HgCapital Trust plc Regulatory News (HGT)

11 Sep 2007 07:00

HgCapital Trust plcPreliminary announcementInterim report and accounts30 June 2007

London, 11 September 2007: HgCapital Trust plc ("the Trust" or "the Company"), the Private Equity Investment Trust managed by HgCapital (or the "Manager"), the European sector-focused private equity investor, announces interim results for the six months ended 30 June 2007.

Financial highlights

* Another strong performance: NAV increased by 13.1% to ‚£211.7 million (2006: ‚£187.1 million). * Total return to shareholders (NAV plus dividend) over the period was 15.2% compared with 7.6% for the FTSE All-Share Index and 4.0% for the FTSE Small-Cap Index. * Consistent returns: share price growth (total return) over ten-year period of +18.3% per annum against +7.6% per annum in the FTSE All-Share Index for the same period. * ‚£54 million in liquid resources (c. 25% of net assets) places Company in a good position to take advantage of current market conditions.

Operational highlights

* A strong period for realisations, with proceeds of ‚£38.3 million including Hirschmann and DocMorris in Germany, and the combined sale of CS Group with IRIS Software, which completed after the period end. * Invested ‚£11 million selectively in a high price environment. * Completed two management buyouts of CS Group plc and Americana.

Post period end

* NAV at 31 August 2007 was 842.6p. * Completed two investments, SLV and Cornish Bakehouse; investment of ‚£6 million and ‚£4 million respectively. * Agreed the sale of Schenck, subject to cartel clearance: this will add 58p per share to the 31 August 2007 NAV.

Investment objective

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

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

Financial highlights

+15.2% - The strong growth in net assets (total return) continues

+16.3% - Share price and dividend (total return) versus the FTSE All-Share Index total return of 7.6%

+18.3% - Ten year total performance p.a. versus 7.6% p.a. from the FTSE All-Share Index

>5x - Ten year investment return for every ‚£1 invested

‚£38m - A strong first half for proceeds from realisations

‚£11m - Invested selectively in a high price environment

Chairman's statement

Performance

I am pleased to report that in the first six months of 2007 the Company continued to deliver strong NAV growth compared to the FTSE benchmarks.

Net asset value (NAV) per share increased by 13.1% and total return to shareholders (NAV plus dividend) over the period was 15.2% compared with 7.6% for the FTSE All-Share Index and 4.0% for the FTSE Small-Cap Index. The Company's share price rose by 14.3% from 731.0p to 835.5p.

Quoted equity markets have experienced a correction since the high point reached in May 2007. Since the end of the period under review the Company's shares have continued to out-perform their benchmarks, reflecting the quality of its portfolio and successful realisations achieved despite general market conditions.

Directors have reviewed the valuations of the Company's investments at 30 June and these reflect some compression in valuation multiples compared with previous periods. The Board is aware that in current market conditions, value creation in the Company's investments will rely all the more on organic growth and margin enhancement, rather than multiple arbitrage. In addition, it is possible that in the medium term investments will be held a little longer than has often been the case in recent years.

Revenue return per share was 12.4p, compared with 4.0p in the same period last year. As explained in earlier reports to shareholders, the Company's revenue will vary from year to year in accordance with the structure of the underlying investments and the Company's holding of liquid funds awaiting reinvestment. While it is too early in the year to be certain, at this stage it appears that, for these reasons, the Company's income in the current year may be unusually high: due to the Company's status as an investment trust this would give rise to a larger than normal dividend payment early in 2008. Shareholders who wish to remain fully invested are reminded that the Company operates a Dividend Reinvestment Scheme.

Realisations

The strong market conditions that have supported realisations continued through most of the period. The Company made full and partial realisations yielding proceeds of ‚£38.3 million and contributing more than ‚£8m to the growth in NAV. Proceeds from every sale of an unquoted investment were achieved significantly above its year-end book value.

In March the Company sold its interest in DocMorris, an investment that combined the Manager's focus on healthcare with its active position in the German market, for proceeds of ‚£4.5 million. The 2.5x increase in value achieved since acquisition was due largely to internal growth: HgCapital acquired the company when it was only four years old, since when sales have risen by around 18% p.a.

The Company also sold the remaining division of Hirschmann Electronics from its Industrials portfolio, for cash proceeds of ‚£14.9 million. In this case HgCapital acquired a non-core division of a large German public company, restructured it, improved efficiencies and then sold its constituent businesses on to strategic purchasers. The Board believes that the continuing restructuring of German industry, with greater focus on shareholder value, will provide more such opportunities for profitable investment.

In June it was agreed to sell both IRIS Software (Blue Minerva) and CS Group (Guildford) to a single purchaser, realising ‚£27.5 million for the Company. HgCapital made its initial investment in IRIS in 2004, since when this core business has recorded organic growth in revenue of 12-13% p.a. In addition, IRIS acquired four businesses, funded by cash flow and external debt, which contributed strongly to both sales and profit growth. By selling IRIS and CS Group simultaneously to a single buyer HgCapital has also realised the marriage value of these two companies. These transactions, including the unrealised value, returned 3.6x and 2.2x the Company's original investment. The valuation of these holdings at the end of June reflects the proceeds of the sale, which was completed after the period end for a mix of paper and cash consideration.

Other realisations were made, in two cases below original cost. The Board recognises that in a private equity portfolio, some investments will fall short of expectations; however, in both of these cases the Manager had worked hard to protect and rebuild value, and the Directors support the Manager's decision to sell these assets and free up resources for redeployment.

Since the period end, the Company has agreed to sell its interest in Schenck, subject to cartel clearance. Completion of this transaction will add 59p per share to the Directors' valuation at 30 June.

Investments

With equity markets at peak levels for most of the period, investment activity was lower than previously: the Manager was outbid for several investments. The proportion by value of the investment portfolio (excluding liquid funds) that are relatively new investments, and still held at cost, has fallen from around half at December 2006 to one-third at 30 June 2007.

Two buy-outs were completed, CS Group and Americana, in which the Company invested

‚£9.8 million. Further information on these investments can be found on the Trust's website at www.hgcapitaltrust.com or in the Investment manager's report.

At the period end the Manager had a good pipeline of potential investments, especially in the German market. Since the end of the period the Company has invested ‚£6 million in the acquisition of SLV Group, a German designer and manufacturer of innovative commercial lighting systems, and ‚£4 million in Cornish Bakehouse, the UK regional pasty retailer.

Prospects

The recent tightening of credit markets, especially in the market for the syndication of debt in large, highly leveraged acquisitions and refinancings, has led to a correction in equity values generally. This change in market conditions can be expected to have some impact on the level and terms on which the Manager can raise leverage for acquisitions. However, it has also created better conditions for the acquisition of good businesses at reasonable prices. The Company is ungeared and with its strong liquidity is in a good position to take advantage of a new environment for investment. At 30 June 2007 the Company had liquid resources of ‚£54 million, representing around 25% of net assets, a little higher than at the year-end.

The Board is confident that the Manager's specialist sector teams are well placed to identify a regular flow of opportunities. In addition, with well-established teams in Germany and Benelux, as well as in the UK, the Manager has shown a consistent ability to be selected as preferred purchaser where there is a competitive sale process, and to complete transactions efficiently. Against this background the Board believes that having access to substantial liquidity at this point places the Company in a strong position to take advantage of changing market conditions and thus to continue to reward long-term investment in the Company's shares.

Roger MountfordChairman10 September 2007FINANCIAL HIGHLIGHTSAssets at: 30 June 2007 31 December % change 2006 (unaudited) (audited) Net assets (‚£'000) 211,666 187,135 +13.1 Net assets per share 840.4p 743.0p +13.1 Share price (mid-market) 835.5p 731.0p +14.3 Revenue six months ended: 30 June 2007 30 June 2006 % change (unaudited) (unaudited) Net revenue (‚£'000) 3,118 998 +212.4 Earnings per share 12.4 4.0p +212.4

HISTORICAL TOTAL RETURN* PERFORMANCE

One year Three years Five years Seven Ten years % pa % pa % pa years % pa % pa Share price 32.9 34.8 25.8 18.6 18.3 Net asset value 23.0 28.8 20.7 13.4 15.4 FTSE All-Share 18.4 18.9 12.2 4.9 7.6Index FTSE Small Cap 21.0 18.3 14.3 5.1 8.7Index

Based on the Company's share price at 30 June 2007 and allowing for dividends to be reinvested, an investment of ‚£1,000 ten years ago would now be worth ‚£ 5,378. An equivalent FTSE All-Share Index return would be worth ‚£2,079.

\* Total return assumes all dividends have been reinvested. Source: Capital Economics

INVESTMENT MANAGER'S REVIEW

Attribution analysis of movements in net asset value for the six months ended 30 June 2007

‚£,000 Opening net asset value as at 1 January 2007 187,135 Gross revenue 5,195 Expenditure (1,981) Taxation (951) Dividends paid (3,526) Realised proceeds in excess of 31 December 2006 book value 8,005(excludes gross revenue) Net unrealised appreciation of investments 23,041 Carried interest provision (5,252) Closing net asset value as at 30 June 2007 211,666

Portfolio

The Company invests alongside other clients of HgCapital. Typically, the Company's holding forms part of a much larger stake in predominantly buy-out investments of between ‚£50 million and ‚£350 million enterprise value ("EV"), controlled by HgCapital. The Investment manager's EV generally refers to each transaction in its entirety, apart from the tables which detail the Company's participation, and where this review specifically states otherwise.

The Company's net asset value increased from ‚£187.1 million to ‚£211.7 million during the period under review. This arose from unrealised movements and realised proceeds in excess of the book value of ‚£23.0 million and ‚£8.0 million respectively, following continued strong earnings growth and cash generation within the portfolio.

The Company's investments in IRIS and CS Group have both been sold since the period end, having been valued at 30 June 2007 at the agreed sales price with consideration received in early July. In addition, strong profit growth from the buy-out portfolio, in particular, Schenck, Addison, The Sanctuary and Clarion Events have contributed to the increase in value.

Since the period end, an agreement to sell Schenck has been signed, subject to cartel clearance, and consideration is expected to be received in early November. The impact on the 30 June carrying value will be 59p per share and the sale is estimated to realise a total of ‚£33 million for the Company.

A small number of the Company's investments performed below expectations. FTSA performed below plan, mainly due to a delay in publishing new legislation regarding the use of side impact dummies; however, a series of initiatives including a restructuring of the European business has been implemented, which should improve profitability. Elite is operating in a market that is experiencing significant price pressure and is focusing on new products to mitigate this. Axiom's sales pipeline is taking time to convert into firm orders and our investment has been written down in value.

During the period, the Company invested a total of ‚£11.1 million including participation in two new buy-out investments. These new investments were made in Americana (UK, ‚£180 million EV) and CS Group (UK, ‚£112 million EV).

The Company realised proceeds during the period amounting to ‚£38.3 million. These proceeds arose principally from the sale of Hirschmann, DocMorris, Worldmark and Bertram, sales of quoted shares in South Wharf and Xyratex and the recapitalisation of IRIS and Rolfe & Nolan.

Realised and unrealised movements in net asset value during the period

Realised Unrealised Proceeds* Movements** Total ‚£m ‚£m ‚£m Blue Minerva t/a IRIS 11.9 11.9 Guildford t/a CS Group 5.8 5.8 Schenck 5.2 5.2 Hirschmann 4.1 0.7 4.8 Addison 4.0 4.0 DocMorris 2.6 0.3 2.9 The Sanctuary 2.4 2.4 Clarion Events 1.5 1.5 Eagle Rock 0.7 0.7 Other 0.6 (0.4) 0.2 ClinPhone (0.8) (0.8) Axiom (1.5) (1.5) Elite (3.0) (3.0) FTSA (3.1) (3.1) Total 8.0 23.0 31.0

*Realised proceeds in excess of 31 December 2006 book value ‚£'m (excludes gross revenue)

**Net unrealised appreciation of investments ‚£'m

Prospects

We have taken advantage of high pricing to secure our realisations at attractive prices and have sought to withdraw early from excessively price competitive new investment situations.

A correction in the capital markets, removing excess leverage and more appropriately pricing equity for risk, if sustained, would be strongly positive for us in the long term.

The current economic environment in Europe remains stable. However, we will keep a watching brief particularly in respect of the US and potential contagion. Germany and Benelux look particularly strong. This said, for new investments made over the last two years we have been cautious with regard to cyclical stocks.

Volatility and elements of discontinuity create good private equity opportunities for an investor with strong liquidity, a sound portfolio and clear investment strategy.

PORTFOLIO ANALYSIS

"A diverse portfolio, invested along sector lines, with an increasing exposure to Continental Europe"

At 30 June 2007 the Company's portfolio consisted of 38 investments, of which the 20 principal investments represented over 95% of the portfolio valuation.

The Company offers both sector and geographic diversification in a portfolio of fast growing small cap stocks. The portfolio's valuation increased in the first six months of the year from ‚£148.5 million to ‚£154.2 million, benefiting from strong profit growth and positive cash flow.

Two new investments were made during the period, both management buy-outs. These were: the public to private acquisition of CS Group, a UK software company and the acquisition of Americana, owner of the streetwear brands Bench and Hooch.

Eight investments were fully realised and six were partially realised, through the sale of quoted shares, recapitalisation or a trade sale. In aggregate, capital proceeds from these realisations produced a 39% uplift over the carrying value and a 94% uplift over cost.

Proceeds from realisations resulted in the Company ending the period with ‚£54 million of liquid assets, which has increased further since the period end following the most recent disposals. These resources position the Company to exploit new investment opportunities.

Asset class Unquoted 70% Cash & other assets 27% Quoted 3%Valuation basis Cost 33% Earnings 33% Third party 17%transaction Written down 9% Quoted 5% Net assets 3%Sector by value TMT 47% Industrials 20% Consumer & Leisure 16% Healthcare 9% Services 5% Renewable energy 2% Fund 1%Geographic spread by value UK 53% Germany 29% Norway 8% Benelux 5% North America 3% Europe other 2%Deal type by value Buy-out 90% Expansion 6% Renewable energy 2% Fund 1% Venture 1%Vintage by value 2007 10% 2006 27% 2005 28% 2004 16% 2003 10% Pre 2003 9%INVESTMENTS

In the six months ended 30 June 2007 HgCapital invested ‚£93 million on behalf of its clients, including ‚£11.1 million on behalf of the Company

Company Sector Activity Deal type Cost ‚£'000 Americana Consumer & Leisure Wholesaler and Buy-out 4,708 retailer of fashion apparel Guildford t/a CS TMT Software services to Buy-out 5,046Group the legal & not-for profit sectors New investments 9,754 HgCapital RPP LP Renewable energy Renewable energy Fund 1,327 fund Further investments 1,327 Total investment by 11,081the Company

Figures below refer to the total size of each acquisition, including debt raised from third parties, made by HgCapital on behalf of its clients, including the Company.

New investmentsAmericana International

The ‚£180 million buy-out of Americana completed in March 2007. HgCapital clients invested a total of ‚£37.6 million.

Americana is a branded apparel business, manufacturing and marketing two brands targeted at the youth market, Bench and Hooch. The Bench brand is aimed at both men and women in the 16 to 25 years age group while Hooch is a fashion clothing brand taking its inspiration from selected music videos, celebrity fashions and young female entertainment magazines. Revenues are predominately through UK wholesale channels and the business is increasing its wholesale revenues in Continental Europe. It is also building a supporting UK retail presence.

Guildford t/a CS Group

The ‚£112 million public-to-private buy-out of CS Group completed in April 2007. HgCapital clients invested a total of ‚£40.3 million.

CS Group is the UK's leading provider of back-office application software to the legal and not-for-profit sectors. In addition, the company is the UK market leader in business application software for customers using IBM i-Series hardware. CS Group sells principally to small and medium-sized customers who have little in-house IT expertise. Together with the business-critical functionality provided by CS Group, this means that customers rarely switch to other competing vendors, delivering a stable core business.

Since completion CS Group has acquired two further companies: FAST Ltd, a compliance services business and Mountain Software Ltd, the leading provider of back office software to the UK barristers and coroners market. Each is expected to contribute significantly once integration is complete.

On 8 June, we signed a deal to sell CS Group to Hellman & Friedman, a US private equity firm, in conjunction with their acquisition of IRIS. The combined EV of the exit was ‚£500 million, of which ‚£195 million was attributable to CS Group.

Realisations

In the six months ended 30 June 2007 HgCapital realised total proceeds of ‚£229 million on behalf of its clients including ‚£38.3 million for the Company

Company Sector Activity Cost Proceeds 2007 ¢â‚¬ return ¢â‚¬ ‚£'000 ‚£'000 ‚£'000 Hirschmann Industrials Financial sale 2,669 14,874 12,205 DocMorris Healthcare Trade sale 1,956 4,544 2,588 Worldmark Industrials Financial sale 2,389 3,569 1,180 Bertram Consumer and Trade sale 2,848 2,008 (840) Leisure Eagle Rock TMT Sale to 3,856 1,619 (2,237) management South Wharf plc Industrials Quoted share sale 47 1,033 986* Other (2) 96 349 253 Full 13,861 27,996 14,135realisations Xtx t/a Xyratex TMT Quoted share sale 1,895 4,957 3,062** Blue Minerva t/ TMT Financial sale 2,811 2,993 182a IRIS Rolfe & Nolan TMT Recapitalisation 225 2,093 1,868 Other (3) 333 283 (50) Partial 5,264 10,326 5,062realisations Total 19,125 38,322 19,197realisations

¢â‚¬ Includes gross revenue received during the period. *Listed on the London and Dublin Stock Exchanges. *\* Traded on NASDAQ.

Figures below refer to the total value of each realisation, including, where appropriate, repayment of third party debt. Proceeds to clients including the Company are stated net of any such repayment.

Full realisations

Hirschmann

Hirschmann is a market-leading global supplier of electronics equipment, components and related accessories. Hirschmann has manufacturing plants in Germany and Hungary as well as sales and services operations in Europe, the USA, the Far East and South America.

The business has been sold with proceeds of ¢â€š¬138 million received, with the potential of a further ¢â€š¬12 million over the next two to three years subject to warranty claims. This investment has returned 5.8x original cost, including the unrealised value of potential future payments.

DocMorris

Founded in 2000 as a mail order business, DocMorris has grown to become the largest pharmacy serving the German market, with over 800,000 customers. It offers prescription drugs at attractive prices by sourcing direct from pharmaceutical manufacturers.

In April 2007, 3i and HgCapital along with venture capital investor Neuhaus Partners sold their stakes to Celesio AG, Europe's largest pharmaceutical distributor, which will become the majority shareholder in DocMorris. The company's management will continue to hold a stake of just under 10% in DocMorris. This investment has returned 2.5x original cost, including the unrealised value of potential future payments.

Worldmark

Worldmark is a leading global supplier of product identification systems, components and service solutions to the electronics and mobile telecommunications industries.

The business was sold in January 2007 to a financial buyer. Clients received proceeds amounting to ‚£29.2 million, representing a 1.5x multiple of cost.

Bertram

The Bertram Group comprises a book wholesaler, a distribution service for publishers and the leading supplier of books, games and audio-visual titles to public libraries. In February 2007, the business was sold to Woolworths plc. Proceeds received for clients were ‚£13.1 million, representing an overall return of 0.7x original cost.

Eagle Rock

Eagle Rock creates and acquires audio and audio-visual entertainment productions with a strong focus on rock music by mature and established international artists. It exploits these intellectual property rights through DVD, TV licensing and CD.

In April 2007, the company was sold to management and an investment consortium. Proceeds received for clients were ‚£7.5 million representing a return of 0.4x original cost.

South Wharf

Following the successful demerger of the glass business, South Wharf became a property company, owning 26 acres of long-leasehold land and a small glass trading activity. As part of a tender offer, we sold our quoted shares for proceeds of ‚£49.8 million. Over its life, this investment has returned a multiple of 7.3x original cost.

Partial realisations

Xtx t/a Xyratex

Xyratex has been a world-leader in the hard disk and network storage technology market for over 20 years.

Xyratex completed its IPO on NASDAQ on 24 June 2004 at a price of $14 per share, realising ‚£10.2 million for HgCapital clients. HgCapital has selectively sold stock since our lock-up period expired in early 2005.

We sold a further 2.9 million shares during the first six months to June 2007 at an average price of $21 per share. This takes our total cash returned to clients to ‚£91 million (1.8x cost) with a remaining ownership of 2.7 million shares which is worth ‚£29 million to clients as at 30 June 2007.

Blue Minerva t/a IRIS

IRIS is the UK's leading provider of financial, practice management and tax software to accountancy practices. Research confirms that it has the best product, the largest number of customers and the strongest reputation for customer support in its sector.

Management releveraged the business with a ‚£95 million new senior and mezzanine facility in December 2005, returning ‚£26.2 million. A second recapitalisation completed in March 2007 returning a further ‚£18.8 million to clients. Since the period end the business has been sold, details of which can be found in the Review of principal investments.

Rolfe & Nolan

Rolfe & Nolan is the number two global supplier of back-office processing software to the futures and options industry. It supports over 250 bank, brokerage and exchange clients in 20 countries. Customers include Deutsche Bank, HSBC, Goldman Sachs and Lehman Brothers.

Rolfe & Nolan has exceeded all budgets since our investment and did so again in the year to February 2007. Management has successfully completed a major office move at low incremental cost and has succeeded in maintaining revenue performance and increasing profitability in the face of customer consolidation.

The business has been recapitalised a number of times, most recently in June 2007, which returned ‚£12 million to clients. Over its life this investment has returned 2.2x original cost, including the unrealised value.

REVIEW OF PRINCIPAL INVESTMENTS

1 Schenck

Sector: Industrials Location: Germany

Year of investment: 2005 www.schenck-mpt.de

In December 2005, HgCapital completed the ¢â€š¬205 million buy-out of Schenck and acquired an 85% stake in the business on behalf of clients.

Schenck is the global market leader for high-tech applications and solutions in industrial weighing, feeding and automation. In June 2006 Schenck completed the acquisition of Stock Equipment Company (USA) Inc., the world market leader in handling systems for coal-fired power plants. Schenck has activities in more than 40 countries and operates 11 state-of-the art assembly facilities globally.

Since the period end Schenck has been sold to Industri Kapital, returning an estimated ¢â€š¬250 million to clients, representing 2.8x original cost, subject to cartel clearance. Completion of this sale will add 59p per share to the valuation at 30 June 2007.

2 Blue Minerva t/a IRISSector: TMT Location: UK

Year of investment: 2004 www.iris.co.uk

The ‚£102 million buy-out of IRIS Software was completed in July 2004. We hold a 60% equity stake in the business on behalf of clients.

IRIS is the UK's leading provider of financial, practice management and tax software to accountancy practices. Independent research confirms that it has the best product, the largest number of customers and the strongest reputation for customer support in its sector. Since the buy-out IRIS has acquired four companies for a total consideration of ‚£31 million and the core business has grown revenue by 12-13% over the last three years.

Since the period end IRIS has been sold to Hellman & Friedman in a combined sale with CS Group, returning ‚£150 million to clients over the life of the investment, including the residual unrealised value equivalent to 3.6x original cost.

3 VISMASector: TMT Location: Norway

Year of investment: 2006 www.visma.com

In May 2006, HgCapital completed the ‚£382 million buy-out of Visma, the leading software company in Norway and the number one company supplying software and services to SMEs in the Nordic region. HgCapital holds a 57% stake in this business on behalf of clients.

Since May 2006 the business has acquired two complementary small businesses in the Nordic region and has bought out several minority stakes in businesses it already controlled. Most recently, HgCapital and Visma management negotiated the acquisition of Accountview, a similar business in the Netherlands. The company is trading in line with expectations.

4 Guildford t/a CS Group

Sector: TMT Location: UK

Year of investment: 2007 www.computersoftware.com

The ‚£112 million public-to-private buy-out of Computer Software Group completed in April 2007. HgCapital clients invested a total of ‚£40.3 million.

CS Group is the UK's leading provider of back-office application software to the legal and not-for-profit sectors, selling principally to SMEs with little in-house IT expertise. Since completion CS Group has acquired two further companies and each is expected to contribute significantly once integration is complete.

Since the period end, CS Group has been sold to Hellman & Friedman in a combined sale with IRIS. The combined EV of the exit was ‚£500 million, of which ‚£195 million was attributable to CS Group. This has delivered ‚£87.0 million to clients including the residual unrealised value equivalent to 2.2x original cost.

5 Paragon

Sector: Healthcare Location: UK

Year of investment: 2006 www.milburycare.com

In April 2006, HgCapital completed the ‚£322 million buy-out of Paragon Healthcare Group. We hold a 52% stake in the business on behalf of clients.

Paragon owns and operates small community-based homes for adults with learning disabilities and associated physical disabilities. The company currently operates 1,700 beds in 263 services across England and Scotland. The company now has all key posts filled following the group's reorganisation into three regions.

The company is trading in line with expectations and new roles dedicated to bed filling are expected to impact occupancy levels positively in the medium term.

6 Addison

Sector: TMT Location: Germany

Year of investment: 2005 www.addison.de

The ¢â€š¬78 million management buy-out of Addison was completed in June 2005.

Addison is a leading German software company that provides business-critical solutions for tax accountants and SMEs and is the fastest-growing player in the German market. It develops, licenses and manages standard and sector-specific software for bookkeeping, accounts, tax, cost accounting, payroll and financial controls.

In December 2005, we made a further investment in Addison of ¢â€š¬14 million to fund the acquisition of PBSG, the number three player in the German tax accountant software market. The integration of the two businesses is complete and the company is trading in line with expectations.

7 The Sanctuary Spa

Sector: Consumer and Leisure Location: UK

Year of investment: 1995 www.thesanctuary.co.uk

On 8 July 2005, our investment in the Sanctuary Spa Group was acquired by the newly incorporated The Sanctuary Spa Holdings Limited (SSHL). Simultaneously, SSHL acquired the licence to sell beauty products branded The Sanctuary Spa, the rights to which had previously been held by a third party licensee. HgCapital has a 79% stake in the business.

The investment strategy was to integrate the two businesses and invest in product development in order to transform The Sanctuary into a higher margin beauty products business. Year one focused on building the management team and improving the core business. Year two saw the launch of a new product range, which has reversed an underlying decline in the product category together with improving the trading relationship with Boots.

The business is performing above plan and all of our clients' loan stock has been repaid ahead of schedule.

8 SHL

Sector: Services Location: UK

Year of investment: 2006 www.shl.com

In November 2006, HgCapital completed the ‚£100 million public-to-private buy-out of SHL, taking a stake of 72%.

SHL is the UK market leader in objective psychometric testing and has a global presence. The core business consists of the development and sale of psychometric tests to corporate clients. SHL also provides psychologists for the administration and interpretation of tests. The company has produced consistent revenue growth of 9% per annum for the last five years.

We plan to accelerate the business's move towards test sales, 50% of which are currently delivered through the internet, and this will continue to be a focus for growth. The company is trading in line with expectations.

9 Clarion Events

Sector: TMT Location: UK

Year of investment: 2004 www.clarionevents.co.uk

The ‚£45 million buy-out of Clarion Events, the largest independent exhibition and events business in the UK, completed in October 2004. HgCapital has a 65% equity stake in the business.

Clarion has a portfolio of 40 business and consumer shows. Although the company is perceived to be a consumer-weighted business, under our ownership it has shifted the balance towards business shows, which are valued at a higher level by potential purchasers.

Since our acquisition we have found the majority of growth potential comes from incremental acquisitions rather than new launches. The B2B gaming business ATE acquired in June 2005 is proving highly successful and there is a further B2B gaming acquisition in the final stages of completion.

10 W.E.T.

Sector: Industrials Location: Germany

Year of investment: 2003 www.wet.de

The ¢â€š¬169 million public-to-private transaction to acquire W.E.T. was declared unconditional in September 2003. HgCapital holds a 70% equity stake in the business.

W.E.T. is the world market leader for seat-heating systems, supplying most of the major European and North American passenger car and seat manufacturers. It has production facilities in the low-cost locations of Mexico, Hungary, Ukraine and China, a market share of more than 50%, strong relationships with most of the major vehicle manufacturers in Europe and North America and a reputation for high-quality products.

Pressure from customers buying lower specification W.E.T.product is being mitigated by a profit improvement programme, and WET has divested its flat cables operations following the successful disposal of its sensors business.

TOP 20 INVESTMENT LISTING OF THE COMPANY

Company Sector Residual Valuation Year of Portfolio Cum. cost ‚£'000 investment value value ‚£'000 % %

1 Schenck Process Industrials 11,698 16,778 2005 10.9 10.9

SA 2 Blue Minerva Ltd TMT 146 16,664 2004 10.8 21.7 t/a IRIS 3 VISMA Holdings TMT 13,268 12,598 2006 8.2 29.9 4 Guildford TMT 5,046 10,844 2007 7.0 36.9 Acquisition Co Ltd t/a CS Group 5 Paragon Ltd Healthcare 10,746 10,746 2006 7.0 43.9 6 Addison TMT 6,499 10,468 2005 6.8 50.7 Luxembourg SA

7 The Sanctuary Spa Consumer & 631 8,464 1995 5.5 56.2

Holdings Ltd Leisure 8 SHL Group Services 7,534 7,534 2006 4.9 61.1 Holdings I Ltd 9 Clarion Events TMT 4,965 7,214 2004 4.7 65.8 Holdings Ltd 10 W.E.T Holding Industrials 7,590 6,619 2003 4.3 70.1 Luxembourg SA 11 Elite Holding SA TMT 5,749 6,493 2005 4.2 74.3 12 Sporting Index Consumer & 5,428 5,428 2005 3.5 77.8 Group Ltd Leisure 13 Americana Consumer & 4,708 4,708 2007 3.1 80.9 International Leisure Holdings Limited

14 Hofmann M.M. SA Industrials 4,747 4,668 2005 3.0 83.9

15 Xtx Ltd t/a TMT 1,277 4,639 2003 3.0 86.9 Xyratex*

16 Schleich Consumer & 4,634 4,636 2006 3.0 89.9

Luxembourg SA Leisure

17 FTSA Holdings Ltd Industrials 6,235 2,869 2006 1.9 91.8

18 Hg Renewable Renewable 3,046 2,636 2006 1.7 93.5

Power Partners LP energy

19 Hoseasons Group Consumer & 2,197 1,929 2003 1.3 94.8

Ltd Leisure 20 Classic Copyright TMT 6,033 1,486 2003 1.0 95.8 (Holdings) Ltd t/a Boosey & Hawkes Top 20 112,177 147,421 95.8 95.8 Investments Other Investments 24,956 6,818 4.2 4.2 (18) Total Investments 137,133 154,239 100.0 100.0 (38) \* Traded on NASDAQ. INCOME STATEMENT

for the six months ended 30 June 2007

Revenue return Note Six months Six months Year ended ended 30.6.07 ended 30.6.06 31.12.06 ‚£'000 ‚£'000 ‚£'000 (unaudited) (unaudited) (audited) Gains on investments and - - -government securities Carried interest provision - - - Income 5 5,195 2,061 7,769 Investment management fee 6 (407) (353) (730) Other expenses 7(a) (352) (317) (636) Net return on ordinary 4,436 1,391 6,403activities before taxation Taxation on ordinary activities (1,318) (393) (1,884) Transfer to reserves 3,118 998 4,519 Return per ordinary share 12.4p 4.0p 17.9pINCOME STATEMENT (CONTINUED)

for the six months ended 30 June 2007

Capital return Note Six months Six months Year ended ended 30.6.07 ended 30.6.06 31.12.06 ‚£'000 ‚£'000 ‚£'000 (unaudited) (unaudited) (audited) Gains on investments and 31,046 25,326 34,919government securities Carried interest provision (5,252) (4,230) (4,737) Income - - - Investment management fee 6 (1,222) (1,057) (2,191) Other expenses - - - Net return on ordinary 24,572 20,039 27,991activities before taxation Taxation on ordinary activities 367 317 657 Transfer to reserves 24,939 20,356 28,648 Return per ordinary share 99.0p 80.8p 113.7pINCOME STATEMENT (CONTINUED)

for the six months ended 30 June 2007

Total return Note Six months Six months Year ended ended 30.6.07 ended 30.6.06 31.12.06 ‚£'000 ‚£'000 ‚£'000 (unaudited) (unaudited) (audited) Gains on investments and 31,046 25,326 34,919government securities Carried interest provision (5,252) (4,230) (4,737) Income 5 5,195 2,061 7,769 Investment management fee 6 (1,629) (1,410) (2,921) Other expenses 7(a) (352) (317) (636) Net return on ordinary 29,008 21,430 34,394activities before taxation Taxation on ordinary activities (951) (76) (1,227) Transfer to reserves 28,057 21,354 33,167 Return per ordinary share 111.4p 84.8p 131.7p

The total column of this statement represents the Company's income statement. The supplementary revenue and capital return columns are both prepared under guidance published by the Association of Investment Companies ("AIC"). All recognised gains and losses are disclosed in the revenue and capital columns of the income statement and as a consequence no statement of total recognised gains and losses has been presented.

All revenue and capital items in the above statement derive from continuing operations.

Final dividend for the year ended 31 December 2006 of 14.00p (‚£3,526,000) declared on 31 March 2007 and paid on 1 May 2007.

Final dividend for the year ended 31 December 2005 of 10.00p (‚£2,519,000).

BALANCE SHEETas at 30 June 2007 30.6.07 30.6.06 31.12.06 ‚£'000 ‚£'000 ‚£'000 (unaudited) (unaudited) (audited) Fixed assets Investments held at fair value Quoted at market valuation 7,321 15,925 14,255 Unquoted at directors' valuation 146,918 147,387 134,287 154,239 163,312 148,542 Current assets Debtors 12,684 5,185 10,005 Government securities 50,203 12,447 34,284 Cash 4,098 909 2,268 66,985 18,541 46,557 Creditors - amounts falling due within one (9,558) (6,531) (7,964)year Net current assets 57,427 12,010 38,593 Net assets 211,666 175,322 187,135 Capital and reserves Called up share capital 6,296 6,296 6,296 Share premium account 14,123 14,123 14,123 Capital redemption reserve 1,248 1,248 1,248 Capital reserve - realised 164,354 131,754 152,787 Capital reserve - unrealised 16,357 15,726 2,985 Revenue reserve 9,288 6,175 9,696 Total equity shareholders' funds 211,666 175,322 187,135 Net asset value per ordinary share 840.4p 696.1p 743.0p

CASH FLOW STATEMENT

for the six months ended 30 June 2007

Note Six months Six months Year ended ended ended 31.12.06 30.6.07 30.6.06 ‚£'000 ‚£'000 ‚£'000 (audited) (unaudited) (unaudited)

Net cash outflow from operating 7(b) (5,387) (2,806) (2,273) activities

Taxation (paid)/recovered (8) 3,046 2,666 Capital expenditure and financial investment Purchase of fixed asset investments (11,081) (40,292) (45,266) Proceeds from the sale of fixed 38,390 31,013 59,805asset investments Net cash inflow/(outflow) from 27,309 (9,279) 14,539capital expenditure and financial investment Equity dividends paid (3,526) (2,519) (2,519) Net cash inflow/(outflow) before 18,388 (11,558) 12,413management of liquid resources Management of liquid resources (16,558) 11,597 (11,008) Increase in cash in the period 1,830 39 1,405

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

for the six months ended 30 June 2007

Note Capital Share Capital Capital Revenue Total ‚£'000 Premium Redemption Reserves Reserves ‚£'000 Account Reserve ‚£'000 ‚£'000 ‚£'000 ‚£'000 At 31 December 2006 6,296 14,123 1,248 155,772 9,696 187,135 Net return from - - - 24,939 3,118 28,057ordinary activities1 Dividends paid2 3 - - - - (3,526) (3,526) At 30 June 2007 6,296 14,123 1,248 180,711 9,288 211,666 At 31 December 2005 6,296 14,123 1,248 127,124 7,696 156,487 Net return from - - - 28,648 4,519 33,167ordinary activities Dividends paid3 3 - - - - (2,519) (2,519) At 31 December 2006 6,296 14,123 1,248 155,772 9,696 187,135 1. Unaudited.

2. Final dividend for the year ended 31 December 2006 of 14.00p (‚£3,526,000) declared on 13 March 2007 and paid on 1 May 2007.

3. Final dividend for the year ended 31 December 2005 of 10.00p (‚£2,519,000) declared on 13 March 2006 and paid on 2 May 2006.

NOTES TO THE FINANCIAL STATEMENTS

1. Principal activity

The principal activity of the Company is that of an investment company within the meaning of section 266 of the Companies Act 1985.

2. Basis of preparation

The accounts have been prepared in accordance with applicable Accounting Standards and with the Statement of Recommended Practice `Financial Statements of Investment Trust Companies' (SORP), dated January 2003 and revised in December 2005. All of the Company's operations are of a continuing nature. The same accounting policies used for the year ended 31 December 2006 have been applied.

3. Dividends

It is intended that dividends will be declared and paid annually in respect of each accounting period. A dividend of 14.00p per share, declared as a final dividend, was paid on 1 May 2007 in respect of the year ended 31 December 2006 (year ended 31 December 2005: 10.00p per share, declared on 13 March 2006 and paid on 2 May 2006).

4. Issued share capital

There were 25,186,755 ordinary shares in issue for the six months ended 30 June 2007 and 30 June 2006; and the year ended 31 December 2006.

5. Income Six months Six months Year ended ended ended 31.12.06 30.6.07 30.6.06 ‚£'000 ‚£'000 ‚£'000 (audited) (unaudited) (unaudited) Income from investments UK and overseas unquoted investment 3,567 1,237 5,370income UK dividends from listed companies - 82 82 UK dividends from unquoted investments 42 - - 3,609 1,319 5,452 Other income Gilt interest 1,539 719 2,056 Deposit interest 47 23 95 Other interest income - - 166 1,586 742 2,317 Total income 5,195 2,061 7,7696. Investment management fee Revenue return Capital return Six months ended Year Six months ended Year ended ended 30.6.07 30.6.06 31.12.06 30.6.07 30.6.06 31.12.06 ‚£'000 ‚£'000 ‚£'000 ‚£'000 ‚£'000 ‚£'000 (unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited) Investment 347 300 621 1,040 900 1,865management fee Irrecoverable VAT 60 53 109 182 157 326thereon 407 353 730 1,222 1,057 2,191 The investment management fee is levied quarterly in arrears. Investment management fees are charged 75% to capital and 25% to revenue. VAT on the

Investment manager's fees is subject to a claim but the outcome is uncertain.

7. Other expenses (a) Operating expenses Six months Six months Year ended ended ended 31 Dec 2006 30.6.07 30.6.06 ‚£'000 ‚£'000 ‚£'000 (audited) (unaudited) (unaudited) Custodian and administration fees 111 95 197 Other administration costs 241 222 439 352 317 636(b) Reconciliation of net revenue return before taxation to net cash flow from operation activities Six months Six months Year ended ended ended 31.12.06 30.6.07 30.6.06 ‚£'000 ‚£'000 ‚£'000 (audited) (unaudited) (unaudited) Net return before taxation 29,008 21,430 34,394 Gains on investments held at fair (31,046) (25,326) (34,919)value Carried interest provision 515 1,254 1,761 Increase in accrued income (4,000) (134) (3,613) Increase in debtors - - (20) Increase in creditors 139 127 385 Tax on investment income included (3) (157) (261)within gross income Net cash outflow from operating (5,387) (2,806) (2,273)activities

8. Transaction costs

During the period the Company incurred transaction costs on the sale of quoted investments of nil (30 June 2006: ‚£13,000 and 31 December 2006: ‚£33,000).

9. Capital commitments

At 30 June 2007, investment purchases of ‚£11,426,000 (30 June 2006: ‚£607,000 and 31 December 2006: ‚£12,941,000) had been authorised and contractually committed, including an undrawn commitment to Hg Renewable Power Partners LP.

10. Publication of non-statutory accounts

The financial information contained in this interim report does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. The financial information for the six months ended 30 June 2007 and 2006 has not been audited. The information for the year ended 31 December 2006 has been extracted from the latest published audited financial statements, which have been filed with the Registrar of Companies. The report of the auditors on those accounts contained no qualification or statement under section 237(2) or (3) of the Companies Act 1985.

CONTACTChairman, HgCapital Trust PLCRoger Mountford 07799 662601Chairman, HgCapitalIan Armitage 020 7089 7888The Maitland ConsultancyPeter Ogden 020 7395 0422HgCapital Trust PLC2 More London RiversideLondonSE1 2APTelephone: 020 7089 7888www.hgcapital.com