKWKHVSHHG RIH[HFXWLRQDQGGLVFLSOLQHRIDÀQDQFLDOLQYHVWRUOHDGLQJWRKLJK conversion rates on deals.
This deep sector focus is channelled through a rigorous, research-based investment process; systematically identifying the most attractive growth sub-sectors and business models of the European mid-market; and through repeated investment in them, GHDOÁRZLVRSWLPLVHGDQGUHWXUQVLPSURYHG
We focus our buyout investments primarily in the UK and Northern Europe.
The renewable energy investments are focused on the UK, Ireland, the Nordic region and Spain.
All investments are managed by specialist, dedicated sector and portfolio management teams located in London and Munich who work with a common purpose and culture, applying consistent processes.
Following each investment, our dedicated Portfolio Management Team works to enhance value by adopting clear strategies for growth and ultimately for realisation of the value created.
HgCapital's objective is to ensure that all businesses in which we invest maximise their long-term potential and reward all of their stakeholders. As a result, we typically invest as the lead, majority shareholder and appoint our executives to the companies' ERDUGVWRDVVLVWHDFKÀUPLQDSSO\LQJDFWLYHUHVXOWVRULHQWHG corporate governance.
Beyond the boardroom, HgCapital actively supports management teams to reach their potential through both hands-on support from the Portfolio Management Team as well as best practice sharing from many years of investing in similar business models. The Portfolio Management Team strives to foster a community amongst the management teams and some of the best industry thinkers to create cutting edge thinking across software, services and industrials, so they can remain industry champions.
HgCapital succeeds through superior insights into new and emerging dynamics in the economy. Developing these insights requires profound understanding of technology, markets and business practices. To this end we employ best-in-class talent to identify and execute investment opportunities and accelerate value realisation during ownership.
This specialisation - both in investment selection and portfolio PDQDJHPHQWUHTXLUHVVLJQLÀFDQWUHVRXUFHVDQGZHKDYHEXLOW a business employing over 110 staff, including more than 65 investment and other professionals. 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 ten Western European countries. Our partners have, on average, nineteen years' experience in private equity management.
HgCapital's recruitment and selection processes are rigorous and agile, which, along with our vibrant culture, allow us to attract and hire the best talent in our industry. We place a strong emphasis on delivering an experience that will encourage the best candidates to join us.
:HKDYHVWUHQJWKHQHGRXUWDOHQWLGHQWLÀFDWLRQSURFHVVHVZLWK a focus on outperformers and how we can best accelerate their development within the business. We believe that this is the basis of effective succession planning.
Our people are highly motivated by, and committed to, delivering outstanding value to our 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 HgCapital.
Our values have evolved over many years and are embodied in our working culture and these are aligned with our performance review and compensation structures.
We are explicit about the behaviours we wish to encourage at HgCapital, and have aligned training, coaching, performance feedback and incentives to our values.
A full description of HgCapital and our key staff is available at www.hgcapital.com
With experienced people and an approach that focuses on delivering value, we believe we have the capability and commitment to deliver strong investment returns to investors.
For HgCapital, responsible investing means growing sustainable businesses which are great employers, have low environmental impacts and are good corporate citizens whilst generating superior risk adjusted returns for the millions of pensioners and savers who are invested with our clients.
Through our investments we look to create quality jobs in sectors with low carbon emissions and to create value through revenue growth over the long-term. We want the businesses we invest in to be genuinely focused on doing well for all stakeholders (employees, FXVWRPHUVVXSSOLHUVDQGRWKHUSDU WQHUVDVZHOODVVKDUHKROGHUV :HÀUPO\EHOLHYHWKDWEXVLQHVVHVWKDWEHKDYHWKLVZD\JHQHUDWH superior long term performance.
We have created a framework for looking at the ways the businesses we invest in can address responsible investing and how we can help them and we use it to assess businesses both before investment and during our ownership.
• Manage risks and relationships within the supply chain for reliable, stable, high quality supplies;
• Build strong links with the communities in which our businesses operate.
C O
EN
M M U NIT Y
GOVERNANCE
HOW WE INTEGRATE RESPONSIBLE INVESTING INTO OUR INVESTMENT PROCESS
Diligence
• Our Portfolio Management Team works with companies to implement initiatives and new processes, and support them in realising their ambitions within and beyond our framework.
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At the 2015 Private Equity Awards, HgCapital won the Corporate Citizenship award, which recognises best practice in corporate social governance.
We actively collaborate with a number of organisations on Responsible Investment and share best practice in this area.
We require all companies in the portfolio to have anti-bribery policies in place within six months of acquisition.
Eleven companies attended the HgCapital IT Directors Forum to share best practice on cyber security management.
Zenith achieved a place in 'The Sunday Times Best Companies to Work For' list in the 'mid-sized' company category for the second year running, after its employees took part in an independent workplace engagement survey.
Visma is working to strengthen the link between education and industry through partnering with the Junior Achievement Scheme, a provider of education programmes for HQWUHSUHQHXUVKLSDQGÀQDQFLDOOLWHUDF\
QUNDIS is supporting the Plant-for-the-Planet initiative, a charity which aims to plant 1,000 billion trees worldwide by 2020, to tackle climate change and reduce CO2 . Plant-for-the-3ODQHWHQFRXUDJHVDVPDQ\FKLOGUHQDVSRVVLEOHWRÀJKWIRUWKHLU future and currently has 30,000 children, between the ages of 9-12, who are Ambassadors for Climate Justice, with a goal of inspiring 1 million children to take up this role by 2020. As part of this initiative, in 2016 QUNDIS will be organising a Plant-forthe-Planet Academy, a forum which seeks to create awareness and engagement around environmental issues.
EidosMedia has partnered with The Pangea Foundation in India since 2012 on several projects. Their collaboration has facilitated the creation of eight credit and savings co-operatives among women in the villages. Pangea also runs self-help groups and a microcredit programme for income generating activities.
#### 481',6(QDEOLQJHQHUJ\HIÀFLHQF\
0RUHWKDQPLOOLRQÁDWVDUHHTXLSSHGZLWK481',6+HDW&RVW Allocators or Heat Meters in more than 30 countries. If tenants can actively manage their consumption, the energy and heating costs are reduced by up to 20%. As a result, 4.5 million tons of CO2 are saved every year.
Achilles Supply Chain Mapping allows companies to gain visibility of their extended supply chains and view supplier information beyond ÀUVWWLHUVXSSOLHUV,WHQDEOHVVXSSOLHUVWRGHPRQVWUDWHWUDQVSDUHQF\ and better engage with their value chains. This gives businesses:
Achilles' Supply Chain Mapping is being used by Nestlé as part of its responsible sourcing programme as a cost-effective, time-HIÀFLHQWDQGVHFXUHRQOLQHSURFHVVWRWUDFHWKHLULQJUHGLHQWV back to the farm or plantation.
Average CO2 HPLVVLRQVIRUFDUVRUGHUHGRQ=HQLWK·VVDODU\VDFULÀFH car schemes this year are just 99g/km (124.6g/km in 20142 ). =HQLWK·VVDODU\VDFULÀFHVFKHPHVLQFHQWLYLVHWKHORZHVWHPLWWLQJ cars. Alternatively-fuelled cars now account for 12% of all
=HQLWK·VVDODU\VDFULÀFHFDUVFKHPHRUGHUVLQ2 ). Ian Hughes, commercial director for Zenith, commented: "As the tax regime continues to incentivise low CO2 emitting cars and manufacturers are advancing their technology, through hybrids DQGHOHFWULFFDUVLQSDU WLFXODUZHDUHFRQWLQXLQJWRVHHVLJQLÀFDQW falls in emissions each year. Drivers and companies are also EHQHÀWWLQJIURPLPSURYHGIXHOHFRQRP\DQGORZHUIXHOELOOVµ
Homes powered by renewable energy in 300,000 Western Europe.
:HDUHWKHOHDGLQJÀQDQFLDOLQYHVWRULQRQVKRUHZLQGIDUPVLQ Scandinavia and one of Ireland's leading independent wind power producers. We also manage portfolios of large-scale solar photovoltaic plants and small-hydro power plants in Spain.
A full description of HgCapital's responsible investment policy is available at www.hgcapital.com
TMT, as a sector, covers a broad range of markets. Driven by our deep sector approach, HgCapital's TMT team is focused on VSHFLÀFVXEVHFWRUVLQFOXGLQJYHU WLFDOPDUNHWDSSOLFDWLRQ software (particularly delivered via a Software as a Service ('SaaS') model); private electronic marketplaces; B2B media information/publishing; and telecoms/datacentre operators.
Within these sub-sectors, we have invested in high quality businesses with diverse customer bases, which feature subscription-based business models generating predictable UHYHQXHVDQGFDVKÁRZV7KHWHDPUHJXODUO\FRQGXFWVWRSGRZQ research within the wider sector, in order to continue to identify and assess further repeatable investment themes where we can invest time to develop proprietary expertise.
Our highly resourced, dedicated team means that we are well placed to identify, assess and complete investments quickly and thoroughly. We work to bring our experience and expertise to support management teams, aiming to have the knowledge of a trade buyer, coupled with the speed and focused delivery of a ÀQDQFLDOEX\HU7KHWHDPEHQHÀWVIURPWKHGHSWKDQGEUHDGWKRI many years of TMT private equity experience, and is complemented by an extensive network of industry experts and advisers.
Given the breadth of opportunity in European TMT, HgCapital is currently investing in the sector from two funds. The HgCapital 7 buyout fund targets businesses with enterprise values between £80 million and £500 million. The HgCapital Mercury Fund targets smaller buyouts (enterprise values between £20 million and £80 million) but in exactly the same TMT sub-sectors. Investing WZRIXQGVDFURVVWKHVHFWRUDOORZVXVWREULQJVLJQLÀFDQWWHDP resource to bear and provides a very comprehensive resource for the management teams that we support.
The Services sector is a large and wide-ranging segment which is traditionally split into 'horizontal' business models such as: business process outsourcing; facilities management; or testing and inspection provision. In contrast, HgCapital's Services Team's LQYHVWPHQWDSSURDFKFRQFHQWUDWHVPXFKPRUHRQVSHFLÀFHQG markets or customer segments, which we believe lead to attractive business model characteristics. We have then invested time to develop a strong understanding of the industry dynamics through top-down research or existing investments, identifying VHUYLFHFRPSDQLHVWKDWVHOOLQWRWKRVHVSHFLÀFHQGPDUNHWV
Within the Services sector, the investment themes that have attracted us have typically featured large fragmented small and medium-sized enterprise ("SME") customer bases, long-term and stable customer relationships, and businesses which provide business-critical services, preferably on a repeat or recurrent basis. We target businesses with leading positions within a niche, W\SLFDOO\UHÁHFWHGE\VWURQJPDUJLQVDQGZHDLPWRJURZDQG scale these businesses, either organically within existing markets (selling into their customer bases) or through acquisition.
Existing investments include companies that serve a range of industries including commercial laundry and catering equipment distribution, automotive leasing, international business expansion services and distribution of insurance, all of which have common characteristics including stable and diverse customer bases; critical, repeated use products; and a strong value proposition with a high level of customer service.
In addition to the sectors noted above, we look to use our long-term investment experience in the healthcare sector to identify sub-sectors within Services and TMT that take advantage of technological change, a key driver of growth within the European healthcare sector.
HgCapital's Industrials Team is focused on partnering with growth businesses within Europe and in particular in the German market, which is characterised by a large number of highly successful, family-owned businesses (the "Mittelstand"). We have earned a reputation as a preferred partner for many Mittelstand companies, as a result of supporting the management of a number of these hidden champions to scale into international businesses. The Industrials Team, based in Munich, is located in the heart of an economic zone containing numerous high-quality, cutting-edge, technology-led industrial businesses, many of which KDYHVWURQJQDWLRQDORULQWHUQDWLRQDOSRVLWLRQVLQDVSHFLÀFQLFKH market, with the opportunity to scale further. Our thematic research within this sector has been concentrated over many \HDUVRQWKHFKDUDFWHULVWLFVWKDWGHÀQHDVWURQJLQGXVWULDO investment. As a result, we have developed certain themes that we regard as particularly attractive: Aftermarket companies; product champions/niche manufacturers; c-part specialists; and smart distribution models.
7KRVHWKHPHVDUHRYHUODLGZLWKVSHFLÀFLQGXVWULDOVXEVHFWRUV where we have a strong understanding.
In 2004, HgCapital established a dedicated renewable energy LQYHVWPHQWWHDPDQGDIWHUDSHULRGRIUHVHDUFKUDLVHGLWVÀUVW dedicated fund in 2006. We invest in utility-scale renewable energy projects in Western Europe using proven technologies such as onshore wind, solar and hydro, adopting an infrastructure fund investment approach. We focus on creating industrial scale renewable energy platforms under our control, seeking to aggregate a number of assets and to deliver economies of scale.
We believe this strategy presents an attractive investment RSSRU WXQLW\ZKLFKLVHVWLPDWHGWRUHTXLUHVLJQLÀFDQWFDSLWDO investment over the medium-term. Technological advances and the increased scale of the industry have increased the cost competitiveness of renewable energy, as well as providing IDYRXUDEOHLQÁDWLRQOLQNDJHDQGDKHGJHDJDLQVWIRVVLOIXHOFRVWV HgCapital's renewable energy investment theme is focused on WKHPRVWHIÀFLHQWWHFKQRORJLHVDQGEHVWUHVRXUFHGVLWHV requiring the least regulatory support and resulting in the lowest costs for the consumer.
,QYHVWPHQWLVDWDQLQGXVWULDOVFDOHDIIRUGLQJWKHEHQHÀWVRIWKLVLQ procurement, attracting higher quality management teams, and creating strategic value. HgCapital is one of the leading owners of onshore wind farms in Scandinavia, has investments in 6FDQGLQDYLDQGLVWULFWKHDWLQJLVRQHRIWKHODUJHVWÀQDQFLDO investors in Irish onshore wind, and has a substantial portfolio of ground-mounted solar and small hydroelectricity projects in Spain.
CASE STUDY – JLA
The active support from HgCapital has accelerated our growth through numerous value-added projects and M&A. We look forward to our continued partnership driving future value growth.
Stephen Baxter, CEO of JLA
Website: www.jla.com Sector: Services Geography: UK
Founded in Yorkshire in 1973, JLA is one of the UK's leading providers of commercial laundry and catering equipment on a contracted basis. JLA operates across a diverse sector base offering customers a fully inclusive machine supply and service proposition under the name of Total Care. In addition, the company provides customers with supplementary products and services (e.g. service contracts, compliance and safety service solutions, equipment sales and consumables). The company's services are typically provided under eight-year contracts to customers who require laundry or catering equipment as a "mission-critical" part of their operations.
JLA had been known to HgCapital for some time. Originally described as a 'washing machine distributor', JLA had enjoyed strong operating performance, including sustained organic growth through the period 2007–2009 and displayed many of the business model characteristics that we look for. The team worked hard with the founder and the management team to complete the acquisition in March 2010, valuing the company at an enterprise value of £150 million.
*Does not include the impact of the Laundryserv acquisition.
JLA has a diverse customer base that considers laundry and catering as a mission-critical part of their day-to-day business. With a high proportion of customers on long-term contracts (representing a high level of revenues and a greater proportion RISURÀWV WKHFRPSDQ\KDVDQDWWUDFWLYHEXVLQHVVPRGHO characterised by a high level of recurring revenues and future revenue visibility.
We saw the opportunity to grow the core Total Care division through the professionalisation of sales and marketing. Whilst initially focusing on the laundry division, there were good prospects to expand JLA's services across other industry verticals and increase regional coverage.
The numbers in the chart relate to the Trust's share of transactions.
:HZRUNHGDORQJVLGHPDQDJHPHQWWRLQFUHDVHWKHEHQHÀWRI selling new products and services through JLA's existing sales force and service network.
A number of projects have been initiated covering strategic planning, customer retention and pricing. In addition, management has been strengthened and ten small bolt-on acquisitions of smaller laundry and kitchen equipment companies have been completed, all funded out of free FDVKÁRZ
In 2011, the company introduced a detergent range to accompany the machinery it leased, and in 2012, expanded its white goods reach, sourcing and leasing equipment such as dishwashers. This expanded offering continued into other catering equipment such as prime cooking and refrigeration. Catering equipment now represents a third of JLA's overall revenues.
The business now has a dedicated M&A team and the pipeline for further acquisitions is under development. We plan to continue to make further bolt-on acquisitions, both in the laundry and catering markets.
JLA's performance has been consistently strong with organic sales growth of 7-9% year-on-year. Sales doubled between 2009 and 2015 to £102 million. Over the same period, EBITDA has increased from £17 million to £28 million, a compound annual growth rate of 12%.
In December 2015 HgCapital completed the recapitalisation and the sale of a minority interest in JLA to a group of institutional investors, returning £116 million to HgCapital 6 clients, including £17.3 million of cash proceeds to the Trust, and retained 59% of the equity in the company. These transactions, together with previous realisations, took the total cash return to 1.8x the original investment. The combined return represents an investment multiple of 3.5x over JLA's holding period to date.
During the year, the NAV of the Trust increased by £53.1 million, from £476.9 million to £530.0 million at 31 December 2015.
| Revenue £'000 |
Capital £'000 |
Total £'000 |
|
|---|---|---|---|
| Opening NAV as at 1 January 2015 | |||
| Realised capital and income proceeds from investment portfolio in excess of 31 December 2014 book value |
|||
| Net unrealised capital and income appreciation of investment portfolio |
|||
| Net realised and unrealised gains from liquid resources | 318 | ||
| Dividend paid | – | ||
| Expenditure and taxation | – | ||
| Investment management costs: | |||
2TKQTKV[ RTQƂV UJCTG EWTTGPV [GCT EJCTIG |
– | ||
2TKQTKV[ RTQƂV UJCTG PGV NQCP CNNQECVKQP |
– | ||
| Carried interest - current year provision | – | ||
| Closing NAV as at 31 December 2015 | 31,946 | 498,077 | 530,023 |
for the year ended 31 December 2015
*December 2014 rebased to nil
There were a number of underlying factors contributing to the above increase in the NAV. Positive impacts on the NAV were the revaluation of the unquoted portfolio (+£91.6 million) and uplifts on the realisation of investments compared with their carrying value at the start of the year (+£13.4 million).
Reductions in the NAV were caused by: the payment of a dividend to shareholders (-£11.9 million); the Manager's remuneration (-£8.2 million and a -£28.1 million increase in the provision for future carried interest); and operating expenditure and taxation (-£3.9 million).
for the year ended 31 December 2015
| Investment name and ranking within investment portfolio |
£'million | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| at 31 December 2015 | (2) – |
2 | 4 | 6 | 8 | 1 | 12 0 | 14 | 16 | 18 | 20 |
| IRIS (2) | 17.9 | ||||||||||
| JLA (7) | 17.6 | ||||||||||
| Zenith (4) | 15.4 | ||||||||||
| TeamSystem (sold) | 11.4 | ||||||||||
| Visma (1) | 7.9 | ||||||||||
| P&I (5) | 7.8 | ||||||||||
| QUNDIS (9) | 5.0 | ||||||||||
| A-Plan (8) | 4.4 | ||||||||||
| Casa Reha (sold) | 4.0 | ||||||||||
| Hg6E | 3.5 | ||||||||||
| Allocate Software (17) | 2.7 | ||||||||||
| Frösunda (14) | 2.5 | ||||||||||
| Other | 2.2 | ||||||||||
| Sequel (22) | 2.1 | ||||||||||
| Intelliflo (21) | 2.1 | ||||||||||
| Teufel (23) | 2.0 | ||||||||||
| Parts Alliance (12) | 2.0 | ||||||||||
| Ullink (15) | 1.9 | ||||||||||
| (1.7) Lumesse (16) |
|||||||||||
| (1.8) Radius (11) |
|||||||||||
| (1.9) NetNames (13) |
|||||||||||
| (2.0) Achilles (6) |
for the year ended 31 December 2015
Including accrued income and excluding carried interest provision 2 December 2014 rebased to nil
During the year, the value of the unrealised portfolio increased by £106.5 million, excluding the provision for carried interest. The majority of the increase (£70.3 million) relates to increases LQSURÀWVLQWKHXQGHUO\LQJSRU WIROLR7KHRWKHUPDLQGULYHURI the increase in unrealised value came from improved ratings, UHÁHFWLQJWKHSRVLWLYHUHUDWLQJIRUFRPSDUDEOHEXVLQHVVHVERWK listed and M&A), most notably in our software businesses.
These were partially offset by decreases driven by an increase in QHWGHEWPLOOLRQ UHVXOWLQJIURPUHÀQDQFLQJWKDWUHWXUQHG cash to the Trust, and unfavourable foreign exchange movements (-£10.2 million).
as at 31 December 2015
The top 20 buyout investments (representing 87% of the total portfolio by value) have delivered strong sales growth of 10% and EBITDA growth of 12% over the last twelve months ('LTM').
We are pleased with the performance of the portfolio and, in SDU WLFXODUVRPHRIWKHODUJHUFRPSDQLHV3URÀWVDFURVVWKH portfolio have grown at a faster rate than revenues as the investment made into the cost base of a number of our portfolio companies in previous periods bears fruit. Over the past three years the top 20 have grown consistently at an average of 10% p.a. for both sales and EBITDA. The business model characteristics of our portfolio companies give us FRQÀGHQFHWKDWWKLVOHYHORIJURZWKFDQEHDFKLHYHG consistently going forward.
We continue to see very robust trading performance from Visma, IRIS, TeamSystem and P&I in our TMT portfolio and Parts Alliance, Radius, JLA and Zenith in the Services sector. QUNDIS, a German based industrial company, has also seen improved operational performance in 2015.
In total, 61% of the top 20 saw double-digit earnings growth over 2015.
We continue to invest materially into the cost base of a number of our portfolio companies, including Ullink, Achilles, Sequel, 7KH)RXQGU\DQG,QWHOOLÁRWRIXU WKHUVWUHQJWKHQPDQDJHPHQW improve sales and marketing capabilities; and make other operational improvements, consequently depressing short-term (%,7'\$DQGYDOXDWLRQV:HH[SHFWWRVHHWKHEHQHÀWRIWKLV LQYHVWPHQWGULYLQJSURÀWDELOLW\LQIXWXUH\HDUV
Similarly, many of our TMT companies, including IRIS, Visma and P&I, are focused on investing in a shift towards 'cloud-based' recurring revenues, temporarily holding back earnings but building businesses that should achieve a premium rating at exit.
:HIXQGDPHQWDOO\EHOLHYHWKDWWKHEHQHÀWRILQYHVWPHQWLQWR our portfolio companies will be long-term, high, sustainable growth, as we have delivered before, and that this will position them well for future exits.
28
29
as at 31 December 2015
The portfolio's valuation policy is applied consistently, using the IPEV Valuation Guidelines. Our valuation of each company has produced an average EBITDA multiple for the top 20 buyout investments of 14.5x.
We continue to take a considered and prudent approach in determining the level of maintainable earnings to use in each investment valuation. The majority of the portfolio is valued using the LTM earnings to 30 November 2015, unless we have DQWLFLSDWHGWKDWWKHRXWORRNIRUWKHIXOOFXUUHQWÀQDQFLDO\HDULV likely to be lower, in which case we have used forecast earnings.
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 where relevant and recent, we will also use M&A data.
The average valuation multiple has risen over the year due to both increased comparable business ratings and the continued shift in the mix of the portfolio to higher growth businesses, in particular in the TMT sector where we hold a number of companies with
TOP 20* EV TO EBITDA VALUATION MULTIPLE: 14.5x
substantial opportunities to grow their SaaS business.
2015 saw public markets stagnate, with many of their constituent VHFWRUVVLJQLÀFDQWO\GHFUHDVLQJLQYDOXH7KHOLVWHGVRIWZDUH sub-sector, however, grew strongly over the year. This was further underpinned by M&A activity; for example, our sale of TeamSystem, which was announced in December 2015, at a multiple in excess of 17x EBITDA.
Our portfolio companies make appropriate use of gearing, with an average for the top 20 of 4.6x LTM EBITDA. Many of our businesses have highly predictable, strong earnings growth and are highly cash generative, enabling us to use debt to gear our returns.
Over the past twelve months we have taken advantage of the EXR\DQWGHEWPDUNHWVSURYLGLQJORZFRVWÀQDQFLQJRQÁH[LEOH terms for businesses with these characteristics. During this period, we recapitalised Zenith, IRIS, JLA, Sequel and Relay, returning £32.5 million to the Trust and subsequently, P&I in WKHÀUVWTXDU WHURIUHWXUQLQJDIXU WKHUPLOOLRQ
2015 ended with liquid resources of £40.3 million, supported by an undrawn bank facility of £40.0 million. Outstanding commitments as at 31 December 2015 were £159.6 million as listed below. We anticipate that the majority of these outstanding commitments will be GUDZQGRZQRYHUWKHQH[WWZRWRWKUHH\HDUVDQGDUHOLNHO\WREHSDU WO\ÀQDQFHGE\IXWXUHFDVKÁRZVIURPSRU WIROLRUHDOLVDWLRQV 7KH7UXVWDGGLWLRQDOO\KDVWKHEHQHÀWRIDQRSWRXWSURYLVLRQLQLWVFRPPLWPHQWWRLQYHVWDORQJVLGH+J&DSLWDOVRWKDWLWFDQRSW out of new investments without penalty, should it not have the cash available to invest.
| Fund | Fund vintage |
Original commitment £'million |
£'million | Outstanding commitments as at 31 December 2015 % of NAV |
£'million | Outstanding commitments as at 31 December 2014 % of NAV |
|---|---|---|---|---|---|---|
| *)6 .2 |
2013 | 200.0 | 102.8 | |||
| *I /GTEWT[ |
2011 | 27.5 | 35.3 | |||
| *)6 .2 |
285.0 | |||||
| RPP2 | 2010 | 1 | 8.2 | 12.3 | ||
| )6 .2 2TGI%CRKVCN XKPVCIG |
RTG | 120.02 | 1.3 | 1.3 | ||
| RPP1 | 3 | 1.0 | 1.1 | |||
| *I'4 | 15.0 | 0.5 | ||||
| Total | 159.6 | 30.1% | 206.6 | 43.3% | ||
| Liquid resources | 40.3 | |||||
| Net outstanding commitments unfunded by liquid resources |
119.3 | 22.5% | 143.7 | 30.1% |
1 Sterling equivalent of €40.0 million.
2 'ZENWFKPI-CP[-EQKPXGUVOGPV-RCTVKEKRCVKQPU-OCFG-VJTQWIJ-*)6-.2 3 5VGTNKPI-GSWKXCNGPV-QHa-OKNNKQP
4 Partnership interest acquired during 2011.
| Fund limited partnerships | Residual cost £'000 |
Total valuation £'000 |
Portfolio value % |
|
|---|---|---|---|---|
| Primary mid-cap buyout funds: | ||||
| 1 | *)6 .2 |
|||
| *)6 .2 s 2TQXKUKQP HQT ECTTKGF KPVGTGUV |
- | |||
| 2 *)6 .2 |
||||
| 3 | *)6 .2 |
|||
| Total primary mid-cap buyout funds | 349,477 | 431,730 | 87.6% | |
| Primary small-cap buyout funds: | ||||
| 4 *I%CRKVCN /GTEWT[ & .2 |
||||
| Total primary small-cap buyout funds | 24,784 | 33,774 | 6.9% | |
| Secondary mid-cap buyout funds: | ||||
| 5 | *I%CRKVCN ' .2 |
|||
| *I%CRKVCN ' .2 s 2TQXKUKQP HQT ECTTKGF KPVGTGUV |
- | |||
| Total secondary mid-cap buyout funds | 7,481 | 13,236 | 2.7% | |
| Total buyout funds | 381,742 | 478,740 | 97.2% | |
| Renewable energy funds: | ||||
| *I%CRKVCN 4GPGYCDNG 2QYGT 2CTVPGTU % .2 |
||||
| 7 *I4GPGYCDNG 2QYGT 2CTVPGTU .2 |
||||
| Total renewable energy funds | 27,887 | 13,884 | 2.8% | |
| Total investments net of carried interest provision | 409,629 | 492,624 | 100.0% |
Excluding carried interest provision 2
1H-YJKEJ--YCU-UQNF-CHVGT-VJG-[GCT-GPF
The vast majority of our investments are generated by establishing and developing relationships with companies in our chosen segments 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 sub-sectors.
We continue to look for businesses that share similar underlying business model characteristics such as: high levels of recurring revenues; a product or service that is business-critical but typically low spend; low customer concentration; and low sensitivity to market cycles. This is a theme that runs through many of our new investments and we believe that these types of companies will remain in high demand.
The Foundry is a leading provider of award-winning software used globally by creative professionals. We have known the company for several years and this investment shares many of the characteristics that we look for, providing an excellent SODWIRUPIRUJURZWKDFURVVDGLYHUVLÀHGFOLHQWEDVHZLWKD commitment to innovation.
A-Plan is a leading UK insurance broker. The company LVDVWURQJÀWZLWKRXULQYHVWPHQWVWUDWHJ\WKURXJKLWV high level of recurring revenues, strong customer loyalty and sector-leading customer advocacy, achieved through excellent service.
EidosMedia is a leading global provider of digital publishing solutions based in Milan. The investment from HgCapital will enable EidosMedia to consolidate its position in digital SXEOLVKLQJVROXWLRQVZLWKLQWKHQHZVPHGLDDQGÀQDQFLDO sectors, while continuing to work on a new generation of SURGXFWVWKDWRIIHUXQSUHFHGHQWHGSRZHUDQGÁH[LELOLW\LQ digital content management and delivery.
In September, the Trust made a further investment into Achilles, a UK-headquartered platform providing a cloud-based service enabling networks of buyers to collect and validate supplier information. The Trust's investment is to support the further growth of Achilles and as a co-investment is free of fees and carried interest.
Eucon is a leading provider of automotive parts pricing data and insurance claims management services based in Germany. This investment results from considerable sector work undertaken in recent years in automotive information and software and follows prior investments in the automotive space including: Epyx; Parts Alliance; and Zenith.
Sovos Compliance is a leading global provider of regulatory tax compliance software, headquartered in Boston, USA. Having tracked the company for several years, HgCapital assumed majority ownership from Vista Equity Partners, which
Zitcom and ScanNet are two leading Danish hosting and cloud solutions providers. This investment is a continuation of HgCapital's considerable experience in SME technology businesses in the wider Nordic region. The acquisition by Zitcom of ScanNet completed post year-end.
An estimated further £46 million invested on behalf of the Trust since 31 December 2015
Sovos Compliance
Citation is one of the UK's leading providers of Health & Safety, HR, Employment Law and ISO services to SMEs. The Services Team has followed the company for several years and continues their strategy of investing leading technology-enabled professional services providers in regulatory-driven and fast growing niches.
Kinapse is a UK-headquartered leading global provider of advisory, capability building and operational services to the life sciences industries, focused on regulatory compliance and quality. This ÀWVZLWK+J&DSLWDO·VVWUDWHJ\RI investing in regulatory-driven services.
The ScanNet acquisition was made alongside Zitcom (described above). The combination of these two businesses will create a business with a leading position in the managed hosting markets for SMEs in Denmark.
It was a very active year for realisations. We have made several references to 'frothy' markets over the year and this has helped inform our approach to selling investments whilst also carefully considering our appetite for selling versus holding onto businesses for longer, as demonstrated by the sale of a minority stake in JLA, which completed in December 2015. We have also taken advantage of buoyant debt markets over 2015 by recapitalising investments where we have good visibility of their future earnings, UHWXUQLQJVLJQLÀFDQWFDVKSURFHHGVWRRXUFOLHQWVLQFOXGLQJWKH7UXVWDQGZHZLOOFRQWLQXHWRDVVHVVIXU WKHURSSRU WXQLWLHVKHUH
SimonsVoss, a European leader in innovative electronic batterypowered locking and access control systems headquartered in Germany, was sold to Allegion plc, a listed global security products and solutions provider. The Trust realised cash proceeds representing an uplift of 3% over the carrying value of the Trust at 31 December 2014.
Sporting Index is a UK-based premier sports spread betting and outsourced sports trading services company. This company was one of our legacy Consumer and Leisure investments and we worked hard to recover value. The sale was made at an uplift of 47% over its carrying value at 31 December 2014.
In an all share transaction, e-conomic, a Scandinavian SaaS accounting solutions provider, was sold to Visma, a leading provider of business software and outsourcing services to SMEs in the Nordic region and in which the Trust already holds a substantial interest. The Trust has retained a stake in e-conomic's international business and Debitoor.
HgCapital completed the sale of a minority interest to a group of institutional investors and the recapitalisation of JLA, a leading UK provider of business-critical asset maintenance services to SMEs. These transactions, together with previous realisations, returned in total 1.8x of the original investment, with HgCapital retaining about 59% of the equity in the company. The combined return represents an investment multiple of 3.5x.
In April, we recapitalised Zenith, on the back of its strong trading performance, just over a year into our ownership of the business. The cash realised on behalf of the Trust represented a return to date of 45% on the original investment made.
Sequel Business Solutions
In November, the Mercury Team completed the recapitalisation of Sequel, the leading provider of applications software to the Lloyd's of London insurance market. The cash realised on behalf of the Trust represented a return to date of 49% on the original investment.
IRIS, a leading UK provider of business-critical software and services to the UK accountancy market, was recapitalised over the period with the cash proceeds to the Trust representing a 46% return on the original investment made, a portion of which was received in 2016.
The recapitalisation of Relay, a leading provider of software and connectivity to insurance brokers and underwriters in Ireland, represented a return to date of 25% on the original investment.
An estimated further £59 million returned to the Trust post 31 December 2015
TeamSystem TeamSystem, a leading provider of business-critical, regulatory driven software products to accountants, HR professionals and SMEs in Italy, was sold to Hellman & Friedman LLC. On completion, this transaction resulted in an uplift of 34% (£11.4 million) over the carrying value of the Trust at 31 December 2014. 7KHVDOHSURFHHGVDUHIXOO\UHÁHFWHGLQ the December 2015 valuation.
P&I
The MunichTMTTeam have completed the recapitalisation of P&I with cash proceeds realised on behalf of the Trust. This represents a 60% return on the original investment made in December 2013.
Casa Reha, a leading private German provider of elderly care services, was sold to Euronext-listed Korian. The Trust's cash proceeds on completion represent an uplift of 104% (£4.0 million) over the carrying value of the Trust at 31 December 2014. The sale SURFHHGVDUHIXOO\UHÁHFWHGLQWKH December 2015 valuation.
| Company | Sector | Geography | Activity | Cost £'000 |
|---|---|---|---|---|
| The Foundry | TMT | 7- | Innovative software provider to creative professionals | |
| A-Plan | Services | 7- | Independent insurance broker | |
| EidosMedia | TMT | Italy | Provider of digital publishing solutions | |
| Eucon | TMT | )GTOCP[ | Provider of automotive parts pricing data | |
| ZitCom | TMT | Nordic region | *QUVKPI CPF ENQWF UQNWVKQPU RTQXKFGT |
|
| New Investments | ||||
| Achilles | TMT | 7- | Cloud-based validation supplier | |
| RPP1 and RPP2 | Renewable energy | Europe | Further capital calls | |
| Other investments | ||||
| Further Investments | ||||
| Total investments on behalf of the Trust | 65,489 |
| Company | Sector | Exit route | Proceeds2 £'000 |
|---|---|---|---|
| SimonsVoss | Industrials | Trade sale | |
| Sporting Index | Consumer & Leisure | Trade sale | |
| Full realisations | |||
| JLA | Services | 4GƂPCPEKPI CPF OKPQTKV[ UCNG |
|
| Zenith | Services | 4GƂPCPEKPI | |
| IRIS | TMT | 4GƂPCPEKPI | |
| Sequel | TMT | 4GƂPCPEKPI | |
| *I%CRKVCN ' .2 |
Fund | Distribution received | |
| RPP1 Fund | Renewable energy | Distribution received | |
| Other | |||
| Partial realisations | |||
| Total realisations on behalf of the Trust | 63,987 |
1 The numbers in this table relate to the Trust's share of underlying transactions. 2 Includes gross revenue received during the year-ended 31 December 2015.
2015 was a busy and productive year at HgCapital. In last year's UHVXOWVZHFRPPHQWHGRQRXUFRQÀGHQFHLQWKHSRU WIROLRDQG this has been borne out with strong trading performance in the portfolio during the year and a number of realisations over the period for good value. We believe both trends are set to continue.
The latter part of 2015 saw the signed exits of both Casa Reha and TeamSystem (both of which completed in 2016) alongside the partial realisation of JLA; all at attractive uplifts to the December 2014 carrying value. During the year we completed DWRWDORIIRXUUHDOLVDWLRQVDQGÀYHUHFDSLWDOLVDWLRQVDFURVVWKH entire HgCapital portfolio and we see a number of further opportunities to return capital during 2016.
Given heightened ratings and a relatively buoyant market for realisations, we are continuing our focus on returning capital to our investors. To this end, a reasonable amount of thought and work is also going into our exit planning for the rest of 2016 and beyond.
The start to 2016 has seen an extended period of equity market volatility. This, combined with continued speculation on the future growth of China and renewed concerns in relation to the state of the macro-economic environment, has led to a sense of broader uncertainty ahead of the remainder of 2016.
In this type of market environment, we think the clarity of our investment strategy confers a number of clear advantages to a GLVFLSOLQHGEX\HU6SHFLÀFDOO\ZHFRQWLQXHWRIRFXVRQEXVLQHVVHV that provide a business-critical product or service, to a IUDJPHQWHGFXVWRPHUEDVHEHQHÀWLQJIURPVWURQJFRQWUDFWHG or recurring revenues; this should enable us to identify opportunities with the appropriate business model to generate strong risk-adjusted returns for our clients. Companies with these characteristics will eventually provide attractive RSSRU WXQLWLHVIRUVDOHWRERWKWUDGHDQGÀQDQFLDOEX\HUV
Four of our most recent investments, EidosMedia, Sovos Compliance, Kinapse and Citation, are all very clearly differentiated by their predictability and resilience across market cycles. We remain disciplined in terms of the sourcing of our new investments; deliberately and pro-actively pursuing those opportunities where we have built many years of knowledge of the business and a strong relationship with a founder or management team. Citation, for example, was closely tracked by our Services Team for over four years prior to our acquisition of the business in February 2016. Following this investment, HgCapital 7 is almost 60% invested. We will continue to build our medium-term pipeline over the next six months.
The portfolio has continued to trade strongly, delivering double digit revenue and EBITDA growth over the course of the last twelve months. As we enter a period of potential economic and political uncertainty, it is worth remembering that HgCapital's SRU WIROLRJUHZUHYHQXHVDQGSURÀWVHYHU\HDUWKURXJKRXWWKH ODVWÀQDQFLDOFULVLVEHWZHHQDQGZHEHOLHYHWKDWWKH current portfolio is even stronger.
The strong trading performance of our portfolio companies, combined with further opportunities in the medium term to realise investments at attractive valuations, will continue to drive value for shareholders.
Nic Humphries, Managing Partner of HgCapital
| Investments (in order of value) |
Fund | Sector | Location | Year of investment |
Residual cost £'000 |
Total valuation5 £'000 |
Portfolio value % |
Cum. value % |
|
|---|---|---|---|---|---|---|---|---|---|
| 1 | Visma1 | )6 )6 *)6 |
TMT | Nordic Region | 2014 | ||||
| 2 | IRIS | *)6 |
TMT | 7- | 2011 | ||||
| 3 | 6GCO5[UVGO UQNF |
*)6 |
TMT | Italy | 2010 | ||||
| 4 | Zenith | *)6 |
Services | 7- | 2013 | ||||
| 5 | P&I2 | )6 )6 |
TMT | )GTOCP[ | 2013 | ||||
| Achilles3 | *)6 | TMT | 7- | 2008 | |||||
| 7 | JLA | *)6 |
Services | 7- | 2010 | ||||
| 8 | A-Plan | *)6 |
Services | 7- | 2015 | ||||
| 370&+5 | *)6 |
Industrials | )GTOCP[ | 2012 | |||||
| 10 The Foundry | *)6 |
TMT | 7- | 2015 | |||||
| 11 Radius | *)6 |
Services | 7- | 2013 | |||||
| 12 Parts Alliance | *)6 |
Services | 7- | 2012 | |||||
| 13 NetNames | *)6 |
TMT | 7- | 2011 | |||||
| 14 Frösunda | *)6 |
*GCNVJECTG | Nordic Region | 2010 | |||||
| 15 7NNKPM | *)6 |
TMT | France | 2014 | |||||
| Lumesse | *)6 |
TMT | 7- | 2010 | |||||
| 17 Allocate Software | Mercury | TMT | 7- | 2014 | |||||
| 18 EidosMedia | *)6 |
TMT | Italy | 2015 | |||||
| Atlas | *)6 | Services | 7- | 2007 | |||||
| 20 %CUC 4GJC UQNF |
*)6 | *GCNVJECTG | )GTOCP[ | 2008 | |||||
| 21 +PVGNNKƃQ | Mercury | TMT | 7- | 2013 | |||||
| 22 Sequel | Mercury | TMT | 7- | 2014 | |||||
| 23 Teufel | *)6 |
Industrials | )GTOCP[ | 2010 | |||||
| 24 5(% -1'0+) |
*)6 | Industrials | 5YKV\GTNCPF | 2008 | |||||
| 25 Eucon | Mercury | TMT | )GTOCP[ | 2015 | |||||
| Zitcom | Mercury | TMT | Nordic Region | 2015 | |||||
| 27 Mainio Vire | *)6 |
*GCNVJECTG | Nordic Region | 2011 | |||||
| 28 Relay | Mercury | TMT | Rep of Ireland | 2014 | |||||
| Valueworks | Mercury | TMT | 7- | 2012 | 432 | ||||
| Non-active investments4 |
)6 )6 |
||||||||
| 6QVCN DW[QWV KPXGUVOGPVU |
|||||||||
| Other buyout investments | *I' | ||||||||
| Renewable energy | 422422 | Renewable energy | |||||||
| Total investments | 409,629 | 521,830 | 100.0% |
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THE TOP 20 BUYOUT INVESTMENTS representing 87% of the total gross portfolio
Buyout investments are held through limited partnerships, of which the Trust is the sole limited partner. The Trust invests alongside other clients of HgCapital. Typically, the Trust's holding forms part of a much larger majority interest held by HgCapital's clients in buyout investments in companies with an enterprise value ('EV') of between £20 million and £500 million. The Manager's Review generally refers to each transaction in its entirety, apart from the tables GHWDLOLQJWKH7UXVW·VSDUWLFLSDWLRQRUZKHUHLWVSHFLÀFDOO\VD\VRWKHUZLVH
Visma is a leading provider of mission-critical business software and outsourcing services to SMEs in the Nordic region. Headquartered in Norway, the company provides accounting, resource planning and payroll software, outsourced bookkeeping, payroll services and transaction process outsourcing to its customer base of over 400,000 enterprises across the Nordic countries and the Netherlands.
Visma was an early example of HgCapital's focus on recurring revenue, business-critical application software companies serving SMEs and their advisers. The company enjoys high levels of predictable recurring revenue resulting from a subscription payment model. At acquisition in 2006, both organic and DFTXLVLWLRQGULYHQUHYHQXHJURZWKRSSRU WXQLWLHVZHUHLGHQWLÀHG DVZHOODVVLJQLÀFDQWRSSRU WXQLWLHVWRLQFUHDVHSURÀWPDUJLQVWKDW were below those of most of its competitors.
Visma has consistently exceeded our investment plans. In April 2014, following a decision by majority owner KKR to sell part of its original 2010 stake in Visma, HgCapital decided to sell its remaining stake, generating a total return between 2006 and 2014 of 5.2x original cost and a gross IRR of 33%. HgCapital and its clients have re-invested £409 million in the business for a 31% stake via the HgCapital 7 fund and co-investment participation as a co-lead investor alongside KKR and Cinven, valuing the business at a total EV of NOK 21 billion (£2.1 billion). The re-investment LQ9LVPDUHÁHFWVRXUFRQYLFWLRQLQWKHFRQWLQXLQJVWUHQJWKRIWKH business: backing a management team we know well with a strong track record of creating value for investors.
6LQFHRXUÀUVWLQYHVWPHQWLQ9LVPDKDVDFTXLUHGRYHU 85 companies, notably: Mamut ASA, a provider of ERP software to small customers in Norway (2011); Netvisor, a provider of Software as a Service ('SaaS') based ERP software to the Finnish small customer segment (2011); Agda, a Swedish provider of payroll software to SMEs (2012); and InExchange, a Swedish e-invoicing leader (2013). These deals strengthened organic growth from innovation in new products as well as driving margin improvement through a re-organisation of Visma's internal processes. Visma is now positioned as one of the leading and largest SaaS companies in Europe, with over NOK 1.0 billion of pure-SaaS revenues. Visma completed the acquisition of e-conomic, a leading European SaaS accounting solutions provider to SMEs, based in Denmark, in July 2015.
Performance during 2015 has seen strong organic growth in revenue and EBITDA. SaaS growth remained robust, growing at c.31% organically in the key SMB division over the previous year. SaaS currently accounts for c.16% of total revenue. £/NOK foreign exchange movements over 2015 have had a material negative effect on the translation of the period-end valuation into sterling.
\$VDOUHDG\HYLGHQFHG9LVPDKDVDVFDOHDQGJURZWKSURÀOHZKLFK makes it an attractive target to large private equity groups. It could also be an attractive candidate for an initial public offering ("IPO").
| Website: www.visma.com | Visma – Trust's underlying investment through HGT 7 LP, HGT 6 LP and co-investment through HGT LP |
|||||
|---|---|---|---|---|---|---|
| Original enterprise value: NOK 21 billion | Sector | Location | Investment date | Residual cost £'000 |
Unrealised value £'000 |
|
| HgCapital clients' total equity: 36.5% | TMT | Nordic Region | Aug 2014 | 53,659 | 62,894 |
Headquartered in Berkshire, IRIS is a leading provider of business-critical software and services to the UK accountancy market and payroll applications to key business segments, including the UK general practitioners' market.
2YHUKDOIRIDOO8.DFFRXQWDQF\ÀUPVUHO\RQ,5,6WRUXQWKHLU business, and its SME software is used by over 38,500 SMEs and payroll bureaux across a number of sectors, including 50% of UK GP practices and a growing number of UK retailers. 18% of UK businesses pay their employees via IRIS payroll solutions. Additionally over 100,000 SMEs subscribe to IRIS's cloud solutions to run their business.
HgCapital has been an investor in IRIS since 2004, retaining a minority stake following its sale and merger with CSH in 2007, and becoming a majority investor again in 2011 when we separated the two businesses. IRIS is one of the earliest H[DPSOHVRIRXUIRFXVRQEXVLQHVVFULWLFDOVRIWZDUHÀUPV operating in attractive, predictable end-markets. IRIS operates a business model with a high proportion of revenues coming from subscriptions, and high customer retention rates, driven by consistent regulatory updates and additional features as part of their subscription. The investment decision was based on the potential for organic growth and acquisition-led consolidation opportunities in the sector.
7KHFRPSDQ\LVDFKLHYLQJVWURQJRUJDQLFUHYHQXHDQGSURÀW growth through a combination of market share gains, price optimisation, and the on-going development of new solutions to sell into the existing customer base.
Furthermore, the UK accountancy and SME software markets remain fragmented, offering additional acquisition opportunities. IRIS has always been at the forefront of providing the most innovative products to its customers, and will continue to invest in new technology to meet all of its customers' needs. In addition we think there is substantial upside by developing or acquiring SaaS products to target adjacent markets.
IRIS has been successful in broadening its addressable market by expanding its offering, both by organic product development and by acquisition. The company has also successfully established a Cloud Division to sell SaaS products to UK accountants and SMEs and has invested in an HR software business, to broaden its offering to cover all of an SME's back RIÀFHQHHGV,Q\$XJXVW,5,6ZDVUHFDSLWDOLVHGRQWKHEDFN of its strong trading performance.
The business is performing well with strong organic revenue growth in all of the company's divisions. The Cloud Division FRQWLQXHVWRUHFHLYHVLJQLÀFDQWLQYHVWPHQWDVZHEHOLHYHWKLVLV an attractive market with long term growth potential. IRIS is on track to deliver double digit core revenue and EBITDA growth in year-ending April 2016.
,5,6ZRXOGEHDQDWWUDFWLYHDFTXLVLWLRQWDUJHWWRDÀQDQFLDOEX\HU due to its strong organic growth, margins, cash conversion and UHFXUULQJUHYHQXH,WZRXOGDOVRUHSUHVHQWDVWURQJVWUDWHJLFÀW with a number of trade players.
| Website: www.iris.co.uk |
|---|
| Original enterprise value: £425 million |
| HgCapital clients' total equity: 74.1% |
| Sector | Location | Investment date | Residual cost £'000 |
Unrealised value £'000 |
|---|---|---|---|---|
| TMT | UK | Dec 2011 | 25,598 | 56,376 |
TeamSystem is a leading provider of business-critical, regulatory driven software products to accountants, HR professionals and SMEs in Italy. Headquartered in Pesaro, the company has a large DQGGLYHUVLÀHGEDVHRIFFXVWRPHUV,WKDVRIÀFHV across Italy and employs over 1,700 people. In December 2015 HgCapital agreed to sell TeamSystem to Hellman and Friedman. As part of the deal, HgCapital will roll over a small minority stake in the business and retain a seat on the board.
HgCapital sought to apply its experience in more mature PDUNHWVRIEXVLQHVVFULWLFDOEDFNRIÀFHVRIWZDUHLQWKH1RUGLF region, UK and Germany) to a leader in a less developed market. Italy is characterised by a high level of frequently changing regulation and lower penetration of dedicated purpose software. TeamSystem is highly predictable due to its business-critical nature, strong customer loyalty and a large, fragmented customer base.
Alongside organic growth, management has increased its cross-selling of products to the existing client base through the use of add-on modules such as reporting, analytics and payroll. The potential to complete a number of add-on acquisitions of FRPSOHPHQWDU\EXVLQHVVHVLQ,WDO\ZDVLGHQWLÀHGDWDFTXLVLWLRQ
6HYHUDOLPSURYHPHQWSURMHFWVZHUHLGHQWLÀHGSRVWDFTXLVLWLRQ including: enhanced reporting and pricing, a revised product strategy, cash collection and working capital improvement, investment in the M&A process and sourcing new ways to grow the micro-SME customer base.
,Q7HDP6\VWHPFRPSOHWHGLWVGHEWUHÀQDQFLQJWKURXJKWKH issue of a public bond, lowering borrowing costs and providing ÀQDQFLDOÁH[LELOLW\IRU0 \$
The focus on M&A has led to the completion of eleven acquisitions, most recently in 2014, the acquisitions of ACG from IBM and Il Sole Software in a carve-out from its parent company. 7KHVHDFTXLVLWLRQVVLJQLÀFDQWO\LQFUHDVH7HDP6\VWHP·VSUHVHQFHLQ the SME and professional services markets, and it is considering further product-led M&A targets.
TeamSystem continues to win market share and grow. The business has achieved 7% organic growth in sales over 2014 to 2015, despite a weak macro-economic backdrop, as WKHEHQHÀWVIURPV\QHUJLHVIURPWKHDFTXLVLWLRQVVWDU WHG to come through. TeamSystem's cloud offering continues to gain traction, generating high double-digit growth. The long-term market outlook is positive as management implements a number of successful initiatives to further drive growth, and continues the integration of Il Sole and ACG.
In March 2016, HgCapital completed the sale of a majority interest in TeamSystem to Hellman & Friedman. This transaction resulted in cash proceeds to the Trust of £39.0 million, representing an uplift of 34% (£11.4 million) over the carrying value of £33.7 million in the NAV of the Trust at 31 December 2014, when combined with the stake of £6.1 million retained in the business.
| Website: www.teamsystem.com | TeamSystem – Trust's underlying investment through HGT 6 LP | |||||
|---|---|---|---|---|---|---|
| Original enterprise value: €562 million | Sector | Location | Investment date | Residual cost £'000 |
Unrealised value £'000 |
|
| HgCapital clients' total equity: 46.2% | TMT | Italy | Sep 2010 | 24,432 | 45,078 |
Zenith is the largest independent vehicle leasing business in the UK. It was formed in March 2014 through the merger of Zenith Vehicle Contracts and the Leasedrive Group.
Headquartered in Leeds, with full-service operations in both Solihull and Wokingham, the combined group has over 500 employees and provides end-to-end automotive solutions IRFXVHGRQFRQWUDFWKLUHVKRU WWHUPKLUHDQGÁHHWPDQDJHPHQW services to customers across the UK. The company operates a ÁHHWRIRYHUYHKLFOHVDQGIRFXVHVRQVHUYLQJEOXHFKLS customers, principally as sole supplier.
=HQLWKKDVVWURQJFRUHSURÀWDELOLW\DOLJQHGZLWKGRXEOHGLJLW UHYHQXHJURZWKDQGKLJKFDVKÁRZFRQYHUVLRQ,WRIIHUVD business-essential service to a largely fragmented customer base, with a high customer retention rate. In addition to growing its FRUHFRQWUDFWKLUHÁHHWZHEHOLHYHVXEVWDQWLDOJURZWKFDQEH DFKLHYHGLQWKHHPHUJLQJVDODU\VDFULÀFHPDUNHWSODFHLQWKH8. The merger was driven by the highly complementary nature of WKHWZREXVLQHVVHVDQGWKHSRWHQWLDOWRFUHDWHVLJQLÀFDQW economies of scale as a larger group.
In addition to supporting core customer growth, there is the RSSRUWXQLW\IRUVLJQLÀFDQWLPSURYHPHQWLQRSHUDWLQJDQGÀQDQFLQJ HIÀFLHQF\WKURXJKWKHHQKDQFHGVFDOHDIIRUGHGE\WKHPHUJHU This platform should also enable further strategic M&A, where HgCapital's experience in buy-and-build and the company's ÁH[LEOHFDSLWDOVWUXFWXUHPDNHV=HQLWKDFRPSHOOLQJDFTXLUHU
Leasedrive was acquired by HgCapital in December 2013, and we subsequently completed the acquisition of Zenith in February 2014. At the beginning of March 2014, Zenith and Leasedrive began operating as a single entity. The integration RIWKHWZRFRPSDQLHVKDVJRQHZHOOZLWKVLJQLÀFDQW synergies realised.
In April 2015, Zenith was recapitalised on the back of its strong trading performance, returning c. 45% of the original investment made to clients.
HgCapital continues to support management to drive the value of the investment through potential bolt-on acquisition opportunities DQGE\LPSURYLQJRSHUDWLRQDODQGÀQDQFLDOHIÀFLHQF\
The integration of Zenith and Leasedrive is now complete and has delivered synergies in line with expectations. The combined business has continued to see strong revenue and EBITDA growth into 2016 and is ahead of budget on both metrics as we approach Zenith's year-end.
We believe that the combination of largely contracted growth, KLJKFDVKÁRZFRQYHUVLRQDQGDSURYHQSODWIRUPIRU0 \$ZLOO make Zenith an attractive opportunity for both trade and ÀQDQFLDOEX\HUV
| Website: www.zenith.co.uk | |||
|---|---|---|---|
| --------------------------- | -- | -- | -- |
Original enterprise value: £337 million
HgCapital clients' total equity: 65.2%
| Sector | Location | Investment date | Residual cost £'000 |
Unrealised value £'000 |
|---|---|---|---|---|
| Services | UK | Dec 2013 | 16,245 | 37,293 |
Headquartered in Wiesbaden, Germany, P&I is a leading supplier of payroll and HR-related software to mid-market companies and the public sector in Germany, Austria and Switzerland. The company serves more than 15,000 customers. The business offers software for the management of payroll, workforce, time management and human capital management.
It typically serves "Mittelstand" businesses with 200–5,000 employees, across a range of industries, as well as medium-sized and large public sector customers. It employs almost 400 people ZLWKRIÀFHVLQ\$XVWULD6ZLW]HUODQG6ORYDNLDDQGWKH1HWKHUODQGV and it has partners in nine additional European countries.
3 ,GLVSOD\VVSHFLÀFFKDUDFWHULVWLFVWKDW+J&DSLWDOORRNVIRULQ its portfolio companies: a scalable business model with a broad, GLYHUVLÀHGFXVWRPHUEDVHVWURQJFXVWRPHUOR\DOW\DQGD VLJQLÀFDQWVKDUHRIUHFXUULQJUHYHQXHVGULYHQE\RQJRLQJ regulatory changes.
P&I is highly rated among its customers for the quality of its products. The organisation (particularly the sales force) is HIIHFWLYHDQGKLJKO\HIÀFLHQW
HgCapital continues to see attractive long-term growth in the European payroll and transactional HR sector for leading, innovative players. We will support P&I's continued development of its new product offerings, including the addition of further
Human Capital Management functionality, and the strengthening of their recurring revenue base by cross-selling their cloud service technology (P&I Big Data) into their customer base. Furthermore, we see potential M&A opportunities in the relatively fragmented HR management systems, payroll, time management and expenses market.
With HgCapital's support, P&I has recently acquired a Swiss payroll vendor, Soreco HR. HgCapital is additionally focused on VWUHQJWKHQLQJ3 ,·VÀQDQFLDODQGRSHUDWLQJUHSRU WLQJDVZHOODV GHÀQLQJWKHFRPSDQ\·VIRUZDUGEXVLQHVVSODQ
In 2016, we completed the recapitalisation of P&I, returning to clients 60% of the original investment made in December 2013.
P&I continues to perform well and has seen double-digit growth over the last year. This has been driven by strong sales to both existing and new customers with growth in high margin revenue streams (e.g. licence, maintenance and Big Data) leading to PDUJLQH[SDQVLRQ,QDGGLWLRQ3 ,KDVPDGHVLJQLÀFDQWSURJUHVV in shifting its customer base to its cloud service technology, P&I %LJ'DWDZKLFKLVH[SHFWHGWRIXU WKHULPSURYHHIÀFLHQF\DQG scalability for both P&I and customers.
We believe that the combination of an increase in recurring UHYHQXHVKLJKFDVKÁRZFRQYHUVLRQDQGDVWURQJSURGXFWZLOO EHKLJKO\DWWUDFWLYHDWH[LWIRUERWKWUDGHDQGÀQDQFLDOEX\HUV
| Website: www.pi-ag.com | P&I – Trust's underlying investment through HGT 7 LP and co-investment through HGT LP |
||||
|---|---|---|---|---|---|
| Original enterprise value: €438 million | Sector | Location | Investment date | Residual cost £'000 |
Unrealised value £'000 |
| HgCapital clients' total equity: 84.5% | TMT | Germany | Dec 2013 | 22,101 | 35,993 |
Achilles manages a global network of collaborative industry communities. The business provides a cloud-based service enabling networks of buyers to create industry standards for collecting and validating supplier information. This is made available through the Achilles platform together with search, reporting and risk management tools.
Suppliers join the platform to gain access to the whole community of buyers and information to help them achieve and maintain compliance. Both buyers and suppliers pay annual subscription fees.
7KHYHULÀHGGDWDJDWKHUHGDQGGHOLYHUHGE\$FKLOOHVLVFUXFLDO to support processes around risk management and compliance with regulatory, social responsibility, and health and safety requirements. Achilles currently operates more than FRPPXQLWLHVDFURVVFRXQWULHVLQÀYHFRQWLQHQWV
Website: www.achilles.com
Original enterprise value: £75 million HgCapital clients' total equity: 63.0%
Achilles is a subscription-based network business model with VLJQLÀFDQWUHFXUULQJUHYHQXHVWUHDPV,WLVDOHDGLQJFRPSDQ\LQ supply chain data, with stable growth driven by the increasing need for risk management.
With high levels of contracted revenue, Achilles' position as a global, scalable business model has considerable potential in revenue and margin growth, as well as multiple opportunities for expansion into new geographies and industries.
:HKDYHPDGHDVLJQLÀFDQWLQYHVWPHQWLQWRWKHEXVLQHVVIRFXVHG on the development of their technology, processes and sales to support global growth.
During the course of 2015, Achilles raised a further £40 million RIHTXLW\WRFRQWLQXHWRVLJQLÀFDQWO\HQKDQFHWKHJOREDOVFDODELOLW\ and competitive positioning of the business.
With the considerable transformation of the business that is underway, Achilles is experiencing lower than trend revenue JURZWK\HDURQ\HDU6LJQLÀFDQWLQYHVWPHQWLQWKHFRPSDQ\·V JOREDOLQIUDVWUXFWXUHKDVUHGXFHGSURÀWVLQWKHVKRU WWHUPDQG we would expect margins to rise over the medium-term, as JOREDOHIÀFLHQFLHVDUHDFKLHYHG
There has been strong interest in Achilles from both strategic and private equity buyers and the business's recurring revenue base is likely to maintain this interest throughout the economic cycle. It could also be an attractive IPO candidate.
| Sector | Location | Investment date | Residual cost £'000 |
Unrealised value £'000 |
|---|---|---|---|---|
| TMT | UK | Jul 2008 | 15,218 | 28,061 |
JLA is a leading provider of on-premises laundry services, providing distribution, rental and servicing of commercial laundry machines to the UK SME market, mainly to care homes and small hotels.
The company is also a leading provider of coin operated, commercial machines into accommodation units (e.g. universities, worker accommodation units etc.) which it serves via its Circuit brand.
JLA has extended its offering into catering equipment, which is typically used by its existing customers, as well as the supply of detergents. Further additions to JLA's offering are planned.
JLA enjoyed strong operating performance, including sustained organic growth through the period 2007–2009.
It has a diverse customer base that considers laundry as a mission-critical part of their day-to-day business. With a large proportion of customers in long-term contracts (representing DKLJKOHYHORIUHYHQXHVDQGDJUHDWHUSURSRU WLRQRISURÀWV there are attractive recurring revenues and good visibility of forward revenues.
HgCapital is working alongside management to increase the EHQHÀWRIVHOOLQJQHZSURGXFWVDQGVHUYLFHVWKURXJK-/\$·V existing sales force and service network.
In addition, we plan to continue to make further bolt-on acquisitions, both in the laundry and catering markets.
A number of projects have been initiated covering strategic planning, customer retention and pricing. In addition, management has been strengthened and ten small bolt-on acquisitions of smaller laundry and kitchen equipment companies KDYHEHHQFRPSOHWHGDOOIXQGHGRXWRIIUHHFDVKÁRZ The business now has a dedicated M&A team and the pipeline for further acquisitions is under development.
JLA has continued to experience year-on-year organic sales growth rates of 7–9% driven by growth in the core Total Care and Circuit divisions, which has been supported by the expansion into the catering sector, which now comprises c.25% of group revenue. Going forward, the investment in the catering division and continuing transition of customers to the Total Care offering should affect margins positively.
In December, HgCapital completed the recapitalisation of JLA and the sale of a minority interest to a group of institutional investors, returning £17.3 million of cash proceeds to the Trust. These transactions, together with previous capital realisations, have delivered a 1.8x multiple on original investment whilst retaining 59% of the equity in the company.
HgCapital is focused on positioning JLA as a platform for selling critical asset maintenance services into SMEs. The most likely exit route for JLA is either a secondary sale to a private equity investor or a trade sale. We believe that the long-term recurring nature of contracts coupled with strong customer loyalty will support an attractive exit rating.
| Website: www.jla.com | JLA – Trust's underlying investment through HGT 6 LP | ||||
|---|---|---|---|---|---|
| Original enterprise value: £150 million | Sector | Location | Investment date | Residual cost £'000 |
Unrealised value £'000 |
| HgCapital clients' total equity: 58.8% | Services | UK | Mar 2010 | 3,511 | 20,678 |
A-Plan is a leading UK-based distributor of motor and household insurance policies to SMEs and individuals. It also specialises in a number of high net worth and commercial niches, and in providing policies for foreign speaking customers. The company currently operates over 70 high street branches nationwide, and serves over 580,000 policyholders.
7KH6HUYLFHV7HDPLGHQWLÀHGWKHLQVXUDQFHEURNLQJVXEVHFWRU as attractive for potential investment in 2011, as it is characterised by businesses with high levels of recurring revenues, providing a non-discretionary purchase for customers, ZLWKKLJKFDVKÁRZVDQGRSSRU WXQLWLHVIRUEROWRQ0 \$\$3ODQ ZDVLGHQWLÀHGDVSDU WRIWKLVPDUNHWPDSSLQJH[HUFLVHDQGKDG been tracked by the Services Team for three years prior to our investment in the business. The company has a personal, service-oriented approach leading to best-in-class levels of customer satisfaction driving high retention rates and low customer acquisition costs due to a high referral rate.
HgCapital intends to support A-Plan's experienced management through organic growth of its current business volumes in the existing branches and assisting with the roll-out of new branches. There are additionally potential opportunities for further growth through selective M&A and new product lines.
On-going and future projects include: sales and marketing initiatives such as direct mail campaigns and improved technology; strengthening of the management team; and development of the M&A capability.
A-Plan continues to perform in line with plan in all key areas with revenue and EBITDA growth verses prior year of 11% and 10% respectively. Principal KPIs are also in line with budget, with c.80% renewal rates and 8% new business growth.
A-Plan appeals to many buyer groups, including a trade or ÀQDQFLDOEX\HU7KHFRPSDQ\FRXOGDOVREHRILQWHUHVWWR yield investors or, when it reaches critical size, an IPO might be feasible.
Website: www.aplan.co.uk
Original enterprise value: £270 million
HgCapital clients' total equity: 72.2%
| Sector | Location | Investment date | Residual cost £'000 |
Unrealised value £'000 |
|---|---|---|---|---|
| Services | UK | Apr 2015 | 14,573 | 19,013 |
QUNDIS is a leading provider of sub-metering devices in Germany and Italy, within the independent measurement service provider segment and the housing industry. It also has meaningful presences in other countries, including the Czech Republic, Russia, Turkey, France and Spain. Further internationalisation plays an important part in QUNDIS' value creation.
The company was created in 2008 from the merger of QVEDIS (previously part of Siemens) and KUNDO SystemTechni. It currently has c.270 employees. The company supplies a comprehensive range of sub-metering devices used to measure, collect and transmit consumption-dependent data for heating and water usage on a unit level.
481',6KDVDUREXVWEXVLQHVVPRGHOEHQHÀWWLQJIURPD UHFXUULQJDQGSUHGLFWDEOHUHYHQXHVWUHDP\$VLJQLÀFDQWSURSRUWLRQ of sales are replacement-related, driven by continuous upgrades to better technology meters and more advanced read-out solutions; the remainder are based on new installations, driven by increasing market regulation across Europe.
HgCapital is supporting management in its expansion strategy. This includes building on QUNDIS' technological expertise in the area of remote, cloud-based read-out solutions and further establishing and strengthening QUNDIS' presence in emerging sub-metering markets in adjacent European countries. Further value will be FUHDWHGWKURXJKFRVWHIÀFLHQFLHVVPDU WPHWHULQJVROXWLRQVDQG the growing demand to effectively address energy savings.
Management has been strengthened and internal processes have been improved. The company consolidated its production facilities into a single modern site in 2013, allowing for additional FDSDFLW\WRGULYHLQWHUQDWLRQDOJURZWKDQGSURÀWDELOLW\WKURXJK LQFUHDVHGHIÀFLHQF)XU WKHUPRUHDKLJKO\DGYDQFHGJDWHZD\ solution has been developed for a great range of applications and superior product features compared with the competition.
2015 was an encouraging year for QUNDIS. It has further broadened its customer base in the core markets of Germany and Italy and has built strong platforms to exploit the markets in France and Spain. Furthermore, it has established itself has a clear technology leader, providing some of the most advanced read-out solutions in the industry. Political turmoil in the large potential markets of Russia and Turkey is still holding back QUNDIS' full potential. A broadening of the customer base in the core markets of Germany and Italy is lessening exposure to political instability in other markets.
There has been a strong appetite from a number of strategic buyers looking to diversify their product portfolio. Also, the large market opportunity, robust business model, the positioning as a leading solution provider in the sub-metering sector and the DVVRFLDWHGPDUNHWRSSRU WXQLWLHVZLOOGULYHLQWHUHVWIURPÀQDQFLDO investors looking for assets in this growing market segment.
| Website: www.qundis.com | QUNDIS – Trust's underlying investment through HGT 6 LP | ||||
|---|---|---|---|---|---|
| Original enterprise value: €151 million | Sector | Location | Investment date | Residual cost £'000 |
Unrealised value £'000 |
| HgCapital clients' total equity: 85.0% | Industrials | Germany | May 2012 | 12,540 | 18,180 |
The Foundry is a leading global developer of computer graphics, high-end visual effects ("VFX") and 3D design software for the design, visualisation and entertainment industries. The company ZDVIRXQGHGLQDQGLVKHDGTXDUWHUHGLQ/RQGRQZLWKRIÀFHV in Manchester, Los Angeles and Silicon Valley; it has more than 2,000 customers in over 100 countries and employs c. 270 people. 7KHÀUPKDVVHWWKHGHIDFWRVWDQGDUGLQWKHÀOPSRVW production VFX space with its NUKE product. In 2012, the company acquired MODO, a 3D modelling product that gained the company access to the gaming and design segments. Since WKHDFTXLVLWLRQ7KH)RXQGU\KDVJURZQ02'2VLJQLÀFDQWO\E\ funding development projects in the design sector.
HgCapital has known the company for several years and this investment is in line with our sector-focused approach of investing in leading global providers of vertical market application software. The Foundry shares many of the characteristics that we look for, providing an excellent platform for growth across DGLYHUVLÀHGFOLHQWEDVHDQGDFRPPLWPHQWWRLQQRYDWLRQ The Foundry is rich in intellectual property and positioned well against favourable segment trends that could allow for an upside return to be achieved through a number of new business initiatives. We see potential from continuing to leverage world-class products in new segments.
HgCapital will work closely with the management team to help the business accelerate its high rate of organic growth, in particular the on-going development of disruptive technologies GULYLQJFUHDWLYHFRQWURODQGSURGXFWLRQHIÀFLHQF+J&DSLWDOZLOO also work with The Foundry, with the aim of identifying value accretive M&A to support the business and its management in building a global software champion.
In December 2015 we appointed a new CEO and CFO, who are both well equipped to lead the business in its next phase of growth. We are currently working with management to implement new price models and launch a number of specialist products for the industrial design sector.
In 2015 The Foundry saw strong double digit growth in the core product NUKE. MODO had a more challenging year, with billings on target but revenue recognition impacted by a number of large customer-funded development projects.
We believe The Foundry will be an attractive acquisition target WRERWKWUDGHDQGÀQDQFLDOEX\HUVJLYHQLWVUREXVWRUJDQLF revenue growth, high EBITDA margins and large market share.
| Website: www.thefoundry.co.uk | |
|---|---|
Original enterprise value: £200 million
HgCapital clients' total equity: 82.9%
| Sector | Location | Investment date | Residual cost £'000 |
Unrealised value £'000 |
|---|---|---|---|---|
| TMT | UK | May 2015 | 17,177 | 17,514 |
Radius was established by merging Nair & Co. with High Street Partners. The company provides tailored solutions for fast growing companies that are looking to expand into international markets. Radius sets up the required international entities and integrates legal, accounting, payroll, tax and human resources services to ease the process of international expansion. It is headquartered in Bristol, and has over 900 employees based in RIÀFHVLQ8.,QGLDWKH866LQJDSRUH-DSDQDQG&KLQD
Although it is based in the UK, most of the company's revenues are denominated in US dollars; accordingly, the company is valued in US dollars.
2XU6HUYLFHV7HDPKDGSUHYLRXVO\LGHQWLÀHGDFFRXQWDQF\DQG trust/administrative services as a core focus area and the acquisition of Radius illustrates HgCapital's approach to making repeatable investments in its target sectors. We have a demonstrable track record of identifying and working with leading technology-enabled service companies to achieve sustainable growth.
Radius has all the characteristics that we look for in an investment: it is a provider of mission-critical services to a fragmented FXVWRPHUEDVHEHQHÀWLQJIURPDUHSHDWUHYHQXHPRGHODQG utilising a scalable technology platform to generate high margins.
HgCapital intends to support continued organic growth of the business through increased customer wins. We will target various operational and system improvements with potential for
HIÀFLHQF\JDLQVHJELOOLQJLQYRLFLQJSURFHVVHV DQGPDUJLQ expansion. Further M&A opportunities to expand the service offering or global scope of the business as well as potential SURGXFWH[WHQVLRQVKDYHEHHQLGHQWLÀHG
\$GGLWLRQDOO\ZHVHHDVLJQLÀFDQWRSSRU WXQLW\IRUWKHEXVLQHVVWR be re-rated following fundamental improvements in the business model and processes.
HgCapital is working with Radius to strengthen the management team, processes and systems, evaluate M&A opportunities, support integration and review professional services billing.
Radius has continued to grow through a period of substantial change, with the integration progressing as planned. In the \HDUWRGDWHWKHWKLUGTXDU WHURIWKHÀQDQFLDO\HDUVDZ recurring revenues 6% ahead of prior year on an organic basis. We also completed a small acquisition in Brazil to aid our delivery in this complex jurisdiction. We have invested in the infrastructure of the merged group, to yield operational improvements, and synergies continue to materialise, with more VWLOOWRFRPHLQWKHQH[WÀQDQFLDO\HDU\$VDUHVXOWRIWKLV investment for growth, the valuation continues to be impacted in the short-term.
:HEHOLHYHWKDWWKHPDUJLQDQGVDOHVJURZWKSURÀOHRI5DGLXV ZLOOVXSSRU WDQ,32ZKHQWKHFRPSDQ\KDVUHDFKHGVXIÀFLHQW scale. However, we would also consider a sale to another ÀQDQFLDOLQYHVWRU
| Website: www.radiusworldwide.com | Radius – Trust's underlying investment through HGT 6 LP | |||||
|---|---|---|---|---|---|---|
| Original enterprise value: \$280 million | Sector | Location | Date of investment |
Residual cost £'000 |
Unrealised value £'000 |
|
| HgCapital clients' total equity: 82.0% | Services | UK | Aug 2013 | 17,966 | 17,378 |
The Parts Alliance is a UK buying group for aftermarket car parts distributors. It currently consists of twelve parts distributors and DFHQWUDORUJDQLVDWLRQZKLFKDFWVDVD´YLU WXDOKHDGRIÀFHµ supplying the distributors with a full suite of central services such as national sales and marketing, IT, and procurement. To date, we have completed the acquisition of ten distributors in the group and we continue to be in active discussions with the owners of several further companies. Our intention is to build a strong national player which we believe will be attractive to a range RISRWHQWLDOWUDGHDQGÀQDQFLDOEX\HUV
The £5.2 billion UK car parts market is amongst the most fragmented in Europe, with c. 1,500 participants, and is characterised by greater levels of owner-management. We believe several market, regulatory and commercial catalysts will encourage consolidation of this sector in both the UK and Europe, which will offer a number of interesting investment opportunities and exit options. So far, we have invested c. £70 million of client capital with all of the previous owners reinvesting between 10% and 20% of their proceeds; as a result, we take some comfort that the founder/key man risk in these WUDQVDFWLRQVKDVEHHQPLWLJDWHGDQGWKDWWKH\KDYHFRQÀGHQFH in the commercial logic behind our investment thesis.
We intend to create value in the investment in three ways:
i) improving gross margin with better procurement, category management and more effective pricing;
In addition to M&A, the management team is focused on growing sales and improving the online offering, and an emphasis on professionalising the group's business processes. This includes: improving gross margins through pricing and category management; implementing EBITDA margin LPSURYHPHQWVE\LQFUHDVHGHIÀFLHQFLHVDQGKDUPRQLVLQJ management information systems.
Despite a challenging market for the sector, the group has GHPRQVWUDWHGUHVLOLHQWWUDGLQJVLQFHRXUÀUVWLQYHVWPHQWLQ :KLOVWLQYHVWPHQWLQWKHFRVWEDVHKDVGHSUHVVHGSURÀWVLQWKH VKRU WWHUP3DU WV\$OOLDQFHLVQRZEHQHÀWLQJIURPVFDOHDQG experiencing strong organic growth in its core markets.
We believe the national footprint created by the roll-up of the Parts Alliance will appeal to potential US and European trade parties. Moreover, the fragmented nature of the market and the roll-out model inherent in a branch-based business model should DGGLWLRQDOO\DSSHDOWRÀQDQFLDOVSRQVRUVDQGWUDGHEX\HUVDOLNH This is evidenced by recent M&A activity in the sector.
| Website: www.thepartsalliance.com |
|---|
| Original enterprise value: £44 million |
| HgCapital clients' total equity: 77.9% |
| Sector | Location | Date of investment |
Residual cost £'000 |
Unrealised value £'000 |
|---|---|---|---|---|
| Services | UK | Aug 2012 | 10,495 | 12,557 |
NetNames is one of the leading European providers of online brand protection and internet domain name management services. The company provides outsourced management of companies' key online intellectual property assets – their domains and online brands.
The online channel is increasingly important for companies' corporate and marketing activities. NetNames offers a single point of contact for brand protection across all online environments and management of internet domain names in all jurisdictions. The company offers a level of automation, expertise, infrastructure and quality of service which is hard for its customers to replicate internally. NetNames has long-term relationships with c. 2,500 medium to large sized companies across a wide range of industries.
NetNames is a leader in a strong growth sector, fundamentally driven by increasing corporate internet usage and a growing appreciation of the value of online brands. The company has a proven track record of organic growth and has supplemented its performance through a number of accretive acquisitions to grow its product offering, geographic reach and customer base. The business enjoys a high degree of recurring revenue from a diverse customer base and strong cash generation.
:HVHHVLJQLÀFDQWRSSRU WXQLW\WRVXSSRU WJURZWKDFFHOHUDWLRQ through investment in marketing, sales and M&A. We also see opportunities to improve margins through operational leverage and improvements in systems and operational structure.
The management team has been strengthened with a new CEO, COO and CFO and a number of new second-tier managers. These changes have been accompanied by the business working to integrate a number of legacy systems and improve the HIÀFLHQF\RILWVRSHUDWLRQVDQGVDOHVIRUFH\$QXPEHURI programmes in these areas, and to improve customer satisfaction, are under way. In 2012, the company completed the sale of its non-core Managed Hosting division for £25 million to a trade buyer; the proceeds were partly used to pay down debt. Investment into branding and marketing is showing early positive signs, and M&A to broaden the international footprint and customer base of the business has been successfully executed.
NetNames has continued to show satisfactory levels of organic growth in revenue and EBITDA on a constant currency basis. +RZHYHUVDZWKHEXVLQHVVVLJQLÀFDQWO\LPSDFWHGE\WKH weakening of the euro against sterling and this could continue to be DFKDOOHQJHIRUWKHUHPDLQGHURI1HW1DPHV·ÀQDQFLDO\HDU\$ QXPEHURIÀQDQFLDODQGVWUDWHJLFLQLWLDWLYHVDUHXQGHUZD\WRPLWLJDWH H[SRVXUHWRWKHVHÁXFWXDWLRQVJRLQJIRUZDUGLQFOXGLQJDOLJQPHQWRI WKHFRVWEDVHWRUHÁHFWWKHPL[RIUHYHQXHVE\FXUUHQF\
We believe that NetNames will be attractive to a number of strategic buyers who are looking to broaden their product range into a core, growing area of the legal, intellectual property and PDUNHWLQJVXSSRU WVSDFH,WVVLJQLÀFDQWPDUNHWRSSRU WXQLW\ robust business model and growth record will drive interest from investors looking for a cash generative asset in a fast growing market.
| Website: www.netnames.com | NetNames – Trust's underlying investment through HGT 6 LP | ||||
|---|---|---|---|---|---|
| Original enterprise value: £146 million | Sector | Location | Date of investment |
Residual cost £'000 |
Unrealised value £'000 |
| HgCapital clients' total equity: 76.0% | TMT | UK | Dec 2011 | 14,249 | 12,503 |
HgCapital Trust plc Annual Report & Accounts 2015
Frösunda is one of the leading Swedish providers of care for individuals with learning disabilities, severe physical disabilities or psychological / behavioural issues. It offers personal assistance, elderly care, schools and youth rehabilitation. Frösunda is driven by strong humanistic values and the goal of offering its customers the highest possible quality of life.
Headquartered in Solna, Sweden, Frösunda employs around 9,000 staff and cares for approximately 2,500 people across Sweden.
Frösunda has a reputation for being a very high quality operator in its markets and enjoys strong advocacy amongst customers and employees.
Sweden has one of the strongest economies in Europe and commits to providing high quality healthcare to its citizens. HgCapital is supporting Frösunda in continuing to focus on TXDOLW\FDUHFRPELQHGZLWKRSHUDWLRQDOÁH[LELOLW\
+J&DSLWDOLVZRUNLQJZLWKPDQDJHPHQWWRPDLQWDLQSURÀWDEOH growth against the background of political change. We are reviewing small potential add-ons in existing business areas.
In September 2014, the Individual and Family business in Norway was successfully divested, with the consideration used to pay down debt.
)U|VXQGD·VUHYHQXHZDVÁDWLQDVWKHEXVLQHVVIRFXVHG LQWHUQDOO\RQRSHUDWLRQVDQGLPSURYLQJHIÀFLHQF\ZKLFKPHDQW that EBITDA grew substantially, and ahead of budget, despite continuing margin pressure, especially in Assistance.
The role of privately-owned companies in welfare provision is a closely-monitored political topic in Sweden and the future continues to be uncertain. However, we would expect Frösunda to have multiple roads to exit, potentially through one of the ODUJH6ZHGLVKKHDOWKFDUHFRQJORPHUDWHVDQRWKHUÀQDQFLDOEX\HU or by coming to market via an IPO, given sentiment towards healthcare assets following the IPOs of Capio and Attendo.
Original enterprise value: SEK 1.5 billion
HgCapital clients' total equity: 90.4%
| Sector | Location | Date of investment |
Residual cost £'000 |
Unrealised value £'000 |
|---|---|---|---|---|
| Healthcare | Nordic Region | Jun 2010 | 14,296 | 12,309 |
Frösunda – Trust's underlying investment through HGT 6 LP
Ullink is a leading global provider of electronic trading DSSOLFDWLRQVDQGFRQQHFWLYLW\WRWKHÀQDQFLDOFRPPXQLW\ Founded in 2001, Ullink has grown quickly to become a global provider of multi-asset trading technology and infrastructure. Ullink's clients include over 150 of the world's top-tier banks from 39 countries and ranges from tier 1 global sell-side brokers to regional niche specialists across Europe, North America and \$VLD3DFLÀF7KHEXVLQHVVLVKHDGTXDU WHUHGLQ)UDQFHDOWKRXJKF 60% of staff and c. 90% of revenue are outside the country.
Capital markets software has been a strong focus for HgCapital since 2002 and the TMT Team has followed Ullink since 2009. This investment is in line with HgCapital's sector-focused approach of investing in leading global providers of vertical market application software. Ullink shares many of the core characteristics that HgCapital looks for: an excellent platform for growth; a VXEVFULSWLRQUHYHQXHPRGHODQGDGLYHUVLÀHGFOLHQWEDVH
Ullink has differentiated itself by offering a more modern and ÁH[LEOHWUDGLQJV\VWHPDWDORZHUFRVWRIRZQHUVKLS+J&DSLWDO will help the business accelerate its strong organic growth, through increased new customer wins resulting from investment into the sales and marketing functions. We also believe there is an opportunity to consolidate smaller competitors in electronic trading, with the acquisition of NYFIX and Metabit in September DVLJQLÀFDQWVWHSIRUZDUG7KHDFTXLVLWLRQKDVJLYHQWKH
business a broad international footprint and offers substantial up-sell opportunities in the combined customer base as well as HIÀFLHQFLHVLQWKHFRVWEDVHDQGVKDUHGLQIUDVWUXFWXUH
The acquisition of NYFIX and Metabit was transformative for Ullink and more than doubled the revenue of the business. Since then, the management team has been focused on the integration of the three businesses and realising the strategic value of the combination.
A new senior management team was appointed during the year. Didier Bouillard has joined as CEO and Graham Howell as CFO. Bertrand Sciard has also moved from interim CEO to Chairman.
The NYFIX acquisition has been well integrated into Ullink and its performance has substantially improved in comparison to that prior to acquisition.
Investment was made in late 2015 into sales and research and development to drive increased revenue growth in 2016. We DQWLFLSDWHVHHLQJWKHEHQHÀWRIWKLVZLWKVWURQJHUUHYHQXHDQG EBITDA growth. Ullink is highly cash generative and we therefore expect net debt to continue to reduce.
8OOLQNKDVDÀQDQFLDOSURÀOHWKDWLVYHU\DWWUDFWLYHZLWKKLJKOHYHOV of recurring revenue and organic growth, a scalable cost base and a high rate of cash conversion. We believe the company will EHDQDWWUDFWLYHDFTXLVLWLRQIRUERWKWUDGHDQGÀQDQFLDOEX\HUV
| Website: www.ullink.com | Ullink – Trust's underlying investment through HGT 7 LP | ||||
|---|---|---|---|---|---|
| Original enterprise value: \$329 million | Sector | Location | Date of investment |
Residual cost £'000 |
Unrealised value £'000 |
| HgCapital clients' total equity: 63.8% | TMT | France | Mar 2014 | 10,034 | 12,071 |
Lumesse is a leading European provider of strategic HR software (for recruiting, talent management and learning) to medium and large enterprises. It operates in 16 countries with around 700 employees. The business operates a subscription-based model (more than 60% of total revenue) with a consulting element.
Strategic HR software for large enterprises is a long-term growth market. As an online SaaS provider, Lumesse experiences high levels of recurring revenue, leading to higher predictability as this product segment takes share from traditional 'on-premises' based software products. With strong organic sales growth, it was LGHQWLÀHGWKDWIXU WKHULQYHVWPHQWZRXOGGULYHPDUNHWVKDUH revenue and strategic value over the longer-term.
Lumesse's management intends to drive subscription revenue growth by capitalising on their leading technology, improving cross-selling and up-selling into the existing customer base, as well as acquiring new customers in what remains an underpenetrated market. There is also an increased focus on HIÀFLHQF\DQGVFDOHHIIHFWVZLWKDYLHZWRLPSURYLQJPDUJLQVDQG strengthening the company's international presence, both organically and through bolt-on acquisitions.
Two bolt-on acquisitions, Mr. Ted (recruitment software) and Edvantage (learning management software), have been made and added to the Lumesse range of services. Lumesse's senior PDQDJHPHQWWHDPKDVEHHQVWUHQJWKHQHGZLWKVLJQLÀFDQWQHZ hires over the past two years.
Supported by HgCapital, management initiated a strategic review in 2014 in order to bring the business back to growth. This has led to a partnership with Salesforce.com to build an HR talent platform.
The business has performed behind expectations; however, operating performance has stabilised in 2015 compared with the previous year, as the professional service business (which was the main reason for the negative trend) has plateaued. Key recurring revenues products continue to see growth.
We believe that the reorganisation of the business in late 2015 (which will continue in some areas into 2016) will improve current performance in the medium-term and that the IXQGDPHQWDOO\KHDOWK\PDUNHWSURYLGHVVLJQLÀFDQWRSSRU WXQLW\IRU future growth.
There is high demand for SaaS companies, providing multiple options for exit. Lumesse has attracted strong interest from trade buyers, but we will also consider a sale to another private equity buyer in due course.
| Website: www.lumesse.com | ||
|---|---|---|
Original enterprise value: €110 million
HgCapital clients' total equity: 81.8%
| Sector | Location | Date of investment |
Residual cost £'000 |
Unrealised value £'000 |
|---|---|---|---|---|
| TMT | UK | May 2010 | 22,135 | 11,904 |
HgCapital invested in Allocate Software plc through a public-toprivate transaction from the Alternative Investment Market ('AIM') at the end of 2014.
Allocate Software is a leading provider of complex workforce and risk management software to the healthcare and other regulated industries. Allocate's mission is to be the leading international provider of SaaS healthcare workforce management software, delivering enhanced value for healthcare systems WKURXJKVLJQLÀFDQWVDYLQJVDQGLPSURYHGRXWFRPHV
Its core product is used for workforce rostering and associated FRPSOLDQFHHJPRQLWRULQJDQGUHSRU WLQJRQVDIHVWDIÀQJOHYHOV Allocate's products address a clear and increasingly pressing need IRULPSURYHGVWDIIHIÀFLHQF\SDWLHQWVDIHW\DQGUHJXODWRU\ compliance. The business is a leader in its segments in the UK and Sweden and has a strong and growing position in Australia.
Allocate has many of the characteristics that HgCapital looks for in an investment: a leader in its sector with strong growth SRWHQWLDOZLWKDODUJHDQGHQJDJHGFOLHQWEDVHDQGDVLJQLÀFDQW and predictable proportion of repeat business.
HgCapital will support Allocate's management team in delivering continued development and sustainable growth of its product portfolio and in improving operational effectiveness. HgCapital will also support Allocate's management to identify potential bolt-on acquisitions and exploring further international growth beyond its existing markets. Further, there are a number of direct opportunities for collaboration between Allocate and other technology businesses within HgCapital's existing investment portfolio which will provide the potential for additional growth.
A member of the Mercury Team was seconded into the business full time for the initial part of the investment period to support the company in its development of a detailed bottom-up operational 'blueprint' for delivery of the investment plan.
In September 2015, Dr Sati Sian was appointed CEO. Dr Sian brings over 30 years of global experience in the healthcare information, software and services sectors. With Dr Sian, the board of Allocate has completed a revised business planning process which we expect to accelerate growth in the business over the coming years.
The business has also completed an initiative to increase the level of recurring revenue: they reached c.70% of the total in WKHÀQDQFLDO\HDUXSIURPFDWWKHWLPHRILQYHVWPHQW
\$OORFDWHUHSRU WHGRUJDQLFUHYHQXHJURZWKLQWKHÀQDQFLDO\HDU to 31 May 2015 of 12%. The growth continued to the calendar year end, with 11% revenue growth for the period to December, DQGUHFXUULQJUHYHQXHJURZLQJVLJQLÀFDQWO\DKHDGRIWKLV
Allocate operates in a valuable, niche market and we would H[SHFWWKLVWRDWWUDFWERWKWUDGHDQGÀQDQFLDOEX\HUV An IPO might also be an option.
| Website: www.allocatesoftware.com | Allocate Software – Trust's underlying investment through HgCapital Mercury D LP | ||||
|---|---|---|---|---|---|
| Original enterprise value: £93 million | Sector | Location | Date of investment |
Residual cost £'000 |
Unrealised value £'000 |
| HgCapital clients' total equity: 80% | TMT | UK | Dec 2014 | 5,890 | 8,849 |
EidosMedia is a leading global provider of digital publishing solutions. EidosMedia's digital publishing platform, Méthode, is used daily by 30,000 journalists across more than 600 titles globally to create, customise and deliver content across print and web media channels. This software enables real-time creation and customisation of various media (text, images and video), PHGLDZRUNÁRZPDQDJHPHQWDQGFURVVPHGLDSXEOLVKLQJ Headquartered in Milan, EidosMedia serves a global client base, with a focus on Western Europe and the US, with more than 80% of its revenues being generated outside of Italy.
EidosMedia displays many of the business model characteristics that we look for: it has a strong global position, providing high quality, business-critical software; a loyal customer base; a track record of consistent year-on-year revenue and EBITDA growth, prior to and through the global downturn; and a talented management team who remain committed to the business.
HgCapital will work alongside EidosMedia's management team to explore growth through targeted M&A; a shift to a more recurring revenue model; further customer wins in the media DQGÀQDQFLDOVHUYLFHV&RQWHQW0DQDJHPHQWPDUNHWH[SDQVLRQ to new client verticals; and through cross-selling of new products in the media market.
Having completed the acquisition in December, EidosMedia is new to the portfolio and HgCapital will be working hard alongside the management to help the company achieve its SRWHQWLDO:HKDYHVSHQWVLJQLÀFDQWWLPHVLQFHWKHDFTXLVLWLRQ getting to know the broader EidosMedia team better and creating alignment on the key drivers of value creation with the management team.
Acquired in early December 2015, it is early days for this investment and trading remains on plan.
EidosMedia could be sold to a strategic buyer looking to acquire a leading Content Management Software system.
Website: www.eidosmedia.com
Original enterprise value: €125 million
HgCapital clients' total equity: 91.7%
| Sector | Location | Date of investment |
Residual cost £'000 |
Unrealised value £'000 |
|---|---|---|---|---|
| TMT | Italy | Dec 2015 | 8,414 | 8,669 |
Atlas is an international provider of competency and compliance learning and software solutions, targeted to meet the requirement of health, safety, environmental and technical training needs of the global oil and gas ('O&G') sector.
7KH2 *OHDUQLQJPDUNHWLVODUJHDQGEHQHÀWVIURPORQJWHUP trends: a growing need for skill and competency training as an ageing workforce retires and increased scrutiny
on health and safety compliance.
Atlas has amassed over 3,000 hours of intellectual propertyprotected learning content, along with innovative customised learning delivered via cloud-based solutions, or learning management systems for remote workers. Atlas provides 1.5 million learning events each year, targeting 300,000+ O&G workers globally. It has a customer base of international companies (BP, Shell, Exxon Mobil, Conoco-Philips) and national entities (Petronas, Qatar Gas and ADNOC) on a recurring basis or through long-term contracts.
The plan is to increase share of revenue from key accounts and to win business outside its core geography (North Sea) by expanding the sales resource and product range. This plan has made progress with over 40% of sales coming from international markets, together with the launch of new competency and Health & Safety training products.
Management has been strengthened across the business, evolving Atlas into a market-driven customer-oriented organisation. Average contract values have risen and innovation has been applied to the products sold and to the processes behind them. Atlas has also strengthened its business model, through long-term contracts with international safety organisations to deliver health and safety training programmes. It is building subscription revenues through its new competency software services and learning management systems. In addition, it is providing bespoke solutions for major O&G projects worldwide, an extension of the in-house development function.
:KLOHWKHRYHUDOO2 *PDUNHWIDFHGVLJQLÀFDQWKHDGZLQGVLQ 2015, Atlas has been able to continue growing. 2015 saw the sales mix skew further towards delivery of high margin proprietary content and technology-enabled learning tools. These initiatives further help to embed Atlas' proposition within its customers. The company has also continued to make good progress in replacing the contribution from historic large contracts with new wins.
Atlas is attracting the attention of two sets of potential acquirers: O&G services companies and other, more generic e-learning vendors.
| Website: www.atlasknowledge.com | Atlas – Trust's underlying investment through HGT LP | ||||||
|---|---|---|---|---|---|---|---|
| Original enterprise value: £25 million | Sector | Location | Date of investment |
Residual cost £'000 |
Unrealised value £'000 |
||
| HgCapital clients' total equity: 61.8% | Services | UK | Nov 2007 | 12,542 | 8,117 |
Founded in 1995, Casa Reha is one of the leading German providers of care services for the elderly and plays an important role in addressing the ageing population and the increasing demand for the delivery of tailored care. The company has a demonstrable track record of operating and opening care homes while simultaneously developing resident-focused services. The Company's current portfolio consists of 70 nursing homes with more than 4,000 employees and cares for c. 10,000 elderly residents. Seven new facilities, with a total capacity of 900 beds, are on course to reach full utilisation, while the company has a portfolio of projects that will deliver a further 782 beds.
Casa Reha operates in a highly fragmented market with multiple opportunities for expansion through organic and acquisitive growth, partly as a result of a market supply and demand LPEDODQFH7KHEXVLQHVVEHQHÀWVIURPDJRRGWHDPRIPRWLYDWHG managers in an industry characterised by weak management. With strong earnings visibility the business is cash-positive in nature and does not require high capital expenditure or working capital to grow.
Overall, the original investment drivers played out, but a QXPEHURIIDFWRUVDGYHUVHO\DIIHFWHGWKHFRPSDQ\·VÀQDQFLDO performance including: economic conditions leading to a lower than expected number of homes opening between 2009 and 2010; the introduction of a minimum wage leading to increased SHUPDQHQWVWDIÀQJFRVWVDVKRU WDJHRIVNLOOHGVWDIIOHDGLQJWR higher agency costs; and a management team that did not VXIÀFLHQWO\DGGUHVVWKHVH
HgCapital has worked closely with the company to rebuild the management team including a new CEO and CFO. A new quality control system was implemented under our ownership and the portfolio team has helped support management with a number of projects to reduce the use of agency staff, and to improve personnel cost management, better recruitment and staff retention levels.
Casa Reha traded well and in line with our expectations in the run-up to the sale to Korian (see below).
The sale of Casa Reha to Euronext-listed Korian, was announced in November 2015. On completion in 2016, the Trust received cash proceeds of £7.8 million. This sale represented an uplift of 104% (£4.0 million) over the carrying value of £3.8 million in the NAV of the Trust at 31 December 2014.
| Website: www.casa-reha.de | |
|---|---|
Original enterprise value: €301 million
HgCapital clients' total equity: 46.1%
| Sector | Location | Date of investment |
Residual cost £'000 |
Unrealised value £'000 |
|---|---|---|---|---|
| Healthcare | Germany | Jan 2008 | 8,990 | 7,770 |
HgCapital's specialist team uses private equity skills to identify and acquire high quality European renewable energy projects ZLWKOLPLWHG*'3ULVNIDYRXUDEOHLQÁDWLRQOLQNVDQGWKHXVHRI proven technologies.
+J&DSLWDO·VÀUVWUHQHZDEOHHQHUJ\IXQGKDVEXLOWDQXPEHURI utility-scale power platforms across Europe, optimising them by using our specialist experience. The Trust committed €21.6 million to the Fund. Following the successful disposal of the entire UK platform, the remaining platforms are:
7KHVHFRQGIXQGUHSOLFDWHVWKHVWUDWHJLHVRIWKHÀUVW7KH7UXVW committed €40 million to the Fund. The second fund's platforms are:
Renewable energy is the fastest growing segment of the European electric power sector and is expected to account for the majority of new European energy asset investment over the next ten years. This growing demand is driven by renewable energy's increasing cost competitiveness, legally binding carbon reduction targets set by the EU, replacement of ageing generation capacity, and the need to increase the security of energy supplies in Europe.
Investment returns are anticipated through a combination of \LHOGGXULQJRSHUDWLRQDQGFDSLWDOJDLQDWUHÀQDQFLQJRUH[LW By bringing individual investments together into platforms, we can enhance value through economies of scale, shared expertise and aggregated generation capacity.
A portfolio of high quality projects has been built on time and on budget and operational performance is ahead of the investment case. However, valuations have been materially reduced by retroactive tariff changes in Spain and depressed power prices in Sweden.
7KHUHDUHRSSRU WXQLWLHVWRJURZVLJQLÀFDQWYDOXHERWKLQWKH Irish wind platform and the Swedish district heating platform.
HgCapital is developing groups of projects based on the platforms shown in the table below. These platforms can then EHUHÀQDQFHGHIÀFLHQWO\RUVROGDVSRU WIROLRVRIFORVHO\UHODWHG SURMHFWVWRLQGXVWU\EX\HUVRUÀQDQFLDOLQYHVWRUV
| Total valuation £'000 |
|
|---|---|
| Irish Onshore Wind | |
| Swedish Onshore Wind | |
| 5YGFKUJ &KUVTKEV *GCVKPI |
|
| 5RCPKUJ *[FTQ |
|
| 7- 5QNCT |
|
| Other | |
| RPP2 Fund | |
| Spanish Solar | |
| Swedish Onshore Wind | 170 |
| Other | 158 |
| RPP1 Fund | |
| Total renewable energy investments | 13,884 |
| Revenue return | Capital return | Total return | |||||
|---|---|---|---|---|---|---|---|
| Notes | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
| )CKPU QP KPXGUVOGPVU IQXGTPOGPV UGEWTKVKGU and liquidity funds |
13 | – | – | ||||
| )CKPU NQUUGU QP RTKQTKV[ RTQƂV UJCTG NQCPU TGEQXGTGF |
|||||||
| HTQO CFXCPEGF VQ )GPGTCN 2CTVPGTU |
D |
– | – | ||||
| Net income | 4 | – | – | ||||
| Other expenses | C |
– | – | ||||
| Net return before ƂPCPEG EQUVU CPF VCZCVKQP |
|||||||
| Finance costs | D |
– | – | ||||
| Net return from ordinary activities before taxation | 18,255 | 21,979 | 47,142 | 32,317 | 65,397 | 54,296 | |
| Taxation on ordinary activities | C |
– | – | ||||
| Net return from ordinary activities after taxation | |||||||
| attributable to reserves | 17,907 | 21,933 | 47,142 | 32,317 | 65,049 | 54,250 | |
| Return per Ordinary share | 10(a) | 47.98p | 58.76p | 126.30p | 86.58p | 174.28p | 145.34p |
The total return column of this statement represents the Trust's income statement. The supplementary revenue and capital return columns CTG-DQVJ-RTGRCTGF-WPFGT-IWKFCPEG-RWDNKUJGF-D[-VJG-#UUQEKCVKQP-QH-+PXGUVOGPV-%QORCPKGU- n#+%o-#NN-TGEQIPKUGF-ICKPU-CPF-NQUUGU-CTGdisclosed in the revenue and capital columns of the income statement and as a consequence no statement of total recognised gains and losses has been presented.
6JG-OQXGOGPVU-KP-TGUGTXGU-CTG-UGV-QWV-KP-PQVG--VQ-VJG-ƂPCPEKCN-UVCVGOGPVU-
All revenue and capital items in the above statement derive from continuing operations.
No operations were acquired or discontinued during the year.
| Notes | 2015 £'000 |
2014 £'000 |
|
|---|---|---|---|
| Fixed asset investments | |||
| 'LTCQRKCLRQÏ?RÏD?GPÏT?JSCÏRFPMSEFÏNPMÍRÏ?LBÏJMQQ | |||
7PSWQVGF KPXGUVOGPVU |
12 | ||
| 2MR?JÏÍVCBÏ?QQCRÏGLTCQRKCLRQ | 428,462 | 359,930 | |
| Current assets – amounts receivable after one year: | |||
| #EETWGF KPEQOG QP ƂZGF CUUGVU |
14 | ||
| Current assets – amounts receivable within one year: | |||
| Debtors | 14 | 707 | |
| 'LTCQRKCLRQÏ?RÏD?GPÏT?JSCÏRFPMSEFÏNPMÍRÏ?LBÏJMQQ | |||
| )QXGTPOGPV UGEWTKVKGU CPF NKSWKFKV[ HWPFU |
15 | ||
| Cash | |||
| Total current assets | |||
| Creditors – amounts falling due within one year | 17 | ||
| Net current assets | 101,561 | 116,988 | |
| Net assets | 530,023 | 476,918 | |
| Capital and reserves: | |||
| Called up share capital | 20 | ||
| Share premium account | 21 | ||
| Capital redemption reserve | 21 | ||
| Capital reserve – unrealised | 21 | ||
| Capital reserve – realised | 21 | ||
| Revenue reserve | 21 | ||
| Total equity shareholders' funds | 530,023 | 476,918 | |
| Net asset value per Ordinary share | 10(b) | 1,420.0p | 1,277.8p |
| Ordinary shares in issue at 31 December | 37,324,698 | 37,324,698 |
6JG-ƂPCPEKCN-UVCVGOGPVU-QP-RCIGU--VQ--YGTG-CRRTQXGF-CPF-CWVJQTKUGF-HQT-KUUWG-D[-VJG-\$QCTF-QH-&KTGEVQTU-QP--/CTEJ--CPF-UKIPGF-QP-KVU-DGJCNH-D[-
Roger Mountford, Chairman
Richard Brooman, Director
| Notes | 2015 £'000 |
2014 £'000 |
|
|---|---|---|---|
| 0GV ECUJ KPƃQY HTQO QRGTCVKPI CEVKXKVKGU |
7 | ||
| Investing activities: | |||
| 2WTEJCUG QH ƂZGF CUUGV KPXGUVOGPVU |
12 | ||
| 2TQEGGFU HTQO VJG UCNG QH ƂZGF CUUGV KPXGUVOGPVU |
12 | ||
| Purchase of government securities and liquidity funds | 15 | ||
| 5CNGTGFGORVKQP QH IQXGTPOGPV UGEWTKVKGU CPF NKSWKFKV[ HWPFU |
15 | ||
| 0GV ECUJ KPƃQY QWVƃQY HTQO KPXGUVKPI CEVKXKVKGU |
|||
| Financing activities: | |||
| 2TQEGGFU HTQO TGRC[OGPV QH NQCP HCEKNKV[ |
|||
| 5GTXKEKPI QH ƂPCPEG |
|||
| Equity dividends paid | 11 | ||
| 0GV ECUJ QWVƃQY HTQO ƂPCPEKPI CEVKXKVKGU |
|||
| Increase/(decrease) in cash and cash equivalents in the year | 16 | 6,491 | (9,687) |
| Cash and cash equivalents at 1 January | |||
| Cash and cash equivalents at 31 December | 16 | 9,512 | 3,021 |
| Non-distributable | Distributable | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Notes | Share capital £'000 |
Share premium account £'000 |
Capital redemption reserve £'000 |
Capital reserve – unrealised £'000 |
Capital reserve – realised £'000 |
Revenue reserve £'000 |
Total £'000 |
||
| At 31 December 2014 | |||||||||
| Net return from ordinary activities | – | – | – | ||||||
| Equity dividend paid | 11 | – | – | – | – | – | |||
| At 31 December 2015 | 9,331 | 120,368 | 1,248 | 14,023 | 353,107 | 31,946 | 530,023 | ||
| At 31 December 2013 | |||||||||
| Net return from ordinary activities | – | – | – | ||||||
| Equity dividends paid | 11 | – | – | – | – | – | |||
| At 31 December 2014 | 9,331 | 120,368 | 1,248 | (33,390) | 353,378 | 25,983 | 476,918 |
6JG-RTKPEKRCN-CEVKXKV[-QH-VJG-6TWUV-KU-VJCV-QH-CP-KPXGUVOGPV-VTWUV-EQORCP[-6JG-6TWUV-KU-CP-KPXGUVOGPV-EQORCP[-CU-FGƂPGF-D[-5GEVKQP--QH-VJG-%QORCPKGU-#EV--CPF-CP-KPXGUVOGPV-VTWUV-YKVJKP-VJG-OGCPKPI-QH-5GEVKQPU--CPF--QH-VJG-%QTRQTCVKQP-6CZ-#EV-- n%6#o-CPF-KU-TGIKUVGTGF-CU-C-RWDNKE-EQORCP[-KP-'PINCPF-CPF-9CNGU-WPFGT-PWODGT--YKVJ-KVU-TGIKUVGTGF-QHƂEG-CV--/QTG-.QPFQP-4KXGTUKFG-.QPFQP-5'-#2
6JG-ƂPCPEKCN-UVCVGOGPVU-JCXG-DGGP-RTGRCTGF-WPFGT-VJG-JKUVQTKECN-EQUV-EQPXGPVKQP-GZEGRV-HQT-VJG-TGXCNWCVKQP-QH-ƂPCPEKCN-KPUVTWOGPVU-CV-HCKT-XCNWG-CU-RGTOKVVGF-D[-VJG-%QORCPKGU-#EV--CPF-KP-CEEQTFCPEG-YKVJ-CRRNKECDNG-7--NCY-CPF-7--#EEQWPVKPI-5VCPFCTFU- n7--)##2o-KPENWFKPI-(KPCPEKCN-4GRQTVKPI-5VCPFCTF-sn6JG-(KPCPEKCN-4GRQTVKPI-5VCPFCTF-CRRNKECDNG-KP-VJG-7PKVGF--KPIFQO-CPF-4GRWDNKE-QH-+TGNCPFo- n(45o-CPF-YKVJ-VJG-5VCVGOGPV-QH-4GEQOOGPFGF-2TCEVKEGn(KPCPEKCN-5VCVGOGPVU-QH-+PXGUVOGPV-6TWUV-%QORCPKGU-CPF-8GPVWTG-%CRKVCN-6TWUVUo- n5142o-FCVGF-0QXGODGT--#NN-QH-VJG-6TWUVoU-QRGTCVKQPU-CTG-QH-C-EQPVKPWKPI-PCVWTG
6JG-6TWUV-JCU-EQPUKFGTCDNG-ƂPCPEKCN-TGUQWTEGU-CPF-CU-C-EQPUGSWGPEG-VJG-&KTGEVQTU-DGNKGXG-VJCV-VJG-6TWUV-KU-YGNN-RNCEGF-VQ-OCPCIG-KVU-DWUKPGUU-TKUMU-#HVGT-OCMKPI-GPSWKTKGU-VJG-&KTGEVQTU-JCXG-C-TGCUQPCDNG-GZRGEVCVKQP-VJCV-VJG-6TWUV-YKNN-JCXG-CFGSWCVG-TGUQWTEGU-VQ-EQPVKPWGin operational existence for the foreseeable future.
6JG-UCOG-CEEQWPVKPI-RQNKEKGU-RTGUGPVCVKQP-CPF-OGVJQFU-QH-EQORWVCVKQP-CTG-HQNNQYGF-KP-VJGUG-ƂPCPEKCN-UVCVGOGPVU-CU-CRRNKGF-KP-VJG-6TWUVoU-RTGXKQWU-CPPWCN-CWFKVGF-TGRQTV-CPF-CEEQWPVU-JQYGXGT-EGTVCKP-RTGUGPVCVKQPCN-COGPFOGPVU-JCXG-DGGP-OCFG-VQ-EQORN[-YKVJ-VJGrequirements of FRS 102.
The Trust entered into four separate partnership agreements with general and founder partners in May 2003 (subsequently revised in ,CPWCT[--,CPWCT[--,WN[--CPF-/CTEJ--CV-GCEJ-RQKPV-CP-KPXGUVOGPV-JQNFKPI-NKOKVGF-RCTVPGTUJKR-YCU-GUVCDNKUJGF-VQ-ECTT[-QP-VJG-DWUKPGUU-QH-CP-KPXGUVQT-YKVJ-VJG-6TWUV-DGKPI-VJG-UQNG-NKOKVGF-RCTVPGT-KP-VJGUG-GPVKVKGU
6JG-RWTRQUG-QH-VJGUG-RCTVPGTUJKRU-*)6-.2-*)6--.2-*I%CRKVCN-/GTEWT[-&-.2-CPF-*)6--.2- VQIGVJGT-VJGnRTKOCT[-DW[QWV-HWPFUo-KU-VQ-JQNF-CNN-VJG-6TWUVoU-KPXGUVOGPVU-KP-RTKOCT[-DW[QWVU-7PFGT-VJG-RCTVPGTUJKR-CITGGOGPVU-VJG-6TWUV-OCFG-ECRKVCN-EQOOKVOGPVU-KPVQ-VJG-RTKOCT[-DW[QWV-HWPFU-YKVJ-VJG-TGUWNV-VJCV-VJG-6TWUV-PQY-JQNFU-FKTGEV-KPXGUVOGPVU-KP-VJG-RTKOCT[-DW[QWV-HWPFU-CPF-CP-KPFKTGEV-KPXGUVOGPV-KP-VJG-ƂZGF-CUUGV-KPXGUVOGPVU-VJCV-CTG-JGNF-D[-VJGUG-HWPFU-CU-KV-KU-VJG-UQNG-NKOKVGF-RCTVPGT-6JGUG-FKTGEV-KPXGUVOGPVU-CTG-KPENWFGF-WPFGT-ƂZGF-CUUGVinvestments on the balance sheet and in the investment portfolio on page 31. The underlying investments that are held indirectly are included in the overview of investments on page 38.
+P-,WN[--VJG-6TWUV-CESWKTGF-C-FKTGEV-UGEQPFCT[-KPXGUVOGPV-KP-*I%CRKVCN--'-.2- n*I'-.2o-QPG-QH-VJG-RCTVPGTUJKRU-VJCV-EQORTKUG-VJG-*I%CRKVCN--(WPF-KP-YJKEJ-VJG-6TWUV-KU-PQY-C-NKOKVGF-RCTVPGT-CNQPIUKFG-QVJGT-NKOKVGF-RCTVPGTU-6JKU-KU-C-FKTGEV-KPXGUVOGPV-KP-VJG-*I%CRKVCN--'-.2-(WPF-CU-UJQYP-QP-VJG-DCNCPEG-UJGGV-CPF-KP-VJG-KPXGUVOGPV-RQTVHQNKQ-QP-RCIG-
6JG-6TWUV-CNUQ-GPVGTGF-KPVQ-RCTVPGTUJKR-CITGGOGPVU-YKVJ-VJG-RWTRQUG-QH-KPXGUVKPI-KP-TGPGYCDNG-GPGTI[-RTQLGEVU-D[-OCMKPI-ECRKVCN-EQOOKVOGPVU-CNQPIUKFG-QVJGT-NKOKVGF-RCTVPGTU-KP-*I-4GPGYCDNG-2QYGT-2CTVPGTU-.2- n*I-422-.2o-CPF-*I%CRKVCN-4GPGYCDNG-2QYGT-2CTVPGTU--%-.2- n*I-422-.2o- VQIGVJGT-VJGnTGPGYCDNG-HWPFUo-6JGUG-CTG-FKTGEV-KPXGUVOGPVU-KP-VJG-TGPGYCDNG-HWPFU-CU-UJQYP-QP-VJG-DCNCPEG-UJGGVand in the investment portfolio on page 31.
2TKQTKV[-RTQƂV-UJCTG-CPF-QVJGT-QRGTCVKPI-GZRGPUGU-RC[CDNG-D[-RCTVPGTUJKRU-KP-YJKEJ-VJG-6TWUV-KU-C-OKPQTKV[-NKOKVGF-RCTVPGT-CTG-TGEQIPKUGF-CUunrealised losses in the capital return section of the income statement and are not separately disclosed within other expenses.
7PFGT-VJG-VGTOU-QH-VJG-RTKOCT[-DW[QWV-HWPF-NKOKVGF-RCTVPGTUJKR-CITGGOGPVU- n.2#Uo-GCEJ-IGPGTCN-RCTVPGT- UGG-PQVG--KU-GPVKVNGF-VQ-CRRTQRTKCVG-CU-C-ƂTUV-EJCTIG-QP-VJG-PGV-KPEQOG-QH-VJG-HWPFU-CP-COQWPV-GSWKXCNGPV-VQ-KVU-RTKQTKV[-RTQƂV-UJCTG- n225o-6JG-6TWUV-KU-GPVKVNGF-VQ-PGV-KPEQOG-HTQO-VJG-HWPFU-CHVGT-RC[OGPV-QH-VJG-225
+P-[GCTU-KP-YJKEJ-VJGUG-HWPFU-JCXG-PQV-[GV-GCTPGF-UWHƂEKGPV-PGV-KPEQOG-VQ-UCVKUH[-VJG-225-VJG-GPVKVNGOGPV-KU-ECTTKGF-HQTYCTF-VQ-VJG-HQNNQYKPI-[GCTU-6JG-225-KU-RC[CDNG-SWCTVGTN[-KP-CFXCPEG-GXGP-KH-KPUWHƂEKGPV-PGV-KPEQOG-JCU-DGGP-GCTPGF-9JGTG-VJG-ECUJ-COQWPV-RCKF-GZEGGFU-VJG-PGV-KPEQOG-CP-KPVGTGUV-HTGG-NQCP-KU-CFXCPEGF-VQ-VJG-IGPGTCN-RCTVPGT-D[-VJGUG-RTKOCT[-DW[QWV-HWPFU-YJKEJ-KU-HWPFGF-XKC-C-NQCP-HTQO-VJG-6TWUV-5WEJ-NQCP-KU-QPN[-TGEQXGTCDNG-HTQO-VJG-IGPGTCN-RCTVPGT-D[-CP-CRRTQRTKCVKQP-QH-PGV-KPEQOG-WPVKN-PGV-KPEQOG-KU-GCTPGF-PQ-XCNWG-KUattributed to this loan.
(WTVJGTOQTG-WPFGT-VJG-RTKOCT[-DW[QWV-HWPFUo-.2#U-GCEJ-HQWPFGT-RCTVPGT- UGG-PQVG--KU-GPVKVNGF-VQ-C-ECTTKGF-KPVGTGUV-FKUVTKDWVKQP-QPEG-EGTVCKP-RTGHGTTGF-TGVWTPU-CTG-OGV-6JG-.2#U-UVKRWNCVG-VJCV-VJG-RTKOCT[-DW[QWV-HWPFUo-ECRKVCN-ICKPU- QT-PGV-KPEQOG-CHVGT-RC[OGPV-QH-VJG-ECTTKGF-KPVGTGUV-CTG-FKUVTKDWVGF-VQ-VJG-6TWUV
6JG-225-RCKF-HTQO-PGV-KPEQOG-KU-EJCTIGF-VQ-VJG-TGXGPWG-CEEQWPV-KP-VJG-KPEQOG-UVCVGOGPV-YJGTGCU-225-RCKF-CU-CP-KPVGTGUVHTGG-NQCP-KH-CP[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.
The accounting policies below apply to the recognition of income by the primary buyout funds.
+PVGTGUV-KPEQOG-QP-PQPGSWKV[-UJCTGU-CPF-ƂZGF-KPEQOG-UGEWTKVKGU-KU-TGEQIPKUGF-QP-C-VKOG-CRRQTVKQPOGPV-DCUKU-UQ-CU-VQ-TGƃGEV-VJG-GHHGEVKXGyield when it is probable that it will be realised. Premiums paid or discounts received with the acquisition of government securities are amortised over the remaining period up to the maturity date and are recognised in interest income on government securities. Dividends receivable on unlisted equity shares where there is no ex-dividend date and on non-equity shares are brought into account when the Trust's right to receive payment is established.
+PEQOG-HTQO-NKUVGF-GSWKV[-KPXGUVOGPVU-KPENWFKPI-VCZGU-FGFWEVGF-CV-UQWTEG-KU-KPENWFGF-KP-TGXGPWG-D[-TGHGTGPEG-VQ-VJG-FCVG-QP-YJKEJ-VJG-KPXGUVOGPV-KU-SWQVGF-GZFKXKFGPF-9JGTG-VJG-6TWUV-GNGEVU-VQ-TGEGKXG-FKXKFGPFU-KP-VJG-HQTO-QH-CFFKVKQPCN-UJCTGU-TCVJGT-VJCP-ECUJ-FKXKFGPFUthe 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.
All expenses are accounted for on an accruals basis. All administrative expenses are charged wholly to the revenue account.
Dividend distributions to shareholders are recognised as a liability in the year that they are approved unconditionally.
(KPCPEKCN-CUUGVU-CPF-ƂPCPEKCN-NKCDKNKVKGU-CTG-TGEQIPKUGF-KP-VJG-6TWUVoU-DCNCPEG-UJGGV-YJGP-VJG-6TWUV-DGEQOGU-C-RCTV[-VQ-VJG-EQPVTCEVWCNprovisions 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.
)QXGTPOGPV-UGEWTKVKGU-CTG-UJQTVVGTO-KPXGUVOGPVU-OCFG-KP-ƂZGF-TCVG-7--IQXGTPOGPV-UGEWTKVKGU-%CUJ-EQORTKUGU-EWTTGPV-CEEQWPVU-JGNF-YKVJ-DCPMU
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. 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.
+PEQOG-VCZGU-TGRTGUGPV-VJG-UWO-QH-VJG-VCZ-EWTTGPVN[-RC[CDNG YKVJJQNFKPI-VCZGU-UWHHGTGF-CPF-FGHGTTGF-VCZ-6CZ-KU-EJCTIGF-QT-ETGFKVGF-KP-VJGincome statement. Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance UJGGV-FCVG-YJGTG-VTCPUCEVKQPU-QT-GXGPVU-VJCV-TGUWNV-KP-CP-QDNKICVKQP-VQ-RC[-OQTG-VCZ-KP-VJG-HWVWTG-QT-VJG-TKIJV-VQ-RC[-NGUU-JCXG-QEEWTTGF-CV-VJG-DCNCPEG-UJGGV-FCVG-6JKU-KU-UWDLGEV-VQ-FGHGTTGF-CUUGVU-QPN[-DGKPI-TGEQIPKUGF-KH-KV-KU-EQPUKFGTGF-OQTG-NKMGN[-VJCP-PQV-VJCV-VJGTG-YKNN-DG-UWKVCDNG-RTQƂVU-HTQO-YJKEJ-VJG-HWVWTG-TGXGTUCN-QH-VJG-WPFGTN[KPI-VKOKPI-FKHHGTGPEGU-ECP-DG-FGFWEVGF-6KOKPI-FKHHGTGPEGU-CTG-FKHHGTGPEGU-DGVYGGP-VJG-6TWUVoU-VCZCDNG-RTQƂVU-CPF-KVU-TGUWNVU-CU-UVCVGF-KP-VJG-ƂPCPEKCN-UVCVGOGPVU-YJKEJ-CTG-ECRCDNG-QH-TGXGTUCN-KP-UWDUGSWGPV-RGTKQFU
The general principle applied is that investments should be reported at 'fair value' in accordance with Financial Instruments: Recognition CPF-/GCUWTGOGPV- n+#5o-CPF-VJG-+PVGTPCVKQPCN-2TKXCVG-'SWKV[-CPF-8GPVWTG-%CRKVCN- n+2'8o-8CNWCVKQP-)WKFGNKPGU-&GEGODGT--GFKVKQP-9JGTG-TGNGXCPV-VJG-6TWUV-CRRNKGU-VJG-RQNKEKGU-UVCVGF-DGNQY-VQ-VJG-KPXGUVOGPVU-JGNF-D[-*)6-.2-*)6--.2-*)6--.2-CPF-*I%CRKVCN-/GTEWT[-&-.2-KP-QTFGT-VQ-FGVGTOKPG-VJG-HCKT-XCNWG-QH-KVU-KPXGUVOGPVU-KP-VJGUG-NKOKVGF-RCTVPGTUJKRU
Purchases of investments are recognised on a trade date basis. Sales of investments held through the primary buyout funds are recognised CV-VJG-VTCFG-FCVG-QH-VJG-FKURQUCN-5CNGU-HTQO-VJG-KPXGUVOGPVU-KP-*I%CRKVCN--'-.2-CPF-VJG-TGPGYCDNG-GPGTI[-HWPFU-YQWNF-PQTOCNN[-EQPUKUV-QHcapital distributions and these distributions are recognised as a realisation when the right to such distribution is established. Proceeds are OGCUWTGF-CV-HCKT-XCNWG-YJKEJ-KU-TGICTFGF-CU-VJG-RTQEGGFU-QH-UCNG-NGUU-CP[-VTCPUCEVKQP-EQUVU
Quoted:-3WQVGF-KPXGUVOGPVU-CTG-FGUKIPCVGF-CU-JGNF-CV-HCKT-XCNWG-YJKEJ-KU-FGGOGF-VQ-DG-VJGKT-DKF-RTKEG
Unquoted-7PSWQVGF-KPXGUVOGPVU-CTG-CNUQ-FGUKIPCVGF-CU-JGNF-CV-HCKT-XCNWG-CPF-CTG-XCNWGF-WUKPI-VJG-HQNNQYKPI-IWKFGNKPGU
Limited partnership funds-6JGUG-CTG-KPXGUVOGPVU-VJCV-CTG-UGV-WR-D[-C-OCPCIGT-KP-YJKEJ-VJG-6TWUV-JCU-C-FKTGEV-KPXGUVOGPV-DWV-KU-PQV-VJG-UQNG-NKOKVGF-RCTVPGT-CPF-FQGU-PQV-JQNF-C-OCLQTKV[-UJCTG-6JGUG-KPXGUVOGPVU-CTG-XCNWGF-CV-HCKT-XCNWG-DCUGF-QP-VJG-OCPCIGToU-XCNWCVKQP-CHVGT-CP[-CFLWUVOGPV-TGSWKTGF-D[-VJG-&KTGEVQTU
Liquidity funds: 6JGUG-CTG-UJQTVVGTO-KPXGUVOGPVU-OCFG-KP-C-EQODKPCVKQP-QH-ƂZGF-CPFƃQCVKPI-TCVG-UGEWTKVKGU-CPF-CTG-XCNWGF-CV-VJG-EWTTGPVfair value as determined by the manager of the fund. They can be realised at short notice.
Government securities:-6JGUG-CTG-UJQTVVGTO-KPXGUVOGPVU-OCFG-KP-ƂZGF-TCVG-7--IQXGTPOGPV-UGEWTKVKGU-CPF-CTG-XCNWGF-CV-VJG-EWTTGPV-HCKTvalue of the gilt.
"CPGT?RGTCÏÍL?LAG?JÏGLQRPSKCLRQ->KXCVKXG-ƂPCPEKCN-KPUVTWOGPVU-CTG-JGNF-CV-HCKT-XCNWG-CPF-CTG-XCNWGF-WUKPI-SWQVGF-OCTMGV-RTKEGU-HQT-ƂPCPEKCN-KPUVTWOGPVU-VTCFGF-KP-CEVKXG-OCTMGVU-QT-FGCNGT-RTKEG-SWQVCVKQPU-HQT-ƂPCPEKCN-KPUVTWOGPVU-VJCV-CTG-PQV-CEVKXGN[-VTCFGF
\$QVJ-TGCNKUGF-CPF-WPTGCNKUGF-ICKPU-CPF-NQUUGU-CTKUKPI-QP-ƂZGF-CUUGV-KPXGUVOGPVU-ƂPCPEKCN-CUUGVU-CPF-NKCDKNKVKGU-CPF-FGTKXCVKXG-ƂPCPEKCN-KPUVTWOGPVU CTG-VCMGP-VQ-VJG-ECRKVCN-TGUGTXGU
Capital reserve – realised
The following are accounted for in this reserve:
The following are accounted for in this reserve:
| Revenue return | ||
|---|---|---|
| 2015 £'000 |
2014 £'000 |
|
| Income from investments held by HGT LP, HGT 6 LP, HGT 7 LP and HgCapital Mercury D LP: | ||
| 7- WPSWQVGF KPXGUVOGPV KPEQOG |
||
| Foreign unquoted investment income | ||
| Foreign dividend income | – | |
| Other investment income: | ||
| 7- WPSWQVGF KPXGUVOGPV KPEQOG |
103 | 441 |
| Interest from government securities less amortisation of premium | – | |
| Liquidity funds income | ||
| Total investment income | ||
| Total other income | ||
| Total income | 31,077 | 30,519 |
| .PGMPGRWÏNPMÍRÏQF?PCÏAF?PECÏ?E?GLQRÏGLAMKC | ||
| %WTTGPV [GCT *)6 .2 |
||
| %WTTGPV [GCT *)6 .2 |
||
| %WTTGPV [GCT *I%CRKVCN /GTEWT[ & .2 |
||
| %WTTGPV [GCT *)6 .2 |
||
| 2MR?JÏNPGMPGRWÏNPMÍRÏQF?PCÏAF?PECÏ?E?GLQRÏGLAMKC | (9,239) | (6,351) |
| Total net income | 21,838 | 24,168 |
| Total net income comprises: | ||
| Interest | ||
| Dividend | – | |
| Non-interest income | 17 | |
| Total net income | 21,838 | 24,168 |
| Revenue return | |||
|---|---|---|---|
| ?Ï.PGMPGRWÏNPMÍRÏQF?PCÏN?W?@JCÏRMÏ%CLCP?JÏ.?PRLCPQ | 2015 £'000 |
2014 £'000 |
|
| .PGMPGRWÏNPMÍRÏQF?PCÏN?W?@JC | |||
| Current year amount | |||
| .GUU %WTTGPV [GCT NQCPU CFXCPEGF VQ )GPGTCN 2CTVPGTU |
– | ||
| #FF 2TKQT [GCT NQCPU TGEQXGTGF HTQO )GPGTCN 2CTVPGTU |
– | ||
| Current year charge against income | |||
| 2MR?JÏNPGMPGRWÏNPMÍRÏQF?PCÏAF?PECÏ?E?GLQRÏGLAMKC | 9,239 | 6,351 |
6JG-RTKQTKV[-RTQƂV-UJCTG-RC[CDNG-QP-*)6-.2-*)6--.2-*)6--.2-CPF-*I%CRKVCN-/GTEWT[-&-.2-TCPM-CU-C-ƂTUV-CRRTQRTKCVKQP-QH-PGV-KPEQOG-HTQO-KPXGUVOGPVU-JGNF-KP-*)6-.2-*)6--.2-*)6--.2-CPF-*I%CRKVCN-/GTEWT[-&-.2-TGURGEVKXGN[-CPF-KU-FGFWEVGF-RTKQT-VQ-UWEJ-KPEQOG-DGKPI-CVVTKDWVGF-VQ-VJG-6TWUV-KP-KVU-ECRCEKV[-CU-C-.KOKVGF-2CTVPGT-6JG-PGV-KPEQOG-QH-*)6-.2-*)6--.2-*)6--.2-CPF-*I%CRKVCN-/GTEWT[-&-.2-GCTPGF-FWTKPI-VJG-[GCT-CHVGT-VJG-FGFWEVKQP-QH-VJG-RTKQTKV[-RTQƂV-UJCTG-KU-UJQYP-QP-VJG-KPEQOG-UVCVGOGPV-&GVCKNU-QH-VJGUG-CTTCPIGOGPVU-CTG-FKUENQUGF-KP-VJG-&KTGEVQTUo-TGRQTV-QP-RCIG-
6JG-VGTOU-QH-VJG-CDQXG-RTKQTKV[-RTQƂV-UJCTG-CTTCPIGOGPVU-FWTKPI--YGTG
| Fund partnership | Fee per year |
|---|---|
| *)6 .2 |
QP VJG HWPF EQOOKVOGPV FWTKPI VJG KPXGUVOGPV RGTKQF |
| *I%CRKVCN /GTEWT[ & .2 |
QP VJG HWPF EQOOKVOGPV FWTKPI VJG KPXGUVOGPV RGTKQF |
| *)6 .2 |
QH QTKIKPCN EQUV QH KPXGUVOGPVU KP VJG HWPF NGUU VJG QTKIKPCN EQUV QH KPXGUVOGPVU VJCV JCXG DGGP TGCNKUGF QT YTKVVGP QHH RTGXKQWUN[ QH VJG HWPF EQOOKVOGPV FWTKPI VJG KPXGUVOGPV RGTKQF VJCV GPFGF QP 0QXGODGT |
| *)6 .2 |
QP VJG XCNWG QH KPXGUVOGPVU KP HWPF GZENWFKPI EQKPXGUVOGPVU |
+P-CFFKVKQP-RTKQTKV[-RTQƂV-UJCTGU-CTG-RC[CDNG-QP-RCTVPGTUJKRU-YJGTG-VJG-6TWUV-KU-C-OKPQTKV[-NKOKVGF-RCTVPGT-6JGUG-COQWPVU-CTG-KPKVKCNN[-CPFindirectly funded by the Trust 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 | Fee per year |
|---|---|
| *I%CRKVCN ' .2 |
QH QTKIKPCN EQUV QH KPXGUVOGPVU KP VJG HWPF NGUU VJG QTKIKPCN EQUV QH KPXGUVOGPVU that have been realised or written off RTGXKQWUN[ QH VJG HWPF EQOOKVOGPV FWTKPI VJG KPXGUVOGPV RGTKQF VJCV GPFGF QP 0QXGODGT |
| *I%CRKVCN 4GPGYCDNG 2QYGT 2CTVPGTU % .2 |
QH NGUUGT QH XCNWG QT EQUV QH KPXGUVOGPVU RTGXKQWUN[ QH VJG HWPF commitment during the investment period that ended on 27 May 2015 and was UWDUGSWGPVN[ GZVGPFGF VQ &GEGODGT |
| *I 4GPGYCDNG 2QYGT 2CTVPGTU .2 |
QH QTKIKPCN EQUV QH KPXGUVOGPVU KP VJG HWPF NGUU VJG QTKIKPCN EQUV QH KPXGUVOGPVU VJCV JCXG DGGP TGCNKUGF QT YTKVVGP QHH RTGXKQWUN[ QH VJG HWPF EQOOKVOGPV FWTKPI VJG KPXGUVOGPV RGTKQF VJCV GPFGF QP /C[ |
| Capital return | ||||
|---|---|---|---|---|
| @Ï.PGMPGRWÏNPMÍRÏQF?PCÏJM?LQÏRMÏ%CLCP?JÏ.?PRLCPQ | 2015 £'000 |
2014 £'000 |
||
| Movements on loans to General Partners: | ||||
.QUUGU QP EWTTGPV [GCT NQCPU CFXCPEGF VQ )GPGTCN 2CTVPGTU |
– | |||
)CKPU QP RTKQT [GCT NQCPU TGEQXGTGF HTQO )GPGTCN 2CTVPGTU |
– | |||
| 2MR?JÏE?GLQ JMQQCQÏMLÏNPGMPGRWÏNPMÍRÏQF?PCÏJM?LQÏ recovered from/(advanced to) General Partners |
1,020 | (2,435) |
+P-[GCTU-KP-YJKEJ-VJG-HWPFU-FGUETKDGF-KP-PQVG- C-JCXG-PQV-[GV-GCTPGF-UWHƂEKGPV-PGV-KPEQOG-VQ-UCVKUH[-VJG-RTKQTKV[-RTQƂV-UJCTG-VJG-GPVKVNGOGPV-KU-ECTTKGF-HQTYCTF-VQ-VJG-HQNNQYKPI-[GCTU-6JG-RTKQTKV[-RTQƂV-UJCTG-KU-RC[CDNG-SWCTVGTN[-KP-CFXCPEG-GXGP-KH-KPUWHƂEKGPV-PGV-KPEQOG-JCU-DGGP-GCTPGF-9JGTG-VJG-ECUJ-COQWPV-RCKF-GZEGGFU-VJG-PGV-KPEQOG-CP-KPVGTGUV-HTGG-NQCP-KU-CFXCPEGF-VQ-VJG-IGPGTCN-RCTVPGT-D[-VJGUG-RTKOCT[-DW[QWV-HWPFU-YJKEJ-KU-HWPFGF-XKC-C-NQCP-HTQO-VJG-6TWUV-5WEJ-NQCP-KU-QPN[-TGEQXGTCDNG-HTQO-VJG-IGPGTCN-RCTVPGT-D[-CP-CRRTQRTKCVKQP-QH-PGV-KPEQOG-7PVKN-UWHƂEKGPV-PGV-KPEQOG-KU-GCTPGF-PQ-XCNWG-KU-CVVTKDWVGF-VQ-VJKU-NQCP-CPF-JGPEG-CP-WPTGCNKUGF-ECRKVCN-NQUU-KU-TGEQIPKUGF-CPF-TGXGTUGF-KH-UWHƂEKGPV-KPEQOG-KU-UWDUGSWGPVN[-IGPGTCVGF
| Capital return | ||||
|---|---|---|---|---|
| (c) Carried interest to Founder Partners | 2015 £'000 |
2014 £'000 |
||
| Carried interest provision: | ||||
| Current year amount provided | ||||
| Total carried interest charge against capital gains (note 13) | 28,118 | 1,088 |
6JG-ECTTKGF-KPVGTGUV-RC[CDNG-TCPMU-CU-C-ƂTUV-CRRTQRTKCVKQP-QH-ECRKVCN-ICKPU-QP-VJG-KPXGUVOGPVU-JGNF-KP-*)6-.2-*)6--.2-*)6--.2-CPF-*I%CRKVCN-/GTEWT[-&-.2-NKOKVGF-RCTVPGTUJKRU-GUVCDNKUJGF-UQNGN[-VQ-JQNF-VJG-6TWUVoU-KPXGUVOGPVU-CPF-KU-FGFWEVGF-RTKQT-VQ-UWEJ-ICKPU-DGKPI-RCKF-VQ-VJG-6TWUV-KP-KVU-ECRCEKV[-CU-C-.KOKVGF-2CTVPGT-6JG-PGV-COQWPV-QH-ECRKVCN-ICKPU-QH-*)6-.2-*)6--.2-*)6--.2-CPF-*I%CRKVCN-/GTEWT[-&-.2-FWTKPI-VJG-[GCT-CHVGT-VJG-FGFWEVKQP-QH-ECTTKGF-KPVGTGUV-KU-UJQYP-QP-VJG-KPEQOG-UVCVGOGPV
6JG-FGVCKNU-QH-VJG-ECTTKGF-KPVGTGUV-EQPVTCEVU-FKUENQUGF-KP-VJG-&KTGEVQTUo-TGRQTV-QP-RCIG--UVCVGU-VJCV-ECTTKGF-KPVGTGUV-KU-RC[CDNG-QPEG-C-EGTVCKP-NGXGN-QH-TGRC[OGPVU-JCXG-DGGP-OCFG-VQ-VJG-6TWUV-\$CUGF-QP-VJG-TGRC[OGPVU-PQ-ECTTKGF-KPVGTGUV-YCU-RC[CDNG-KP-TGURGEV-QH-VJG-EWTTGPV-QT-RTKQT-ƂPCPEKCN-[GCT-*QYGXGT-KH-VJG-KPXGUVOGPVU-KP-*)6-.2-CPF-*I%CRKVCN--'-.2-CTG-TGCNKUGF-CV-VJG-EWTTGPV-HCKT-XCNWG-CPF-VJGP-FKUVTKDWVGF-VQ-2CTVPGTU-CP-COQWPV-QH--YKNN-DG-RC[CDNG-VQ-VJG-(QWPFGT-2CTVPGT-CPF-VJGTGHQTG-VJG-&KTGEVQTU-JCXG-OCFG-C-RTQXKUKQP-HQT-VJKU-COQWPV-6JG-RTQXKUKQP-CU-CV--&GEGODGT--QH--VJCV-YCU-RTGXKQWUN[-KPENWFGF-KP-%TGFKVQTU-QP-VJG-DCNCPEG-UJGGV-JCU-DGGP-TGENCUUKƂGF-CU-C-RTQXKUKQP-CICKPUV-VJG-KPXGUVOGPV- UGG-VJG-+PXGUVOGPV-2QTVHQNKQ-QP-RCIG--CPF-PQVGU---CPF--CPFthe relevant balances as at 31 December 2014 have been restated accordingly. No provision is required in respect of the Trust's investment in the other fund limited partnerships.
| Revenue return | |||
|---|---|---|---|
| (a) Operating expenses | 2015 £'000 |
2014 £'000 |
|
| %WUVQFKCP OCPCIGOGPV CPF CFOKPKUVTCVKQP HGGU |
537 | ||
| &KTGEVQTUo TGOWPGTCVKQP PQVG |
203 | 215 | |
| Share of aborted deal fees | |||
| Legal and other administration costs | 431 | ||
| Fees payable to the Trust's auditor in relation to the Trust and Fund Limited Partnerships: | |||
| Audit fees | |||
| Tax compliance services | 32 | 31 | |
| Other non-audit services | 3 | ||
| Total fees payable to the Trust's auditor | |||
| Total other expenses | 2,560 | 1,614 |
Share of aborted deal fees includes a provision for on-going transactions that had not completed at the balance sheet date.
| Revenue return | ||||
|---|---|---|---|---|
| (b) Finance costs | 2015 £'000 |
2014 £'000 |
||
| Interest paid | – | 31 | ||
| Non-utilisation fees and other expenses | 383 | 424 | ||
| Arrangement fees | 120 | |||
| 2MR?JÏÍL?LACÏAMQRQ | 1,023 | 575 | ||
| 0CAMLAGJG?RGMLÏMDÏLCRÏPCRSPLÏ@CDMPCÏÍL?LACÏAMQRQÏ?LBÏR?V?RGMLÏ | ||
|---|---|---|
| RMÏLCRÏA?QFÏÎMUÏDPMKÏMNCP?RGLEÏ?ARGTGRGCQ | 2015 | 2014 |
| £'000 | £'000 | |
| 0GV TGVWTP DGHQTG ƂPCPEG EQUVU CPF VCZCVKQP |
||
| Add back: gains on investments held at fair value | ||
| Increase in carried interest provision | ||
| Amortisation of premium on government securities | – | |
| Increase in accrued income from government securities and liquidity funds | ||
| +PETGCUG KP RTGRC[OGPVU CEETWGF KPEQOG CPF QVJGT FGDVQTU |
||
| +PETGCUG FGETGCUG KP ETGFKVQTU |
||
| Taxation received | ||
| ,CRÏA?QFÏGLÎMUÏDPMKÏMNCP?RGLEÏ?ARGTGRGCQ | 11,390 | 17,284 |
6JG-CIITGICVG-TGOWPGTCVKQP-QH-VJG-&KTGEVQTU-HQT-VJG-[GCT-VQ--&GEGODGT--YCU-- --Further information on the Directors' remuneration is disclosed in the Directors' remuneration report on pages 100 and 101.
+P-VJG-QRKPKQP-QH-VJG-&KTGEVQTU-VJG-6TWUV-JCU-EQORNKGF-YKVJ-VJG-TGSWKTGOGPVU-QH-5GEVKQP--CPF-5GEVKQP--QH-VJG-%6#--CPF-YKNN-VJGTGHQTG-DG-GZGORV-HTQO-EQTRQTCVKQP-VCZ-QP-CP[-ECRKVCN-ICKPU-TGƃGEVGF-KP-VJG-ECRKVCN-TGVWTP-FWTKPI-VJG-[GCT-6JG-6TWUV-YKNN-GNGEV-VQ-FGUKIPCVG-CNN-QH-VJG-RTQRQUGF-FKXKFGPF- UGG-PQVG--CU-CP-KPVGTGUV-FKUVTKDWVKQP-VQ-KVU-UJCTGJQNFGTU-6JKU-FKUVTKDWVKQP-KU-VTGCVGF-CU-C-VCZ-FGFWEVKQPagainst taxable income in the revenue return and results in a reduction of corporation tax being payable by the Trust at 31 December 2015.
6JG-UVCPFCTF-TCVG-QH-EQTRQTCVKQP-VCZ-KP-VJG-7--HQT-C-NCTIG-EQORCP[-EJCPIGF-HTQO--VQ--YKVJ-GHHGEV-HTQO--#RTKN--KORN[KPI-CP-GHHGEVKXG-RTQTCVC-VCZ-TCVG-HQT-VJG-EWTTGPV-[GCT-QH-- --*QYGXGT-VJG-VCZ-EJCTIG-KP-VJG-EWTTGPV-CPF-RTKQT-[GCT-YCU-NQYGT-VJCP-VJG-UVCPFCTF-GHHGEVKXG-RTQTCVC-VCZ-TCVG-NCTIGN[-FWG-VQ-VJG-TGFWEVKQP-KP-EQTRQTCVKQP-VCZ-HTQO-VJG-KPVGTGUV-FKUVTKDWVKQP-PQVGF-CDQXG-6JG-GHHGEV-QH-VJKU-CPF-QVJGT-KVGOU-CHHGEVKPI-VJG-VCZ-EJCTIG-KU-UJQYP-KP-PQVG- D-DGNQY
| Revenue return | ||||
|---|---|---|---|---|
| (a) Analysis of charge in the year | 2015 £'000 |
2014 £'000 |
||
| Current tax: | ||||
| 7- EQTRQTCVKQP VCZ |
||||
| Income streaming relief | ||||
| 2TKQT [GCT CFLWUVOGPV |
||||
| %WTTGPV TGXGPWG VCZ EJCTIG ETGFKV HQT VJG [GCT |
||||
| Deferred tax: | ||||
| 1TKIKPCVKQPTGXGTUCN QH VKOKPI FKHHGTGPEGU |
57 | |||
| 6QVCN FGHGTTGF VCZ ETGFKVEJCTIG HQT VJG [GCT PQVG E |
57 | |||
| Total taxation charge on ordinary activities | 348 | 46 |
| Revenue return | ||
|---|---|---|
| (b) Factors affecting current tax charge for the year | 2015 £'000 |
2014 £'000 |
| Net revenue return on ordinary activities before taxation | 18,255 | 21,979 |
| 7- EQTRQTCVKQP VCZ EJCTIG CV VJGTGQP |
||
| Effects of: | ||
| Tax relief from interest distribution | ||
| Non-taxable investment income | – | |
| Impact of change in tax rates | 8 | 34 |
| Prior year excess operating expenses utilised in current year | – | |
| 2TKQT [GCT VCZ CFLWUVOGPV |
||
| Total differences | ||
| Total taxation charge on ordinary activities | 348 | 46 |
| Revenue return | ||||
|---|---|---|---|---|
| (c) Deferred tax | 2015 £'000 |
2014 £'000 |
||
| Deferred tax: | ||||
| Movement in taxable income not recognised in revenue return | 57 | |||
| 2TKQT [GCT CFLWUVOGPV HQT GZEGUU QRGTCVKPI GZRGPUGU |
– | |||
| Prior year excess operating expenses utilised in current year | – | |||
| 6QVCN FGHGTTGF VCZ ETGFKVEJCTIG HQT VJG [GCT PQVG C |
57 | |||
| Deferred tax recoverable: | ||||
| Recoverable deferred tax at 31 December | ||||
| &GHGTTGF VCZ ETGFKV EJCTIG HQT VJG [GCT |
101 | |||
| 4GEQXGTCDNG FGHGTTGF VCZ CV GPF QH [GCT PQVG |
&GHGTTGF-VCZ-CUUGVU-QH-- --CTG-TGEQIPKUGF-CV-C-TCVG-QH-- --KP-TGURGEV-QH-VJG-PGV-COQWPVU-QH-VCZCDNG-KPEQOG-VJCV-JCXG-PQV-[GV-DGGP-TGEQIPKUGF-KP-VJG-TGXGPWG-TGVWTP-DWV-CTG-GZRGEVGF-VQ-DG-TGEQIPKUGF-KP-VJG-TGXGPWG-TGVWTP-HQT-VJG-CEEQWPVKPI-RGTKQF-GPFKPI--&GEGODGT--FWTKPI-YJKEJ-VJG-EQTRQTCVKQP-VCZ-TCVG-YKNN-DG-
| Revenue return | Capital return | |||
|---|---|---|---|---|
| (a) Return per Ordinary share | 2015 | 2014 | 2015 | 2014 |
| Amount (£'000): | ||||
| Return from ordinary activities after taxation | ||||
| Number of Ordinary shares ('000): | ||||
| Weighted average number of shares in issue | ||||
| Return per Ordinary share (pence) | 47.98 | 58.76 | 126.30 | 86.58 |
| Capital return | ||||
| (b) Net asset value per Ordinary share | 2015 | 2014 | ||
| Amount (£'000): | ||||
| Net assets | ||||
| Number of Ordinary shares ('000): | ||||
| Number of Ordinary shares in issue | ||||
| Net asset value per Ordinary share (pence) | 1,420.0 | 1,277.8 |
| Record date | Payment date | 2015 £'000 |
2014 £'000 |
|
|---|---|---|---|---|
| Dividend of 32.0p for the year ended 31 December 2014 | 7 April 2015 | 18 May 2015 | – | |
| 5RGEKCN FKXKFGPF QH R FWTKPI VJG [GCT GPFGF &GEGODGT |
5 September 2014 | 5GRVGODGT |
– | |
| &KXKFGPF QH R HQT VJG [GCT GPFGF &GEGODGT |
4 April 2014 | /C[ |
– | |
| Total equity dividends paid | 11,944 | 17,916 |
6JG-RTQRQUGF-FKXKFGPF-QH--RGPEG-RGT-1TFKPCT[-UJCTG-HQT-VJG-[GCT-GPFGF--&GEGODGT--KU-UWDLGEV-VQ-CRRTQXCN-D[-VJG-UJCTGJQNFGTU-CV-VJG-CPPWCN-IGPGTCN-OGGVKPI-CPF-JCU-PQV-DGGP-KPENWFGF-CU-C-NKCDKNKV[-KP-VJGUG-ƂPCPEKCN-UVCVGOGPVU-6JG-VQVCN-FKXKFGPFU-RC[CDNG-KP-TGURGEV-QH-VJG-ƂPCPEKCN-[GCT-YJKEJ-HQTO-VJG-DCUKU-QH-VJG-TGVGPVKQP-VGUV-CU-UGV-QWV-KP-5GEVKQP--QH-VJG-%6#--CTG-UGV-QWV-DGNQY
| 2015 £'000 |
|
|---|---|
| Revenue available for distribution by way of dividend for the year | |
| Proposed dividend of 40.0p for the year ended 31 December 2015 DCUGF QP 1TFKPCT[ UJCTGU KP KUUWG CV &GEGODGT |
|
| 7PFKUVTKDWVGF TGXGPWG HQT 5GEVKQP RWTRQUGU |
2,977 |
7PFKUVTKDWVGF-TGXGPWG-EQORTKUGU--QH-VJG-GUVKOCVGF-VQVCN-VCZCDNG-KPEQOG-QH-
| 2015 £'000 |
2014 £'000 |
|
|---|---|---|
| 'LTCQRKCLRQÏFCJBÏ?RÏD?GPÏT?JSCÏRFPMSEFÏNPMÍRÏ?LBÏJMQQ | ||
| 7PSWQVGF KPXGUVOGPVU JGNF KP *)6 .2 |
||
| 7PSWQVGF KPXGUVOGPVU JGNF KP *)6 .2 |
||
| 7PSWQVGF KPXGUVOGPVU JGNF KP *)6 .2 |
||
| 7PSWQVGF KPXGUVOGPVU JGNF KP *I%CRKVCN /GTEWT[ & .2 |
||
| Other unquoted investments held by the Trust | ||
| 2MR?JÏÍVCBÏ?QQCRÏGLTCQRKCLRQÏEPMQQÏMDÏA?PPGCBÏGLRCPCQRÏNPMTGQGML | 457,668 | 361,018 |
| %CTTKGF KPVGTGUV RTQXKUKQP PQVG E |
||
| 2MR?JÏÍVCBÏ?QQCRÏGLTCQRKCLRQ | 428,462 | 359,930 |
| 6QVCN ƂZGF CUUGV KPXGUVOGPVU EQPUKUV QH |
||
| Fund limited partnerships | 428,462 | 359,930 |
| 2015 £'000 |
2014 £'000 |
||
|---|---|---|---|
| Opening valuation as at 1 January | |||
| Add back: opening unrealised depreciation – investments | |||
| Add back: opening carried interest provision | – | ||
| Opening book cost as at 1 January | |||
| Movements in the year: | |||
| Additions at cost | |||
| Disposals | – proceeds | ||
| s TGCNKUGF NQUUGUICKPU QP UCNGU |
|||
| Closing book cost of investments | |||
| Add: closing unrealised appreciation | – investments | ||
| Less: closing carried interest provision | |||
| Closing valuation of investments as at 31 December | 428,462 | 359,930 |
6JG-CDQXG-KPXGUVOGPVU-KPENWFG-KPXGUVOGPVU-KP-EQORCPKGU-VJCV-CTG-KPFKTGEVN[-JGNF-D[-VJG-6TWUV-VJTQWIJ-KVU-KPXGUVOGPV-KP-*)6-.2-*)6--.2-*)6--.2-CPF-*I%CRKVCN-/GTEWT[-&-.2-CU-UGV-QWV-KP-PQVG--QP-RCIG--CPF-KPXGUVOGPVU-KP-HWPF-NKOKVGF-RCTVPGTUJKRU-KP-*I%CRKVCN--'-.2-*I-4GPGYCDNG-2QYGT-2CTVPGTU-.2-CPF-*I%CRKVCN-4GPGYCDNG-2QYGT-2CTVPGTU--%-.2-
| Capital return | |||
|---|---|---|---|
| 2015 £'000 |
2014 £'000 |
||
| Realised: | |||
| 4GCNKUGF NQUUGUICKPU QP UCNGU |
s ƂZGF CUUGV KPXGUVOGPVU |
||
| – liquidity funds | |||
| – government securities | – | ||
| Net realised (losses)/gains | (271) | 27,181 | |
| Unrealised: | |||
| 7PTGCNKUGF ICKPU NQUUGU |
s ƂZGF CUUGV KPXGUVOGPVU |
||
| – liquidity funds | 10 | ||
| – government securities | – | ||
| %CTTKGF KPVGTGUV EJCTIG CICKPUV |
ECRKVCN ICKPU PQVG E |
||
| Net unrealised gains | 46,393 | 7,571 | |
| Total gains | 46,122 | 34,752 |
| 2015 £'000 |
2014 £'000 |
|
|---|---|---|
| Amounts receivable after one year: | ||
| #EETWGF KPEQOG QP ƂZGF CUUGVU |
||
| Amounts receivable within one year: | ||
| &GHGTTGF VCZ TGEQXGTCDNG PQVG E |
||
| Prepayments and other accrued income | ||
| Total amounts receivable within one year | 707 | |
| Total debtors | 64,869 | 54,943 |
The Directors consider that the carrying amount of debtors approximates their fair value.
| 2015 £'000 |
2014 £'000 |
|
|---|---|---|
| 'LTCQRKCLRQÏFCJBÏ?RÏD?GPÏT?JSCÏRFPMSEFÏNPMÍRÏ?LBÏJMQQ | ||
| Opening valuation | ||
| Purchases at cost | ||
| Sales and redemptions | ||
| /QXGOGPV KP WPTGCNKUGF ECRKVCN NQUUGUICKPU |
305 | |
| Amortisation of premium on acquisition | – | |
| Accrued income | 204 | 278 |
| 4GCNKUGF ECRKVCN ICKPU NQUUGU |
||
| Closing valuation | 30,835 | 59,859 |
| 2015 £'000 |
2014 £'000 |
|
|---|---|---|
| Analysis and reconciliation of net funds: | ||
| Change in cash | ||
| Net funds at 1 January | ||
| Net funds at 31 December | 9,512 | 3,021 |
| Net funds comprise: | ||
| Cash | 9,512 | 3,021 |
%CUJ-KPENWFGU--JGNF-D[-VJG-HWPF-NKOKVGF-RCTVPGTUJKRU-KP-YJKEJ-VJG-6TWUV-KU-VJG-UQNG-NKOKVGF-RCTVPGT-
| 2015 £'000 |
2014 £'000 |
|
|---|---|---|
| Taxation payable | ||
| .QCP HCEKNKV[ PQVG |
237 | |
| Sundry creditors | ||
| Total creditors | 3,655 | 835 |
The Directors consider that the carrying amount of creditors approximate their fair value.
1P--#WIWUV--VJG-6TWUV-GPVGTGF-KPVQ-C--OWNVKEWTTGPE[-TGXQNXKPI-ETGFKV-UVCPFD[-HCEKNKV[-QP-CP-WPUGEWTGF-DCUKU-6JG-HCEKNKV[-YCU-KPKVKCNN[-CXCKNCDNG-HQT-VJTGG-[GCTU-DGHQTG-KV-YCU-GZVGPFGF-FWTKPI-#WIWUV--VQ--&GEGODGT--+P-&GEGODGT--VJG-HCEKNKV[-YCU-GZVGPFGF-D[-C-HWTVJGT-VJTGG-CPF-C-JCNH-[GCTU-VQ--,WPG--+P-CFFKVKQP-VJG-HCEKNKV[-YCU-KPETGCUGF-VQ--YKVJ-CP-CFFKVKQPCN--CXCKNCDNG-HTQO--&GEGODGT--7PFGT-VJG-HCEKNKV[-CITGGOGPV-VJG-6TWUV-KU-NKCDNG-VQ-RC[-KPVGTGUV-QP-CP[-FTCYP-COQWPV-CV-.+\$14-RNWU-C-OCTIKP-QH--VQ--FGRGPFGPV-QP-VJG-NQCP-VQ-XCNWG-TCVKQ-#-EQOOKVOGPV-HGG-QH--RC-KU-NKCDNG-QP-CP[-WPFTCYP-EQOOKVOGPV-CPF-C-VKEMKPI-HGG-QH--RC-KU-NKCDNG-QP-VJG-KPETGCUG-QH--FWTKPI--QPN[-6JG-HCEKNKV[-YCU-WPFTCYP-CU-CV-VJGend of the year.
1P--0QXGODGT--*I%CRKVCN-/GTEWT[-&-.2-CNQPIUKFG-VJG-QVJGT-*I-/GTEWT[-HWPFU-GPVGTGF-KPVQ-C-HQWT[GCT-OWNVKEWTTGPE[-TGXQNXKPI-VGTO-NQCP-HCEKNKV[-VQ-RTQXKFG-UJQTVVGTO-HWPFU-VQ-HCEKNKVCVG-CESWKUKVKQPU-*I%CRKVCN-/GTEWT[-&-.2-RCTVKEKRCVGF-HQT-CP-COQWPV-QH--7PFGT-VJG-HCEKNKV[-CITGGOGPV-KV-KU-NKCDNG-VQ-RC[-KPVGTGUV-QP-CP[-FTCYP-COQWPV-CV-DCUG-TCVG-RNWU-C-OCTIKP-QH--#-EQOOKVOGPV-HGG-QH--RC-KU-NKCDNG-QP-CP[-WPFTCYP-EQOOKVOGPV-#V-VJG-GPF-QH-VJG-[GCT-VJG-6TWUVoU-KPFKTGEV-UJCTG-QH-COQWPVU-FTCYP-XKC-*I%CRKVCN-/GTEWT[-&-.2-YCU--
The following disclosures relating to the risks faced by the Trust are provided in accordance with International Financial Reporting Standard n(KPCPEKCN-+PUVTWOGPVU-&KUENQUWTGUo-6JG-TGHGTGPEG-VQ-KPXGUVOGPVU-KP-VJKU-PQVG-KU-KP-TGNCVKQP-VQ-VJG-6TWUVoU-FKTGEV-KPXGUVOGPVU-KP-*I-422-.2-*I-422--.2-*I'-.2-CPF-VJG-WPFGTN[KPI-KPXGUVOGPVU-KP-*)6-.2-*)6--.2-*)6--.2-CPF-*I%CRKVCN-/GTEWT[-&-.2-CU-FGUETKDGF-KP-PQVG--QP-RCIG-
The Trust's exposure to valuation risk arises mainly from movements in the value of the underlying investments (held through fund RCTVPGTUJKRU-VJG-OCLQTKV[-QH-YJKEJ-CTG-WPSWQVGF-#-DTGCMFQYP-QH-VJG-6TWUVoU-RQTVHQNKQ-KU-IKXGP-QP-RCIG--CPF-C-DTGCMFQYP-QH-VJG-OQUV-UKIPKƂECPV-WPFGTN[KPI-KPXGUVOGPVU-KU-IKXGP-QP-RCIG--+P-CEEQTFCPEG-YKVJ-VJG-6TWUVoU-CEEQWPVKPI-RQNKEKGU-VJG-KPXGUVOGPVU-KP-HWPF-NKOKVGF-RCTVPGTUJKRU-CTG-XCNWGF-D[-TGHGTGPEG-VQ-VJGKT-WPFGTN[KPI-WPSWQVGF-KPXGUVOGPVU-YJKEJ-CTG-XCNWGF-D[-VJG-&KTGEVQTU-HQNNQYKPI-VJG-+2'8-8CNWCVKQP-)WKFGNKPGU-6JG-6TWUV-FQGU-PQV-JGFIG-CICKPUV-OQXGOGPVU-KP-VJG-XCNWG-QH-VJGUG-KPXGUVOGPVU-CRCTV-HTQO-HQTGKIP-GZEJCPIG-OQXGOGPVU-CU-GZRNCKPGF-DGNQY-VJQWIJ-VJG-DQTTQYKPI-CTTCPIGF-VQ-HWPF-VJGUG-KPXGUVOGPVU-KU-PQTOCNN[-FGPQOKPCVGF-KP-VJG-EWTTGPE[-KP-YJKEJ-VJG-DWUKPGUU-KU-QRGTCVKPI-6JG-6TWUV-JCU-GZRQUWTG-VQ-KPVGTGUV-TCVG-OQXGOGPVU-VJTQWIJ-DCPM-FGRQUKVU-7--IQXGTPOGPV-UGEWTKVKGU-CPFliquidity funds.
+P-VJG-QRKPKQP-QH-VJG-&KTGEVQTU-VJG-FKXGTUKƂGF-PCVWTG-QH-VJG-6TWUVoU-RQTVHQNKQ-UKIPKƂECPVN[-TGFWEGU-VJG-TKUMU-QH-KPXGUVKPI-KP-WPSWQVGFcompanies.
+#5--TGSWKTGU-VJG-6TWUV-VQ-ENCUUKH[-HCKT-XCNWG-OGCUWTGOGPVU-WUKPI-C-HCKT-XCNWG-JKGTCTEJ[-VJCV-TGƃGEVU-VJG-UKIPKƂECPEG-QH-VJG-KPRWVU-WUGF-KPmaking the measurements. The fair value hierarchy has the following levels:
6JG-NGXGN-KP-VJG-HCKT-XCNWG-JKGTCTEJ[-YKVJKP-YJKEJ-VJG-HCKT-XCNWG-OGCUWTGOGPV-KU-ECVGIQTKUGF-KP-KVU-GPVKTGV[-KU-FGVGTOKPGF-QP-VJG-DCUKU-QH-VJG-NQYGUV-NGXGN-KPRWV-VJCV-KU-UKIPKƂECPV-VQ-VJG-HCKT-XCNWG-OGCUWTGOGPV-KP-KVU-GPVKTGV[-(QT-VJKU-RWTRQUG-VJG-UKIPKƂECPEG-QH-CP-KPRWV-KU-CUUGUUGF-CICKPUV-VJG-HCKT-XCNWG-OGCUWTGOGPV-KP-KVU-GPVKTGV[-+H-C-HCKT-XCNWG-OGCUWTGOGPV-WUGU-QDUGTXCDNG-KPRWVU-VJCV-TGSWKTG-UKIPKƂECPV-CFLWUVOGPV-DCUGF-QP-WPQDUGTXCDNG-KPRWVU-VJCV-KU-C-NGXGN--OGCUWTGOGPV-#UUGUUKPI-VJG-UKIPKƂECPEG-QH-C-RCTVKEWNCT-KPRWV-VQ-VJG-HCKT-XCNWG-OGCUWTGOGPV-KP-KVU-GPVKTGV[-TGSWKTGU-LWFIGOGPV-EQPUKFGTKPI-HCEVQTU-URGEKƂE-VQ-VJG-CUUGV-QT-NKCDKNKV[
6JG-FGVGTOKPCVKQP-QH-YJCV-EQPUVKVWVGU-CPnQDUGTXCDNGo-KPRWV-TGSWKTGU-UKIPKƂECPV-LWFIGOGPV-D[-VJG-\$QCTF-6JG-\$QCTF-EQPUKFGTU-QDUGTXCDNG-FCVC-TGNCVKPI-VQ-KPXGUVOGPVU-CEVKXGN[-VTCFGF-KP-QTICPKUGF-ƂPCPEKCN-OCTMGVU-KP-YJKEJ-ECUG-HCKT-XCNWG-KU-IGPGTCNN[-FGVGTOKPGF-D[-TGHGTGPEG-VQ-UVQEM-GZEJCPIG-SWQVGF-OCTMGV-DKF-RTKEGU-CV-VJG-ENQUG-QH-DWUKPGUU-QP-VJG-DCNCPEG-UJGGV-FCVG-YKVJQWV-CFLWUVOGPV-HQT-VTCPUCEVKQP-EQUVUnecessary to realise the asset.
6JG-HQNNQYKPI-VCDNG-CPCN[UGU-YKVJKP-VJG-HCKT-XCNWG-JKGTCTEJ[-VJG-HWPFoU-ƂPCPEKCN-CUUGVU- D[-ENCUU-OGCUWTGF-CV-HCKT-XCNWG-CV--&GEGODGT
| Level 1 £'000 |
Level 2 £'000 |
Level 3 £'000 |
Total £'000 |
|
|---|---|---|---|---|
| 'LTCQRKCLRQÏFCJBÏ?RÏD?GPÏT?JSCÏRFPMSEFÏNPMÍRÏ?LBÏJMQQ | ||||
| 7PSWQVGF KPXGUVOGPVU s +PXGUVOGPV KP *)6 .2 |
– | – | ||
| s +PXGUVOGPV KP *)6 .2 |
– | – | ||
| s +PXGUVOGPV KP *)6 .2 |
– | – | ||
| s +PXGUVOGPV KP *I%CRKVCN /GTEWT[ & .2 |
– | – | ||
| s +PXGUVOGPV KP *I ' .2 |
– | – | ||
| s +PXGUVOGPV KP *I 422 .2 |
– | – | ||
| s +PXGUVOGPV KP *I 422 .2 |
– | – | ||
| – Liquidity funds | – | – | ||
| – Carried interest provision | – | – | ||
| Other assets: | ||||
| Accrued income | – | – | ||
| As at 31 December 2015 | – | 30,835 | 492,624 | 523,459 |
| Level 1 £'000 |
Level 2 £'000 |
Level 3 £'000 |
Total £'000 |
|
|---|---|---|---|---|
| 'LTCQRKCLRQÏFCJBÏ?RÏD?GPÏT?JSCÏRFPMSEFÏNPMÍRÏ?LBÏJMQQ | ||||
| 7PSWQVGF KPXGUVOGPVU s +PXGUVOGPV KP *)6 .2 |
– | – | ||
| s +PXGUVOGPV KP *)6 .2 |
– | – | ||
| s +PXGUVOGPV KP *)6 .2 |
– | – | ||
| s +PXGUVOGPV KP *I%CRKVCN /GTEWT[ & .2 |
– | – | ||
| s +PXGUVOGPV KP *I ' .2 |
– | – | ||
| s +PXGUVOGPV KP *I 422 .2 |
– | – | ||
| s +PXGUVOGPV KP *I 422 .2 |
– | – | ||
| – Liquidity funds | – | – | ||
| – Carried interest provision | – | – | ||
| Other assets: | ||||
| Accrued income | – | – | ||
| As at 31 December 2014 | – | 59,859 | 414,241 | 474,100 |
+PXGUVOGPVU-YJQUG-XCNWGU-CTG-DCUGF-QP-SWQVGF-OCTMGV-RTKEGU-KP-CEVKXG-OCTMGVU-CPF-VJGTGHQTG-ENCUUKƂGF-YKVJKP-NGXGN--KPENWFG-IQXGTPOGPV-UGEWTKVKGU-CPF-CEVKXGN[-VTCFGF-NKUVGF-GSWKVKGU-6JG-6TWUV-FQGU-PQV-CFLWUV-VJG-SWQVGF-DKF-RTKEG-QH-VJGUG-KPXGUVOGPVU
(KPCPEKCN-KPUVTWOGPVU-VJCV-VTCFG-KP-OCTMGVU-VJCV-CTG-PQV-EQPUKFGTGF-VQ-DG-CEVKXG-DWV-CTG-XCNWGF-DCUGF-QP-SWQVGF-OCTMGV-RTKEGU-FGCNGT-SWQVCVKQPU-QT-CNVGTPCVKXG-RTKEKPI-UQWTEGU-UWRRQTVGF-D[-QDUGTXCDNG-KPRWVU-CTG-ENCUUKƂGF-YKVJKP-NGXGN--#U-NGXGN--KPXGUVOGPVU-KPENWFG-RQUKVKQPU-VJCV-CTG-PQV-VTCFGF-KP-CEVKXG-OCTMGVU-CPFQT-CTG-UWDLGEV-VQ-VTCPUHGT-TGUVTKEVKQPU-XCNWCVKQPU-OC[-DG-CFLWUVGF-VQ-TGƃGEV-KNNKSWKFKV[-CPFQT-PQPVTCPUHGTCDKNKV[-YJKEJ-CTG-IGPGTCNN[-DCUGF-QP-CXCKNCDNG-OCTMGV-KPHQTOCVKQP
+PXGUVOGPVU-ENCUUKƂGF-YKVJKP-NGXGN--JCXG-UKIPKƂECPV-WPQDUGTXCDNG-KPRWVU-.GXGN--KPUVTWOGPVU-KPENWFG-RTKXCVG-GSWKV[-CPF-EQTRQTCVG-FGDV-UGEWTKVKGU-#U-QDUGTXCDNG-RTKEGU-CTG-PQV-CXCKNCDNG-HQT-VJGUG-UGEWTKVKGU-VJG-\$QCTF-JCU-WUGF-XCNWCVKQP-VGEJPKSWGU-VQ-FGTKXG-VJG-HCKT-XCNWG-+P-TGURGEV-QH-WPSWQVGF-KPUVTWOGPVU-QT-YJGTG-VJG-OCTMGV-HQT-C-ƂPCPEKCN-KPUVTWOGPV-KU-PQV-CEVKXG-HCKT-XCNWG-KU-GUVCDNKUJGF-D[-WUKPI-TGEQIPKUGF-XCNWCVKQP-OGVJQFQNQIKGU-KP-CEEQTFCPEG-YKVJ-+2'8-8CNWCVKQP-)WKFGNKPGU-(CKT-XCNWG-KU-VJG-COQWPV-HQT-YJKEJ-CP-CUUGV-EQWNF-DG-GZEJCPIGF-DGVYGGP-MPQYNGFIGCDNG-YKNNKPI-RCTVKGU-KP-CP-CTOoU-NGPIVJ-VTCPUCEVKQP
6JGTG-YGTG-PQ-VTCPUHGTU-QH-CUUGVU-HTQO-NGXGN--VQ-NGXGN--QT--NGXGN--VQ-NGXGN--QT--CPF-NGXGN--VQ-NGXGN--QT-
6JG-HQNNQYKPI-VCDNG-RTGUGPVU-VJG-OQXGOGPV-KP-NGXGN--KPXGUVOGPVU-HQT-VJG-[GCT-GPFGF--&GEGODGT--D[-ENCUU-QH-ƂPCPEKCN-KPUVTWOGPV
| Accrued income on investments 2015 £'000 |
Investments in limited partnerships 2015 £'000 |
Total 2015 £'000 |
|
|---|---|---|---|
| Unquoted investments: | |||
| Opening balance | |||
| Purchases | – | ||
| Realisations at 31 December 2014 valuation | |||
| Total gains for the year included in the income statement | |||
| Movement in carried interest provision | – | ||
| Closing unrealised valuation of level 3 investments | 64,162 | 428,462 | 492,624 |
| Total gains for the year included in the income statement for investments held at the end of the year |
'SWKV[-RTKEG-TKUM-KU-VJG-TKUM-QH-C-HCNN-KP-VJG-HCKT-XCNWG-QH-VJG-6TWUVoU-QYPGTUJKR-KPVGTGUVU- EQORTKUKPI-GSWKVKGU-CPF-UJCTGJQNFGT-NQCPU-JGNF-D[-VJG-Trust indirectly through its direct investments in fund limited partnerships. The Board revalues each investment twice each year. The Board manages the risks inherent in the investment portfolio by ensuring full and timely access to relevant information from the Manager. The Board meets regularly and at each meeting reviews the trading performance of the principal underlying investments. If there appears to the \$QCTF-VQ-DG-CP-KORCKTOGPV-KP-XCNWG-DGVYGGP-TGIWNCT-XCNWCVKQPU-KV-ECP-TGXCNWG-VJG-KPXGUVOGPV-6JG-\$QCTF-CNUQ-OQPKVQTU-VJG-/CPCIGToU-EQORNKCPEG-YKVJ-VJG-6TWUVoU-KPXGUVOGPV-QDLGEVKXG-CPF-KPXGUVOGPV-RQNKE[-
The Manager's best estimate of the effect on the net assets and total return due to a reasonably possible change in the value of all WPSWQVGF-UGEWTKVKGU-YKVJ-CNN-QVJGT-XCTKCDNGU-JGNF-EQPUVCPV-KU-CU-HQNNQYU
| Change % |
£'000 | NAV per Ordinary share Pence |
|
|---|---|---|---|
| Sensitivity to equity price risk: | |||
| 7PSWQVGF KPXGUVOGPVU |
| | ±132.0 |
%TGFKV-TKUM-KU-VJG-TKUM-QH-ƂPCPEKCN-NQUU-KP-VJG-GXGPV-VJCV-CP[-QH-VJG-6TWUVoU-OCTMGV-EQWPVGTRCTVKGU-HCKN-VQ-HWNƂN-VJGKT-EQPVTCEVWCN-QDNKICVKQPU-VQ-VJG-6TWUV-6JG-6TWUVoU-ƂPCPEKCN-CUUGVU- GZENWFKPI-ƂZGF-CUUGV-KPXGUVOGPVU-VJCV-CTG-UWDLGEV-VQ-ETGFKV-TKUM-YGTG-PGKVJGT-KORCKTGF-PQT-QXGTFWG-CVthe year-end. The Trust's cash balances were held with the Royal Bank of Scotland 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 VJG-ETGFKV-SWCNKV[-CPF-ƂPCPEKCN-RQUKVKQP-QH-VJGUG-OCTMGV-EQWPVGTRCTVKGU-6JG-ETGFKV-SWCNKV[-QH-VJG-CDQXG-OGPVKQPGF-ƂPCPEKCN-CUUGVU-YCUdeemed satisfactory.
6JG-HCKT-XCNWG-QH-HWVWTG-ECUJƃQYU-QH-C-ƂPCPEKCN-KPUVTWOGPV-JGNF-D[-VJG-6TWUV-OC[ƃWEVWCVG-FWG-VQ-EJCPIGU-KP-OCTMGV-RTKEGU-QH-EQORCTCDNG-DWUKPGUUGU-6JKU-OCTMGV-TKUM-OC[-EQORTKUG-EWTTGPE[-TKUM- UGG-DGNQY-KPVGTGUV-TCVG-TKUM-CPFQT-GSWKV[-RTKEG-TKUM- UGG-CDQXG-6JG-\$QCTF-QH-Directors reviews and agrees policies for managing these risks. The Manager assesses the exposure to market risk when making each KPXGUVOGPV-FGEKUKQP-CPF-OQPKVQTU-VJG-QXGTCNN-NGXGN-QH-OCTMGV-TKUM-QP-VJG-YJQNG-QH-VJG-KPXGUVOGPV-RQTVHQNKQ-QP-CP-QPIQKPI-DCUKU
The Trust is exposed to currency risk as a result of investing in fund partnerships which invest in companies that operate and are therefore XCNWGF-KP-EWTTGPEKGU-QVJGT-VJCP-UVGTNKPI-6JG-XCNWG-QH-VJGUG-CUUGVU-KP-UVGTNKPI-DGKPI-VJG-6TWUVoU-HWPEVKQPCN-EWTTGPE[-ECP-DG-UKIPKƂECPVN[-KPƃWGPEGF-D[-OQXGOGPVU-KP-HQTGKIP-GZEJCPIG-TCVGU-\$QTTQYKPI-TCKUGF-VQ-HWPF-GCEJ-CESWKUKVKQP-KP-UWEJ-EQORCPKGU-KU-PQTOCNN[-FGPQOKPCVGF-KP-VJG-EWTTGPE[-KP-YJKEJ-VJG-DWUKPGUU-KU-QRGTCVKPI-CPF-XCNWGF-VJWU-NKOKVKPI-VJG-6TWUVoU-GZRQUWTG-VQ-VJG-XCNWG-QH-KVU-KPXGUVOGPVU-TCVJGT-VJCP-VJG-ITQUU-XCNWG-(TQO-VKOG-VQ-VKOG-VJG-6TWUV-KU-RCTVKCNN[-JGFIGF-CICKPUV-OQXGOGPVU-KP-VJG-XCNWG-QH-HQTGKIP-EWTTGPE[-CICKPUV-UVGTNKPI-YJGTG-C-OQXGOGPV-KP-GZEJCPIG-TCVG-EQWNF-CHHGEV-VJG-XCNWG-QH-CP-KPXGUVOGPV-CU-GZRNCKPGF-DGNQY-6JG-/CPCIGT-OQPKVQTU-VJG-6TWUVoU-GZRQUWTG-VQforeign currencies and reports to the Board on a regular basis. The following table illustrates the sensitivity of the revenue and capital return HQT-VJG-[GCT-KP-TGNCVKQP-VQ-VJG-6TWUVoU-[GCTGPF-ƂPCPEKCN-GZRQUWTG-VQ-OQXGOGPVU-KP-HQTGKIP-GZEJCPIG-TCVGU-CICKPUV-UVGTNKPI-6JG-TCVGUrepresent the range of movements against sterling over the current year for the currencies listed.
+P-VJG-QRKPKQP-QH-VJG-&KTGEVQTU-VJG-UGPUKVKXKV[-CPCN[UKU-DGNQY-OC[-PQV-DG-TGRTGUGPVCVKXG-QH-VJG-[GCT-CU-C-YJQNG-UKPEG-VJG-NGXGN-QH-GZRQUWTG-EJCPIGU-CU-VJG-RQTVHQNKQ-EJCPIGU-VJTQWIJ-VJG-RWTEJCUG-CPF-TGCNKUCVKQP-QH-KPXGUVOGPVU-VQ-OGGV-VJG-6TWUVoU-QDLGEVKXGU
| Revenue return | Capital return | ||
|---|---|---|---|
| NAV per Ordinary share |
NAV per Ordinary share |
||
| Pence | |||
| – | – | 4.2 | |
| 5.7 | 24.0 | ||
| – | – | 18.5 | |
| 170 | 0.5 | 274 | 0.7 |
| 0.8 | 388 | 1.0 | |
| – | – | 0.3 | |
| 7.0 | 48.7 | ||
| – | – | ||
| – | – | ||
| – | – | ||
| £'000 | Pence | £'000 |
6JG-6TWUV-FQGU-PQV-VTCFG-KP-FGTKXCVKXGU-DWV-OC[-JQNF-VJGO-HTQO-VKOG-VQ-VKOG-VQ-JGFIG-URGEKƂE-GZRQUWTGU-YKVJ-OCVWTKVKGU-FGUKIPGF-VQ-OCVEJ-VJG-GZRQUWTGU-VJG[-CTG-JGFIKPI-+V-KU-VJG-KPVGPVKQP-VQ-JQNF-DQVJ-VJG-ƂPCPEKCN-KPXGUVOGPVU-IKXKPI-TKUG-VQ-VJG-GZRQUWTG-CPF-VJG-FGTKXCVKXGUhedging 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 XCNWG-QH-FGTKXCVKXGU-CTG-KPENWFGF-KP-VJG-KPEQOG-UVCVGOGPV-6JG-6TWUV-FQGU-PQV-CFQRV-JGFIG-CEEQWPVKPI-KP-VJG-ƂPCPEKCN-UVCVGOGPVU
6JG-6TWUV-JCU-GZRQUWTG-VQ-KPVGTGUV-TCVG-OQXGOGPVU-CU-VJKU-OC[-CHHGEV-VJG-HCKT-XCNWG-QH-HWPFU-CYCKVKPI-KPXGUVOGPV-KPVGTGUV-TGEGKXCDNG-QP-NKSWKF-CUUGVU-CPF-OCPCIGF-NKSWKFKV[-HWPFU-CPF-KPVGTGUV-RC[CDNG-QP-DQTTQYKPIU-6JG-6TWUV-JCU-NKVVNG-KOOGFKCVG-FKTGEV-GZRQUWTG-VQ-KPVGTGUV-TCVGU-QP-KVU-ƂZGF-CUUGVU-CU-VJG-OCLQTKV[-QH-VJG-WPFGTN[KPI-KPXGUVOGPVU-CTG-ƂZGF-TCVG-NQCPU-QT-GSWKV[-UJCTGU-VJCV-FQ-PQV-RC[-KPVGTGUV-6JGTGHQTG-CPF-IKXGP-VJCV-VJG-6TWUV-JCU-PQ-DQTTQYKPIU-CPF-OCKPVCKPU-NQY-ECUJ-NGXGNU-VJG-6TWUVoU-TGXGPWG-TGVWTP-KU-PQV-OCVGTKCNN[-CHHGEVGF-D[changes in interest rates.
*QYGXGT-HWPFU-CYCKVKPI-KPXGUVOGPV-JCXG-DGGP-KPXGUVGF-KP-OCPCIGF-NKSWKFKV[-HWPFU-CPF-CU-UVCVGF-CDQXG-VJGKT-XCNWCVKQP-KU-CHHGEVGF-D[-OQXGOGPVU-KP-KPVGTGUV-TCVGU-6JG-UGPUKVKXKV[-QH-VJG-ECRKVCN-TGVWTP-QH-VJG-6TWUV-VQ-OQXGOGPVU-KP-KPVGTGUV-TCVGU-JCU-DGGP-DCUGF-QP-VJG-7--DCUG-TCVG-9KVJ-CNN-QVJGT-XCTKCDNGU-EQPUVCPV-C--FGETGCUG-KP-VJG-7--DCUG-TCVG-UJQWNF-KPETGCUG-VJG-ECRKVCN-TGVWTP-KP-C-HWNN-[GCT-D[-CDQWV--YKVJ-C-EQTTGURQPFKPI-FGETGCUG-KH-VJG-7--DCUG-TCVG-YGTG-VQ-KPETGCUG-D[--+P-VJG-QRKPKQP-QH-VJG-&KTGEVQTU-VJG-CDQXG-UGPUKVKXKV[-CPCN[UGU-OC[-PQV-DG-TGRTGUGPVCVKXG-QH-VJG-[GCT-CU-C-YJQNG-UKPEG-VJG-NGXGN-QH-GZRQUWTG-EJCPIGU-CU-KPXGUVOGPVU-CTG-OCFG-CPF-TGCNKUGFthroughout the year.
+PXGUVOGPVU-KP-WPSWQVGF-EQORCPKGU-YJKEJ-HQTO-VJG-OCLQTKV[-QH-VJG-6TWUVoU-KPXGUVOGPVU-OC[-PQV-DG-CU-TGCFKN[-TGCNKUCDNG-CU-KPXGUVOGPVU-KP-SWQVGF-EQORCPKGU-YJKEJ-OKIJV-TGUWNV-KP-VJG-6TWUV-JCXKPI-FKHƂEWNV[-KP-OGGVKPI-KVU-QDNKICVKQPU-.KSWKFKV[-TKUM-KU-EWTTGPVN[-PQV-UKIPKƂECPV-CU--QH-VJG-6TWUVoU-PGV-CUUGVU-CV-VJG-[GCTGPF-CTG-NKSWKF-TGUQWTEGU-CPF-KP-CFFKVKQP-VJG-6TWUV-JCU-C--OKNNKQP-OWNVKEWTTGPE[-WPFTCYP-DCPMfacility available. The Board gives guidance to the Manager as to the maximum amount of the Trust's resources that should be invested in any one company. For further details refer to The Trust's Investment Policy on page 11.
6JG-6TWUVoU-ƂPCPEKCN-CUUGVU-VJCV-CTG-UWDLGEV-VQ-EWTTGPE[-CPF-KPVGTGUV-TCVG-TKUM-CTG-CPCN[UGF-DGNQY
| Fixed and ÎM?RGLE rate £'000 |
2015 Non interest bearing £'000 |
Total £'000 |
Total % |
Floating rate £'000 |
2014 Non interest bearing £'000 |
Total £'000 |
Total % |
|
|---|---|---|---|---|---|---|---|---|
| Sterling | 52.3 | |||||||
| Euro | – | 31.4 | 28 | |||||
| Norwegian krone | – | 8.3 | – | |||||
| Danish krone | 801 | 4.4 | – | 4.2 | ||||
| 75 FQNNCT |
– | 3.3 | – | 4.0 | ||||
| Swedish krona | – | 2.3 | – | 2.1 | ||||
| Swiss franc | – | 0.8 | – | 0.8 | ||||
| Total | 40,347 | 492,624 | 532,971 | 100.0 | 62,880 | 414,241 | 477,121 | 100.0 |
5JQTVVGTO-FGDVQTU-CPF-ETGFKVQTU-YJKEJ-CTG-GZENWFGF-CTG-OQUVN[-FGPQOKPCVGF-KP-UVGTNKPI-VJG-HWPEVKQPCN-EWTTGPE[-QH-VJG-6TWUV-6JG-ƂZGF-CPFƃQCVKPI-TCVG-CUUGVU-EQPUKUVGF-QH-ECUJ-CPF-NKSWKFKV[-HWPFU-QH-YJKEJ-VJG-WPFGTN[KPI-KPXGUVOGPVU-CTG-C-EQODKPCVKQP-QH-ƂZGF-CPFƃQCVKPI-TCVG-The non-interest-bearing assets represent the investment portfolio held in fund limited partnerships and the provision for carried interest.
6JTQWIJ-KVU-KPXGUVOGPV-KPVQ-VJG-*I%CRKVCN-/GTEWT[-&-.2-HWPF-VJG-6TWUV-JCF-QWVUVCPFKPI-DQTTQYKPIU-QH-- PQVG--CPF--CV-VJG-[GCTGPF- --6JG-PWOGTKECN-FKUENQUWTGU-CDQXG-GZENWFG-UJQTVVGTO-FGDVQTU-CPF-ETGFKVQTU
6JG-6TWUVoU-ECRKVCN-OCPCIGOGPV-QDLGEVKXGU-CTG-VQ-GPUWTG-VJCV-KV-YKNN-DG-CDNG-VQ-ƂPCPEG-KVU-DWUKPGUU-CU-C-IQKPI-EQPEGTP-CPF-VQ-OCZKOKUG-VJGrevenue and capital return to its equity shareholders.
The Trust's capital at 31 December comprised:
| 2015 £'000 |
2014 £'000 |
|
|---|---|---|
| Equity: | ||
| Equity share capital | ||
| Share premium | ||
| Capital redemption reserve | ||
| Retained earnings and other reserves | ||
| Total capital | ||
9KVJ-VJG-CUUKUVCPEG-QH-VJG-/CPCIGT-VJG-\$QCTF-OQPKVQTU-CPF-TGXKGYU-VJG-DTQCF-UVTWEVWTG-QH-VJG-6TWUVoU-ECRKVCN-QP-CP-QPIQKPI-DCUKU-6JKUreview covers:
6JG-6TWUVoU-QDLGEVKXGU-RQNKEKGU-CPF-RTQEGUUGU-HQT-OCPCIKPI-ECRKVCN-CTG-WPEJCPIGF-HTQO-VJG-RTGEGFKPI-CEEQWPVKPI-RGTKQF
| 2015 | 2014 | |||
|---|---|---|---|---|
| No. '000 | £'000 | No. '000 | £'000 | |
| Ordinary shares of 25p each: | ||||
| #NNQVVGF ECNNGFWR CPF HWNN[ RCKF |
||||
| At 1 January | ||||
| At 31 December | ||||
| Total called-up share capital | 37,325 | 9,331 | 37,325 | 9,331 |
9JKNUV-VJG-6TWUV-PQ-NQPIGT-JCU-CP-CWVJQTKUGF-UJCTG-ECRKVCN-VJG-&KTGEVQTU-YKNN-UVKNN-DG-NKOKVGF-CU-VQ-VJG-PWODGT-QH-UJCTGU-VJG[-ECP-CV-CP[-VKOG-CNNQV-CU-VJG-%QORCPKGU-#EV--TGSWKTGU-VJCV-&KTGEVQTU-UGGM-CWVJQTKV[-HTQO-UJCTGJQNFGTU-HQT-VJG-CNNQVOGPV-QH-PGY-UJCTGU
| Share premium account £'000 |
Capital redemption reserve £'000 |
Capital reserve unrealised £'000 |
Capital reserve realised £'000 |
Revenue reserve £'000 |
|
|---|---|---|---|---|---|
| As at 1 January 2015 | |||||
| Transfer on disposal of investments | – | – | – | ||
| .QUUGUICKPU QP IQXGTPOGPV UGEWTKVKGU CPF NKSWKFKV[ HWPFU |
– | – | – | ||
| 0GV ICKP QP UCNG QH ƂZGF CUUGV KPXGUVOGPVU |
– | – | – | – | |
| Net movement in unrealised appreciation QH ƂZGF CUUGV KPXGUVOGPVU |
– | – | – | – | |
| Dividend paid | – | – | – | – | |
| Net return for the year after taxation | – | – | – | – | |
| .QCPU TGEQXGTGF HTQO )GPGTCN 2CTVPGTU |
– | – | – | – | |
| Carried interest provision | – | – | – | – | |
| As at 31 December 2015 | 120,368 | 1,248 | 14,023 | 353,107 | 31,946 |
| Fund | Original commitment £'000 |
2015 £'000 |
Outstanding at 31 Dec 2014 £'000 |
|---|---|---|---|
| .21 *)6 |
|||
| *I%CRKVCN /GTEWT[ & .2 |
|||
| *)6 .2 |
|||
| *I 422 .2 |
2 | 3 | |
| *)6 .24 |
|||
| *I 422 .2 |
5 | ||
| *I ' .2 |
|||
| Total outstanding commitments | 159,601 | 206,574 | |
1 *I%CRKVCN-6TWUV-RNE-JCU-VJG-DGPGƂV-QH-CP-KPXGUVOGPV-QRVQWV-RTQXKUKQP-KP-KVU-EQOOKVOGPV-VQ-KPXGUV-CNQPIUKFG-*I%CRKVCN--UQ-VJCV-KV-ECP-QRV-QWV-QH-C-PGYinvestment without penalty should it not have the cash available to invest. 2 5VGTNKPI-GSWKXCNGPV-QHa
-
a-
4 9KVJ-GHHGEV-HTQO--1EVQDGT---OKNNKQP-QH-VJG-EQOOKVOGPV-YCU-ECPEGNNGF-HQNNQYGF-D[--OKNNKQP-QP--/CTEJ--CPF--OKNNKQP-QP--#WIWUV--6JGUG-COQWPVU-TGRTGUGPV---CPF--TGURGEVKXGN[-QH-VJG-QTKIKPCN--OKNNKQP-EQOOKVOGPV-VQ-VJG-*I%CRKVCN--HWPF
5 5VGTNKPI-GSWKXCNGPV-QHa
-5VGTNKPI-GSWKXCNGPV-QHa- a
a
*I%CRKVCN-CEVU-CU-/CPCIGT-QH-VJG-6TWUV-VJTQWIJ-C-OCPCIGOGPV-CITGGOGPV-CPF-KPFKTGEVN[-RCTVKEKRCVGU-VJTQWIJ-HWPF-NKOKVGF-RCTVPGTUJKR-CITGGOGPVU-CU-VJG-IGPGTCN-RCTVPGTU-CPF-CNQPIUKFG-C-PWODGT-QH-*I%CRKVCNoU-GZGEWVKXGU- RCUV-CPF-RTGUGPV-CU-VJG-HQWPFGT-RCTVPGTU-QH-VJG-HWPF-RCTVPGTUJKRU-KP-YJKEJ-VJG-6TWUV-KPXGUVU-+P-CFFKVKQP-*I%CRKVCN-CEVGF-CU-5GETGVCT[-WPVKN--/C[-- HTQO-YJKEJ-FCVG-VJG-\$QCTF-CRRQKPVGF-%CRKVC-%QORCP[-5GETGVCTKCN-5GTXKEGU-.KOKVGF-VQ-CEV-CU-5GETGVCT[-CPF-CEVU-CU-#FOKPKUVTCVQT-QH-VJG-6TWUV
The Trust has no related parties and no ultimate controlling party.
3 5VGTNKPI-
GSWKXCNGPV-QH-
2SLQLRQRQÀQDQFLDOVWDWHPHQWVRI+J&DSLWDO7UXVWSOF ,QRXURSLQLRQWKHÀQDQFLDOVWDWHPHQWVRI+J&DSLWDO7UXVWSOF ("the Trust"):
7KHÀQDQFLDOVWDWHPHQWVFRPSULVHWKH,QFRPH6WDWHPHQWWKH Balance Sheet, the Statement of Cash Flows, the Statement of &KDQJHVLQ(TXLW\DQGWKHUHODWHGQRWHVWR7KHÀQDQFLDO reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) including FRS 102 – "The Financial Reporting Standard applicable in the UK and Republic of Ireland".
As required by the Listing Rules we have reviewed the Directors' statement regarding the appropriateness of the going concern basis of accounting and the directors' statement on the longer-term viability of the Trust contained within the strategic report on page 13. We have nothing material to add or draw attention to in relation to:
the disclosures on page 15 that describe those risks and explain how they are being managed or mitigated;
WKH'LUHFWRUV·VWDWHPHQWLQQRWHWRWKHÀQDQFLDOVWDWHPHQWV about whether they considered it appropriate to adopt the going concern basis of accounting in preparing them and their LGHQWLÀFDWLRQRIDQ\PDWHULDOXQFHU WDLQWLHVWRWKH7UXVW·VDELOLW\ to continue to do so over a period of at least twelve months IURPWKHGDWHRIDSSURYDORIWKHÀQDQFLDOVWDWHPHQWV
We agreed with the Directors' adoption of the going concern basis of accounting and we did not identify any such material uncertainties. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Trust's ability to continue as a going concern.
We are required to comply with the Financial Reporting &RXQFLO·V(WKLFDO6WDQGDUGVIRU\$XGLWRUVDQGZHFRQÀUPWKDWZH DUHLQGHSHQGHQWRIWKH7UXVWDQGZHKDYHIXOÀOOHGRXURWKHU ethical responsibilities in accordance with those standards. We DOVRFRQÀUPZHKDYHQRWSURYLGHGDQ\RIWKHSURKLELWHG non-audit services referred to in those standards.
The assessed risks of material misstatement described below are those that had the greatest effect on our audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team.
7KHULVNVLGHQWLÀHGEHORZDUHWKHVDPHULVNVDVLGHQWLÀHGLQWKH prior year.
The valuation of unquoted investments
The valuation of unquoted investments of £493 million (including accrued income) held by the fund limited partnerships involves the use RIDVLJQLÀFDQWGHJUHHRI judgement in applying the International Private Equity and Venture Capital valuations guidelines, including valuation method, market multiples and comparable companies. For further information see note 3 DQGQRWHRIWKHÀQDQFLDO statements.
The Trust holds investments in fund limited partnerships (£493 million including accrued income) and a liquidity fund (£31 million), held through various investment holding companies. There is a risk that these investments may not be held in the name of the Trust or its limited fund partnerships and any error in the holdings could impact the Trust's net asset value. For more details see QRWHRIWKHÀQDQFLDOVWDWHPHQWV
The completeness and accuracy of the split between revenue and capital could impact the level of distribution required by the investment Trust regulations and revenue recognised by the Trust as earned by the limited partnerships may be inaccurate. For more details see note 3 and note 4.
The description of risks above should be read in conjunction ZLWKWKHVLJQLÀFDQWLVVXHVFRQVLGHUHGE\WKH\$XGLWDQG9DOXDWLRQ Committee discussed on page 98.
These matters were addressed in the context of our audit of WKHÀQDQFLDOVWDWHPHQWVDVDZKROHDQGLQIRUPLQJRXURSLQLRQ thereon, and we do not provide a separate opinion on these matters.
:HGHÀQHPDWHULDOLW\DVWKHPDJQLWXGHRIPLVVWDWHPHQWLQWKH ÀQDQFLDOVWDWHPHQWVWKDWPDNHVLWSUREDEOHWKDWWKHHFRQRPLF decisions of a reasonably knowledgeable person would be FKDQJHGRULQÁXHQFHG:HXVHPDWHULDOLW\ERWKLQSODQQLQJWKH scope of our audit work and in evaluating the results of our work. We determined materiality for the Trust to be £10.6 million (2014: £8.8 million), which is 2% (2014: 2%) of net asset value because it is the main measure used by the Trust in reporting results and by analysts and investors.
We agreed with the Audit and Valuations Committee that we would report to the Committee all audit differences in excess of £212,000 (2014: £176,000), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit and Valuations Committee RQGLVFORVXUHPDWWHUVWKDWZHLGHQWLÀHGZKHQDVVHVVLQJWKH RYHUDOOSUHVHQWDWLRQRIWKHÀQDQFLDOVWDWHPHQWV
Our audit was scoped by obtaining an understanding of the entity and its environment, including internal control, and assessing the risks of material misstatement. Audit work to respond to the risks of material misstatement was performed directly by the audit engagement team.
The scope of our audit of the Trust was 100% and was XQGHU WDNHQWRWKHPDWHULDOLW\OHYHOVSHFLÀHGDERYHE\RQH London-based audit team and was performed at the London RIÀFHVRIWKH0DQDJHU+J3RROHG0DQDJHPHQW/LPLWHG
In our opinion:
Adequacy of explanations received and accounting records Under the Companies Act 2006 we are required to report to you if, in our opinion:
We have nothing to report in respect of these matters.
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors' remuneration have not been made or the part of the Directors' Remuneration Report to be audited is not in agreement with the accounting records and returns. We have nothing to report arising from these matters.
Under the Listing Rules we are also required to review part of the Corporate Governance Statement relating to the Trust's compliance with certain provisions of the UK Corporate Governance Code. We have nothing to report arising from our review.
Our duty to read other information in the Annual Report Under International Standards on Auditing (UK and Ireland), we are required to report to you if, in our opinion, information in the annual report is:
In particular, we are required to consider whether we have LGHQWLÀHGDQ\LQFRQVLVWHQFLHVEHWZHHQRXUNQRZOHGJHDFTXLUHG during the audit and the directors' statement that they consider the annual report is fair, balanced and understandable and whether the annual report appropriately discloses those matters that we communicated to the Audit and Valuations Committee which we FRQVLGHUVKRXOGKDYHEHHQGLVFORVHG:HFRQÀUPWKDWZHKDYH QRWLGHQWLÀHGDQ\VXFKLQFRQVLVWHQFLHVRUPLVOHDGLQJVWDWHPHQWV
As explained more fully in the Directors' Responsibilities Statement, the directors are responsible for the preparation of WKHÀQDQFLDOVWDWHPHQWVDQGIRUEHLQJVDWLVÀHGWKDWWKH\JLYHD true and fair view. Our responsibility is to audit and express an RSLQLRQRQWKHÀQDQFLDOVWDWHPHQWVLQDFFRUGDQFHZLWKDSSOLFDEOH law and International Standards on Auditing (UK and Ireland). We also comply with International Standard on Quality Control 1 (UK and Ireland). Our audit methodology and tools aim to ensure that our quality control procedures are effective, understood and applied. Our quality controls and systems include our dedicated professional standards review team and independent partner reviews.
This report is made solely to the Trust's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Trust's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Trust and the Trust's members as a body, for our audit work, for this report, or for the opinions we have formed.
An audit involves obtaining evidence about the amounts and GLVFORVXUHVLQWKHÀQDQFLDOVWDWHPHQWVVXIÀFLHQWWRJLYH UHDVRQDEOHDVVXUDQFHWKDWWKHÀQDQFLDOVWDWHPHQWVDUHIUHHIURP material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Trust's circumstances and have been consistently applied and adequately disclosed; the reasonableness RIVLJQLÀFDQWDFFRXQWLQJHVWLPDWHVPDGHE\WKHGLUHFWRUVDQG WKHRYHUDOOSUHVHQWDWLRQRIWKHÀQDQFLDOVWDWHPHQWV,QDGGLWLRQ ZHUHDGDOOWKHÀQDQFLDODQGQRQÀQDQFLDOLQIRUPDWLRQLQWKH annual report to identify material inconsistencies with the DXGLWHGÀQDQFLDOVWDWHPHQWVDQGWRLGHQWLI\DQ\LQIRUPDWLRQWKDW is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
Andrew Partridge (Senior statutory auditor) for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditor London, United Kingdom 4 March 2016
The Directors present the Annual Report and Accounts of HgCapital Trust plc (the 'Trust') (Reg. No. 1525583) for the year ended 31 December 2015.
The Corporate Governance Statement forms part of this Directors' Report.
7KH7UXVWLVDQLQYHVWPHQWFRPSDQ\DVGHÀQHGLQVHFWLRQ of the Companies Act 2006, and operates as an investment trust in accordance with section 1158 and section 1159 of the &RUSRUDWLRQ7D[\$FW7KH7UXVWKDVUHFHLYHGFRQÀUPDWLRQ from HMRC that it has been accepted as an approved investment trust with effect from 1 January 2012, provided it continues to meet the eligibility conditions for section 1158 and the on-going requirements for approved companies in the Investment Trust (Approved Company) (Tax) Regulations 2011.
As at 31 December 2015 the Trust had 37,324,698 Ordinary shares of 25 pence each in issue. Each Ordinary share has one voting right attached to it. The total number of voting rights in the Trust at this date was 37,324,698. Further information on the share capital of the Trust can be found in note 20 of the ÀQDQFLDOVWDWHPHQWV
The total return for the Trust is set out in the income statement on page 62. The total return after taxation for the year, was £65,049,000 (2014: £54,250,000) of which the revenue return was £17,907,000 (2014: revenue return of £21,933,000).
The Directors recommend the payment of a dividend of 40.0 pence per Ordinary share for the year ended 31 December 2015 (2014: 32.0 pence). Subject to approval of this dividend at the forthcoming annual general meeting ('AGM'), it will be paid on 16 May 2016 to shareholders on the register of members at the close of business on 8 April 2016.
For the year to 31 December 2015, the Trust's on-going charges were calculated as 2.0% (2014: 2.3%).
The calculation is based on the on-going charges expressed as a percentage of the average published (monthly for the Trust) ordinary shareholders' NAV over the relevant year. The on-going charges, in accordance with guidelines issued by The Association of Investment Companies ('AIC'), are the annualised expenses WKDWDUHRSHUDWLRQDODQGUHFXUULQJE\QDWXUHDQGVSHFLÀFDOO\
excludes, amongst others, the expenses and gains or losses relating to the acquisition or disposal of investments, performance related fees (such as carried interest), taxation DQGÀQDQFLQJFKDUJHV
The Trust's on-going charges consist of its operating expenses (excluding the share of aborted deal fees) and current year SULRULW\SURÀWVKDUHSD\DEOHDVGHVFULEHGLQQRWHVDQGWR WKHÀQDQFLDOVWDWHPHQWV
The Company has no greenhouse gas emissions to report from the operations of the Company, nor does it have responsibility for any other emissions producing sources reportable under the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013.
Our Manager, HgCapital, seeks to invest in companies that are well managed, with high standards of corporate governance.
The Directors of the Trust 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 the Trust's underlying proportion of the portfolio lies with HgCapital. As acknowledged by the Walker Review, 2009, the distance between owner and manager within the private equity model is relatively short and the link between the two is an important ingredient in investment performance. HgCapital has a policy of active SRU WIROLRPDQDJHPHQWDQGHQVXUHVWKDWVLJQLÀFDQWWLPHDQG resource is dedicated to every investment, with HgCapital executives typically being appointed to investee company boards, in order to ensure the application of active, results-orientated corporate governance. Further information regarding the stewardship of investee companies by HgCapital can be found in the Manager's review.
The Trust had no outstanding derivative contracts at 31 December 2015.
7KH%RDUGRI+J&DSLWDO7UXVWSOFFXUUHQWO\FRQVLVWVRIÀYH non-executive Directors with a wide range of business experience, all of whom are considered to be independent of the Trust's Manager. Details of the current Directors are noted below:
Aged 67, Roger Mountford was appointed to the Board in 2004 and became Chairman in April 2005. He spent 30 years as a merchant banker in the City of London and in the Far East, latterly as Managing Director in the Corporate Finance Department of SG Hambros, leading the Bank's practice in the private equity market. He is chairman of the Allied Domecq Pension Fund and is a member of the Church of England Pensions Board. He serves on the Advisory Board of VenCap International plc, a manager in the global venture capital market. He is a government appointed Director of High Speed Two (HS2) Limited and is a member of the Council of the London School of Economics.
Aged 60, Richard Brooman was appointed to the Board in 2007. He is a chartered accountant and is Deputy Chairman of the Board and Chairman of the Audit Committee of Invesco Perpetual UK Smaller Companies Investment Trust plc. He is the Senior Independent Director and Chairman of the Audit Committee of Acal plc, Deputy Chairman of the Camden & Islington NHS Foundation Trust and a trustee of Leonard Cheshire Disability, in each case chairing the Audit & Risk &RPPLWWHHV+HZDVIRUPHUO\&KLHI)LQDQFLDO2IÀFHURI Sherwood International plc and Group Finance Director of VCI plc. Prior to this, he served as CFO of the global Consumer Healthcare business of SmithKline Beecham and held senior ÀQDQFLDODQGRSHUDWLRQDOSRVLWLRQVDW0DUVDIWHUTXDOLI\LQJZLWK Price Waterhouse in London.
Aged 66, Peter Dunscombe was, until mid-2011, Head of Pensions Investments at the BBC Pension Trust and was previously joint managing director at Imperial Investments Ltd. He is currently a member of the investment committees of The Pensions Trust, Reed Elsevier Pension Fund, St James Place SOFDQGWKH1XIÀHOG)RXQGDWLRQDQGLVDOVRDGLUHFWRURI0XUUD\ International Trust plc and GCP Student Living plc.
Aged 70, Mark Powell was appointed to the Board in 2010. He spent his entire career in investment management and retired as Chairman of Rathbone Brothers Plc in 2011. He is a former Chairman of the Association of Private Client Investment Managers and Stockbrokers (now the Wealth Managers Association) and member of the Takeover Panel. He is a Trustee of several charities.
Aged 65, Anne West spent 23 years at Cazenove Capital 0DQDJHPHQWULVLQJWR&KLHI,QYHVWPHQW2IÀFHUEHIRUHUHWLULQJ on 5 December 2012. Until the end of 2012, she was a Director of the Private Wealth Management division. During her executive career, she specialised in Asia and emerging markets, as well as working as Head of Global Equities. She also serves on the board of The Scottish Oriental Smaller Companies Trust plc and the investment committee for the Battle against Cancer Investment Trust (BACIT).
All Directors are members of the Audit & Valuation, Nomination and Management Engagement Committees; further details are provided in the Corporate Governance Statement on page 94. All Directors are non-executive.
None of the Directors have any other connections with the Manager or served together as directors of any other company.
As noted earlier, Andrew Murison retired as a Director at the Company's AGM held on 13 May 2015. The Board recognises the outstanding contribution Mr Murison made to the Trust during his tenure and we thank him for his service as a member of the Board.
The Board has noted the recommendation in the AIC Code of Corporate Governance that non-executive directors serving longer than nine years should be subject to annual re-election. Accordingly, Mr Mountford will offer himself for re-election at this year's AGM. In accordance with the Articles of Association, Mr Powell and Mr Dunscombe will also offer themselves for re-election at this year's AGM.
As outlined on page 94, the Board considered in detail the FRPSRVLWLRQRIWKH%RDUG7KH%RDUGFRQÀUPVWKDWWKH performance of each of the Directors seeking re-election continues to be effective and demonstrates commitment to the role, and the Board believes that it is therefore in the best interests of shareholders that these Directors be re-elected. The Directors also believe that the Board includes an appropriate balance of skills, experience and knowledge.
As at 31 December 2015, the Trust had received notice that the persons noted in the table below had interests in 3% or more of the total voting rights of the Trust.
As at 29 February 2016, being the latest practicable date prior to the publication of this report, the Trust had received notice that the persons noted in the table below had interests in 3% or more of the total voting rights of the Trust.
| Ordinary shares* |
% of voting rights |
|
|---|---|---|
| Schroders plc | ||
| Prudential plc | ||
| Oxfordshire County Council Pension Fund |
||
| Royal London Asset /CPCIGOGPV %+5 .KOKVGF |
| Ordinary shares* |
% of voting rights |
|
|---|---|---|
| Schroders plc | ||
| Prudential plc | ||
| Oxfordshire County Council Pension Fund |
||
| Royal London Asset /CPCIGOGPV %+5 .KOKVGF |
,MRGÍA?RGMLQÏ?PCÏPCOSGPCBÏUFCPCÏ?LÏGLTCQRMPÏPC?AFCQÏRFCÏÏRFPCQFMJBÏ?LBÏDMPÏCTCPWÏÏGLAPC?QCÏMPÏBCAPC?QCÏRFCPC?DRCP Ï2FCÏ?@MTCÏFMJBGLEQÏK?WÏRFCPCDMPCÏLMRÏ@CÏUFMJJWÏ?AASP?RCÏ statements of the actual investor holdings at 31 December 2015 and at 29 February 2016.
In addition to their direct holdings in HgCapital funds, the partners and staff of HgCapital also hold Ordinary Shares in the Trust. As at 31 December 2015, the partners and staff of HgCapital owned 1,851,690 shares (5.0% of the total voting rights).
| Number | % of total | Number | % of total | |||
|---|---|---|---|---|---|---|
| By type of holder | of shares | 31 Dec 2015 | 31 Dec 2014 | of holders | 31 Dec 2015 | 31 Dec 2014 |
| Nominee companies | ||||||
| Direct private investors | 0.88 | 1.24 | 178 | 18.44 | ||
| Others | 38 | |||||
| Total | 37,324,698 | 100.00 | 100.00 | 965 | 100.00 | 100.00 |
| Number | % of total | Number | % of total | |||
|---|---|---|---|---|---|---|
| By size of holding | of shares | 31 Dec 2015 | 31 Dec 2014 | of holders | 31 Dec 2015 | 31 Dec 2014 |
s |
2.33 | 2.00 | 747 | 77.41 | 74.53 | |
s |
5.82 | 5.70 | 131 | 13.58 | 15.17 | |
s |
5.20 | 24 | ||||
| QXGT |
87.10 | 7.34 | ||||
| Total | 37,324,698 | 100.00 | 100.00 | 965 | 100.00 | 100.00 |
During 2015, the Trust's assets were managed by Hg Pooled Management Limited.
7KH7UXVWSD\VDSULRULW\SURÀWVKDUHLQUHVSHFWRILWV commitment to invest alongside the HgCapital 6, HgCapital Mercury and HgCapital 7 funds. These shares are the same as those payable by all institutional investors in these funds.
Amounts of 1.75% p.a. are payable on the commitments during the investment period of these funds, which normally last for EHWZHHQIRXUDQGÀYH\HDUV7KHVHDPRXQWVZLOOWKHQUHGXFHWR 1.5% p.a. calculated on the basis of the original cost of the assets, less the original cost of any assets which have been realised or permanently written off.
Under the previous arrangements, implemented in January 2009, WKH7UXVWSD\VDSULRULW\SURÀWVKDUHRISDRQ the current value of the HGT LP portfolio, excluding any co-investment participations and investments in other collective investment funds.
Under incentive schemes, in which the executives of HgCapital participate alongside HgCapital, carried interest is payable in order to provide an incentive to deliver good performance. For the Trust's investment alongside the HgCapital 6, HgCapital Mercury and HgCapital 7 funds, the carried interest arrangements are identical to that which applies to all other investors in these funds. Under these arrangements, carried LQWHUHVWLVSD\DEOHEDVHGRQRIWKHDJJUHJDWHSURÀWVEXWLV only payable after the repayment to the Trust of its invested capital and it has received a preferred return, based on 8% p.a., FDOFXODWHGGDLO\RQWKHDJJUHJDWHRILWVQHWFXPXODWLYHFDVKÁRZV in each fund and such preferred return amount that is capitalised annually.
The previous incentive scheme introduced in May 2003 remains in place but only in respect of the Trust's investments in HGT LP. This arrangement allows for a carried interest of 20% of the excess annual growth in average NAV over an 8% preferred return, based on a three-year rolling average NAV, calculated half-yearly and aggregated with any dividends declared by the 7UXVWLQUHVSHFWRIWKDWÀQDQFLDO\HDU
1RSULRULW\SURÀWVKDUHRUFDUULHGLQWHUHVWZLOODSSO\WRDQ\ co-investment made alongside HgCapital 5, HgCapital 6, HgCapital Mercury and HgCapital 7, in excess of the Trust's pro-rata commitment. Thus, the co-investments made by the Trust in P&I, Visma and Achilles, do not entitle the Manager to DQ\SULRULW\SURÀWVKDUHRUFDUULHGLQWHUHVW
HgCapital has also been appointed as administrator of the Trust for a fee equal to 0.1% p.a. of the NAV. Capita Company Secretarial Services Limited ('Capita') replaced HgCapital as secretary on 13 May 2015.
The Board considers the arrangements for the provision of investment management and other services to the Trust on an on-going basis and a formal review is conducted annually.
As part of this review, the Board considered the quality and continuity of the Manager's personnel, succession planning, sector and geographic coverage, investment process and the results achieved to date. The Board also considered the Manager's on-going commitment to the promotion of the Trust's shares.
The principal contents of the agreement with the Manager have been set out in the previous section. Having considered the terms of this agreement and those of other private equity investment trust companies, the Board considers that the terms of the agreement represent an appropriate balance between cost and incentivisation of the Manager.
Following its review, the Board has concluded that it is in shareholders' interests that HgCapital should continue as Manager of the Trust on the existing terms.
The Trust made no political or charitable donations during the year.
The AGM of the Trust, which will include a presentation by WKH0DQDJHUZLOOEHKHOGDWWKHRIÀFHVRI+J&DSLWDO0RUH London Riverside, London SE1 2AP on Monday 9 May 2016 at 11 a.m. Light refreshments will be available from 10.30 a.m. Notice of the AGM is given on pages 112 to 115. The Board is of the opinion that the passing of all resolutions being put to the AGM would be in the best interests of the Trust and its shareholders. The Directors therefore recommend that shareholders vote in favour of resolutions 1 to 12, as set out in the Notice of Meeting.
The Directors' authority to buy back shares was renewed at last year's AGM and will expire at the end of the AGM in 2016.
Although no shares were bought back during the year, the Directors are proposing to renew the authority at the forthcoming AGM, and are seeking authority to purchase up to 5,594,972 Ordinary shares (being 14.99% of the issued share capital) as set out in Resolution 10 in the Notice of AGM. This authority, unless renewed, will expire at the conclusion of the AGM in 2017 or eighteen months from the passing of the resolution. The authority will be used where the Directors consider it to be in the best interests of shareholders.
Purchases of Ordinary shares will only be made through the market for cash at prices below the prevailing NAV per Ordinary share. Under the Listing Rules of the Financial Conduct Authority, the maximum price that can be paid for each Ordinary share is the higher of: (a) 105% of the average of the mid-market quotations of the Ordinary shares in the Trust for WKHÀYHEXVLQHVVGD\VSULRUWRWKHGDWHRQZKLFKVXFKVKDUHLV contracted to be purchased; and (b) the higher of the price of the last independent trade and the highest current independent bid (as stipulated by Article 5(1) of Commission Regulation (EC) No.2233/2003). The minimum price that may be paid will be 25 pence per share (being the nominal value of a share). Any shares purchased under this authority will be cancelled. In making SXUFKDVHVWKH7UXVWZLOOGHDORQO\ZLWKPHPEHUÀUPVRIWKH London Stock Exchange.
A general authority to allot new shares (or to grant rights over shares) was given to the Directors at the Trust's AGM in 2015.
The authority gives the Directors, for the period until the conclusion of the AGM in 2016, the necessary authority to allot securities up to a maximum nominal amount of £6,158,575, or what was at 31 December 2014 approximately 66% of the issued Ordinary share capital of the Trust. Of this amount, £3,079,287, or what was approximately 33% of the issued Ordinary share capital, may only be allotted in the event of a fully pre-emptive rights issue.
The Directors are proposing to renew the general authority to allot shares at the 2016 AGM. The authority to allot will be on broadly the same terms as the resolution passed at the 2015 AGM, and takes account of ABI guidelines.
The guidelines state that ABI members will permit, and treat as routine, resolutions seeking authority to allot shares representing up to one-third of a company's issued share capital. In addition, they will treat as routine a request for authority to allot shares representing an additional one-third of a company's issued share capital provided that it is only used to allot shares pursuant to a fully pre-emptive rights issue.
In light of these guidelines, the Board considers it appropriate that the Directors should be granted on-going authority to allot shares in the capital of the Trust up to a maximum nominal amount of £6,158,575 (or 24,634,300 Ordinary shares of 25 pence each) representing the guideline limit of approximately 66% of the Trust's Ordinary share capital. Of this amount £3,079,287 (or 12,317,150 Ordinary shares of 25 pence each), representing approximately 33% of the Trust's Ordinary share capital, can only be allotted pursuant to a fully pre-emptive rights issue. The power will last until the conclusion of the AGM in 2017 or, if earlier, 9 August 2017. The Directors have no present intention to allot new Ordinary shares; however, they consider it DSSURSULDWHWRPDLQWDLQWKHÁH[LELOLW\WKDWWKHDXWKRULW\SURYLGHV
A general power to disapply the pre-emption rights set out in Section 561 of the Companies Act 2006 was granted to the Directors at the AGM in 2015.
The Directors are proposing a resolution to renew the general power to allot shares for cash without complying with the pre-emption rights in the Companies Act 2006 in certain circumstances. In light of the ABI guidelines referred to above, this authority will permit the Directors to allot:
(a) Ordinary shares up to a nominal amount of £6,158,575 (or 24,634,300 Ordinary shares of 25 pence each) representing two-thirds of the Trust's existing Ordinary share capital in an offer to shareholders on a pre-emptive basis. However, unless the shares are allotted pursuant to a rights issue (rather than an open offer), the Directors may only allot shares up to a nominal amount of £3,079,287
(or 12,317,150 Ordinary shares of 25 pence each) representing 33% of the Trust's existing Ordinary share capital (in each case subject to any adjustments, such as for fractional entitlements and overseas shareholders, DVWKH'LUHFWRUVVHHÀW DQG
(b) otherwise than in connection with an offer to existing shareholders, Ordinary shares up to a maximum nominal value of £933,117, representing approximately 10% of the existing Ordinary share capital, at a price not less than the NAV per Ordinary share as at the most recent practicable date chosen for such purposes by the Directors. The power shall be valid until expiry of the general authority to allot shares described above.
The Board believes that it is in the best interests of shareholders of the Trust to have the ability to call meetings on 14 days' clear notice should a matter require urgency. The Board will therefore, as last year, propose a resolution at the AGM to approve the reduction in the minimum notice period from 21 clear days to 14 clear days for all general meetings other than annual general meetings. The Directors do not intend to give fewer than 21 clear days' notice, unless the circumstances require it.
There are no restrictions concerning the transfer of securities in the Trust; no special rights with regard to control attached to securities; no restrictions on voting rights; no agreements between holders of securities regarding their transfer known to the Trust; and no agreements to which the Trust is a party that might affect its control following a successful takeover bid.
Each of the persons who is a Director at the date of approval of WKLVUHSRU WFRQÀUPVWKDW
7KLVFRQÀUPDWLRQLVJLYHQDQGVKRXOGEHLQWHUSUHWHGLQ accordance with the provisions of Section 418 of the Companies Act 2006.
'HORLWWH//3KDVLQGLFDWHGLWVZLOOLQJQHVVWRFRQWLQXHLQRIÀFHDV Auditor and resolutions proposing its re-appointment and authorising the Directors to determine its remuneration will be proposed at the AGM.
By order of the Board Roger Mountford, Chairman 4 March 2016
The Directors are responsible for preparing the Annual Report and Accounts in accordance with applicable law and regulations.
&RPSDQ\ODZUHTXLUHVWKH'LUHFWRUVWRSUHSDUHÀQDQFLDO VWDWHPHQWVIRUHDFKÀQDQFLDO\HDU8QGHUWKDWODZWKH'LUHFWRUV KDYHHOHFWHGWRSUHSDUHWKHÀQDQFLDOVWDWHPHQWVLQDFFRUGDQFH with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law).
Under company law the Directors must not approve the ÀQDQFLDOVWDWHPHQWVXQOHVVWKH\DUHVDWLVÀHGWKDWWKH\JLYHDWUXH DQGIDLUYLHZRIWKHVWDWHRIDIIDLUVRIWKH7UXVWDQGRIWKHSURÀW RUORVVRIWKH7UXVWIRUWKDWSHULRG,QSUHSDULQJWKHVHÀQDQFLDO statements, the Directors are required to:
The Directors are responsible for keeping adequate accounting UHFRUGVWKDWDUHVXIÀFLHQWWRVKRZDQGH[SODLQWKH7UXVW·V transactions and disclose with reasonable accuracy at any time WKHÀQDQFLDOSRVLWLRQRIWKH7UXVWDQGHQDEOHWKHPWRHQVXUHWKDW WKHÀQDQFLDOVWDWHPHQWVFRPSO\ZLWKWKH&RPSDQLHV\$FW They are also responsible for safeguarding the assets of the Trust and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity RIWKHFRUSRUDWHDQGÀQDQFLDOLQIRUPDWLRQLQFOXGHGRQWKH7UXVW·V website. Legislation in the United Kingdom governing the SUHSDUDWLRQDQGGLVVHPLQDWLRQRIÀQDQFLDOVWDWHPHQWVPD\GLIIHU from legislation in other jurisdictions.
:HFRQÀUPWKDWWRWKHEHVWRIRXUNQRZOHGJH
On behalf of the Board Roger Mountford, Chairman 4 March 2016
This Corporate Governance Statement forms part of the Directors' Report.
The UK Listing Authority's Disclosure and Transparency Rules (the 'Disclosure Rules') require listed companies to disclose how they have applied the principles and complied with the provisions of the UK Corporate Governance Code (the 'UK Code'). The provisions of the UK Code, as issued by the Financial Reporting Council (the 'FRC') in September 2014, were applicable in the year under review. The UK Code can be viewed at www.frc.org.uk.
In addition, the Board of HgCapital Trust plc has considered the principles and recommendations of the AIC Code of Corporate Governance ('AIC Code'), published in February 2015, by reference to the AIC Corporate Governance Guide for investment companies ('AIC Guide'). The AIC Code, as explained by the AIC Guide, addresses all the principles set out in the UK Code as well as setting out additional principles and recommendations on LVVXHVWKDWDUHRIVSHFLÀFUHOHYDQFHWR+J&DSLWDO7UXVWSOF7KH Board considers that reporting against the principles and recommendations of the AIC Code, and by reference to the AIC Guide (which incorporates the UK Corporate Governance Code), will provide better information to shareholders.
Throughout the year, the Trust has complied with the recommendations of the AIC Code and the relevant provisions of the UK Code, except as set out below. The UK Corporate Governance Code includes provisions relating to:
For the reasons set out in the AIC Guide, and as explained in the UK Corporate Governance Code, the Board considers these provisions are not relevant to the position of the Trust, being an externally managed investment company. The Trust has therefore not reported further in respect of these provisions.
A copy of the AIC Code and the AIC Guide can be obtained via the AIC's website, www.theaic.co.uk.
'XULQJWKH\HDUXQGHUUHYLHZWKH%RDUGFRQVLVWHGRIÀYH non-executive Directors. All of the Directors are deemed to be independent of the Manager. In the Board's opinion, Mr Mountford continues to qualify as independent, despite his length of service, as he is independent of the Manager and free from any business or other relationships that could materially interfere with the exercise of his judgment.
The Directors' biographies highlight their wide range of business experience.
The Board has proactively addressed the matter of director tenure in their deliberations. It believes that adopting a policy whereby Directors may serve only for a limited period is not appropriate for a listed private equity fund, such as the Trust, where maintaining a long-term perspective is of particular importance. The continuity and experience brought to the Board by Directors with longer periods of service is considered desirable. The Board further considers that implementation RIDÀ[HGWHQXUHSROLF\FRXOGEULQJZLWKLWWKHLQKHUHQWULVNV of short-termism and abuse of position, particularly in the application of such a policy to the position of Chairman.
The Board has considered its plans for the succession of DSSRLQWPHQWVWRWKH%RDUGKDYLQJGXHUHJDUGWRWKHEHQHÀWVRI diversity on the Board and the need to maintain an appropriate balance of skills and experience amongst Directors.
Mr Powell serves as Senior Independent Director ('SID') of the Trust, providing an alternative channel for shareholder communications.
The Board is supplied in a timely manner with information in a form and of a quality appropriate to enable it to discharge its duties. Strategic issues and all operational matters of a material nature are determined by the Board.
The Board met formally six times during 2015 and on one additional occasion for a Board strategy day. There is regular contact among the Directors and with HgCapital between these meetings. The Directors also have access to the advice and services of the Secretary, who is responsible to the Board for ensuring that Board procedures are followed and that applicable rules and regulations are complied with. Where necessary, in the furtherance of their duties, the Directors may seek independent professional advice at the expense of the Trust.
The Board has responsibility for ensuring that the Trust keeps proper accounting records which disclose with reasonable DFFXUDF\DWDQ\WLPHWKHÀQDQFLDOSRVLWLRQRIWKH7UXVWDQG HQDEOHLWWRHQVXUHWKDWWKHÀQDQFLDOVWDWHPHQWVFRPSO\ZLWK UK company law. The Board is also responsible for safeguarding the assets of the Trust and for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Further, it is the Board's responsibility to present a balanced and understandable assessment of the Trust's position in all public communications.
The Trust has maintained appropriate directors' liability insurance cover throughout the year. The Trust's Articles of Association take advantage of statutory provisions to indemnify the Directors against certain liabilities owed to third parties even where such liability arises from conduct amounting to negligence or breach of duty or breach of trust. In addition, under the terms of appointment of each Director, the Trust has agreed, subject to the restrictions and limitations imposed by statute and by the Trust's Articles of Association, to indemnify each Director against all costs, expenses, losses and liabilities incurred in execution RIKLVRUKHURIÀFHDV'LUHFWRURURWKHUZLVHLQUHODWLRQWRVXFK RIÀFH6DYHIRUVXFKLQGHPQLW\SURYLVLRQVLQWKH7UXVW·V\$U WLFOHV of Association and in the Directors' terms of appointment, there are no qualifying third party indemnity provisions in force.
7KH'LUHFWRUVKDYHGHFODUHGDQ\FRQÁLFWRUSRWHQWLDOFRQÁLFW of interest to the Board, which has the authority to approve such situations. A Register of the matters so approved is maintained and reviewed at each meeting of the Board. The Directors advise WKH%RDUGDVVRRQDVWKH\EHFRPHDZDUHRIDQ\FRQÁLFWRI LQWHUHVW,QWKHHYHQWWKDWD'LUHFWRUKDVDUHOHYDQWFRQÁLFWRI interest he would not be party to discussions or decisions on WKHPDWWHURQZKLFKKHRUVKHLVFRQÁLFWHG7KH%RDUGFDQ KRZHYHUFRQÀUPWKDWLWKDVQRWEHHQQHFHVVDU\WRH[FOXGHDQ\ Director from the consideration of Board or Committee matters on such a basis at any time during the year.
An appraisal system has been agreed by the Board for evaluation on an annual basis of the Board, the Audit and Valuation Committee, the Management Engagement Committee and the individual Directors. The Senior Independent Director leads the evaluation of the Chairman. The evaluation takes the form of a detailed questionnaire followed by discussions to identify how the effectiveness of the Board's activities, including its committees, policies or processes might be improved. The results of the evaluation process were presented to and discussed by the Board and it was agreed that the current composition of the Board provided a suitable mix of skills and experience and that the Board was functioning effectively and independently. The %RDUGLVDOVRVDWLVÀHGWKDWFROOHFWLYHO\WKHPHPEHUVRIWKH\$XGLW 9DOXDWLRQ&RPPLWWHHKDYHDVXIÀFLHQWOHYHORIUHFHQWDQG UHOHYDQWÀQDQFLDOH[SHULHQFH
The management of the investment portfolio is undertaken by HgCapital. HgCapital has also been appointed as administrator to the Trust. IPES Depositary (UK) Limited has been appointed as depositary. The Board has delegated the exercise of any voting rights attaching to securities held in the portfolio to HgCapital. +J&DSLWDOGRHVQRWRSHUDWHDÀ[HGSROLF\ZKHQYRWLQJEXW reviews each case separately.
All other matters are reserved for the approval of the Board and its committees.
The Board has delegated a number of areas of responsibility to its committees.
All the Directors of the Trust are non-executive and serve on each committee of the Board. Each Director is considered independent of the Manager, having had no previous or current connection with the investment management of the Trust other than in their capacity as a Director of the Trust, and are further considered to be independent in mind and judgement.
The composition of the Board's standing committees was considered by the Nomination Committee during the year and as part of the annual evaluation process, as noted above, and it was felt appropriate that every non-executive Director should be a member of all committees. With a relatively small Board, it was deemed both proportionate and practical to involve all the independent Directors in each committee.
7KURXJKRXWWKHÀQDQFLDO\HDUHQGHG'HFHPEHU Mr Brooman was the Chairman of the Audit & Valuation Committee (and his report can be found on pages 98 and 99), Mr Dunscombe was Chairman of the Management Engagement Committee (and his report can be found on page 96) and Mr Mountford was Chairman of the Nomination Committee. The terms of reference of all the committees are available on the Trust's website at www.hgcapitaltrust.com and will also be available at each AGM.
I am pleased to report to you on the range of matters which the Management Engagement Committee has considered during 2015.
7KH&RPPLWWHHKDVFRQWLQXHGWRVXSSRU WWKH%RDUGLQIXOÀOOLQJLWVRYHUVLJKWUHVSRQVLELOLWLHVE\FRQGXFWLQJDQDSSUDLVDORIWKH Manager's performance, and keeping under review the terms of the investment management and administration contracts.
The Directors acknowledge that the role of the Management Engagement Committee in a listed private equity company such as the Trust will be different from the role of such committees in the majority of investment trusts. As such, our primary focus is to HQVXUHWKDWWKH0DQDJHU·VEXVLQHVVUHPDLQVUREXVWDQGLVVXLWDEO\UHVRXUFHGWRHQDEOHHIÀFLHQWDQGHIIHFWLYHRSHUDWLRQVWRFRQWLQXH for the foreseeable future. We also consider matters such as the Manager's governance framework and succession planning. Following our review, we have recommended the Manager's continued appointment to be in the best interests of all shareholders.
We also undertake reviews of the Trust's third party appointments on a 3-5 yearly basis depending on the importance of the appointment, with a view to making recommendations to the Board in respect of these appointments. During 2015, we agreed that the Trust would be best served through the role of Company Secretary being directly appointed by the Board. We carefully considered three company secretarial services providers. Following our review, we recommended Capita Company Secretarial 6HUYLFHVWRIXOÀOWKLVUROHDQGWKH%RDUGDSSURYHGWKHDSSRLQWPHQWLQ0D\
We also led the review of legal services providers to the Trust. We appointed a sub-Committee, including myself, to conduct the LQWHUYLHZVDQGHYDOXDWLRQ:HDSSURDFKHGVL[OHJDOVHUYLFHVSURYLGHUVIURPZKLFKZHVKRU WOLVWHGWKUHHOHJDOÀUPV:HPHWZLWK each provider and evaluated their proposals against the Trust's requirements. Subsequently, the Board approved our recommendation to appoint Dickson Minto as the Trust's legal adviser in October 2015.
Yours sincerely
Peter Dunscombe Chairman, Management Engagement Committee 4 March 2016
The table below summarises the Directors' attendance at meetings of the Board and its committees, held in the year to 31 December 2015, compared with the number they were eligible to attend.
| Director | Board | Audit & Valuation |
Management Engagement Nomination |
|
|---|---|---|---|---|
| Richard Brooman | ||||
| Peter Dunscombe | ||||
| Roger Mountford | ||||
| Mark Powell | ||||
| Anne West | ||||
| Andrew Murison | PC |
The Nomination Committee meets when necessary to select and propose suitable candidates for appointment. The Board has noted the recommendation in the AIC Code of Corporate Governance that when looking for a new Chairman, the Nomination Committee should not be chaired by the incumbent. When looking for a new Director, the Board assesses the skills of the Board as a whole, to identify any areas that need strengthening. The Board believes that, as a whole, it comprises an appropriate balance of skills, experience and knowledge. The Board also believes that diversity of experience and approach, including gender diversity, amongst Board members is of great importance and it is the Board's policy to give careful consideration to issues of board balance and diversity when making new appointments. During 2015, the Committee considered the time spent by each Director on matters related to the Trust, having due regard to the other commitments each Director has outside his or her involvement with the Trust. It was agreed that each Director had GHPRQVWUDWHGVXIÀFLHQWFRPPLWPHQWWRGLVFKDUJLQJKLVRUKHU GXWLHVDVD'LUHFWRURIWKH7UXVWDQGKDGFRPPLWWHGVXIÀFLHQW time to Trust matters. The Committee also considered the membership of the standing committees of the Board and discussed the rationale for recommending the re-appointment of each Director who retired and offered himself or herself for re-appointment at the 2015 AGM.
The Board is responsible for the internal controls of the Trust DQGIRUUHYLHZLQJWKHLUHIIHFWLYHQHVVIRUHQVXULQJWKDWÀQDQFLDO information published or used within the business is reliable, and for regularly monitoring compliance with regulations governing the operation of investment trusts. The Board continually reviews the effectiveness of the internal control system.
The processes indicated below have been put in place to ensure that the Trust fully complied with the AIC Code of Corporate Governance throughout the year ended 31 December 2015 and up to the date of this report, and will continue to do so in the year ending 31 December 2016.
As part of the Board's responsibility for the internal control system, an on-going process has been established in conjunction with HgCapital and Capita Asset Services ('Capita') for LGHQWLI\LQJHYDOXDWLQJDQGPDQDJLQJWKH7UXVW·VVLJQLÀFDQWULVNV &RQWUROVUHODWLQJWRWKHULVNVLGHQWLÀHGFRYHULQJÀQDQFLDO operational, compliance and risk management, are embedded in the operations of HgCapital, Capita and other outsourced service providers. There is a monitoring and reporting process WRUHYLHZFRQWUROVSXWLQSODFHWRWUDFNULVNVLGHQWLÀHGFDUULHG out by the compliance function within HgCapital and the auditors of the other organisations. This accords with the guidance of the Financial Reporting Council's 'Guidance on Risk Management, Internal Control and related Financial and Business Reporting'. HgCapital reports to the Trust on its review of internal controls formally on a semi-annual basis and orally at each Board and Audit & Valuation Committee meeting.
'XULQJWKH\HDUWKH7UXVWKDVQRWLGHQWLÀHGDQ\VLJQLÀFDQWIDLOLQJV or weaknesses in the internal control systems.
The Board reviews the 'whistle blowing' procedures of HgCapital to ensure that the concerns of its staff may be raised in a FRQÀGHQWLDOPDQQHU
Following the implementation of the UK Bribery Act in 2011, the Trust and the Manager formally adopted anti-corruption policies. The Board reviews compliance with these policies on a bi-annual basis.
The Trust does not have its own internal audit function, as all the administration is delegated to the Manager. This matter is kept under annual review.
+J&DSLWDOSUHSDUHVFDVKÁRZIRUHFDVWVDQGPDQDJHPHQW accounts, which allow the Board to assess the Trust's activities and to review its performance. The Board and HgCapital have DJUHHGFOHDUO\GHÀQHGLQYHVWPHQWFULWHULDVSHFLÀHGOHYHOVRI authority and exposure limits. Reports on these issues, including performance statistics and investment valuations, are submitted to the Board at each meeting. HgCapital's evaluation procedure DQGÀQDQFLDODQDO\VLVRIWKHFRPSDQLHVZLWKLQWKHSRU WIROLR includes detailed research and appraisal, and also takes into account environmental policies and other business issues. The Board recognises that these control systems can only be designed to manage, rather than eliminate, the risk of failure to achieve business objectives and to provide reasonable, but not absolute, assurance against material misstatement or loss. It relies on the operating controls established by HgCapital and Capita.
7KH%RDUGLVUHTXLUHGWRHQVXUHWKDWWKHÀQDQFLDOVWDWHPHQWV give a true and fair view of the affairs of the Trust as at the HQGRIHDFKÀQDQFLDO\HDUDQGRIWKHUHVXOWVRIWKH7UXVWIRU that period.
7KH%RDUGFRQVLGHUVWKDWLQSUHSDULQJWKHÀQDQFLDOVWDWHPHQWV the Trust has used appropriate accounting policies, consistently applied (except where disclosed) and supported by reasonable and prudent judgments and estimates and that all accounting standards that it considers to be applicable have been followed.
All shareholders have the opportunity to attend and vote, in person or by proxy, at the AGM. The notice of the AGM which is sent out at least twenty working days in advance sets out the business of the meeting and any item, not of an entirely routine nature, is explained in the Directors' Report. Separate resolutions are proposed in respect of each substantive issue.
The Chairman of the Board, the Chairman of the Audit & Valuation Committee, and the Chairman of the Management Engagement Committee together with representatives of HgCapital, are available to answer shareholders' questions at WKH\$*03UR[\YRWLQJÀJXUHVDUHDYDLODEOHWRVKDUHKROGHUVDW the AGM.
HgCapital holds regular discussions with major shareholders, the feedback from which is greatly valued by the Board. In addition, the Chairman and the Senior Independent Director are available to enter into dialogue and correspondence with shareholders regarding the progress and performance of the Trust. The section of this report, entitled 'Shareholder Information', provides information which may be useful to shareholders.
I am pleased to report to you on the range of matters which the Audit and Valuation Committee has considered during 2015, the key risks and judgement areas and the decisions applied. The Committee, which met six times during the year, has continued WRVXSSRU WWKH%RDUGLQIXOÀOOLQJLWVRYHUVLJKWUHVSRQVLELOLWLHVUHYLHZLQJWKHFULWLFDOYDOXDWLRQVSURFHVVÀQDQFLDOUHSRU WLQJWKH system of internal control and management of risk, the audit process and the Trust's process for monitoring compliance with laws and regulations and its own code of business conduct.
The responsibilities of a company's audit committee are set out in the UK Corporate Governance Code, Disclosure and Transparency Rule 7.1 and the Committee's terms of reference.
All of the Directors of the Trust are members of this Committee to enable them to be kept fully informed of any issues that may arise and to participate fully in discussions on portfolio valuation. Mr Murison ceased to be a member of the Committee, on his retirement from the Board on 13 May 2015.
\$OORIWKHPHPEHUVRIWKH&RPPLWWHHZKRVHELRJUDSKLHVDUHLQFOXGHGRQSDJHKDYHUHFHQWDQGUHOHYDQWÀQDQFLDO H[SHULHQFHDVDUHVXOWRIWKHLULQYROYHPHQWLQÀQDQFLDOVHUYLFHVDQGRWKHULQGXVWULHV,DPDFKDU WHUHGDFFRXQWDQWZLWK FRQVLGHUDEOHH[SHULHQFHLQVHQLRUÀQDQFLDOUROHVLQDQXPEHURIEXVLQHVVVHFWRUV5HSUHVHQWDWLYHVRIWKHH[WHUQDODXGLWRUV Deloitte LLP, also attend and present at meetings of the Committee.
During the year under review, the principal matters considered by the Committee were as follows:
A number of similar matters will be considered again in 2016, particularly those relating to valuation, the changing shape of the regulatory environment and the risks and opportunities so presented. Inevitably, the Annual Report and Accounts and the Interim Statements will occupy much Committee time. The Committee will also consider the impact of the Common Reporting Standard. Additionally, we expect to continue to sharpen our focus on relevant risks and the appropriate mitigation of their impact on the Company.
The Committee's key consideration in its work in connection with the Annual Report and Accounts is that the Board of 'LUHFWRUVFDQGHOLYHUWRVKDUHKROGHUVÀQDQFLDOVWDWHPHQWVZKLFKDUHIDLUEDODQFHGDQGXQGHUVWDQGDEOH
The Committee considers in detail the annual and interim statements published by the Trust. The Committee has engaged with WKH0DQDJHULQRUGHUWRIDFLOLWDWHWKHPDNLQJRIDQ\VLJQLÀFDQWÀQDQFLDOUHSRU WLQJMXGJHPHQWVDQGKDVDOVRFRQVLGHUHGLQGXVWU\ practice amongst its peers, where this was considered appropriate.
)ROORZLQJGLVFXVVLRQZLWKWKHDXGLWRUDQGWKH0DQDJHUWKH&RPPLWWHHFRQVLGHUVWKHPDLQULVNLQUHVSHFWRIWKHÀQDQFLDO statements to be the valuation of multiple unlisted assets held through fund limited partnerships. In order to address this risk, the Audit and Valuation Committee has followed IPEV valuation guidelines, considered comparable companies and questioned the Manager closely about the performance of the underlying businesses.
The Committee is responsible for reasonably satisfying itself that:
Details in respect of the Board's approach to monitoring internal controls are provided on page 97.
The Board and the Committee have spent time in the past year assessing the suitability of the Trust's processes for mapping and monitoring risks; these processes are kept under regular review.
The Trust's external auditor, Deloitte LLP, has been the Trust's auditor since 2008 and no tender for the audit contract of the 7UXVWKDVEHHQXQGHU WDNHQVLQFHWKLVGDWH7KHDXGLWHQJDJHPHQWSDU WQHUURWDWHVHYHU\ÀYH\HDUVLQDFFRUGDQFHZLWKWKH guidelines issued by the Auditing Practices Board. During the year, the Committee undertook a review of the services provided by the auditor and the relevant fees and it was agreed that there was no need at present to tender the Trust's audit contract. This will be kept under review, recognising that guidelines indicate the requirement for an audit tender by 2017. Details of the DXGLWDQGQRQDXGLWIHHVSDLGWR'HORLWWH//3DUHSURYLGHGLQQRWHWRWKHÀQDQFLDOVWDWHPHQWV
The Committee monitors the Trust's relationship with Deloitte LLP with a view to ensuring that the external auditor does not provide non-audit services that have the potential to impair or appear to impair the independence of its audit role. The Board has agreed that, from time to time, it may be appropriate for the external auditor to provide certain non-audit services, where alternative providers do not exist or where it is cost effective or in the Trust's interest for the external auditor to provide such services.
7KH&RPPLWWHHKDVGLVFXVVHG'HORLWWH//3·VEXVLQHVVUHODWLRQVKLSZLWKWKH0DQDJHUDQGLVVDWLVÀHGWKDWWKHH[WHUQDODXGLWRU remains independent of the Manager. Deloitte LLP has appropriate measures in place to ensure auditor objectivity and independence are safeguarded; such measures include ensuring that separate engagement teams conduct the audits for the Trust and the Manager and its funds. The Committee has considered the independence and objectivity of the auditor, paying particular DWWHQWLRQWRWKHIDFWRUVRXWOLQHGDERYHDQGLVVDWLVÀHGWKDW'HORLWWH//3LVLQGHSHQGHQWRIWKH7UXVWDQGKDVIXOÀOOHGLWV obligations to the Trust and its shareholders.
Having regard to these and all other relevant factors, the Audit and Valuation Committee recommended to the Board that, subject to shareholder approval at the 2016 AGM, Deloitte LLP be re-appointed as the independent auditor of the Trust for the forthcoming year.
Following completion of the external audit, the Committee considers feedback on the conduct of the audit from the Manager.
The external auditor is invited to attend all Audit and Valuation Committee meetings and also meets with the Committee and its Chairman without representatives of the Manager being present.
The Trust does not have an internal audit function. The Committee considers annually whether there is a need for an internal audit function and it has been agreed that it remains appropriate for the Trust to rely on the internal controls implemented by the Manager and other third party providers.
Yours sincerely
Richard Brooman Chairman, Audit and Valuation Committee 4 March 2016
This Directors' Remuneration Report for the year ended 31 December 2015, has been prepared in accordance with Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 as amended in August 2013.
The shareholder vote on the Directors' Remuneration Report is, as previously, an advisory vote, whilst the Directors' Remuneration Policy is subject to a binding vote. The Remuneration Policy was approved by shareholders at the 2014 AGM and it is intended that this policy will continue for the year ending 31 December 2016 and subsequent years. In accordance with the regulations, an ordinary resolution to approve the Directors' Remuneration Policy will be put to shareholders at least once every three years. An ordinary resolution for the approval of this remuneration report will be put to members at the forthcoming AGM.
The Companies Act 2006 requires the auditors to report to shareholders on certain parts of the Directors' Remuneration Report and to state whether, in their opinion, those parts of the report have been properly prepared in accordance with the Regulations. The parts of the Annual Report on Remuneration that are subject to audit are indicated in that report. The statement by the Chairman of the Board and the Policy on Directors' Remuneration are not subject to audit.
The Trust decided in 2012 that as it has no employees or executive directors and the level of fees to be paid to the non-executive Directors and the Chairman are only considered within the limits prescribed by the Articles of Association, the maintenance of a separate Remuneration Committee added little value. On this basis, the Board as a whole is responsible for deciding the level of fees to be paid to the non-executive Directors and the Chairman, at its discretion within an aggregate ceiling of £300,000 per annum. Should a new non-executive Director be appointed, their remuneration would be decided by the Board and required to remain within the total aggregate ceiling of £300,000 per annum. Each Director abstains from voting on their own individual remuneration.
During the year under review, the whole Board met once during the year to consider the Directors' Remuneration Policy and DQQXDOIHHV,QRUGHUWRUHÁHFWWKHLQFUHDVHGWLPHFRPPLWWHGE\ Directors, with effect from 1 July 2015, the remuneration of the Directors was increased as follows:
The Trust has no employees other than its Directors, who are all non-executive and independent of the Manager. The Secretary provides a comparison of the Directors' remuneration with other investment trusts of similar size and/or mandate. This comparison, together with consideration of any change in non-executive Directors' responsibilities, is used to review annually whether any change in remuneration is appropriate.
The remuneration of the Directors is determined within the limits set out within the Trust's Articles of Association and the total aggregate annual fees payable to the Directors in respect of DQ\ÀQDQFLDOSHULRGVKDOOQRWH[FHHG
Any views expressed by shareholders at the Trust's AGM in respect of the Directors' remuneration are taken into account in formulating the Directors Remuneration Policy. At the last AGM, 99.97% of votes were in favour of the Directors' Remuneration Report, with 0.03% voting against. At the 2014 AGM, 99.93% of votes were in favour of the Directors' Remuneration Policy, with YRWLQJDJDLQVWVKRZLQJVLJQLÀFDQWVKDUHKROGHUVXSSRU W
The FTSE ALL-Share Index (total return) has been used for comparative purposes as this is the comparator used when UHSRU WLQJWRVKDUHKROGHUV\$OOÀJXUHVDUHEDVHGRQWKHWRWDO return to shareholders.
The Directors who served during the year received the following remuneration:
| Directors' remuneration | 2015 £ |
Total remuneration 2014 £ |
|---|---|---|
| 4QIGT /QWPVHQTF %JCKTOCP |
||
| Richard Brooman (Chairman of the #WFKV 8CNWCVKQP %QOOKVVGG |
||
| Peter Dunscombe (Chairman of the /CPCIGOGPV 'PICIGOGPV %QOOKVVGG |
||
| Andrew Murison TGVKTGF /C[ |
||
| 2GVGT )CNG TGVKTGF /C[ |
– | |
| Mark Powell | ||
| Anne West | ||
| Total remuneration |
None of the fees referred to in the above table were paid to any third party in respect of the services provided by any of the Directors.
No element of the Directors' remuneration is performance related. The remuneration of the Directors is determined within the limits set out within the Trust's Articles of Association and they are not eligible for bonuses, share options or long-term performance incentives.
Article 97 of the Trust's Articles of Association provides that Directors are entitled to be reimbursed for reasonable expenses incurred by them in connection with the performance of their duties and attendance at Board and General Meetings.
Article 98 permits the Company to provide pension or similar EHQHÀWVIRU'LUHFWRUVDQGHPSOR\HHVRIWKH&RPSDQ\ However, no pension schemes or other similar arrangements have been established and no Director is entitled to any SHQVLRQRUVLPLODUEHQHÀWV On behalf of the Board
None of the Directors has a service contract with the Trust. The terms of their appointments are detailed in a letter sent to them when they join the Board. These letters state that a Director VKDOOUHWLUHDQGEHVXEMHFWWRHOHFWLRQDWWKHÀUVW\$*0DIWHUWKHLU appointment and re-election at least every three years after that. The Trust does not have a policy on termination payments and QRSDVW'LUHFWRUKDVEHHQFRPSHQVDWHGIRUORVVRIRIÀFH\$OORI the Trust's Directors are subject to retirement by rotation in accordance with the Trust's Articles of Association.
1RQHRIWKH'LUHFWRUVUHFHLYHDQ\QRQFDVKEHQHÀWV
| 2015 | 2014 | change % |
|
|---|---|---|---|
| Total Directors' TGOWPGTCVKQP o |
203 | 215 | 1 |
| Total dividend paid or FGENCTGF o |
6JG-PQTOCNKUGF-TGOWPGTCVKQP-FWTKPI-VJG-[GCT-CFLWUVGF-HQT-VJG-TGVKTGOGPV QH-#PFTGY-/WTKUQP-YCU--KORN[KPI-C-EWTTGPV-[GCT-KPETGCUG-QH-
There is no requirement under the Trust's Articles of Association or letters of appointment for Directors to hold shares in the Trust. The interests of the Directors in the shares of the Trust, at end of the year under review and at the end of the previous year, were as follows:
| No. Ordinary shares | 2015 | 2014 |
|---|---|---|
| Richard Brooman | ||
| Peter Dunscombe | ||
| Roger Mountford | ||
| Mark Powell | ||
| Anne West |
The above information has been audited.
There have been no changes in the interests of the Directors (including their connected persons), in the Ordinary shares of the Trust, between 31 December 2015 and the date of this report.
Roger Mountford Chairman of the Board 4 March 2016
Pursuant to Article 23(1) of the AIFMD, Hg Pooled Management Limited as Manager of the Trust, makes available the following information to the existing shareholders of the Trust in order to supplement and update (where relevant) the information provided to them before they invested.
Please note that where the Manager has determined that the required information is already detailed elsewhere in the Annual 5HSRU WDQG\$FFRXQWVDVGHÀQHGEHORZ RURWKHUDYDLODEOH source documents, this supplemental disclosure contains a reference to such source documents. Where the Manager has determined that the required information has not been provided to shareholders, this supplemental disclosure contains the relevant details.
The Company is an EU Alternative Investment Fund ('AIF'), being a public limited company incorporated in England and Wales and listed on the London Stock Exchange. The Company's registered RIÀFHLV0RUH/RQGRQ5LYHUVLGH/RQGRQ6(\$3
The investment objective, policy and strategy of the Trust and the Manager are set out in The Trust's Investment Objective and Investment Policy section (page 11) and The Manager's Review section (page 17) of the 31 December 2015 Annual Report and Accounts.
The Trust is subject to the UK Listing Authority listing rules and as such, any change to the Trust's investment policy can only be made with the approval of shareholders in a general meeting.
The principal risks associated with the Trust's investment policy are set out in The Trust's Rationale and Business Model section (page 12) and the Financial Risk section (page 79; note 19) RIWKHQRWHVWRWKHÀQDQFLDOVWDWHPHQWVLQWKH\$QQXDO5HSRU W and Accounts. The Manager is responsible for risk management functions and has procedures in place to evaluate, monitor and mitigate the risks faced by the Trust. The Manager's risk management function is reviewed by the Board and the Audit and Valuation Committee in order to ensure that the best processes are in place and properly followed.
Hg Pooled Management Limited is the manager of the Trust, LWVUHJLVWHUHGRIÀFHEHLQJ0RUH/RQGRQ5LYHUVLGH/RQGRQ SE1 2AP. The Manager is a limited company and is authorised and regulated (FRN 122466) by the Financial Conduct Authority ('FCA'). The Manager was authorised to manage AIFs for the purpose of the AIFMD with effect from 22 July 2014. The Manager has been appointed to manage the Trust pursuant to an agreement dated 14 January 2009 as amended and restated on 22 July 2014 (the 'Management Agreement') to include appropriate provisions relating to AIFMD.
The Manager has sole responsibility for managing the Trust, including investigating and negotiating any potential investments and making investment decisions for the Trust (subject to the Investment Policy). The Manager has delegated certain administration and investment support services to HgCapital LLP, its parent undertaking. In addition, HgCapital LLP is appointed as an investment adviser to the Manager.
The Manager's duties under the Management Agreement are owed to the Trust as a whole and not directly to the shareholders, whether individually or in groups.
The Manager maintains appropriate additional own funds to meet its regulatory capital requirements under the AIFMD, including in relation to professional liability risks.
The Trust has appointed IPES Depositary (UK) Limited WKH¶'HSRVLWDU\· ZKRVHUHJLVWHUHGRIÀFHLVDWWK)ORRU No.1 Minster Court, Mincing Lane, London EC3R 7AA, as the depositary in relation to the Trust under an agreement dated 22 July 2014 (the 'Depository agreement').
The Depositary is authorised and regulated (FRN 610203) by the FCA and is responsible for verifying ownership of the Trust's investments (on the basis of evidence provided by the Manager) and maintaining a register of such as well as cash monitoring of the Trust's bank accounts and oversight as required by the Manager. The Depositary's duties under the Depositary agreement are owed to the Trust as a whole and not directly to the shareholders, whether individually or in groups.
7KH7UXVWKDVDSSRLQWHG'HORLWWH//3ZKRVHUHJLVWHUHGRIÀFHLV at 2 New Street Square, London EC4A 3BZ, as auditor. The auditor's duties are to carry out the annual audit of the Trust. The auditors are primarily responsible for evaluating the application of the Trust's accounting policies and the review of WKHÀQDQFLDOVWDWHPHQWV
The agreement between the Trust and Deloitte for the provisions of audit services to the Trust does not include any VSHFLÀFULJKWVIRUVKDUHKROGHUV
The Manager has appointed Dickson Minto W.S., whose UHJLVWHUHGRIÀFHLVDW&KDUORWWH6TXDUH(GLQEXUJK(+') as the Trust's legal adviser.
The agreement between the Manager and Dickson Minto W.S. GRHVQRWLQFOXGHDQ\VSHFLÀFULJKWVIRUVKDUHKROGHUV
The Trust does not retain a prime broker.
The rights of the shareholders are governed by the Trust's Articles of Association, the relevant provisions of the Companies Act 2006, the UK Listing Authority listing rules and the disclosure and transparency rules of the FCA.
The Articles of Association may only be amended by special resolution of the shareholders.
As at 31 December 2015, the Trust had 37,324,698 Ordinary shares of 25 pence each in issue. Each Ordinary share has one voting right attached to it. The total number of voting rights in the Trust at this date was 37,324,698. Further information on the share capital of the Trust can be found in the Ordinary share FDSLWDOSDJHQRWH VHFWLRQRIWKHQRWHVWRWKHÀQDQFLDO statements in the Annual Report and Accounts. Shares are not offered on an on-going basis but may be bought or sold through DVWRFNEURNHUÀQDQFLDOLQWHUPHGLDU\RURQHRIWKHVKDUHGHDOLQJ services detailed in the Shareholder Information section of the Annual Report and Accounts (page 106).
The Trust is incorporated under the laws of England and Wales. As such, the courts of England and Wales will have jurisdiction to hear and determine any proceeding, and to settle any dispute, in accordance with English law, which may arise out of a shareholder's shareholding in the Trust. Consequently, for shareholders residing outside that jurisdiction it may not be possible to effect service of process in an alternative jurisdiction or enforce any judgement obtained against the Trust in an alternative jurisdiction.
The aggregate amount of borrowing shall not exceed an amount equal to twice the aggregate of:
The Trust has in place a £40 million multi-currency standby facility with Lloyds Bank plc (increasing to £80 million from 31 December 2016) on an unsecured basis, expiring on 30 June 2019. Please refer to The Trust's Investment Objective and Investment Policy section (page 11) of the Annual Report and Accounts for further details.
The Manager's valuation policy is to value investments in accordance with the International Private Equity and Venture Capital ('IPEV') guidelines. The Trust has an Audit and Valuation Committee which reviews these valuations and provides oversight of the valuation process and methodology. Please see The Trust's Rationale and Business Model section (page 12) of the Annual Report and Accounts for further details.
As the Trust is closed-ended with no redemptions, its liquidity management is limited to ensuring it has the ability to meet the commitments made to its investments. A number of levers are DYDLODEOHLQRUGHUWRPDQDJHWKH7UXVW·VOLTXLGLW\SURÀOH,Q particular, an opt-out provision has been negotiated in its commitments to the HgCapital 7 (and previously HgCapital 6) buyout fund permitting it to opt-out of any new investment if a GUDZGRZQFRPPLWPHQWLVGXHDQGLWGRHVQRWKDYHVXIÀFLHQW liquidity to meet that commitment. A proportion of the assets of the Trust is normally maintained in liquid readily realisable form (cash, money market instruments, gilts and a managed liquidity fund) to meet draw-down needs so that although the opt-out arrangement has been in place since 2009 it has not to date been invoked. In addition, a borrowing facility has been arranged pursuant to which additional temporary facilities of up to £40 million (increasing to £80 million) are available (as referred to in the Leverage section above) if required. For further details, refer to the Trust's Rationale and Business Model (page 12) section of the Annual Report and Accounts.
For details of the fees payable by the Trust to the Manager in relation to its investment activities within the underlying fund SDU WQHUVKLSVSOHDVHUHIHUWRWKH3ULRULW\SURÀWVKDUHDQGFDUULHG LQWHUHVWVHFWLRQSDJHQRWH RIWKHQRWHVWRWKHÀQDQFLDO statements in the Annual Report and Accounts.
In relation to the management of the Trust, the Manager is also entitled to receive £5,000 per quarter for its activities as the Manager of the Trust and 0.025% of the NAV of the Trust per quarter for its activities as administrator.
The Trust also incurs fees in the form of depositary fees, bank fees, marketing fees, legal fees, auditors' fees and other fees. It is not possible to provide a maximum fee payable due to the nature of these amounts.
The Manager and the Board are committed to treating shareholders fairly in accordance with UK company law. No preferential rights have been granted to any shareholder. The Manager and the Board of the Trust will not enter into any preferential arrangements which would lead to a material disadvantage to other shareholders.
The Manager does not directly employ any staff and instead HgCapital LLP, which also acts as investment adviser and provides administrative services to the Manager, provides personnel to WKH0DQDJHUWRIXOÀOUROHVZLWKLQLQYHVWPHQWFRPPLWWHH portfolio review committee and the control and risk functions (the "Relevant Functions") and perform other activities of the Manager. Personnel carrying out the Relevant Functions or who are senior management of the Manager are referred to below DV´,GHQWLÀHG6WDII µ7KHWDEOHEHORZVHWVRXWWKHGLVFORVXUHV required under AIFMD in relation to the proportion of remuneration attributable to work done for the Trust during the year ended 31 December 2015.
| 2015 £ |
|
|---|---|
| (KZGF TGOWPGTCVKQP RCKF VQ +FGPVKƂGF 5VCHH |
|
| 8CTKCDNG TGOWPGTCVKQP RCKF VQ +FGPVKƂGF 5VCHH |
|
| #IITGICVG TGOWPGTCVKQP RCKF VQ +FGPVKƂGF 5VCHH YJQ are senior management of the Manager |
|
| #IITGICVG TGOWPGTCVKQP RCKF VQ +FGPVKƂGF 5VCHH YJQ JCXG C OCVGTKCN KORCEV QP VJG TKUM RTQƂNG QH VJG 6TWUV by reason of performing Relevant Functions |
|
| %CTTKGF KPVGTGUV RCKF D[ VJG 6TWUV VQ +FGPVKƂGF 5VCHH |
– |
7KHQXPEHURI,GHQWLÀHG6WDIIIRUWKH\HDUZDVQLQHWHHQ3OHDVH note that there was no carried interest paid in respect of the Trust during the year.
In accordance with the FCA's guidance on the AIFMD remuneration code, the information above relates only to the ÀQDQFLDO\HDURIWKH7UXVWHQGHG'HFHPEHU\$VWKLVLV WKHÀUVWIXOOÀQDQFLDO\HDUIROORZLQJWKH0DQDJHU·VYDULDWLRQRI permission to act as an AIFM under the AIFMD (which took effect from 22 July 2014) and adoption of the remuneration policy, it would not be useful to provide a remuneration GLVFORVXUHIRUWKHSUHYLRXVÀQDQFLDO\HDURIWKH7UXVWEHFDXVHLW would not provide a meaningful basis for like-for-like comparison. Comparative data will be provided in coming years.
The Manager has ensured that all remuneration is directly DOLJQHGZLWKWKHVSHFLÀFUHTXLUHPHQWVRIWKH\$,)0'
The Manager's remuneration policy (which also applies directly WR+J&DSLWDO//3 VHHNVWRDYRLGFRQÁLFWVRILQWHUHVWE\HQVXULQJ that:
The Trust's historic performance has been disclosed to shareholders in its Annual Report and Accounts, the most recent one covering the year ended 31 December 2015 (and being sent to all shareholders).
\$Q\IXU WKHULQIRUPDWLRQDERXWWKH7UXVW·VULVNSURÀOHDQGULVN management, any material changes to the liquidity arrangements, the proportion of assets subject to special arrangements arising from liquidity and the maximum permitted leverage will be provided via the Trust's Annual Report and Accounts and on the Trust's website at www.hgcapitaltrust.com.
The announcement and publication of the Trust's results may normally be expected in the months shown below:
| March | • Final results for year announced | |
|---|---|---|
| • Annual Report and Accounts published | ||
| May | • Annual General Meeting | |
| September | • ,QWHULPÀJXUHVDQQRXQFHGDQGLQWHULP report published |
|
| Dividend | ||
| The dividend proposed in respect of the year ended 31 December 2015 is 40 pence per share. |
||
| Ex-dividend date | (shares transferred without dividend) | 7 April 2016 |
| Record date | (last date for registering transfers to receive the dividend) | 8 April 2016 |
| Last date for registering DRIP |
instructions (see below) 22 April 2016 Dividend payment date 16 May 2016
The dividend is subject to approval of the shareholders at the forthcoming AGM.
&DVKGLYLGHQGVZLOOEHVHQWE\FKHTXHWRWKHÀUVWQDPHG shareholder at their registered address, together with a tax voucher, to arrive on the payment date. Alternatively, dividends may be paid direct into a shareholder's bank account via Bankers' Automated Clearing Service ('BACS'). This may be arranged by contacting the Trust's registrar, Computershare Investor Services PLC ('Computershare'), on 0370 707 1037.
Shareholders may request that their dividends be used to purchase further shares in the Trust.
Dividend re-investment forms may be obtained from Computershare on 0370 707 1037 or may be downloaded from www-uk.computershare.com/investor. Shareholders who have already opted for dividend re-investment do not need to re-apply. The last date for registering for this service for the forthcoming dividend is 22 April 2016.
The Trust's mid-market Ordinary share price is published daily in the Times and the Daily Telegraph under the section 'Investment Companies'. In the Financial Times, the Ordinary share price is listed in the sub-section 'Conventional-Private Equity'.
The ISIN/SEDOL numbers and mnemonic code for the Trust's Ordinary shares are:
| ISIN | GB0003921052 |
|---|---|
| SEDOL | 0392105 |
| Reuters code | HGT.L |
Investors wishing to purchase or sell shares in the Trust may do so through a stockbroker or a bank.
The following share dealing services are available through our Registrars, Computershare Investor Services PLC:
Please note that, at present, this service is only available to shareholders in certain European jurisdictions, including the UK. Please refer to the website for an up to date list of these countries. This service provides shareholders with an easy way to buy or sell the Trust's Ordinary shares on the London Stock Exchange. The commission is 1.0%, subject to a minimum charge of £30. In addition, stamp duty, currently 0.5%, is payable on purchases. There is no need to open an account in order to deal. Real-time dealing is available during market hours. In addition, there is a convenient facility to place your order outside of market hours.
Up to 90 day limit orders are available for sales. To access the service log on to www.computershare.com/dealing/uk.
Shareholders should have their Shareholder Reference Number ¶651· DYDLODEOH7KH651DSSHDUVRQVKDUHFHU WLÀFDWHV \$EDQN debit card will be required for purchases.
Please note this service is, at present, only available to shareholders resident in the UK and Ireland. The commission is 1% plus a standard charge of £35. In addition, stamp duty, currently 0.5%, is payable on purchases. The service is available from 8.00am to 4.30pm Monday to Friday, excluding bank holidays, on telephone number 0370 703 0084. Shareholders should have their SRN ready when making the call. The SRN DSSHDUVRQVKDUHFHU WLÀFDWHV \$EDQNGHELWFDUGZLOOEHUHTXLUHG for purchases. Detailed terms and conditions are available on request by telephoning 0370 703 0084.
These services are offered on an execution only basis and subject to the applicable terms and conditions. This is not a recommendation to buy, sell or hold shares in HgCapital Trust plc. Shareholders who are unsure of what action to take should REWDLQLQGHSHQGHQWÀQDQFLDODGYLFH6KDUHYDOXHVPD\JRGRZQ as well as up which may result in a shareholder receiving less than he/she originally invested.
7RWKHH[WHQWWKDWWKLVVWDWHPHQWLVDÀQDQFLDOSURPRWLRQIRU the share dealing service provided by Computershare Investor Services PLC, it has been approved by Computershare Investor Services PLC for the purpose of Section 21 (2) (b) of the Financial Services and Markets Act 2000 only. Computershare Investor Services PLC is authorised and regulated by the Financial Conduct Authority. Where this has been received in a country where the provision of such a service would be contrary to local laws or regulations, this should be treated as for information only.
The Trust's Ordinary shares have joined CREST, an electronic V\VWHPIRUXQFHU WLÀFDWHGVHFXULWLHVWUDGLQJ
3ULYDWHLQYHVWRUVFDQFRQWLQXHWRUHWDLQWKHLUVKDUHFHU WLÀFDWHV and remain outside the CREST system. Private investors are able to buy and sell their holdings in the same way as they did prior to the introduction of CREST, although there may be differences in dealing charges.
Where possible, dividends can be designated as an interest distribution (interest streaming) for tax purposes. This will be paid net of withholding tax of 20% which can be reclaimed by shareholders, depending on their relevant tax status, and the gross amount is taxed as interest income. Where interest streaming is not possible, all UK dividends are paid to shareholders net of a tax credit of 10%. Changes to the tax regime mean that since April 1999 non-taxpayers have no longer been able to reclaim the tax credit.
Non-PEP and ISA shareholders liable for higher rates of tax are assessed for any additional tax through their annual tax return.
Qualifying investment trusts currently pay no corporation tax on capital gains made within the portfolio. When investors sell all or part of their holdings, they may be liable to CGT. For the tax \HDUWKHÀUVWSHUDQQXPRIVXFKJDLQVIURP all sources is exempt.
)URP\$SULOXQWLO-XQHDÀ[HGWD[UDWHRQFDSLWDO gains of 18% was applied. From 23 June 2010 the following CGT rates apply:
Investments held in ISAs continue to remain exempt from CGT.
Please remember that we are unable to offer individual investment or taxation advice. Investors who are in any doubt as to their liability for CGT should seek professional advice.
With effect from 6 April 2016, the 10% tax credit on dividends has been replaced with an individual annual tax allowance of £5,000 across all dividend income, above which there is a tax liability. For further information, please visit the HMRC.gov.uk website. For queries about your own tax position, please speak to an independent tax advisor.
An ordinary resolution was approved by shareholders at the Annual General Meeting in May 2015 to continue the life of the 7UXVWIRUDIXU WKHUÀYH\HDUVDQGDVLPLODUUHVROXWLRQZLOOEHSXW WRWKHVKDUHKROGHUVLQDQGHYHU\ÀIWK\HDUWKHUHDIWHU,IWKH resolution to continue the life of the Trust is not approved, a General Meeting will be convened within six months after the date of the AGM to put forward proposals for the reorganisation or reconstruction of the Trust.
Where shares are held in a nominee company name, the Trust undertakes:
Nominee companies are encouraged to provide the necessary authority to underlying shareholders to attend the Trust's general meetings.
The Board notes the changes to the FCA rules relating to the restrictions on the retail distribution of unregulated collective investment schemes and close substitutes which came into effect on 1 January 2014.
/HJDODGYLFHREWDLQHGE\WKH7UXVWFRQÀUPVWKDWWKHVKDUHVRI HgCapital Trust plc (the 'Trust') shares will qualify as an 'excluded security' under these new rules and will therefore be excluded from the FCA's restrictions which apply to non-mainstream investment products. The shares are excluded from the FCA's restrictions which apply to non-mainstream investment products because they are shares in an investment trust.
HgCapital Trust plc conducts its affairs so that the shares issued by the Trust can be recommended by IFAs to ordinary retail investors in accordance with the FCA's rules in relation to non-mainstream investment products and intends to continue to do so for the foreseeable future.
With effect from 1 January 2016, new tax legislation under The OECD ('Organisation for Economic Co-operation and Development') The Common Reporting Standard for Automatic Exchange of Financial Account Information ('The Common Reporting Standard') is being introduced.
The legislation will require investment trust companies to provide personal information to HMRC on certain investors who purchase shares in investment trusts. As an affected company, HgCapital Trust plc will have to provide information annually to the local tax authority on the tax residencies of a QXPEHURIQRQ8.EDVHGFHU WLÀFDWHGVKDUHKROGHUVDQG corporate entities.
All new shareholders, excluding those whose shares are held in CREST, are entered onto the share register from 1 January 2016 ZLOOEHVHQWDFHU WLÀFDWLRQIRUPIRUWKHSXUSRVHVRIFROOHFWLQJ this information.
For further information, please see HMRC's Quick Guide: Automatic Exchange of Information, information for account holders: https://www.gov.uk/government/publications/exchangeof-information-account-holders
The Trust's shares are eligible for stocks and shares ISAs.
In the event of queries regarding your shares, please contact the Computershare Investor Centre. Computershare now offers a free secure share management website that allows you to:
Log on to www-uk.computershare.com/investor and enter your Shareholder Reference Number and Company Code (this information can be found on the last dividend voucher RU\RXUVKDUHFHU WLÀFDWH
&KDQJHVRIQDPHRUDGGUHVVPXVWEHQRWLÀHGLQZULWLQJWR Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS99 6ZZ
General enquiries about the Trust should be directed to:
Hg Pooled Management Ltd 2 More London Riverside London SE1 2AP Telephone: 020 7089 7888
Private equity is the term given to the provision of equity and equity type risk capital to unlisted companies.
,WLVQRUPDOO\XVHGWRÀQDQFHEHQHÀFLDOFKDQJHLQEXVLQHVVHV 7KHFKDQJHVWKDWUHTXLUHHTXLW\ÀQDQFHDUHPDQLIROGDQGHYHU present. They include a change in the scale of a business (through fast growth or acquisitions), a change in ownership, often in conjunction with management (the management buyout), a change in the strategic direction of a company, DVLJQLÀFDQWFKDQJHLQWKHVWUXFWXUHDQGRSHUDWLRQVRIDEXVLQHVV RUÀQDQFLQJWKHFRPPHUFLDOLVDWLRQRIQHZWHFKQRORJLHV
Healthy economies require constant change in their corporate VHFWRURWKHUZLVHWKH\VWXOWLI\3ULYDWHHTXLW\LVDIRUPRIÀQDQFH well-suited to pay for this change as it is patient, welcomes considered risk taking, and participates directly in outcomes.
In return for their investment, private equity investors receive DVKDUHRIWKHHTXLW\LQWKHEXVLQHVVHVWKH\ÀQDQFHDQGGRVR ZLWKWKHREMHFWLYHRIPDNLQJDVLJQLÀFDQWFDSLWDOJDLQRYHUKROGLQJ periods, typically from three to seven years.
Private equity investors, like HgCapital, aim to deliver their clients higher returns than may be obtained from a portfolio of public HTXLW\LQYHVWPHQWVRYHUDQ\UROOLQJSHULRGRIÀYHWRWHQ years. Attractive returns can be garnered if the private equity manager exploits the advantages private equity investors have over investors in public markets.
Private equity investments are less liquid than publicly traded equities. To compensate for this, they offer greater control and aim for more attractive returns.
,QGLYLGXDOSULYDWHHTXLW\LQYHVWPHQWVKDYHDULVNSURÀOH dependent on the nature of the underlying business. Investing in DGLYHUVLÀHGSRU WIROLRKHOSVWRPLWLJDWHVRPHRIWKHVHULVNVWKH quality of company selections by the private equity manager and the manager's ability to manage its portfolio further mitigates risk. Manager selection is a key determinant of returns.
Compared with investment in the public markets, a private HTXLW\LQYHVWRUKDVVLJQLÀFDQWDGYDQWDJHV
• Better governance model
Theory and experience tells us that businesses run by their owners tend to perform better than those run by salaried agents. In a private equity backed business almost everybody around the board table and often a high percentage of the management and staff own shares in the companies they run. In addition, the private equity managers also have an equity interest in the portfolio companies through their coinvestment obligations and via their carried interest. Accordingly, the interests of all parties are closely aligned and focused on creating value and realising a substantial capital gain. This is achieved by selecting ambitious medium to long-term goals and allowing managers to pursue them, free from short-term distractions that often beset the managers of listed companies.
• Better control
The private equity manager has more control over the method and timing of the sale of the business than a manager of listed equities. This superior control also extends to the appointment of management.
• Ability to attract the best management talent
Working in a private equity backed business is highly attractive to the best and most ambitious managers. They will be incentivised by capital returns that the listed companies rarely, if ever, match and are given the challenge and satisfaction of running their own business.
• Larger universe of opportunities
The universe of privately owned businesses is much larger than the publicly traded one, so the investor has greater choice. The choice available to private equity also includes OLVWHGFRPSDQLHVZKLFKFDQEHGHOLVWHGDQGUHÀQDQFHGZLWK private equity capital.
• Better access presenting the possibility for better assessment Prior to investing, private equity managers often have better DFFHVVWRLQIRUPDWLRQLQFOXGLQJGHWDLOHGPDUNHWÀQDQFLDOOHJDO and management due diligence.
Listed Private Equity ('LPE') refers to public companies whose shares are listed and traded on a primary stock exchange.
In Europe, primary exchanges include the London Stock Exchange and Euronext. Some private equity companies quoted on the London Stock Exchange are structured as investment trusts. All listed private equity companies provide the shareholder with an exposure to a differentiated portfolio of private companies, either directly or via funds.
%\EX\LQJVKDUHVLQ/3(FRPSDQLHVWKHLQYHVWRUEHQHÀWVIURP liquidity while participating in the potentially superior returns of a private equity portfolio. In addition, LPE companies allow investors access to private equity without having to commit to the ten year lock-in and minimum investment required when investing in private equity via limited partnerships.
For the most comprehensive single source of information on listed private equity go to www.lpeq.com.
London Stock Exchange-listed private equity investment trusts are supervised by boards of directors, the majority of whom are independent, in order to reinforce the manager's accountability to shareholders.
Provided they meet certain criteria, investment trusts pay no corporation tax on capital gains but may not retain more than RIWKHLULQFRPHLQHDFKÀQDQFLDO\HDU
The objective of listed private equity is usually to provide shareholders with long-term capital appreciation, rather than income.
(DFKOLVWHGFRPSDQ\OLNHHDFKSULYDWHHTXLW\ÀUPKDVLWVRZQ investment strategy relating to geography, size and type of investment, etc. Listed private equity companies vary considerably in the number of their own holdings, ranging from specialist direct investment trusts, with a handful of portfolio companies in one country, to a fund-of-funds manager with holdings in over 300 private equity funds worldwide.
Listed private equity companies continually invest and reinvest; PRVWKDYHQRÀ[HGOLIHVSDQOLNHDOLPLWHGSDU WQHUVKLS3URFHHGV from the sale of assets are generally retained for re-investment, rather than being distributed to investors, which would trigger taxable gains. This, together with the long-term horizon of private equity, means that listed private equity is best suited to long-term holding, rather than frequent trading.
In Europe, there are 61 listed private equity companies, with aggregate market capitalisation of c.€47 billion, of which c.€18 billion are London-listed companies (source: LPEQ February 2016). These listed private equity companies should not be confused with Venture Capital Trusts ('VCTs'), which offer targeted tax advantages to investors, but must follow stringent regulations as to the size and nature of the companies in which they can invest. Such companies are generally embryonic businesses.
Compared with an investment in a limited partnership with DWHQ\HDUOLIHWKHQRUPDOURXWHWRREWDLQLQJDGLYHUVLÀHG exposure to private equity, listed private equity offers VLJQLÀFDQWDGYDQWDJHV
The listed sector is diverse, offering a wide range of private equity investment vehicles adopting different investment strategies and criteria.
Investment trust shares frequently trade at a discount to NAV. This occurs when the share price is less than the NAV. In this circumstance, the price that an investor pays or receives for a share would be less than the value attributable to it by reference to the underlying assets. The discount is the difference between the share price and the NAV, expressed as a percentage of the NAV. For example, if the NAV was 1,400 pence and the share price was 1,260 pence, the discount would be 10%.
This is the value of the Trust's assets attributable to one Ordinary share. It is calculated by dividing 'shareholders' funds' by the total number of Ordinary shares in issue. For example, as at 31 December 2015, shareholders' funds were £530,023,000 and there were 37,324,698 Ordinary shares in issue; the NAV was therefore 1,420.0 pence per Ordinary share.
Shareholders' funds are calculated by deducting current and long-term liabilities, and any provision for liabilities and charges, from the Trust's total assets.
A premium occurs when the share price is higher than the NAV and investors would therefore be paying more than the value attributable to the shares by reference to the underlying assets. For example, if the share price were 1,470 pence and the NAV were 1,400 pence, the premium would be 5%.
The total return to shareholders comprises both changes in the Trust's NAV or share price and dividends paid to shareholders; it is calculated on the basis that all historic dividends have been reinvested in the Trust's shares on the date the dividend is paid.
Equivalent to a performance fee, this represents a share of the FDSLWDOSURÀWVWKDWZLOODFFUXHWRWKHLQYHVWPHQWPDQDJHUDIWHU achievement of an agreed preferred return.
Earnings Before Interest, Tax, Depreciation and Amortisation.
This is the aggregate value of a company's entire issued share capital and net debt.
The provision of capital to an existing, established business, WRÀQDQFHRUJDQLFJURZWKRUDFTXLVLWLRQV
Hedging is an investment technique designed to offset a potential loss on one investment by purchasing a second investment that is expected to perform in the opposite way.
An offering by a company of its share capital to the public with a view to seeking an admission of its shares to a recognised stock exchange.
The annualised rate of return received by an investor in a fund. It is calculated from cash drawn from and returned to the investor together with the residual value of the investment.
The purchase of all or most of a company's share capital, often involving its managers, funded mainly by borrowings often VHFXUHGRQWKHFRPSDQ\·VDVVHWVUHVXOWLQJLQDSRVWÀQDQFLQJ capital structure of the company that is geared.
An English limited partnership includes one or more general partners, who have responsibility for managing the business of the partnership and have unlimited liability, and one or more limited partners, who do not participate in the operation of the partnership and whose liability is ordinarily capped at their capital and loan contribution to the partnership. In typical fund VWUXFWXUHVWKHJHQHUDOSDU WQHUUHFHLYHVDSULRULW\SURÀWVKDUH ahead of distributions to limited partners. In addition, a limited partner, designated as the 'founder partner', will share in the SURÀWVRIWKHSDU WQHUVKLSDORQJVLGHWKHRWKHUOLPLWHGSDU WQHUV once limited partners have been returned all loan contributions plus a hurdle rate of return as agreed with the partnership.
A change of ownership, where an incoming management team UDLVHVÀQDQFLDOEDFNLQJQRUPDOO\DPL[RIHTXLW\DQGGHEWWR acquire a business.
A change of ownership, where the incumbent management WHDPUDLVHVÀQDQFLDOEDFNLQJQRUPDOO\DPL[RIHTXLW\DQGGHEW to acquire a business it manages.
The purchase of all of a listed company's shares using a special-purpose vehicle funded with a mixture of debt and unquoted equity.
A preferential rate of return on an individual investment or a portfolio of investments.
Any company whose shares are listed or traded on a recognised stock exchange.
Any company whose shares are not listed or traded on a recognised stock exchange.
Investing in companies at a point in that company's life cycle that is either at the concept, start-up or early stage of development.
Notice is hereby given that the Annual General Meeting (the 'AGM') of HgCapital Trust plc will be held at the Company's UHJLVWHUHGRIÀFHDW0RUH/RQGRQ5LYHUVLGH/RQGRQ6(\$3 on Monday 9 May 2016 at 11.00 am to consider the following business:
7RFRQVLGHUDQGLIWKRXJKWÀWSDVVUHVROXWLRQVWRDVRUGLQDU\ resolutions.
or by virtue of shares being represented by depositary receipts or any other matter,
provided that this authority shall expire at the end of the next annual general meeting of the Company, or, if earlier, on 9 August 2017, save that the Company shall be entitled to make offers or agreements before the expiry of such authority which would or might require shares to be allotted or Rights to be granted after such expiry and the Directors shall be entitled to allot shares and grant Rights pursuant to any such offer or agreement as if this authority had not expired; and all unexercised authorities previously granted to the Directors to allot shares and grant Rights be and are hereby revoked.
7RFRQVLGHUDQGLIWKRXJKWÀWSDVVUHVROXWLRQVDQGDV special resolutions.
By order of the Board Roger Mountford Chairman 4 March 2016
Please indicate if the proxy instruction is one of multiple instructions being given. All proxy forms must be signed and should be returned together in the same envelope.
corporation would be entitled to. On a vote on a resolution on a poll, if more than one authorised person purports to exercise a power in respect of the same shares:
(a) if they purport to exercise the power in the same way as each other, the power is treated as exercised in that way;
(b) if they do not purport to exercise the power in the same way as each other, the power is treated as not exercised.
In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a 'CREST Proxy Instruction') must be properly DXWKHQWLFDWHGLQDFFRUGDQFHZLWK(XURFOHDU·VVSHFLÀFDWLRQV and must contain the information required for such instructions, as described in the CREST Manual.
The message, regardless of whether it constitutes the appointment or an amendment of a proxy or to an amendment to the instruction given to a previously
appointed proxy, must, in order to be valid, be transmitted so as to be received by the issuer's agent (ID 3RA50) by the ODWHVWWLPHV IRUUHFHLSWRISUR[\DSSRLQWPHQWVVSHFLÀHGLQ the notice of meeting. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which the issuer's agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means.
CREST members and, where applicable, their CREST sponsors or voting service providers should note that Euroclear does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider(s), to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in 5HJXODWLRQ D RIWKH8QFHUWLÀFDWHG6HFXULWLHV Regulations 2001.
Company is required to place a statement on a website under Section 527 of the Act, it must forward the statement to the Company's auditor not later than the time when it makes the statement available on the website. The business which may be dealt with at the AGM includes any statement that the Company has been required under Section 527 of the Act to publish on a website.
A matter may properly be included in the business at the AGM unless (i) it is defamatory of any person or (ii) it is frivolous or vexatious. A request made pursuant to this right may be in hard copy or electronic form, must identify the matter to be included in the business, must be accompanied by a statement setting out the grounds for the request, must be authenticated by the person(s) making it and must be received by the Company not later than six weeks before the date of the AGM.
None of the Directors has a contract of service with the Company.
Roger Mountford (Chairman) Richard Brooman (Chairman of the Audit and Valuation Committee) Peter Dunscombe (Chairman of the Management Engagement Committee) Mark Powell (Senior Independent Director) Andrew Murison (retired 13 May 2015) Anne West
HgCapital Trust plc 2 More London Riverside
London SE1 2AP www.hgcapitaltrust.com
(Registered in England No. 1525583) 2 More London Riverside London SE1 2AP
Hg Pooled Management Limited* 2 More London Riverside London SE1 2AP
Telephone: 020 7089 7888 www.hgcapital.com
Capita Company Secretarial Services Limited 1st Floor 40 Dukes Place London EC3A 7NH Telephone: 020 7204 1601 www.capitaassetservices.com/cosec
Hg Pooled Management Limited* 2 More London Riverside London SE1 2AP Telephone: 020 7089 7888 www.hgcapital.com
IPES Depositary (UK) Limited* 9th Floor No.1 Minster Court Mincing Lane London, EC3R 7AA
Computershare Investor Services PLC* The Pavilions Bridgwater Road Bristol BS99 6ZZ
Telephone: 0870 707 1037 www-uk.computershare.com/investor
Numis Securities Ltd* The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT Telephone: 020 7260 1000 www.numiscorp.com
Deloitte LLP 2 New Street Square London EC4A 3BZ
Association of Investment Companies www.theaic.co.uk
The AIC is the trade body for closedended investment companies. It helps its member companies deliver better returns for their investors through lobbying, media engagement, technical advice, training, and events.
Listed Private Equity www.lpeq.com
HgCapital Trust plc is a founder member of LPEQ. This is a group of private equity investment trusts and similar vehicles listed on the London Stock Exchange and other major European stock markets, formed to raise awareness and increase understanding of what listed private equity is and how it enables all investors – not just institutions – to invest in private equity.
LPEQ provides information on private equity in general, and the listed sector in particular, undertaking and publishing research and working to improve levels of knowledge about the asset class among investors and their advisers.
*Authorised and regulated by the Financial Conduct Authority.
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