HgCapital Trust plc Regulatory News (HGT)

HgCapital Trust plc

Interim Results for the six months ended 30 June 2014

London, 21 August 2014: 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 interim results for the six months ended 30 June 2014.

Summary performance

1 Including estimated impact of Voyage transaction due to complete in September2 Assuming reinvestment of all dividends

Financial Highlights

§ NAV per share +5.8% on a total return basis to £12.18.

§ Share price +2.5% on a total return basis to £10.07.

§ The Board have approved a special dividend of 19 pence per share to be paid on 26 September 2014, reflecting a one-off dividend receipt from Visma.

§ Strong revenue growth of 10% and EBITDA growth of 9% across the top 20 primary mid-cap buyout investments over the last twelve months to 30 June 2014.

§ An EV to EBITDA valuation multiple of 12.4x and debt to EBITDA ratio of 4.6x as at 30 June 2014 for the top 20 primary mid-cap buyout investments.

§ Estimated liquid resources (including all post June transactions) available for deployment are £91 million (20% of pro-forma NAV) with outstanding commitments of £225 million (49% of pro-forma NAV).

§ +13.4% p.a. 10-year compound annual growth rate of the share price vs. +8.6% p.a. from the FTSE All-Share Index, both calculated on a total return basis to 30 June 2014.

Investment Activity

§ £72 million deployed on behalf of the Trust over 2014 to date, principally in five buyout investments (Visma, Zenith, Ullink, Relay Software and Sequel Business Solutions).

§ £70 million of cash returned to the Trust over 2014 to date including four buyout exits (Visma, Schleich, Manx Telecom, and Americana); an estimated further £8.4 million to be returned post completion of the Voyage sale.

Manager Outlook

§ We have made a number of interesting acquisitions over the last year, with a clear plan on how to create value within these businesses.

§ Whilst we remain cautious on the market environment for investing we see opportunities to make selective new and bolt-on acquisitions, at reasonable prices over the next twelve months.

§ Looking further out, we feel more confident about our portfolio than we did twelve months ago and we are working hard to further improve the operational performance of our companies, the effects of this are yet to be fully reflected in our valuations. This will be further enhanced by a sustained recovery in the economic environment.

§ We believe that the above, together with consistently realising investments for good value, will deliver steady NAV progression over the next couple of years and therefore we remain confident that we will continue to reward our investors with long-term superior returns.

Roger Mountford, Chairman of the Trust, commented:

"Strong trading and profitable realisations over the first half of 2014 have driven solid NAV growth with further deployment into new and bolt-on investments building a store of value for future returns. The Board is pleased to announce a special dividend payment which reflects the one-off receipt of a dividend from Visma".

- Ends -

The Trust's 2014 Interim Report and a webcast from the 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

INTERIM REPORT AND ACCOUNTS

30 June 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 interim report and accounts 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' and HgCapital LLP provides certain services to the Manager.

References in this interim report and accounts to 'Total Return' refer to a return where the reinvestment of all dividends is assumed.

FINANCIAL HIGHLIGHTS

PERFORMANCE

PERFORMANCE OVER THE FIRST SIX MONTHS

NET ASSET VALUE ('NAV') £455 MILLION

The NAV per ordinary share at 30 June 2014 was £12.18, a total return over the half-year of: +5.8%

MARKET CAPITALISATION £376 MILLION

The ordinary share price at 30 June 2014 was £10.07, a total return over the period of: +2.5%

LONG-TERM PERFORMANCE - 10 YEAR TOTAL RETURN

COMPOUND ANNUAL GROWTH RATE

13.4% p.a. - The compound annual growth rate of the Trust's plc share price over the last 10 years.

10 YEAR TOTAL RETURN ON £1,000

£3,510 - How much an investment of £1,000 made ten years ago in the Trust would now be worth.

An equivalent investment in the FTSE All-Share Index would be worth £2,288.

THE PORTFOLIO

HgCapital Trust plc gives investors access to a private equity portfolio of currently 27 active companies, managed by an experienced and well-resourced Manager that makes investments in private companies primarily across Northern Europe in selected parts of the TMT, Services and Industrials sectors.

An investment in the Trust provides exposure to a portfolio of fast growing companies. The top 20 primary mid-cap buyout investments ('the Top 20') currently account for 89% of the portfolio value. These companies have annual aggregate sales of £2.1 billion and EBITDA of £466 million over the last twelve months, with average margins of 22%.

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

+10% p.a. SALES GROWTH - The average growth in sales of the Top 20 for the twelve months ended 30 June 2014.

+9% p.a. EBITDA GROWTH - The average growth in EBITDA of the Top 20 for the twelve months ended 30 June 2014.

12.4x EV TO EBITDA MULTIPLE - The average multiple used to value those investments within the Top 20 that were valued on an earnings basis at 30 June 2014.

4.6x DEBT TO EBITDA RATIO - The average net debt to EBITDA ratio of the Top 20 at 30 June 2014.

EBITDA refers to Earnings Before Interest, Tax, Depreciation and Amortisation.

LONG-TERM PERFORMANCE RECORD

The Trust's share price has delivered significant outperformance against the FTSE All-Share Index over the long term.

HISTORICAL TOTAL RETURN PERFORMANCE

.

CHAIRMAN'S STATEMENT

Strong trading and profitable realisations over the first half of 2014 have driven solid NAV growth with further deployment into new and bolt-on investments building a store of value for future returns. The Board is pleased to announce a special dividend payment which reflects the one-off receipt of a dividend from Visma.

Performance in the first half

During the period, the Trust's NAV per share (on a total return basis) achieved solid growth of 5.8%, rising from £11.80 to £12.18 after the payment of a 29 pence per share dividend.

In general, this appreciation reflected continuing strong growth in sales and earnings in the majority of the Top 20 companies in our portfolio. More specifically, this growth in shareholder value can be attributed to appreciation in the value of most of our principal investments, led by our holdings in TMT businesses, Visma and TeamSystem, and German businesses, SimonsVoss and Schleich. While provisions were needed against the value of a small number of investments, it was also pleasing to see that there has been a recovery in some of the value of the write-downs made in June 2013, including NetNames and Teufel; this follows hard work by both the management and the Manager's portfolio and sector teams at these businesses. The strength of sterling has again had an adverse impact on NAV over the period.

In April, we announced a complex transaction involving the realisation of our interest in Visma, at an uplift to our December 2013 valuation and our reinvestment alongside KKR and Cinven, as well as other clients of HgCapital and the management team; this will enable us to continue to hold an investment in this highly attractive business. Our new holding will comprise both an investment under our 2013 commitment and a substantial co-investment on which the Trust will incur no fees or carried interest.

During the half year to 30 June, the Trust's share price continued to lag the growth in net asset value, closing at £10.07 on 30 June to give a total return of 2.5% in the first half, versus a 1.6% total return from the FTSE All Share. Over the last five and ten years, the Trust has delivered a compound annual share price total return of 7.5% p.a. and 13.4% p.a. respectively.

Revenue and payment of a special dividend

Prior to the sale of Visma, a one-off dividend was distributed, worth £7 million to the Trust, or 19 pence per share. In these unusual circumstances, the Board has decided to pass this through to shareholders in the Trust by way of a special dividend of 19 pence per share, payable on 26 September. Shareholders who hold the Trust for capital growth, rather than income, are reminded that they can reinvest their dividends in shares in the Trust by participating in the Dividend Reinvestment Plan (DRIP), details of which are on page 104 of the annual report and can also be found at www.hgcapitaltrust.com; to participate in the DRIP in respect of this special dividend shareholders must register no later than 17 September.

The level of net interest credited to our revenue account was unusually high during the first half of 2014, representing 41 pence per share. Shareholders should note that our revenue return in any period includes the recognition of accrued but unpaid interest on shareholder loans to underlying investments; depending on the valuation of each investment, net revenue may be adversely affected by provisions against these accruals. In some periods, increasing valuations permit the release of earlier provisions and this can enhance returns, as occurred during this half year. The Trust's return from interest in the first half of 2014 should therefore not be relied on as a guide to the return likely to be reported for the year as a whole.

As a result of this high level of interest and the dividend from Visma, revenue return per share after expenses reached 57 pence per share, the highest figure ever, compared with 35 pence per share over the whole of 2013. The Board's policy is to declare a final dividend when the net revenue return for the whole year is known and at a level that meets the requirement of HMRC that the Trust retain no more than 15% of annual total taxable income, rather than to deliver any target level of dividend. While the Board currently anticipates that it will be able, even after paying the special dividend, to declare a final dividend broadly in line with earlier years, this cannot be certain until the year's results are available following the valuation at 31 December.

Investment activity

The first half of 2014 saw a reasonable level of activity in both realisations and new investments. During the half year, almost £23 million was received by the Trust from realisations, a figure that excludes the sales proceeds in respect of Visma, Schleich and Voyage Care, as these disposals, totalling £55 million, were completed after the period-end.

New investments were made in two software businesses and further investment into Zenith, a vehicle leasing business, which has since been merged with an existing investment, Leasedrive. In total, nearly £25 million was invested by the Trust over the period.

Prospects

In the Manager's review, they refer to some over-heated conditions in the purchase of businesses, notably in acquisitions by some private equity investors with very large funds and institutions such as overseas pension schemes looking for direct investments. The commitment made by the Trust, to invest alongside the Manager's HgCapital 7 fund, has just over four years to run in its investment period and is at present slightly ahead of plan in the deployment of funds; we therefore endorse the Manager's policy of being cautious about participation in competitive auctions and over-heated acquisition prices. The Mercury fund has been behind planned deployment but this year has seen the investment of £2.2 million, with a further £4.4 million invested since 30 June.

In aggregate, at 30 June the Trust had outstanding commitments to invest of £251 million, a figure that at the date of publishing this report has fallen to £225 million. As planned, the Trust's liquid resources have continued to fall but, with the benefit of a bank standby facility, the Board is confident that it will be able to manage the Trust's balance sheet efficiently while continuing to meet all capital drawdowns as they fall; any risk is further mitigated by the "opt-out" which the Trust has in relation to its commitment to HgCapital 7.

Meanwhile, the more recent investments in our portfolio are building a future store of value; in some cases, as is fully described in the Manager's review, short-term profits (and therefore values) are being sacrificed by investment in the cost base necessary to drive faster sales growth and to adopt strategic changes that are expected to be rewarded with higher margins and valuation multiples.

Major institutions continue to diversify their portfolios, in many cases adding an allocation to private equity to their listed equities. The Board maintains its view that an allocation to private equity should be considered by smaller institutions and private investors, and that a listed vehicle such as HgCapital Trust is ideal for gaining that exposure efficiently.

Board and Governance

Over the last year both the Board and the Manager have had to come to grips with the implementation of the Alternative Investment Fund Manager Directive ('AIFMD'), and the various implementing rules that have been issued. The Board of the Trust, in common with our peers, reached the view that it should not apply for recognition as an Alternative Investment Fund Manager, leaving this to Hg Pooled Management Limited, who has been authorised as such with effect from 25 July 2014. Investment trusts in the UK already enjoyed a well-developed governance structure and therefore changes in the ways we work have been limited to amendments to our agreements with the Manager, introducing a degree of added formality to our contractual relationships, and to the appointment of a depositary to fulfil certain protective functions. The Board has appointed IPES Depositary (UK) Limited as the Trust's depositary; IPES was already carrying out some fund administration functions for the Manager and therefore the burden, and cost, of this new requirement has been limited.

As I have previously reported, the AIFMD provided us with a good opportunity to review some of our own governance arrangements. The remit of our Management Engagement Committee has been reviewed and expanded, and the committee is now led by Peter Dunscombe, who joined the Board in January.

As a further step in refreshing the Board, while ensuring that its skills always match our needs, in May we invited Anne West to join the Board. Anne had a long and successful career as a fund manager, and was Chief Investment Officer of Cazenove Capital Management; she reinforces our understanding of the needs of wealth managers who now make up a very significant part of our register.

I have already referred to the hard work of the deal teams, portfolio management team and other professionals at HgCapital, and I thank them for their contribution to the creation of shareholder value. The responsibilities of the board of an investment trust, and the skill and effort that are needed, also grow year by year; my colleagues therefore also merit my thanks on behalf of shareholders.

Roger Mountford

Chairman

20 August 2014

INTERIM MANAGEMENT REPORT & RESPONSIBILITY STATEMENT

Interim management report

The important events that have occurred during the period under review are described in the Chairman's statement and in the Manager's review, which also include the key factors influencing the financial statements.

The Directors do not consider that the principal risks and uncertainties have changed since the publication of the annual report for the year ended 31 December 2013. A detailed explanation of the risks summarised below can be found on pages 13 and 14 of the Annual Report which is available at www.hgcapitaltrust.com.

Performance risk

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.

Regulatory risk

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.

Operational risk

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.

Financial risks

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.

Liquidity risk

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.

Borrowing risk

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.

Responsibility statement

The Directors confirm that to the best of their knowledge:

• The condensed set of financial statements has been prepared in accordance with the Statement on Half-yearly Financial Reports issued by the UK Accounting Standards Board and gives a true and fair view of the assets, liabilities, financial position and profit of the Trust;

• The Interim Management Report (incorporating the Chairman's Statement and the Manager's Review of the Period) includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Trust during that period; and any changes in the related party transactions described in the last annual report that could do so. There were no related party transactions during the period.

This half-yearly financial report was approved by the Board of Directors on 20 August 2014 and the above responsibility statement was signed on its behalf by Roger Mountford, Chairman.

THE TRUST'S INVESTMENT OBJECTIVE & INVESTMENT POLICY

INVESTMENT OBJECTIVE

The Investment 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. If the Board proposes to amend the Trust's Investment Objective, it will seek the approval of shareholders in a general meeting.

INVESTMENT POLICY

The policy of the Trust is to invest, directly or indirectly, in a portfolio of unlisted companies that are expected to grow organically or by acquisition and to spread investment risk through appropriate diversification. The Trust's maximum exposure to unlisted investments is 100% of the gross assets of the Trust from time to time. At the time of acquisition, no single investment in an unlisted company, whether made directly or indirectly, will exceed a maximum of 15% of gross assets.

The Trust may invest in other listed closed-ended investment funds up to a maximum at the time of acquisition of 15% of gross assets.

Any material change to the Trust's Investment Policy will be made only with the approval of shareholders in a general meeting.

Sectors and markets

The Trust invests primarily in companies whose operations are headquartered or substantially based, or which serve markets, in Europe. The Trust invests in companies operating in a range of countries, but there is no policy of making allocations to specific countries or markets. The Trust invests across a range of sectors, but there is no policy of making allocations to sectors.

Gearing

Underlying investments or funds are typically leveraged to enhance value creation, but it is impractical to set a maximum for such gearing. The Trust may over-commit to invest in underlying assets in order to maintain the proportion of gross assets that are invested at any time. The Trust has the power to borrow and to charge its assets as security. The Articles currently restrict the Trust's ability (without shareholder approval) to borrow no more than, broadly, twice the aggregate of the Trust's paid up share capital and reserves.

Hedging

The Trust offers exposure to a range of businesses operating in the UK, the eurozone and the Nordic region. The Trust does not strategically hedge investments back into sterling. From time to time, the Manager may use derivatives to hedge tactically with the object of protecting the anticipated sterling value of the acquisition cost of investments made or proceeds from realising investments in other currencies.

Liquid funds

The Trust maintains a level of liquidity to ensure, so far as can be forecast, that it can participate in all investments made by the Manager throughout the investment/realisation cycle.

When appropriate the Trust negotiates a standby bank facility to provide funds for investment.

The Trust currently has a £40 million unsecured standby bank facility with Lloyds TSB Bank plc. The Trust can draw on this facility to meet short-term needs, for example, between making an investment and receiving the proceeds from a realisation. At certain points in the investment cycle, the Trust may hold substantial cash awaiting investment. The Trust may invest its liquid funds in government or corporate securities, or in bank deposits, in each case with an investment grade rating, or in managed funds that hold investments of a similar quality.

To this end, Royal London Asset Management has been appointed as a cash manager. This will deploy funds awaiting investment in a highly liquid portfolio of cash, UK gilts, covered bonds, sovereign bonds and index-linked securities.

If there is surplus capital, and conditions for new investment appear to be unfavourable, the Board will consider returning capital to shareholders, probably through the market purchase of shares.

Socially responsible investment

The Board has adopted a policy intended to invest the Trust's funds in a socially responsible manner. The Trust's focus is on identifying high-quality and sustainable businesses, and supporting their growth for the benefit of shareholders and wider society.

The Board monitors the Manager's policies to ensure they are compatible with the Trust's policies.

The Trust has no employees and has limited direct impact on the environment. The Trust aims to conduct itself responsibly, ethically and fairly and has sought to ensure that HgCapital's management of the portfolio of investments takes account of social, environmental and ethical factors where appropriate.

THE TRUST'S RATIONALE AND BUSINESS MODEL

RATIONALE

The Board believes that there is a convincing rationale for investing in well-researched private businesses where there is potential for growth in value, especially where the Manager and the management of the business can work together to implement strategic or operational change. These can result in higher rates of growth in sales and enhanced profits, offering investors capital gains on realisation.

Many large institutional investors have been making an allocation to private equity funds for decades, each time committing to a 10-12 year closed end fund, investing time to select a manager and negotiate complex and lengthy limited partnership agreements, and then assuming the burdens of administration, monitoring and accounting that these vehicles impose. In return, the best managers have delivered better performance than most investors have received from their listed equity, bond, hedge fund and property portfolios. This long-term commitment may not be practical for smaller pension schemes - especially if they intend to de-risk over time - or wealth managers, charities and private individuals. As an alternative, these investors can gain access to the private equity ownership model by buying shares in the Trust. As an investment trust, it has an independent Board and is committed to transparent and regular reporting. The Trust's shares are listed on the London Stock Exchange and it is widely covered by published research.

BUSINESS MODEL

Working within the framework of the Trust's Investment Policy, the Board and the Manager have together developed a Business Model, which is kept under regular review. The Business Model evolves as market conditions change and new opportunities appear.

Asset class

The Trust's objective is to participate in the ownership and development of unquoted businesses. From time to time, the Trust may directly or indirectly hold listed securities in pursuit of its investment policy.

The Trust is not a fund of funds and does not invest in other managers' funds. This provides greater transparency for the Board and shareholders in the Trust and avoids the double level of fees common in a fund of funds model.

Most of the Trust's investments are held through partnerships, of which it is the sole limited partner and which invest alongside pooled funds managed by HgCapital: the Trust currently invests alongside the Manager's HgCapital 7 fund. The Trust also invests in smaller TMT buyouts via the Manager's specialist Mercury fund and in renewable energy via its commitment to RPP2.

The Trust invests on the same terms as institutional investors. The Manager is organised in investment teams that focus on business sectors and carry out in-depth research into them. The Manager does not make top-down allocations to these sectors or to particular countries; the balance between sectors and countries may change as investment opportunities appear and portfolio companies are sold.

The Board of the Trust decides, after consultation with the Manager, on the timing, amount and terms of each commitment it makes to invest in or alongside any of the Manager's funds. Such commitments are normally drawn down over five years, as investment opportunities arise. The Board agrees each commitment at a level it believes the Trust will be able to fund from its own resources or from temporary borrowing. However, to mitigate the risk of being unable to fund any drawdown under its commitment, the Board has negotiated a right for the Trust to 'opt-out' of any new investment (made by the HgCapital 7 fund) where certain conditions exist (see note 12 to the financial statements).

The Trust may also take up a co-investment in some buyouts (in addition to investment under its commitment). The Trust may also acquire a limited partnership interest in any of the Manager's funds in the event that any other investor wishes to realise its partnership interest.

In addition, the Trust has invested in renewable power generating projects, an area where the Manager has developed its skills and built a specialist team.

Comparators

For most shareholders, their investment in the Trust represents a small allocation of funds that would otherwise be invested in UK equities. The Manager's aim is to achieve returns in excess of the FTSE All-Share Index over the long-term, but the Trust is not managed so as to reflect short-term movements in the Index and the performance of the Trust can be expected to differ from that of the Index over specific periods.

To assess the Manager's performance relative to other private equity managers, the Board regularly compares the Trust's NAV and share price performance against a basket of peers listed on the London Stock Exchange and against the UK and pan-European indices of listed private equity companies published by LPX.

Priorities as a listed investment company

As the rationale for the Trust is to provide investors with a way to invest in an illiquid asset class, through a liquid listed vehicle, the Board has a number of priorities including: retaining the status of an investment trust; maintaining a liquid market in its shares; providing shareholders with transparent reports on the underlying portfolio; adopting prudent valuations; and avoiding adding risk at the Trust level.

Valuation

The Board reviews the values of each of its underlying investments after considering analytical and performance data; the valuations prepared by the Manager; and the Manager's valuation process. The Manager's valuations are carried out in accordance with the International Private Equity and Venture Capital ('IPEV') Valuation Guidelines, December 2012 edition. Further information can be found at www.privateequityvaluation.com.

NAV and trading in the Trust's shares

The Board publishes the Trust's NAV as at 30 June and 31 December, incorporating revaluations of the investment portfolio at these dates. The NAV figure is thereafter published monthly, after adjustment for realisations and movements in foreign exchange and the market prices of any listed securities.

The Trust's shares trade on the London Stock Exchange at prices that are independent of the Trust's NAV but reflect the NAV and expectations of future changes in it. The shares have traded at a discount to the NAV and, at times, at a premium to it. The Board has not attempted to manage any discount through the repurchase of shares. The Board believes that discounts to NAV are minimised through consistently good long-term returns, transparent reporting, rigorous valuation and avoidance of risk at Trust level.

Dividends

The Board does not structure the Trust's balance sheet or underlying investments in order to deliver any target level of dividend. To maintain the Trust's status as an investment trust, annual net revenue retained, after dividend distributions in respect of that financial year, may not exceed 15% of the annual total taxable income. The total taxable income for a financial year might be higher or lower than the net income reported in the income statement. The level of the net revenue varies from year to year according to two principal factors: the level of the Trust's liquid funds and the short-term interest rates that can be earned on them; and secondly by the extent to which the Trust's interest in buyout investments takes the form of interest-bearing shareholder loans. Net revenue can also be affected by changes in the valuation of accrued, but unpaid, interest on these shareholder loans to investee companies. Accordingly, dividends are likely to vary from year to year. Where possible, the Trust has elected to 'stream' its income from interest-bearing investments as dividends that will be taxed in the hands of shareholders as interest income; this reduces the tax charge payable by the Trust.

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 Trust's Annual Report 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 of the Annual Report 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.

Performance

In the six months to 30 June 2014, the Trust's NAV per share (including dividends re-invested) increased by 5.8%. In comparison, the FTSE All-Share Index increased by 1.6% (total return). The Trust's Ordinary share price increased by 2.5% on a total return basis.

Key performance indicators

Each Board meeting conducts a detailed review of the portfolio and reviews trading results and key performance indicators for each underlying investment, in order 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 and the Manager's review. 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.

For and on behalf of the Board

Roger Mountford

Chairman of the Board

20 August 2014

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 top quartile returns for our clients and a rewarding environment for our staff.

References in this interim 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, HGT6 LP, HGT7 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 a fully independent firm in December 2000 and is 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 employees in two investment offices in the UK and Germany, HgCapital has assets under management of £5.2 billion serving a range of highly regarded institutional investors, including private and public pension funds, charitable endowments, insurance companies and family offices.

Hg Pooled Management Limited was authorised as an Alternative Investment Fund Manager on 25 July 2014.

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 its 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.

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.

Following each investment, our dedicated portfolio management team works to protect and 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. 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 and introduced a forum which meets twice a year to focus on outperformers and how we can best accelerate their development within the business. We believe that this is the basis of effective succession planning.

Enhancing our skill in developing talent

We have gained external recognition by winning the 2013 HR Excellence award for Best Learning and Development Strategy for a UK private company for our work with investment executives.

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

Mid-market 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 activity 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.

HgCapital professionals support the management of our portfolio companies to develop, execute and monitor value enhancement strategies for each business. Accordingly, we are in a position to review the performance of all of our investments, identify quickly any issues that demand attention and ensure that appropriate action is taken.

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 INVESTMENT

HgCapital is a signatory to the United Nations Principles for Responsible Investment Initiative ('PRI').

HgCapital's investment philosophy is based on creating value driven by sustainable growth. We believe that this approach will allow HgCapital to deliver superior returns for our clients by investing in the provision of services and resources from which entire communities can benefit.

To support this philosophy and our approach to responsible investment, HgCapital considers five responsible investment focus areas in making investment decisions and evaluating portfolio companies, namely: Environment, Workplace, Marketplace, Governance, and Community.

HgCapital received the British Venture Capital Association Responsible Investment Award in October 2013 for our Environmental, Social and Governance policy and framework.

HgCAPITAL'S RESPONSIBLE INVESTMENT APPROACH:

GOVERNANCE

• Business ethics and anti-corruption

• Active risk management

• Effective board and committee structure

WORKPLACE

• Health & safety

• Equal opportunity and fair treatment

• Motivated workforce

• Employee engagement

• Talent development

• Labour standards

ENVIRONMENT

• Do more with less - reduce impact on natural resources

• Compliance with emissions and waste regulations

• Measure and monitor environmental impact

• Increase availability of renewable energy

MARKETPLACE

• Managed supply chain - reliable, stable, high-quality, responsible

• Monitor, measure and build customer satisfaction

• Research, develop and offer responsible products and services

COMMUNITY

• Active engagement with local communities

• Net job creators

• Build strong community and stakeholder links

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

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; 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 on the sector 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.

In addition to the business models 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.

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 industrial market benefits from proven expertise and high levels of international demand for German precision-engineering, smart electronics, automotive, chemical 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: specialised engineering or distribution; industrial electronics; automotive suppliers and specialist consumer product design; and manufacture.

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 control investments and creating industrial scale renewable energy platforms, seeking to aggregate a number of like 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.

OVERVIEW OF THE PERIOD

NET ASSET VALUE (NAV)

Over the first half of 2014, the NAV of the Trust increased by £14.0 million, from £440.6 million to £454.6 million.

*Liquid resources include government securities, liquidity funds and cash.

There were a number of underlying factors contributing to the above movement in the NAV. Significant positive impacts on the NAV were: the movement in value of the unrealised portfolio (+£27.0 million); and uplifts on the realisation of investments, compared with their carrying value at the start of the year (+£3.4 million). Reductions in the NAV were caused by: the payment of a dividend to shareholders (-£10.8 million); the Manager's remuneration (-£4.5 million); and operating expenditure and taxation (-£1.3 million).

TOP 20 PORTFOLIO TRADING PERFORMANCE

The Top 20 (representing 89% of the total portfolio by value, at 30 June) have delivered aggregate sales growth of 10% and EBITDA growth of 9% over the last twelve months ('LTM') to 30 June 2014. The top 10 of these investments saw faster growth in sales and EBITDA, with both up 13% over the prior equivalent period.

Sixteen companies (88% by value of the Top 20) reported an increase the LTM sales, while twelve (74% by value of the Top 20) increased EBITDA over the LTM.

Of these Top 20 investments, seven (44% by value of the Top 20) increased sales by greater than 10% and nine (55% by value of the Top 20) grew EBITDA by more than 10% over the LTM. Six companies (35% by value of the Top 20) saw EBITDA growth of over 18% over the LTM.

Several of the larger businesses within the portfolio have seen, and continue to see, double-digit growth in both sales and EBITDA, including IRIS, Visma, P&I and JLA.

There has been a marked improvement in trading over the past year from some companies in the portfolio, in particular NetNames and SimonsVoss, which have seen a return to strong growth.

Of the Top 20 investments, eight have reported a decline in EBITDA year-on-year. For some of these companies, this decline in EBITDA is a result of increasing costs to support faster sales growth. For example, e-conomic, acquired in August 2013, is seeing rapid revenue growth; however, EBITDA is currently in decline due to significant investment to drive future expansion.

Investment into Parts Alliance and Radius, in order to integrate acquisitions, is holding back EBITDA in the short-term.

QUNDIS has seen weak sales in the LTM with EBITDA further impacted by investment into infrastructure.

Trading at Lumesse remains behind expectations. We are continuing to invest in the business to support the strategy developed by the new management team to drive higher long-term growth.

We are pleased to see strong EBITDA figures year-on-year, as investment made into the portfolio companies to drive growth continues to come through.

VALUATION AND GEARING ANALYSIS

The portfolio is valued consistently from year to year, applying the IPEV Valuation Guidelines. Our valuation of each investment has produced an average EBITDA multiple for eighteen of the Top 20 investments of 12.4x EBITDA, compared with 11.6x for the Top 20 equivalent in December 2013. Two investments in the Top 20 have been valued on a non-earnings basis and hence have been excluded from the EV to EBITDA analysis.

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 31 May 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 for a basket of comparable companies, primarily from the quoted sector, but where relevant and recent, we will also use private M&A data.

During the first half of 2014, the majority of the portfolio has seen an increase in value through strong profit growth, both organic and through acquisition: most notably, Visma, TeamSystem and SimonsVoss.

Following the write-downs made in June 2013, we are pleased to see an improvement in performance from NetNames and Teufel, increasing their valuation from the 2013 year end.

Our portfolio companies make appropriate use of gearing, with average gearing for the Top 20 of 4.6x LTM EBITDA as at 30 June 2014. A number of the businesses have highly predictable earnings and free cash flows (e.g. Visma, IRIS and TeamSystem), enabling us to use debt to gear our returns.

TeamSystem has made use of the public bond markets to fund acquisitions. Similarly, IRIS and JLA have also funded M&A activity through external debt.

During the period, the value of the unrealised portfolio increased by £32.3 million. This increase was attributable to increases in profit (+£41.9 million); increases in ratings (+£24.3 million); and acquisitions made within the portfolio netted off against the 31 December 2013 carrying value of realisations made in the six months to 30 June 2014 (+£5.2 million). These movements were partially offset by decreases driven by an increase in net debt (-£26.0 million) and unfavourable currency movements (-£10.0 million). The RPP1 and RPP2 fund investments decreased further (£5.1 million) over the period. The increase in profits resulted from organic growth as well as some acquisitions made within the portfolio companies. The latter was largely funded by debt, resulting in debt increases that more than offset the debt repayments achieved in the portfolio companies.

OUTSTANDING COMMITMENTS OF THE TRUST

The period ended with liquid resources of £77.5 million and outstanding commitments of £251.1 million in the funds, as listed below. The Trust also has a £40.0 million bank facility that is currently undrawn.

INVESTMENT PORTFOLIO OF THE TRUST

PORTFOLIO OF INVESTMENTS

HgCapital's strategy is to invest in four sectors, three of them (TMT, Services and Industrials) by way of buyouts of businesses. The primary focus is on mid-market buyouts between £80 million and £500 million and also in lower mid-market buyouts in the TMT sector between £20 million and £80 million. The buyout portfolio currently represents 97% of the portfolio by value at the year end.

Investment in the fourth sector, renewable power generation (3%), is made into projects through RPP1 and RPP2.

Deal type by value

95% Buyout - mid-cap3% Renewable Energy2% Buyout - small-cap

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

79% Above

21% Below

*Representing aggregate realised proceeds and unrealised valuations of an investment

PRIMARY BUYOUT PORTFOLIO

As at 30 June 2014, the Trust's primary buyout portfolio comprised of 27 active companies. A small number of residual interests remain in companies that had been sold and were awaiting liquidation or final proceeds.

TMT

TMT represented 57% of the total primary buyout portfolio (including Mercury). The majority of this value is characterised by companies that provide software and technology, rather than developers of technology with the associated frequent challenges of new product development. The common themes that run through each one are highly visible repeatable revenues, strong market positions and strong cash conversion that permits debt repayment, whilst the businesses expand and grow.

IRIS, Visma, TeamSystem, P&I and e-conomic are providers of business software and services in the UK, Nordic region, Italy, Germany and Denmark respectively. These businesses benefit from a high proportion of recurring revenues and a very large and diversified customer base.

IRIS and Visma have performed well, as they have for many years, delivering strong double digit sales and earnings growth over the last twelve months; both continue to expand both organically and through acquisition.

TeamSystem, based in Italy, continues to see lower growth than some of its peers in the portfolio, but is continuing to win market share both organically and by acquisition. Despite a difficult economic environment for the company, this growth trend is improving. In April, the company announced the acquisition of Il Sole24Ore's software business. Synergies from this and other recent acquisitions will enhance EBITDA.

P&I was acquired in December 2013 and whilst the company is new to the portfolio it is performing well and continues to generate strong double-digit earnings growth.

e-conomic, acquired in August last year, is showing rapid sales growth, whilst EBITDA is being consciously reduced by significant investment in the cost base of the business to drive future expansion.

Achilles is an electronic market place, which has consistently achieved strong year-on-year sales growth since acquisition. Earnings growth is currently being held back by significant investment into the company.

NetNames, an internet domain name manager and online brand protection service provider, saw weak trading in 2013, further affected in the period by currency rates and significant investment being made in the business, leading to a write-down in the valuation in 2013. NetNames remains behind plan but has seen a strong recovery in the first six months of 2014 and consequently, its value has increased.

Lumesse, a European provider of strategic HR software, had a disappointing 2013 with a decrease in earnings leading to a write-down in its valuation at the end of June 2013. Whilst trading remained weak in the first half of 2014, the new management are executing a revised strategic plan to improve the financial performance of the business.

Ullink, acquired in March 2014, is a leading global provider of electronic trading applications to the financial community and currently represents 2.1% of the portfolio value. In June, the company announced the acquisition of NYFIX and Metabit from Intercontinental Exchange. This transaction is subject to regulatory approval with completion expected in late 2014.

Services

Services represented 22% of the primary buyout portfolio.

JLA, a leading provider of laundry and adjacent services equipment, finance and maintenance has continued to see strong double-digit growth in both sales and EBITDA over the last twelve months despite continued investment, driven both organically by an increase in the rental market and the success of innovative sales initiatives and also through small acquisitions.

In December 2013, we completed the acquisition of Leasedrive and subsequently the acquisition of Zenith in February 2014. These two UK vehicle leasing businesses have since been merged to create Zenith-Leasedrive currently representing 7.2% of the portfolio value. There are many synergies between the two businesses and, whilst it is early in the life of this investment under HgCapital, EBITDA growth is robust.

In August 2013, the Services team acquired Nair & Co. and in April 2014 the company announced a merger with HSP creating Radius, a global company providing tailored solutions for fast-growing companies looking to expand into international markets. This investment now represents 5% of the portfolio. The company is seeing strong sales growth driven by an expanding customer base, but further investment is required to integrate the two companies and professionalise the business which has reduced earnings in the short-term.

Parts Alliance is a roll-up of firms in the UK automotive after-market parts distribution sector. Investment into the cost base of the companies in order to professionalise the group has reduced earnings, but we are beginning to see an improvement in EBITDA which we believe is set to continue.

Atlas, a provider of e-learning solutions to the oil and gas sector, has seen a fall in sales and an even bigger reduction in earnings over the last twelve months due, in the main, to a failure to replace two large contracts lost in 2013. The market environment for this company remains sound and we are working with the management team to improve performance over the next twelve months.

Sector by value of primary buyout portfolio

57% TMT

22% Services

10% Industrials

7% Healthcare

4% Consumer & Leisure

Net assets by class

83% Unquoted

17% Liquid resources & other assets

Industrials

Industrials represented 10% of the primary buyout portfolio.

Here, the common theme is that we are backing companies that own and develop high quality products, based on technologically advanced German design.

SimonsVoss, a German developer and manufacturer of digital battery-powered locking and access control systems, has seen strong double-digit EBITDA growth in 2014 following a weaker than expected 2013; this improvement has been driven primarily by increased sales.

QUNDIS is a leading provider of sub-metering devices and services in Germany and Italy, with a presence in other European markets. Political turmoil in Russia and Turkey has contributed to weaker sales over the last twelve months, with earnings further impacted by ongoing investment into management, processes and production facilities.

SFC KOENIG (formerly KVT) is a leading global provider of sealing and flow control technology headquartered in Switzerland. Trading over the past year has improved with growth across all regions and products, driven by a strong recovery in the markets in which it operates and an improved sales and distribution strategy.

Teufel is a designer and online direct retailer of loudspeaker systems in Germany. The business performed poorly over the twelve months to the end of June 2013, leading us to apply a full provision against the investment. We have continued to work with the management of this company and have seen a strong return to positive performance over the first half of 2014.

Healthcare

Healthcare represented 7% of the primary buyout portfolio.

We have previously invested in two areas: long-term care where the payer risks are low, with a preference for specialist care of people with acute disabilities; and low cost pharmaceuticals. Going forward we will look to use our Healthcare sector expertise through investments that sit within the TMT and Services sectors.

We own long-term care assets in the UK, Germany, Sweden and Finland.

In 2012 Frösunda, a Swedish care home business, went through a period of consolidation following a poorly executed acquisition programme the previous year. This led to damaged margins and sales and a reduction in the valuation. The business has since stabilised, with a return to growth in the last twelve months. The political climate for private-equity owned care homes in Sweden however, remains uncertain.

In the UK, the Government's fiscal consolidation translated into a reduction in fees that local authorities and social services will pay for care, which has resulted in a squeeze on margins affecting most care home operators. Whilst Voyage Care remains one of the highest quality acute care providers, underlying trading conditions remain tough, with respect to occupancy, fee rates and cost control. In July 2014 we announced the sale of Voyage Care, which should return about £8.4 million to the Trust upon completion. Please see below for further information.

In Germany, manpower shortages have generally increased labour costs and squeezed margins. Despite this, Casa Reha saw an improvement in trading performance in 2013 which has continued into 2014, primarily from better operational controls over staff and tighter cost control overall.

Our Finnish investment, Mainio Vire, faces a challenging market background with a tighter funding environment affecting occupancy. We will continue to work with the management to restore value.

Consumer and Leisure

Finally, our legacy Consumer and Leisure portfolio, in which we are no longer investing, represented 4% of the primary buyout portfolio.

Schleich, the German toy figurine producer, saw some recovery during 2013 from the previous year and this continued into 2014. In May 2014 we announced the sale of Schleich to Ardian, returning £11.9 million to the Trust on completion in July.

Sporting Index, a sports spread betting firm, saw a decline in growth compared with 2013 and this has been reflected in a write-down of the valuation of this company. The company's July 2014 trading results benefited from the effect of the football World Cup compared with the prior year.

PRIMARY SMALL-CAP BUYOUT PORTFOLIO

HgCapital's Mercury Fund specialises in lower mid-market buyouts in the TMT sector with an enterprise value of between £20 million and £80 million. This is an area where the Manager has historically made many profitable investments and has now set up a dedicated team of investment professionals focused on this niche. As at 30 June 2014, we have made three investments, together representing 2% of the portfolio value.

Intelliflo is a UK-based Software as a Service ('SaaS') provider of software to financial services. Current EBITDA growth is, at present, being held back by investment into the cost base to improve the sales and marketing functions in order to drive future customer growth.

Relay Software, a provider of software to insurance brokers, underwriters and insurers in the Republic of Ireland was acquired in February 2014 and currently represents 0.7% of the portfolio value.

Valueworks, a UK based electronic marketplace serving landlords and contractors in the housing construction and maintenance market was written down in 2013 due to investment in management and premises in 2012, together with lower revenues from professional services, materially affecting growth. The Company remains behind plan with continued weak trading in the last twelve months.

Since the period-end, the Mercury team has completed an investment in Sequel Business Solutions, a leading software and service provider to the Lloyd's of London insurance market.

RENEWABLE ENERGY

As highlighted in the Annual Report and Accounts published in March 2014 and in the Interim Management Statement published on 13 May 2014, the Spanish government announced new general legislation in July 2013 making further changes which were expected to have a material negative impact on the value of the Spanish assets. In February 2014, the government published a draft of the detailed new tariffs under the July 2013 legislation which is expected to be passed into law in the next two months. At 1,700 detailed pages, the regulations cover hundreds of different tariffs based on technology, location and date of operation. HgCapital has now evaluated the impact of the draft legislation on the seven solar projects held by RPP1 and 34 hydro projects held by RPP2 and this has been reflected in the 30 June 2014 valuation. The impact of this revaluation has been a further write-down of these assets, reducing the Trust's NAV at 30 June 2014 by £4.6 million or 12 pence per share compared with the equivalent valuation at 31 December 2013.

This valuation is based on the available information and assumptions such as a final enactment of the published draft and a successful debt restructuring negotiation with the lenders to the solar and hydro projects. The residual value of the Trust's renewable assets in Spain now represents approximately 4 pence per share; while further deterioration cannot be ruled out, the residual value takes no account of claims for compensation that the Manager and other international investors are pursuing under the Energy Charter Treaty.

A further reduction in valuation within the renewable energy funds has been largely attributable to depressed power prices affecting the value of our Swedish onshore wind investments, as well as currency movements as these are euro denominated funds.

Please see below for further information on the renewable energy funds.

GEOGRAPHY & VINTAGE ANALYSIS

At 30 June 2014, the geographical weighting of the total primary buyout portfolio, including Mercury, was split 50% in the UK, 20% in Germany and 18% in the Nordic region, one investment - SFC KOENIG (formerly KVT) - based in Switzerland, and a further investment, Ullink, is headquartered in France (2%). TeamSystem, which is our sole investment in Italy, accounts for about 9% of the primary buyout value.

Geographic spread by value of primary buyout portfolio

49% UK

20% Germany

18% Nordic region

9% Italy

2% France

1% Switzerland

1% Republic of Ireland

Vintage by value of primary buyout portfolio

3% 2014

25% 2013

5% 2012

14% 2011

28% 2010

25% pre 2010

PROSPECTS

The recovery in the UK economy has continued to develop, with the IMF revising economic forecasts upwards and current growth rates out-performing all the other major developed economies, including the US, Germany, France and Canada.

Despite these positive lead indicators, the European recovery is clearly still at a tentative stage and we remain cautious and disciplined in our investment approach, especially as the broader investment climate environment has latterly shown partial signs of a return to the exuberance of the mid-2000s boom period, particularly in terms of pricing and leverage levels but also evident in accelerated auction processes, which we have consciously avoided.

Over the last year, we have consistently deployed and returned capital. We believe that within our sectors of expertise we can still continue to find pockets of opportunity to acquire market leading businesses at reasonable prices, usually where there has been the opportunity for us to build relationships with such companies over many years before making an investment.

The vast majority of investments made in the last eighteen months were generated on a proprietary basis following many years of sector research. Consistent with this, we have avoided full auction processes wherever possible. Our deep sector focus is used to identify high quality growth companies in sub-sectors driven by fundamental long-term factors. The increasing penetration of internet-based transactions for businesses is an example we identified many years ago. Companies such as Visma, IRIS and Achilles all benefit from this and have produced consistently strong growth over the past few years. Less obvious examples include JLA and Radius which provide business critical services to a fragmented customer base and deliver robust growth.

Trade buyers, financial buyers and more recently, public markets continue to show an interest in acquiring our portfolio companies, as a result of their growth and market positions, as demonstrated in the first half of 2014 with the IPO of Manx and the sale of Visma and Schleich.

We believe there will be further opportunities in the medium term to continue realising investments as we have done consistently across market cycles.

 INVESTMENTS

£25 million invested by the Trust in the first six months of 2014

NEW INVESTMENT ACTIVITY

The first half of 2014 has been an active period with a total of £198 million deployed on behalf of HgCapital clients, with the Trust's share being £24.7 million.

The Mercury Fund announced an investment in Relay Software, a provider of software to insurance brokers, underwriters and insurers in the Republic of Ireland in February. The Trust contributed a total of £2.2 million to this investment.

In early March 2014, HgCapital announced an investment in Ullink, a leading global provider of electronic trading applications and connectivity to the financial community. The Trust's share of this investment was £7.7 million.

In addition to new investments, in February 2014, the Services team completed the acquisition of Zenith at an enterprise value of £231 million. Zenith is one of the UK's largest independent leasing, fleet management and vehicle outsourcing businesses. At the beginning of March 2014, Zenith and Leasedrive (acquired in December 2013) began operating as a single entity. The Trust deployed a total of £9.7 million net of a rebate received in respect of a refinancing of the combined business. The Trust's share of the combined business is £24.0 million. Please see below for more information on this investment.

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

INVESTMENTS MADE DURING THE PERIOD*

\* The numbers in the table relate to the Trust's share of underlying transactions

POST-PERIOD INVESTMENTSFurther £47 million invested since 30 June 2014

RE-INVESTMENT IN VISMA

In April, HgCapital announced a re-investment in Visma (completed in August), 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 a 31% 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 transaction structure, alongside KKR and Cinven, who will each hold 31%. Cinven are committing capital to the business for the first time. The Trust will contribute a total of £40.0 million to the re-investment in Visma, including a substantial co-investment participation in addition to its commitment to invest in all HgCapital 7 deals.

OTHER INVESTMENTS

In June, Ullink announced the acquisition of NYFIX and Metabit from NYSE Technologies, which is expected to complete by September 2014 and will be partly funded with debt. A further £2.2 million is estimated to be deployed on behalf of the Trust once this transaction completes.

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 has contributed a total of £4.4 million.

REALISATIONS

£23 million returned to the Trust during the first six months of 2014

Over the first six months of 2014, HgCapital has returned a total of £142 million to its clients, including £22.9 million to the Trust, primarily from the realisations of two buyout investments and a dividend receipt following a refinancing.

In February 2014, we announced the completion of the IPO of Manx Telecom on London's Alternative Investment Market ('AIM') at a market capitalisation of £160 million. The proceeds from the realisation of HgCapital's holding and earlier proceeds from refinancing the business represented an investment multiple of 2.1x original cost and a gross IRR of 26% p.a. over the investment period. The Trust received proceeds on completion of £13.1 million, an uplift of £3.0 million (8 pence per share) over the carrying value of £10.1 million 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 initial proceeds of this sale returned £0.5 million to the Trust in June, with a further £0.4 million retained in the business which is expected to be received by the Trust in 2017.

In addition to these realisations, the Trust received further distributions of £9.3 million from other buyout and renewable energy investments.

POST-PERIOD REALISATIONS

Further £55 million returned to the Trust since 30 June 2014

In August 2014, 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 the £7.1 million dividend received in May, representing an uplift of £9.7 million (26 pence per share) over the carrying value of £31.7 million at 31 December 2013. Over the life of the investment to date, the Trust has received total proceeds of £84.0 million, representing an investment multiple of 5.2x and a gross IRR of 33% p.a.

The sale of Schleich, a toy manufacturer headquartered in Germany, to Ardian, the French Private Equity Firm, was announced in May 2014. The cash proceeds of this transaction on completion in July were £11.8 million for the Trust, representing an uplift of £4.2 million (11 pence per share) over the carrying value of £7.6 million at 31 December 2013. The proceeds from this sale represented an investment multiple of 2.6x cost and a gross IRR of 14% p.a.

The impact of these post-period exits have been largely reflected in the June valuation.

Finally, in July, we announced the sale of Voyage Care to Partners Group and Duke Street Capital / Tikehau. Upon completion, which is expected early in September 2014, the Trust should receive about £8.4 million. This disposal represented a decrease of £1.9 million (5 pence per share) over the carrying value of £10.3 million at 31 December 2013.

THE TOP 10 PRIMARY MID-CAP BUYOUT INVESTMENTS

representing 66% of the total portfolio

Primary buyout investments are held through limited partnerships of which HgCapital Trust plc is the sole limited partner. The Trust invests alongside other clients of HgCapital. Typically, the Trust's holding forms part of a much larger majority interest held by HgCapital clients in buyout investments in companies with an enterprise value ('EV') of between £80 million and £500 million. The Manager's Review generally refers to each transaction in its entirety, apart from the tables detailing the Trust's participation or where it specifically says otherwise.

1. IRIS

Website: www.iris.co.uk

Original enterprise value: £425 million

HgCapital clients' total equity: 68.8%

Business description

IRIS is a leading provider of both core application software to the UK accountancy market and payroll applications to key business segments, including the UK general practitioners' market.

Headquartered in Berkshire, IRIS is a leading provider of business critical software and services to the UK Accountancy and SME sectors. Over half of all UK Accountants rely on IRIS to run their business, and its SME software is used by over 38,500 SMEs and payroll bureaus across a number of sectors, including 50% of UK GP practices and a growing number of UK retailers. 18% of UK businesses pay their employees via IRIS payroll solutions. Additionally over 96,500 SMEs subscribe to IRIS's cloud solutions to run their business.

Why did we invest?

HgCapital has been an investor in IRIS since 2004, retaining a minority stake following its sale and merger with CSH in 2007, and becoming a majority investor again in 2011 when we separated the two businesses. IRIS is one of the earliest examples of our focus on business critical software firms operating in attractive, predictable end-markets. IRIS operates a business model with a high level of revenues coming from subscriptions, and high customer retention rates. The company has grown consistently through the recession with organic growth in excess of 7%, even in 2008-9. The investment decision was based on our belief in continuing organic growth potential and acquisition-led consolidation opportunities in the sector.

How do we intend to create value?

The company is achieving strong organic revenue and profit growth through a combination of market share gains, price optimisation, and the on-going development of new solutions to sell into the existing customer base. Furthermore, the UK accountancy and SME software markets remain fragmented, offering additional acquisition opportunities to IRIS.

What has been achieved?

Significant investment has been made in senior management and the team is working well. The CEO has also made good progress in achieving revenue synergies and applying best practice between the Accountancy and SME Payroll divisions.

The company has been successful in broadening its market by expanding its offering portfolio, both by organic product development and by acquisition. The CEO has also successfully established a Cloud Division in London to sell SaaS products to UK accountants and SMEs and further investment is being made here to support the long term growth potential of this area.

How is it performing?

Whilst the business continues to invest significantly in marketing, new product development and infrastructure, IRIS saw double digit revenue and EBITDA growth in its latest financial year (ending 30 April 2014).

How will we crystallise value?

IRIS would be an attractive acquisition target to a financial buyer due to its high organic growth, margins, cash conversion and recurring revenue. It would also be a strong strategic fit with a number of trade players.

2. Visma

Website: www.visma.com

Original enterprise value: NOK 4.3 billion

HgCapital clients' total equity: 14.8%

Business description

Visma is a leading provider of mission-critical business software and outsourcing services to small and medium-sized enterprises in the Nordic region. 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 across the Nordics and the Netherlands.

Why did we invest?

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

At acquisition in 2006, both organic and acquisition-driven revenue growth opportunities were identified, as well as significant opportunities to increase profit margins that were below those of most of its competitors.

We decided to re-invest in 2014 as we believe the business still continues to exhibit attractive organic and acquisitive revenue growth together with margin improvements opportunities.

How do we intend to create value?

Visma has consistently exceeded our investment plans. In April 2014, following a decision by majority owner KKR to sell part of its original 2010 stake in Visma, HgCapital decided to sell its remaining stake, generating a total return between 2006 and 2014 of 5.2x original cost and a gross IRR of 33%. HgCapital and its clients are re-investing £409 million in the business for a 31% stake via the HgCapital 7 fund and co-investment participation as a co-lead investor alongside KKR and Cinven, valuing the business at a total enterprise value of NOK 21 billion (£2.1 billion). The re-investment in Visma reinforces our conviction in the continuing strength of the business; backing a management team we know well with a strong track record of creating value for investors.

What has been achieved?

Since HgCapital's first investment in 2006, Visma has acquired over 75 companies, 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, with over 2,000 customers (2012); and InExchange, the Swedish e-invoicing leader (2013). These deals strengthened organic growth from innovation in new products (e.g. In-Exchange) as well as driving margin improvement through a re-organisation of Visma's internal processes (e.g. Mamut). Visma is now positioned as one of the leading and largest SaaS companies in Europe, with over €80 million of pure-SaaS revenues.

How is it performing?

Year-to-date performance has seen strong organic growth in revenue and EBITDA respectively. SaaS growth remained strong across the group at c.35% on the previous year. Margins have improved across the Group.

How will we crystallise value?

As already evidenced, Visma has a scale and growth profile which makes it an attractive target to large private equity groups. It could also be an attractive IPO candidate.

3. TeamSystem

Website: www.teamsystem.com

Original enterprise value: €562 million

HgCapital clients' total equity: 50.0%

Business description

TeamSystem is a leading provider of business critical, regulatory driven SME software products in Italy. Headquartered in Pesaro, the company has a broad base of over 120,000 customers. It has 27 offices across Italy and employs over 1,200 people.

Why did we invest?

TeamSystem was HgCapital's fifth platform investment in business critical back office software, following IRIS (2004), Addison (2005), Visma (2006) and CSH (2007).

The company has a track record of solid growth throughout the economic cycle and delivered compound organic revenue growth of 6% p.a. between 2007 and 2009, trading resiliently through that downturn. Its stable nature (with more than 50% of revenues by way of annual subscriptions), strong cash generation and potential for growth in both the business and its market, all supported our decision.

How do we intend to create value?

Alongside organic growth, management has increased its cross-sell of products to the existing client base through the use of add-on modules such as reporting, analytics and payroll.

The potential to complete a number of add-on acquisitions of complementary businesses in Italy was identified at acquisition.

What has been achieved?

Several improvement projects were identified post acquisition including: enhanced reporting and pricing; product development; investment in the M&A process; and sourcing new ways to grow the micro-SME customer base. The focus on M&A has led to the completion of eleven acquisitions, including a controlling stake in Daneasoft, a leading accountancy software provider to the Italian micro-SME market in 2011 and more recently the acquisitions of ACG from IBM and Il Sole Software in a carve-out from its parent company. These acquisitions significantly increase TeamSystem's presence in the SME and professional services markets, and it is considering further product-led M&A targets.

How is it performing?

Notwithstanding the difficult economic environment in Italy, TeamSystem continues to also win market share. The business is achieving single-digit growth in sales and profits against a backdrop of the Italian economy which continues to see contracting GDP. Synergies from recent acquisitions should enhance EBITDA growth going forward.

How will we crystallise value?

We see a diverse range of exit options for TeamSystem, with interest from trade and financial buyers previously evidenced in the sector and an IPO on the Italian stock market a possibility given the scale of the company and local demand for technology stocks.

4. Zenith-Leasedrive

Website: www.leasedrive.com

www.zenith.co.uk

Original enterprise value: £337 million

HgCapital clients' total equity: 85.0%

Business description

Zenith-Leasedrive is the largest independent vehicle leasing businesses in the UK and was formed in March 2014 through the merger of Zenith Vehicle Contracts and the Leasedrive Group. Headquartered in Leeds, with full-service operations in both Solihull and Wokingham, the combined group has over 500 employees and provides end-to-end automotive solutions focused on contract hire, short-term hire and fleet management services to customers across the UK. The company operates a fleet of over 64,000 vehicles and focuses on serving blue-chip customers, principally as sole supplier.

Why did we invest?

Zenith-Leasedrive displays a number of the investment characteristics targeted by HgCapital. It has strong core profitability aligned with double-digit revenue growth, high cash flow conversion and offers a low ticket, business-essential service to a largely fragmented customer base with a high customer retention rate. In addition to growing its core contract hire fleet, we believe substantial growth can be achieved in the emerging salary-sacrifice marketplace in the UK. The merger was driven by the highly complementary nature of the two businesses and the potential to create significant economies of scale as a larger group.

How do we intend to create value?

In addition to supporting core customer growth, there is opportunity for significant improvement in operating and financing efficiency through the enhanced scale afforded by the merger. This platform should also enable further strategic M&A, where Hg's experience in buy-and-build and the company's flexible capital structure makes Zenith-Leasedrive a compelling acquirer. We have the benefit of a highly experienced Chairman, Jon Walden; HgCapital had the opportunity to work with Jon at Epyx, where he was Chairman, and his experience of building Lex, the largest UK vehicle leasing business, gave us insight and confidence on the opportunities that the sector offers.

What has been achieved?

The acquisition of Leasedrive was completed in December 2013, and we subsequently completed the acquisition of Zenith in February 2014. At the beginning of March, Zenith and Leasedrive began operating as a single entity.

How is it performing?

Zenith-Leasedrive displays strong core profitability with double-digit earnings growth over the previous year; a combination of both new and recurring contracts will further drive revenue growth.

How will we crystallise value?

We believe that Zenith-Leasedrive will be an attractive opportunity for a range of buyers once HgCapital has delivered its growth and efficiency plan for the business.

5. P&I

Website: www.pi-ag.com

Original enterprise value: €442 million

HgCapital clients' total equity: 69.6%

Business description

Headquartered in Wiesbaden, Germany, P&I is a leading supplier of payroll and HR-related software to mid-market companies and the public sector in Germany, Austria and Switzerland.

The company serves more than 15,000 customers (3,900 of which are direct) and generated revenues of €97 million in the 2014 financial year.

The business offers software for the management of payroll, workforce, time management and human capital management.

It typically services "Mittelstand" businesses with 200 - 5,000 employees across a range of industries, as well as medium-sized and large public sector customers. It employs a staff of almost 400 with offices in Austria, Switzerland, Slovakia and the Netherlands; and it has partners in nine additional European countries.

Why did we invest?

P&I displays specific characteristics that HgCapital looks for in its portfolio companies: a scalable business model with a broad diversified customer base; and a significant share of recurring revenues, driven by on-going regulatory changes.

The acquisition of P&I further strengthens HgCapital's position as a leading investor in the European software sector, having completed ten prior investments in the regulatory-driven software space since the firm's inception in 2000.

How do we intend to create value?

HgCapital continues to see attractive long-term growth in the European payroll and transactional HR sector for leading, innovative players. We will support P&I's continued development of its new product offerings, supported by continuous operational improvements. There are potential M&A opportunities in the relatively fragmented HR management systems, payroll, time management and expenses market.

What has been achieved?

With HgCapital's support, P&I is currently focused on strengthening its financial and operating reporting as well as defining the company's forward business plan and M&A strategy.

How is it performing?

2014's strong performance look set to continue, driven by continuing robust sales to existing customers. Sales are forecast to increase by 5-7% in 2014/15, with EBITDA margins of 35-37%.

How will we crystallise value?

We believe that the combination of highly contracted or quasi-contracted growth, high cash flow conversion and a strong product will be highly attractive at exit for both trade and financial buyers.

6. JLA

Website: www.jla.com

Original enterprise value: £150 million

HgCapital clients' total equity: 81.7%

Business description

JLA is a leading provider of on-premises laundry services, providing distribution, rental and servicing of commercial laundry machines to the UK SME market, mainly to care homes and small hotels.

The company is also a leading provider of coin operated, commercial machines into accommodation units (e.g. universities, worker accommodation units etc.) which it services via its Circuit brand.

JLA has recently extended its offering into kitchen and medical equipment, which is typically used by its existing customers, as well as the supply of detergents.

Why did we invest?

JLA enjoyed strong operating performance, including sustained organic growth through the period 2007-2009.

The customer base is highly fragmented and considers laundry as a mission-critical part of their day-to-day business. With a high proportion of customers in long-term contracts (representing a high level of revenues and a greater proportion of profits), there are attractive recurring revenues and a high level of forward revenue visibility.

How do we intend to create value?

HgCapital is working alongside management to increase the benefit of selling new products and services through JLA's existing sales force and service network.

In addition, there are plans to drive add-on acquisitions, both in the laundry market and similar service functions.

What has been achieved?

A number of projects have been initiated covering strategic planning, customer retention and pricing. In addition, management has been strengthened and nine small bolt-on acquisitions have been completed. The business now has a dedicated M&A team and a pipeline of further acquisition targets.

How is it performing?

JLA continues to see strong organic revenue and EBITDA growth in 2014, despite continued investment into the cost base. This has been driven by growth in rentals and also the Circuit brand, supported by the success of innovative sales initiatives.

How will we crystallise value?

HgCapital is focused on positioning JLA as a platform for selling critical asset maintenance services into SMEs. The most likely exit route for JLA is either a secondary sale to a private equity investor or a trade sale.

7. Achilles

Website: www.achilles.com

Original enterprise value: £75 million

HgCapital clients' total equity: 63.0%

Business description

Achilles manages a global network of collaborative industry communities. The business provides a cloud-based service enabling networks of buyers to create industry standards for collecting and validating supplier information. This is made available through the Achilles platform together with search, reporting and risk management tools.

Suppliers join the platform to gain access to the whole community of buyers and information to help them achieve and maintain compliance. Both buyers and suppliers pay annual subscription fees.

The verified data gathered and delivered by Achilles is crucial to support processes around risk management and compliance with regulatory, social responsibility, and health and safety requirements. Achilles currently operates more than 30 communities across 22 countries in five continents.

Why did we invest?

Achilles is another good example of a subscription based network business model with significant recurring revenue streams. It is a leading company in supply chain data, with stable growth driven by the increasing need for risk management.

How do we intend to create value?

With high levels of contracted revenue, Achilles' position as a global, scalable business model has considerable potential in revenue and margin growth, as well as multiple opportunities for expansion into new geographies and new industries.

What has been achieved?

Achilles' senior management team has been strengthened with significant new hires, while internal process projects on pricing, back-office management and sales practices have increased revenue growth. The business has made substantial investment in a new global technology platform and is migrating existing schemes to this, a material transformation for the business. Achilles is in the process of rolling out its services to sophisticated multi-national customers.

How is it performing?

Despite the considerable transformation of the business that is underway, Achilles continues to demonstrate robust revenue growth year-on-year. Significant investment in the company's global infrastructure has held back short-term profit growth and we would expect margins to rise over the medium term, as global efficiencies are achieved.

How will we crystallise value?

There has been strong interest in Achilles from both strategic and private equity buyers and the business's recurring revenue base is likely to maintain this interest throughout the economic cycle. An IPO is also a possibility.

  8. Radius

Website: www.radiusworldwide.com

Original enterprise value: $280 million

HgCapital clients' total equity: 81.9%

Business description

Radius was established by merging Nair & Co (acquired in August 2013) with High Street Partners (HSP) in April 2014. The company provides tailored solutions for fast growing companies that are looking to expand into international markets. Radius sets up the required international entities and integrates legal, accounting, payroll, tax and human resources services to ease the process of international expansion. Whilst it is headquartered in Bristol, UK, the company has 700 employees based in offices in UK, India, the US, Singapore, Japan and China.

Although it is based in the UK, most of the company's revenues are denominated in US dollars; accordingly, the company is valued in US dollars.

Why did we invest?

HgCapital's Services team had previously identified accountancy and trust/administrative services as a core focus area and the acquisition of Radius illustrates HgCapital's approach to making repeatable investments in its target sectors. HgCapital has a demonstrable track record of identifying and working with leading technology-enabled service companies to achieve sustainable growth.

Radius has all the characteristics that HgCapital looks for in an investment: it is a provider of mission critical services, to a fragmented customer base, benefiting from a repeat revenue model, and utilising a scalable technology platform to generate high margins. 

How do we intend to create value?

HgCapital intends to support continued organic growth of the business through increased market penetration and customer wins. We will target various operational and system improvements with potential for efficiency gains (e.g. billing/invoicing processes) and margin expansion. Further M&A opportunities to expand the service offering or global scope of the business as well as potential product extensions have been identified.

What has been achieved?

It is early days for the newly merged company, but HgCapital is working with Radius to strengthen management, processes and systems, evaluate M&A opportunities and support integration.

How is it performing?

Radius is trading to plan and seeing increased customer numbers. Operational improvements continue to be made into the infrastructure of the newly merged company, suppressing EBITDA.

How will we crystallise value?

We believe that the margin and sales growth profile of Radius will support an IPO when the company has reached sufficient scale. However, we would also consider a sale to another financial investor.

9. SimonsVoss

Website: www.simons-voss.com

Original enterprise value: €113 million

HgCapital clients' total equity: 92.1%

Business description

SimonsVoss is a European leader in the development, manufacture and marketing of electronic battery-powered locking and access control systems, mainly for public, commercial and residential buildings. Revenues primarily originate in Germany, with an increasing number of sales in international markets.

Why did we invest?

Operating in a niche segment with considerable technological expertise, the company's robust trading through the recession saw them thrive in a depressed market with EBITDA growing by an average of 12% p.a. between 2005 and 2013. The business continues to grow in Germany and internationally, as well as into attractive new product segments. SimonsVoss has an established in-house R&D function aiming for a constant expansion of its innovative product range, whilst reducing production costs.

How do we intend to create value?

Having rebuilt and grown the sales teams, SimonsVoss is looking to continue to drive its market share in Germany as well as expansion in adjacent geographic markets such as France, Benelux, Denmark and Sweden, as well as Asia. This is supported by new, innovative products including: passive technology; digital door fittings; and compact readers. Profitability should improve through higher volumes and various operational efficiencies.

What has been achieved?

During HgCapital's involvement, SimonsVoss has developed away from a single-product-focused company into a solution provider in electronic access control, offering a comprehensive product family. In order to address proactively new technology trends and to push internationalisation, the Board has been complemented by the appointment of an experienced chairman, the former Chief Marketing Officer at Vodafone plc.

A new CEO, Bernd Sommer, recruited from electronic blinds and gates producer, Somfy, with an impressive track record in multi-channel sales, joined the business in September 2013. He is focused on pushing growth through new customer groups, distribution channels and geographic markets.

How is it performing?

2013 was slightly weaker than expected with 6% growth over prior year; current trading is encouraging with a return to strong EBITDA growth in 2014 driven by good sales momentum, particularly in Germany and stable margins.

How will we crystallise value?

SimonsVoss represents a strong technology platform to enter the fast growing market for electronic locks; an exit to a trade buyer would seem most likely.

10. e-conomic

Website: www.e-conomic.co.uk

Original enterprise value: DKK 634 million

HgCapital clients' total equity: 81.6%

Business description

Founded in 2001 in Copenhagen, e-conomic is Europe's leading SaaS accounting solution provider for small and medium-sized businesses; it has more than 80,000 customers for its core product e-conomic. In addition, more than 230,000 customers have signed up for its freemium invoicing and expense product Debitoor (www.debitoor.com); the company is achieving a good rate of conversion of these customers from the free service to its subscription-based, value-added product.

Via its Software as a Service ('SaaS') subscription model, e-conomic offers accounting solutions to a fragmented market of SMEs and accountants (including more than 3,500 accounting partners who support e-conomic's products).

The company operates in its home market of Denmark and serves customers across numerous other European countries, including Norway, Sweden, Spain, Germany and UK. Its freemium product Debitoor is used in more than 30 countries.

Why did we invest?

The investment is in line with HgCapital's sector-focused approach of investing in growing mid-market companies that hold leading positions in the European SME software sector. The SME SaaS sector is expected to continue to grow strongly in the coming years, due to increasing SaaS penetration; HgCapital will support e-conomic's management to capitalise on this opportunity.

How do we intend to create value?

As the expected growth of the SME SaaS bookkeeping market unfolds over the next 5+ years, HgCapital plans to support e-conomic's management in its expansion into further EU countries (and potentially further afield) by both organic growth and acquisition. The fast growing 'freemium' product, Debitoor, is expected to lead this expansion strategy.

What has been achieved?

HgCapital is supporting e-conomic in various projects, in order to drive growth, including increased sales capacity, pricing projects, developing partnerships outside Scandinavia, strengthening the management team and assessing potential M&A opportunities. In addition, HgCapital together with the previous CEO were able to attract a new high calibre CEO (Mogens Elsberg) who joined e-conomic at the end of May. He has a 35-year track record in software business leadership.

How is it performing?

e-conomic has reported strong revenue growth driven by both increased new customers and larger spend per current client; however, profits have been materially held back in the medium term (as envisaged in HgCapital's initial business plan) by continued investment into the business to build the platform for further growth. We expect to see the impact of this investment come through in the next 12-24 months.

How will we crystallise value?

The increasing strategic importance of the SaaS sector and e-conomic's leading position in Europe should attract significant interest from both trade and financial investors.

INVESTMENTS IN SMALL-CAP TMT

Background

In 2011, the Trust made a £60 million commitment to HgCapital's new Mercury Fund, specialising in TMT investments with an enterprise value of between £20 million and £80 million. Smaller technology buyouts is an area where HgCapital has historically made many profitable investments and Mercury has allowed the establishment of a specialist team of investment professionals focused on these deals.

This dedicated fund is intended to target smaller buyouts in the same TMT sub-sectors and with similar business models, for example electronic marketplaces and SaaS providers. The addition of the dedicated Mercury team alongside the existing TMT team further reinforces the scale and capability of HgCapital within this sector.

Investments made to date

In August 2013, the HgCapital Mercury Fund completed an investment in UK-based Intelliflo Limited, a leading SaaS provider of front and back office software to financial advisors, advisor networks and brokers. Nearly ten thousand advisors and administrators use Intelliflo's software on a daily basis to manage workflows and respond to customer and regulatory needs. The enterprise value was £43 million and HgCapital owns 58% of the company.

HgCapital is working alongside the management on a number of initiatives to accelerate market share growth through: investment in sales and marketing; improved customer satisfaction; faster product release cycles; and new product development.

In February 2014, HgCapital completed the acquisition of Relay Software, a leading provider of software to insurance brokers, underwriters and insurers in the Republic of Ireland. Relay's software and network process one million insurance policies each year and its software allows 2,300 individual brokers to write business. HgCapital owns 51% of the company.

HgCapital is working alongside the management on a number of initiatives to increase revenues, improve operations and create value including: accelerated new product launch; expanding management; and M&A opportunities.

Intelliflo and Relay share similar attractive characteristics with a number of HgCapital's SME regulatory software businesses, including: a scalable business model; organic recurring revenue growth; high customer retention rates; and a service which is critical but low-spend.

In October 2012, the fund acquired its first investment. Valueworks provides a private B2B electronic marketplace, through which c.300 buyers (principally social housing organisations) procure goods and services, primarily related to planned repair and maintenance. The enterprise value was £20 million and HgCapital owns 63% of the company. Investment in management and premises in 2012, together with lower professional services revenues, has adversely affected profits and this led to a write-down of the investment at 30 June 2013.

HgCapital is working with management on several initiatives to recover value, including: developing the sales processes; work on the longer-term national pipeline strategy; evolving industry relationships; developing a product for private construction partners; and energy saving schemes.

Post-30 June 2014 event

In July 2014, the Mercury team announced an investment in Sequel Business Solutions, a leading provider to the Lloyds of London insurance market. The Trust contributed a total of £4.4 million to this investment.

Underlying investments held through HgCapital Mercury D LP

INVESTMENTS IN RENEWABLE ENERGY

Business description

HgCapital's specialist team uses private equity skills to identify and acquire high quality European renewable energy projects with minimal GDP risk, favourable inflation links and the use of proven technologies.

RPP1 (€303 million raised in 2006)

HgCapital's first renewable energy fund has built a number of utility-scale power platforms across Europe, optimising them using our specialist experience. HgCapital Trust committed €21.6 million to the Fund. Following the successful disposal of the entire UK platform, the remaining platforms are:

• Swedish onshore wind (Vasa Vind: www.vasavind.se): one operating project of 95MW;

• Spanish solar PV (Mercurio Solar): seven operating projects of 61MW.

RPP2 (€542 million raised in 2010)

The second fund replicates the strategies of the first. HgCapital Trust committed €40 million to the Fund. The second fund's platforms are:

• Swedish onshore wind (Vasa Vind: www.vasavind.se): two operating projects of 96MW; two projects in pre-construction totalling 304MW; and a development business with a pipeline of over 700MW;

• Irish onshore wind (Invis Energy: www.invisenergy.ie): one operating project of 44MW; one 43MW project in construction; two projects in pre-construction totalling 89MW; and a development pipeline of over 270MW;

• Swedish district heating (Vasa Värme): three operating systems totalling 61MW;

• Spanish mini-hydro (Ondina): two operating portfolios of 120MW.

As at 30 June 2014, electricity equivalent to the power consumption of more than 200,000 homes is generated from the operational energy plants in the portfolio.

Why do we invest?

Renewable energy is the fastest growing segment of the European electric power sector and is expected to account for the majority of new European energy asset investment over the next ten years. This growing demand is driven by renewable energy's increasing cost competitiveness, legally binding carbon reduction targets set by the EU, replacement of ageing generation capacity, and the need to increase the security of energy supplies in Europe.

How do we intend to create value?

Investment returns are anticipated through a combination of yield during operation and capital gain at refinancing or exit, providing a return profile that should complement returns from our core investments in leveraged buyouts. By bringing individual investments together into platforms, we can enhance value through economies of scale, shared expertise and aggregated generation capacity.

How will we crystallise value?

HgCapital is developing groups of projects based on the platforms shown in the table below. These platforms can then be refinanced efficiently or sold as portfolios of closely related projects to industry buyers or financial investors.

DIVERSIFICATION BY VALUE OF INVESTMENTS

Geography

41% Sweden

35% Ireland

13% Spain

11% UK

Resource

77% Onshore wind

10% District Heating

7% Solar

6% Hydro

PRINCIPAL INVESTMENTS BY PLATFORM

* Primarily deferred consideration from sale of development assets in 2013.

FINANCIAL STATEMENTS

INCOME STATEMENT

FOR THE SIX MONTHS ENDED 30 JUNE 2014

BALANCE SHEET

AS AT 30 JUNE 2014

The financial statements were approved and authorised for issue by the Board of Directors on 20 August 2014 and signed on its behalf by:

Roger Mountford, Chairman

Richard Brooman, Director

The notes below form part of these financial statements.

CASH FLOW STATEMENT

FOR THE SIX MONTHS ENDED 30 JUNE 2014

The notes below form part of these financial statements.

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

FOR THE SIX MONTHS ENDED 30 JUNE 2014

The notes below form part of these financial statements.

NOTES TO THE FINANCIAL STATEMENTS

1. Principal activity

The 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 preparation

The accounts 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 partner

The 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 which point investment holding limited partnerships were 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.

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 above.

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 above.

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

Under the terms of the primary buyout fund limited partnership agreements ('LPAs'), the general partner 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, the founder partner 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 6, 7 and 9 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.

4. Dividends

A dividend of 29.0 pence per share (£10,824,000) was paid on 16 May 2014 in respect of the year ended 31 December 2013 (year ended 31 December 2012: dividend of 23.0 pence per share; £8,180,000). It is intended that dividends will be declared and paid annually in respect of each accounting period. In addition, a special dividend of 19.0 pence per share (£7,092,000) was declared for payment on 26 September 2014.

5. Issued share capital

Whilst the Trust no longer has an authorised share capital, the Directors will still be limited as to the number of shares they can at any time allot as the Companies Act 2006 requires that Directors seek authority from the shareholders for the allotment of new shares.

6. Income

7. Priority profit shares

(a) Priority profit shares payable to General Partners