HgCapital Trust plc Regulatory News (HGT)

6 Oct 2010 07:00

HgCapital Trust plcInterim Management Statement6 October 2010

HgCapital Trust plc ('the Company' or the `Trust'), today issues its Interim Management Statement in accordance with FSA Disclosure and Transparency Rule 4.3. This statement relates to the period from 1 July 2010 to 5 October 2010 and incorporates the Company's calculation of its Net Asset Value (NAV) at 30 September 2010, in the same form as is issued following the end of each month. The NAV at 30 September 2010 is based on the valuations of unquoted investments as at 30 June 2010, as set out in the half yearly report issued on 26 August 2010, with any subsequent investment completed by the date of the announcement accounted for at cost; adjustments are made for realisations, exchange rates, changes in the value of quoted securities and net revenues during the period.

The reader's attention is drawn to the announcement made on 26 September 2010 of the partial realisation of the Company's investment in Visma. When completed (expected in November), it is estimated to add 59.9 pence to the 30 September 2010 basic net asset value per share (49.9 pence to the 30 September 2010 diluted net asset per share). Further information is contained in this statement.

Activity during the periodInvestment Environment

During the period, the market in general for new buyout investment improved from the low levels seen 12 months ago. Private equity managers such as HgCapital ("the Manager"), who had positioned themselves well so as to withstand the recession, have been able to complete attractive acquisitions, with reasonable leverage. Those who entered the recession over-stretched and over-committed have found it more difficult to re-enter the market for new deals.

Bank finance is more available, although only for quality companies and at sensible levels of gearing. Terms are attractive for funding the acquisition of high quality companies that have come through the recession with growth in revenue and earnings.

The Board believes that the Company is well placed to participate in the current stage of the cycle for deployment of capital, with the opportunity to make new investments in attractive growing companies that have proven themselves robust through a tough recession. At the same time, conditions are fairly well balanced for realisations, because good companies are now being fairly valued in the market.

New and further investments

Since 30 June 2010, alongside other clients of the Manager, the Company, for a total consideration of £39.1 million, has participated in two new buyout investments and two further investments.

During July 2010, HgCapital acquired Teufel, a leading designer and online retailer of loudspeaker systems in Germany. The Trust contributed £9.1 million of the total consideration.

In August 2010, HgCapital provided funding to Stepstone Solutions to acquire a competitor, Mr Ted, as a bolt-on acquisition. The company's strong technology base is complementary to Stepstone's, and its several large blue chip customers make it an ideal addition. The Trust contributed £3.5 million to the investment.

August also saw the Trust invest a further £1.4 million in Atlas Energy Group Limited to support growth and assist with providing headroom to banking covenants.

TeamSystem, a leading software and services business based in Pesaro, Italy, was acquired in September 2010. The Trust's share of the investment was £25.1 million.

Realisations

On 26 September 2010, the Manager announced the sale of 63.5% of its stake in Visma Holdings, the leading software and BPO services business in the Nordic region to KKR at an enterprise value of £1.2 billion. Following the transaction HgCapital clients will retain a 17.7% stake in the business. The Trust will immediately realise estimated cash proceeds of £39.1 million and continue to retain a stake in Visma with an estimated value of £22.5 million. The total value of cash and the retained stake, £61.7 million, compares with a carrying value of £43.0 million in the Net Asset Value of the Trust at 30 September 2010, an uplift of £18.6 million (59.9 pence per share, basic; 49.9 pence per share, diluted). Cash proceeds together with the estimated value of the Company's continuing interest delivered an IRR of 37% and an investment multiple of 3.7x on total capital invested. The deal is subject to regulatory clearance, with completion expected in November 2010.

In addition, the Trust received a distribution of £0.7 million from HgRenewable Power Partners relating to proceeds received from the partial loan redemptions of six renewable energy projects.

Performance relative to benchmark

Since 30 June the total return (NAV plus dividend) increased by 2.2%, compared with a 13.6% increase in the FTSE All-Share Index. The Company's share price at 30 September 2010 was 852.0 pence, a discount of 11.2% against the NAV of 959.5 pence. The Company's share price (on a total return basis) increased by 6.7% over the three months to 30 September 2010 in a period when the FTSE All-Share Index increased by 13.6%.

These performance figures are based on valuations of the portfolio as at 30 June 2010, using market multiples at that date, and therefore do not reflect changes in the ratings of comparable listed companies between 1 July 2010 and 30 September 2010. The book value of the unquoted portfolio will next be reviewed, as usual, at 31 December 2010 in accordance with IPEV guidelines, taking account of each company's maintainable earnings and ratings of comparable businesses in the relevant listed markets at that time.

Current trading

The Manager is represented on the board of every material investment in the portfolio and receives monthly management accounts from all the buyouts in which the Company is invested. These are regularly discussed with the Board, together with other information about the trading environment, strategy, prospects and leadership of each business, and the actions that the Manager is taking to effect improvements. The latest available trading figures for companies in the portfolio are for the period ended August 2010. As most companies in the buyout portfolio have a December year-end it is too early to be certain about their performance in the current year. However, almost all have reported sales ahead of the same period last year, with 15 of the top 20 increasing sales by 5% or more including 9 by more than 10%; only one has reported profits materially below last year.

The Company has a significant exposure to euro denominated assets; as at 30 September 2010, the appreciation of the euro against sterling, by 5.5% since 30 June 2010, has resulted in an increase in the valuation of that portion of the portfolio. Similarly, the appreciation of Norweigan Kroner against sterling of 5.2% has resulted in an increase in the valuation of Visma.

Investment objective

The Company gives investors access to a private equity portfolio run by an experienced and well-resourced manager that makes investments in fast growing companies over a number of geographies and sectors.

The objective of the Company is to provide shareholders with long-term capital appreciation in excess of the FTSE All-Share Index by investing in unquoted companies. The Company provides investors with exposure to a diversified portfolio of private equity investments primarily in the UK and Continental Europe.

The Company's benchmark is the FTSE All-Share Index.

Performance

All information is at 30 September 2010 and is unaudited.

Performance at month end with net income reinvested

One Three One Three Five Ten month months year years years years NAV per Ordinary 2.2% 2.2% 10.6% 21.8% 84.7% 184.6%share (basic) Ordinary Share 4.8% 6.7% 2.0% 12.5% 61.3% 201.6%price FTSE All-Share 6.5% 13.6% 12.5% (3.1%) 24.7% 31.9%Index

Sources: HgCapital, Factset

Results

At 30 September 2010

Net asset value per share:* -Basic 959.5p -Diluted 957.9p

Share price - ordinary shares: 852.0p

Ordinary share price discount to 11.2% NAV (basic): Share price - subscription 56.0p shares: Net yield: 2.9% Gearing: Nil% Ordinary shares in issue: 31,103,915

Subscription shares in issue: 6,220,783

* includes 9 months net revenue of 16.4p. Ticker codes: Ordinary shares HGT Subscription shares HGTS

Unaudited Net Asset Value per Share

The investment portfolio has not been revalued at 30 September 2010. The unaudited Net Asset Value at 30 September 2010 is based on the Net Asset Value at 30 June 2010 adjusted to reflect purchases and sales of investments, currency movements and market prices (at bid) in respect of listed investments.

Net revenue for the nine months to 30 September 2010 was 16.4p.

Balance Sheet

At 30 September 2010 the Company's summary balance sheet was as follows:

£m % Unquoted investments 250.9 84.1 Accrued income on 23.9 8.0 investments -------- ------ Total investment 274.8 92.1 portfolio Cash and other liquid 22.7 7.6 assets Other net assets 0.9 0.3 -------- ------ Net Asset Value 298.4 100.0

(1) As at 30 September 2010, the undrawn commitment to Hg6, Hg5, RPP and RPP2 is £195.3 million.

(2) Following the partial realisation of Visma (expected to be completed in November 2010), the NAV is estimated to be £317.1 million (1,019.4 pence per share basic) and liquid resources are estimated to be £60.6 million (19.0% of the estimated NAV). Assuming all subscription shares in issue are exercised at their minimum price of 950 pence, the diluted Net Asset Value per share is estimated to be 1,007.8 pence per share.

Portfolio

Twenty Largest Investments at 30 September 2010 (at valuation including accruedinterest):Company Total Sector Assets % VISMA* 14.4 TMT TeamSystem 8.5 TMT Pulse Staffing 7.6 Healthcare Stepstone Solutions 6.5 TMT Frosunda 4.7 Healthcare Hg Renewable Power 4.7 Renewable EnergyPartners LP JLA 4.5 Services Mondo Minerals Co-op 3.8 Industrials Manx Telecom 3.7 TMT SimonsVoss 3.5 Industrials SLV Electronik 3.3 Industrials Teufel 3.1 Industrials Voyage 2.9 Healthcare Epyx 2.9 TMT Midas (Goldshield) 2.9 Healthcare Schleich 2.7 Consumer & Leisure Achilles 2.7 TMT Americana 2.4 Consumer & Leisure Sporting Index 2.1 Consumer & Leisure Elite 1.2 TMT Total 88.1 * The partial realisation of Visma will reduce its value to an estimated £22.5million, representing 7.1% of the estimated total asset value, post thistransaction.Sector Total Assets % TMT* 41.0 Healthcare 19.1 Consumer & Leisure 7.3 Industrials 13.7 Services 5.9 Renewable Energy 5.0 Other 0.4 Cash and other liquid 7.6 assets Total 100.0

\* The partial realisation of Visma will reduce the share relating to TMT to 32.2% of the estimated total asset value post this transaction.

This statement is a general description of the financial position and performance of the Company for the period from 1 July 2010 to 5 October 2010. It does not contain any profit forecast or forward looking information. Future performance and share price are likely to be affected by a number of factors, including (but not limited to) general economic and market conditions and specific factors affecting the financial performance or prospects of individual investments within the Company's portfolio.