The financial statements have been prepared under the historical cost convention, except for the revaluation of financial instruments at fair value as permitted by the Companies Act 2006 and in accordance with applicable UK law and UK Accounting Standards (\u2018UK GAAP\u2019), including Financial Reporting Standard 102 \u2013 \u2018The Financial Reporting Standard applicable in the United Kingdom and Republic of Ireland\u2019 (\u2018FRS 102\u2019) and with the Statement of Recommended Practice \u2018Financial Statements of Investment Trust Companies and Venture Capital Trusts\u2019 (\u2018SORP\u2019), issued in July 2022. All of HGT\u2019s operations are of a continuing nature.
After making enquiries, the Directors have a reasonable expectation that HGT will have adequate resources to continue in operational existence for the next 12-month period from the date of approval of this report. Accordingly, they continue to adopt the going-concern basis in preparing these financial statements.
HGT entered into eleven separate partnership agreements with general and founder partners in May 2003 (subsequently revised in January 2009), January 2009, July 2011, March 2013, December 2016, February 2017, January 2018, February 2020, December 2021 and April 2022; at each point, an investment-holding limited partnership was established to carry on the business of an investor, with HGT being the sole limited partner in these entities.
The purpose of these partnerships, HGT LP, HGT 6 LP, HGT 7 LP, HGT 8 LP, HgCapital Mercury D LP, HGT Mercury 2 LP, HGT Saturn LP, HGT Saturn 2 LP, HGT Genesis 9 LP, HGT Mercury 3 LP, HGT Saturn 3 LP and HGT Genesis 10 LP (together the \u2018primary buyout funds\u2019), is to hold all of HGT\u2019s investments in primary buyouts. Under the partnership agreements, HGT made capital commitments into the primary buyout funds, with the result that HGT now holds direct investments in the primary buyout funds and an indirect investment in the fixed-asset investments which are held by these funds, as it is the sole limited partner. These direct investments are included under fixed-asset investments on the balance sheet and in the table of investments on page\u00a042. The underlying investments which are held indirectly are included in the overview of investments on page\u00a044.
In July 2011, HGT acquired a direct secondary investment in HgCapital\u00a06\u00a0E\u00a0LP (\u2018Hg\u00a06\u00a0E\u00a0LP\u2019), one of the partnerships which comprise the Hg\u00a06\u00a0Fund, in which HGT is now a limited partner pari\u00a0passu with other limited partners. This is a direct investment in the Hg\u00a06\u00a0E\u00a0LP Fund.
HGT also entered into partnership agreements with other limited partners, with the purpose of investing in renewable energy projects, by making capital commitments in Asper Renewable Power Partners LP (\u2018Asper\u00a0RPP\u00a0I\u00a0LP\u2019). This is a direct investment in the renewable funds, as shown on the balance sheet and in the table of investments on page\u00a042.
Under the terms of the primary buyout fund limited partnership agreements (\u2018LPAs\u2019), each general partner (see note\u00a05) is entitled to appropriate, as a first charge on the net income of the funds, an amount equivalent to its priority profit share (\u2018PPS\u2019). HGT is entitled to net income from the funds, after payment of the PPS.
In years in which these funds have not yet earned sufficient net income to satisfy the PPS, the entitlement is carried forward to the following years. The PPS is payable quarterly in advance, even if insufficient net income has been earned. Where the cash amount paid exceeds the net income, an interest-free loan is advanced to the general partner by these primary buyout funds, which is funded by a capital call from HGT. Such loans are recoverable from the general partner only by an appropriation of net income until net income is earned. At the HGT level such a call is expensed in the capital column as these amounts are not recoverable (see note\u00a05(b)).
Furthermore, under the primary buyout funds\u2019 LPAs, each founder partner (see note\u00a05(c)) is entitled to a carried-interest distribution, once certain preferred returns are met. The LPAs stipulate that the primary buyout funds\u2019 capital gains or net income, after payment of the carried interest, are allocated to HGT, when the right to these returns is established.
Accordingly, HGT\u2019s entitlement to net income and net capital gains is shown in the appropriate lines of the income statement. Notes 4, 5 and 10 to the financial statements disclose the gross income and gross capital gains of the primary buyout funds and also reflect the proportion of net income and capital gains in the buyout funds which has been paid to the general partner as its PPS and to the founder partner as carried interest, where applicable.
The PPS paid from net income is charged to the revenue account in the income statement, where there is insufficient income PPS is charged as an unrealised depreciation to the capital return on the income statement.
As stated above, all income that is recognised by the primary buyout funds, net of PPS, is allocated to HGT and recognised when the right to this income is established. Income from Hg\u00a06\u00a0E\u00a0LP and the renewable energy funds would normally consist of income distributions and these distributions are recognised as income in the financial statements of HGT when the right to such distribution is established.
The accounting policies below apply to the recognition of income by the primary buyout funds, prior to allocation between the Partners:
Interest income on non-equity shares and fixed income securities is recognised on a time apportionment basis so as to reflect the effective yield when it is probable that it will be realised. Dividends receivable on unlisted equity shares where there is no ex-dividend date and on non-equity shares are brought into account when the right to receive payment is established.
The principle applied is that investments should be reported at \u2018fair value\u2019, in accordance with Sections 11 and 12 of FRS 102 and the International Private Equity and Venture Capital (\u2018IPEV\u2019) Valuation Guidelines, March 2022 edition. Where relevant, HGT applies the policies stated below to the investments held by the primary buyout funds, in order to determine the fair value of its investments in these limited partnerships.
Purchases of investments are recognised on a trade date basis. Sales of investments held through the primary buyout funds are recognised at the trade date of the disposal. Sales from the investments in Hg\u00a06\u00a0E\u00a0LP and the renewable energy funds would normally consist of capital distributions and these distributions are recognised as a realisation when the right to such distribution is established. Proceeds are measured at fair value, which is regarded as the proceeds of sale less any transaction costs.
Quoted: Quoted investments are held at fair value, which is deemed to be their bid price.
Unquoted: Unquoted investments are also held at fair value and are valued using the following guidelines:
(i)\u00a0\u00a0\u00a0\u00a0the level of maintainable earnings or revenue and an appropriate earnings or revenue multiple, unless (iii) is required;
(ii)\u00a0\u00a0\u00a0\u00a0where more appropriate, investments can be valued based on other methodologies, including using their net assets or discounted cash flows, rather than on their earnings or revenue; and
(iii)\u00a0\u00a0\u00a0\u00a0appropriate fair value movements are made against all individual valuations where necessary to reflect unsatisfactory financial performance or a fall in comparable ratings.
Debt: The investments are valued using discounted cash flows, considering the impact of changes in the credit risk of the portfolio company and changes to the market rates of return on fair value.
Limited partnership funds: these are investments that are set up by a manager in which HGT has a direct investment, but is not the sole limited partner and does not hold a majority share. These investments are valued at fair value, based on the Manager\u2019s valuation after any adjustment required by the Directors.
Liquidity funds: these are short-term investments made in a combination of fixed and floating rate securities and are valued at the current fair value as determined by the manager of the fund. They can be realised at short notice.
Derivative financial instruments: derivative financial instruments are held at fair value and are valued using quoted market prices for financial instruments traded in active markets, or dealer price quotations for financial instruments that are not actively traded.
Capital reserve \u2013 realised
The following are accounted for in this reserve:
(i)\u00a0\u00a0\u00a0\u00a0gains and losses on the realisation of investments;
(ii)\u00a0\u00a0\u00a0\u00a0attribution of gains to the founder partners for carried interest;
(ii)\u00a0\u00a0\u00a0\u00a0losses on investments where there is little prospect of realisation or recovering any value;
(iv)\u00a0\u00a0\u00a0\u00a0realised exchange differences of a capital nature; and
(v)\u00a0\u00a0\u00a0\u00a0expenses, together with the related taxation effect, charged to this reserve in accordance with the above policies.
Capital reserve \u2013 unrealised
The following are accounted for in this reserve:
(i)\u00a0\u00a0\u00a0\u00a0increases and decreases in the valuation of investments held at the year-end;
(ii)\u00a0\u00a0\u00a0\u00a0increases and decreases in the valuation of the loans to general partners; and
The preparation of these financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported year. Although these estimates are based on management\u2019s best knowledge of the amount, event or actions, actual results may ultimately differ from those estimates.
The estimates and assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
Revenue return | ||
2022 | 2021 | |
\u00a3000 | \u00a3000 | |
Total net income comprises: | ||
Interest | 31,289 | 44,954 |
Dividend | 10,467 | 2,479 |
Total net income | 41,756 | 47,433 |
Revenue return | ||
2022 | 2021 | |
\u00a3000 | \u00a3000 | |
Income from investments held by the primary buyout funds | ||
Unquoted investment income | 43,767 | 52,862 |
Dividend Income | 10,467 | 2,479 |
Other investment income: | ||
Unquoted investment income | \u2014 | 8 |
Liquidity funds income | 2,336 | 648 |
Total investment income | 56,570 | 55,997 |
Total other income | 100 | \u2014 |
Total income | 56,670 | 55,997 |
Priority profit share charge against income: | ||
Current year - HGT Genesis 9 LP | (4,498) | (1,440) |
Current year - HGT 8 LP | (4,323) | (3,946) |
Current year - HGT Genesis 10 LP | (1,917) | \u2014 |
Current year - HGT Mercury 3 LP | (1,693) | \u2014 |
Current year - HGT Saturn LP | (1,425) | (1,388) |
Current year - HGT LP | (549) | (82) |
Current year - HGT 7 LP | (228) | (400) |
Current year - HGT Mercury 2 LP | (194) | (1,154) |
Current year - HgCapital Mercury D LP | (86) | (154) |
Current year - HGT Saturn 2 LP | (1) | \u2014 |
Total priority profit share charge against income (note 5(a)) | (14,914) | (8,564) |
Total net income | 41,756 | 47,433 |
Revenue return | ||
2022 | 2021 | |
(a) Priority profit share payable to general partners | \u00a3000 | \u00a3000 |
Priority profit share payable: | ||
Current year amount | 27,426 | 16,385 |
Less: Current year loans advanced to general partners (note 5(b)) | (12,512) | (8,153) |
Add: Prior year loans recovered from general partners (note 5(b)) | \u2014 | 332 |
Current year charge against income | 14,914 | 8,564 |
Total priority profit share charge against income | 14,914 | 8,564 |
The priority profit share payable on the primary buyout funds rank as a first appropriation of net income from investments held in these partnerships respectively and is deducted prior to such income being attributed to HGT in its capacity as a Limited Partner. The net income of the primary buyout funds earned during the year, after the deduction of the priority profit share, is shown on the income statement.
The terms of the above priority profit share arrangements during 2022 were:
Primary buyout fund partnership | Priority profit share |
HGT Genesis 10 LP | 1.75% on the fund commitment during the investment period |
HGT Mercury 3 LP | 1.75% on the fund commitment during the investment period |
HGT 8 LP | 1.5% of original cost of investments in the fund, less the original cost of investments which have been realised or written off |
HGT Genesis 9 LP | 1.5% of original cost of investments in the fund, less the original cost of investments which have been realised or written off |
HGT Mercury 2 LP | 1.5% of original cost of investments in the fund, less the original cost of investments which have been realised or written off |
HGT 7 LP | 1.5% of original cost of investments in the fund, less the original cost of investments which have been realised or written off |
HgCapital Mercury D LP | 1.5% of original cost of investments in the fund, less the original cost of investments which have been realised or written off |
HGT Saturn 3 LP | 1.0% on the fund commitment during the investment period |
HGT Saturn 2 LP | 0.75% on invested capital |
HGT Saturn LP | 1.0% on invested capital |
HGT LP | 1.0% on invested capital excluding co-investment |
Capital return | ||
2022 | 2021 | |
(b) Priority profit share loans to general partners within the underlying limited partnerships | \u00a3000 | \u00a3000 |
Movement on loans to general partners: | ||
Losses on current-year loans advanced to general partners | (12,512) | (8,153) |
Gains on prior-year loans recovered from general partners | \u2014 | 332 |
Total losses on priority profit share loans advanced to general partners | (12,512) | (7,821) |
In years in which the funds described in note\u00a05(a) have not yet earned sufficient net income to satisfy the priority profit share, the entitlement is carried forward to the following years. The priority profit share is payable quarterly in advance, even if insufficient net income has been earned. Where the cash amount paid exceeds the net income, an interest free loan is advanced to the general partner by these primary buyout funds, which is funded via a loan from HGT. Such loan is only recoverable from the general partner by an appropriation of net income, until sufficient net income is earned, no value is attributed to this loan and hence an unrealised capital loss is recognised and reversed if sufficient income is subsequently generated.
Capital return | ||
2022 | 2021 | |
(c) Carried interest to founder partners | \u00a3000 | \u00a3000 |
Carried interest charge against capital gains: | ||
Current year charge against realised capital gains | 29,292 | 32,472 |
Current year charge against unrealised capital gains | 39,576 | 90,063 |
Total carried-interest charge against capital gains | 68,868 | 122,535 |
Revenue return | ||
2022 | 2021 | |
(a) Operating expenses | \u00a3000 | \u00a3000 |
Registrar, management and administration fees | 1,660 | 1,544 |
Directors remuneration (note 8) | 367 | 342 |
Legal and other administration costs1 | 4,994 | 3,702 |
7,021 | 5,588 | |
Fees payable to HGT's auditor in relation to HGT: | ||
Audit fees2 | 132 | 115 |
Total fees payable to HGT's auditor | 132 | 115 |
Total other expenses | 7,153 | 5,703 |
1Includes employer\u2019s National Insurance contributions of \u00a344,000 (2021: \u00a338,000).
2The audit fee is inclusive of VAT at the rate of 20%. In addition to the audit fees payable to the auditor in relation to HGT, audit fees payable to the auditor in respect of the audit of the primary buyout funds were \u00a391,000 (2021: \u00a378,000).
Revenue return | ||
2022 | 2021 | |
(b) Finance costs | \u00a3000 | \u00a3000 |
Interest paid | 6,638 | 1,677 |
Non-utilisation fees and other expenses | 3,265 | 2,279 |
Arrangement fees | 382 | 1,138 |
Total finance costs | 10,285 | 5,094 |
Reconciliation of net return before finance costs and taxation | 2022 | 2021 |
\u00a3000 | \u00a3000 | |
Net return before finance costs and taxation | 117,769 | 600,039 |
Gains on investments held at fair value and liquidity funds | (151,812) | (657,515) |
Carried interest paid | (29,292) | (32,472) |
Increase in carried interest provision | 39,576 | 90,063 |
Increase in accrued income from liquidity funds | (2,336) | (648) |
Increase in accrued income and other debtors | (45,906) | (29,775) |
Increase in creditors | 1,458 | 1,717 |
(Increase)/decrease in uninvested capital | (79) | 26,311 |
Taxation (paid)/received | \u2014 | 192 |
Net cash outflow from operating activities | (70,622) | (2,088) |
Revenue return | ||
2022 | 2021 | |
(a) Analysis of charge in the year | \u00a3000 | \u00a3000 |
Current tax: | ||
UK corporation tax | 4,226 | 6,583 |
Income streaming relief | (2,174) | (6,476) |
Income not subject to tax | (2,052) | \u2014 |
Prior year adjustment | \u2014 | (192) |
Tax losses brought forward | \u2014 | (107) |
Current revenue tax charge/(credit) for the year | \u2014 | (192) |
Deferred tax: | ||
Reversal of timing differences | \u2014 | \u2014 |
Total deferred tax charge for the year (note 9(c)) | \u2014 | \u2014 |
Total taxation charge/(credit) | \u2014 | (192) |
Revenue return | ||
2022 | 2021 | |
(b) Factors affecting tax charge/(credit) for the year | \u00a3000 | \u00a3000 |
Net revenue return before taxation | 24,318 | 36,636 |
UK corporation tax charge at 19% thereon (2021: 19%) | 4,620 | 6,961 |
Effects of: | ||
Tax relief from interest distribution | (2,174) | (6,476) |
Income not subject to tax | (2,052) | \u2014 |
Tax relief from expenses allocated to capital | (394) | (378) |
Prior year tax adjustment | \u2014 | (192) |
Tax losses brought forward | \u2014 | (107) |
Total differences | (4,620) | (7,153) |
Total taxation charge/(credit) | \u2014 | (192) |
Revenue return | Capital return | |||
(a) Basic and diluted return per ordinary share | 2022 | 2021 | 2022 | 2021 |
Amount (\u00a3000): | ||||
Net return after taxation | 24,318 | 36,828 | 83,166 | 558,309 |
Weighted average number of ordinary shares (000): | ||||
Weighted average number of ordinary shares in issue | 457,352 | 433,799 | 457,352 | 433,799 |
Basic and diluted return per ordinary share (pence) | 5.32 | 8.49 | 18.18 | 128.70 |
The basic and diluted EPS are the same as HGT does not have dilutive financial instruments.
\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Capital return | ||
(b) Net asset value per ordinary share | 2022 | 2021 |
Amount (\u00a3000): | ||
Net assets | 2,089,965 | 2,005,724 |
Number of ordinary shares (000): | ||
Number of ordinary shares in issue | 457,729 | 455,280 |
Net asset value per ordinary share (pence) | 456.6 | 440.5 |
2022 | 2021 | |
\u00a3000 | \u00a3000 | |
Investments held at fair value through profit or loss: | ||
Unquoted investments held in HGT 8 LP | 561,653 | 697,719 |
Unquoted investments held in HGT Saturn 2 LP | 365,120 | 336,397 |
Unquoted investments held in HGT Genesis 9 LP | 351,805 | 281,995 |
Unquoted investments held in HGT Saturn 3 LP | 266,936 | \u2014 |
Unquoted investments held in HGT Saturn LP | 223,767 | 265,810 |
Unquoted investments held in HGT LP | 197,337 | 141,477 |
Unquoted investments held in HGT Mercury 2 LP | 131,862 | 160,471 |
Unquoted investments held in HGT Mercury 3 LP | 89,586 | 34,621 |
Unquoted investments held in HGT Genesis 10 LP | 77,688 | \u2014 |
Unquoted investments held in HGT 7 LP | 69,292 | 74,914 |
Unquoted investments held in HgCapital Mercury D LP | 6,102 | 12,711 |
Other1 | (10,101) | 311 |
Total fixed asset investments gross of carried interest provision | 2,331,047 | 2,006,426 |
Carried interest provision (note 5(c)) | (211,155) | (171,579) |
Fund level facilities2 | (367,383) | (156,839) |
Total fixed asset investments | 1,752,509 | 1,678,008 |
Total fixed asset investments consist of: | ||
Fund limited partnerships | 1,752,509 | 1,678,008 |
1Includes HGT currency hedges and direct investments .
2Lines of credit sit below the fund structure and are used to fund portfolio M&A and return cash to investors. The facilities are unsecured, with no recourse to HGT or the underlying funds and are repaid from future realised proceeds, the proportion of which will depend on the loan to value ratio at that time. Since the debt sits below the funds the interest is shown as an unrealised loss against the HGT investments.
2022 | 2021 | |||
Record date | Payment date | \u00a3000 | \u00a3000 | |
Interim Dividend of 2.5p for the year ended 31 December 2022 | 22/9/2022 | 24/10/2022 | 11,453 | \u2014 |
Final Dividend of 5.0p for the year ended 31 December 2021 | 17/3/2022 | 13/5/2022 | 22,764 | \u2014 |
Interim Dividend of 2.0p for the year ended 31 December 2021 | 16/9/2021 | 27/10/2021 | \u2014 | 8,832 |
Final Dividend of 3.0p for the year ended 31 December 2020 | 29/4/2021 | 27/5/2021 | \u2014 | 12,828 |
Total equity dividends paid | 34,217 | 21,660 |
2022 | 2021 | |
\u00a3000 | \u00a3000 | |
Revenue available for distribution by way of dividend for the year | 24,318 | 36,828 |
Interim Dividend of 2.5p for the year ended 31 December 2022 | (11,453) | (8,832) |
Proposed final dividend of 4.5p for the year ended 31 December 2022 (based on 457,728,500 ordinary shares in issue at 31 December 2022) | (20,598) | (22,764) |
(Distributions in excess of revenue)/Undistributed revenue for Section 1159 purposes* | (7,733) | 5,232 |
2022 | 2021 | ||
\u00a3000 | \u00a3000 | ||
Opening valuation as at 1 January | 1,678,008 | 1,024,116 | |
Opening unrealised appreciation | - investments | (913,518) | (339,497) |
Opening carried interest provision | 171,579 | 81,516 | |
Opening fund level facilities | 156,839 | 59,771 | |
Opening book cost as at 1 January | 1,092,908 | 825,906 | |
Movements in the year: | |||
Additions at cost | 527,075 | 424,336 | |
Disposals | - proceeds | (410,536) | (279,628) |
- realised gains on sales | 309,850 | 122,294 | |
Closing book cost of investments | 1,519,297 | 1,092,908 | |
Add: closing unrealised appreciation | - investments | 811,750 | 913,518 |
Less: closing carried interest provision | (211,155) | (171,579) | |
Less: Fund level facilities1 | (367,383) | (156,839) | |
Closing valuation of investments at 31 December | 1,752,509 | 1,678,008 |
The investments above include investments in companies that are indirectly held by HGT through its investment in the primary buyout funds as set out in note\u00a03 on page\u00a062, and investments in fund limited partnerships in Hg\u00a06\u00a0E\u00a0LP and Asper Renewable Power Partners\u00a0LP. The net assets attributable to partners at 31 December 2021, being the date of the last audited balance sheet, of these primary buyout funds were \u00a3160,470,729 (HGT\u00a0LP), \u00a374,913,702 (HGT\u00a07\u00a0LP), \u00a312,711,183 (HgCapital Mercury\u00a0D\u00a0LP), \u00a3697,719,123 (HGT\u00a08\u00a0LP), \u00a3141,477,484 (HGT Mercury\u00a02\u00a0LP), \u00a3265,809,605 (HGT\u00a0Saturn\u00a0LP), \u00a3336,396,955 (HGT Saturn\u00a02\u00a0LP) and \u00a3281,994,927 (HGT\u00a0Genesis\u00a09\u00a0LP).
a) Uninvested capital in limited partnerships
Capital return | |||
2022 | 2021 | ||
\u00a3000 | \u00a3000 | ||
Realised: | |||
Realised gains/(losses) | - fixed asset investments | 309,850 | 122,294 |
- liquidity funds | (1,072) | 236 | |
- foreign exchange gains/(losses) | 9,232 | (1,234) | |
- aborted deal fees | (76) | (1,991) | |
- loan facility | 1,249 | \u2014 | |
319,183 | 119,305 | ||
Carried interest charge against realised capital gains (note 5(c)) | (29,292) | (32,472) | |
Net realised gains | 289,891 | 86,833 | |
Unrealised: | |||
Unrealised (losses)/gains | - fixed asset investments | (101,768) | 574,021 |
- foreign exchange on investments | (22,235) | 1,861 | |
- liquidity funds | (3,076) | (1,015) | |
- aborted deal fees | (2,076) | 42 | |
- foreign exchange on loan facility | (2,652) | 1,339 | |
(131,807) | 576,248 | ||
Carried interest charge against unrealised capital gains (note 5(c)) | (39,576) | (90,063) | |
Fund level facilities\u00b9 | (22,830) | (6,888) | |
Net unrealised (losses) / gains | (194,213) | 479,297 | |
Total gains | 95,678 | 566,130 |
1Lines of credit that sit below the fund structure which are used to fund portfolio M&A and return cash to investors. The facilities are unsecured, with no recourse to HGT or the underlying funds and are repaid from future realised proceeds, the proportion of which will depend on the loan to value ratio at that time. Since the debt sits below the funds the interest is shown as an unrealised loss against the HGT investments.
2022 | 2021 | |
\u00a3000 | \u00a3000 | |
Amounts receivable after one year: | ||
Accrued income on fixed assets | 133,534 | 102,166 |
Amounts receivable within one year: | ||
Prepayments and other debtors | 22,628 | 8,090 |
Total amounts receivable within one year | 22,628 | 8,090 |
Total debtors | 156,162 | 110,256 |
2022 | 2021 | |
\u00a3000 | \u00a3000 | |
Investments held at fair value through profit or loss: | ||
Opening valuation | 277,049 | 139,470 |
Purchases at cost | 215,787 | 195,200 |
Redemptions | (220,500) | (57,490) |
Movement in unrealised capital losses | (3,076) | (1,015) |
Movement in accrued income | 2,336 | 648 |
Realised capital (losses)/gains | (1,072) | 236 |
Closing valuation | 270,524 | 277,049 |
2022 | 2021 | |
\u00a3000 | \u00a3000 | |
Analysis and reconciliation of net funds: | ||
Net funds at 1 January | (56,862) | 21,648 |
Change in cash | (41,965) | 72,632 |
Change in debt due after one year | 15,106 | (152,481) |
Other non-cash changes | (1,403) | 1,339 |
Net (debt)/funds at 31 December | (85,124) | (56,862) |
Net funds comprise: | ||
Cash | 52,315 | 94,280 |
Debt due after one year | (137,439) | (151,142) |
2022 | 2021 | |
\u00a3000 | \u00a3000 | |
Accruals | 4,345 | 2,887 |
Total creditors | 4,345 | 2,887 |
2022 | 2021 | |
\u00a3000 | \u00a3000 | |
Opening valuation | 151,142 | \u2014 |
Draw on loan facility | 136,127 | 152,481 |
Repayment of loan facility | (151,233) | \u2014 |
Unrealised foreign exchange (gains)/losses | 2,652 | (1,339) |
Realised foreign exchange gains/losses | (1,249) | \u2014 |
Total loan facility | 137,439 | 151,142 |
The following disclosures relating to the risks faced by HGT are provided in accordance with sections 11 and 12 of FRS 102.
The reference to investments in this note is in relation to the underlying investments in HGT\u00a0LP, HGT\u00a06\u00a0LP, HGT\u00a07\u00a0LP, HGT\u00a08\u00a0LP, HGT\u00a0Genesis\u00a09\u00a0LP, HGT Genesis 10 LP HgCapital Mercury\u00a0D\u00a0LP, HGT Mercury\u00a02\u00a0LP, HGT Mercury 3 LP, HGT\u00a0Saturn\u00a0LP, HGT\u00a0Saturn\u00a02\u00a0LP and HGT Saturn 3 LP as described in note 3 on page\u00a062.
Financial instruments and risk profile
HGT\u2019s investment objective is to achieve long-term capital appreciation by indirectly investing in unquoted companies. It does this through its investments in fund partnerships, mostly in the UK and Europe. Additionally, HGT holds UK Government securities, cash, liquidity funds and items such as debtors and creditors arising directly from its operations. In pursuing its investment objective, HGT is exposed to a variety of risks that could result in either a reduction of HGT\u2019s net assets or a reduction in the profits available for distribution by way of dividends. Valuation risk, market risk (comprising currency risk and interest rate risk), liquidity risk and credit risk, and the Directors\u2019 approach to the management of them, are described below. The Board and Hg coordinate HGT\u2019s risk management. The objectives, policies and processes for managing the risks, and the methods used to manage the risks, that are set out below, have not changed from the previous accounting period.
Valuation risk
HGT\u2019s exposure to valuation risk arises mainly from movements in the value of the underlying investments (held through fund partnerships), the majority of which are unquoted. A breakdown of HGT\u2019s portfolio is given on page\u00a041 and a breakdown of the most significant underlying investments is given on page\u00a044. In accordance with HGT\u2019s accounting policies, the investments in fund limited partnerships are valued by reference to their underlying unquoted investments, which are valued by the Directors following the IPEV Valuation Guidelines. Page\u00a074 includes details of the most significant assumptions included in the valuations. HGT does not hedge against movements in the value of these investments, apart from foreign exchange movements as explained below, though the borrowing arranged to fund these investments is normally denominated in the currency in which the business is operating and valued (see page\u00a076). HGT has exposure to interest rate movements, through bank deposits and liquidity funds.
In the opinion of the Directors, the diversified nature of HGT\u2019s investments significantly reduces the risks of investing in unquoted companies.
FRS 102 requires HGT to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:
\u2022\u00a0\u00a0\u00a0\u00a0Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
\u2022\u00a0\u00a0\u00a0\u00a0Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).
\u2022\u00a0\u00a0\u00a0\u00a0Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).
The level in the fair value hierarchy, within which the fair value measurement is categorised in its entirety, is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that is a level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.
The determination of what constitutes an \u2018observable\u2019 input requires significant judgement by the Board. The Board considers observable data relating to investments actively traded in organised financial markets, in which case fair value is generally determined by reference to stock exchange quoted market bid prices at the close of business on the balance sheet date, without adjustment for transaction costs necessary to realise the asset.
The following table analyses, within the fair value hierarchy, the fund\u2019s financial assets (by class) measured at fair value at
31 December 2022.
Level 1 | Level 2 | Level 3 | Total | |
\u00a3000 | \u00a3000 | \u00a3000 | \u00a3000 | |
Investments held at fair value through profit and loss: | ||||
Unquoted investments | ||||
- Investment in HGT 8 LP | \u2014 | \u2014 | 561,653 | 561,653 |
- Investment in HGT Saturn 2 LP | \u2014 | \u2014 | 365,120 | 365,120 |
- Investment in HGT Genesis 9 LP | \u2014 | \u2014 | 351,805 | 351,805 |
- Investment in HGT Saturn 3 LP | \u2014 | \u2014 | 266,936 | 266,936 |
- Investment in HGT Saturn LP | \u2014 | \u2014 | 223,767 | 223,767 |
-Investment in HGT LP | \u2014 | \u2014 | 197,337 | 197,337 |
- Investment in HGT Mercury 2 LP | \u2014 | \u2014 | 131,862 | 131,862 |
- Investment in HGT Mercury 3 LP | \u2014 | \u2014 | 89,586 | 89,586 |
- Investment in HGT Genesis 10 LP | \u2014 | \u2014 | 77,688 | 77,688 |
- Investment in HGT 7 LP | \u2014 | \u2014 | 69,292 | 69,292 |
- Investment in HgMercury D LP | \u2014 | \u2014 | 6,102 | 6,102 |
-Other investments\u00b9 | \u2014 | (10,177) | 76 | (10,101) |
- Liquidity funds | \u2014 | 270,524 | \u2014 | 270,524 |
- Carried interest provision | \u2014 | \u2014 | (211,155) | (211,155) |
- Fund level refinancing | \u2014 | \u2014 | (367,383) | (367,383) |
- Uninvested capital in limited partnerships | \u2014 | \u2014 | 239 | 239 |
As at 31 December 2022 | \u2014 | 260,347 | 1,762,925 | 2,023,272 |
1Includes HGT currency hedges and other direct investments.
Level 1 | Level 2 | Level 3 | Total | |
\u00a3000 | \u00a3000 | \u00a3000 | \u00a3000 | |
Investments held at fair value through profit and loss: | ||||
Unquoted investments | ||||
- Investment in HGT 8 LP | \u2014 | \u2014 | 697,719 | 697,719 |
- Investment in HGT Saturn 2 LP | \u2014 | \u2014 | 336,397 | 336,397 |
- Investment in HGT Genesis 9 LP | \u2014 | \u2014 | 281,995 | 281,995 |
- Investment in HGT Saturn LP | \u2014 | \u2014 | 265,810 | 265,810 |
- Investment in HGT Mercury 2 LP | \u2014 | \u2014 | 160,471 | 160,471 |
- Investment in HGT LP | \u2014 | \u2014 | 141,477 | 141,477 |
- Investment in HGT 7 LP | \u2014 | \u2014 | 74,914 | 74,914 |
- Investment in HGT Mercury 3 LP | \u2014 | \u2014 | 34,621 | 34,621 |
- Investment in Hg Mercury D LP | \u2014 | \u2014 | 12,711 | 12,711 |
- Investment in Hg 6 E LP | \u2014 | \u2014 | 311 | 311 |
- Liquidity funds | \u2014 | 277,049 | \u2014 | 277,049 |
- Carried interest provision | \u2014 | \u2014 | (171,579) | (171,579) |
- Fund level facilities | \u2014 | \u2014 | (156,839) | (156,839) |
- Uninvested capital in limited partnerships | \u2014 | \u2014 | 160 | 160 |
As at 31 December 2021 | \u2014 | 277,049 | 1,678,168 | 1,955,217 |
Investments whose values are based on quoted market prices in active markets, and therefore classified within level 1, include government securities and actively traded listed equities. HGT does not adjust the quoted bid price of these investments.
Financial instruments that trade in markets that are not considered to be active, but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs, are classified within level 2. As level 2 investments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.
Investments classified within level 3 have significant unobservable inputs. Level 3 instruments include private equity and corporate debt securities. As observable prices are not available for these securities, the Board has used valuation techniques to derive the fair value. In respect of unquoted instruments, or where the market for a financial instrument is not active, fair value is established by using recognised valuation methodologies, in accordance with IPEV Valuation Guidelines. Fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm\u2019s length transaction.
There were no transfers of assets from level 1 to level 2 or 3, level 2 to level 1 or 3 and level 3 to level 1 or 2.
The following table presents the movement in level 3 investments for the year ended 31 December 2022 by class of financial instrument.
Total investments in limited partnerships | 2022 | 2021 |
\u00a3000 | \u00a3000 | |
Unquoted investments: | ||
Opening balance | 1,678,008 | 1,024,116 |
Purchases | 527,075 | 424,336 |
Realisations at 31 December 2021 valuation | (379,491) | (198,150) |
Unrealised appreciation of fixed asset investments | 177,037 | 614,837 |
Movement in net carried interest provision | (39,576) | (90,063) |
Fund level refinancing | (210,544) | (97,068) |
Closing unrealised valuation of level 3 investments | 1,752,509 | 1,678,008 |
Equity price risk
Equity price risk is the risk of a fall in the fair value of HGT\u2019s ownership interests (comprising equities and shareholder loans) held by HGT indirectly through its direct investments in fund limited partnerships. The Board revalues each investment on a quarterly basis. The Board manages the risks inherent in HGT\u2019s investment activities by ensuring full and timely access to relevant information from Hg. The Board meets regularly and at each meeting reviews the trading performance of the principal underlying investments. If there appears to the Board to be a fair value movement in value between regular valuations, it can revalue the investment. The Board also monitors Hg\u2019s compliance with HGT\u2019s investment objective and investment policy.
For unquoted equity investments, the market risk variable is deemed to be the multiples applied to a maintainable earnings figure to calculate the individual investment valuations within each of the primary buyout funds; borrowing is then deducted to arrive at a valuation of the net equity held by HGT. These multiples are largely based on the historic trading multiples of comparable businesses and therefore there is a potential impact on the valuation of unquoted investments of a fall in global equity markets. Hg\u2019s best estimate of the effect on the net assets of HGT due to a 1x reduction in the multiples applied to calculate the enterprise value of all unquoted investments, with all other variables held constant, is as follows:
2022 | 2021 | |||
\u00a3000 | NAV per | \u00a3000 | NAV per | |
Sensitivity to equity price risk: | ||||
Change in the value of unquoted investments | (163,413) | (35.7) | (129,215) | (28.4) |
A fall in the value of unquoted investments could be mitigated to some degree by a reduction in the provision for carried interest (\u00a3211\u00a0million at 31 December 2022), but only in funds where an adjustment for carried interest is required (Hg\u00a0Genesis\u00a07, Hg\u00a0Genesis\u00a08, Hg Genesis 9, Hg\u00a0Saturn, Hg Saturn 2, Mercury 1 and Mercury\u00a02, see note\u00a05(c) or on page\u00a067). Hg\u2019s best estimate of the impact on the carried interest provision of the above change in value of unquoted investments is a reduction in the provision of \u00a314,880,000, 3.3 pence per ordinary share (2021: \u00a314,336,000, 3.1\u00a0pence per ordinary share). There are likely to be other correlations (either positive or negative) between the assumptions and other factors. Other inputs, such as the earnings of individual investments within the primary buyout funds are likely to have a significant impact on the value of unquoted investments. See page\u00a046 of the Manager\u2019s report for an analysis of the portfolio trading performance as at 31 December 2022. The Board regularly stress tests the NAV.
Credit risk
Credit risk is the risk of financial loss in the event that any of HGT\u2019s market counterparties fail to fulfil their contractual obligations to HGT. HGT\u2019s financial assets (excluding fixed asset investments) that are subject to credit risk, were neither impaired nor overdue at the year-end. HGT\u2019s cash balances were held with the Royal Bank of Scotland International and amounts not required for day-to-day use were invested in liquidity funds managed by Royal London Asset Management which are rated AAA by Fitch. Foreign exchange forward contracts and options are held with counterparties which have credit ratings which the Board considers to be adequate. The Board regularly monitors the credit quality and financial position of these market counterparties. The credit quality of the above mentioned financial assets was deemed satisfactory.
Market risk
The fair value of future cash flows of a financial instrument held by HGT may fluctuate due to changes in market prices of comparable businesses. This market risk may comprise: currency risk (see below), interest rate risk and/or equity price risk (see above). The Board of Directors reviews and agrees policies for managing these risks. Hg assesses the exposure to market risk when making each investment decision, and monitors the overall level of market risk across all of HGT\u2019s investments on an ongoing basis.
Currency risk and sensitivity
HGT is exposed to currency risk as a result of investing in fund partnerships which invest in companies that operate and are therefore valued in currencies other than sterling. The value of these assets in sterling, being HGT\u2019s functional currency, can be significantly influenced by movements in foreign exchange rates. Borrowing raised to fund each acquisition in such companies is normally denominated in the currency in which the business is operating and valued, thus limiting HGT\u2019s exposure to the value of its investments, rather than the gross enterprise value. From time to time, HGT is partially hedged against movements in the value of foreign currency against sterling where a movement in exchange rate could affect the value of an investment, as explained below. Hg monitors HGT\u2019s exposure to foreign currencies and reports to the Board on a regular basis. The following table illustrates the sensitivity of the revenue and capital return for the year in relation to HGT\u2019s year-end financial exposure to movements in foreign exchange rates against sterling. The rates represent the range of movements against sterling over the current year for the currencies listed, and are considered the best estimate for movements looking forward.
In the opinion of the Directors, the sensitivity analysis below may not be representative of the year as a whole, since the level of exposure changes as HGT\u2019s holdings change through the purchase and realisation of investments to meet HGT\u2019s objectives.
2022 | 2021 | ||||||||
Revenue return | Capital return | Revenue return | Capital return | ||||||
NAV per ordinary share | NAV per ordinary share | NAV per ordinary share | NAV per ordinary share | ||||||
\u00a3000 | Pence | \u00a3000 | Pence | \u00a3000 | Pence | \u00a3000 | Pence | ||
Highest value against sterling during the year: | |||||||||
Danish krone | (308) | (0.7) | (2,306) | (5.0) | (1) | \u2014 | (15) | \u2014 | |
Euro | (2,548) | (5.6) | (37,866) | (82.7) | (15) | \u2014 | (197) | \u2014 | |
Norwegian krone | \u2014 | \u2014 | (6,826) | (14.9) | \u2014 | \u2014 | (7,817) | (17.0) | |
US dollar | (386) | (0.8) | (81,500) | (178.1) | (147) | \u2014 | (21,296) | (47.0) | |
CAD dollar | (145) | (0.3) | (8,428) | (18.4) | (93) | \u2014 | (6,075) | (13.0) | |
(3,387) | (7.4) | (136,926) | (299.1) | (256) | (0.5) | (35,400) | (77.7) | ||
Lowest value against sterling during the year: | |||||||||
Danish krone | 45 | 0.1 | 335 | 0.7 | 352 | 0.8 | 4,526 | 9.9 | |
Euro | 371 | 0.8 | 5,519 | 12.1 | 2,934 | 6.4 | 39,735 | 87.3 | |
Norwegian krone | \u2014 | \u2014 | 8,962 | 19.6 | \u2014 | \u2014 | 9,653 | 21.2 | |
US dollar | 371 | 0.8 | 78,347 | 171.2 | 79 | 0.2 | 11,546 | 25.4 | |
CAD dollar | 270 | 0.6 | 15,650 | 34.2 | 56 | 0.1 | 3,652 | 8.0 | |
1,057 | 2.3 | 108,813 | 237.8 | 3,421 | 7.5 | 69,112 | 151.8 |
At 31 December 2022, the following rates were applied to convert foreign denominated assets into sterling: Danish krone (8.3817); euro (1.1271); New Zealand dollar (1.9020); Norwegian krone (11.8498); US dollar (1.2029) and CAD dollar (1.6299).
Hedging
At times, HGT uses derivative financial instruments such as forward foreign currency contracts and option contracts to manage the currency risks associated with its underlying investment activities. The contracts entered into by HGT are denominated in the foreign currency of the geographic areas in which HGT has significant exposure against its reporting currency. The contracts are used for hedging and the fair values thereof are recorded in the balance sheet as investments held at fair value. Unrealised gains and losses are taken to capital reserves. At the balance sheet date, there was \u00a310.2\u00a0million in outstanding derivative financial instruments (2021: nil).
HGT does not trade in derivatives but may hold them from time to time to hedge specific exposures with maturities designed to match the exposures they are hedging. It is the intention to hold both the financial investments giving rise to the exposure and the derivatives hedging them until maturity and therefore no net gain or loss is expected to be realised.
Derivatives are held at fair value, which represents the replacement cost of the instruments at the balance sheet date. Movements in the fair value of derivatives are included in the income statement. HGT does not adopt hedge accounting in the financial statements.
Interest rate risk and sensitivity
HGT has exposure to interest rate movements as this may affect the fair value of funds awaiting investment, interest receivable on liquid assets and managed liquidity funds, and interest payable on borrowings. HGT has little immediate direct exposure to interest rates on its fixed assets, as the majority of the underlying investments are fixed rate loans or equity shares that do not pay interest. Therefore, HGT\u2019s revenue return is not materially affected by changes in interest rates.
However, funds awaiting investment have been invested in managed liquidity funds and, as stated above, their valuation is affected by movements in interest rates. The sensitivity of the capital return of HGT to movements in interest rates has been based on the UK base rate. With all other variables constant, a 0.25% decrease in the UK base rate should increase the capital return in a full year by about \u00a3675,000 (2020: \u00a3690,000) with a corresponding decrease if the UK base rate were to increase by 0.25%. In the opinion of the Directors, the above sensitivity analyses may not be representative of the year as a whole, since the level of exposure changes as investments are made and realised throughout the year.
Liquidity risk
Investments in unquoted companies, which form the majority of HGT\u2019s investments, may not be as readily realisable as investments in quoted companies, which might result in HGT having difficulty in meeting its obligations. Liquidity risk is currently not significant as 15% of HGT\u2019s net assets at the year-end are liquid resources and, in addition, HGT has a c.\u00a3290\u00a0million multi-currency bank facility which had \u00a3153\u00a0million undrawn capacity at the year end. The Board gives guidance to Hg as to the maximum amount of HGT\u2019s resources that should be invested in any one company. Please refer to HGT\u2019s Investment Policy on page\u00a025.
Currency and interest rate exposure
HGT\u2019s financial assets that are subject to currency and interest rate risk are analysed below:
2022 | 2021 | ||||||||
Fixed and floating rate | Non | Total | Total | Fixed and floating rate | Non | Total | Total | ||
\u00a3000 | \u00a3000 | \u00a3000 | % | \u00a3000 | \u00a3000 | \u00a3000 | % | ||
Sterling | 323,078 | 366,027 | 689,105 | 29.9 | 371,489 | 373,425 | 744,914 | 34.2 | |
Euro | \u2014 | 586,069 | 586,069 | 25.5 | \u2014 | 537,380 | 537,380 | 24.7 | |
Norwegian krone | \u2014 | 181,595 | 181,595 | 7.9 | \u2014 | 213,002 | 213,002 | 9.8 | |
US dollar | \u2014 | 659,602 | 659,602 | 28.7 | \u2014 | 454,933 | 454,933 | 20.9 | |
Danish krone | \u2014 | 37,681 | 37,681 | 1.6 | \u2014 | 61,627 | 61,627 | 2.8 | |
CAD dollar | \u2014 | 147,070 | 147,070 | 6.4 | \u2014 | 165,447 | 165,447 | 7.6 | |
Total | 323,078 | 1,978,044 | 2,301,122 | 100.0 | 371,489 | 1,805,814 | 2,177,303 | 100.0 |
The fixed and floating rate assets consisted of cash and liquidity funds, of which the underlying investments are a combination of fixed and floating rate. The non-interest-bearing assets represent the investments held in fund limited partnerships, gross of the provision for carried interest and short term debtors.
Capital management policies and procedures
HGT\u2019s capital management objectives are to ensure that it will be able to finance its business as a going concern and to maximise the revenue and capital return to its equity shareholders.
HGT\u2019s capital at 31 December 2022 comprised:
2022 | 2021 | |
\u00a3000 | \u00a3000 | |
Equity: | ||
Equity share capital | 11,443 | 11,382 |
Share premium | 372,224 | 359,971 |
Capital redemption reserve | 1,258 | 1,248 |
Retained earnings and other reserves | 1,705,040 | 1,633,123 |
Total capital | 2,089,965 | 2,005,724 |
With the assistance of Hg, the Board monitors and reviews the broad structure of HGT\u2019s capital on an ongoing basis. This review covers:
\u2022\u00a0\u00a0\u00a0\u00a0the projected level of liquid funds (including access to bank facilities);
\u2022\u00a0\u00a0\u00a0\u00a0the desirability of buying back equity shares, either for cancellation or to hold in treasury, balancing the effect (if any) this may have on the discount at which shares in HGT are trading against the advantages of retaining cash for investment;
\u2022\u00a0\u00a0\u00a0\u00a0the opportunity to raise funds by an issue of equity shares; and
\u2022\u00a0\u00a0\u00a0\u00a0the extent to which revenue in excess of that which is required to be distributed should be retained, while maintaining its status under Section 1158 of the CTA 2010.
2022 | 2021 | |||
No. 000 | \u00a3000 | No. 000 | \u00a3000 | |
Ordinary shares of 2.5p each: | ||||
Allotted, called up and fully paid: | ||||
At 1 January | 455,280 | 11,382 | 416,000 | 10,400 |
Issues of ordinary shares | 2,850 | 71 | 39,280 | 982 |
Purchase of own shares | (401) | (10) | \u2014 | \u2014 |
At 31 December | 457,729 | 11,443 | 455,280 | 11,382 |
Total called-up share capital | 457,729 | 11,443 | 455,280 | 11,382 |
While HGT no longer has an authorised share capital, the Directors will still be limited as to the number of shares they can at any time
allot, as the Companies Act 2006 requires that Directors seek authority from shareholders for the allotment of new shares. Share issue costs incurred during the year were \u00a3124,488 (2021: \u00a31,426,573). Total proceeds received from the issuance of shares during the year were \u00a312,324,312 (2021: \u00a3141,230,750).21.\u00a0 Share premium account and reservesShare | Capital redemption reserve | Capital | Capital | Revenue reserve | |
\u00a3000 | \u00a3000 | \u00a3000 | \u00a3000 | \u00a3000 | |
As at 1 January 2022 | 359,971 | 1,248 | 712,188 | 885,821 | 35,114 |
Issues of ordinary shares | 12,253 | \u2014 | \u2014 | \u2014 | \u2014 |
Purchase of own shares | \u2014 | 10 | \u2014 | \u2014 | (1,350) |
Transfer on disposal of investments | \u2014 | \u2014 | (278,805) | 278,805 | \u2014 |
(Losses)/gains on liquidity funds | \u2014 | \u2014 | (3,076) | (1,072) | \u2014 |
(Losses)/gains on aborted deal fees | \u2014 | \u2014 | (2,076) | (76) | \u2014 |
Foreign exchange (loss)/gain on loan facility | \u2014 | \u2014 | (2,652) | 1,249 | \u2014 |
Net movement on sale of fixed asset investments | \u2014 | \u2014 | \u2014 | 31,045 | \u2014 |
Net movement in unrealised appreciation of fixed asset investments | \u2014 | \u2014 | 177,037 | \u2014 | \u2014 |
Foreign exchange gain/(loss) on fixed asset investments | \u2014 | \u2014 | (22,235) | \u2014 | \u2014 |
Foreign exchange gain/(loss) on portfolio facilities | \u2014 | \u2014 | (22,830) | \u2014 | \u2014 |
Foreign exchange gain/(loss) on cash balances | \u2014 | \u2014 | \u2014 | 9,232 | \u2014 |
Dividends paid | \u2014 | \u2014 | \u2014 | \u2014 | (34,217) |
Net revenue return | \u2014 | \u2014 | \u2014 | \u2014 | 24,318 |
Net loans advanced to General Partners | \u2014 | \u2014 | (12,512) | \u2014 | \u2014 |
Carried interest | \u2014 | \u2014 | (39,576) | (29,292) | \u2014 |
As at 31 December 2022 | 372,224 | 1,258 | 505,463 | 1,175,712 | 23,865 |
Fund | Original commitment | 1 | \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Outstanding at 31 Dec | ||
2022 | 2021 | ||||
\u00a3000 | \u00a3000 | \u00a3000 | |||
HGT Saturn 3 LP | 893,674 | 2 | 612,618 | \u2014 | |
HGT Genesis 10 LP | 443,616 | 3 | 359,424 | \u2014 | |
HGT LP | 103,916 | 4 | 102,082 | 92,285 | |
HGT Saturn 2 LP | 332,530 | 5 | 26,839 | 67,835 | |
HGT Saturn LP | 150,000 | 25,100 | 15,944 | ||
HGT Mercury 3 LP | 102,032 | 6 | 22,814 | 64,033 | |
HGT 8 LP | 350,000 | 20,335 | 51,499 | ||
HGT Genesis 9 LP | 319,404 | 7 | 18,024 | 66,162 | |
HgCapital Mercury D LP | 60,000 | 8 | 3,265 | 3,265 | |
HGT Mercury 2 LP | 80,000 | 2,152 | 1,849 | ||
HGT 7 LP | 200,000 | 8 | 771 | 992 | |
Asper RPP I LP | 19,200 | 9 | 612 | 10 | 581 |
Total outstanding commitments | 1,194,036 | 991,983 |
1\u00a0\u00a0\u00a0\u00a0HGT has the benefit of an opt-out provision in connection with its commitments to invest alongside Hg\u00a0Genesis 8, Hg\u00a0Mercury\u00a02, Hg\u00a0Saturn, Hg\u00a0Saturn\u00a02, Hg\u00a0Genesis\u00a09, Hg\u00a0Mercury\u00a03 and Hg Saturn 3 allowing it to opt out of its obligation to fund draw-downs under its commitments, without penalty, where certain conditions exist.
2\u00a0\u00a0\u00a0\u00a0Sterling equivalent of $1,075,000,000.
3\u00a0\u00a0\u00a0\u00a0Sterling equivalent of \u20ac500,000,000.
4\u00a0\u00a0\u00a0\u00a0Sterling equivalent of $125,000,000 of junior debt.
5\u00a0\u00a0\u00a0\u00a0Sterling equivalent of $400,000,000.
6\u00a0\u00a0\u00a0\u00a0Sterling equivalent of \u20ac115,000,000.
7\u00a0\u00a0\u00a0\u00a0Sterling equivalent of \u20ac360,000,000.
8\u00a0\u00a0\u00a0\u00a07.6% of the \u00a360\u00a0million to the Mercury\u00a01 Fund, 12.4% of the original \u00a3200\u00a0million to the HgCapital\u00a07 Fund, 0.45% of the original \u00a3350\u00a0million to the HgCapital\u00a08 Fund have subsequently been cancelled, as the Manager deemed that it was unlikely to be required.
9\u00a0\u00a0\u00a0\u00a0Sterling equivalent of \u20ac21,640,000.
Key agreements, related party transactions and ultimate controlling party
Hg acts as Manager of HGT through a management agreement and indirectly participates through fund limited partnership agreements as the general partners and, alongside a number of Hg\u2019s executives (past and present), as the founder partners of the fund partnerships in which HGT invests. In addition, Hg acts as Administrator of HGT.
HGT has no ultimate controlling party.
The financial statements have been prepared under the historical cost convention, except for the revaluation of financial instruments at fair value as permitted by the Companies Act 2006 and in accordance with applicable UK law and UK Accounting Standards (\u2018UK GAAP\u2019), including Financial Reporting Standard 102 \u2013 \u2018The Financial Reporting Standard applicable in the United Kingdom and Republic of Ireland\u2019 (\u2018FRS 102\u2019) and with the Statement of Recommended Practice \u2018Financial Statements of Investment Trust Companies and Venture Capital Trusts\u2019 (\u2018SORP\u2019), issued in July 2022. All of HGT\u2019s operations are of a continuing nature.
After making enquiries, the Directors have a reasonable expectation that HGT will have adequate resources to continue in operational existence for the next 12-month period from the date of approval of this report. Accordingly, they continue to adopt the going-concern basis in preparing these financial statements.
HGT entered into eleven separate partnership agreements with general and founder partners in May 2003 (subsequently revised in January 2009), January 2009, July 2011, March 2013, December 2016, February 2017, January 2018, February 2020, December 2021 and April 2022; at each point, an investment-holding limited partnership was established to carry on the business of an investor, with HGT being the sole limited partner in these entities.
The purpose of these partnerships, HGT LP, HGT 6 LP, HGT 7 LP, HGT 8 LP, HgCapital Mercury D LP, HGT Mercury 2 LP, HGT Saturn LP, HGT Saturn 2 LP, HGT Genesis 9 LP, HGT Mercury 3 LP, HGT Saturn 3 LP and HGT Genesis 10 LP (together the \u2018primary buyout funds\u2019), is to hold all of HGT\u2019s investments in primary buyouts. Under the partnership agreements, HGT made capital commitments into the primary buyout funds, with the result that HGT now holds direct investments in the primary buyout funds and an indirect investment in the fixed-asset investments which are held by these funds, as it is the sole limited partner. These direct investments are included under fixed-asset investments on the balance sheet and in the table of investments on page\u00a042. The underlying investments which are held indirectly are included in the overview of investments on page\u00a044.
In July 2011, HGT acquired a direct secondary investment in HgCapital\u00a06\u00a0E\u00a0LP (\u2018Hg\u00a06\u00a0E\u00a0LP\u2019), one of the partnerships which comprise the Hg\u00a06\u00a0Fund, in which HGT is now a limited partner pari\u00a0passu with other limited partners. This is a direct investment in the Hg\u00a06\u00a0E\u00a0LP Fund.
HGT also entered into partnership agreements with other limited partners, with the purpose of investing in renewable energy projects, by making capital commitments in Asper Renewable Power Partners LP (\u2018Asper\u00a0RPP\u00a0I\u00a0LP\u2019). This is a direct investment in the renewable funds, as shown on the balance sheet and in the table of investments on page\u00a042.
Under the terms of the primary buyout fund limited partnership agreements (\u2018LPAs\u2019), each general partner (see note\u00a05) is entitled to appropriate, as a first charge on the net income of the funds, an amount equivalent to its priority profit share (\u2018PPS\u2019). HGT is entitled to net income from the funds, after payment of the PPS.
In years in which these funds have not yet earned sufficient net income to satisfy the PPS, the entitlement is carried forward to the following years. The PPS is payable quarterly in advance, even if insufficient net income has been earned. Where the cash amount paid exceeds the net income, an interest-free loan is advanced to the general partner by these primary buyout funds, which is funded by a capital call from HGT. Such loans are recoverable from the general partner only by an appropriation of net income until net income is earned. At the HGT level such a call is expensed in the capital column as these amounts are not recoverable (see note\u00a05(b)).
Furthermore, under the primary buyout funds\u2019 LPAs, each founder partner (see note\u00a05(c)) is entitled to a carried-interest distribution, once certain preferred returns are met. The LPAs stipulate that the primary buyout funds\u2019 capital gains or net income, after payment of the carried interest, are allocated to HGT, when the right to these returns is established.
Accordingly, HGT\u2019s entitlement to net income and net capital gains is shown in the appropriate lines of the income statement. Notes 4, 5 and 10 to the financial statements disclose the gross income and gross capital gains of the primary buyout funds and also reflect the proportion of net income and capital gains in the buyout funds which has been paid to the general partner as its PPS and to the founder partner as carried interest, where applicable.
The PPS paid from net income is charged to the revenue account in the income statement, where there is insufficient income PPS is charged as an unrealised depreciation to the capital return on the income statement.
As stated above, all income that is recognised by the primary buyout funds, net of PPS, is allocated to HGT and recognised when the right to this income is established. Income from Hg\u00a06\u00a0E\u00a0LP and the renewable energy funds would normally consist of income distributions and these distributions are recognised as income in the financial statements of HGT when the right to such distribution is established.
The accounting policies below apply to the recognition of income by the primary buyout funds, prior to allocation between the Partners:
Interest income on non-equity shares and fixed income securities is recognised on a time apportionment basis so as to reflect the effective yield when it is probable that it will be realised. Dividends receivable on unlisted equity shares where there is no ex-dividend date and on non-equity shares are brought into account when the right to receive payment is established.
The principle applied is that investments should be reported at \u2018fair value\u2019, in accordance with Sections 11 and 12 of FRS 102 and the International Private Equity and Venture Capital (\u2018IPEV\u2019) Valuation Guidelines, March 2022 edition. Where relevant, HGT applies the policies stated below to the investments held by the primary buyout funds, in order to determine the fair value of its investments in these limited partnerships.
Purchases of investments are recognised on a trade date basis. Sales of investments held through the primary buyout funds are recognised at the trade date of the disposal. Sales from the investments in Hg\u00a06\u00a0E\u00a0LP and the renewable energy funds would normally consist of capital distributions and these distributions are recognised as a realisation when the right to such distribution is established. Proceeds are measured at fair value, which is regarded as the proceeds of sale less any transaction costs.
Quoted: Quoted investments are held at fair value, which is deemed to be their bid price.
Unquoted: Unquoted investments are also held at fair value and are valued using the following guidelines:
(i)\u00a0\u00a0\u00a0\u00a0the level of maintainable earnings or revenue and an appropriate earnings or revenue multiple, unless (iii) is required;
(ii)\u00a0\u00a0\u00a0\u00a0where more appropriate, investments can be valued based on other methodologies, including using their net assets or discounted cash flows, rather than on their earnings or revenue; and
(iii)\u00a0\u00a0\u00a0\u00a0appropriate fair value movements are made against all individual valuations where necessary to reflect unsatisfactory financial performance or a fall in comparable ratings.
Debt: The investments are valued using discounted cash flows, considering the impact of changes in the credit risk of the portfolio company and changes to the market rates of return on fair value.
Limited partnership funds: these are investments that are set up by a manager in which HGT has a direct investment, but is not the sole limited partner and does not hold a majority share. These investments are valued at fair value, based on the Manager\u2019s valuation after any adjustment required by the Directors.
Liquidity funds: these are short-term investments made in a combination of fixed and floating rate securities and are valued at the current fair value as determined by the manager of the fund. They can be realised at short notice.
Derivative financial instruments: derivative financial instruments are held at fair value and are valued using quoted market prices for financial instruments traded in active markets, or dealer price quotations for financial instruments that are not actively traded.
Capital reserve \u2013 realised
The following are accounted for in this reserve:
(i)\u00a0\u00a0\u00a0\u00a0gains and losses on the realisation of investments;
(ii)\u00a0\u00a0\u00a0\u00a0attribution of gains to the founder partners for carried interest;
(ii)\u00a0\u00a0\u00a0\u00a0losses on investments where there is little prospect of realisation or recovering any value;
(iv)\u00a0\u00a0\u00a0\u00a0realised exchange differences of a capital nature; and
(v)\u00a0\u00a0\u00a0\u00a0expenses, together with the related taxation effect, charged to this reserve in accordance with the above policies.
Capital reserve \u2013 unrealised
The following are accounted for in this reserve:
(i)\u00a0\u00a0\u00a0\u00a0increases and decreases in the valuation of investments held at the year-end;
(ii)\u00a0\u00a0\u00a0\u00a0increases and decreases in the valuation of the loans to general partners; and
The preparation of these financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported year. Although these estimates are based on management\u2019s best knowledge of the amount, event or actions, actual results may ultimately differ from those estimates.
The estimates and assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
As stated above, all income that is recognised by the primary buyout funds, net of PPS, is allocated to HGT and recognised when the right to this income is established. Income from Hg\u00a06\u00a0E\u00a0LP and the renewable energy funds would normally consist of income distributions and these distributions are recognised as income in the financial statements of HGT when the right to such distribution is established.
The accounting policies below apply to the recognition of income by the primary buyout funds, prior to allocation between the Partners:
Interest income on non-equity shares and fixed income securities is recognised on a time apportionment basis so as to reflect the effective yield when it is probable that it will be realised. Dividends receivable on unlisted equity shares where there is no ex-dividend date and on non-equity shares are brought into account when the right to receive payment is established.
The principle applied is that investments should be reported at \u2018fair value\u2019, in accordance with Sections 11 and 12 of FRS 102 and the International Private Equity and Venture Capital (\u2018IPEV\u2019) Valuation Guidelines, March 2022 edition. Where relevant, HGT applies the policies stated below to the investments held by the primary buyout funds, in order to determine the fair value of its investments in these limited partnerships.
Purchases of investments are recognised on a trade date basis. Sales of investments held through the primary buyout funds are recognised at the trade date of the disposal. Sales from the investments in Hg\u00a06\u00a0E\u00a0LP and the renewable energy funds would normally consist of capital distributions and these distributions are recognised as a realisation when the right to such distribution is established. Proceeds are measured at fair value, which is regarded as the proceeds of sale less any transaction costs.
Quoted: Quoted investments are held at fair value, which is deemed to be their bid price.
Unquoted: Unquoted investments are also held at fair value and are valued using the following guidelines:
(i)\u00a0\u00a0\u00a0\u00a0the level of maintainable earnings or revenue and an appropriate earnings or revenue multiple, unless (iii) is required;
(ii)\u00a0\u00a0\u00a0\u00a0where more appropriate, investments can be valued based on other methodologies, including using their net assets or discounted cash flows, rather than on their earnings or revenue; and
(iii)\u00a0\u00a0\u00a0\u00a0appropriate fair value movements are made against all individual valuations where necessary to reflect unsatisfactory financial performance or a fall in comparable ratings.
Debt: The investments are valued using discounted cash flows, considering the impact of changes in the credit risk of the portfolio company and changes to the market rates of return on fair value.
Limited partnership funds: these are investments that are set up by a manager in which HGT has a direct investment, but is not the sole limited partner and does not hold a majority share. These investments are valued at fair value, based on the Manager\u2019s valuation after any adjustment required by the Directors.
Liquidity funds: these are short-term investments made in a combination of fixed and floating rate securities and are valued at the current fair value as determined by the manager of the fund. They can be realised at short notice.
Capital reserve \u2013 realised
The following are accounted for in this reserve:
(i)\u00a0\u00a0\u00a0\u00a0gains and losses on the realisation of investments;
(ii)\u00a0\u00a0\u00a0\u00a0attribution of gains to the founder partners for carried interest;
(ii)\u00a0\u00a0\u00a0\u00a0losses on investments where there is little prospect of realisation or recovering any value;
(iv)\u00a0\u00a0\u00a0\u00a0realised exchange differences of a capital nature; and
(v)\u00a0\u00a0\u00a0\u00a0expenses, together with the related taxation effect, charged to this reserve in accordance with the above policies.
Capital reserve \u2013 unrealised
The following are accounted for in this reserve:
(i)\u00a0\u00a0\u00a0\u00a0increases and decreases in the valuation of investments held at the year-end;
(ii)\u00a0\u00a0\u00a0\u00a0increases and decreases in the valuation of the loans to general partners; and
The preparation of these financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported year. Although these estimates are based on management\u2019s best knowledge of the amount, event or actions, actual results may ultimately differ from those estimates.
The estimates and assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
Revenue return | ||
2022 | 2021 | |
\u00a3000 | \u00a3000 | |
Total net income comprises: | ||
Interest | 31,289 | 44,954 |
Dividend | 10,467 | 2,479 |
Total net income | 41,756 | 47,433 |
Revenue return | ||
2022 | 2021 | |
\u00a3000 | \u00a3000 | |
Income from investments held by the primary buyout funds | ||
Unquoted investment income | 43,767 | 52,862 |
Dividend Income | 10,467 | 2,479 |
Other investment income: | ||
Unquoted investment income | \u2014 | 8 |
Liquidity funds income | 2,336 | 648 |
Total investment income | 56,570 | 55,997 |
Total other income | 100 | \u2014 |
Total income | 56,670 | 55,997 |
Priority profit share charge against income: | ||
Current year - HGT Genesis 9 LP | (4,498) | (1,440) |
Current year - HGT 8 LP | (4,323) | (3,946) |
Current year - HGT Genesis 10 LP | (1,917) | \u2014 |
Current year - HGT Mercury 3 LP | (1,693) | \u2014 |
Current year - HGT Saturn LP | (1,425) | (1,388) |
Current year - HGT LP | (549) | (82) |
Current year - HGT 7 LP | (228) | (400) |
Current year - HGT Mercury 2 LP | (194) | (1,154) |
Current year - HgCapital Mercury D LP | (86) | (154) |
Current year - HGT Saturn 2 LP | (1) | \u2014 |
Total priority profit share charge against income (note 5(a)) | (14,914) | (8,564) |
Total net income | 41,756 | 47,433 |
Revenue return | ||
2022 | 2021 | |
(a) Priority profit share payable to general partners | \u00a3000 | \u00a3000 |
Priority profit share payable: | ||
Current year amount | 27,426 | 16,385 |
Less: Current year loans advanced to general partners (note 5(b)) | (12,512) | (8,153) |
Add: Prior year loans recovered from general partners (note 5(b)) | \u2014 | 332 |
Current year charge against income | 14,914 | 8,564 |
Total priority profit share charge against income | 14,914 | 8,564 |
The priority profit share payable on the primary buyout funds rank as a first appropriation of net income from investments held in these partnerships respectively and is deducted prior to such income being attributed to HGT in its capacity as a Limited Partner. The net income of the primary buyout funds earned during the year, after the deduction of the priority profit share, is shown on the income statement.
The terms of the above priority profit share arrangements during 2022 were:
Primary buyout fund partnership | Priority profit share |
HGT Genesis 10 LP | 1.75% on the fund commitment during the investment period |
HGT Mercury 3 LP | 1.75% on the fund commitment during the investment period |
HGT 8 LP | 1.5% of original cost of investments in the fund, less the original cost of investments which have been realised or written off |
HGT Genesis 9 LP | 1.5% of original cost of investments in the fund, less the original cost of investments which have been realised or written off |
HGT Mercury 2 LP | 1.5% of original cost of investments in the fund, less the original cost of investments which have been realised or written off |
HGT 7 LP | 1.5% of original cost of investments in the fund, less the original cost of investments which have been realised or written off |
HgCapital Mercury D LP | 1.5% of original cost of investments in the fund, less the original cost of investments which have been realised or written off |
HGT Saturn 3 LP | 1.0% on the fund commitment during the investment period |
HGT Saturn 2 LP | 0.75% on invested capital |
HGT Saturn LP | 1.0% on invested capital |
HGT LP | 1.0% on invested capital excluding co-investment |
Capital return | ||
2022 | 2021 | |
(b) Priority profit share loans to general partners within the underlying limited partnerships | \u00a3000 | \u00a3000 |
Movement on loans to general partners: | ||
Losses on current-year loans advanced to general partners | (12,512) | (8,153) |
Gains on prior-year loans recovered from general partners | \u2014 | 332 |
Total losses on priority profit share loans advanced to general partners | (12,512) | (7,821) |
In years in which the funds described in note\u00a05(a) have not yet earned sufficient net income to satisfy the priority profit share, the entitlement is carried forward to the following years. The priority profit share is payable quarterly in advance, even if insufficient net income has been earned. Where the cash amount paid exceeds the net income, an interest free loan is advanced to the general partner by these primary buyout funds, which is funded via a loan from HGT. Such loan is only recoverable from the general partner by an appropriation of net income, until sufficient net income is earned, no value is attributed to this loan and hence an unrealised capital loss is recognised and reversed if sufficient income is subsequently generated.
Capital return | ||
2022 | 2021 | |
(c) Carried interest to founder partners | \u00a3000 | \u00a3000 |
Carried interest charge against capital gains: | ||
Current year charge against realised capital gains | 29,292 | 32,472 |
Current year charge against unrealised capital gains | 39,576 | 90,063 |
Total carried-interest charge against capital gains | 68,868 | 122,535 |
Revenue return | ||
2022 | 2021 | |
(a) Operating expenses | \u00a3000 | \u00a3000 |
Registrar, management and administration fees | 1,660 | 1,544 |
Directors remuneration (note 8) | 367 | 342 |
Legal and other administration costs1 | 4,994 | 3,702 |
7,021 | 5,588 | |
Fees payable to HGT's auditor in relation to HGT: | ||
Audit fees2 | 132 | 115 |
Total fees payable to HGT's auditor | 132 | 115 |
Total other expenses | 7,153 | 5,703 |
1Includes employer\u2019s National Insurance contributions of \u00a344,000 (2021: \u00a338,000).
2The audit fee is inclusive of VAT at the rate of 20%. In addition to the audit fees payable to the auditor in relation to HGT, audit fees payable to the auditor in respect of the audit of the primary buyout funds were \u00a391,000 (2021: \u00a378,000).
Revenue return | ||
2022 | 2021 | |
(b) Finance costs | \u00a3000 | \u00a3000 |
Interest paid | 6,638 | 1,677 |
Non-utilisation fees and other expenses | 3,265 | 2,279 |
Arrangement fees | 382 | 1,138 |
Total finance costs | 10,285 | 5,094 |
Reconciliation of net return before finance costs and taxation | 2022 | 2021 |
\u00a3000 | \u00a3000 | |
Net return before finance costs and taxation | 117,769 | 600,039 |
Gains on investments held at fair value and liquidity funds | (151,812) | (657,515) |
Carried interest paid | (29,292) | (32,472) |
Increase in carried interest provision | 39,576 | 90,063 |
Increase in accrued income from liquidity funds | (2,336) | (648) |
Increase in accrued income and other debtors | (45,906) | (29,775) |
Increase in creditors | 1,458 | 1,717 |
(Increase)/decrease in uninvested capital | (79) | 26,311 |
Taxation (paid)/received | \u2014 | 192 |
Net cash outflow from operating activities | (70,622) | (2,088) |
Revenue return | ||
2022 | 2021 | |
(a) Analysis of charge in the year | \u00a3000 | \u00a3000 |
Current tax: | ||
UK corporation tax | 4,226 | 6,583 |
Income streaming relief | (2,174) | (6,476) |
Income not subject to tax | (2,052) | \u2014 |
Prior year adjustment | \u2014 | (192) |
Tax losses brought forward | \u2014 | (107) |
Current revenue tax charge/(credit) for the year | \u2014 | (192) |
Deferred tax: | ||
Reversal of timing differences | \u2014 | \u2014 |
Total deferred tax charge for the year (note 9(c)) | \u2014 | \u2014 |
Total taxation charge/(credit) | \u2014 | (192) |
Revenue return | ||
2022 | 2021 | |
(b) Factors affecting tax charge/(credit) for the year | \u00a3000 | \u00a3000 |
Net revenue return before taxation | 24,318 | 36,636 |
UK corporation tax charge at 19% thereon (2021: 19%) | 4,620 | 6,961 |
Effects of: | ||
Tax relief from interest distribution | (2,174) | (6,476) |
Income not subject to tax | (2,052) | \u2014 |
Tax relief from expenses allocated to capital | (394) | (378) |
Prior year tax adjustment | \u2014 | (192) |
Tax losses brought forward | \u2014 | (107) |
Total differences | (4,620) | (7,153) |
Total taxation charge/(credit) | \u2014 | (192) |
Revenue return | Capital return | |||
(a) Basic and diluted return per ordinary share | 2022 | 2021 | 2022 | 2021 |
Amount (\u00a3000): | ||||
Net return after taxation | 24,318 | 36,828 | 83,166 | 558,309 |
Weighted average number of ordinary shares (000): | ||||
Weighted average number of ordinary shares in issue | 457,352 | 433,799 | 457,352 | 433,799 |
Basic and diluted return per ordinary share (pence) | 5.32 | 8.49 | 18.18 | 128.70 |
The basic and diluted EPS are the same as HGT does not have dilutive financial instruments.
\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Capital return | ||
(b) Net asset value per ordinary share | 2022 | 2021 |
Amount (\u00a3000): | ||
Net assets | 2,089,965 | 2,005,724 |
Number of ordinary shares (000): | ||
Number of ordinary shares in issue | 457,729 | 455,280 |
Net asset value per ordinary share (pence) | 456.6 | 440.5 |
2022 | 2021 | |
\u00a3000 | \u00a3000 | |
Investments held at fair value through profit or loss: | ||
Unquoted investments held in HGT 8 LP | 561,653 | 697,719 |
Unquoted investments held in HGT Saturn 2 LP | 365,120 | 336,397 |
Unquoted investments held in HGT Genesis 9 LP | 351,805 | 281,995 |
Unquoted investments held in HGT Saturn 3 LP | 266,936 | \u2014 |
Unquoted investments held in HGT Saturn LP | 223,767 | 265,810 |
Unquoted investments held in HGT LP | 197,337 | 141,477 |
Unquoted investments held in HGT Mercury 2 LP | 131,862 | 160,471 |
Unquoted investments held in HGT Mercury 3 LP | 89,586 | 34,621 |
Unquoted investments held in HGT Genesis 10 LP | 77,688 | \u2014 |
Unquoted investments held in HGT 7 LP | 69,292 | 74,914 |
Unquoted investments held in HgCapital Mercury D LP | 6,102 | 12,711 |
Other1 | (10,101) | 311 |
Total fixed asset investments gross of carried interest provision | 2,331,047 | 2,006,426 |
Carried interest provision (note 5(c)) | (211,155) | (171,579) |
Fund level facilities2 | (367,383) | (156,839) |
Total fixed asset investments | 1,752,509 | 1,678,008 |
Total fixed asset investments consist of: | ||
Fund limited partnerships | 1,752,509 | 1,678,008 |
1Includes HGT currency hedges and direct investments .
2Lines of credit sit below the fund structure and are used to fund portfolio M&A and return cash to investors. The facilities are unsecured, with no recourse to HGT or the underlying funds and are repaid from future realised proceeds, the proportion of which will depend on the loan to value ratio at that time. Since the debt sits below the funds the interest is shown as an unrealised loss against the HGT investments.
2022 | 2021 | ||
\u00a3000 | \u00a3000 | ||
Opening valuation as at 1 January | 1,678,008 | 1,024,116 | |
Opening unrealised appreciation | - investments | (913,518) | (339,497) |
Opening carried interest provision | 171,579 | 81,516 | |
Opening fund level facilities | 156,839 | 59,771 | |
Opening book cost as at 1 January | 1,092,908 | 825,906 | |
Movements in the year: | |||
Additions at cost | 527,075 | 424,336 | |
Disposals | - proceeds | (410,536) | (279,628) |
- realised gains on sales | 309,850 | 122,294 | |
Closing book cost of investments | 1,519,297 | 1,092,908 | |
Add: closing unrealised appreciation | - investments | 811,750 | 913,518 |
Less: closing carried interest provision | (211,155) | (171,579) | |
Less: Fund level facilities1 | (367,383) | (156,839) | |
Closing valuation of investments at 31 December | 1,752,509 | 1,678,008 |
The investments above include investments in companies that are indirectly held by HGT through its investment in the primary buyout funds as set out in note\u00a03 on page\u00a062, and investments in fund limited partnerships in Hg\u00a06\u00a0E\u00a0LP and Asper Renewable Power Partners\u00a0LP. The net assets attributable to partners at 31 December 2021, being the date of the last audited balance sheet, of these primary buyout funds were \u00a3160,470,729 (HGT\u00a0LP), \u00a374,913,702 (HGT\u00a07\u00a0LP), \u00a312,711,183 (HgCapital Mercury\u00a0D\u00a0LP), \u00a3697,719,123 (HGT\u00a08\u00a0LP), \u00a3141,477,484 (HGT Mercury\u00a02\u00a0LP), \u00a3265,809,605 (HGT\u00a0Saturn\u00a0LP), \u00a3336,396,955 (HGT Saturn\u00a02\u00a0LP) and \u00a3281,994,927 (HGT\u00a0Genesis\u00a09\u00a0LP).
a) Uninvested capital in limited partnerships
Capital return | |||
2022 | 2021 | ||
\u00a3000 | \u00a3000 | ||
Realised: | |||
Realised gains/(losses) | - fixed asset investments | 309,850 | 122,294 |
- liquidity funds | (1,072) | 236 | |
- foreign exchange gains/(losses) | 9,232 | (1,234) | |
- aborted deal fees | (76) | (1,991) | |
- loan facility | 1,249 | \u2014 | |
319,183 | 119,305 | ||
Carried interest charge against realised capital gains (note 5(c)) | (29,292) | (32,472) | |
Net realised gains | 289,891 | 86,833 | |
Unrealised: | |||
Unrealised (losses)/gains | - fixed asset investments | (101,768) | 574,021 |
- foreign exchange on investments | (22,235) | 1,861 | |
- liquidity funds | (3,076) | (1,015) | |
- aborted deal fees | (2,076) | 42 | |
- foreign exchange on loan facility | (2,652) | 1,339 | |
(131,807) | 576,248 | ||
Carried interest charge against unrealised capital gains (note 5(c)) | (39,576) | (90,063) | |
Fund level facilities\u00b9 | (22,830) | (6,888) | |
Net unrealised (losses) / gains | (194,213) | 479,297 | |
Total gains | 95,678 | 566,130 |
1Lines of credit that sit below the fund structure which are used to fund portfolio M&A and return cash to investors. The facilities are unsecured, with no recourse to HGT or the underlying funds and are repaid from future realised proceeds, the proportion of which will depend on the loan to value ratio at that time. Since the debt sits below the funds the interest is shown as an unrealised loss against the HGT investments.
2022 | 2021 | |||
Record date | Payment date | \u00a3000 | \u00a3000 | |
Interim Dividend of 2.5p for the year ended 31 December 2022 | 22/9/2022 | 24/10/2022 | 11,453 | \u2014 |
Final Dividend of 5.0p for the year ended 31 December 2021 | 17/3/2022 | 13/5/2022 | 22,764 | \u2014 |
Interim Dividend of 2.0p for the year ended 31 December 2021 | 16/9/2021 | 27/10/2021 | \u2014 | 8,832 |
Final Dividend of 3.0p for the year ended 31 December 2020 | 29/4/2021 | 27/5/2021 | \u2014 | 12,828 |
Total equity dividends paid | 34,217 | 21,660 |
2022 | 2021 | |
\u00a3000 | \u00a3000 | |
Revenue available for distribution by way of dividend for the year | 24,318 | 36,828 |
Interim Dividend of 2.5p for the year ended 31 December 2022 | (11,453) | (8,832) |
Proposed final dividend of 4.5p for the year ended 31 December 2022 (based on 457,728,500 ordinary shares in issue at 31 December 2022) | (20,598) | (22,764) |
(Distributions in excess of revenue)/Undistributed revenue for Section 1159 purposes* | (7,733) | 5,232 |
Capital return | |||
2022 | 2021 | ||
\u00a3000 | \u00a3000 | ||
Realised: | |||
Realised gains/(losses) | - fixed asset investments | 309,850 | 122,294 |
- liquidity funds | (1,072) | 236 | |
- foreign exchange gains/(losses) | 9,232 | (1,234) | |
- aborted deal fees | (76) | (1,991) | |
- loan facility | 1,249 | \u2014 | |
319,183 | 119,305 | ||
Carried interest charge against realised capital gains (note 5(c)) | (29,292) | (32,472) | |
Net realised gains | 289,891 | 86,833 | |
Unrealised: | |||
Unrealised (losses)/gains | - fixed asset investments | (101,768) | 574,021 |
- foreign exchange on investments | (22,235) | 1,861 | |
- liquidity funds | (3,076) | (1,015) | |
- aborted deal fees | (2,076) | 42 | |
- foreign exchange on loan facility | (2,652) | 1,339 | |
(131,807) | 576,248 | ||
Carried interest charge against unrealised capital gains (note 5(c)) | (39,576) | (90,063) | |
Fund level facilities\u00b9 | (22,830) | (6,888) | |
Net unrealised (losses) / gains | (194,213) | 479,297 | |
Total gains | 95,678 | 566,130 |
1Lines of credit that sit below the fund structure which are used to fund portfolio M&A and return cash to investors. The facilities are unsecured, with no recourse to HGT or the underlying funds and are repaid from future realised proceeds, the proportion of which will depend on the loan to value ratio at that time. Since the debt sits below the funds the interest is shown as an unrealised loss against the HGT investments.
2022 | 2021 | |
\u00a3000 | \u00a3000 | |
Investments held at fair value through profit or loss: | ||
Opening valuation | 277,049 | 139,470 |
Purchases at cost | 215,787 | 195,200 |
Redemptions | (220,500) | (57,490) |
Movement in unrealised capital losses | (3,076) | (1,015) |
Movement in accrued income | 2,336 | 648 |
Realised capital (losses)/gains | (1,072) | 236 |
Closing valuation | 270,524 | 277,049 |
2022 | 2021 | |
\u00a3000 | \u00a3000 | |
Amounts receivable after one year: | ||
Accrued income on fixed assets | 133,534 | 102,166 |
Amounts receivable within one year: | ||
Prepayments and other debtors | 22,628 | 8,090 |
Total amounts receivable within one year | 22,628 | 8,090 |
Total debtors | 156,162 | 110,256 |
2022 | 2021 | |
\u00a3000 | \u00a3000 | |
Analysis and reconciliation of net funds: | ||
Net funds at 1 January | (56,862) | 21,648 |
Change in cash | (41,965) | 72,632 |
Change in debt due after one year | 15,106 | (152,481) |
Other non-cash changes | (1,403) | 1,339 |
Net (debt)/funds at 31 December | (85,124) | (56,862) |
Net funds comprise: | ||
Cash | 52,315 | 94,280 |
Debt due after one year | (137,439) | (151,142) |
2022 | 2021 | |
\u00a3000 | \u00a3000 | |
Accruals | 4,345 | 2,887 |
Total creditors | 4,345 | 2,887 |
2022 | 2021 | |
\u00a3000 | \u00a3000 | |
Opening valuation | 151,142 | \u2014 |
Draw on loan facility | 136,127 | 152,481 |
Repayment of loan facility | (151,233) | \u2014 |
Unrealised foreign exchange (gains)/losses | 2,652 | (1,339) |
Realised foreign exchange gains/losses | (1,249) | \u2014 |
Total loan facility | 137,439 | 151,142 |
The following disclosures relating to the risks faced by HGT are provided in accordance with sections 11 and 12 of FRS 102.
The reference to investments in this note is in relation to the underlying investments in HGT\u00a0LP, HGT\u00a06\u00a0LP, HGT\u00a07\u00a0LP, HGT\u00a08\u00a0LP, HGT\u00a0Genesis\u00a09\u00a0LP, HGT Genesis 10 LP HgCapital Mercury\u00a0D\u00a0LP, HGT Mercury\u00a02\u00a0LP, HGT Mercury 3 LP, HGT\u00a0Saturn\u00a0LP, HGT\u00a0Saturn\u00a02\u00a0LP and HGT Saturn 3 LP as described in note 3 on page\u00a062.
Financial instruments and risk profile
HGT\u2019s investment objective is to achieve long-term capital appreciation by indirectly investing in unquoted companies. It does this through its investments in fund partnerships, mostly in the UK and Europe. Additionally, HGT holds UK Government securities, cash, liquidity funds and items such as debtors and creditors arising directly from its operations. In pursuing its investment objective, HGT is exposed to a variety of risks that could result in either a reduction of HGT\u2019s net assets or a reduction in the profits available for distribution by way of dividends. Valuation risk, market risk (comprising currency risk and interest rate risk), liquidity risk and credit risk, and the Directors\u2019 approach to the management of them, are described below. The Board and Hg coordinate HGT\u2019s risk management. The objectives, policies and processes for managing the risks, and the methods used to manage the risks, that are set out below, have not changed from the previous accounting period.
Valuation risk
HGT\u2019s exposure to valuation risk arises mainly from movements in the value of the underlying investments (held through fund partnerships), the majority of which are unquoted. A breakdown of HGT\u2019s portfolio is given on page\u00a041 and a breakdown of the most significant underlying investments is given on page\u00a044. In accordance with HGT\u2019s accounting policies, the investments in fund limited partnerships are valued by reference to their underlying unquoted investments, which are valued by the Directors following the IPEV Valuation Guidelines. Page\u00a074 includes details of the most significant assumptions included in the valuations. HGT does not hedge against movements in the value of these investments, apart from foreign exchange movements as explained below, though the borrowing arranged to fund these investments is normally denominated in the currency in which the business is operating and valued (see page\u00a076). HGT has exposure to interest rate movements, through bank deposits and liquidity funds.
In the opinion of the Directors, the diversified nature of HGT\u2019s investments significantly reduces the risks of investing in unquoted companies.
FRS 102 requires HGT to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:
\u2022\u00a0\u00a0\u00a0\u00a0Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
\u2022\u00a0\u00a0\u00a0\u00a0Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).
\u2022\u00a0\u00a0\u00a0\u00a0Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).
The level in the fair value hierarchy, within which the fair value measurement is categorised in its entirety, is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that is a level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.
The determination of what constitutes an \u2018observable\u2019 input requires significant judgement by the Board. The Board considers observable data relating to investments actively traded in organised financial markets, in which case fair value is generally determined by reference to stock exchange quoted market bid prices at the close of business on the balance sheet date, without adjustment for transaction costs necessary to realise the asset.
The following table analyses, within the fair value hierarchy, the fund\u2019s financial assets (by class) measured at fair value at
31 December 2022.
Level 1 | Level 2 | Level 3 | Total | |
\u00a3000 | \u00a3000 | \u00a3000 | \u00a3000 | |
Investments held at fair value through profit and loss: | ||||
Unquoted investments | ||||
- Investment in HGT 8 LP | \u2014 | \u2014 | 561,653 | 561,653 |
- Investment in HGT Saturn 2 LP | \u2014 | \u2014 | 365,120 | 365,120 |
- Investment in HGT Genesis 9 LP | \u2014 | \u2014 | 351,805 | 351,805 |
- Investment in HGT Saturn 3 LP | \u2014 | \u2014 | 266,936 | 266,936 |
- Investment in HGT Saturn LP | \u2014 | \u2014 | 223,767 | 223,767 |
-Investment in HGT LP | \u2014 | \u2014 | 197,337 | 197,337 |
- Investment in HGT Mercury 2 LP | \u2014 | \u2014 | 131,862 | 131,862 |
- Investment in HGT Mercury 3 LP | \u2014 | \u2014 | 89,586 | 89,586 |
- Investment in HGT Genesis 10 LP | \u2014 | \u2014 | 77,688 | 77,688 |
- Investment in HGT 7 LP | \u2014 | \u2014 | 69,292 | 69,292 |
- Investment in HgMercury D LP | \u2014 | \u2014 | 6,102 | 6,102 |
-Other investments\u00b9 | \u2014 | (10,177) | 76 | (10,101) |
- Liquidity funds | \u2014 | 270,524 | \u2014 | 270,524 |
- Carried interest provision | \u2014 | \u2014 | (211,155) | (211,155) |
- Fund level refinancing | \u2014 | \u2014 | (367,383) | (367,383) |
- Uninvested capital in limited partnerships | \u2014 | \u2014 | 239 | 239 |
As at 31 December 2022 | \u2014 | 260,347 | 1,762,925 | 2,023,272 |
1Includes HGT currency hedges and other direct investments.
Level 1 | Level 2 | Level 3 | Total | |
\u00a3000 | \u00a3000 | \u00a3000 | \u00a3000 | |
Investments held at fair value through profit and loss: | ||||
Unquoted investments | ||||
- Investment in HGT 8 LP | \u2014 | \u2014 | 697,719 | 697,719 |
- Investment in HGT Saturn 2 LP | \u2014 | \u2014 | 336,397 | 336,397 |
- Investment in HGT Genesis 9 LP | \u2014 | \u2014 | 281,995 | 281,995 |
- Investment in HGT Saturn LP | \u2014 | \u2014 | 265,810 | 265,810 |
- Investment in HGT Mercury 2 LP | \u2014 | \u2014 | 160,471 | 160,471 |
- Investment in HGT LP | \u2014 | \u2014 | 141,477 | 141,477 |
- Investment in HGT 7 LP | \u2014 | \u2014 | 74,914 | 74,914 |
- Investment in HGT Mercury 3 LP | \u2014 | \u2014 | 34,621 | 34,621 |
- Investment in Hg Mercury D LP | \u2014 | \u2014 | 12,711 | 12,711 |
- Investment in Hg 6 E LP | \u2014 | \u2014 | 311 | 311 |
- Liquidity funds | \u2014 | 277,049 | \u2014 | 277,049 |
- Carried interest provision | \u2014 | \u2014 | (171,579) | (171,579) |
- Fund level facilities | \u2014 | \u2014 | (156,839) | (156,839) |
- Uninvested capital in limited partnerships | \u2014 | \u2014 | 160 | 160 |
As at 31 December 2021 | \u2014 | 277,049 | 1,678,168 | 1,955,217 |
Investments whose values are based on quoted market prices in active markets, and therefore classified within level 1, include government securities and actively traded listed equities. HGT does not adjust the quoted bid price of these investments.
Financial instruments that trade in markets that are not considered to be active, but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs, are classified within level 2. As level 2 investments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.
Investments classified within level 3 have significant unobservable inputs. Level 3 instruments include private equity and corporate debt securities. As observable prices are not available for these securities, the Board has used valuation techniques to derive the fair value. In respect of unquoted instruments, or where the market for a financial instrument is not active, fair value is established by using recognised valuation methodologies, in accordance with IPEV Valuation Guidelines. Fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm\u2019s length transaction.
There were no transfers of assets from level 1 to level 2 or 3, level 2 to level 1 or 3 and level 3 to level 1 or 2.
The following table presents the movement in level 3 investments for the year ended 31 December 2022 by class of financial instrument.
Total investments in limited partnerships | 2022 | 2021 |
\u00a3000 | \u00a3000 | |
Unquoted investments: | ||
Opening balance | 1,678,008 | 1,024,116 |
Purchases | 527,075 | 424,336 |
Realisations at 31 December 2021 valuation | (379,491) | (198,150) |
Unrealised appreciation of fixed asset investments | 177,037 | 614,837 |
Movement in net carried interest provision | (39,576) | (90,063) |
Fund level refinancing | (210,544) | (97,068) |
Closing unrealised valuation of level 3 investments | 1,752,509 | 1,678,008 |
Equity price risk
Equity price risk is the risk of a fall in the fair value of HGT\u2019s ownership interests (comprising equities and shareholder loans) held by HGT indirectly through its direct investments in fund limited partnerships. The Board revalues each investment on a quarterly basis. The Board manages the risks inherent in HGT\u2019s investment activities by ensuring full and timely access to relevant information from Hg. The Board meets regularly and at each meeting reviews the trading performance of the principal underlying investments. If there appears to the Board to be a fair value movement in value between regular valuations, it can revalue the investment. The Board also monitors Hg\u2019s compliance with HGT\u2019s investment objective and investment policy.
For unquoted equity investments, the market risk variable is deemed to be the multiples applied to a maintainable earnings figure to calculate the individual investment valuations within each of the primary buyout funds; borrowing is then deducted to arrive at a valuation of the net equity held by HGT. These multiples are largely based on the historic trading multiples of comparable businesses and therefore there is a potential impact on the valuation of unquoted investments of a fall in global equity markets. Hg\u2019s best estimate of the effect on the net assets of HGT due to a 1x reduction in the multiples applied to calculate the enterprise value of all unquoted investments, with all other variables held constant, is as follows:
2022 | 2021 | |||
\u00a3000 | NAV per | \u00a3000 | NAV per | |
Sensitivity to equity price risk: | ||||
Change in the value of unquoted investments | (163,413) | (35.7) | (129,215) | (28.4) |
A fall in the value of unquoted investments could be mitigated to some degree by a reduction in the provision for carried interest (\u00a3211\u00a0million at 31 December 2022), but only in funds where an adjustment for carried interest is required (Hg\u00a0Genesis\u00a07, Hg\u00a0Genesis\u00a08, Hg Genesis 9, Hg\u00a0Saturn, Hg Saturn 2, Mercury 1 and Mercury\u00a02, see note\u00a05(c) or on page\u00a067). Hg\u2019s best estimate of the impact on the carried interest provision of the above change in value of unquoted investments is a reduction in the provision of \u00a314,880,000, 3.3 pence per ordinary share (2021: \u00a314,336,000, 3.1\u00a0pence per ordinary share). There are likely to be other correlations (either positive or negative) between the assumptions and other factors. Other inputs, such as the earnings of individual investments within the primary buyout funds are likely to have a significant impact on the value of unquoted investments. See page\u00a046 of the Manager\u2019s report for an analysis of the portfolio trading performance as at 31 December 2022. The Board regularly stress tests the NAV.
Credit risk
Credit risk is the risk of financial loss in the event that any of HGT\u2019s market counterparties fail to fulfil their contractual obligations to HGT. HGT\u2019s financial assets (excluding fixed asset investments) that are subject to credit risk, were neither impaired nor overdue at the year-end. HGT\u2019s cash balances were held with the Royal Bank of Scotland International and amounts not required for day-to-day use were invested in liquidity funds managed by Royal London Asset Management which are rated AAA by Fitch. Foreign exchange forward contracts and options are held with counterparties which have credit ratings which the Board considers to be adequate. The Board regularly monitors the credit quality and financial position of these market counterparties. The credit quality of the above mentioned financial assets was deemed satisfactory.
Market risk
The fair value of future cash flows of a financial instrument held by HGT may fluctuate due to changes in market prices of comparable businesses. This market risk may comprise: currency risk (see below), interest rate risk and/or equity price risk (see above). The Board of Directors reviews and agrees policies for managing these risks. Hg assesses the exposure to market risk when making each investment decision, and monitors the overall level of market risk across all of HGT\u2019s investments on an ongoing basis.
Currency risk and sensitivity
HGT is exposed to currency risk as a result of investing in fund partnerships which invest in companies that operate and are therefore valued in currencies other than sterling. The value of these assets in sterling, being HGT\u2019s functional currency, can be significantly influenced by movements in foreign exchange rates. Borrowing raised to fund each acquisition in such companies is normally denominated in the currency in which the business is operating and valued, thus limiting HGT\u2019s exposure to the value of its investments, rather than the gross enterprise value. From time to time, HGT is partially hedged against movements in the value of foreign currency against sterling where a movement in exchange rate could affect the value of an investment, as explained below. Hg monitors HGT\u2019s exposure to foreign currencies and reports to the Board on a regular basis. The following table illustrates the sensitivity of the revenue and capital return for the year in relation to HGT\u2019s year-end financial exposure to movements in foreign exchange rates against sterling. The rates represent the range of movements against sterling over the current year for the currencies listed, and are considered the best estimate for movements looking forward.
In the opinion of the Directors, the sensitivity analysis below may not be representative of the year as a whole, since the level of exposure changes as HGT\u2019s holdings change through the purchase and realisation of investments to meet HGT\u2019s objectives.
2022 | 2021 | ||||||||
Revenue return | Capital return | Revenue return | Capital return | ||||||
NAV per ordinary share | NAV per ordinary share | NAV per ordinary share | NAV per ordinary share | ||||||
\u00a3000 | Pence | \u00a3000 | Pence | \u00a3000 | Pence | \u00a3000 | Pence | ||
Highest value against sterling during the year: | |||||||||
Danish krone | (308) | (0.7) | (2,306) | (5.0) | (1) | \u2014 | (15) | \u2014 | |
Euro | (2,548) | (5.6) | (37,866) | (82.7) | (15) | \u2014 | (197) | \u2014 | |
Norwegian krone | \u2014 | \u2014 | (6,826) | (14.9) | \u2014 | \u2014 | (7,817) | (17.0) | |
US dollar | (386) | (0.8) | (81,500) | (178.1) | (147) | \u2014 | (21,296) | (47.0) | |
CAD dollar | (145) | (0.3) | (8,428) | (18.4) | (93) | \u2014 | (6,075) | (13.0) | |
(3,387) | (7.4) | (136,926) | (299.1) | (256) | (0.5) | (35,400) | (77.7) | ||
Lowest value against sterling during the year: | |||||||||
Danish krone | 45 | 0.1 | 335 | 0.7 | 352 | 0.8 | 4,526 | 9.9 | |
Euro | 371 | 0.8 | 5,519 | 12.1 | 2,934 | 6.4 | 39,735 | 87.3 | |
Norwegian krone | \u2014 | \u2014 | 8,962 | 19.6 | \u2014 | \u2014 | 9,653 | 21.2 | |
US dollar | 371 | 0.8 | 78,347 | 171.2 | 79 | 0.2 | 11,546 | 25.4 | |
CAD dollar | 270 | 0.6 | 15,650 | 34.2 | 56 | 0.1 | 3,652 | 8.0 | |
1,057 | 2.3 | 108,813 | 237.8 | 3,421 | 7.5 | 69,112 | 151.8 |
At 31 December 2022, the following rates were applied to convert foreign denominated assets into sterling: Danish krone (8.3817); euro (1.1271); New Zealand dollar (1.9020); Norwegian krone (11.8498); US dollar (1.2029) and CAD dollar (1.6299).
Hedging
At times, HGT uses derivative financial instruments such as forward foreign currency contracts and option contracts to manage the currency risks associated with its underlying investment activities. The contracts entered into by HGT are denominated in the foreign currency of the geographic areas in which HGT has significant exposure against its reporting currency. The contracts are used for hedging and the fair values thereof are recorded in the balance sheet as investments held at fair value. Unrealised gains and losses are taken to capital reserves. At the balance sheet date, there was \u00a310.2\u00a0million in outstanding derivative financial instruments (2021: nil).
HGT does not trade in derivatives but may hold them from time to time to hedge specific exposures with maturities designed to match the exposures they are hedging. It is the intention to hold both the financial investments giving rise to the exposure and the derivatives hedging them until maturity and therefore no net gain or loss is expected to be realised.
Derivatives are held at fair value, which represents the replacement cost of the instruments at the balance sheet date. Movements in the fair value of derivatives are included in the income statement. HGT does not adopt hedge accounting in the financial statements.
Interest rate risk and sensitivity
HGT has exposure to interest rate movements as this may affect the fair value of funds awaiting investment, interest receivable on liquid assets and managed liquidity funds, and interest payable on borrowings. HGT has little immediate direct exposure to interest rates on its fixed assets, as the majority of the underlying investments are fixed rate loans or equity shares that do not pay interest. Therefore, HGT\u2019s revenue return is not materially affected by changes in interest rates.
However, funds awaiting investment have been invested in managed liquidity funds and, as stated above, their valuation is affected by movements in interest rates. The sensitivity of the capital return of HGT to movements in interest rates has been based on the UK base rate. With all other variables constant, a 0.25% decrease in the UK base rate should increase the capital return in a full year by about \u00a3675,000 (2020: \u00a3690,000) with a corresponding decrease if the UK base rate were to increase by 0.25%. In the opinion of the Directors, the above sensitivity analyses may not be representative of the year as a whole, since the level of exposure changes as investments are made and realised throughout the year.
Liquidity risk
Investments in unquoted companies, which form the majority of HGT\u2019s investments, may not be as readily realisable as investments in quoted companies, which might result in HGT having difficulty in meeting its obligations. Liquidity risk is currently not significant as 15% of HGT\u2019s net assets at the year-end are liquid resources and, in addition, HGT has a c.\u00a3290\u00a0million multi-currency bank facility which had \u00a3153\u00a0million undrawn capacity at the year end. The Board gives guidance to Hg as to the maximum amount of HGT\u2019s resources that should be invested in any one company. Please refer to HGT\u2019s Investment Policy on page\u00a025.
Currency and interest rate exposure
HGT\u2019s financial assets that are subject to currency and interest rate risk are analysed below:
2022 | 2021 | ||||||||
Fixed and floating rate | Non | Total | Total | Fixed and floating rate | Non | Total | Total | ||
\u00a3000 | \u00a3000 | \u00a3000 | % | \u00a3000 | \u00a3000 | \u00a3000 | % | ||
Sterling | 323,078 | 366,027 | 689,105 | 29.9 | 371,489 | 373,425 | 744,914 | 34.2 | |
Euro | \u2014 | 586,069 | 586,069 | 25.5 | \u2014 | 537,380 | 537,380 | 24.7 | |
Norwegian krone | \u2014 | 181,595 | 181,595 | 7.9 | \u2014 | 213,002 | 213,002 | 9.8 | |
US dollar | \u2014 | 659,602 | 659,602 | 28.7 | \u2014 | 454,933 | 454,933 | 20.9 | |
Danish krone | \u2014 | 37,681 | 37,681 | 1.6 | \u2014 | 61,627 | 61,627 | 2.8 | |
CAD dollar | \u2014 | 147,070 | 147,070 | 6.4 | \u2014 | 165,447 | 165,447 | 7.6 | |
Total | 323,078 | 1,978,044 | 2,301,122 | 100.0 | 371,489 | 1,805,814 | 2,177,303 | 100.0 |
The fixed and floating rate assets consisted of cash and liquidity funds, of which the underlying investments are a combination of fixed and floating rate. The non-interest-bearing assets represent the investments held in fund limited partnerships, gross of the provision for carried interest and short term debtors.
Capital management policies and procedures
HGT\u2019s capital management objectives are to ensure that it will be able to finance its business as a going concern and to maximise the revenue and capital return to its equity shareholders.
HGT\u2019s capital at 31 December 2022 comprised:
2022 | 2021 | |
\u00a3000 | \u00a3000 | |
Equity: | ||
Equity share capital | 11,443 | 11,382 |
Share premium | 372,224 | 359,971 |
Capital redemption reserve | 1,258 | 1,248 |
Retained earnings and other reserves | 1,705,040 | 1,633,123 |
Total capital | 2,089,965 | 2,005,724 |
With the assistance of Hg, the Board monitors and reviews the broad structure of HGT\u2019s capital on an ongoing basis. This review covers:
\u2022\u00a0\u00a0\u00a0\u00a0the projected level of liquid funds (including access to bank facilities);
\u2022\u00a0\u00a0\u00a0\u00a0the desirability of buying back equity shares, either for cancellation or to hold in treasury, balancing the effect (if any) this may have on the discount at which shares in HGT are trading against the advantages of retaining cash for investment;
\u2022\u00a0\u00a0\u00a0\u00a0the opportunity to raise funds by an issue of equity shares; and
\u2022\u00a0\u00a0\u00a0\u00a0the extent to which revenue in excess of that which is required to be distributed should be retained, while maintaining its status under Section 1158 of the CTA 2010.
2022 | 2021 | |||
No. 000 | \u00a3000 | No. 000 | \u00a3000 | |
Ordinary shares of 2.5p each: | ||||
Allotted, called up and fully paid: | ||||
At 1 January | 455,280 | 11,382 | 416,000 | 10,400 |
Issues of ordinary shares | 2,850 | 71 | 39,280 | 982 |
Purchase of own shares | (401) | (10) | \u2014 | \u2014 |
At 31 December | 457,729 | 11,443 | 455,280 | 11,382 |
Total called-up share capital | 457,729 | 11,443 | 455,280 | 11,382 |
While HGT no longer has an authorised share capital, the Directors will still be limited as to the number of shares they can at any time
allot, as the Companies Act 2006 requires that Directors seek authority from shareholders for the allotment of new shares. Share issue costs incurred during the year were \u00a3124,488 (2021: \u00a31,426,573). Total proceeds received from the issuance of shares during the year were \u00a312,324,312 (2021: \u00a3141,230,750).", "dimensions": { "concept": "ifrs-full:DisclosureOfIssuedCapitalExplanatory", "language": "en", "entity": "scheme:213800J7QUJJBEFSIN38", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "id3VybDovL2RvY3MudjEvZG9jOmU2MjNlNDI0YTVmNjRiN2Y4ZjQ1ZjgyZTIwNTA5NDZiL3NlYzplNjIzZTQyNGE1ZjY0YjdmOGY0NWY4MmUyMDUwOTQ2Yl81NDcvZnJhZzpiNjI5ODAzZjkyODE0NzBlOTU0YzZhMTRmZDM3NDRkNi90ZXh0cmVnaW9uOmI2Mjk4MDNmOTI4MTQ3MGU5NTRjNmExNGZkMzc0NGQ2XzI3NDg3NzkwNjk0NDk_db32c13f-46a8-42e9-8180-6ab79ce9d504": { "value": "21.\u00a0 Share premium account and reservesShare | Capital redemption reserve | Capital | Capital | Revenue reserve | |
\u00a3000 | \u00a3000 | \u00a3000 | \u00a3000 | \u00a3000 | |
As at 1 January 2022 | 359,971 | 1,248 | 712,188 | 885,821 | 35,114 |
Issues of ordinary shares | 12,253 | \u2014 | \u2014 | \u2014 | \u2014 |
Purchase of own shares | \u2014 | 10 | \u2014 | \u2014 | (1,350) |
Transfer on disposal of investments | \u2014 | \u2014 | (278,805) | 278,805 | \u2014 |
(Losses)/gains on liquidity funds | \u2014 | \u2014 | (3,076) | (1,072) | \u2014 |
(Losses)/gains on aborted deal fees | \u2014 | \u2014 | (2,076) | (76) | \u2014 |
Foreign exchange (loss)/gain on loan facility | \u2014 | \u2014 | (2,652) | 1,249 | \u2014 |
Net movement on sale of fixed asset investments | \u2014 | \u2014 | \u2014 | 31,045 | \u2014 |
Net movement in unrealised appreciation of fixed asset investments | \u2014 | \u2014 | 177,037 | \u2014 | \u2014 |
Foreign exchange gain/(loss) on fixed asset investments | \u2014 | \u2014 | (22,235) | \u2014 | \u2014 |
Foreign exchange gain/(loss) on portfolio facilities | \u2014 | \u2014 | (22,830) | \u2014 | \u2014 |
Foreign exchange gain/(loss) on cash balances | \u2014 | \u2014 | \u2014 | 9,232 | \u2014 |
Dividends paid | \u2014 | \u2014 | \u2014 | \u2014 | (34,217) |
Net revenue return | \u2014 | \u2014 | \u2014 | \u2014 | 24,318 |
Net loans advanced to General Partners | \u2014 | \u2014 | (12,512) | \u2014 | \u2014 |
Carried interest | \u2014 | \u2014 | (39,576) | (29,292) | \u2014 |
As at 31 December 2022 | 372,224 | 1,258 | 505,463 | 1,175,712 | 23,865 |
Fund | Original commitment | 1 | \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Outstanding at 31 Dec | ||
2022 | 2021 | ||||
\u00a3000 | \u00a3000 | \u00a3000 | |||
HGT Saturn 3 LP | 893,674 | 2 | 612,618 | \u2014 | |
HGT Genesis 10 LP | 443,616 | 3 | 359,424 | \u2014 | |
HGT LP | 103,916 | 4 | 102,082 | 92,285 | |
HGT Saturn 2 LP | 332,530 | 5 | 26,839 | 67,835 | |
HGT Saturn LP | 150,000 | 25,100 | 15,944 | ||
HGT Mercury 3 LP | 102,032 | 6 | 22,814 | 64,033 | |
HGT 8 LP | 350,000 | 20,335 | 51,499 | ||
HGT Genesis 9 LP | 319,404 | 7 | 18,024 | 66,162 | |
HgCapital Mercury D LP | 60,000 | 8 | 3,265 | 3,265 | |
HGT Mercury 2 LP | 80,000 | 2,152 | 1,849 | ||
HGT 7 LP | 200,000 | 8 | 771 | 992 | |
Asper RPP I LP | 19,200 | 9 | 612 | 10 | 581 |
Total outstanding commitments | 1,194,036 | 991,983 |
1\u00a0\u00a0\u00a0\u00a0HGT has the benefit of an opt-out provision in connection with its commitments to invest alongside Hg\u00a0Genesis 8, Hg\u00a0Mercury\u00a02, Hg\u00a0Saturn, Hg\u00a0Saturn\u00a02, Hg\u00a0Genesis\u00a09, Hg\u00a0Mercury\u00a03 and Hg Saturn 3 allowing it to opt out of its obligation to fund draw-downs under its commitments, without penalty, where certain conditions exist.
2\u00a0\u00a0\u00a0\u00a0Sterling equivalent of $1,075,000,000.
3\u00a0\u00a0\u00a0\u00a0Sterling equivalent of \u20ac500,000,000.
4\u00a0\u00a0\u00a0\u00a0Sterling equivalent of $125,000,000 of junior debt.
5\u00a0\u00a0\u00a0\u00a0Sterling equivalent of $400,000,000.
6\u00a0\u00a0\u00a0\u00a0Sterling equivalent of \u20ac115,000,000.
7\u00a0\u00a0\u00a0\u00a0Sterling equivalent of \u20ac360,000,000.
8\u00a0\u00a0\u00a0\u00a07.6% of the \u00a360\u00a0million to the Mercury\u00a01 Fund, 12.4% of the original \u00a3200\u00a0million to the HgCapital\u00a07 Fund, 0.45% of the original \u00a3350\u00a0million to the HgCapital\u00a08 Fund have subsequently been cancelled, as the Manager deemed that it was unlikely to be required.
9\u00a0\u00a0\u00a0\u00a0Sterling equivalent of \u20ac21,640,000.
Key agreements, related party transactions and ultimate controlling party
Hg acts as Manager of HGT through a management agreement and indirectly participates through fund limited partnership agreements as the general partners and, alongside a number of Hg\u2019s executives (past and present), as the founder partners of the fund partnerships in which HGT invests. In addition, Hg acts as Administrator of HGT.
HGT has no ultimate controlling party.