HgCapital Trust plc Regulatory News (HGT)

HgCapital Trust plc

Final results for the year ended 31 December 2014

London, 9 March 2015: HgCapital Trust plc ("the Trust"), which provides investors with a listed vehicle to invest in all private equity deals managed by HgCapital, today announces its full year results to 31 December 2014.

Summary performance

1 Assuming reinvestment of all historic dividends

Financial Highlights

§ NAV per share increased to £12.78; +12.8% on a total return basis.

§ Share price increased to £10.58; +9.6% on a total return basis.

§ As at 28 February 2015 NAV per share of £12.48, largely due to the impact of adverse FX movements.

§ Proposed final dividend for the year of 32 pence per share (2013: 29 pence) to be paid on 18 May 2015, subject to shareholder approval. This is in addition to a special dividend of 19 pence per share paid in September 2014, bringing the total dividends for the year to 51 pence per share.

§ Strong revenue growth of +11% and EBITDA growth of +9% across the top 20 buyout investments (89% of the portfolio value) over the last twelve months to 31 December 2014.

§ An EV to EBITDA valuation multiple of 13.2x and debt to EBITDA ratio of 4.5x as at 31 December 2014 for the top 20 buyout investments.

§ Estimated liquid resources as at 28 February 2015 (adjusted for post December transactions) available for deployment are £46 million (10% of NAV) with outstanding commitments of £190 million (41% of NAV).

§ +11.5% p.a. 10-year compound annual growth rate of the share price vs. +7.6% p.a. from the FTSE All-Share Index, both calculated on a total return basis to 31 December 2014.

Investment Activity

§ £87 million deployed on behalf of the Trust over 2014 that funded both new acquisitions and further investments within the existing portfolio.

§ £83 million of cash returned to the Trust over 2014 resulting primarily from buyout realisations.

§ In December 2014 the Services team announced the acquisition of A-Plan, a UK based insurance provider. The Trust's share of this investment on completion by May 2015 (subject to FCA approval) is estimated to be £15.3 million.

Manager Outlook

§ Investing in the current market environment remains challenging and we have maintained a cautious and disciplined approach in selecting and investing in companies within sub-sectors that we know well. We strongly believe that we can continue to find opportunities to invest in businesses growing materially faster than the broader economy.

§ 2014 was a year when nearly a third of the capital deployed on behalf of the Trust was to fund bolt-on acquisitions, an increasing feature of how we work to grow value in our portfolio companies.

§ We have confidence in our portfolio and we are working hard to further improve the operational performance of our companies, the effects of which are yet to be fully reflected in our valuations. This will be further enhanced by any sustained recovery in the economic environment.

§ Absent a material reduction in market ratings, we expect the strong performance we are seeing across the portfolio to continue to drive NAV growth.

§ We believe that there will be further opportunities during the course of 2015 to continue to realise investments from within the portfolio, just as we have done consistently across market cycles.

§ We remain confident that we will continue to reward our investors with superior long-term returns.

Roger Mountford, Chairman of the Trust, commented:

"Active management across the portfolio is creating value that we believe will drive attractive returns for shareholders over the coming years".

- Ends -

The Trust's 2014 Annual Report and a webcast from the Investment Manager to accompany the results are available to view at: http://www.hgcapitaltrust.com/.

For further details:

About HgCapital Trust plc

HgCapital Trust plc is an investment trust whose shares are listed on the London Stock Exchange. The Trust gives investors exposure, through a liquid vehicle, to a portfolio of high-growth private companies, managed by HgCapital, an experienced and well-resourced private equity firm with a long-term track record of delivering superior risk-adjusted returns for its investors.

For further details, see www.hgcapitaltrust.com and www.hgcapital.com

Neither the contents of HgCapital's website, HgCapital Trust's website nor the contents of any website accessible from hyperlinks on the websites (or any other website) is incorporated into, or forms part of, this announcement.

HgCapital Trust plc

Annual Report and Accounts

31 December 2014

The objective of the Trust is to provide shareholders with long-term capital appreciation in excess of the FTSE All-Share Index by investing in unquoted companies.

The Trust provides investors with exposure to a diversified portfolio of private equity investments, primarily in the UK and Continental Europe.

References in this announcement to HgCapital Trust plc have been abbreviated to 'HgCapital Trust' or the 'Trust'. HgCapital refers to the trading name of Hg Pooled Management Limited and HgCapital LLP. Hg Pooled Management Limited is the 'Manager'.

References in this announcement to 'Total Return' refer to a return where it is assumed that an investor has re-invested all historic dividends into the Trust at the time when they were received.

FINANCIAL HIGHLIGHTS

2014 PERFORMANCE

NET ASSET VALUE ('NAV') PER SHAREThe NAV per share at 31 December 2014 was £12.78, a total return for the year of: +13%

NET ASSETSThe total NAV of the Trust at 31 December 2014 was: £477m

SHARE PRICEThe share price at 31 December 2014 was £10.58, a total return for the year of: +10%

MARKET CAPITALISATIONThe market capitalisation of the Trust at 31 December 2014 was: £395m

CASH DEPLOYED ON BEHALF OF THE TRUSTThe amount of capital invested in 2014 that funded both new investments and further investments within the existing underlying portfolio: £87m

CASH REALISED FOR THE BENEFIT OF THE TRUSTCash distributions received in 2014, resulting primarily from buyout realisations: £83m

LONG-TERM PERFORMANCE - 10 YEAR TOTAL RETURN

The Trust has continued to outperform the Listed Private Equity and public market indices.

BALANCE SHEET ANALYSIS as at 31 December 2014

£477m The NAV of the Trust

£63m The net liquid resources available for deployment representing 13% of NAV.

£207m The amount of outstanding commitments representing 43% of NAV.

THE PORTFOLIO

The Trust provides investors with access to a portfolio currently comprising 27 companies actively managed by an experienced and well-resourced Manager.

Investments are made in private companies, primarily across Northern Europe, in selected parts of the TMT, Services and Industrial sectors where the Manager is confident that value can be created through a pro-active partnership with management teams, drawing on both sector and operational expertise to drive sustainable growth. The Manager has a commitment to address environmental, social and governance issues to ensure that, by meeting the expectations of wider society as well as of customers, these businesses will be able to achieve returns that are sustainable and which will be reflected in their value.

An investment in the Trust provides exposure to a portfolio of companies with potential for strong growth in sales and profitability. The top 20 buyout investments currently account for 89% of the portfolio value. These companies currently have aggregate revenues of £1.9 billion and EBITDA of £410 million with margins of 22%.

In addition, the Trust holds investments in the Manager's two renewable energy funds.

TOP 20 INVESTMENTS as at 31 December 2014

+11% p.a.SALES GROWTHThe average growth in sales over the last twelve months.

+9% p.a.PROFIT GROWTHThe average growth in EBITDA over the last twelve months.

13.2xEV TO EBITDA MULTIPLEThe average ratings multiple used to value those investments that were valued on an earnings basis.

4.5xDEBT TO EBITDA RATIOThe average net debt to EBITDA ratio.

LONG-TERM PERFORMANCE RECORDHISTORIC RECORD

The Trust's share price has continued to outperform the FTSE All-Share Index over the long-term.

EXTRACT OF THE BOARD'S STRATEGIC REPORT

CHAIRMAN'S STATEMENT

Active management across the portfolio is creating value that we believe will drive attractive returns for shareholders over the coming years

Investment activity and performance during the year

In 2014 the Manager, HgCapital, made substantial progress with the portfolio: realising cash from existing investments; working on the transformation of more recent acquisitions to grow value; and deploying cash into new opportunities. Some £83 million of capital and income was realised for the benefit of the Trust, primarily from realisations from the buyout portfolio. The largest contributor was the sale of Visma which returned a total of £41.4 million to the Trust at an investment multiple of 5.2x original cost. In addition to this, the IPO of Manx Telecom returned £13.1 million at a multiple of 2.1x original cost, and the exit of Schleich returned a further £11.9 million, at an investment multiple of 2.6x. The sale of Voyage Care and Americana were also completed in 2014. Total realisations over the course of 2014 were made at an aggregate uplift to book value (as at 31 December 2013) of £15.9 million.

The Manager has taken advantage of buoyant debt markets to re-finance a number of businesses with inexpensive debt to fund further acquisitions and, where appropriate, to return cash to the Trust.

In April 2014, we announced the realisation of our investment in Visma at a substantial uplift to its book value. However, the Board and Manager were keen to maintain our stake in this growing business and the ongoing transition of its software products to Software-as-a-Service ('SaaS'). Accordingly, we re-invested a sum similar to the realisation proceeds, but with half as a co-investment, bearing no management fees or carried interest. As part of this transaction, we received a substantial one-off dividend and we decided to pass this directly to our shareholders through a special dividend of 19 pence per share; this was announced at the interim results and paid in September.

The Manager invested £87 million from the Trust over the year, of which £63 million was deployed into five new buyouts. The Trust made a £200 million commitment to the Hg7 Fund in 2013 and made the first acquisition in relation to that commitment, of P&I, late in that year. The Trust invested in a further two businesses in 2014, with an additional investment expected to complete by May 2015. Upon completion, approximately 31% of our commitment for the Hg7 fund will have been invested. During the year the Mercury Fund, launched in 2011 to focus on lower-mid market TMT investments, deployed £13 million on behalf of the Trust into three new companies. The Trust made an original commitment of £60 million to this Fund, which is now 32% deployed. Both Hg7 and Mercury have a good pipeline of potential investment opportunities.

Consistent, long-term returns for investors are achieved by growing the store of value in the businesses in the portfolio. Revenues in the underlying buyout portfolio continued to grow strongly, with revenues in the top 20 investments (which in aggregate represent 89% of the portfolio's value) growing by 11% over 2014; this compares with growth of 9% in 2013. Profits (EBITDA) of the top 20 investments grew by 9%, the same rate of growth as the previous year. Aggregate EBITDA margins of 22% on revenue, across the top 20, show the high quality of the investment portfolio our Manager has assembled.

Across the buyout portfolio, strong EBITDA growth and improved ratings of comparable companies (used to value our investments) both contributed positively to NAV appreciation. The great majority of businesses in the portfolio grew in value, most notably IRIS, Visma, TeamSystem, Zenith Leasedrive, SimonsVoss, P&I, e-conomic and JLA. NetNames, which was previously written-down, has materially improved this year leading to an increase in valuation. Further value was added by the Manager's strategy of bringing together a series of small, independent businesses in the rather traditional car parts distribution market to create Parts Alliance, which is a nationwide distributor benefiting from increased efficiency and scale.

There has been no further material movement in the valuation of the renewable generating assets since April 2014, when the adverse effects of the retroactive changes implemented by the Spanish government were reflected in the valuations. The portfolio continues to be affected by depressed power prices in the Swedish market. The Manager sees opportunities to grow value both in the Irish Wind platform and the Swedish district heating platform. The Manager continues to pursue arbitration claims to recover losses resulting from the retrospective changes made to legislation in Spain that have affected the solar and hydro investments there.

Adverse factors over the period were political and economic uncertainty in the Eurozone and the significant fall in oil prices, which led to falls in the value of the euro, Norwegian krone and Danish krone, contributing to unrealised foreign exchange losses in the investment portfolio of £16 million. Post the year end, currency movements have continued to affect the valuation of the non-sterling investments.

Despite this, the underlying strength of the buyout portfolio resulted in an increase in NAV per share, from 1,180.4 pence to 1,277.8 pence at 31 December, after payment of a dividend in respect of 2013 of 29 pence in May 2014 and, in addition, the special dividend of 19 pence described below. The Trust's share price at 31 December 2014 stood at £10.58, compared with £10.10 at the end of 2013. This represented a total return (assuming the re-investment of all historic dividends) to shareholders of 9.6%.

The Board recognises that, for many shareholders, their allocation to the Trust will be made from their equity portfolio, and probably from a broadly based equity portfolio that includes medium-sized companies comparable to the businesses in which the Trust invests. However, while listed market indices may therefore provide a guide to the performance foregone by holding shares in the Trust, they do not provide an appropriate benchmark against which to judge the short-term performance of the Trust's shares. The table above illustrates, annually over the last ten years, a lack of correlation between the Trust's performance and movements in the FTSE All-Share Index. Performance in recent years should be viewed against the strong recovery of listed markets from the financial crash, during which shares in the Trust performed relatively well. The Trust's performance relative to listed markets over longer periods remains strong because it gives exposure to an actively managed portfolio of businesses during a period of rapid development.

The Board has for some years set out its view that an allocation to private equity is appropriate in the portfolio of a patient, long-term investor; the combination of low correlation with listed equity markets and a superior long-term return has had the effect that a holding of shares in the Trust, in a portfolio that otherwise matched the index, will have dampened volatility while delivering an overall return in excess of that of the index.

Proposed dividend

In line with our policy on dividends (described below under Business Model) and in order to meet the income retention rules of an investment trust, the Board is seeking shareholders' approval for a dividend of 32 pence per share (2013: 29 pence per share). This is in addition to the special dividend of 19 pence per share paid in September 2014. Thus the total of dividends in respect of 2014 will be 51 pence per share.

A table setting out the dividends paid by the Trust over the last ten years is included in the Trust's Annual Report and Accounts; this shows that the average dividend yield has been 2.7% per annum over the period. While the Trust's investment objective is expressed in terms of the total return to shareholders (including capital and dividends) the Board is also aware that many shareholders appreciate having some line of sight to the likely level of dividends they may expect. This means that, when necessary, the Board will consider declaring dividends above the level required to maintain investment trust status, to provide a degree of stability; in doing so, the Board will take into account whether it needs to retain cash for investment.

Commitments

The Trust has commitments to invest alongside three of the Manager's active funds, with the result that the rate at which cash is drawn down to fund new investment is likely to remain high. At the year-end, the Trust's outstanding commitments totalled £207 million, with the majority of these being drawn down over the next three years; at the year-end the Trust held £63 million in liquid resources to fund these investments. The relationship between commitments, liquid funds available and anticipated proceeds from selling portfolio companies is a strategic issue that the Board and Manager monitor closely. The Board is keen to keep the balance sheet as fully invested as possible, consistent with the investment/realisation cycle and taking account of changing market conditions for the purchase or sale of businesses; when opportunities arise to increase the rate of deployment of cash through additional co-investments, or by acquiring limited partnership interests in the Manager's funds, these are considered on their merits and against this objective.

Annual General Meeting

In common with many other investment trusts, we regularly invite shareholders to vote to continue the life of the Trust. The last such vote was in 2009, in connection with the share issue we made at the time; shareholders passed a resolution extending the life of the Trust to 2015 and amending the Articles so as to provide that a continuation vote would be put forward every five years. Accordingly, the Notice of Annual General Meeting contains a resolution to extend the life of the Trust until 2020, which the Board unanimously recommends shareholders to support.

The Board is also proposing amendments to the Trust's Articles. These have been recommended by our legal advisers, in order to adopt best practice for investment companies subject to the Alternative Investment Funds Manager Directive and to modernise our Articles. A summary appears below.

Maintaining a good market in the Trust's shares

The Trust has continually improved the scope and clarity of reporting to shareholders over many years. We have done this not only to fulfil our duties to shareholders, but also in the belief that transparent reporting encourages a better understanding of listed private equity and of our business model, and thus may create broader and continuing demand for the Trust's shares; as a result, the shares should trade closer to NAV. The Board believes that ensuring there is a liquid and active market in the Trust's shares also contributes to this objective; the monthly value of shares traded during 2014 averaged £13 million (2013: £10 million).

We have continued to improve the clarity of our reporting in this year's annual report, with a view to this being better co-ordinated with our website, which for many investors and analysts is now the preferred source of information about the Trust. Work is currently under way to refresh the Trust's website, helping shareholders and potential investors to gain further insights into the investment opportunity we offer.

Responsible investment

Across the investment spectrum, managers and investors are giving thought to the expectation that they act as responsible investors in the stewardship of the assets they control. The private equity market is becoming increasingly segmented, with a wide range of investment styles and approaches to value creation. HgCapital's strategy is to identify high quality businesses with significant potential and then to work with their management to enhance their revenue growth, profitability and long-term sustainability, thereby creating value for shareholders and good long-term prospects for employees. The Board and Manager have therefore given thought to the most appropriate ways for HgCapital and the Trust to adopt policies of socially responsible investment in our business. The Manager continues to develop its skills in the development of the businesses it acquires to generate growth. This includes supporting the management teams of the portfolio companies to focus on doing well for all stakeholders - employees, customers, suppliers and other partners, as well as shareholders. Part of this is to embed in the policies and practices of these businesses a recognition and awareness of environmental, social and governance issues as an element of good management that will contribute to their growth and sustainability, and which we believe will be rewarded in the ultimate proceeds of sale.

The Manager's section below also sets out HgCapital's approach to responsible investment.

Board and governance

Following the retirement last year of our Deputy Chairman, Peter Gale, we were very pleased to announce that Anne West had agreed to join the Board. Anne had a long and distinguished career as a fund manager in Asia and London, and was most recently the Chief Investment Officer of Cazenove Capital Management, from which she retired in 2012; this experience gives the Board additional insights into the needs of wealth managers who account for a large part of the shareholder register of the Trust.

Andrew Murison has decided that, after more than ten years on the Board of the Trust, he wishes to stand down at the next AGM. Andrew has been a valued colleague, drawing on his own experience as a venture capital manager to bring challenge and strategic thinking to the Board. On behalf of the Board, I thank him very sincerely for his contribution throughout his time as a director. In place of Mr Murison, the Board has nominated Mark Powell to act as Senior Independent Director. The Board anticipates bringing forward a new director to fill the vacancy created by Mr Murison's retirement, thus continuing to refresh the Board on a regular basis.

Prospects

The Manager sets out its views on prospects below, and refers to the challenge presented by the very diverse range of economic conditions that prevail across Northern Europe.

A small number of our businesses with international operations are being adversely affected by volatility in foreign exchange or in their overseas markets. Despite these economic conditions, the Manager remains confident that it can identify sub-sectors and businesses that offer growth even against the background of a weak economy. The Manager has a good pipeline of potential acquisitions and so we anticipate further activity across all three of the strategies where we have made investment commitments, through both new investments and bolt-on acquisitions by portfolio companies.

The Manager's portfolio team continues to work closely with management in the underlying businesses to introduce technology, develop new business models and grow into related markets, so as to raise the sustainable levels of growth and profitability. The Manager also continues to work hard to restore value in those investments that have underperformed against original expectations, in order to prepare them for exit. Subject, of course, to market conditions, we anticipate further realisations during 2015, mainly of businesses from our older vintages. Meanwhile, HgCapital continues to work closely with the management team of each business to build value across the portfolio as a platform that will deliver attractive returns to shareholders in the Trust over the coming years.

Roger Mountford

Chairman

6 March 2015

Going concern

The Trust's business activities, together with the factors likely to affect its future development, performance and financial position are described in the Board's Strategic Report and the Manager's Report. The financial position of the Trust, its cash flows, liquidity and borrowing facilities are described in this Strategic Report. In addition, note 19 to the financial statements describes the Trust's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk. The Directors believe that the Trust is well placed to manage its business risks successfully. The Directors review cash flow projections regularly, including important assumptions as to future realisations and the rate at which funds will be deployed into new investments. The Directors have a reasonable expectation that the Trust will have adequate resources to continue in operational existence for the foreseeable future and be able to meet its outstanding commitments, as noted below. Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.

Total return performance

In the year to 31 December 2014, the Trust's NAV per share increased by 12.8%. In comparison, the FTSE All-Share Index increased by 1.2%. The Trust's Ordinary share price increased by 9.6%. All of the above assume the re-investment of all historic dividends.

Key performance indicators

Each Board meeting conducts a detailed review of the portfolio and reviews trading results and ratios to understand the impact on the Trust of the trading performance of the individual portfolio holdings. The KPIs used to measure the progress and performance of the Trust over time and which are comparable to those reported by other investment trusts include NAV per share, share price, total return per share, average monthly trading volumes and cash flow. Further information on KPIs and the Trust's progress against these can be found in the Chairman's statement above and the Manager's review below. The Directors recognise that it is in the long-term interest of shareholders that shares do not trade at a significant discount to the prevailing NAV and they monitor the Trust's discount or premium regularly.

PRINCIPAL RISKS AND UNCERTAINTIES

The key financial risks faced by the Trust are set out below and in note 19 to the financial statements.

The Board regularly reviews and agrees policies for managing each risk, as summarised below.

Performance

An inappropriate investment strategy may lead to poor performance. The Board is responsible for deciding the investment strategy to fulfil the Trust's objectives and for monitoring the performance of the Manager. To help manage this risk, the Manager provides an explanation of all investment decisions and the rationale for the composition of the investment portfolio. The Manager monitors and maintains an adequate spread of investments, based on the diversification requirements inherent in the Trust's investment policy, in order to minimise the risks associated with particular countries or factors specific to particular sectors.

Regulatory

The Trust operates as an investment trust in accordance with Sections 1158 and 1159 of the Corporation Tax Act 2010 ('CTA'). As such, the Trust is exempt from corporation tax on capital gains realised from the sale of its investments, so the impact of losing investment trust status would be significant to the Trust. The Board believes this risk is low. The Manager monitors investment movements, the level and type of forecast income and expenditure, and the amount of retained income (if any) to ensure that the provisions of Sections 1158 and 1159 of CTA are not breached. The Trust's compliance with the conditions for retaining investment trust status are reported to the Board at each meeting.

General changes in legislation, regulation or government policy could significantly influence the decisions of investors or impact upon the markets in which the Trust invests.

Operational

In common with most other investment trust companies, the Trust has no employees. The Trust therefore relies upon the services provided by third parties and is dependent upon the internal control systems of the Manager and the Trust's other service providers. The security of the Trust's assets, dealing procedures, accounting records and maintenance of regulatory and legal requirements, depend on the effective operation of these systems. These are regularly tested and monitored and an internal control report, which includes an assessment of risks together with procedures to mitigate such risks, is prepared by the Manager and reviewed by the Board and the Audit & Valuation Committee twice each year.

The Trust is also an Alternative Investment Fund ('AIF') for the purposes of the Alternative Investment Fund Managers Directive (Directive 2011/61/EU) ('AIFMD') and the Manager has been appointed as its Alternative Investment Fund Manager ('AIFM') for the purposes of the AIFMD.

The Board has considered an Assurance Report on Internal Controls (AAF 01/06) as prepared by the Manager, and independently reviewed by Deloitte LLP, for the year ended 31 December 2013. The Board will consider the 2014 Assurance Report when issued later in March 2015.

Financial

The Trust's investment activities expose it to a variety of financial risks that include valuation risk, liquidity risk, market price risk, credit risk, foreign exchange risk and interest rate risk. Further details are disclosed in note 19 to the financial statements, together with a summary of the policies for managing these risks.

Liquidity

The Trust, by the very nature of its investment objective, predominantly invests in unquoted companies, and liquidity in their securities can be constrained, potentially making the investments difficult to realise at, or near, the Directors' published valuation at any one point in time. The Manager has regard to the liquidity of the portfolio when making investment decisions, and the Trust manages its liquid resources to ensure sufficient cash is available to meet its contractual commitments.

In the event that, after providing for necessary expenditure, the Trust will have insufficient cash resources to fund a new investment, the Manager may exercise an opt-out in respect of new buyout investments alongside HgCapital 7. This helps the Trust to manage the risks associated with over-commitment.

At certain points in the investment cycle, the Trust may hold substantial amounts of cash awaiting investment, which it may invest in government or corporate securities, or in bank deposits, or in managed funds.

Borrowing

The Board and the Manager agree that prudent use of borrowing to fund acquisitions can increase diversification within the portfolio and increase rates of return to shareholders. Businesses in the underlying portfolio are acquired with the benefit of bank borrowing at levels that can be serviced from the cash flows generated within that business. The Board does not currently see any advantage in using a further level of structural borrowing by the Trust, as this would add risk without any certainty of enhancing returns.

The Board keeps the management of the Trust's resources under frequent review and regularly considers long-term cash flow projections for the Trust and the use of gearing.

The Trust has put in place a £40 million multi-currency standby facility with Lloyds TSB Bank plc, on an unsecured basis, expiring in December 2015. The Directors believe the borrowing facility gives the Board further flexibility in managing the Trust's resources, without adding undue risk. The facility was unutilised as at 31 December 2014.

OTHER MATTERS

Employees, human rights and community issues

The Board recognises the requirement under section 414C of the Companies Act 2006 to provide information about employees, human rights and community issues, including information in respect of any policies it has in relation to these matters and their effectiveness. These requirements do not apply to the Trust as it has no employees, all of the Directors are non-executive and it has outsourced all its functions to third party providers. The Trust has therefore not reported further in respect of these provisions.

Gender diversity

At the end of the year under review, the Board of Directors of the Trust comprised five men and one woman. The Board's policy is to make appointments to the Board solely on merit and, when selecting potential candidates for the Board, looks equally for the best qualified male and female candidates. The Manager has an equal opportunities policy and currently employs 65 men and 45 women on a permanent basis.

For and on behalf of the Board

Roger Mountford

Chairman of the Board

6 March 2015

THE MANAGER'S REVIEW

HgCapital is a private equity investor focused on the European mid-market.

Our business model combines deep sector specialisation with dedicated portfolio management support. HgCapital invests primarily in growth companies in expanding sectors via leveraged buyouts and in renewable energy-generating projects across Europe.

HgCapital's vision is to be the most sought after private equity manager in Europe, being a partner of choice for management teams and renewable power developers, so as to produce consistent superior returns for our clients and a rewarding environment for our staff.

References in this annual report and accounts to the 'portfolio', 'investments', 'companies' or 'businesses', refer to a number of primary buyout investments, held:

• indirectly by the Trust through its direct investments in fund limited partnerships (HGT LP, HGT 6 LP, HGT 7 LP and HgCapital Mercury D LP ('Hg Mercury')) of which the Trust is the sole limited partner;

• direct investments in secondary buyout investments in HgCapital's 6 fund through HgCapital 6 E LP ('Hg6E'), in which the Trust is a limited partner; and

• direct investments in renewable energy fund limited partnerships (HgRenewable Power Partners LP ('RPP1') and HgCapital Renewable Power Partners 2 C LP ('RPP2')), of which the Trust is a limited partner.

INTRODUCTION TO THE MANAGER

Formerly Mercury Private Equity, HgCapital became an independent firm in December 2000 and we are wholly owned by our partners.

We have progressively invested in and strengthened the business over the years to establish a significant competitive advantage.

With over 100 staff in two investment offices in the UK and Germany, HgCapital has assets under management of £5.1 billion serving a range of highly regarded institutional investors, including private and public pension funds, charitable endowments, insurance companies and family offices.

HgCapital's largest client is HgCapital Trust plc. Established in 1989, the Trust appointed us as its Investment Manager in 1994. It offers investors a liquid investment vehicle, through which they can obtain an exposure to our diversified portfolio of private equity investments with minimal administrative burdens, no long-term lock-up or minimum size of investment, and with the benefit of an independent board.

Hg Pooled Management Limited was authorised as an Alternative Investment Fund Manager with effect from 22 July 2014.

SECTOR FOCUS

HgCapital's sector teams combine the domain knowledge and expertise of a trade buyer - giving them enhanced 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 identify systematically 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.

PORTFOLIO MANAGEMENT

Following each investment, our dedicated portfolio management team works to enhance value by adopting clear strategies for growth and ultimately for realisation of the value created.

With experienced people and an approach that focuses on delivering value, HgCapital has the capability and commitment to deliver strong investment returns to investors.

EMPLOYEE ENGAGEMENT

Over the past few years, HgCapital has focused on maximising employee engagement to ensure that we create an environment where people are able to attain their full potential. We have developed a set of values that we believe embodies our working culture and these are aligned with our performance review and compensation structures.

Positioning ourselves as a best in class recruiter

HgCapital's recruitment and selection processes are robust and mean that we can attract and hire the best staff. To ensure that we achieve this, our interviewers are all trained in effective interviewing techniques; we place a strong emphasis on delivering an experience that will encourage the best candidates to join us.

Improving our ability to identify talent

We have strengthened our talent identification processes with our focus being on outperformers and how we can best accelerate their development within the business. We believe that this is the basis of effective succession planning.

Developing future leaders

We are explicit about the behaviours we wish to encourage at HgCapital, and have aligned incentivisation strategies with our set of values.

THE MANAGER'S STRATEGY AND TACTICS

Investment focus

HgCapital primarily focuses on mid-market buyouts with enterprise values of between £80 million and £500 million

and lower mid-market buyouts in the TMT sector between £20 million and £80 million.

These companies are small enough to provide opportunities for operational improvement, yet large enough to attract high quality management and to offer multiple exit options across market cycles.

We also invest in renewable power generating projects between €10 million and €50 million. 

These markets offer a high volume of companies with proven financial performance and strong market positions.

European focus

We focus our buyout investments primarily in the UK and Northern Europe.

The renewable energy investments are focused on the UK, Ireland, the Nordic region and Spain.

All investments are managed by specialist, dedicated sector and portfolio management teams located in London and Munich who work with a common purpose and culture, applying consistent processes.

Clear investment criteria

HgCapital applies a rigorous and commercial investment approach when evaluating all investment opportunities.

Our objective is to acquire the most attractive investments rather than be constrained by a top-down asset allocation.

For buyouts, we seek companies with predictable revenues, which offer a platform for growing market share or have the potential for significant performance improvement.

We target situations where our specialist knowledge and skills can make a real difference in supporting management to grow industry champions.

Broad coverage

HgCapital's dedicated sector teams provide investors with access to the substantial majority of private equity opportunities within our target size range and across our chosen geographies.

Active portfolio management

HgCapital's objective is to ensure that all businesses in which we invest maximise their long-term potential and reward all of their stakeholders. As a result, we typically invest as the lead, majority shareholder and appoint our executives to the companies' boards to assist each firm in applying active, results-oriented corporate governance.

Beyond the boardroom, HgCapital actively supports management teams to reach their potential through both hands-on support from the portfolio projects team as well as best practice sharing from many years of investing in similar business models. The portfolio team strives to foster a community amongst the management teams and some of the best industry thinkers to create cutting edge thinking across software, services and industrials so they can remain industry champions.

Deep resources

HgCapital's practice of employing specialisation - both in investment selection and portfolio management - requires significant resources. Accordingly, we have built a deeply resourced business employing over 100 staff, including more than 60 investment and other professionals.

Investing in businesses, many of which have a global footprint and which are located across Europe, requires time and a deep understanding of local cultures. Accordingly, our people come from around the globe, including ten Western European countries. Our partners have, on average, seventeen years' experience in private equity management.

A full description of HgCapital and our key staff is available at www.hgcapital.com

RESPONSIBLE INVESTING

Why Responsible Investing is important to us

For HgCapital, responsible investing means growing sustainable businesses which create jobs, have low environmental impacts and are good corporate citizens whilst generating superior risk adjusted returns for the millions of pensioners and savers who are invested with our clients.

Through our investments, we look to create jobs in sectors with low carbon emissions and look to create value through revenue growth over the long-term. We want the businesses we invest in to be genuinely focused on doing well for all stakeholders (employees, customers, suppliers and other partners, as well as shareholders).

OUR RESPONSIBLE INVESTING FRAMEWORK

We have created a framework for looking at the ways the businesses we invest in can do this and how we can help them; and we use it to assess businesses both before and during our ownership.

GOVERNANCE

• Adopt anti-corruption and business ethics;

• Enjoy effective board structure and committees; and

• Use active risk management procedures.

WORKPLACE

• Be net job creators;

• Have a motivated workforce with minimum (but appropriate) turnover; and

• Comply with labour standards, health and safety.

MARKETPLACE

• Manage risks and relationships within the supply chain for reliable, stable, high quality supplies;

• Build customer satisfaction; and

• Understand and anticipate customer requirements for products with eco-efficiency or other sustainability benefits.

COMMUNITY

• By building strong links with communities, they maintain and enhance the business' social licence to operate.

ENVIRONMENT

• Comply with relevant emissions and waste regulations;

• Adopt appropriate measurement standards for environmental impact; and

• Do more with less - reduce impact on natural resources.

HOW WE INTEGRATE RESPONSIBLE INVESTING INTO OUR INVESTMENT PROCESS

Investment screening

• When considering potential new investments, we screen them against an Exclusion List, which identifies the sectors, businesses and activities in which we will not invest.

• A red flag report identifies high level concerns arising from sectors, geog-raphies and preliminary diligence results

Diligence

• During diligence, we assess companies for compliance with relevant laws in relation to environmental, social, governance, health and safety, bribery and corruption issues.

• As part of this process, we carry out a specific review detailing risks and opportunities for improvement within our framework

Ownership

• Our Portfolio Management team works with companies to implement initiatives and new processes, and support them in realising their ambitions within and beyond our framework.

PRI - Principles for Responsible Investment

A signatory to the UNPRI since 2012.

BVCA - Responsible Investment Awards 2013

We received this for our Responsible Investing policy and framework.

CEMARS - Certified Emissions Measurement And Reductions Scheme

Actively managing our direct footprint by reducing greenhouse gas emissions for which we have obtained CEMARS certification.

A full description of HgCapital's responsible investment policy is available at www.hgcapital.com

RESPONSIBLE INVESTING: EXAMPLES

GOVERNANCE

Anti-Corruption and Business Ethics

5 companies introduced new anti-corruption policies in 2014 following our investment

WORKPLACE

8% p.a. - Percentage organic growth in employment across HgCapital's portfolio companies in 2014.

27,900 - People employed by HgCapital-backed companies (as at December 2014)

2,034 - Jobs created in HgCapital-backed companies in 2014

Zenith Leasedrive - Sunday Times Top 100

• Zenith has secured 8th place in 2015's 'The Sunday Times Best Companies to Work For' list in the 'mid-sized' company category, after its employees took part in an independent workplace engagement survey.

JLA - Apprenticeship Scheme

• In 2011, JLA established an apprenticeship scheme to train school-leavers as engineers. Six apprentices are now fully trained and still with JLA, and seven more are in training and recruitment is taking place for the next intake.

COMMUNITY

Renewable Power Partners Community Initiative

Refurbishment and maintenance of irrigation canals in La Pobla, Spain. These canals are used to transport and supply water for irrigation purposes from which over 400 hundred farmers in the Northern Lérida Region benefit, contributing to the development of local agriculture.

MARKETPLACE

JLA - developed SMARTWash product

 32% - Reduction in water, energy and detergent usage with 'JLA Sense'.

• JLA Sense absorption technology, intuitive two-touch controls and JLA's trademark industrial design and build quality all combine to give the lowest possible consumption costs and the best possible wash quality (see www.jla.com).

Visma - reducing energy consumption, paper waste and emissions for clients

· Visma's products offer improved workflow with efficient SaaS-solutions, enabling more businesses to benefit from running software over the internet on hardware which requires less energy;

· Visma offers wireless technologies to monitor electricity usage to improve the efficiency of operations;

· Visma offers a digitalised time sheet system within its products, so employees of its customers receive their payslips electronically, which reduces paper usage significantly; and

· 50% of Norway's municipalities use Visma's financial software solutions to send electronic invoices, resulting in significant reduction in paper usage and postage (see www.visma.com).

ENVIRONMENT

Zenith Leasedrive - Carbon Neutrality

Leasedrive has achieved the CarbonNeutral® company certification and reduced its GHG emissions in accordance with The CarbonNeutral Protocol. This means Leasedrive accurately measures its carbon footprint, then commits to a reduction strategy and carbon offset programme to prove its activities will not result in an increase in greenhouse gas emissions that affect climate change.

HgCapital - Renewable energy investors

250,000 - homes powered by renewable energy in Western Europe

We are the leading financial investor in onshore wind farms in Scandinavia and one of Ireland's leading independent wind-power producers. We also manage two large portfolios of large-scale solar photovoltaic plants and of small-hydro power plants in Spain.

SECTOR SPECIALISATION

TMT

TMT, as a sector, covers a broad range of markets. Driven by our deep sector approach, HgCapital's TMT team is focused on specific sub-sectors including: vertical market application software (particularly delivered via a Software as a Service ('SaaS') model); private electronic marketplaces; B2B media information/publishing; and telecoms/datacentre operators. 

Within these sub-sectors, we have invested in high quality businesses with diverse customer bases, which feature subscription-based business models generating predictable revenues and cash flows. The team regularly conducts top-down research within the wider sector, in order to continue to identify and assess further repeatable investment themes where we can invest time to develop proprietary expertise.

Our highly resourced, dedicated team means that we are well placed to identify, assess and complete investments quickly and thoroughly. We work to bring our experience and expertise to support management teams, aiming to have the knowledge of a trade buyer, coupled with the speed and focused delivery of a financial buyer. The team benefits from the depth and breadth of many years of TMT private equity experience, and is complemented by an extensive network of industry experts and advisors.

Given the breadth of opportunity in European TMT, HgCapital invests in the sector from two funds. The HgCapital 7 buyout fund targets businesses with enterprise values between £80 and £500 million. The HgCapital Mercury Fund targets smaller buyouts (between £20 and £80 million) but in exactly the same TMT sub-sectors. Investing two funds across the sector allows us to bring significant team resource to bear and provides a very comprehensive resource for the management teams that we support.

Services

The Services sector is a large and wide-ranging segment which is traditionally split into 'horizontal' business models such as: business process outsourcing; facilities management; or testing and inspection provision. In contrast, HgCapital's Services Team's investment thinking concentrates much more on specific end markets or customer segments, which we believe lead to attractive business model characteristics. We have then invested time to develop a strong understanding of the industry dynamics through top-down research or existing investments, identifying service companies that sell into those specific end markets.

Within the Services sector, the investment themes that have attracted us have typically featured large fragmented SME customer bases, long-term and stable customer relationships, and businesses which provide business-critical services, preferably on a repeat or recurrent basis. We target businesses with leading positions within a niche, typically reflected by strong margins, and we aim to grow and scale these businesses, either organically within existing markets (selling into their customer bases) or through acquisition.

Existing investments include companies that serve a range of industries from international business expansion services to commercial laundry and adjacent services equipment distribution, but all have in common a number of characteristics including strong, stable and diverse customer bases and critical, repeated use, products.

Industrials

HgCapital's Industrials Team is focused on partnering with growth businesses, in particular in the German market, which is characterized by a large number of highly successful, family-owned businesses (the "Mittelstand"). We have earned a reputation as a preferred partner for many Mittelstand companies, as a result of supporting the management of a number of these hidden champions to scale into international businesses.

The German industrials market benefits from proven expertise and high levels of international demand for German precision-engineering, smart electronics, automotive and industrial automation. The Industrials Team, based in Munich, is located in the heart of an economic zone containing numerous high-quality, cutting-edge, technology-led industrial businesses, many of which have strong national or international positions in specific niche markets, with the opportunity to scale further.

Thematic research within this sector has been concentrated over many years on the characteristics that define the strongest industrial production and distribution businesses and on the potential opportunities and challenges that will impact these businesses as they grow. As a result, we focus on investing in the following industrial sub-sectors: mechanical engineering; electronics for industrial networks, automation, control and testing; and smart distribution models.

Renewable Energy

In 2004, HgCapital established a dedicated renewable energy investment team and, after a period of research, raised its first dedicated fund in 2006. We invest in utility-scale renewable energy projects in Western Europe using proven technologies such as onshore wind, solar and hydro, adopting an infrastructure fund investment approach. We focus on creating industrial scale renewable energy platforms under our control, seeking to aggregate a number of assets and to deliver economies of scale.

We believe this strategy presents an attractive investment opportunity, which is estimated to require significant capital investment over the medium-term. Technological advances and the increased scale of the industry have increased the cost competitiveness of renewable energy as well as providing favourable inflation linkage and a hedge against fossil fuel costs. HgCapital's renewable energy investment theme is focused on the most efficient technologies and best resourced sites, requiring the least regulatory support and resulting in the lowest costs for the consumer.

Investment is at an industrial scale to reduce intrinsic costs and create strategic value. HgCapital is one of the leading owners of onshore wind farms in Scandinavia, is one of the largest financial investors in Irish onshore wind, and has a substantial portfolio of ground-mounted solar and small hydroelectricity projects in Spain. The team is comprised of nine dedicated full time investment professionals.

In addition to the sectors noted above, we additionally look to use our long-term investment experience in the Healthcare sector to identify sub-sectors within Services and TMT that take advantage of technological change, a key driver of growth within the European healthcare sector.

CASE STUDY - VISMA

Website: www.visma.com 

Sector: TMT

Geography: Nordic region

Business description

Established in 1996, Visma is a leading provider of mission-critical business Software as a Service ('SaaS'), software and outsourcing services to small and medium-sized 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 was 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 2006.

In December 2010, HgCapital completed the partial sale of 63% of its 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.

The investment case

Visma was an early example of HgCapital's focus on recurring revenue, business critical application software companies focused on SMEs and their advisers. The company enjoys high levels of predictable recurring revenue resulting from a subscription payment model.

At the time of 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. The management team had grown Visma from a small public company which they took over in 1997 and their track record was already well proven. HgCapital gave them the freedom and backing to allow them to continue to work effectively as entrepreneurial managers. HgCapital was an industry-experienced investor who understood the software business providing support to Visma in order to help the business 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 programmes to improve customer satisfaction and enable cross-selling; converting one-time revenues to recurring subscription packages which enhance future up-sell 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 NOK 680 million of pure-SaaS revenues. Employment levels across the firm have grown from 2,512 in 2006 to 5,648 currently.

Performance improvement

Visma's performance since 2006 has been consistently strong, 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 2014. Total revenues grew from NOK 2.3 billion in 2006 to NOK 7.1 billion in 2014, a compound annual growth rate of 15%; EBITDA increased from NOK 305 million in 2006 to NOK 1.5 billion in 2014, a compound annual growth rate of 22%. Over the same period, operating margins improved from 13% to 21%; employment, product innovation and R&D investment all more than doubled.

Exit and re-investment in Visma

In April 2014, majority-owner, KKR, decided to sell part of its original 2010 stake in Visma. HgCapital decided to realise the remaining stake held by its HgCapital 5 fund, generating a total return on all capital invested of 5.2x original cost and a gross IRR of 33%. HgCapital and its clients invested c. £405 million in the business for a 31% stake via its HgCapital 7 fund and substantial co-investment participation as a co-lead investor alongside KKR and Cinven. This transaction valued the business at that time at a total enterprise value of NOK 21 billion (£2.1 billion).

The re-investment in Visma reflects 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.

HgCapital Trust re-investment in Visma

The Trust's re-investment in Visma totalled £40 million, half via its commitment to HgCapital 7 and half by way of a co-investment which bears no fees or carried interest.

OVERVIEW OF THE YEAR

NET ASSET VALUE (NAV)

Over the course of 2014, the NAV of the Trust increased by £36.3 million, from £440.6 million to £476.9 million at the year end.

 ATTRIBUTION ANALYSIS OF CURRENT MOVEMENTS IN NAV

ANALYSIS OF NAV MOVEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014

There were a number of underlying factors contributing to the above movement in the NAV. Positive impacts on the NAV were: the revaluation of the unquoted portfolio (+£50.2 million); uplifts on the realisation of investments, compared with their carrying value at the start of the year (+£15.9 million); and the gain on liquid resources (+£0.3 million). Reductions in the NAV were caused by: the payment of dividends to shareholders (-£17.9 million); the Manager's remuneration (-£8.8 million and a -£1.1 million current year provision for future carried interest); and operating expenditure and taxation (-£2.2 million).

During the year, the value of the unrealised portfolio increased by £70.1 million. The majority of the increase (+£75.6 million) relates to increases from profit growth in the underlying portfolio. Furthermore, an increase in ratings (+£41.7 million) and acquisitions made within the portfolio netted-off against the 31 December 2013 carrying value of realisations made during the year (+£19.9 million) also contributed positively. These were partially offset by decreases driven by an increase in net debt (-£45.9 million) and unfavourable foreign exchange movements (-£16.1 million). The RPP1 and RPP2 fund investments decreased by £7.7 million over the year whereas other buyout investments increased by £2.6 million, largely resulting from an increase in the valuation of Hg6E. The increase in profits resulted from organic growth as well as some of the acquisitions made within the portfolio companies. The latter were largely funded by debt, resulting in debt increases that more than offset the debt repayments achieved in the portfolio companies.

TOP 20 PORTFOLIO TRADING PERFORMANCE as at 31 December 2014

The Top 20 buyout investments (representing 89% of the total portfolio by value) have delivered aggregate sales growth of 11% and EBITDA growth of 9% over the last twelve months ('LTM'). This compares with both sales and EBITDA growth of 9% last year. The top 10 of these investments saw faster growth in sales of 12% and EBITDA growth of 11% over the prior equivalent period.

We have continued to see consistent strong double-digit trading performance from some of our larger companies including IRIS, Visma and JLA. In addition, some of our newer investments, including P&I and Sequel, have performed very well during our first year of ownership.

Our Software as a Services ('SaaS') businesses, such as Achilles, e-conomic and Intelliflo, have a focus on driving their recurring revenue growth, adding significant costs to improve their sales and marketing capabilities and consequently depressing short-term EBITDA.

Over the past year there has been significant value accretive M&A activity within the portfolio, including TeamSystem, Zenith Leasedrive, Ullink and Radius. For these companies there will be an emphasis over the next twelve months on integration and delivering material synergies. In the case of Ullink and Radius, the integration work and additional investment has depressed profits in the short-term but we believe the investment made will significantly improve the operating capability of these companies in the future.

As mentioned at the half-year, we have started to see improved operational performance at NetNames and SimonsVoss and now, at the year-end, some strong trading performance coming through from Parts Alliance. This has led to the valuations of these companies being increased accordingly.

Lumesse remains in the early stages of recovery, and with a further focus on R&D and product development, it is likely that we will have to wait to see the outcome of our current work with the management to come through in the next eighteen months. Some recent and positive developments here include a re-financing and a joint venture with SalesForce.com.

Overall, we are pleased with the trading performance of the portfolio and believe the results can be further enhanced in the year ahead by active management and increasing the return on the investments we are making into these businesses.

VALUATION AND GEARING ANALYSIS as at 31 December 2014

The portfolio's valuation policy is consistent from year to year, applying the IPEV Valuation Guidelines. Our valuation of each company has produced an average EBITDA multiple for the top 20 buyout investments of 13.2x EBITDA.

We continue to take a considered and prudent approach in determining the level of maintainable earnings to use in each investment valuation. The majority of the portfolio is valued using the LTM earnings to 30 November 2014, unless we have anticipated that the outlook for the full current financial year is likely to be lower, in which case we have used forecast earnings.

In selecting an appropriate multiple to apply to the company's earnings, we look at a basket of comparable companies, primarily from the quoted sector, but where relevant and recent, we will also use private M&A data.

The average valuation multiple has increased over the year due to both an increase in ratings in comparable businesses and also with a shift in the mix of the portfolio to higher growth businesses.

Our portfolio companies make appropriate use of gearing, with average gearing for the top 20 of 4.5x LTM EBITDA as at 31 December 2014. A number of the businesses have highly predictable earnings and free cash flows (e.g. Visma, IRIS, TeamSystem and P&I), enabling us to use debt to gear our returns.

During the year, we have recapitalised JLA, Zenith Leasedrive and Radius and continue to assess opportunities to take advantage of buoyant debt markets.

OUTSTANDING COMMITMENTS OF THE TRUST

2014 ended with liquid resources of £62.9 million and outstanding commitments of £206.6 million in the funds, as listed below. The Trust also has a £40.0 million bank facility that is currently undrawn. We anticipate that the majority of these outstanding commitments will be drawn down over the next three years.

Sector by value of primary buyout portfolio

62% TMT

23% Services

10% Industrials

4% Healthcare

1% Consumer & Leisure

Geographic spread by value of primary buyout portfolio

52% UK

17% Nordic Region

17% Germany

9% Italy

3% France

1% Switzerland

1% Republic of Ireland

Investment vintage by value of primary buyout portfolio

16% 2014

27% 2013

5% 2012

16% 2011

25% 2010

11% pre 2010

Analysis by value of investment return* relative to its original cost

76% Above

24% Below

*Representing aggregate realised proceeds and unrealised valuations of an investment

Net assets by class

87% Unquoted

13% Cash & other assets

Deal type by value

97% Buyout

3% Renewable Energy

OUTLOOK

PROSPECTS

Within Northern Europe, the broader macro-economic environment remains challenging and there is a divided picture in terms of relative economic performance across the region. For example, the UK - which is the region's most mature private equity market - was also the strongest performing economy in the developed world throughout 2014. In contrast, during the same period, Finland experienced a triple dip recession with perhaps the most challenging economic environment seen for a generation. Overall, however, we believe that we can continue to generate attractive returns for our clients over the medium-term, maintaining caution and discipline in our investment approach.

Whilst investing in this environment will, of course, be challenging; we strongly believe that we can continue to select and invest in sub-sectors that are growing materially faster than the broader economy; typically on the basis of internal proprietary research we have generated over a number of years. This sub-sector focused approach also enables HgCapital to help identify the most attractive companies in these segments, with a view to developing long-term relationships which can, in due course, create potentially attractive opportunities for investment. For example, the first investment in the HgCapital 7 Fund was completed in the fast-growing but strongly protected SME software segment, which HgCapital had researched and subsequently invested in since 2002. P&I is a European leader in the payroll software sector, which exhibits strong profitability and cash generation.

The vast majority of investments completed over the last eighteen months were generated on a proprietary basis and, consistent with this, we have typically avoided full auction processes, especially given the pressure to complete deals and assess management teams in the relatively short timeframes that auctions create. This situation is also somewhat reminiscent of the buoyant investment environment we witnessed from 2005 to 2008, prior to the financial crash. However, just as we were able to invest in a number of robust, resilient but high quality businesses during that period (including Achilles, Visma and SLV), we think that the recent investments we have completed can also generate comparable risk-adjusted returns. The initial signs do appear positive; although it still remains early in the gestation of their investment period with HgCapital.

We often refer to our investment into the cost base of our portfolio companies in order to drive future growth potential and the corresponding impact on earnings. Despite this, the unrealised portfolio trading performance remains robust with average EBITDA growth of 9% over the last twelve months. Some of the larger investments in the portfolio, including IRIS, Visma and JLA, have seen consistently strong double-digit growth over 2014 which continues to drive NAV appreciation. Absent a material reduction in market ratings we expect strong trading performance across the portfolio to continue to drive NAV growth.

Finally, we also believe that there will be further opportunities during the course of the year to continue to realise investments from within the portfolio, just as we have done consistently across market cycles. We are confident that we have invested in attractive businesses that are inherently liquid and therefore also have the ability to be sold to a trade buyer (e.g. Epyx), a financial buyer (e.g. Schleich), or alternatively listed on the public market (e.g. Manx Telecom).

ACTIVITY SINCE THE YEAR-END

In December 2014, the Services team announced an investment in A-Plan Insurance, a UK-based, independent insurance broker. This transaction is subject to FCA approval. On completion, which is expected by May 2015, the Trust's share of this investment is estimated to be £15.3 million.

Founded in 1963, Oxfordshire based A-Plan provides products, including SME commercial, motor and home, and high net worth insurance, from a wide range of insurers. The Company currently operates 73 branches nationwide, and serves over 580,000 policyholders.

The acquisition of A-Plan represents the third new investment completed by the Services team in the last eighteen months, underlining the team's ability to find high quality businesses and develop relationships with their management teams over the long-term. A-Plan has a strong fit with HgCapital's investment strategy, through its high level of recurring revenues, loyal customer base and sector-leading customer advocacy, achieved through excellent service. This is the fourth investment from the HgCapital 7 Fund, and following completion, the Fund will be approximately 31% invested.

INVESTMENTS

£87 million invested by the Trust in 2014, primarily in five new buyouts

Over the course of 2014, £782 million was deployed on behalf of HgCapital clients with the Trust's share being £87.0 million.

In February, the Mercury Fund completed 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 March, HgCapital invested in Ullink, a leading global provider of electronic trading applications and connectivity to the financial community. Subsequently, in September 2014, Ullink completed the acquisition of NYFIX and Metabit from NYSE Technologies. The Trust's share of this combined investment was £10.0 million.

In July, the Mercury team completed an investment in Sequel Business Solutions, a leading software and service provider to the Lloyd's of London insurance market. The Trust contributed a total of £4.4 million.

In August, HgCapital completed the 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 has invested £409 million for our clients' stake in Visma, valuing the business at a total enterprise value of NOK 21 billion (£2.1 billion). HgCapital is a co-lead investor in the new ownership structure, alongside KKR and Cinven, which each holds 31%, with the balance of shares being held by the management team. Cinven committed capital to the business for the first time. The Trust contributed a total of £40.0 million to the re-investment in Visma.

The Mercury team deployed further capital in December with the public-to-private acquisition of Allocate Software plc, a leading provider of workflow software to the healthcare sector. The Trust has contributed £6.2 million.

As part of a consolidation strategy, the Services team completed the acquisition of Zenith in February 2014 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, following a refinancing of the combined business. The Trust's share of the acquisition cost of the combined business was £24.0 million.

The Trust has also participated in further small investments in the buyout and renewable energy funds.

Please also refer to more detailed information on our investments in the Trust's Annual Report and Accounts.

REALISATIONS£83 million returned to the Trust during 2014

In 2014, HgCapital has returned a total of £540 million to its clients, including £82.9 million to the Trust, primarily from the realisations of five buyout investments.

In February, 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 at 31 December 2013.

Americana, a UK-based apparel company, was sold in February to EMERAM Capital Partners, a Munich-based private equity fund. Americana had been written down to zero in June 2013 and the proceeds of this sale have so far returned £0.6 million to the Trust, with a further £0.4 million retained in the business which is expected to be received by the Trust in 2017.

The sale of Schleich, a toy manufacturer headquartered in Germany, to Ardian, the French Private Equity Firm, completed in July. The cash proceeds of this transaction were £11.9 million for the Trust, representing an uplift of £4.3 million over the carrying value at 31 December 2013. This realisation equated to an investment multiple of 2.6x cost and a gross IRR of 14% p.a.

In September, we completed the sale of Voyage Care to Partners Group and Duke Street Capital/Tikehau. Upon completion, in September 2014, the Trust received proceeds of £8.4 million.

In August, HgCapital completed the sale of Visma, a leading software and BPO services business in the Nordic region. The proceeds of this transaction have returned £34.3 million to the Trust, in addition to a £7.1 million dividend received in May 2014, representing an uplift of £9.7 million over the carrying value at 31 December 2013. Over the life of the investment to date, the Trust has received total proceeds of £84.1 million, representing an investment multiple of 5.2x and a gross IRR of 33% p.a.

In addition to these realisations, the Trust received further proceeds of £7.6 million from other buyout and renewable energy investments.

OVERVIEW OF THE UNDERLYING INVESTMENTS HELD THROUGH FUND LIMITED PARTNERSHIPS

FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS

1. Principal activityThe principal activity of the Trust is that of an investment trust company. The Trust is an investment company as defined by Section 833 of the Companies Act 2006 and an investment trust within the meaning of Sections 1158 and 1159 of the Corporation Tax Act 2010 ('CTA 2010').

2. Basis of preparationThe financial statements have been prepared under the historical cost convention, except for the revaluation of financial instruments at fair value as permitted by the Companies Act 2006, and in accordance with applicable UK law and UK Accounting Standards ('UK GAAP') and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies' ('SORP'), dated January 2009. All of the Trust's operations are of a continuing nature.

The Trust has considerable financial resources and, as a consequence, the Directors believe that the Trust is well placed to manage its business risks successfully despite the current uncertain economic outlook. After making enquiries, the Directors have a reasonable expectation that the Trust will have adequate resources to continue in operational existence for the foreseeable future.

Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.

The same accounting policies, presentation and methods of computation are followed in these financial statements as applied in the Trust's previous annual audited financial statements.

3. Organisational structure, manager arrangements and accounting policies

Partnerships where the Trust is the sole limited partnerThe Trust entered into four separate partnership agreements with general and founder partners in May 2003 (subsequently revised in January 2009), January 2009, July 2011 and March 2013; at each point an investment holding limited partnership was established to carry on the business of an investor, with the Trust being the sole limited partner in these entities.

The purpose of these partnerships, HGT LP, HGT 6 LP, HgCapital Mercury D LP and HGT 7 LP (together the 'primary buyout funds') is to hold all the Trust's investments in primary buyouts. Under the partnership agreements, the Trust made capital commitments into the primary buyout funds, with the result that the Trust now holds direct investments in the primary buyout funds and an indirect investment in the fixed asset investments that 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 investment portfolio above. The underlying investments that are held indirectly are included in the overview of investments in the Trust's Annual Report and Accounts.

Partnerships where the Trust is a minority limited partner

In July 2011, the Trust made a direct secondary investment in HgCapital 6 E LP ('Hg6 E LP'), one of the partnerships that comprise the Hg6 Fund, in which the Trust is now a limited partner alongside other limited partners. This is a direct investment in the HgCapital 6 E LP Fund, as shown on the balance sheet and in the investment portfolio in the Trust's Annual Report and Accounts.

The Trust also entered into partnership agreements with the purpose of investing in renewable energy projects by making capital commitments alongside other limited partners in Hg Renewable Power Partners LP ('Hg RPP LP') and HgCapital Renewable Power Partners 2 C LP ('Hg RPP2 LP') (together the 'renewable funds'). These are direct investments in the renewable funds, as shown on the balance sheet and in the investment portfolio in the Trust's Annual Report.

Priority profit share and carried interest under the primary buyout limited partnership agreements

Under the terms of the primary buyout fund limited partnership agreements ('LPAs'), each general partner (see note 23) is entitled to appropriate, as a first charge on the net income of the funds, an amount equivalent to its priority profit share ('PPS'). The Trust is entitled to net income from the funds, after payment of the PPS.

In years in which these funds have not yet earned sufficient net income to satisfy the PPS, the entitlement is carried forward to the following years. The PPS is payable quarterly in advance, even if insufficient net income has been earned. Where the cash amount paid exceeds the net income, an interest free loan is advanced to the general partner by these primary buyout funds, which is funded via a loan from the Trust. Such loan is only recoverable from the general partner by an appropriation of net income; until net income is earned, no value is attributed to this loan.

Furthermore, under the primary buyout funds' LPAs, each founder partner (see note 23) is entitled to a carried interest distribution once certain preferred returns are met. The LPAs stipulate that the primary buyout funds' capital gains (or net income), after payment of the carried interest, are distributed to the Trust.

Accordingly, the Trust's entitlement to net income and net capital gains is shown in the appropriate lines of the income statement. Notes 4, 5, 7, 12, 14, 16 and 17 to the financial statements and the cash flow statement disclose the gross income and gross capital gains of the primary buyout funds (including the associated cash flows) and also reflect the proportion of net income and capital gains in the buyout funds that have been paid to the general partner as its PPS and to the founder partner as carried interest, where applicable.

The PPS paid from net income is charged to the revenue account in the income statement, whereas PPS paid as an interest-free loan, if any, is charged as an unrealised depreciation to the capital return on the income statement.

The carried interest payments made from net income and capital gains are charged to the revenue and capital account respectively on the income statement.

Investment income and interest receivableAs stated above, all income that is recognised by the primary buyout funds, net of PPS, is attributed to the Trust.

The Trust will recognise such net income and reflect this as income in its financial statements, once recognised in the buyout funds. Income from HgCapital 6 E LP and the renewable funds would normally consist of income distributions and these distributions are recognised as income in the financial statements of the Trust when the right to such distribution is established.

The accounting policies below apply to the recognition of income by the primary buyout funds.

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. Premiums paid or discounts received with the acquisition of government securities are amortised over the remaining period up to the maturity date and are recognised in interest income on government securities. Dividends receivable on unlisted equity shares where there is no ex-dividend date and on non-equity shares are brought into account when the Trust's right to receive payment is established.

Income from listed equity investments, including taxes deducted at source, is included in revenue by reference to the date on which the investment is quoted ex-dividend. Where the Trust elects to receive dividends in the form of additional shares rather than cash dividends, the equivalent of the cash dividend is recognised as income in the revenue account and any excess in the value of the shares received over the amount of the cash dividend is recognised in the capital reserve - realised.

Expenses

All expenses are accounted for on an accruals basis. All administrative expenses are charged wholly to the revenue account.

Dividends

Dividend distributions to shareholders are recognised as a liability in the year that they are approved unconditionally.

Current and other non-current assets

Financial assets and financial liabilities are recognised in the Trust's balance sheet when the Trust becomes a party to the contractual provisions of the instrument. Trade receivables are stated at nominal value. Appropriate allowances for estimated irrecoverable amounts are recognised in the revenue return on the income statement.

Government securities are short-term investments made in fixed rate UK government securities. Cash comprises current accounts held with banks.

Foreign currency

All transactions in foreign currencies are translated into sterling at the rates of exchange ruling at the dates of such transactions and the resulting exchange differences are taken to the capital reserve - realised. Foreign currency assets and liabilities at the balance sheet date are translated into sterling at the exchange rates ruling at that date and the resulting exchange differences are taken to the capital reserve - unrealised.

Taxation

Income taxes represent the sum of the tax currently payable, withholding taxes suffered and deferred tax. Tax is charged or credited in the income statement. Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future, or the right to pay less, have occurred at the balance sheet date. This is subject to deferred assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences can be deducted. Timing differences are differences between the Trust's taxable profits and its results, as stated in the financial statements, which are capable of reversal in subsequent periods.

InvestmentsThe general principle applied is that investments should be reported at 'fair value' in accordance with Financial Instruments: Recognition and Measurement ('FRS26') and the International Private Equity and Venture Capital ('IPEV') Valuation Guidelines, December 2012 edition. Where relevant, the Trust applies the policies stated below to the investments held by HGT LP, HGT 6 LP, HGT 7 LP and HgCapital Mercury D LP, 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 HgCapital 6 E LP and the renewable energy funds would normally consist of capital distributions and these distributions are recognised as a realisation when the right to such distribution is established. Proceeds are measured at fair value, which is regarded as the proceeds of sale less any transaction costs.

Quoted: Quoted investments are designated as held at fair value, which is deemed to be their bid price.

Unquoted: Unquoted investments are also designated as held at fair value and are valued using the following guidelines:

(i) initially, investments are valued at the price of recent investment less fees and transaction costs, unless the prevailing market conditions and/or trading prospects of the investment result in this price being an inappropriate measure of fair value and (ii) or (iv) below is required;

(ii) subsequently, investments are valued based on the level of maintainable earnings or revenue and an appropriate earnings or revenue multiple, unless (iv) is required;

(iii) where more appropriate, investments can be valued based on other methodologies, including using their net assets or discounted cash flows, rather than to their earnings or revenue; and

(iv) appropriate provisions are made against all individual valuations where necessary to reflect unsatisfactory financial performance or a fall in comparable ratings, leading to an impairment in value.

Limited partnership funds: These are investments that are set up by a manager in which the Trust has a direct investment, but is not the sole limited partner and does not hold a majority share. These investments are valued at fair value, based on the manager's valuation after any adjustment required by the Directors.

Liquidity funds: These are short-term investments made in a combination of fixed and floating rate securities and are valued at the current fair value as determined by the manager of the fund.

Government securities: These are short-term investments made in fixed rate UK government securities and are valued at the current fair value of the gilt.

Derivative financial instruments: Derivative financial instruments are held at fair value and are valued using quoted market prices for financial instruments traded in active markets, or dealer price quotations for financial instruments that are not actively traded.

Both realised and unrealised gains and losses arising on fixed asset investments, financial assets and liabilities and derivative financial instruments, are taken to the capital reserves.

Capital reserves

Capital reserve - realised

The following are accounted for in this reserve:

(i) gains and losses on the realisation of investments;

(ii) attribution of gains to the founder partners for carried interest;

(iii) losses on investments within the portfolio where there is little prospect of realisation or recovering any value;

(iv) realised exchange differences of a capital nature; and

(v) expenses, together with the related taxation effect, charged to this reserve in accordance with the above policies.

Capital reserve - unrealised

The following are accounted for in this reserve:

(i) increases and decreases in the valuation of investments held at the year end;

(ii) increases and decreases in the valuation of the loans to general partners; and

(iii) unrealised exchange differences of a capital nature.

5. Priority profit share and carried interest

The priority profit share payable on HGT LP, HGT 6 LP, HGT 7 LP and HgCapital Mercury D LP rank as a first appropriation of net income from investments held in HGT LP, HGT 6 LP, HGT 7 LP and HgCapital Mercury D LP respectively and is deducted prior to such income being attributed to the Trust in its capacity as a Limited Partner. The net income of HGT LP, HGT 6 LP, HGT 7 LP and HgCapital Mercury D LP earned during the year, after the deduction of the priority profit share, is shown on the income statement. Details of these arrangements are disclosed in the Directors' report in the Trust's Annual Report and Accounts.

The terms of the above priority profit share arrangements during 2014 were:

In addition, priority profit shares are payable on partnerships where the Trust is a minority limited partner. These amounts are initially and indirectly funded by the Trust through the amounts invested in these partnerships and these amounts are recognised as unrealised losses in the capital account in the income statement.

In years in which the funds described in note 5(a) have not yet earned sufficient net income to satisfy the priority profit share, the entitlement is carried forward to the following years. The priority profit share is payable quarterly in advance, even if insufficient net income has been earned. Where the cash amount paid exceeds the net income, an interest free loan is advanced to the general partner by these primary buyout funds, which is funded via a loan from the Trust. 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.

The carried interest payable ranks as a first appropriation of capital gains on the investments held in HGT LP, HGT 6 LP, HGT 7 LP and HgCapital Mercury D LP, limited partnerships established solely to hold the Trust's investments, and is deducted prior to such gains being paid to the Trust in its capacity as a Limited Partner. The net amount of capital gains of HGT LP, HGT 6 LP, HGT 7 LP and HgCapital Mercury D LP during the year, after the deduction of carried interest, is shown on the income statement.

The details of the carried interest contracts, disclosed in the Directors' report in the Trust's Annual Report and Accounts, states that carried interest is payable once a certain level of repayments have been made to the Trust. Based on the repayments, no carried interest was payable in respect of the current or prior financial year. However, if the investment in HGT6 LP is realised at the current fair value and then repaid to the Trust, an amount of £1,088,000 will be payable to the Founder Partner and therefore the Directors have made a provision for this amount.

6. Other expenses

7. Cash flow from operating activities

8. Directors' remuneration

The aggregate remuneration of the Directors for the year to 31 December 2014 was £215,000 (2013: £186,777).

Further information on the Directors' remuneration is disclosed in the Directors' remuneration report in the Trust's Annual Report and Accounts.

9. Taxation on ordinary activities

In the opinion of the Directors, the Trust has complied with the requirements of Section 1158 and Section 1159 of the CTA 2010 and will therefore be exempt from corporation tax on any capital gains reflected in the capital return during the year. The Trust will elect to designate all of the proposed dividend (see note 11) as an interest distribution to its shareholders. This distribution is treated as a tax deduction against taxable income in the revenue return and results in a reduction of corporation tax being payable by the Trust at 31 December 2014.

The standard rate of corporation tax in the UK for a large company changed from 23% to 21% with effect from 1 April 2014, implying an effective pro-rata tax rate for the current year of 21.5% (2013: 23.25%). However, the tax charge in the current and prior year was lower than the standard effective pro-rata tax rate, largely due to the reduction in corporation tax from the interest distribution noted above.

The effect of this and other items affecting the tax charge is shown in note 6(b) below.

Deferred tax assets of £567,000 (2013: £624,000) are recognised in respect of the net amounts of taxable income that have not yet been recognised in the revenue return.

10. Return/(loss) and net asset value per Ordinary share