Sector expert investors supporting management to grow industry champions. Manager s update. to HgCapital Trust plc and its shareholders June 2014

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1 Sector expert investors supporting management to grow industry champions Manager s update to HgCapital Trust plc and its shareholders June 2014

2 Sector expert investors supporting management to grow industry champions INVESTMENT ACTIVITY An active start to the year with 77 million committed on behalf of the Trust so far in 2014 across the active funds, primarily into four portfolio companies REALISATIONS 22 million of cash returned to the Trust since the start of 2014 with a further 46 million estimated to be received on completion of the sale of Schleich and Visma in July GROWTH PORTFOLIO Over the last 12 months to 31 March 2014, the top 20 primary mid-cap buyout companies (88% of the portfolio in aggregate) have seen growth of 9% in sales and 10% in EBITDA LONG-TERM RECORD Strong returns across the cycle with 118 investment made, 96 fully or substantially realised since 1990 producing gross returns of 2.5x original cost TRUST PERFORMANCE The Trust has delivered a total return of 14.6% p.a. over the past 10 years to 31 May 2014 versus 8.9% from the FTSE All-Share Index Important information: Past performance is not necessarily a reliable indicator of future results. 02

3 Sector expert investors supporting management to grow industry champions ABOUT HgCAPITAL OUR INVESTMENT STRATEGY INVESTMENT ENVIRONMENT HgCapital is a mid-market private equity firm with 5.1 billion assets managed, investing in four sectors, predominantly across Northern Europe. Formerly part of Mercury Asset Management, HgCapital was established as a partnership, wholly owned by its partners and staff, in We are well-resourced with over 100 staff including 65 investment professionals in offices in London and Munich. Today the investment teams manage three active investment funds, HgCapital 7, a mid-market buyout fund, RPP2 a renewable energy infrastructure fund and HgCapital Mercury, a TMT focused small buyout fund. The first investment in HgCapital 7 was announced in November HgCapital serves over 100 institutional investors with the largest client being HgCapital Trust plc. OUR APPROACH TO INVESTING HgCapital s four sector teams combine the domain knowledge and expertise of a trade buyer giving them superior credibility and the ability to make confident decisions with the speed of execution and discipline of a financial investor; leading to high conversion rates on deals. This deep sector focus is channelled through a rigorous, research-based investment process, to systematically identify the most attractive growth sub-sectors and business models of the European mid-market and then repeatedly invest in them, optimising deal flow and improving returns. Following each investment, HgCapital s dedicated portfolio management team works to protect and enhance value by adopting clear strategies for growth and ultimate exit. With experienced people and an approach that focuses on delivering value, HgCapital has the capability and commitment to deliver strong investment returns to investors. Mid-market control buyouts across the TMT, services and industrials sectors (Enterprise Values of million) primarily in Northern Europe Lower mid-market control buyouts in the TMT sector (Enterprise Values of million) primarily in Northern Europe Specialist infrastructure through renewable energy projects across Western Europe HgCapital has targeted these areas for investment due to the number of high quality growth companies to invest in and our ability to generate strong, repeatable returns. Within each sub-sector identified by our sector teams, HgCapital looks for growth businesses with attractive business model characteristics including: Recurring/repeat revenues; Large number of customers/book of business: typically many thousands; Product or service is business critical but is typically a low-spend item; Protection from intellectual property: technology, brand or business model; Growth rate typically 6% - 15% revenue CAGR over many years; and Low volatility/low economic cycle sensitivity. Once we have found a successful niche or business model we will seek to make multiple investments in the area, using our knowledge and networks. The resultant cash flows from these types of business are attractive to many trade and financial buyers providing better exit liquidity. Improvement in Europe s broader macroeconomic environment continues to gather momentum in the first half of 2014 with improved confidence across all business sectors. The recovery in the UK and Germany, in particular, has continued to develop strongly and looks to be gathering pace. Despite these positive lead indicators, the European recovery clearly is still at a tentative stage and we remain cautious and disciplined in our investment approach. Over the last year, we have consistently deployed and returned capital. We believe that within our sectors of expertise we can continue to find pockets of opportunity to acquire marketleading businesses at reasonable prices, usually where there has been the opportunity for us to build relationships with such companies over many years before making an investment. The vast majority of investments made in the last twelve months were generated on a proprietary basis following many years of sector research. Consistent with this, we have avoided full auction processes wherever possible. Our deep sector focus is used to identify high quality growth companies in sub-sectors driven by fundamental long-term factors. The increasing penetration of internet-based transactions for businesses is an example we identified many years ago. Companies such as Visma, IRIS and Achilles all benefit from this and have produced consistently strong growth over the past few years. Less obvious examples include JLA and Radius which provide business critical services to a fragmented customer base and deliver robust growth. Trade buyers, financial buyers and more recently, public markets continue to express an interest in acquiring our portfolio companies, as a result of their growth and market positions, most recently demonstrated in the first half of We believe there will be further opportunities in the short and medium term to continue realising investments as we have done consistently across market cycles. Important information: Past performance is not necessarily a reliable indicator of future results. 03

4 Sector expert investors supporting management to grow industry champions PORTFOLIO TRADING OVERVIEW Investing in HgCapital Trust plc gives you access to a portfolio where the current primary mid-cap buyout companies have aggregate sales of 2.1 billion, profits of 468 million and margins of 22%. Over the 12 months to the end of March 2014, the top 20 companies in the buyout portfolio (representing 88% of the total portfolio) have delivered aggregate sales growth of 9%, consistent with the rate of growth reported in the annual results and EBITDA growth of 10%, slightly up from 9% reported to the end of December companies (86% by value) reported an increase in year-on-year sales, while twelve out of the 20 companies (75% by value) increased EBITDA compared to the prior year. Of these top 20 investments, eight (52% by value) increased sales by greater than 10% and four (23% by value) grew EBITDA by more than 20% over the last 12 months. Of the top 20 investments, 25% by value have reported a decline in EBITDA year-on-year. For some of the companies, this decline in EBITDA is a function of continued investment in the businesses. For example, e-conomic, acquired in August 2013, is seeing rapid revenue growth. However, profits are currently in decline due to significant investment to drive future expansion. There has been a marked improvement in trading over the past year from some companies in the portfolio, in particular NetNames and SimonsVoss, which have seen a return to strong growth. Several businesses within the portfolio have seen and continue to see double-digit growth including IRIS, Visma, P&I, Zenith- Leasedrive, JLA and Ullink. M&A activity within some of the portfolio companies has created value in the period, for example TeamSystem. Trading at Lumesse remains behind expectations. We are continuing to invest in the business to support the strategy developed by the new management team to drive higher long-term growth. June trading figures will be reported in the interim accounts to be published in August TOP 20 LTM SALES GROWTH 1,200 1,000 TOP 20 LTM PROFIT GROWTH million % 12% 22% 35% 17% million % 14% 18% 34% 23% <(25%) pa (25%) - 0% pa 0% - 10% pa 10% - 20% pa >20% pa <0% pa 0% - 5% pa 5% - 10% pa 10% - 15% pa >15% pa Sales growth bands LTM Sales Number of investments within associated band % of top 20 portfolio by value within associated band LTM EBITDA EBITDA growth bands Number of investments within associated band % of top 20 portfolio by value within associated band Important information: Past performance is not necessarily a reliable indicator of future results. 04

5 Sector expert investors supporting management to grow industry champions INVESTMENT ACTIVITY NEW INVESTMENT ACTIVITY The first half of 2014 has been an active period for new acquisitions with an estimated total of 59.6 million deployed and/or committed on behalf of HgCapital Trust s client capital. In February 2014, the Services team completed the acquisition of Zenith at an enterprise value of 231 million. Zenith is one of the UK s largest independent leasing, fleet management and vehicle outsourcing businesses. At the beginning of March 2014, Zenith and Leasedrive (acquired in December 2013) began operating as a single entity. The Trust deployed a total of 9.7 million net of a rebate received in respect of a refinancing of the combined business. The Trust s share of the combined business is 24.0 million. In February, the Mercury Fund announced an investment in Relay Software, a provider of software to insurance brokers, underwriters and insurers in the Republic of Ireland. The Trust contributed a total of 2.2 million to this investment. In early March 2014, HgCapital announced an investment in Ullink, a leading global provider of electronic trading applications and connectivity to the financial community. The Trust s share of this investment was 7.7 million. RE-INVESTMENT ACTIVITY In April, HgCapital announced a re-investment in Visma, a leading software and BPO services business in the Nordic region, following a decision by KKR to sell part of its majority holding in the group. HgCapital will invest 405 million for a 31% stake in Visma, valuing the business at a total enterprise value of NOK 21 billion ( 2.1 billion). HgCapital will be a co-lead investor in the new transaction structure, alongside KKR and Cinven, who will each hold 31%. Cinven are committing capital to the business for the first time. This transaction is subject to regulatory approval with completion expected in July. The Trust will contribute a total of up to 40.0 million to the re-investment in Visma, including a co-investment participation in addition to its commitment to invest in all HgCapital 7 deals. UNREALISED PORTFOLIO INVESTMENT ACTIVITY The first half of 2014 has seen considerable M&A activity within the portfolio, creating further value and driving future growth. As mentioned above, Zenith (acquired February 2014) and Leasedrive (acquired December 2013) began operating as a single entity. Zenith-Leasedrive is a vehicle leasing and fleet management company. Leasedrive brings extra capability in short-term hire and white-label fleet management to Zenith, while Zenith s technology platform will enhance Leasedrive s service levels. John Walden (formerly CEO of Lex) has joined as Chairman. In April, Nair & Co., a global provider of international expansion services for corporate clients entering global markets, announced the merger with High Street Partners (HSP), to create a global accounting and administration business. At the same time, the company completed a refinancing of their debt, raising $38 million. Following this transaction, the new business will employ more than 700 staff, with over 500 clients across more than 80 countries. The combined entity will be known as Radius going forward. The Trust received 3.4 million from the refinancing proceeds in May, of which 2.2 million was reinvested to fund the HSP acquisition. TeamSystem, one of the main providers of information management software in Italy to SMEs and professionals, announced in April a 130 million tap issue of its 300 million Senior Secured Notes due 2020, to fund the acquisition of Il Sole24Ore s software business. This transaction valued the acquisition at an Enterprise Value of 117 million. In April, IRIS, the UK accountancy and payroll software provider, announced the acquisition of Cascade Human Resources, a leading provider of HR and payroll solutions. The transaction was funded by IRIS from its own resources. With a joint customer base of over 70,000 UK businesses the combined business now has a broader product set which includes HR solutions alongside the IRIS payroll and KashFlow bookkeeping applications. In June, Ullink, a leading global provider of electronic trading applications to the financial community, announced the acquisition of NYFIX and Metabit from Intercontinental Exchange. This transaction is subject to regulatory approval in the third quarter of The total of all investments deployed, or committed to, in the first half of 2014 in both the buyout and renewable energy funds is 76.7 million. 05

6 Website: visma.com Sector: TMT Geography: Nordic Region RE-INVESTMENT: VISMA BUSINESS DESCRIPTION Established in 1996, Visma is a leading provider of mission-critical business SaaS, software and outsourcing services to small and mediumsized enterprises in the Nordic region and the Netherlands. Headquartered in Norway, the company provides accounting, resource planning and payroll software, outsourced bookkeeping, payroll services and transaction process outsourcing to its customer base of over 400,000 enterprises. THE DEAL HgCapital had completed a number of SME business software investments in Northern Europe prior to Visma and were invited in by the management in response to a contested public-to-private bid from a trade player. HgCapital worked closely with management to complete the NOK 4.3 billion ( 382 million) public-to-private transaction from the Oslo Stock Exchange in May In December 2010, HgCapital completed the partial sale of 63% of their investment in Visma to KKR, valuing the company at an enterprise value of NOK 11 billion. HgCapital retained 17% of the total business remaining actively involved on the board, and continuing to support management alongside KKR. INVESTMENT RATIONALE Visma was an early example of HgCapital s focus on recurring revenue, business critical application software companies focused on SMEs and their advisors. The company enjoys high levels of predictable recurring revenue resulting from a subscription payment model. At the acquisition in 2006, both organic and acquisitive revenue growth levers were identified, as well as significant opportunities to increase profit margins that were below those of most of its competitors. This was in part due to significant R&D investment in the business and a delay in the benefits expected from these investments and from a number of recent acquisitions. HOW HgCAPITAL SUPPORTED VISMA Since 2006, HgCapital and, subsequently, HgCapital and KKR have worked closely with Visma s management to grow the business. Oystein Moan (CEO) and Tore Bjerkan (CFO) had grown Visma from a small public company which they took-over in 1997 and their track record was already proven and exemplary. HgCapital s job was to give them the freedom and backing to allow them to continue to do a great job as entrepreneurial managers. They didn t want interfering financial-types, they wanted an industry-experienced investor who understood the software business, would build trust over time and provide support in areas that could help Visma grow. HgCapital supported management with experienced project and strategy executives who could help implement initiatives to boost revenue growth: implementing group-wide Net Promoter Score programs to boost customer satisfaction and enable cross-selling; converting one-time revenues to recurring subscription packages which enhance future upsell potential and investing in cloud-based technology. Visma has completed more than 75 bolt-on acquisitions, notably: Mamut ASA, a provider of ERP software to small customers in Norway (2011); Netvisor, a provider of SaaS based ERP software to the Finnish small customer segment (2011); Agda, a Swedish provider of payroll software to SMEs (2012); and InExchange, the Swedish e-invoicing leader (2013). Visma is now positioned as one of the leading and largest SaaS companies in Europe with over 80m of pure-saas revenues; employment levels across the firm have grown from 2,512 in 2006 to 5,648 currently. PERFORMANCE Visma s performance over the eight years since 2006 has been consistently robust, which underpinned HgCapital s decision to retain a minority stake in 2010, and which provided the conviction to re-invest in the business in April Total revenues grew from NOK 2,306 million in 2006 to NOK 6,452 million in 2013, a compound annual growth rate of 16%; EBITDA increased from NOK 305 million in 2006 to NOK 1,325 million in 2013, a compound annual growth rate of 23%. Over the same period, operating margins improved from 13% to 21%; employment, product innovation and R&D investment all more than doubled. RE-INVESTMENT IN VISMA In April 2014, following a decision by majorityowner KKR to sell part of its original 2010 stake in Visma, HgCapital decided to sell the remaining stake held by its HgCapital 5 fund generating a total return on all capital invested between 2006 and 2014 of 5.1x original cost and a gross IRR of 33%. HgCapital and its clients will be investing c. 405 million in the business for a 31% stake via its HgCapital 7 fund and co-investment participation as a co-lead investor alongside KKR and Cinven. This transaction valued the business at a total enterprise value of NOK 21 billion ( 2.1 billion). The re-investment in Visma reinforces our conviction in the continuing strength of the business; backing a management team we know well with a strong track record of creating value for investors. NOK billion Original HgCapital investment Sales CAGR 16% EBITDA This transaction is subject to regulatory approval and is expected to complete in July 2014.

7 Websites: zenith.co.uk & leasedrive.com Sector: Services Geography: UK Zenith, one of the UK s largest independent leasing, fleet management and vehicle outsourcing businesses was acquired in February At the beginning of March 2014, Zenith and Leasedrive (acquired in December 2013) began operating as a single entity. NEW INVESTMENT: ZENITH (NOW ZENITH-LEASEDRIVE HOLDINGS) BUSINESS DESCRIPTION Zenith-Leasedrive Holdings is the largest independent vehicle leasing businesses in the UK formed through the merger of Zenith Vehicle Contracts and the Leasedrive Group in March Headquartered in Leeds, with full-service operations in both Solihull and Wokingham, the combined group has over 500 employees and provides end-to-end automotive solutions focused on contract hire, short-term hire and fleet management services to customers across the UK. The company operates a fleet of over 64,000 vehicles and focuses on serving blue-chip customers in principally sole supply situations. Having identified the sub-sector as attractive for investment in 2011, the HgCapital Services team began building a relationship with the management and shareholders of both Zenith and Leasedrive in This enabled us to acquire Leasedrive in an exclusive transaction at the end of In early 2014, HgCapital then acquired Zenith through a bilateral transaction and merged the two companies. INVESTMENT RATIONALE Zenith-Leasedrive displays a number of the investment characteristics targeted by HgCapital. It has strong core profitability aligned with double-digit revenue growth, high cash flow conversion and offers a low ticket, business-essential service to a largely fragmented customer base with a high customer retention rate. In addition to growing its core contract hire fleet, we believe substantial growth can be achieved in the emerging salary-sacrifice marketplace in the UK. The merger was driven by the highly complementary nature of the two businesses and the potential to create significant economies of scale as a larger group. HOW WE INTEND TO CREATE VALUE In addition to supporting core customer growth, there is opportunity for significant improvement in operating and financing efficiency through the enhanced scale afforded by the merger. This platform should also enable further strategic M&A, where Hg s experience in buy-and-build and the company s flexible capital structure makes Zenith-Leasedrive a compelling acquirer. We have the benefit of a highly experienced Chairman, Jon Walden, who has joined the group board. HgCapital had the opportunity to work with Jon at Epyx, where he was Chairman, and his experience of building Lex, the largest UK vehicle leasing business, gave us insight and conviction on the opportunities in the sector. HOW WE PLAN TO CRYSTALLISE VALUE We believe that Zenith-Leasedrive will be an attractive opportunity for multiple buyers once HgCapital has delivered its growth and efficiency plan for the business. Important information: Past performance is not necessarily a reliable indicator of future results

8 Website: ullink.com Sector: TMT Geography: France NEW INVESTMENT: ULLINK BUSINESS DESCRIPTION Ullink is a leading global provider of electronic trading applications and connectivity to the financial community. Founded in 2001 by the current CEO, Laurent Useldinger, Ullink has grown quickly to become a global provider of multi-asset trading technology and infrastructure for buy-side and sell-side market participants. Ullink s clients include over 150 of the world s top-tier banks from 39 countries and ranges from tier 1 global sell-side brokers to regional niche specialists across Europe, North America and APAC. The business is headquartered in France, although c. 60% of staff and c. 90% of revenue are outside the country. INVESTMENT RATIONALE Capital markets software has been a strong focus for the TMT team since 2002 and Ullink has been known to the team since This investment is in line with HgCapital s proven sector-focused approach of investing in leading global providers of vertical market application software. Ullink shares the core characteristics that HgCapital looks for: it provides an excellent platform for growth with a subscription revenue model across a diversified client base. Ullink also has an outstanding management team and a proven commitment to innovation through its high investment in new product development. HOW WE INTEND TO CREATE VALUE HgCapital sees significant potential in Ullink and is investing alongside Laurent Useldinger and the current management team who will continue to lead the business on to its next phase of development. Working closely with the management team, HgCapital will help the business accelerate its high rate of organic growth driven by increased new customer wins from investment into the sales and marketing functions. We also see additional upside opportunities including bolt-on acquisition opportunities, further operational improvements in pricing and professional services and further investment in R&D to access other asset classes. We believe that this will ensure Ullink continues to innovate and provide the best products in the market. HOW WE PLAN TO CRYSTALLISE VALUE Ullink has the potential to become an industry champion by winning market share. The financial profile is also highly attractive with high levels of recurring revenue, high organic growth, scalable cost base and high cash conversion. We therefore believe the company will be an attractive future target for both trade and financial buyers. This is an exciting time for Ullink and our staff. In HgCapital we have found a partner who is thoroughly aligned with our goals and has the capital resources, knowledge and experience to help us to build our business even further. Laurent Useldinger CEO and Founder of Ullink Important information: Past performance is not necessarily a reliable indicator of future results. 08

9 Sector expert investors supporting management to grow industry champions EXITS AND REALISATIONS Since 31 December 2013, HgCapital is estimating a return of million to its clients, including 68.4 million to the Trust, primarily from the realisations of Manx Telecom, Americana, and from Visma and Schleich (due to complete in July 2014). In February 2014, we announced the completion of the IPO of Manx Telecom on London s Alternative Investment Market ( AIM ) at a market capitalisation of 160 million. The proceeds from the realisation of HgCapital s holding and earlier proceeds from refinancing the business represented an investment multiple of 2.1x original cost and a gross IRR of 26% p.a. over the investment period. The Trust received proceeds on completion of 13.1 million, an uplift of 3.0 million over the carrying value of 10.1 million at 31 December Americana, a UK-based apparel company, was sold in February 2014 to EMERAM Capital Partners, a Munich-based private equity fund. Americana was written down to zero in June 2013 and the initial proceeds of this sale returned 0.5 million to the Trust in June, with a further 0.5 million retained in the business which is expected to be received by the Trust in In April 2014, HgCapital announced the sale of Visma, a leading software and BPO services business in the Nordic region. The estimated proceeds of this transaction should return 41.2 million to the Trust, representing an uplift of 9.5 million (26 pence per share) over the carrying value of 31.7 million at 31 December Over the life of the investment to date, the Trust received a total return of 84.0 million, including the proceeds to be received in July, on a total investment of 16.3 million. This transaction is subject to regulatory approval expected in July. For a full case study of this realisation and the subsequent re-investment, please see p6. The sale of Schleich, a toy manufacturer headquartered in Germany, to Ardian, the French Private Equity Firm, was announced in May 2014, subject to regulatory approval. The cash proceeds of this transaction on completion are estimated to be approximately 11.9 million for the Trust, representing an uplift of 4.3 million (58%) over the carrying value of 7.6 million at 31 December This exit is expected to complete in July In addition, the Trust received total proceeds of 1.7 million from other buyout and renewable energy investments, resulting in total proceeds of 68.4 million during the period. OUTLOOK We remain selective about making new investments in the current environment and have deployed capital in 2014 where there has been the opportunity to build relationships with companies over many years. We believe that our deep sector expertise will continue to find pockets of opportunity to acquire industry champions as borne out in the first half of the year. Trade and financial buyers continue to express interest in acquiring a number of our portfolio companies, as a result of their growth and market positions, and realising them by way of an IPO in public markets is also an option. This has been further demonstrated in the 2014 with the realisation of four buyout companies, which have returned an aggregate 3.1x original cost and 24% p.a. gross IRR. We believe that there will be further opportunities in the short and medium term to consider realising investments profitably, as we have done consistently over several years. MANX TELECOM Isle of Man telecoms operator Sector: TMT Geography: UK Investment date: June 2010 Exit Route: IPO Investment return multiple of cost: Gross IRR: 2.1x 26% p.a. m m 29% uplift 3.0m 10.1m Dec 2013 carrying value 10.0m 0m realised prior to Dec m realised on exit 10.0m 0m realised prior to Dec 2013 Original Carrying value Total cost 2010 prior to sale return as at Dec 2013 Important information: Past performance is not necessarily a reliable indicator of future results. 09

10 Website: manxtelecom.com Sector: TMT Geography: UK I was very impressed by our colleagues at HgCapital. I think the people we met were very professional, very driven but easy to deal with. They weren t going to interfere with the way we run the business, it was very much about supporting us to help us. Mike Dee CEO of Manx Telecom REALISATION: MANX TELECOM BUSINESS DESCRIPTION Manx Telecom is the primary fixed and mobile telecom operator on the Isle of Man. It provides telecommunication and data services to commercial and consumer customers. In addition to its core on-island activities, the company has developed high quality data hosting operations and a niche off-island mobile applications which are delivering further growth. INVESTMENT RATIONALE Manx Telecom is an incumbent operator in a high growth economy where quality telecoms are critical for many businesses and spending in the sector has historically grown above real GDP. The company enjoys a leading position and a regulatory environment which encourages infrastructure investment in addition to price competitiveness. We felt the business was well managed but operational improvements were available to help maximise return on equity. THE DEAL HgCapital, along with CPS Partners and management, acquired Manx Telecom from Telefonica in the summer of HOW HgCAPITAL SUPPORTED MANX TELECOM In our three and a half year ownership of Manx Telecom there has been a significant transformation of the business. After initially building an experienced management team, subsequent initiatives led by HgCapital, working closely with CPS Partners, have included driving accelerated revenue growth through a focus on offering high quality, attractively priced packages to customers, alongside a clear emphasis on improving cost control processes within the business. These changes have helped to deliver improving profit growth, in-line with HgCapital s original investment hypothesis. Manx Telecom has also remained highly cash generative throughout HgCapital s ownership, facilitating a recapitalisation of the business in March PERFORMANCE IMPROVEMENT The business has delivered strong growth under HgCapital s ownership and for the year-ended 31 December 2013, Manx Telecom grew revenue by 5% on 2012, generating operating profit growth of 12%. THE EXIT In February 2014, we announced the successful listing of Manx Telecom on the AIM. HgCapital agreed to sell its entire shareholding in the company as part of this process. The proceeds on completion represent a 2.1x investment multiple and 26% p.a. gross IRR. m Sales EBITDA Important information: Past performance is not necessarily a reliable indicator of future results. 10

11 Website: schleich-s.com Sector: Consumer & Leisure Geography: Germany Since the beginning of 2013, we have not only managed the turnaround of our existing core business but have also set the course for further significant growth, which is already producing strong results. This has also been achieved with the proactive and professional support of HgCapital. Dr. Thomas van Kaldenkerken CEO of Schleich REALISATION: SCHLEICH BUSINESS DESCRIPTION Founded in 1935, the heritage Schleich brand enjoys a high level of awareness and an excellent reputation with parents and retailers. It is one of Germany s biggest toy manufacturers and a leading international supplier of traditional figurines and realistic play world concepts, which allow children to create their own unique toy landscapes. Today Schleich s famous figurines are sold in more than 50 countries. Originally family-owned, the company was acquired by HgCapital in December INVESTMENT RATIONALE Schleich s figurines are attractive to retailers, given their low seasonality, high sales and attractive margins. The company benefits from a wide product range, brand reputation, established retailer network and a high quality, low cost supply base. Revenue growth is supported by continual innovation in the product range. Our original value creation plan was to drive sales growth organically in existing markets and through international expansion, further penetrate large key accounts and capture margin improvement through increased scale. THE DEAL Schleich was a family-owned business acquired by HgCapital in December We have earned a reputation in Germany as a preferred partner for many family-owned businesses (the Mittelstand ) companies, as a result of supporting the management of a number of these hidden champions to scale into international businesses. HOW HgCAPITAL SUPPORTED SCHLEICH Under HgCapital s stewardship, the company has achieved growth through the continued development of its product portfolio, selective international expansion, particularly to the US, UK and Asia, (including significant growth in key accounts such as Walmart in the US), and margin improvements. PERFORMANCE IMPROVEMENT During HgCapital s investment period, Schleich s sales have grown from 61 million to 106 million, with the number of employees increasing from approximately 190 to 340 today. THE EXIT In May 2014, HgCapital announced the sale of Schleich to Ardian, the French Private Equity Firm, subject to regulatory approval. This realisation represents a 58% uplift to the carrying value as at 31 December This transaction is subject to regulatory approval and is expected to complete in July

12 Investments in small-cap TMT In 2011, the Trust made a 60 million commitment to HgCapital s new Mercury Fund, specialising in TMT investments with an enterprise value of between 20 million and 80 million. Smaller technology buyouts is an area where HgCapital has historically made many profitable investments and Mercury has allowed the establishment of a dedicated team of investment professionals focused on these deals. This dedicated fund is intended to target smaller buyouts in the same TMT subsectors and similar business models, for example electronic marketplaces and SaaS providers. The addition of the dedicated Mercury team alongside the existing TMT team further reinforces the scale and capability of HgCapital within this sector. The HgCapital Mercury fund is now 17% invested across three portfolio companies. Total Net valuation assets 000 % Intelliflo 4, Relay Software 2, Valueworks 1, RELAY SOFTWARE: NEW INVESTMENT IN FEBRUARY 2014 Website: Sector: Geography: Small-cap TMT Republic of Ireland BUSINESS DESCRIPTION Founded in 1985, Relay Software is a leading provider of software to insurance brokers, underwriters and insurers in the Republic of Ireland. Relay s product suite is a leading software solution to insurance brokers in the market, providing a seamless front and back office platform which, supported by Relay s excellent customer service, provides its broker customers with the tools that they need to manage a successful insurance business. Additionally, the company provides software solutions to many of the largest insurance and underwriting firms operating in the Republic of Ireland. The company has offices in Belfast and Dublin and employs 70 staff. INVESTMENT RATIONALE The Mercury team originally met with Relay Software some years ago as part of ongoing coverage of the insurance technology sector. The Company shares similar attractive investment characteristics with a number of HgCapital s SME regulatory software investments, including: a scalable business model in a regulated and attractive end vertical market; organic recurring revenue growth; a business critical, but low spend item. Leveraging from HgCapital s deep sector focus and experience in this area, our knowledge from other recent HgCapital software investments in the Financial Technology ( Fin Tech ) area, as well as our internal portfolio support capabilities, we believe there is a significant opportunity for value creation. HOW WE INTEND TO CREATE VALUE Working alongside Relay s management team, HgCapital s investment will assist in the development of new products and services for all of its customers by delivering additional features and functionalities that serve its customer needs and grow recurring revenues, and will ensure that Relay continues to provide the most advanced and efficient technology solutions available. In addition, we view Relay Software as an attractive platform in which to bolt-on additional product or service offerings within the core Irish market. HOW WE PLAN TO CRYSTALLISE VALUE Given Relay s strategic position at the heart of the insurance market in Ireland and the quality of its technology and end-market customer relationships, Relay Software should ultimately be attractive to a number of trade and financial buyers. Total Mercury investments 7,

13 Investments in renewable energy RENEWABLE ENERGY All figures as at 31 May 2014 HgCapital s specialist team uses private equity skills to identify and acquire high quality European renewable energy projects with minimal GDP risk, favourable inflation links and the use of proven technologies. Renewable energy is the fastest growing segment of the European electric power sector and is expected to account for the majority of new European energy asset investment over the next ten years. This growing demand is driven by renewable energy s increasing cost competitiveness, legally binding carbon reduction targets set by the EU, replacement of ageing generation capacity, and the need to increase the security of energy supplies in Europe. Investment returns are anticipated through a combination of yield during operation and capital gain at refinancing or exit, providing a return profile that should complement returns from our core investments in leveraged buyouts. By bringing individual investments together into platforms, we can enhance value through economies of scale, shared expertise and aggregated generation capacity. The Trust holds an investment via limited partnership interests in the Manager s two renewable energy funds, RPP1 and RPP2. RPP1 ( 303 million raised in 2006) HgCapital s first renewable energy fund has built a number of utility-scale power platforms across Europe, optimising them using our specialist experience. HgCapital Trust s commitment to the Fund is 21.6 million. Following the successful disposal of the entire UK platform, the remaining platforms are: Swedish onshore wind (Vasa Vind: one operating project of 95MW; Spanish solar PV (Mercurio Solar): seven operating projects of 61MW. RPP2 ( 542 million raised in 2010) The second fund replicates the strategies of the first. HgCapital Trust s commitment to the Fund is 40 million. The second fund s platforms are: Swedish onshore wind (Vasa Vind: www. vasavind.se): two operating projects of 96MW; two projects in preconstruction totalling 305MW; and a development business with a pipeline of over 700MW; Irish onshore wind (Invis Energy: www. invisenergy.ie): one operating project of 44MW; one 43MW project in construction; and a further 360MW in pre-construction; Swedish district heating (Vasa Värme): two operating projects of 58MW; Spanish mini-hydro (Ondina): two operating portfolios of 120MW. As at 30 April 2014, electricity equivalent to the power consumption of more than 200,000 homes is generated from the operational energy plants in the portfolio. As highlighted in the Annual Report and Accounts in March 2014, Spain announced new general legislation in July 2013 making further changes which were expected to have Geography 50% Sweden 31% Ireland 12% Spain 7% UK Technology 79% Onshore wind 9% Heating 6% Solar 6% Hydro Diversification by value a material negative impact on the value of the Spanish assets. In February 2014, Spain published a draft of the detailed new tariffs under the July 2013 legislation which is expected to be passed into law in the next 3 months. At 1,700 detailed pages, the regulations cover hundreds of different tariffs based on technology, location and date of operation. HgCapital has now evaluated the impact of the draft legislation on the seven solar projects held by RPP1 and 34 hydro projects held by RPP2 and this has been reflected in the 30 April 2014 valuation. The impact of this revaluation has been a further write-down of these assets, reducing the Total valuation Net assets 000 % Swedish Wind 1, UK Wind Spanish Solar Other RPP1 Fund 3, Irish Wind 4, Swedish Wind 3, Swedish District Heating 1, Spanish Hydro Other RPP2 Fund 9, Total renewable energy investments 13, Trust s April NAV by 4.6m or 12 pence per share compared with the equivalent valuation at 31 March This valuation is based on the available information and is based on assumptions such as a final enactment of the published draft and a successful debt restructuring negotiation with the lenders to the solar and hydro projects. The residual value of the Trust s renewable assets in Spain now represents approximately 4 pence per share; while further deterioration cannot be ruled out, the residual value takes no account of claims for compensation that the Manager and other international investors are pursuing under the Energy Charter Treaty. 13

14 Performance INVESTMENT OBJECTIVE HgCapital Trust plc (the Trust ), which was established in 1989, is an investment trust listed on the London Stock Exchange (ticker: HGT.L). The Trust s objective is to provide shareholders with long-term capital appreciation in excess of the FTSE All-Share Index by investing in unquoted companies. The Manager, HgCapital, seeks to meet the investment objective of the Trust using a business model that combines deep sector knowledge, a rigorous research-based approach and associated thematic investment origination and selection to systematically identify and repeatedly invest in the most attractive segments of the European mid-market, optimising deal flow and improving returns. HgCapital focuses on buyouts across the TMT, services and industrials sectors and specialist infrastructure through renewable energy projects. WHY INVEST? The Trust provides investors with a liquid investment vehicle through which they can obtain exposure to HgCapital s diversified portfolio of private equity investments across multiple vintages primarily in Northern Europe. HgCapital s long standing investment in establishing and maintaining deep sector expertise is a key differentiator in the European private equity environment which has delivered superior returns over the long-term. FINANCIAL HIGHLIGHTS (to 31 May 2014) +14.6% +13.6% 1.7x Ten year compound annual growth rate of the share price on a total return basis* vs. 8.9% p.a. from the FTSE All-Share Index Ten year compound annual growth rate of the NAV per share on a total return basis* 10 year historic outperformance of the FTSE All-Share on a total return basis* Based on the Company s share price at 31 May 2014 and allowing for dividends to be reinvested, an investment of 1,000 ten years ago would now be worth 3,913. An equivalent FTSE All-Share Index return would be worth 2,351. CUMULATIVE HISTORIC PERFORMANCE % P.A. (total return* to 31 May 2014) HISTORIC TOTAL RETURN* PERFORMANCE (to 31 May 2014) Performance Index May-04 May-05 May-06 May-07 May-08 May-09 May-10 May-11 May-12 May-13 May-14 Share price NAV FTSE All-Share Index Year One Three Five Seven Ten to date year years years years years % % % pa % pa % pa % pa Share price 7.2 (3.8) (0.4) Net asset value (2.5) (7.9) Pro-forma net asset value 0.7 (4.8) FTSE All-Share Index Share price performance vs FTSE All-Share Index 4.3 (12.7) (9.6) (6.3) Total return performance record rebased to 100 at 31 May Source: Factset, HgCapital. *Total return assumes all dividends have been reinvested. Source: Factset, HgCapital Important information: Past performance is not necessarily a reliable indicator of future results. A copy of the annual and interim reports can be found on 14

15 Portfolio NET ASSETS (as at 31 May 2014) OUTSTANDING COMMITMENTS Based on the 31 May 2014 NAV and adjusting for the sale of Schleich and the sale of, and re-investment in Visma (all expected to complete in July 2014) liquid resources are estimated to be 93 million (22% of the NAV). The Trust also has a 40 million bank facility that is currently undrawn. The Trust s undrawn commitments to HgCapital funds are approximately 232 million (55% of NAV) as at 31 May 2014, including the two transactions referred to above. HgCapital Trust plc has the benefit of an opt-out provision in its commitment to invest alongside HgCapital 7, so that it can opt out of a new investment without penalty should it not have the cash available to invest. 1 Including investment valuation and accrued interest. 2 In April we announced the re-investment in Visma due to complete in July Further proceeds of 34.1 million are expected upon completion. 3 Previously Nair & Co. 4 In May we announced the sale of Schleich due to complete in July Proceeds of 11.8 million are expected upon completion. Year of Total valuation 1 Net assets Assets Sector Location investment 000 % Twenty largest primary mid-cap buyout investments 1 IRIS TMT UK , % 2 Visma 2 TMT Nordic Region , % 3 TeamSystem TMT Italy , % 4 Zenith-Leasedrive Services UK , % 5 P&I TMT Germany , % 6 JLA Services UK , % 7 Achilles TMT UK , % 8 Radius 3 Services UK , % 9 Qundis Industrials Germany , % 10 Lumesse TMT UK , % 11 e-conomic TMT Nordic Region , % 12 SimonsVoss Industrials Germany , % 13 NetNames TMT UK , % 14 Voyage Healthcare UK , % 15 Frösunda Healthcare Nordic Region , % 16 Atlas Services UK , % 17 Sporting Index Consumer & Leisure UK , % 18 Ullink TMT France , % 19 Schleich 4 Consumer & Leisure Germany , % 20 Parts Alliance Services UK , % Top twenty investments 300, % Other investments 9, % Total primary mid-cap buyout investments 309, % Primary small-cap buyout investments 1 HgCapital Mercury D LP Fund UK , % Total primary buyout investments 317, % Secondary buyout investments 1 HgCapital 6 E LP Fund UK , % Total buyout investments 327, % Renewable Energy investments 1 RPP1 Fund Renewable Energy Europe , % 2 RPP2 Fund Renewable Energy Europe , % Total Renewable Energy investments 13, % Total all investments 340, % Cash and other liquid assets 80, % Net current liabilities (2,835) (0.7%) Net assets 418, % 15

16 PORTFOLIO ANALYSIS (as at 31 May 2014) Asset class 81% Unquoted 19% Cash & other assets Vintage by value of the primary buyout portfolio 3% 25% 6% 14% 25% 27% pre % Germany 15% Nordic Region 8% Italy 2% France 1% Switzerland Vintage by value of the primary buyout portfolio 3% % %by value 2012 Deal type 14% Buyout % 25% Renewable % energy 27% Buyout pre 2010small-cap 2% France Switzerland Portfolio Deal type by value 94% Buyout 4% Renewable energy 2% Buyout small-cap Valuation basis 62% Above cost 22% Below cost Sector by value Geographic spread 16% At original cost of the primary by value Sector of the primary by value of the primary buyout portfolio buyout portfolio buyout portfolio 54% TMT 54% TMT 56% UK 24% Services Asset class 24% Services 18% Germany Industrials 81% Sector by valueunquoted of the primary buyout portfolio 15% Nordic 9% 9% Industrials Region Geographic spread by value of the primary buyout 8% Healthcare 19% TMT Cash & other assets 54% 8% Healthcare 8% Italy 5% 56% UK Consumer & Leisure 24% Services 5% Consumer 2% France 18% Germany 9% Industrials & Leisure 1% Switzerland 15% Nordic Region 8% Healthcare 8% Italy 5% Consumer & Leisure 2% France 1% Switzerland Vintage by value of the primary buyout portfolio 3% 2014 Deal type by value Valuation basis 25% % Buyout 62%Deal Above costby value type 6% 2012 Vintage by value of the primary buyout portfolio 22% Below cost 4% Renewable 94% 14% Buyout 2011 energy3% % At original 4% Renewable energy 2% Buyout25% 2013 cost 25% % 27% Buyout pre 2010small-cap small-cap 6% % % % pre 2010 Percentages are based on fixed assets and accrued interest and are shown by value class Asset Percentages are based on net assets 2% 1% 81% 19% Unquoted Cash & other assets Asset class Sector by valueunquoted of the primary buyout portfolio 81% 54% 19% TMT Cash & other assets 24% Services 16 9% Industrials 8% Healthcare 5% Consumer & Leisure

17 Shareholder information CALENDAR Year end 31 December Half-year results published 21 August 2014 H2 IMS October 2014 FINANCIALS AS AT 31 MAY 2014 Index FTSE ALL Share Ticker code: HGT Ordinary Shares in issue 37,324,698 Pro-forma net assets million* Market capitalisation million Pro-forma NAV per Ordinary Share 1,159.5p* Ordinary Share price 1,053.5p Ordinary Share price discount to pro-forma NAV 9.1% Continuation vote 2015 *Pro-forma financial information represents the 31 May 2014 month-end financials, adjusted for the sale of and re-investment in Visma announced in April 2014 and the sale of Schleich announced in May 2014., both due to complete in July Unquoted investments were last valued at 31 December 2013, and will next be revalued at 30 June MANAGEMENT FEE ARRANGEMENTS For more information on the structure and fee arrangements for HgCapital Trust plc, please refer to the latest edition of the HgCapital Trust report and accounts, available at BOARD OF DIRECTORS Roger Mountford (Chairman) Richard Brooman (Chairman of the Audit and Valuation Committee) Peter Dunscombe Andrew Murison Mark Powell Anne West MANAGER Hg Pooled Management Limited BROKER Numis Securities Ltd The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT CONTACT DETAILS HgCapital Trust plc 2 More London Riverside London SE1 2AP +44 (0) investorrelations@hgcapitaltrust.com Important information This document is issued and approved by Hg Pooled Management Limited. Nothing in this document is intended to constitute advice and this document should not be taken as a recommendation to buy or sell shares in HgCapital Trust plc. If you are interested in HgCapital Trust plc, you should contact your financial advisor before making any investment decision. Remember that past performance is not necessarily a reliable indicator of future results, and that the value of shares can go down as well as up. HgCapital is the trading name for Hg Pooled Management Limited and HgCapital LLP, both of which are authorised and regulated by the Financial Conduct Authority. 17