Half-yearly Report

HgCapital Trust plc Press release - Interim Results for the six months ended 30 June 2011 London, 25 August 2011: 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 2011. HGCAPITAL TRUST PLC CONTINUES TO DELIVER LONG TERM OUTPERFORMANCE Financial Highlights for the above period % Total 30 June 31 December return* 2011 2010 Share price +16.1% 1,140.0p 1,006.0p NAV per share (basic) +6.3% 1,160.4p 1,118.8p (diluted) +6.1% 1,129.3p 1,090.7p FTSE All-Share +3.0% Index Movement NAV +Â£21.0m Â£369.0m Â£348.0m Market Cap +Â£49.6m Â£362.5m Â£312.9m * Assuming reinvestment of all dividends - +14.7% p.a. 10-year compound annual growth rate of the share price on a total return basis* vs. 4.8% p.a. from the FTSE All-Share Index on a total return basis* to 30 June 2011. - Strong sales and EBITDA growth from top 20 buyout investments of +17% and +12% respectively over last 12 months to 30 June 2011. - Liquid resources were Â£94m (26% of NAV) with outstanding commitments of Â£191m (52% of NAV). Operational Highlights - Â£29m deployed over the period, principally in two new buyout investments. - Â£40m of cash proceeds from realisations generated over the period; exits at a 71% uplift to book value as at 31 December 2010. Events since 30 June 2011 - NAV per share at 31 July 2011 was 1,142.6p (basic) and 1,114.1p (diluted); movement from June mainly due to foreign exchange fluctuations. - Sale of Mondo agreed, with cash proceeds of Â£14m expected in H2. - The Trust has finalised a Â£40m three-year standby facility with Lloyds TSB Bank plc, on an unsecured basis. - New commitments totalling Â£75m made since period end, consisting of a Â£15m secondary commitment to Hg6 and a Â£60m commitment to the Manager's Mercury fund that invests in smaller companies in the TMT sector. - Numis Securities Limited appointed as joint corporate broker. Outlook - Economic weakness likely to create opportunities for buyout investments. - Existing portfolio companies will continue to strengthen management capabilities, market position, operational and financial performance and balance sheets. - Continued confidence in HgCapital's thematic investing approach using sector expertise to identify industry `champions' and focus on delivering long-term profit growth ahead of the market. Roger Mountford, Chairman of the Trust, commented: The Trust has performed well in the first half. Again, the Trust has significantly exceeded its benchmark, the FTSE All Share Index. Encouragingly, most of the Trust's top 20 buyout investments grew both sales and EBITDA. On-going macroeconomic instability does create opportunities for private equity and we remain confident in the Manager's dedicated thematic approach to identify and invest in outstanding companies. We also believe HgCapital has the skill and resource to participate actively in portfolio companies, enabling value to be protected and grown through trading while minimising balance sheet risk. It is also important to ensure that additional risk is not being taken at the level of the investment vehicle. Transparent reporting enables the investor to assess these factors. The Board remains confident that the Trust offers an attractive proposition to the long-term investor. --------------------------- HgCapital Trust plc INTERIM REPORT AND ACCOUNTS 30 June 2011 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 HgPooled Management Limited and HgCapital LLP, who act as the 'Manager'. PERIOD PERFORMANCE MARKET CAPITALISATION Â£363 MILLION The ordinary share price rose from Â£10.06 to Â£11.40 over the period. An increase (on a total return basis) of +16% NET ASSET VALUE (`NAV') Â£369 MILLION The NAV (basic) per ordinary share rose from Â£11.19 to Â£11.60 over the period. An increase (on a total return basis) of +6% LONG-TERM PERFORMANCE - 10 YEAR TOTAL RETURN COMPOUND ANNUAL GROWTH RATE 14.7% p.a. - The compound annual growth rate of the HgCapital Trust plc share price over the last 10 years. 10 YEAR RETURN ON Â£1,000 Â£3,925 - How much an investment of Â£1,000 in HgCapital Trust plc ten years ago would now be worth.* An equivalent investment in the FTSE All-Share Index* would be worth Â£1,591. *Assuming reinvestment of all dividends THE PORTFOLIO HgCapital Trust plc gives investors access to a private equity portfolio of currently 32 companies, run by an experienced and well-resourced Manager that makes investments in private companies across Northern Europe in the Healthcare, Industrials, Services and TMT sectors. Investment in HgCapital Trust plc provides exposure to a portfolio of primarily fast growing companies*. The top 20 buyout investments currently account for 90% of the portfolio value. These companies achieved aggregate revenues of Â£2.1 billion and profits of Â£475 million over the last twelve month period to 30 June 2011. In addition, the Trust invests in renewable energy power generation through two renewable energy funds managed by HgCapital. +17% p.a. revenue growth - The average growth in revenue of the top 20 buyout investments for the 12 months ending 30 June 2011. +12% p.a. profit growth - The average growth in profit of the top 20 buyout investments for the 12 months ending 30 June 2011. 9.3x EV/EBITDA multiple - The average valuation multiple used to value the top 20 buyout investments at 30 June 2011. 3.3x Net debt/EBITDA - The average net debt/EBITDA multiple of the top 20 buyout investments at 30 June 2011. *References in this interim report and accounts to the `portfolio', `investments', `companies' or `businesses', refer to a number of buyout investments, held indirectly by the Trust through its direct investments in fund limited partnerships (HGT LP and HGT6 LP) of which the Trust is the sole 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. CHAIRMAN'S STATEMENT Performance in the first half In the six months ended 30 June 2011 the total return (NAV plus dividend) was 6.3% (basic) or 6.1% (diluted for the effect of future exercise of the Trust's outstanding subscription shares). This compares well against a total return on the Trust's benchmark, the FTSE All Share Index, of 3.0%. The basic NAV per ordinary share increased over the periodto a record Â£11.60 (Â£11.29 diluted). Following our issue of ordinary and subscription shares last year, the Trust's shares continued to perform well in the first half. Total return during the half-year, in terms of share price plus dividend, was 16.1%. As a result, the ten-year total return to shareholders continues to exceed the benchmark by approximately 10% p.a., underpinning the Board's conviction that an allocation to the Trust's shares should be considered by investors seeking long-term growth. An investment of Â£1,000 made ten years earlier, with dividends reinvested, would now have a value of Â£3,925, compared with Â£1,591 if invested in the FTSE All Share Index. Revenue return per ordinary share in the six months was 11.0 pence, compared with 13.0 pence in the same period last year. Portfolio Over the twelve months ended 30 June 2011, most of the Trust's top 20 buyout investments (which represent some 90% of the Trust's total investment portfolio, excluding cash and cash equivalents) grew in both sales and EBITDA. In the last twelve months, the top 20 buyout investments' average revenues grew by 17% while their average profits rose by 12%. As usual, the Board has valued each investment in the portfolio as at 30 June, after considering analytical data and draft valuations prepared by the Manager, in accordance with IPEV guidelines. The top 20 buyout investments have been valued using EBITDA multiples that average 9.3x across these investments. Investments in renewable energy projects have been valued using cash flow assumptions and discount rates that the Board has reviewed. A full analysis of the valuation multiples and gearing of the top 20 buyout investments is set out in the Manager's Review later in this document. This shows that the top 20 investments had moderate leverage, with an average of 3.3x EBITDA. The Manager's Review contains detailed commentary on the top 10 buyout investments, which represent some 60% of the total investment portfolio. During the period the Trust invested Â£22 million in two new buyouts in the healthcare and services sectors, in Finland and Benelux respectively. A further Â£7 million was invested in renewable energy and in support of two existing buyouts. The Trust realised nearly Â£34 million from three full realisations that delivered an uplift of 71% over the book value at 31 December 2010. Further realisations of Â£6 million were received, mainly from the refinancing of an investment. Shareholder value was further created by the unrealised revaluation of portfolio investments by a net gain of Â£19 million. The Board is pleased to observe that, as shown in the Manager's attribution analysis, once again the largest contributor to increases in value was the growth in profits of the businesses in the Trust's buyout portfolio. This was partly offset by adverse movements in the market multiples of comparable companies. The weakness of sterling, against the currencies in which some investments are denominated, contributed further to the uplift in valuations. Corporate developments As part of the Trust's fund-raising in early 2010, it issued a total of over 6 million subscription shares. Each subscription share entitles the holder to subscribe to one new ordinary share. The first exercise date was in May 2011 and I am pleased to report that 695,810 shares were exercised at a price of Â£9.50 per share, raising some Â£6.6 million. The next opportunities to exercise the subscription shares will be in October 2011, May 2012 and October 2012, at the same price of Â£9.50 per share; the final exercise date will be in May 2013, at a price of Â£10.25. If all the remaining subscription shares are exercised in full, this will raise additional funds for the Trust of between Â£52.5 million and Â£56.6 million, and will further enhance the liquidity of the market in the Trust's shares. The Board has agreed to co-invest up to Â£60 million alongside HgCapital's Mercury fund. This fund will invest exclusively in the TMT sector in the UK and Continental Europe, with which HgCapital is very familiar. It will differ from HgCapital 6 (`Hg6') in its focus on smaller companies, with an enterprise value at acquisition of between Â£20 million and Â£80 million. This is the segment of the buyout market where HgCapital originally established itself as a successful investor. The Board is pleased to note that, although HgCapital has like other managers moved up in the scale of its activities and deals, it has not vacated this profitable segment of the market. It is anticipated that over the life of this fund the Trust will take up 15% of each new investment, but the Trust's commitment is capped at first, so as to ensure that it does not take up a disproportionately large holding. Since the end of the period, the Trust announced the acquisition of a Â£15 million limited partnership interest in Hg6; this was bought from an investor of HgCapital who had decided to withdraw entirely from investment in private equity. The transaction comprised a payment of Â£7.8 million for funds already invested, with the balance by way of a further commitment to invest in future deals. The acquisition from other investors of interests in funds managed by HgCapital, with which the Trust's Board is of course very familiar, represents a further means to optimise the deployment of the Trust's resources. The Board may from time to time make further such acquisitions, or indeed might sell an interest, if this were appropriate in the strategic management of the Trust. In the 2010 Annual Report the Board set out a comprehensive description of the Trust's investment objective and policy, its rationale and business model. This has not changed and is reproduced in this interim report for shareholders' convenience. In the business model the Board stated that, while it does not currently see any advantage in using a further level of structural borrowing by the Trust, it does from time to time arrange bank facilities to assist with short-term cash-flow management. At 30 June the Trust held Â£94 million in cash and liquid funds available for deployment, in line with its strategy of maintaining an appropriate level of liquidity against future commitments and for investment when market conditions favour buyers. The Board regularly considers long-term cash flow projections in order to manage the Trust's resources carefully. To give the Board further flexibility the Trust has recently finalised a Â£40 million three-year standby facility with Lloyds TSB Bank plc, on an unsecured basis. This facility represents another lever available to the Board in its management of the Trust's resources and commitments with the objective of building shareholder value without, adding undue risk. Other levers include: the opt-out in relation to Hg6 acquisitions; rights to be excluded from any specific investment in RPP2 or Mercury if it would jeopardise our status as an investment trust; the ongoing exercise of subscription shares raising new funds; the Trust's proven ability to issue new ordinary shares; and the option of buying or selling interests in our underlying investments. Reporting This interim report reflects the Board's commitment to continuous improvement in the transparency and the clarity of our reporting to shareholders. It is larger than previous interim reports so as to contain not only the interim financial statements but all the key analytical data disclosed in the annual report and new analysis of the Trust's commitments. The report contains descriptions and up-to-date information about the top 10 buyout investments. Further information is available on the Manager's website, www.hgcapital.com and from the Trust's website www.hgcapitaltrust.com. In line with this policy of transparency, the Manager also publishes a pre-close statement on the website just prior to the half-year and year-end. Prospects In my statement in March, I warned that the strong trading of almost all of our buyouts remained subject to continuing stability in European economies and a return to economic growth. Renewed anxiety about the international effects of slow economic growth in the USA, combined with unwelcome if not unexpected turmoil in the eurozone, clearly create some risk around the portfolio we hold. The latest available management figures for our underlying investments indicate that most are holding up well, but with pressure on margins in some cases. The Trust's portfolio is concentrated in the UK, Germany and the Nordic region and has no investments in Greece or Portugal, only one investment in Italy and renewable assets in Spain. Leverage in the portfolio is at a moderate level, giving no cause for concern. Meanwhile, the recapitalisation of the banks active in funding private equity transactions has resulted in improved conditions for experienced private equity managers such as HgCapital to raise sensible amounts of leverage so as to take advantage of opportunities to acquire businesses at attractive prices. These improved conditions in the banking market and the moderate levels of gearing in our portfolio are also evidenced by the Trust's ability to raise unsecured bank funding. In a period of financial instability and weak economic growth, investment in private equity still has a role to play in the portfolio of the long-term investor. However, attention must be paid to the expertise of the manager and to the strategy of the investment vehicle. It is important to select a private equity manager who has the skills and resources to participate actively in portfolio companies, to identify opportunities for value enhancement or incipient problems and work with local management to effect change, or if necessary to appoint new management. This permits value to be protected and grown through trading, rather than by taking added risk through financial engineering or high levels of borrowing. It is also important to ensure that additional risk is not being taken at the level of the investment vehicle. Transparent reporting enables the investor to assess these factors. Both HgCapital and the Board of the Trust understand these imperatives and engage in regular and detailed dialogue on the strategy and operation of the Trust. The Board remains confident that the Trust offers an attractive proposition to a wide range of investors. Roger Mountford Chairman 24 August 2011 INTERIM MANAGEMENT REPORT AND RESPONSIBILITY STATEMENT Interim management report The important events that have occurred during the period under review are set out 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 2010. A detailed explanation of the risks summarised below can be found on page 77 of the annual report which is available at www.hgcapitaltrust.com. Performance risk The Board is responsible for deciding the investment strategy to fulfil the Trust's objective and for monitoring the performance of the Manager. An inappropriate strategy may lead to poor performance. Regulatory risk The Trust operates as an investment trust in accordance with Sections 1158 and 1159 of CTA 2010. As such, the Trust is exempt from corporation tax on any capital gains realised from the sale of its investments so the loss of investment trust status would represent a significant risk 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 risk 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, 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. 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 24 August 2011 and the above responsibility statement was signed on its behalf by Roger Mountford, Chairman. LONG-TERM PERFORMANCE RECORD HgCapital Trust plc's share price has consistently delivered significant outperformance against its benchmark across one, three, five, seven and ten-year periods. Historical Total Return* Performance Six months One year Three Five years Seven Ten years to 30 June % p.a. years % p.a. years % p.a. 2011 % p.a. % p.a. % Share price 16.1 46.3 13.1 15.2 20.8 14.7 Net Asset Value (basic) 6.3 26.7 6.7 13.5 18.5 13.5 Net Asset Value (diluted) 6.1 23.1 5.8 12.9 18.0 13.2 FTSE All Share Index 3.0 25.6 6.6 4.5 8.5 4.8 Share price outperformance per annum against the FTSE 13.1 20.7 6.5 10.7 12.3 9.9 All Share Index *Total return assumes all dividends have been reinvested THE TRUST'S INVESTMENT OBJECTIVE AND 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 principal policy of the Trust is to invest in a portfolio of unlisted companies that are expected to grow organically or by acquisition. Any material change to the Trust's Investment Policy will be made only with the approval of shareholders in a general meeting. The Trust's maximum exposure to unlisted investments is 100% of gross assets. At the time of acquisition no single investment will exceed a maximum of 15% of gross assets. The Trust may invest in assets other than companies, so long as the Manager believes that its expertise in private equity investment can be profitably applied. The Trust may invest in unlisted funds, whether managed by HgCapital or not, up to a maximum at the time of acquisition of 15% of gross assets. The Trust may invest in other listed investment companies, including investment trusts, up to a maximum at the time of acquisition of 15% of gross assets. 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. Range and diversification The Trust invests primarily in companies whose operations are headquartered or substantially based in 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 to borrow no more than, broadly, twice the aggregate of the Trust's paid up share capital and reserves (without shareholder approval). Hedging The Trust may use derivatives to hedge its exposure to interest rates, currencies, equity markets or specific investments for the purposes of efficient portfolio management. RATIONALE AND BUSINESS MODEL The Board has a clear view of the rationale for investing in private equity through an investment trust and this informs its decisions on the operation of the Trust and the evolution of the Board's Business Model. RATIONALE The Board believes that there is a convincing rationale for investing in well-researched private businesses with potential for growth, especially where the Investment Manager and the management of the business can work together to implement strategic change or operational efficiency. These can result in higher rates of growth in sales and enhanced profits, offering investors capital gains on realisation. Many large institutional investors allocate a proportion of their assets to this asset class, but it is difficult for private investors and small institutions to invest in private equity due to the large commitments required over long periods of time. The Trust provides an opportunity for investors to hold shares listed on the London Stock Exchange through which they can invest in private equity transactions not otherwise accessible. BUSINESS MODEL Working within the constraints 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 invests directly into unquoted businesses in the UK and Continental Europe alongside other institutional clients of HgCapital, an experienced private equity manager whose principal business is to invest in, and manage, leveraged buyouts. Private equity investments are normally held through partnerships that provide legal and taxation advantages. 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 (currently its Hg6 fund) on the same terms as institutional investors. The Trust normally acquires a 15% interest in each business in which Hg6 invests. The Manager is organised in investment teams that focus on well researched business sectors, but it does not make top-down allocations to these sectors or to particular countries; the balance may change as investment opportunities appear and portfolio companies are sold. The Trust is not a fund of funds and does not invest in other managers' funds. The Trust's strategy of making direct investments into businesses provides greater transparency for the Board and shareholders in the Trust and avoids the double fees inherent in a fund of funds. 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 protect the Trust from the risk of being unable to fund any drawdown under its commitment the Board has negotiated a right to `opt-out', without penalty, of any HGT 6 LP investment where certain conditions exist (see note 12 to the financial statements). 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. This sector provides the Trust with an element of diversification, as it has fundamentally different drivers of risk and return, but is expected to deliver comparable risk-adjusted returns. In this sector, it is advantageous to the Trust to participate with other institutional clients of HgCapital as limited partners in HgCapital's two renewable energy funds. Cash and borrowing The Board and the Manager agree that prudent use of borrowing to fund acquisitions can increase diversification within the portfolio and yield rates of return superior to the market in listed shares. Businesses in the underlying portfolio are acquired with the benefit of bank borrowing at levels that can be serviced from the cash flows generated within that business. The Board does not currently see any advantage in using a further level of structural borrowing by the Trust, as this would add risk without any certainty of enhancing returns. From time to time, the Board arranges a bank facility on which it can draw to meet short-term needs, 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, which it holds in bank deposits or invests in short-dated government bonds. If there appears to be 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. 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 approved by the Board to hedge tactically with the object of protecting the anticipated sterling value of proceeds from realising investments in other currencies. Benchmark For most shareholders, their investment in the Trust represents a small allocation of funds that would otherwise be invested in UK equities. The Trust's benchmark is therefore the FTSE All-Share Index. To assess the Manager's performance relative to other private equity managers, the Board regularly compares the 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 values each investment in the portfolio after considering analytical data and draft valuations prepared by its Manager. Valuations are carried out in accordance with the International Private Equity and Venture Capital (`IPEV') Valuation Guidelines, September 2009 edition. Further information can be found at www.privateequityvaluation.com. Net asset value and trading in the Trust's shares The Board values the portfolio and publishes the Trust's NAV as at 30 June and 31 December. Each month, following these valuations, the NAV figure is published 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 repurchase of shares, which it believes usually has only temporary effect. The Board believes that discounts to NAV are minimised through consistent 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 return retained, after dividend distributions in respect of that financial year, may not exceed 15% of the annual total income earned from investments. The level of the net revenue return varies from year to year according to the level of the Trust's liquid funds and the structure of the buy-outs held at the time. Accordingly, dividends may vary from year to year. 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 minimises the tax charge payable by the Trust. THE MANAGER HgCapital is a private equity investor focused on the European middle market. Its business model combines sector-specific thematic investing with dedicated portfolio management support. HgCapital invests in growth companies in expanding sectors via leveraged buyouts and in renewable energy generating projects across Western 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 producing consistent top quartile returns for our clients and providing a rewarding environment for our staff. INTRODUCTION TO THE MANAGER HgCapital began life as Mercury Private Equity (MPE), the private equity arm of Mercury Asset Management plc, a long established listed UK-based asset management firm. Mercury was bought by Merrill Lynch in 1997 and, in December 2000, MPE negotiated its independence as HgCapital and became a fully independent firm, owned by its partners. HgCapital has progressively invested in and strengthened its business over the years to establish a significant competitive advantage in making money for its clients. With some 85 employees in two investment offices in the UK and Germany, HgCapital has assets under management of Â£3.6 billion serving a range of highly regarded institutional investors, including private and public pension funds, charitable endowments, insurance companies and banks. HgCapital's largest client is HgCapital Trust plc. Established in 1989, the Trust appointed HgCapital as its Investment Manager in 1994. It offers investors a liquid investment vehicle, through which they can obtain an exposure to our diversified portfolio of private equity investments with minimal administrative burdens, no long-term lock-up or minimum size of investment. THEMATIC INVESTMENT HgCapital's five sector teams combine the domain knowledge and expertise of a trade buyer - giving them superior credibility and the ability to make quick decisions - with the flexibility of a financial investor - leading to high conversion rates on deals we like. This deep sector focus is channelled through a rigorous research-based approach and disciplined thematic investment processes, whereby the most attractive segments of the European mid-market can be systematically identified and then repeatedly invested in, optimising deal flow and improving returns. Following each investment HgCapital's specialist portfolio management team works to protect and enhance value, ensuring clear strategies for growth and a realisation that adds further value. With substantial resources, and a structure that focuses on delivering value, HgCapital has the tools and ability to succeed consistently. THE MANAGER'S STRATEGY AND TACTICS Middle-market focus HgCapital focuses on middle market buyouts with enterprise values of between Â£50 million and Â£500 million and renewable power generating projects using proven technologies. The middle market offers a high volume of companies with proven financial performance and defensible market positions. These companies are small enough to provide opportunities for operational improvement, yet large enough to attract quality management and offer multiple exit options across market cycles. European focus HgCapital primarily focuses its buyout investments in the UK, Germany and the Nordic Region, as well as Switzerland, Italy and Benelux. Our renewable energy investments are focused on the British Isles, the Nordic region and Spain. All investments are managed by specialist 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 complete the most attractive investments rather than be constrained by a top-down asset allocation. For buyouts, HgCapital seeks companies with protected business models and predictable revenues, which offer a platform for growing market share or have the potential for significant performance improvement. HgCapital targets situations where significant change is taking place and where the Manager's specialist knowledge and skills can make a real difference. Broad coverage HgCapital's dedicated sector teams provide investors with access to the substantial majority of private equity activity within their target size range and across their chosen geographies. Active portfolio management Our sole 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, HgCapital typically invests as the lead, majority shareholder and appoints HgCapital executives to the companies' boards to ensure that each firm applies active, results-oriented corporate governance. Experienced HgCapital professionals work with the management of our portfolio companies to develop, execute and monitor value enhancement strategies for each business. Accordingly, HgCapital is in a position to review the performance of all of its investments, quickly identify any issues that demand attention and see that appropriate action is taken. Deep resources Our practice of employing specialisation - both in investment selection and management - places significant demands on our time. Accordingly, we have built a deeply resourced business employing some 85 staff including 50 investment professionals. Investing in businesses, many of which have a global footprint and which are located across Europe, requires time and, of course, a deep understanding of local cultures. Accordingly, our people come from around the globe including ten Western European countries. Our investment professionals have on average 16 years' experience in private equity management. MANAGER'S REVIEW OF THE PERIOD References in this interim report and accounts to the `portfolio', `investments', `companies' or `businesses', refer to a number of buyout investments, held indirectly by the Trust through its direct investments in fund limited partnerships (HGT LP and HGT6 LP) of which the Trust is the sole 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. Summary The basic NAV of the Trust increased by 6.0% (6.3% on a total return basis) from Â£348.0 million to Â£369.0 million in the first half of the current year. Total return on the share price was stronger at 16.1%, reflecting growing investor interest in private equity in general and the Trust's shares in particular. As expected, new investment activity was subdued with two new buyouts completed (ATC and Mainio Vire) and more investments made into renewable energy opportunities. The Trust had two full realisations with the sale of SLV, a German lighting company, and SiTel, a Dutch semi-conductor company. These sales delivered a healthy multiple of cost, a significant share of NAV growth in the half-year and a 71% uplift on the December book value. In addition, we have exchanged contracts for the sale of Mondo Minerals, the seventh largest holding at 30 June. Details of these realisations are provided below. The 20 largest buyouts represent over 90% of the portfolio value and the Â£22 million investment in renewable power-generating assets accounts for another 8.1%. Our buyout portfolio continues to increase revenues and earnings, and the renewable power assets are generating cash, repaying debt and producing growing income flows. At 30 June, the Trust had net liquid resources of Â£94.3 million and outstanding commitments to HgCapital funds of about Â£191 million. Net outstanding commitments less liquid resources as a percentage of net assets have fallen from 35% in December 2010 to 26% at June 2011. We do business in an environment marked by sovereign debt problems, a weakened financial system and decelerating growth. Our portfolio composition is marked by businesses where demand tends to out-strip nominal GDP and where revenues are not particularly sensitive to the cycle. Just as important, these companies are led by a strong cadre of managers who have the ambition, ability and every incentive to outperform their peers. Over time their efforts should deliver shareholders a satisfactory return. Of course investor sentiment today is very volatile. Markets, including the M&A market in which we operate, oscillate in short cycles. We believe that these conditions are the friends of the patient investor, taking a focused approach and sticking to tested fundamental principles. Performance We prefer to be measured over periods of 3, 5, 7 and 10 years because this frequency is consistent with the long-term nature of private equity investment and our patient investment strategy. Over three years, the Trust has out-performed the FTSE All-Share index by 6.5% p.a., over five years by 10.7% p.a., over seven years by 12.3% p.a., and over 10 years by 9.9% p.a. net of all costs, all on a total return basis. Â£1,000 invested in June 2001 would be worth Â£3,925 in June 2011 if invested in the Trust and Â£1,591 if invested in the FTSE All-Share Index, and assuming for both that all dividends are reinvested. In the first six months of 2011, the share price total return (including a dividend of 28 pence per share, paid in May 2011) was 16.1%, which compared with 3.0% for the FTSE All-Share Index. The growth in NAV per share is a driver of share price performance over the long run. During the first six months of 2011 it rose by 6.3% (basic), or 6.1% (diluted), which is mainly attributed to realised capital proceeds in excess of the 31 December 2010 book value adding 3% to the NAV, unrealised appreciation contributing 2% and gross revenue adding 3% before meeting expenditure and payments to the Manager. This unrealised appreciation is mostly due to rising earnings, debt reduction and favourable foreign exchange movements, more than offsetting the unrealised depreciation from falling ratings. Trading performance The first six months of 2011 were marked by a slowdown in global growth and saw the first effects of governments attempting to rein in their deficits. The portfolio continued to grow revenues and profits and invest in initiatives to improve the quality of profits and the earnings potential of our businesses. In the twelve months to 30 June 2011, for the top 20 companies, revenues grew by 17% and EBITDA by 12%, comfortably exceeding the growth in nominal GDP. Eleven companies grew revenues in excess of 15% and half of the top 20 grew profits by over 10%. Whilst still growing revenues and profits, some companies (Voyage and Casa Reha) were adversely affected by a margin reduction caused by high wage inflation and prices being squeezed by cut-backs in UK health spending or held back by regulatory pressure in Germany. In others (Americana, Teufel, SimonsVoss and Schleich), combinations of inflation in supplier prices from China and/or increased marketing and new product development expenditure have naturally reduced net margins. In addition, a small percentage of the portfolio (Atlas and Sporting Index) experienced profits declining between nearly 20% and 30% compared with last year. Valuation and Concentration Analysis The portfolio is valued consistently from year to year, applying the IPEV Valuation Guidelines. Our valuation of each company has produced an average EBITDA multiple for the top 20 buyout investments (90% of the investment portfolio) of 9.3x EBITDA. Where we have invested in businesses operating in cyclical markets that were adversely affected by the recession, we wrote down their values early and heavily and, in most cases, have not written them back; so they represent a minimal share of NAV. In some cases, like businesses in the UK with a heavy exposure to public sector spending, valuations have been reduced quite sharply as market ratings for comparable businesses have fallen, discounting future pressure on margins. This accounts for the reduction in book value of JLA and Voyage. In other cases, very strong growth in revenues, profits and cash flow support the application of ratings from other companies with similar growth profiles. Our two largest investments are TeamSystem and Visma, which together represent 18.3% of the buyout portfolio value (13.8% of NAV). Both are providers of accounting software packages to large and diversified customer bases of SMEs. They provide an exposure to steady growth, strong cash conversion and are platforms for bolt-on acquisitions and operational improvements. They use a business model we know well and which has been very rewarding for our investors. Accordingly, we are happy to run this level of concentration in our portfolio. ÂValuation Basis* 39% Earnings 35% Cost 9% Third party transaction 9% Written down 8% Net assets *Percentages are based on fixed assets (excluding hedges) and accrued interest and are shown by value Balance Sheet The net assets of the Trust increased by Â£21.0 million (6%) from Â£348.0 million to Â£369.0 million during the period under review. A dividend of 28.0 pence per share was paid in May 2011, decreasing the NAV by Â£8.7 million, following which the NAV increased after the exercise of Subscription Shares on 31 May 2011, raising Â£6.6 million at a Subscription price of Â£9.50 per Ordinary Share. The remaining increase was due to performance, with realised capital gains producing Â£12.4 million, unrealised gains amounting to Â£8.0 million and Â£9.1 million of income received or accrued. Total expenditure and other charges, including the Manager's remuneration, resulted in a Â£6.3 million decrease in the NAV. In summary, the NAV per share rose by 6.3% (basic) on a total return basis. The Trust was also able to put the proceeds of the share issue to work, so that 75% of net assets were invested at 30 June 2011. Cash and government securities totalled Â£94.3 million, which compares with outstanding but undrawn commitments of Â£190.9 million on Hg5, Hg6, RPP1 and RPP2. This represents an improvement with commitments less cash and government securities, representing 26% of NAV compared with 35% at 31 December 2010. The Trust has an opt-out for capital calls on Hg6, without incurring the normal penalties that apply to most limited partners. The balance sheet has sufficient free capital to continue to exploit any good opportunities we might uncover, both by financing bolt-on acquisitions from existing portfolio companies and through financing new transactions. It remains our belief that `available capital' is a critical factor in the long-term investor's armoury. Analysis of movements in net asset value for the six months ended 30 June 2011 Â£'000 Opening net asset value as at 1 January 2011 347,993 Dividend paid (8,709) Proceeds from exercise of subscription shares 6,610 Gross revenue 9,086 Realised proceeds in excess of 31 December 2010 book value (excludes gross 12,352 revenue) Net unrealised appreciation of investments (excludes gross revenue) 8,045 Expenditure and taxation (532) Priority profit share (3,434) Carried interest (2,393) Closing net asset value as at 30 June 2011 369,018 Realised and unrealised movements in investment portfolio (excluding accrued interest) for the six months ended 30 June 2011 Investment name and Net unrealised Realised proceeds in ranking within top 20 appreciation/(depreciation) excess of 31 December investment portfolio at 30 of investments Â£'m 2010 book value Â£'m June 2011 (excludes gross revenue) SLV (sold) - 8.9 Fx on Hg6 investments at 4.0 - cost Elite (sold) - 3.5 SHL (3) 3.4 - Goldshield (6) 2.4 - RPP1 and RPP2 2.2 - Visma (fx increase) (2) 1.3 - Mondo (7) 1.1 - Achilles (8) 1.1 - Epyx (12) 1.0 - Other (0.2) - Euro Hedge (1.0) - Voyage (20) (1.1) - JLA (17) (6.2) - Over the period, the NAV of the Trust increased by 6% from Â£348 million to Â£369.0 million. There were three main drivers of this movement. Firstly, there was the raising of Â£6.6 million from the exercise of Subscription Shares in June 2011. Secondly, it can be attributed to the revaluation of the unquoted portfolio - itself driven by strong trading performance. Lastly, NAV increased by over Â£12 million as a result of realisations in excess of book value (excluding gross revenue). During the period, the value of the unrealised portfolio increased by just over Â£19 million. This change can be attributed to a number of factors: the increase of Â£4 million from acquisitions and disposals; growth driven by strong trading performance; the reduction of debt from cashflow generated by the portfolio; and favourable foreign exchange movements. Outstanding commitments Fund Vintage Original Outstanding Outstanding commitment commitments commitments Â£' million as at 30 June 2011 as at 31 December 2010 Â£' million %of NAV Â£' million %of NAV HGT LP pre-2009 120.0 25.2 6.8% 22.3 6.4% HGT 6 LP (1) 2009 285.0 136.4 37.0% 155.9 44.8% Hg RPP LP 2006 19.5(2) 1.9 0.5% 1.8 0.5% Hg RPP2 C LP 2010 36.1(3) 27.4 7.4% 32.0 9.2% Total 190.9 51.7% 212.0 60.9% Total liquid 94.3 25.6% 90.2 25.9% resources Net outstanding 96.6 26.1% 121.8 35.0% commitments less liquid resources (1) HgCapital Trust plc has the benefit of an investment opt-out provision in its commitment to invest alongside HgCapital 6, so that it can opt-out of a new investment without penalty should it not have the cash available to invest. (2) Sterling equivalent of â‚¬21.6 million (3) Sterling equivalent of â‚¬40.0 million Post period end On 19 July 2011, the Trust announced the acquisition from a third party of a Â£15 million limited partnership interest in HgCapital 6 E LP(`Hg6 E'), one of the partnerships in the current buyout fund (Hg6) of its Manager, HgCapital. The Trust paid Â£7.8 million in cash for the funds already invested. This represents a 2% premium above the NAV of Hg6 E as at 31 December 2010, adjusted for subsequent cash flows to the date of completion. The balance of the Trust's new investment represents a commitment of Â£7.2 million which will be invested alongside the other limited partnership interests held by institutional clients of HgCapital in their Hg6 fund. A Â£60 million commitment to the Manager's Mercury fund has been agreed by the Board. Mercury will invest exclusively in the TMT sector in the UK and Continental Europe focusing on smaller companies with an EV of between Â£20 million and Â£80 million. The Trust has recently finalised a Â£40 million, three-year standby facility with Lloyds TSB Bank plc, on an unsecured basis. Investment portfolio The Manager's strategy is to invest in five sectors, four of them by way of buyouts of businesses (representing 92% of the portfolio by value at 30 June 2011). Investment in the fifth sector, renewable power generation (8%), is made into projects through RPP1 and RPP2. Buyout portfolio As at 30 June 2011, the Trust's buyout portfolio included ten investments with either a value of under Â£1 million or residual interests in companies we had sold, which were mostly valued at or close to zero, or investments which had performed poorly and been written down to zero in previous periods or which represent interests in escrow accounts from the sale of investments. This section therefore only covers those companies with material value. TMT represented 38% of the total investment portfolio. Over 95% of this value was represented by companies that are all users of technology, rather than developers of technology with the associated frequent challenges of new product development. They included two accounting software companies, a fixed and mobile incumbent telecom network operator, two private electronic market places and a vendor of strategic HR software, sold as a service (`SaaS'). The common themes that run through each one are highly visible revenues, strong market positions and strong cash conversion that permits debt repayment whilst the businesses expand and grow. Achilles and Epyx both grew very strongly as did the new investment in Lumesse. Visma and a new investment, TeamSystem, also continued to grow solidly and Manx Telecom started to implement its buyout strategy which involves investment in new service lines. Industrials represented 13% of the total investment portfolio. Here, the common theme is that we are backing companies that own and develop high quality technology/design mostly in Germany but manufacture in low cost locations. The first half of 2011 saw strong order intake and an increase in sales across all geographies for SimonsVoss, our electronic locking systems provider. The company continues to invest in product line development. Meanwhile, we agreed the sale of our industrial minerals business, Mondo, which should complete later in the year. Healthcare represented 18% of the total investment portfolio. We currently like two areas: long-term care where the payer risk is low, with a preference for specialist care of people with acute disabilities; and low cost pharmaceuticals. Performance for the four companies in the first category was mixed. Casa Reha (Germany) and Voyage (UK) bowed to the margin pressures of wage inflation and cuts in health-spending despite trading ahead of last year while FrÃ¶sunda (Sweden) and our new addition, Mainio Vire (Finland) both increased earnings strongly. Strong cash generation and higher core earnings continued to increase the value of our pharmaceutical business, Goldshield. Services investments represented 15% of the total investment portfolio. Of our two HR and compliance services companies, SHL performed strongly in both sales and EBITDA as the predicted cost synergies born of its merger with US competitor, PreVisor, were realised. The other, Atlas, invested in revenue growth and experienced an increase in sales at the cost of tighter margins and a reduction in earnings. Our third investment, made in 2010, is JLA, a provider of laundry equipment, including financing and maintenance services, to care homes, universities and hotels. Management succession changes have been made and the first bolt-on acquisitions identified. However, as yet profits have been flat and reflecting the exposure of its revenues to public sector spending, ratings used to value this business have been reduced, leading us to write down the book value of this investment by 50%. ATC Group, a Dutch corporate administration services company, is experiencing strong profit and sales growth as the Netherlands picks up, although foreign exchange movements are tempering the success of its Carribean office.Finally, our legacy Consumer and Leisure portfolio represented 8% of the investment portfolio. Americana designs and sells branded clothing; Schleich designs and markets toy figurines and Sporting Index is a sports spread betting firm. Sporting Index's profits, which can be volatile, fell, year on year, as most of the positive effects of last year's World Cup fell into the prior period and it experienced a bad run at the end of the 2011 football season. Sector by value* 38% TMT 18% Healthcare 15% Services 13% Industrials 8% Renewable energy 8% Consumer & Leisure Sector by class** 75% Unquoted 25% Cash & other assets *Percentages are based on fixed assets (excluding hedges) and accrued interest and are shown by value **Percentages are based on net assets Renewable Power The Trust invests in renewable energy through RPP1 and RPP2, separate UK funds managed by our dedicated team of seven specialists. The underlying portfolios are divided into four platforms: UK onshore wind, Swedish onshore wind, Spanish hydro and Spanish solar. The assets are split into onshore wind at 57% of value, hydro at 19% and solar at 24% of value. All employ proven, commercially viable technologies within the framework of current power price regimes across Europe. We eschew off-shore power generation, as we believe it to be operationally unproven. Each of the platforms' operating performance continues to be in line with our investment cases since inception, notwithstanding a period of exceptionally low winds by historic standards. Against this robust financial performance we suffered a decision by the Spanish government to change unilaterally the terms of 25-year contracts with power generators. These changes reduced the income our assets will receive over the next three years. Accordingly, our valuations of these Spanish assets are based on our updated estimates of reduced net cash flow to equity and on an increased discount rate to reflect the peculiar factors the market now attaches to Spanish sovereign risk and our own addition to reflect Spanish regulatory risk. The investment case for power generation remains positive as Western Europe faces both a huge need to re-equip its creaking power infrastructure and to reduce its CO2 emissions. Geography, Vintage Analysis At the balance sheet date, the geographical weighting of the portfolio had moved marginally away from the UK (down from 45% in December 2010 to 42%) and Germany (down from 18% in December 2010 to 12%), towards the Nordic and Benelux regions (up from 22% in December 2010 to 29%). We are certainly exposed to developments in each of these economies but also exposed to growth sectors and to the global economy too, as many companies are exporters. We have retained a weather eye on the periphery of the eurozone economy, which is set for uncertain times ahead, whereas the core saver economies of the Nordic region and Germany are performing strongly at present. The distribution of the portfolio across the years shows that our exposure to the vintages of 2007 and 2008, which may prove to have been poor years for investment, in retrospect, is quite low at 16%. Geographic spread by value* 42% UK 24% Nordic Region 12% Germany 9% Italy 8% Europe (RPP) 5% Benelux Vintage by value* 8% 2011 39% 2010 9% 2009 6% 2008 10% 2007 25% 2006 3% pre 2006 Deal type by value* 92% Buyout 8% Renewable energy *Percentages are based on fixed assets (excluding hedges) and accrued interest and are shown by value Investment portfolio THE TOP 20 BUYOUT INVESTMENTS ACCOUNT FOR 90% OF THE PORTFOLIO BY VALUE Buyout investments Sector Location Year of Residual Total Portfolio Cum. (in order of value) investment Cost valuation** value Value % Â£'000 Â£'000 % 1 TeamSystem Luxco SARL TMT Italy 2010 24,432 26,491 9.5% 9.5% 2 Visma Norway Holdco TMT Nordic 2006 701 24,421 8.8% 18.3% Region 3 SHL Group Holdings 1 Services UK 2006 7,984 18,244 6.6% 24.9% Limited 4 FrÃ¶sunda Luxco SARL Healthcare Nordic 2010 14,296 16,019 5.8% 30.7% Region 5 Lumesse Holdings SARL TMT UK 2010 14,281 15,409 5.5% 36.2% 6 Midas Equity Co SARL Healthcare UK 2009 8,545 14,899 5.4% 41.6% (t/a Goldshield) 7 Mondo Minerals Co-op Industrials Nordic 2007 6,923 14,724 5.3% 46.9% Region 8 Achilles Group TMT UK 2008 5,226 14,171 5.1% 52.0% Holdings Limited 9 Mainio Vire SARL Healthcare Nordic 2011 12,329 12,456 4.5% 56.5% Region 10 Manx Telecom Limited TMT UK 2010 11,033 11,033 4.0% 60.5% 11 SimonsVoss Luxco SARL Industrials Germany 2010 10,065 10,918 3.9% 64.4% 12 Epyx Investments TMT UK 2009 6,388 10,869 3.9% 68.3% Limited 13 ATC Holdco SARL Services Benelux 2011 9,913 10,731 3.9% 72.2% 14 Teufel Holdco SARL Industrials Germany 2010 9,401 10,104 3.6% 75.8% 15 Schleich Luxembourg SA Consumer & Germany 2006 4,648 9,092 3.3% 79.1% Leisure 16 Americana Consumer & UK 2007 4,625 8,013 2.9% 82.0% International Holdings Leisure Limited 17 JLA Equityco Limited Services UK 2010 12,227 7,197 2.6% 84.6% 18 Sporting Index Group Consumer & UK 2005 6,502 6,152 2.2% 86.8% Limited Leisure 19 Atlas Energy Group Services UK 2007 9,597 4,298 1.5% 88.3% Limited 20 Voyage Holdings Healthcare UK 2006 13,136 4,149 1.5% 89.8% Limited 21 Casa Reha SARL Healthcare Germany 2008 8,293 3,452 1.2% 91.0% 22 Software (Cayman), LP TMT UK 2006 530 2,122 0.8% 91.8% - re Blue Minerva 23 Software (Cayman), LP TMT UK 2007 253 979 0.4% 92.2% - re Guildford 24 Tiger Capital Limited TMT UK 2008 632 468 0.2% 92.4% 25 Weston Presidio Fund North 1998 1,725 359 0.1% 92.5% Capital III, LP America 26 Doc M SARL Healthcare Germany 2004 - 254 0.1% 92.6% 27 Elite Holding SA (t/a TMT Benelux 2005 - 245 0.1% 92.7% SiTel) 28 ACT Venture Capital Fund Ireland 1994 27 38 - 92.7% Limited 29 BMFCO UA (t/a Fabory) Services Benelux 2007 - - - 92.7% 30 Cornish Bakehouse Consumer & UK 2007 4,200 - - 92.7% Investments Limited Leisure 31 KVT Coinvest SARL Industrials Switzerland 2008 5,827 - - 92.7% 32 W.E.T Holding Industrials Germany 2003 7,774 - - 92.7% Luxembourg SA NOK / GBP Hedge n/a n/a n/a 849 343 0.1% 92.8% Hg5 Euro Hedge n/a n/a n/a - (2,224) (0.9%) 91.9% Total buyout 222,362 255,425 91.9% investments* Renewable energy investments 1 RPP1 Fund Renewable Europe 2006 14,831 14,655 5.3% 5.3% energy 2 RPP2 Fund Renewable Europe 2010 8,378 7,850 2.8% 8.1% energy Total renewable energy 23,209 22,505 8.1% investments Total all investments 245,571 277,931 100.0% (34) * Buyout investments are held through the Trust's investment in HGT LP and HGT 6 LP. See note 3 to the financial statements. **Including investment valuation of Â£249,905,000 and accrued interest of Â£28,026,000. INVESTMENTS Â£29 million investedTwo new buyout investments were made with a total enterprise value of Â£252 million, using Â£148 million of equity from our clients, with the Trust's share being Â£22 million. In each case, we have applied the knowledge acquired in our research into various investment themes. These are: compliance and mission critical services and long-term acute care. In the renewable power business, two new investments with total project values of Â£155 million required Â£39 million of equity from RPP2. The Trust's share of these new investments, other further investments and their share of fees payable via the fund was Â£6.1 million. The first of these investments was into the Ã‚mliden wind farm in VÃ¤sterbotten, Sweden, adding to the existing Swedish wind platform. The second, Xana, is a collection of small hydroelectric plants located across four river basins in Spain. This is the first building block of RPP2's second investment platform, Spanish mini-hydro. INVESTMENTS MADE DURING THE PERIOD* Company Sector Geography Activity Deal Type Cost Â£'000 Mainio Vire Healthcare Nordic Provider of specialist Buyout 12,329 Region disability care ATC Services Benelux Provider of corporate Buyout 9,913 services New investments 22,242 RPP2 Fund Renewable Europe Renewable energy fund Fund 6,064 energy JLA Services UK Provision of Buyout 751 on-premise laundry services and commercial machine sales Sporting Index Consumer & UK Sports spread betting Buyout 332 Leisure firm Other investments 46 Further 7,193 investments Total investment 29,435 by the Trust *The numbers in the table relate to the Trust's share of transactions REALISATIONS Three full realisations for Â£33.6 million at a 71% uplift over book value in December 2010 Two investments, SLV Elektronik, a B2B lighting business, and Sitel Semiconductor (held under Elite Holding SA), a designer of application-specific microprocessors for voice applications, were realised in the first half of 2011. Together, they returned Â£241 million of proceeds for our clients, the Trust's share being Â£33.6 million, resulting in an average life to date multiple of cost of 2.9x and a combined uplift over book value, at 31 December 2010, of 71%. In addition, the investment in Fabory, the Dutch industrial fasteners distributor, was restructured into a new holding company, in which HgCapital clients now only have a 3% equity holding, valued at nil. Since the period end, we announced the intention to sell Mondo Minerals, a talc mining company. Upon the sale, which is anticipated to complete before the year-end, the Trust expects to realise initial cash proceeds of Â£13.7 million and a further amount of up to Â£2.8 million over the next two years. This compares with a carrying value of Â£14.7 million in the NAV of the Trust at 30 June 2011 and an original cost of Â£7.0 million. During July 2011, we completed the sale of Cornish Bakehouse, returning Â£0.7 million of proceeds to the Trust. This investment was previously fully written-off. REALISATIONS MADE DURING THE PERIOD* Company Sector Exit route Cost Proceeds(1) Cumulative Current year Â£'000 Â£'000 gain/(loss)(2) gain(3) Â£'000 Â£'000 SLV TMT Secondary 5,999 24,170 18,171 9,638 sale Elite Industrials Trade sale 3,540 9,441 5,901 4,325 Fabory Industrials Liquidation 7,474 - (7,474) - Full realisations 17,013 33,611 16,598 13,963 Lumesse TMT Refinancing 5,035 5,601 566 626 Other 1,478 546 (932) 36 Partial 6,513 6,147 (366) 662 realisations Total realisations 23,526 39,758 16,232 14,625 *The numbers in the table relate to the Trust's share of transactions (1) Includes gross revenue received during the period (2) Realised proceeds including gross revenue received, in excess of historic cost (3) Realised proceeds including gross revenue received, in excess of 31 December 2010 book value and accrued interest Prospects A weakened global financial system exposed to sovereign debt risk presents real challenges for businesses and investors, especially as the potential for traditional government intervention without inflation is limited. However, this backdrop offers opportunities for further investment in both our portfolio companies and for new investments. Our approach is to use our sector expertise to identify companies that are "champions" within their industry, that provide a product or service which is genuinely differentiated and valued by their customers and vital to their customers. These companies tend to out-perform their competitors and can out-perform throughout the economic cycle, as they have a fundamental advantage which allows them to grow revenues, invest during downturns, innovate, and create jobs and new products. We will preserve and build our flexibility to exploit the opportunities that arise over the coming years. Within the portfolio companies this means continuing work to strengthen management capabilities, the market positions of each business, their operational and financial performance and to improve balance sheets. Within HgCapital we will continue to seek to acquire high-quality businesses that fit our thematic investment strategy. Management teams that remain ambitious and focused will deliver long term profit growth ahead of the market and, with sustained diligence and discipline in executing our plans, we believe that we will continue to reward the Trust's shareholders with long term out-performance. TOP 10 BUYOUT INVESTMENTS representing more than 60% of the total portfolio Buyout investments are held through limited partnerships of which HgCapital Trust plc (the `Trust') 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 Â£50 million and Â£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 TeamSystem Website: www.teamsystem.com Original enterprise value: â‚¬570 million HgCapital clients' total equity: 53.3% Business description TeamSystem is a leading market provider of business-critical, daily-use SME software products in Italy. Headquartered in Pesaro, the company has a diverse base of over 80,000 customers. It has 27 offices in Italy and employs approximately 800 people. Why did we invest? TeamSystem is HgCapital's seventh investment into business-critical back office software (via two platforms). The company has a track record of solid performance and delivered organic revenue growth of 6% p.a. between 2007 and 2009, trading resiliently through the 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 intends to cross-sell products to TeamSystem's 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 software businesses in Italy has also been identified. What has been achieved? Our normal post-acquisition review has identified several improvement projects that have been put into action, including improved reporting and pricing, investment into the M&A process and finding new ways to address the micro-SME customer base in Italy. How is it performing? Trading has been sound with growth in revenue and profits. We can look forward to further positive movement when tax laws change later in 2011, crystallising a demand for upgrades. How will we crystallise value? We see a diverse range of exit options for TeamSystem, with interest from trade and financial buyers expected and an IPO on the Italian stock market a possibility. To support an attractive exit rating for the business, we will look for faster organic growth by increasing the revenue per customer from the sale of new products and services. Trust's Investment - TeamSystem Sector Location Date of Residual Unrealised Accrued Total Valuation investment cost Â£'000 value interest value methodology Â£'000 Â£'000 Â£'000 TMT Italy Sept 2010 24,432 26,491 - 26,491 Cost The difference between cost and valuation is due to foreign exchange rate movements 2 Visma Website: www.visma.com Original enterprise value: NOK4.3 billion HgCapital clients' total equity: 16.3% Business description VISMA is the number one provider of business software and related services to small and medium-sized enterprises in the Nordic region. The company provides accounting, resource planning and payroll software, outsourced book-keeping, payroll services and transaction process outsourcing. Why did we invest? Visma is an early example of HgCapital's focus on business critical `software as a service' firms operating within a fast growing marketplace. The company enjoys high levels of predictable recurring revenue resulting from a subscription payment model. Room for improvement was identified in profit margins that were below those of most of its competitors. This was due to significant investment in the business and a delay in the benefits expected from a number of recent acquisitions. How do we intend to create value? In September 2010, a 64% stake in the business was sold to KKR. This valued the business at Â£1.2 billion, of which our clients' stake was worth Â£380.0 million (an investment multiple of 3.7x). HgCapital continues to hold a stake and hopes to benefit from further potential in the next few years. What has been achieved? During the course of the investment, the company has made several bolt-on acquisitions including Accountview, Sirius IT and Teemuaho. These deals bolstered organic growth from innovation in new services and products while margins were improved through rethinking Visma's internal processes. How is it performing? There was continued growth in the first half of 2011 with growth in both sales and EBITDA up on prior year, mostly the result of acquisitions. How will we crystallise value? The business has a scale and growth profile which will make it an attractive IPO candidate, as well as a target for trade buyers. Trust's Investment - Visma Sector Location Date of Residual Unrealised Accrued Total Valuation investment cost Â£'000 value interest value methodology Â£'000 Â£'000 Â£'000 TMT Nordic May 2006 701 24,421 - 24,421 Third party region transaction 3 SHL Website: www.shl.com Original enterprise value: Â£102 million HgCapital clients' total equity: 50.3% Business description SHL is the global market leader in objective psychometric testing and has a world-wide presence. The business consists of the development and sale of 300 different types of psychometric tests to corporate clients and the provision of psychologists for the administration and interpretation of tests. Why did we invest? SHL's position at the head of a growth market with a blue chip customer base provided an opportunity to invest aggressively to increase SHL's share of customer spend and access high growth geographies through focusing on new technology and products. How do we intend to create value? The plan is to invest in new sales resources, to focus the business on higher margin web sales and to invest in new technology to increase product performance. What has been achieved? Following a tough year in 2009 when revenues fell and costs were cut rapidly, productivity increased and the business has rebounded strongly, with profits and revenues increasing significantly. A merger with US-based Previsor was completed in January 2011. The deal was executed on an all-equity basis, with a rollover of all existing management ownership into the combined business, and no additional funding requirement from clients. HgCapital retains a 50.3% stake of the enlarged group, with Veronis Suhler Stevenson, the private equity investor in PreVisor, holding a minority position. The merged company will be able to provide a broad range of assessment solutions across both blue and white-collar roles to support both recruitment and development decisions. Its offering will be available in more languages and countries than any other talent management provider in the world. How is it performing? The year so far has seen the business performing strongly with both sales and EBITDA ahead of last year. Most of the cost synergies predicted pre-merger have been delivered. How will we crystallise value? Following the merger, the focus is on achieving the target cost and revenue synergies of the combined businesses. The business will be one of the largest and most profitable in the human capital market and should be an attractive acquisition target as well as potential IPO candidate. Trust's Investment - SHL Sector Location Date of Residual Unrealised Accrued Total Valuation investment cost Â£'000 value interest value methodology Â£'000 Â£'000 Â£'000 Services UK Oct 2006 7,984 13,866 4,378 18,224 Earnings 4 FrÃ¶sunda Website: www.frosunda.de Original enterprise value: SEK1.5 billion HgCapital clients' total equity: 87.8% Business description FrÃ¶sunda provides specialist care and personal assistance for people with physical or mental disabilities. It also has an emerging psychiatric and schools business. Headquartered in Solna, Sweden, FrÃ¶sunda employs around 3,700 and cares for over 1,600 people. Why did we invest? Sweden offers an attractive market opportunity as its government finances and the economy are in good shape. FrÃ¶sunda represents HgCapital's fourth investment into healthcare services. It is one of the leaders in Sweden in a sub-segment of the healthcare market growing at over 10% p.a. and protected by intensifying regulation and high patient care requirements. The business benefits from visible recurring revenue and low customer churn. There are clear opportunities to improve margins through economies of scale. There is also potential to expand into adjacent market segments, as the company has already demonstrated through recent acquisitions. How do we intend to create value? HgCapital will work with management to develop its management team and grow the business organically while broadening into adjacent markets where the company can apply its expertise by acquisition. Several bolt-on investments have already been made. What has been achieved? Following the implementation of a 100-day plan, the focus of management has been on sales force effectiveness, sharing best-practice, improved reporting, the introduction of new products and investment in staff in M&A, legal and property. How is it performing? Sales force initiatives have boosted the sales pipeline and productivity levels leading to growth in sales and EBITDA compared to the prior year. How will we crystallise value? We expect FrÃ¶sunda to appeal to one of the large Swedish healthcare conglomerates, another financial buyer, or to the public through an IPO. Trust's Investment - FrÃ¶sunda Sector Location Date of Residual Unrealised Accrued Total Valuation investment cost Â£'000 value interest value methodology Â£'000 Â£'000 Â£'000 Healthcare Nordic Jun 2010 14,296 16,019 - 16,019 Cost region The difference between cost and valuation is due to foreign exchange rate movements 5 Lumesse Website: www.lumesse.com Original enterprise value: â‚¬110 million HgCapital clients' total equity: 79.4% Lumesse was formerly known as Stepstone Solutions; the company has rebranded in accordance with the terms of the acquisition agreement. Business description Lumesse is a leading provider of strategic HR software (recruiting and talent management) to medium and large enterprises in Europe, operating in 16 countries with 430 full-time employees. The business operates a subscription-based model (more than 60% of total revenue) with a strong recurring consulting element. Customer retention rates are high at around 95%. Why did we invest? Lumesse lies within the sub-sector focus on `software as a service' (e.g. Visma) where companies experience high levels of recurring revenue from long-term customers, which leads to stability and high margins. The company has achieved strong organic growth, with scope for further margin improvement in a market growing at 15%-20% p.a. There is also the opportunity to consolidate the market by acquiring local players. How do we intend to create value? Lumesse's management intends to drive subscription revenue growth by capitalising on their cutting-edge technology, improving cross- and up-selling into the existing customer base and investigating partnerships with HgCapital portfolio companies. There is also an increased focus on costs to improve margins and on strengthening the company's international presence both organically and through bolt-on acquisitions. What has been achieved? A first bolt-on acquisition, Mr. Ted, has been made and its global Talentlink product has been added to the Lumesse range of services. Investment in the sales force has helped to drive organic growth. An initial cost saving programme has been successfully completed. How is it performing? Trading is ahead of last year in both sales and EBITDA. Revenue outperformance has been driven mainly by increased demand for consulting services. How will we crystallise value? Multiple options are available as there is high demand for vertical technology companies. Lumesse has received strong interest from trade buyers but we may also contemplate an IPO or a sale to another private equity buyer. Trust's Investment - Lumesse Sector Location Date of Residual Unrealised Accrued Total Valuation investment cost Â£'000 value interest value methodology Â£'000 Â£'000 Â£'000 TMT UK May 2010 14,281 13,931 1,478 15,409 Earnings 6 Goldshield Website: www.goldshield-pharmaceuticals.com Original enterprise value: Â£179 million HgCapital clients' total equity: 53.2% Business description Goldshield is a profitable niche pharmaceutical and consumer health products company focused on the UK. The pharmaceutical division sells mature branded products and niche generics, typically re-formulating them to extend their lives. It is primarily focused on serving the UK, where demand for its products benefits from attempts to reduce prescription costs. Goldshield also had a small, loss-making consumer health division which sold a range of weight management and consumer health products. This was sold during the first half of 2011. Why did we invest? The business operates in a protected niche of the pharmaceuticals market and can act as a platform for acquisition-based growth. It benefits from having a lean operating model which delivers attractive margins and strong cash conversion. We believe that surplus cash can be used to acquire new products and to finance licensing deals that will extend the product portfolio and deliver continued growth. How do we intend to create value? The business can be simplified by withdrawing from unprofitable activities and grown by acquiring/licensing more products in the pharmaceutical business. What has been achieved? A new management team has been recruited including a Chairman, CEO and Heads of Operations and Business Development. The streamlining process has been completed with the disposal of the Consumer Health division and other non-core assets. The new executives are driving improvements in their respective areas particularly Quality Assurance, Product Development/Acquisition and Operations. How is it performing? Pharmaceutical sales are growing and, following the divestment of the underperforming Consumer Health division, EBITDA is strongly ahead of the prior year. How will we crystallise value? The most likely exit route is a trade sale to a larger pharmaceutical company. Trust's Investment - Goldshield Sector Location Date of Residual Unrealised Accrued Total Valuation investment cost Â£'000 value interest value methodology Â£'000 Â£'000 Â£'000 Healthcare UK Dec 2009 8,545 13,287 1,612 14,899 Earnings 7 Mondo Minerals Website: www.mondominerals.com Original enterprise value: â‚¬230 million HgCapital clients' total equity: 90.8% Business description Mondo is the European number two in talc mining and processing. Its core markets are the paper and paint industries. It supplies the majority of talc for paper producers in Finland, the rest of the Nordic region and Northern Europe. Why did we invest? Mondo's core customer base offers long-term demand. The product is a critical but low cost technical component in its customers' manufacturing processes. Due to the specific characteristics of talc, an opportunity exists to push into other high margin applications and increase the size of the non-paper business. There is also opportunity for margin improvement through process change. How do we intend to create value? The strategy is to grow sales in higher margin applications, reduce costs through better procurement and processes, and enter new expanding BRIC markets through acquisition and joint ventures. What has been achieved? Sales in non-paper applications have increased, processes improved, milling operations have switched from oil to electricity, and Mondo has expanded alongside its customers to serve their global needs. How is it performing? The introduction of an experienced COO in 2010 led to increases in volumes, sales and profit. In May 2011, he succeeded the retiring CEO and Mondo continues to trade well with sales and EBITDA growing against prior year. How will we crystallise value? At the beginning of July 2011, Mondo Minerals was sold to Advent International. The sale is anticipated to complete in the second half of 2011 following employee consultations. During HgCapital's period of ownership, Mondo has delivered EBITDA growth of approximately 50% and increased employee headcount by 12% despite challenging trading conditions throughout the recession. Trust's Investment - Mondo Minerals Sector Location Date of Residual Unrealised Accrued Total Valuation investment cost Â£'000 value interest value methodology Â£'000 Â£'000 Â£'000 Industrials Nordic Oct 2007 6,923 10,229 4,425 14,724 Earnings region 8 Achilles Website: www.achilles.com Original enterprise value: Â£75 million HgCapital clients' total equity: 63.2% Business description Achilles operates schemes whereby buyers require their suppliers to subscribe and to provide information to the Achilles online database; for suppliers it is mandatory to join the scheme if they wish to supply to the buyer group and both buyers and suppliers pay annual subscription fees. Achilles currently operates more than 30 schemes across 22 countries. Why did we invest? Achilles is a prime example of HgCapital's subscription-based thematic investment strategy. It is a market leader in the regulatory compliance industry, with significant recurring revenue streams. How do we intend to create value? With high levels of contracted revenue, Achilles' position as global market leader with a scalable business model reveals considerable potential in revenue and margin growth. 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 are beginning to bear fruit. There has also been considerable investment in a new common IT system, used across all areas of the business. How is it performing? Performance has been significantly up on the prior year with good growth in both sales and EBITDA. How will we crystallise value? There has been strong interest from the private equity community and Achilles' protected revenue base will maintain this interest throughout the economic cycle. A trade sale or IPO are also attractive outcomes with an IPO likely to offer the best long-term value. Trust's Investment - Achilles Sector Location Date of Residual Unrealised Accrued Total Valuation investment cost Â£'000 value interest value methodology Â£'000 Â£'000 Â£'000 TMT UK Jul 2008 5,226 12,548 1,623 14,171 Earnings 9 Mainio Vire Website: www.mainiovire.fi Original enterprise value: â‚¬92 million HgCapital clients' total equity: 83.0% Business description Founded in 1997, Mainio Vire was one of the first private social care companies in Finland. It has grown rapidly, via a combination of opening new care homes and selected small acquisitions, to become the market leader in Finland. Mainio Vire serves four business areas: elderly care, mental health, child day-care and home services. The company operates 47 care homes with 1,675 beds and seven child day-care centres with 360 places. Mainio Vire has one of the widest geographic footprints in the sector and is strongest in the regional economic centres located in the southern and central parts of Finland. Approximately 1,150 people work at the company, including more than 800 who hold relevant formal qualifications. Why did we invest? The Healthcare Team views the Nordic region as an attractive place to invest given the favourable demographics, fragmented competition, and the strong trend towards private provision of care. Our in-depth analysis of the Finnish market suggested that there were a number of highly attractive segments and Mainio Vire offers a highly attractive platform to benefit from these trends. Mainio Vire is a strong, high quality business with sustainable organic growth. It is a quality-oriented company with ISO certification and has a very experienced, operationally focused management team. How do we intend to create value? There are a number of paths to increased value, including expected organic growth, movements into adjacent and emerging sectors, and through further acquisitions. How is it performing? The company is performing well with sales and profits growing year-on-year. How will we crystallise value? The most likely exit route is a sale to a larger Nordic healthcare group or to a private equity buyer. Trust's Investment - Mainio Vire Sector Location Date of Residual Unrealised Accrued Total Valuation investment cost Â£'000 value interest value methodology Â£'000 Â£'000 Â£'000 Healthcare Nordic Jun 2011 12,329 12,456 - 12,456 Cost region The difference between cost and valuation is due to foreign exchange rate movements 10 Manx Telecom Website: www.manxtelecom.com Original enterprise value: Â£159 million HgCapital clients' total equity: 79.5% Business description Manx Telecom is the primary fixed and mobile telecom operator on the Isle of Man. A former monopoly, it provides telecommunication and data services to commercial and consumer customers. In addition to its on-island activities, the company has developed a number of niche off-island voice and data hosting businesses which are delivering further growth. Why did we invest? Manx Telecom is the incumbent operator in a high growth economy where quality telecoms are critical for many businesses and spending in the sector has historically grown above real GDP. The company enjoys a leading market position and a favourable regulatory environment which encourages infrastructure investment. How do we intend to create value? HgCapital will continue to invest in the network to drive growth in the core business while further investment in the Isle of Man's infrastructure through the development of a new data hosting centre will support continued growth in this high margin business area. We will pursue margin improvement to levels in line with leading small island telecoms operators and management will be supported in the continued growth of new off-island opportunities. There is potential for bolt-on acquisitions to further expand the business. What has been achieved? Investment in management, working with local regulators and improvements in reporting and KPI monitoring processes has begun to reap rewards. A strategic review has been carried out identifying key areas for future growth, with planning for construction of a new data centre and roll out of high speed broadband well underway. At the beginning of the year, Manx Telecom was listed in the Sunday Times 100 Best Companies To Work For. How is it performing? Revenues continue to rise compared to last year but there has been some underperformance in profits as a result of significant investment into the business which should show long-term benefits. How will we crystallise value? The business in its current form is expected to be attractive to a number of trade and financial buyers. Successful growth in the scale of the business through acquisitions will make the business attractive to larger private equity investors who have a successful track record in the telecoms space. Trust's Investment - Manx Telecom Sector Location Date of Residual Unrealised Accrued Total Valuation investment cost Â£'000 value interest value methodology Â£'000 Â£'000 Â£'000 TMT UK Jun 2010 11,033 11,033 - 11,033 Cost INVESTMENTS IN RENEWABLE ENERGY Business description HgCapital's Renewable Energy sector team uses private equity skills to identify and acquire renewable energy projects, usually based on wind or solar energy, in Western Europe. These projects run across two funds and are grouped into platforms with the current portfolio comprising: - UK Onshore Wind: one of the ten largest independently-owned onshore wind portfolios in the UK with 113MW of capacity in operation; - Swedish Onshore Wind: the largest owner of onshore wind farms in the Nordic region with total capacity of 181MW in three projects, developed and built by Renewable Energy Systems Limited, one of the world's most experienced developers of wind farms; - Spanish Solar: the fourth largest operator of solar PV in Europe with capacity of 61MW in seven projects in Spain; and - Spanish Hydro: 14 projects of 55MW operating with 16MW to be built in the next 12 months. As at 30 June 2011, 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? Investment in renewable energy offers good, risk-adjusted returns, delivering inflation-protected and non-GDP linked revenue streams from high quality assets. It is the fastest growing part 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, the need to replace ageing generation capacity, and to increase the security of energy supplies in Europe. The sector shares the attractive characteristics, including downside protection, of core infrastructure projects with the potential for significantly higher returns on equity. 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 its 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 three platforms described below. These platforms can then be refinanced efficiently or sold as portfolios of closely related projects to industry buyers or financial investors. Principal investments by platform Total Portfolio Valuation value Â£'000 % UK Wind 6,488 2.3 Spanish Solar 4,943 1.8 Swedish Wind 3,111 1.1 Other 113 0.1 RPP1 Fund 14,655 5.3 Spanish Mini-Hydro 3,905 1.4 Swedish Wind 1,716 0.6 Liquid assets* 2,229 0.8 RPP2 Fund 7,850 2.8 Total renewable energy investments 22,505 8.1 *for pending investments DIVERSIFICATION BY VALUE Geography 43% Spain 32% UK 24% Sweden 1% France Resource 57% Onshore wind 24% Solar 19% Hydro FINANCIAL STATEMENTS INCOME STATEMENT for the six months ended 30 June 2011 Revenue return Capital return Total return Note Six months Year Six months Year Six months Year ended ended ended ended ended ended 30.06.11 30.06.10 31.12.10 30.06.11 30.06.10 31.12.10 30.06.11 30.06.10 31.12.10 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 (un- (un- (audited) (un- (un- (audited) (un- (un- (audited) audited) audited) audited) audited) audited) audited) Gains on - - - 18,004 11,558 63,529 18,004 11,558 63,529 investments and government securities Gains/(losses) 7(a) - - - 1,690 (1,850) (4,199) 1,690 (1,850) (4,199) on loans receivable from General Partner Net income 6 3,962 4,818 12,165 - - - 3,962 4,818 12,165 Other expenses 8 (218) (1,187) (2,062) - - - (218) (1,187) (2,062) Net return on 3,744 3,631 10,103 19,694 9,708 59,330 23,438 13,339 69,433 ordinary activities before taxation Taxation on 10 (314) - (50) - - - (314) - (50) ordinary activities Transfer to 3,430 3,631 10,053 19,694 9,708 59,330 23,124 13,339 69,383 reserves Return per 11(a) 10.99p 12.98p 34.02p 63.08p 34.69p 200.77p 74.07p 47.67p 234.79p Ordinary share The Total Return column of this statement represents the Trust's income statement. The supplementary revenue and capital return columns are both prepared under guidance published by the Association of Investment Companies ("AIC"). All recognised gains and losses are disclosed in the revenue and capital columns of the income statement and as a consequence no statement of total recognised gains and losses has been presented. All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the period. BALANCE SHEET as at 30 June 2011 Note 30.6.11 30.6.10 31.12.10 Â£'000 Â£'000 Â£'000 (unaudited) (unaudited) (audited) Fixed assets Investments held at fair value Quoted at market valuation - - - Unquoted at Directors' valuation 249,905 207,023 232,184 Total fixed assets 249,905 207,023 232,184 Current assets - amounts receivable after one year Accrued income on fixed assets 28,026 21,569 26,606 Current assets - amounts receivable within one year Debtors 245 2,069 1,826 Government securities 91,938 60,913 86,498 Cash 2,143 2,073 3,473 Total current assets 122,352 86,624 118,403 Creditors - amounts falling due within one (3,239) (1,706) (2,594) year Net current assets 119,113 84,918 115,809 Net assets 369,018 291,941 347,993 Capital and reserves Called up share capital 8,005 7,838 7,838 Share premium account 67,887 61,436 61,444 Capital redemption reserve 1,248 1,248 1,248 Capital reserve - realised 280,935 232,462 274,913 Capital reserve - unrealised (3,149) (23,992) (16,821) Revenue reserve 14,092 12,949 19,371 Total equity shareholders' funds 369,018 291,941 347,993 Basic net asset value per Ordinary share 11(b) 1,160.4p 938.6p 1,118.8p Diluted net asset value per Ordinary share 11(b) 1,129.3p 940.5p 1,090.7p CASH FLOW STATEMENT for the six months ended 30 June 2011 Note Six months Six months Year ended ended ended 30.6.11 30.6.10 31.12.10 Â£'000 Â£'000 Â£'000 (unaudited) (unaudited) (audited) Net cash inflow from operating activities 9 3,240 5,653 4,311 Taxation received/(paid) 1,581 - (10) Capital expenditure and financial investment Purchase of fixed asset investments (29,435) (73,992) (111,418) Proceeds from the sale of fixed asset 32,165 4,891 72,600 investments Net cash inflow/(outflow) from capital 2,730 (69,101) (38,818) expenditure and financial investment Financing activities Proceeds from issue of share capital 6,610 50,000 50,000 Fees paid on issue of share capital - (1,145) (1,137) Equity dividends paid (8,709) (6,297) (6,297) Net cash (outflow)/inflow from financing (2,099) 42,558 42,566 activities Net cash inflow/(outflow) before 5,452 (20,890) 8,049 management of liquid resources Management of liquid resources Purchase of government securities (33,737) (114,874) (205,535) Sale/redemption of government securities 26,955 134,964 198,086 Net cash (outflow)/inflow from management (6,782) 20,090 (7,449) of liquid resources (Decrease)/increase in cash and cash (1,330) (800) 600 equivalents in the period Cash and cash equivalents at 1 January 3,473 2,873 2,873 Cash and cash equivalents at 30 June / 31 2,143 2,073 3,473 December RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS for the six months ended 30 June 2011 Share Capital Note Share premium redemption Capital Revenue capital account reserve reserves reserve Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 At 31 December 2010 7,838 61,444 1,248 258,092 19,371 347,993 Issue of Ordinary shares 5 174 6,443 - - - 6,617 Conversion of Subscription 5 (7) - - - - (7) shares Net return from ordinary - - - 19,694 3,430 23,124 activities Dividends paid 4 - - - - (8,709) (8,709) At 30 June 2011 8,005 67,887 1,248 277,786 14,092 369,018 At 31 December 2009 6,296 14,123 1,248 198,762 15,615 236,044 Issue of Ordinary shares 1,480 48,520 - - - 50,000 Issue of Subscription shares 62 (62) - - - - Cost of share issue - (1,137) - - - (1,137) Net return from ordinary - - - 59,330 10,053 69,383 activities Dividends paid 4 - - - - (6,297) (6,297) At 31 December 2010 7,838 61,444 1,248 258,092 19,371 347,993 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 interim 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 In May 2003 (subsequently revised in January 2009) and January 2009, the Trust entered into two separate partnership agreements with general and founder partners, 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 and HGT 6 LP (together the `buyout funds') is to hold all the Trust's investments in buyouts and other investments, other than liquid funds and renewable energy projects (see below). Under the partnership agreements, the Trust made capital commitments into the buyout funds with the result that the Trust now holds direct investments in the buyout funds and an indirect investment in the fixed asset investments that are held by these funds, as it is the sole limited partner. The fixed asset investments on the balance sheet and the investment portfolio (see above) comprise the underlying investments held by these buyout funds. 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 and HgCapital Renewable Power Partners 2 C LP (together the `renewable funds'). These are direct investments in the renewable funds, as shown on the balance sheet and the investment portfolio above. Priority profit share and carried interest per the buyout limited partnership agreements Under the terms of the 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 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 buyout funds' LPAs, the founder partner is entitled to a carried interest distribution once certain preferred returns are met. The LPAs stipulate that the 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 are shown in the appropriate lines of the income statement. Notes 6, 7 and 8 to the financial statements and the cash flow statement disclose the gross income and gross capital gains of the 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 and founder partner as its PPS and 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. 4. Dividends It is intended that dividends will be declared and paid annually in respect of each accounting period. A dividend of 28.0p per share was paid on 13 May 2011 in respect of the year ended 31 December 2010 (year ended 31 December 2009: interim dividend of 25.0p per share). Shareholders should note that the Trust has been advised that its dividend in respect of the financial year ended 31 December 2010 was paid as a lawful interim dividend and not as a final dividend approved by shareholders. 5. Issued share capital Six months ended Six months ended Year ended 30.06.11 30.06.10 31.12.10 (unaudited) (unaudited) (audited) No. `000 Â£'000 No. `000 Â£'000 No. `000 Â£'000 Ordinary shares of 25p each Allotted, called up and fully paid: At 1 January 31,104 7,776 25,187 6,296 25,187 6,296 Issued as part of placing and - - 5,917 1,480 5,917 1,480 open offer Issued following exercise of 696 174 - - - - Subscription rights At 30 June / 31 December 31,800 7,950 31,104 7,776 31,104 7,776 The Trust's issued share capital at the beginning of the year consisted of 31,103,915 ordinary shares. On 10 June 2011, 695,810 new Ordinary shares were issued pursuant to the exercise of Subscription rights by Subscription shareholders. The Subscription price paid per Ordinary share was Â£9.50 and total proceeds of Â£6.6 million were received by the Trust. Six months ended Six months ended Year ended 30.06.11 30.06.10 31.12.10 (unaudited) (unaudited) (audited) No. `000 Â£'000 No. `000 Â£'000 No. `000 Â£'000 Subscription shares of 1p each Allotted, called up and fully paid: At 1 January 6,221 62 - - - - Issued as part of placing and - - 6,221 62 6,221 62 open offer and bonus Conversion into Ordinary shares (696) (7) - - - - At 30 June / 31 December 5,525 55 6,221 62 6,221 62 On 7 April 2010, 5,037,351 subscription shares were issued as part of the qualifying bonus issue, representing one subscription share for every five existing ordinary shares held. A further 1,183,432 subscription shares were issued, attached to the placing and open offer, representing one subscription share for every five new ordinary shares issued. Each subscription share entitles the holder to subscribe for one ordinary share upon exercise of their subscription right and payment of the subscription price. The first opportunity to exercise such right was on 31 May 2011, when 695,810 Ordinary shares were issued following the exercise of Subscription rights on the same number of Subscription shares. The Ordinary shares issued commenced trading on 15 June 2011. The next opportunity to exercise Subscription rights is on 31 October 2011 and, thereafter, 31 May 2012 and 31 October 2012, at a price of Â£9.50 per ordinary share. The final exercise date is on 31 May 2013 at a subscription price of Â£10.25 per ordinary share. 6. Income Six months Six months Year ended ended ended 31.12.10 30.6.11 30.6.10 Â£'000 Â£'000 Â£'000 (audited) (unaudited) (unaudited) Income from investments held by HGT LP and HGT 6 LP UK unquoted investment income 4,075 3,604 7,672 Foreign unquoted investment income 4,938 2,265 6,267 UK dividends - 909 1,396 Gilt interest less amortisation of premium 42 (419) (472) 9,055 6,359 14,863 Other income Deposit interest 11 25 27 Other interest income 20 126 136 31 151 163 Total income 9,086 6,510 15,026 Priority profit share attribution (5,124) (1,692) (2,861) Total net income 3,962 4,818 12,165 Total net income comprises: Dividends - 909 1,396 Interest 3,962 3,909 10,769 Total net income 3,962 4,818 12,165 7. Fees, priority profit share and carried interest paid to Manager (a) Priority profit share Revenue return Six months Six months Year ended ended ended 31.12.10 30.6.11 30.6.10 Â£'000 Â£'000 Â£'000 (audited) (unaudited) (unaudited) Priority profit share to General Partners funded by: Share of investment income 5,124 1,692 2,861 Loan (recovered from)/advanced to General (1,690) 1,850 4,199 Partner 3,434 3,542 7,060 The priority profit share payable on HGT LP and HGT 6 LP rank as a first appropriation of net income from investments held in HGT LP and HGT 6 LP respectively and is deducted prior to such income being attributed to the Trust in its capacity as a Limited Partner. The net income of HGT LP and HGT 6 LP earned during the period, after the deduction of the priority profit share, is shown on the income statement. (b) Carried interest Capital return Six months Six months Year ended ended ended 31.12.10 30.6.11 30.6.10 Â£'000 Â£'000 Â£'000 (audited) (unaudited) (unaudited) Carried interest payable to Founder Partner funded by: Share of gains on investments 2,393 - 1,136 2,393 - 1,136 The carried interest payable ranks as a first distribution of capital gains on the investments held in HGT LP and HGT 6 LP, a limited partnership established solely to hold the Trust's investments, and is deducted prior to such gains being paid to the Trust in its capacity as a Limited Partner. The net amount of capital gains of HGT LP and HGT 6 LP during the period, after the deduction of carried interest, is shown on the income statement 8. Other expenses Revenue return Six months Six months Year ended ended ended 31.12.10 30.6.11 30.6.10 Â£'000 Â£'000 Â£'000 (audited) (unaudited) (unaudited) Custodian and administration fees 206 138 324 Other administration costs 12 1,049 1,738 218 1,187 2,062 9. Cash flow from operating activities Six months Six months Year ended ended ended 31.12.10 30.6.11 30.6.10 Â£'000 Â£'000 Â£'000 (audited) (unaudited) (unaudited) Net return before taxation 23,438 13,339 69,433 Gains on investments held at fair value (22,087) (9,708) (60,466) Priority profit share recovered/(advanced) 1,690 (1,850) (4,199) Movement on carried interest 1,257 (1,062) 74 Amortisation of premium on government 1,288 2,664 3,980 securities Increase in prepayments and accrued income (1,438) (1,069) (5,919) Decrease in debtors 17 2,675 2,691 (Decrease)/increase in creditors (925) 671 (1,276) Tax on investment income included within - (7) (7) gross income Net cash inflow from operating activities 3,240 5,653 4,311 10. Taxation Tax for the six month period is charged at 28% to 31 March 2011 and 26% from 1 April 2011 (31 December 2010: 28%), representing the best estimate of the average annual effective tax rate expected for the full year, applied to the pre-tax income of the six month period. In the opinion of the Directors, the Trust has complied with the requirements of Section 1158 and Section 1159 of the CTA 2010 and will therefore be exempt from corporation tax on any capital gains made in the year. The Trust expects to designate all of any dividend declared in respect of this financial year as an interest distribution to its shareholders. This distribution is treated as a tax deduction against taxable income, resulting in no corporation tax being payable by the Trust on the interest income designated as a dividend. 11. Return and net asset value per ordinary share (a) Return per Ordinary share Revenue return Capital return Six months Six months Year Six months Six months Year ended ended ended ended ended ended 30.6.11 30.6.10 31.12.10 30.6.11 30.6.10 31.12.10 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 (unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited) Earnings (Â£`000): Return on ordinary activities 3,430 3,631 10,053 19,694 9,708 59,330 after taxation Number of shares (`000) Weighted average number of 31,223 27,983 29,552 31,223 27,983 29,552 shares in issue Return per Ordinary share 10.99 12.98 34.02 63.08 34.69 200.77 (pence) (b) Net asset value per share Six months Six months Year ended ended ended 31.12.10 30.6.11 30.6.10 Â£'000 Â£'000 Â£'000 (audited) (unaudited) (unaudited) Net asset value (Â£'000) Net assets 369,018 291,941 347,993 Assuming exercise of all Subscription 52,487 59,097 59,097 shares (at minimum price) Fully diluted net asset value 421,505 351,038 407,090 Number of shares (`000) Number of shares in issue 31,800 31,104 31,104 Potential issue of Subscription shares 5,525 6,221 6,221 Shares in issue following exercise of 37,325 37,325 37,325 Subscription shares Basic net asset value per share (pence) 1,160.4 938.6 1,118.8 Diluted net asset value per share (pence) 1,129.3 940.5 1,090.7 12. Capital commitments The Trust has committed through HGT 6 LP to invest Â£285 million alongside the Manager's latest buyout fund, Hg6. The Trust will be entitled, without penalty, to opt out of any investment which could cause the Trust to lose its status as an investment trust, result in the Trust not having the cash resources to meet any of its projected liabilities or expenses, or result in it not being able to pay dividends or undertake any intended share buy-back. At 30 June 2011, Â£136,426,000 (30 June 2010: Â£198,951,000; 31 December 2010: Â£155,884,000) of this commitment was uncalled. The Trust has also committed through HGT LP to invest Â£120 million alongside the Manager's previous buyout fund, Hg5. At 30 June 2011, Â£25,210,000 (30 June 2010: Â£20,464,000; 31 December 2010: Â£22,350,000) of this commitment was uncalled. The Trust's derivative financial instruments, held through HGT LP for the purpose of foreign exchange hedging, expire on 29 August 2012. In order to meet any potential liability arising on this date, an amount of Â£6,260,000 has been reserved for this purpose at the HGT LP level. This amount is therefore callable from the Trust at this or any earlier date and will, when called, reduce the above uncalled commitment to HGT LP. During 2010, the Trust committed to invest â‚¬40 million in the Manager's latest renewable energy fund, HgCapital Renewable Power Partners 2 C LP. As at 30 June 2011, â‚¬30,390,000 (Â£27,445,000) (30 June 2010: â‚¬11,735,000 (Â£9,608,000); 31 December 2010: â‚¬37,302,000 (Â£31,964,000)) of this commitment was uncalled. During 2006, the Trust committed â‚¬21.6 million in the Manager's first renewable energy fund, Hg Renewable Power Partners LP. As at 30 June 2011, â‚¬2,127,000 (Â£1,921,000) (30 June 2010: â‚¬2,140,000 (Â£1,752,000); 31 December 2010: â‚¬2,127,000 (Â£1,823,000)) of this commitment was uncalled. 13. Publication of non-statutory accounts The financial information contained in this half-yearly financial report does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006. The financial information for the six months ended 30 June 2011 and 30 June 2010 has not been audited. The information for the year ended 31 December 2010 has been extracted from the latest published audited financial statements, which have been filed with the Registrar of Companies. The report of the auditors on those accounts contained no qualification or statement under section 498 (2) or (3) of the Companies Act 2006. 14. Annual results The Board expects to announce the results for the year ending 31 December 2011 in March 2012. The Annual Report should be available by the end of March 2012, with the Annual General Meeting being held in May 2012. BOARD, MANAGEMENT AND ADMINISTRATION Board of Directors Roger Mountford (Chairman) Piers Brooke Richard Brooman (Chairman of the Audit & Valuation Committee) Peter Gale (Deputy Chairman and Senior Independent Director) Andrew Murison Mark Powell HgCapital Trust plc 2 More London Riverside London SE1 2AP www.hgcapitaltrust.com Registered office (Registered in England No. 1525583) 2 More London Riverside London SE1 2AP Manager HgCapital** 2 More London Riverside London SE1 2AP Telephone: 020 7089 7888 www.hgcapital.com Secretary and administrator Hg Pooled Management Limited* 2 More London Riverside London SE1 2AP Telephone: 020 7089 7888 www.hgcapital.com Stockbrokers RBS Hoare Govett Limited* 250 Bishopsgate London EC2M 4AA Telephone: 020 7678 8000 www.rbs.com/hoaregovett Numis Securities Ltd* The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT Telephone: 020 7260 1000 www.numiscorp.com Custodian Hg Investment Managers Limited* 2 More London Riverside London SE1 2AP Registrar Computershare Investor Services PLC* The Pavilions Bridgwater Road Bristol BS99 6ZZ Telephone: 0870 707 1037 www-uk.computershare.com/investor Independent auditor Deloitte LLP 2 New Street Square London EC4A 3BZ AIC Association of Investment Companies www.theaic.co.uk LPEQ Listed Private Equity www.lpeq.com HgCapital Trust plc is a founder member of LPEQ (formerly iPEIT). LPEQ is a group of private equity investment trusts and similar vehicles listed on the London Stock Exchange and other major European stock markets, formed to raise awareness and increase understanding of what listed private equity is and how it enables all investors - not just institutions - to invest in private equity. LPEQ provides information on private equity in general, and the listed sector in particular, undertaking and publishing research and working to improve levels of knowledge about the asset class among investors and their advisers. *Authorised and regulated by the Financial Services Authority. **HgCapital is the trading name of Hg Pooled Management Limited and HgCapital LLP The full Interim Results and a webcast describing the results are available at http://www.hgcapitaltrust.com For further details: HgCapital Ian Armitage (Chairman, HgCapital) +44 (0)20 7089 7888 Roger Mountford (Chairman, HgCapital Trust plc) +44 (0)77 99 66 26 01 Maitland Rowan Brown +44 (0)20 7379 5151 George Hudson 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.

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