Annual Financial Report

RNS Number : 3765S

HgCapital Trust PLC

11 March 2019

HgCapital Trust plc

ANNUAL Results for the YEAR ended 31 DECEMBER 2018

London, 11 March 2019: HgCapital Trust plc ("the Company"), which provides investors with a listed vehicle to invest in unquoted businesses managed by Hg, today announces its annual results for the year ended 31 December 2018.

CONTINUED Strong NAV performance driven by ROBUST double-digit revenue and EARNINGS growth AND EXITS ABOVE BOOK VALUE

SUMMARY performance

	28 February 2019	31 December 2018	31 December 2017	% Total return¹
NAV per share	£21.13	£21.57	£19.32	+14.3%
Share price	£20.00	£17.85	£17.68	+3.5%
FTSE All-Share Index				-9.5%
			2018 Movement
Net Asset Value	£788.8m	£805.0m	£721.0m	+£84.0m

¹Total return assumes reinvestment of all historic dividends
Source: Hg, Factset

key Highlights FOR THE YEAR TO 31 december 2018

§ NAV per share of £21.57, a total return of 14.3%.

§ Share price total return of 3.5% to 31 December 2018.

§ Proposed final dividend of 30 pence per share (full year dividend of 46 pence per share).

§ Strong revenue and EBITDA growth of 25% and 27% respectively across the top 20 investments (89% of the portfolio) over the last twelve months.

§ Valuation multiple (EV/EBITDA) of 17.3x and net debt to EBITDA ratio of 5.6x for the top 20 investments.

§ Net £217 million* of cash returned to the Company and £187 million invested on behalf of the Company.

§ Board's range of skills and experience enhanced by the appointment of Jim Strang (Managing Director and Head of EMEA at Hamilton Lane Associates Inc.) and Guy Wakeley (CEO of Equiniti Group plc).

§ New commitments to invest up to £225 million in Hg Saturn and Transition Capital over next 2-3 years, broadening the investment reach of the Company in its chosen sectors.

* after the payment of carried interest to the Manager

year to date to 28 FEBRUARY 2019

§ NAV per share of £21.13, primarily reflecting unrealised currency movements since year-end.

§ Share price of £20.00, market capitalisation of £746 million, YTD performance of 12%.

§ Pro-forma liquid resources post-completion of all announced transactions and the proposed dividend payable in April 2019, are £116 million (15% of 28 February NAV).

§ Pro-forma outstanding commitments of £411 million (52% of 28 February NAV). We expect these to be drawn down over the next two to three years.

§ Increased focus on improving liquidity in the Company's shares, with a ten for one share-split announced for 28 May 2019.

§ Further commitments to Hg funds expected to be announced in early 2020.

§ Standby bank facility extended to 2022; with ability to increase quantum further, if required.

§ The Board may consider a share issue to help fund future commitments to Hg's funds, if market conditions permit.

Hg's Outlook

§ It has been another strong year of performance for the Company with a record number of realisations.

§ Hg has selectively invested in "sweet-spot" businesses in clusters where we have many years' knowledge.

§ A focus on operational improvement continues to drive performance and deliver significant network benefits.

§ We expect to see further liquidity events over the next twelve months through both exits and refinancings.

§ Robust double-digit trading performance underpins confidence in the ongoing growth of a strong portfolio.

Strong earnings, realisations at uplifts to book value and supporting the management teams of the underlying portfolio will continue to drive value for shareholders in HgCapital Trust plc

Roger Mountford, Chairman of the Company, commented:

"We have announced excellent results for 2018 - a total return in NAV per share of 14.3%, mostly from growth in profits, and well ahead of the wider market. Our top twenty investments (89% of the portfolio) achieved 25% growth in revenues and 27% growth in earnings over the year."

- Ends -

The Company's 2018 Annual Report and a video from the Manager to accompany the results are available to view at: http://www.hgcapitaltrust.com/.

For further details:

HgCapital Trust plc
Laura Dixon (Senior Investor Relations Manager, Hg)	+44 (0)20 7089 7888
Maitland
Vikki Kosmalska	+44 (0)20 7379 5151

About HgCapital Trust plc

HgCapital Trust plc is an investment company whose shares are listed on the London Stock Exchange (HGT.L). The Company gives investors exposure, through a liquid vehicle, to a portfolio of high-growth unquoted companies, managed by Hg, 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

HgCapital Trust plc

Annual report and accounts - 31 December 2018

The objective of the Company is to provide shareholders with consistent long‑term returns in excess of the FTSE All‑Share Index by investing predominantly in unquoted companies where value can be created through strategic and operational change.

The Company provides investors with exposure to a fast‑growing network of unquoted investments, primarily in European technology and service businesses.

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

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

References in this Annual Report and Accounts to pounds sterling have been abbreviated to 'sterling'.

Financial highlights

Annualised share price total return over the last 20 years: +14.5%

2018 performance:

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NAV per share

at 31 December 2018 was £21.57, a total return for the year of:

+14.3%

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Net assets

The total NAV of the Company at 31 December 2018 was:

£805m

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Share price

at 31 December 2018 was £17.85 a total return for the year of:

+3.5%

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Market capitalisation

The market capitalisation of the Company at 31 December 2018 was:

£666m

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Full-year dividend

(2017: 46p)

46p

Total ongoing charges

The total ongoing charges for the year to 31 December 2018:

1.9%

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Please refer to the Director's Report in the full Annual Report and Accounts for further details of the calculation of ongoing charges.

Top 20 investments as at 31 December 2018:

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LTM sales growth

+25%

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LTM profit growth

+27%

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EV to EBITDA multiple

17.3x

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Net Debt to EBITDA ratio

5.6x

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These figures are calculated on a value‑weighted basis. For further information on the top 20 portfolio trading data, please refer to pages 36 to 37 of Hg's review in the full Annual Report and Accounts.

Balance sheet analysis as at 31 December 2018:

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Liquid resources
(19% of NAV)

£157m

In addition, the Company has an undrawn bank facility of £80 million.

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Outstanding commitments
(59% of NAV)

£471m

Commitments will be drawn down over the next two to three years (2019‑2021), an average cash outflow of c. £160 million p.a.

The Company can opt out of a new investment without penalty, should it not have the cash available to invest.

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Strong realisation activity throughout 2018, with further liquidity events since the year‑end, taking advantage of a buoyant environment for realising value at good prices.

Investment and realisation activity in 2018:

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Net cash¹ realised for the benefit of the Company

£217m

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Cash invested on behalf of the Company

£187m

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¹Figure shown net of carried interest of £55 million paid to the Manager, please refer to page 45 of the full Annual Report and Accounts.

For further information on investment and realisation activity over the year, please refer to pages 40 to 46 of the full Annual Report and Accounts.

Long-term performance record

Historic record

Year ended 31 December	Net assets attributable to shareholders £'000	NAV per share p	Share price p	Revenue return/(loss) available for shareholders £'000	Revenue return/(loss) per share¹ p	Dividend per share² p
2009	236,044	937.2	844.0	7,148	28.4	25.0
2010	347,993	1,118.8	1,006.0	10,053	34.0	28.0
2011	346,832	1,089.9	970.0	(645)	(2.0)	10.0
2012	437,956	1,231.5	1,016.0	10,398	32.1	23.0
2013	440,584	1,180.4	1,010.0	12,913	35.3	29.0
2014	476,918	1,277.8	1,057.5	21,933	58.8	51.0³
2015	530,023	1,420.0	1,115.0	17,907	48.0	40.0
2016	615,756	1,649.7	1,541.0	20,140	54.0	46.0
2017	721,024	1,931.7	1,768.0	20,043	53.7	46.0
2018	804,987	2,156.7	1,785.0	13,665	36.6	46.0⁴
¹ Based on weighted number of shares in issue during the year. ² Dividend proposed in respect of reported financial year, but declared and paid in the following year. ³ Includes a special dividend of 19 pence per Ordinary share. ⁴ Proposed final dividend of 30 pence per Ordinary share for the year ended 31 December 2018, to be paid on 30 April 2019, subject to shareholder approval. Interim dividend of 16 pence per Ordinary share was paid on 26 October 2018.

Historical total return performance

	One year % p.a.	Three years % p.a.	Five years % p.a.	Ten years % p.a.	Twenty years % p.a.
NAV per share	14.3	18.4	16.4	11.7	13.8
Share price	3.5	20.9	16.0	13.6	14.5
FTSE All‑Share Index	(9.5)	6.1	4.1	9.1	5.0
NAV per share performance relative to the FTSE All‑Share Index	+23.8	+12.3	+12.3	+2.6	+8.8
Share price performance relative to the FTSE All‑Share Index	+13.0	+14.8	+11.9	+4.5	+9.5

The Board's strategic report

Chairman's statement

The Company has sold a record number of investments during 2018, whilst continuing to invest selectively in businesses that offer opportunities for value creation. We expect these to deliver substantial growth over the next few years.

We have announced excellent results for 2018 - a total return in NAV per share of 14.3%, mostly from growth in profits, and well ahead of the wider market. Our top twenty investments (89% of the portfolio) achieved 25% growth in revenues and 27% growth in earnings over the year, accelerating from 2017 when revenues grew by 17% and earnings by 15% (on a value weighted basis). This excellent trading performance in 2018 and exits above book value led to the NAV per share reaching £21.57 at 31 December, an all‑time high, with the net assets of the Company at £805 million.

In 2018, we realised a record number of businesses, investing cash proceeds into companies that could grow and add value through any potential market correction. In total, we sold 12 businesses, realising gross cash proceeds of £247 million and adding £46.3 million to NAV, with the great majority of these sales achieved at prices above their most recent valuations. In addition to these exits, a further £24.7 million was returned to the Company through refinancings. Growth in the earnings of our unrealised investments added £99.2 million to NAV.

When we value our investments, we apply the ratings of similar technology and service businesses; these continue to be high relative to the wider market, reflecting their resilience, robust sales growth and strong margins. The Manager and Board assess each valuation carefully, selecting and weighting comparable companies to derive a multiple for valuing each of our businesses. At 31 December, roughly half the businesses benefited from slightly higher ratings than at 30 June, while half of the valuations were based on lower multiples. Overall, 22 of our investments were revalued upwards and 8 downwards before the effects of foreign exchange. FX movements made a small net contribution overall, with volatility in exchange rates dampened by a number of hedges.

Share price performance

Over the course of the year, the Company's share price moved ahead marginally from £17.68 to £17.85. In the last quarter of the year, the equity market as a whole was nervous, with the FTSE All‑Share Index ending the year 9.5% down on the year; our share price suffered in the final quarter along with others. Nevertheless, the Company's share price total return over the year was 13.0% above that of the FTSE All‑Share Index. The Company's share price has recovered strongly so far in 2019 to reach a new high of £20.50, before the release of our year‑end NAV. At this price, the Company has a market capitalisation of £765 million. I am pleased to report that, with effect from 11 October 2018, the Company was promoted into the FTSE 250 index as a result of its consistent growth in market value.

During 2018, we were very pleased to receive the Investment Week Award for Private Equity Company of the Year, and to be selected by FTAdvisor as their Fund of the Year in the specialist sectors segment.

Proposed dividend

We have proposed an unchanged final dividend of 30 pence, making 46 pence for the year, a yield of 2.6% on the year‑end share price. As I have explained in previous years, the Company is not managed to achieve earnings, but rather for growth in total return; income will fluctuate from year to year depending on the financial structure of the investments we hold and on returns on liquid funds awaiting deployment. In 2018, the Company's earned income was slightly below previous years and so the Board has held the dividend flat, although it remains our intention to increase dividends in future when the conditions are suitable, as we recognise that yield is important to some investors.

Trading in our Ordinary shares

Maintaining a liquid market in our Ordinary shares is important to all shareholders.

Over the years, as the Company has grown in size and visibility, volumes of trading in our shares have increased and promotion into the FTSE 250 is likely to attract more investors and enhance this liquidity further. At the same time, the strong growth in our share price, from close to £11 per share 5 years ago to over £20 per share, has resulted in a heavy share price which is inconvenient to some shareholders and can be an impediment to investment for some types of investor.

With that in mind, the Board would like to split each share into 10. At the AGM we will propose that each of the Company's shares of 25p nominal value is subdivided into 10 shares of 2.5p nominal value (as detailed on pages 109 and 133 of the full Annual Report and Accounts). If approved at the AGM, your holding will be multiplied by 10 and the share price of each new share is anticipated to adjust downwards accordingly.

I should emphasise that shareholders will lose no value as a direct result of this change and, indeed, easier trading in our shares might increase demand for them. The Board's statement that it anticipates that future dividends will be no less than 46.0 pence per share, split between an interim and final dividend, should be interpreted as referring to dividends of not less than 4.6 pence per new share, should the sub-division resolution be approved.

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"The performance of the Company over 2018 is consistent with its long‑term record, achieving our target and demonstrating the superior returns that can be gained by an allocation to the Company's shares in the portfolio of an investor looking for long‑term growth."

Roger Mountford, Chairman, HgCapital Trust plc

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Our investment proposition

The Company's strategic objective is to provide patient investors with sustained long‑term value creation, principally through capital growth. At any one time we will hold around thirty carefully selected businesses, across the technology and services area. We aim to hold these during periods of transition and expansion that we expect to create substantial shareholder value through active and engaged ownership. Together, these businesses are equivalent in scale to some of the largest technology groups in Europe. The private equity approach enables us to capture the network benefits that flow from sharing know-how and feedback from the experiences of companies in the Hg network while maintaining the autonomy of each management team and rewarding them for their own performance through ownership incentives in the particular business they manage. Hg has continued to invest in building its own Operations Group including many highly experienced Operating Partners and its Operations Innovation team. Members of this group go into the businesses we own to help drive substantial change, without the constraints that often impede large listed companies. During 2018, the Manager organised 14 events, attended by over 700 portfolio company executives, each focused on a particular area of business improvement; the network effect of this creates a powerful tool for sharing best practice across comparable businesses. This is described in detail on pages 25 to 27 of the full Annual Report and Accounts.

In my statement last year, I suggested that businesses that do not address, and adopt, technological change are likely to go into decline: investors need to be well briefed about these opportunities and threats and to be able to identify, with confidence, which businesses understand and can exploit these changes.

Hg targets businesses with proven, repeatable models. It does not invest in companies with unproven technology or directly in early‑stage businesses. These businesses have benefitted for several years from the shift from the sale of software packages that are purchased and then operated in‑house, to offering Software‑as‑a-Service ('SaaS'), using the Cloud for secure delivery, data storage, and access. The transition in many of our businesses to cloud‑based computing further enhances ratings as well as widening margins; an insight describing this effect is set out below and there is further information on the Manager's website (www.hgcapital.com). A number of the businesses in our current portfolio (notably Visma, Sovos, IRIS, Access and Allocate Software) are already offering SaaS solutions and we expect this technological wave to continue to provide us with excellent returns.

Improvements in our shareholder communications

We remain committed to the continuous improvement of our communications to investors and industry commentators. Last year, as we do every few years, we commissioned a perception audit: a specialist firm interviewed many of our shareholders, potential shareholders and analysts in order to provide us with comprehensive feedback on our strategy and communications. In order to increase our reach to current and potential shareholders, we have agreed with Edison Research that they will produce written research on the Company, its investments and prospects; this will facilitate wider demand for our shares via IFAs and platforms by providing them with regular research coverage. Such research is paid for by the Company, but will be freely distributed to thousands of investors; we expect coverage to commence in due course. In 2019, we also look forward to launching a new website that we hope will be more engaging, informative and easier to navigate for all our visitors. In the meantime, regular updates on Hg's investments and the technology sector are available at www.hgcapital.com.

Corporate governance

I reported last year that, following an online search, we had appointed two new non‑executive directors, Dr Jim Strang and Dr Guy Wakeley. The Board had carried out an annual review of its own effectiveness and resolved to broaden the skills and experience of the Board in order to be better able to support and challenge the Manager. To do this we needed to add deep knowledge of the global private equity sector and hands‑on experience of the application of technology to service businesses. These have built on our existing skills in investment management, wealth management, corporate finance, audit and risk management and corporate governance. It is already clear that adding broader experience to the Board has enriched our discussions and enabled us to engage more effectively with the Manager across all aspects of the business. Our aim is to be as well‑equipped as the Board of any large technology group to give direction and scrutiny to the Company's activities.

The Board pays particular attention to identifying and mitigating risks; it engages with the Manager regularly to discuss risks facing the Company and businesses we own, and where necessary to challenge Hg to provide assurance that specific risks are being adequately managed. One area of risk that the Board has focused on over several years is cyber‑risk, which has the potential to damage the reputation and value of the technology and service businesses in which we specialise. Hg's management responded well and early to this risk, recruiting an expert, as a full‑time Operating Partner, who has worked with management teams across the portfolio to support them in their work to build suitable protections and share best practice. The Company's Annual Report last year contained a detailed insight into Hg's work on managing cybersecurity. This risk has been highlighted recently by a cyber‑attack, known as Cloudhopper, against Visma and other global technology groups in the USA and Europe. I am pleased to report that Visma revealed and disarmed this attack quickly, with no adverse impact on its own systems or any of its clients' data or operations. Moreover, to assist all users of software, Visma not only disclosed this cyber‑attack promptly, but in February 2018 also published a detailed analysis of the attack. I and my colleagues on the Board commend Visma's management and Hg for the honesty and transparency which they have demonstrated and their contribution to industry‑wide collaboration, which is vital in the fight against this pervasive threat.

Before this cyber‑attack occurred, as a result of one of our regular reviews of the Company's risk register, the Board asked our two new Directors to review our approach to overall risk management. They have recently presented their proposals which will provide the Company with new tools to keep our analysis of risks up‑to‑date and prioritise our actions to manage and mitigate them. This work demonstrates the benefits of regularly refreshing the Board, introducing new thinking and experience into our debates and to our dialogue with the Manager.

The Association of Investment Companies ('AIC') published its revised Corporate Governance Code shortly before this Report was finalised. The Board will consider its contents carefully and whether we should do more to adopt best practice across everything we do. The Board has asked our Senior Independent Director, Anne West, to take the lead in considering what steps we should take to improve corporate governance; as a former Chief Investment Officer of Cazenove she will be well aware of the expectations of leading institutions.

Maintaining momentum

Every two to three years, the Company makes a commitment to invest in parallel with the funds raised by our Manager, Hg, on the same terms as major global institutional investors who are limited partners in those funds; we invest with them in each business pro rata to our respective commitments. These funds are all focused on identifying businesses in the same segments of the market, but in different sizes and at different stages of development. The Company is thus able to invest in a far wider range of opportunities, and in much larger businesses, than its own size alone would allow; we can also hold successful, growing businesses for longer, where value will continue to be created. The Company has additionally benefited from the much greater resources in terms of people, skills and research the Manager can deploy.

The Company is currently investing in parallel with Hg Saturn, Hg8 and Hg Mercury 2 Funds, with aggregate commitments of £580 million to these funds. In addition, last year we committed a further £75 million to Hg to invest in Transition Capital-structured minority positions in businesses where the founders expect to move towards selling control within five years; during 2018 we made our first investment of this kind, £15 million into BrightPay.

We also have ongoing agreements with the Manager to make equity co‑investments alongside the Hg Saturn, Hg8 and Hg Mercury 2 Funds. This gives the Company more opportunity to invest the balance sheet efficiently and to reduce the cost to investors.

By committing to invest across all these strategies we are able to target investments with enterprise values ranging from £50 million to over £1 billion. We expect to benefit not only from the strong organic growth in these businesses but also from the very broad experience and insights gained from across the market and which can be shared between established, large players and younger innovative businesses that were born in the Cloud.

At the time of completing this Report, the Company's three principal commitments - to Hg Saturn, Hg8 and Hg Mercury 2 - are c. 40% invested. Although the Board and Manager share a degree of caution about asset prices in general there continues nonetheless to be an attractive pipeline of potential opportunities of all sizes targeted by Hg.

Against the background of the very stable and successful business model we have developed with the Manager over some twenty years, the Board has been discussing with Hg the likely timing and potential size of new commitments. We expect to have detailed discussions towards the Autumn of 2019 and enter into new commitments at the start of next year. In order to maintain the Company's momentum, these future commitments may represent a further step up in size, and therefore the Board will consider a potential share issue, providing the market conditions permit, offering existing and new shareholders the opportunity to subscribe and increase our equity base.

As further support for the next wave of new commitments, the Company has recently extended its £80 million bank facility until June 2022, with the option of adding a further £80 million via an 'accordion' facility, subject to the bank's agreement at the time.

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"By committing to invest across all Hg's Funds we are able to target investments with enterprise values ranging from £50 million to over £1 billion. We expect to benefit not only from the strong organic growth in these businesses but also from the very broad experience and insights gained from across the market and which can be shared between established, large players and younger, innovative businesses that were born in the Cloud."

Roger Mountford, Chairman, HgCapital Trust plc

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Risks and prospects

Equity markets in general are displaying nervousness arising from heightened risk of a slowdown in global growth, which may be exacerbated by trade wars or at least the uncertainty created by threats of tariffs and quotas impeding and distorting international trade. The UK and the EU face added uncertainty from the difficulties in reaching agreement for an orderly Brexit.

The Board and Manager have continued to review the analysis made since the referendum in 2016, to assess the potential impact on businesses we own. Few of these trade between the UK and the EU27, and none participates in physical deliveries; nor can we identify any specific adverse effects of a separation in the regulatory frameworks to which any business is exposed. There remains some risk of increased volatility in foreign exchange rates where the Company has net investments in assets valued in Euro, US dollar and Norwegian Krone.

Many of the companies we own provide business‑critical services that customers find difficult to replace. While a general slowdown in economic activity could affect demand for such services, the secular growth in demand arising from the benefits of new technology is likely to continue at a faster rate than any cyclical downturn.

We therefore anticipate strong continuing growth in the underlying earnings of the businesses we own.

The sectors in which we invest command above‑average multiples; these may be affected by a general correction in equity markets, but these businesses remain in great demand from investors and concerns about a cyclical decline only encourage such demand, thanks to their resilience. In any event, businesses that are growing earnings at 25% per annum can rapidly make up for any, possibly temporary, easing in trading multiples.

While we continue to hold some large and very successful businesses, we also have a large number of more recent investments that we expect to deliver substantial growth over the next few years. On average, we have owned our current investments for only 2 years, which offers many further opportunities for enhancement to operations. The data above show that the Company's net asset value and share price continue to outperform the FTSE All‑Share Index. The twenty‑year compound NAV per share total return has been 13.8% p.a., and the annualised share price total return has been 14.5%, compared with a return of just 5% p.a. from the Index. The Company's outperformance against the Index has been accelerating over the last five years.

These rates of return over long periods achieve our target and demonstrate the superior performance that can be achieved by an allocation to the Company's shares in the portfolio of an investor looking for long‑term growth.

Roger Mountford
Chairman
8 March 2019

Investment objective and investment policy

Investment policy
The policy of the Company is to invest, directly or indirectly, in a portfolio of unlisted companies where Hg believes it can add value through organic growth, operational improvements, margin expansion, reorganisation or by acquisition to achieve scale. The Company seeks to maximise its opportunities and reduce investment risk by holding a spread of businesses diversified by sector, market and geography.

Risk management
The Company has adopted formal policies to control risk arising through excessive leverage or concentration.

The Company's maximum exposure to unlisted investments is 100% of the gross assets of the Company from time to time. On the date of first investment, no investment in a single business will exceed a maximum of 20% of gross assets. The Company may invest in other listed closed‑ended investment funds up to a maximum at the time of investment of 15% of gross assets.

Sectors and markets
As the Company's policy is to invest in businesses in which Hg can play an active role in supporting management, Hg primarily invests in companies whose operations are headquartered or substantially based in Europe. These companies operate in a range of countries, but there is no policy of making allocations to specific countries or markets. Investments are made across a range of sectors where Hg believes that its skills can add value, but there is no policy of making allocations to sectors.

The Company may, from time to time, invest directly in private equity funds managed by Hg where it is more economical and practical so to do.

Gearing
Each underlying investment is usually leveraged but no more than its own cash flow can support, in order to enhance value creation; it is impractical to set a maximum for such gearing across the portfolio as a whole. The Company commits to invest in new opportunities in order to maintain the proportion of gross assets that are invested at any time, but monitors such commitments carefully against projected cash flows.

The Company has the power to borrow and to charge its assets as security. The Articles restrict the Company's ability (without shareholder approval) to borrow no more than twice the Company's share capital and reserves, allowing for the deduction of debit balances on any reserves.

Hedging
Part of the Company's portfolio is located outside the UK, predominantly in Northern Europe, and a further part in businesses that operate in US dollars. The Company may therefore hold investments valued in currencies other than sterling. From time to time, the Company may put in place hedging arrangements with the objective of protecting the sterling translation of a valuation in another currency. Derivatives are also used to protect the sterling value of the cost of investment made or proceeds from realising investments in other currencies, between the exchange of contracts and the completion of a transaction.

Overcommitment
The Company may be overcommitted at times in order to ensure that it is more fully invested in the future. The level of overcommitment is regularly reviewed by the Board and Hg.

Liquid funds
The Company maintains a level of liquidity to ensure, so far as can be forecast, that it can participate in all investments made by Hg throughout the investment‑realisation cycle.

At certain points in the investment‑realisation cycle the Company may hold substantial cash awaiting investment. The Company may invest its liquid funds in government or corporate debt securities, or in bank deposits, in each case with an investment grade rating, or in managed liquidity funds that hold investments of a similar quality.

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

Any material change to the Company's investment objective and policy will be made only with the approval of shareholders in a general meeting.

Rationale and business model

The Board has a clear view of the rationale for investing in unquoted businesses where there is the potential for accelerating the growth in value through a private equity approach. This informs its decisions on the operation of the Company and the evolution of the Company's Business Model.

Rationale

The Board believes that there is a convincing rationale for directly investing in well‑researched private businesses where there is potential for substantial growth in value, especially where there is the ability to work with management to implement strategic or operational improvements.

By taking on the burdens of administration, monitoring and accounting that such investments require, the Company offers a simple and liquid means by which shareholders can achieve an investment in unquoted growth companies, monitored by an independent Board.

Business model

To achieve the Company's Investment Objective and within the limits set by the Investment Policy, the Company is a direct investor in unquoted businesses managed, and in most cases controlled, by the Manager. From time to time, the Company may hold listed securities in pursuit of its Investment Policy.

The Company is currently invested in 30 companies (as set out on page 48 of the full Annual Report and Accounts), ranging in size, sector and geography, providing diversification.

The Board has delegated the management of the Company's investments to Hg Pooled Management Limited (the "Manager" or "Hg"). Further details of the terms of the management agreement are set out on page 106 of the full Annual Report and Accounts. The Manager invests predominantly in unquoted technology and service businesses in expanding sectors and provides portfolio management support. Hg's review on pages 19 to 72 of the full Annual Report and Accounts outlines how the Company's investments are managed on behalf of the Company.

Most of the Company's investments are held through special‑purpose partnerships, of which it is the sole limited partner.

Periodically, the Company enters into a formal commitment to invest in businesses identified by the Manager, alongside institutional investors who invest in a Hg Limited Partnership Fund. Such commitments are normally drawn down over three to four years. The institutional investors and the Company invest on substantially identical terms.

The Company is usually the largest investor in each business. Following the 2016 commitment to invest £350 million alongside the Hg8 Fund, in 2017 the Board committed a further £80 million with respect to the Hg Mercury 2 Fund. In early 2018, the Board made a £75 million commitment to invest in Transition Capital and £150 million to invest alongside the Hg Saturn Fund. Further detail on these is provided in the Chairman's statement on pages 10 to 13 of the full Annual Report and Accounts.

The Board has a further objective of keeping the Company as fully invested as is practical, while ensuring that it will have the necessary cash available when a new investment arises. The Board, on the advice of the Manager, makes assumptions about the rate of deployment of funds into new investments and the timing and value of realisations. However, to mitigate the risk of being unable to fund any draw‑down under its commitments to invest, the Board has negotiated a right to opt out, without penalty, of its obligation to fund such draw‑downs where certain conditions exist.

The Company may also take up a co‑investment in some businesses (in addition to the investment it has committed to make).

The Company has no liability to pay fees on such co‑investment and no carried interest incentive is payable to the Manager on realisation (currently 14% of the Company's NAV is in co‑investments). The Company may also offer to acquire a limited partnership interest in any of Hg's funds, in the event that an institutional investor wishes to realise its partnership interest.

The Board regularly monitors progress in all the businesses in which it is invested, and their valuation; the development of the Manager's investment strategy; the resources and sustainability of the business model.

Investment trust status
As the Company's shares are listed on the London Stock Exchange, it can take advantage of tax benefits available to investment trusts. This allows the Company to realise businesses from its portfolio without liability to corporation tax. The Board intends to retain this status so long as it is in shareholders' interest to do so. This will require the Board to declare dividends so that not more than 15% of taxable income is retained each year.

Performance targets
The Company's aim is to achieve returns in excess of the FTSE All‑Share Index over the long‑term. To this end, the Board monitors the Key Performance Indicators, as set out on pages 5 and 6 of the full Annual Report and Accounts. In the year to 31 December 2018, the Company's NAV per share increased by 14.3% on a total return basis. In comparison, the FTSE All‑Share Index decreased by 9.5% on a total return basis. The twelve month total return of the Company's share price was 3.5%.

NAV per share has grown by 11.7% p.a. compound over the last ten years and 13.8% p.a. compound over the last twenty years. The share price has seen broadly similar performance growing by 13.6% p.a. compound over the last ten years and 14.5% p.a. compound over the last twenty years.

All of the above returns assume the reinvestment of all historical dividends. The Board and the Manager aim to continue to achieve consistent, long‑term returns in this range.

The Company is not managed so as to reflect short‑term movements in any Index. The Board also regularly compares the Company's NAV and share price performance against a basket of broadly comparable companies with similar characteristics, listed on the London Stock Exchange.

Dividends
In 2017, the Board announced that it anticipated that future dividends would be no less than 46.0 pence per share and that these would be split between an interim distribution made in or around October, and a final distribution made in or around April.

Where possible, the Trust has elected to 'stream' its income from interest‑bearing investments as dividends for tax efficiency purposes. More details can be found on page 126 of the full Annual Report and Accounts.

Going concern
The Company's business activities, together with the factors likely to affect its future development, performance and financial position are described in the Board's Strategic Report and Hg's Review. The financial position of the Company, its cash flows, liquidity and borrowing facilities are described in the Strategic Report.

In addition, note 19 to the financial statements describes the Company's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk. The Directors have considered the FRC Guidance on Risk Management, Internal Control and Related Financial and Business Reporting and believe that the Company is well placed to manage its business risks successfully. The Directors review cash flow projections regularly, including important assumptions as to future realisations and the rate at which funds will be deployed into new investments. The Directors have a reasonable expectation that the Company will have adequate resources to continue in operational existence for at least the next twelve‑month period from the date of this Report and be able to meet its outstanding commitments. Accordingly, they continue to adopt the going concern basis in preparing these results.

Long‑term viability statement

In accordance with provision C.2.2 of the 2016 revision of the UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a longer period than the twelve months required by the 'Going Concern' test. The Board believes that the appropriate period over which to assess the Company's viability may vary from year to year, depending on a number of factors, notably its outstanding investment commitments, which currently run until 2021‑2022. In addition, the Board believes that it should assess the viability of the Company over a minimum of five years and, accordingly, has elected this year to assess the Company's viability over the five‑year period ending December 2023.

In their assessment, the Directors have considered the Company's position with reference to the business model, the balance sheet, cash flow projections, availability of funding and the Company's contractual commitments. This has been undertaken alongside a detailed review of the principal risks and uncertainties associated with the Company, including: performance; regulatory; operational; financial; liquidity; and borrowing, as detailed below. The Directors recognise the importance of its close working relationship with the Manager and regularly monitor and review Hg's strategy, resources, risks and associated internal controls.

Based on this assessment, the Directors of the Company confirm that they expect the Company will continue to operate and meet its liabilities, as they fall due, during the five years ending December 2023.

Principal risks and uncertainties
During the period under review, the Board has carried out a robust assessment of the principal risks facing the Company and the controls in place to mitigate them, including those that would threaten its business model, future performance, solvency or liquidity. This process involves the maintenance of a risk register, which identifies the risks facing the Company and assesses each risk and classifies the likelihood of the risk and the potential impact of each risk on the Company.

The Board has established controls to mitigate against risk faced by the Company. The Audit and Valuation Committee regularly reviews these policies for managing each risk, as summarised below.

Performance
An inappropriate investment strategy might lead to poor performance. The Board is responsible for deciding the Investment Policy to fulfil the Company's objectives and for monitoring the Manager's performance in carrying it out. To help manage this risk, the Manager provides an explanation of all investment decisions and the rationale for their selection of sectors and businesses. It also monitors and maintains an adequate spread of investments, within the risk controls set out in the Company's Investment Policy, in order to manage the risks associated with particular countries or factors specific to particular sectors.

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

In the event that, after providing for necessary expenditure, the Company will have insufficient cash resources to fund a new investment, an opt‑out provision has been negotiated in connection with the Company's commitment to invest alongside Hg8, Hg Mercury 2, Hg Saturn and in Transition Capital. This permits the Company to opt out of its obligation to fund a draw‑down for certain liquidity or regulatory reasons, in particular, if to do so would result in the Company (i) not having the cash resources to meet any of its liabilities, expenses or obligations to fund its commitments to other funds or investment vehicles of Hg that are reasonably likely to become due within 12 months or (ii) not being able to undertake any share buy‑back, in each case subject to certain conditions. These provisions help the Company to manage the risks associated with over‑commitment.

At certain points in the investment cycle, the Company may hold substantial amounts of cash awaiting investment, which it may invest in government or corporate securities, or in bank deposits or managed funds. To this end, the Company is invested in Royal London Asset Management Cash Funds. This deploys funds awaiting investment in a highly liquid portfolio of cash, deposits, money market instruments and short‑dated government securities.

Borrowing
The Board and the Manager agree that prudent use of borrowing to fund investments can allow the Company to hold a larger and more diversified portfolio and increase rates of return to shareholders. Hg acquires businesses 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 long‑term borrowing by the Company, as this would add risk without any certainty of enhancing returns, but anticipates making tactical use of bank borrowing from time to time, in order to remain more fully invested across the investment‑realisation cycle.

The Board keeps the management of the Company's resources under frequent review and regularly considers long‑term cash flow projections for the Company.

The Company has arranged a committed facility on an unsecured basis with Lloyds Bank Corporate Markets plc of £80 million to provide funds for investment when necessary; this is available until 30 June 2022 with the option of adding a further £80 million via an 'accordion' facility, subject to the bank's agreement at the time. The facility was not utilised during the year and remained undrawn at 31 December 2018. The Directors believe the borrowing facility gives the Board further flexibility in managing the Company's resources, without adding undue risk.

Operational
The Company has no employees and relies upon the services provided by third parties, notably Hg to which the principal managerial functions have been delegated. The Company is dependent upon the internal control systems of the Manager and the Company's other service providers. The security of the Company's assets, dealing procedures, accounting records and maintenance of regulatory and legal requirements, depend on the effective operation of these systems. These are regularly tested and monitored and an internal control report, which includes a robust assessment of risks, together with procedures to mitigate such risks, is prepared by the Manager and reviewed by the Board and the Audit and Valuation Committee twice each year.

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

The Board has considered an Assurance Report on Internal Controls (AAF 01/06) as prepared by the Manager, and independently reviewed by Deloitte LLP, for the year ended 31 December 2017. The Board will consider the 2018 Assurance Report when issued later in the year.

Regulatory
The Board continues to believe that it is in shareholders' interests to retain the tax advantages that flow from meeting the requirements for an investment trust under Sections 1158 and 1159 of the Corporation Tax Act 2010 ('CTA'). As such, the Company is exempt from corporation tax on capital gains realised from the sale of its investments, so the impact of losing investment trust status would be significant. The Board believes the likelihood of this risk occurring is low. The Manager monitors investment movements, the level and type of forecast income and expenditure, and the amount of retained income (if any) to ensure that the provisions of Sections 1158 and 1159 of the CTA are not breached. The Company's compliance with the conditions for retaining investment trust status is certified by the Manager at each meeting of the Board.

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

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

Environmental, Social and Governance Matters

Socially responsible investment
The Board has endorsed Hg's policy to invest the Company's funds in a socially responsible manner, as set out in the full Annual Report and Accounts (pages 30 to 32) and on their website at www.hgcapital.com/responsibility. The Company's focus is on identifying high‑quality and sustainable businesses, and supporting their growth for the benefit of shareholders and wider society. The Board monitors investment activity to ensure they are compatible with these policies.

The Company has no employees and has limited direct impact on the environment. The Company aims to conduct itself responsibly, ethically and fairly and has sought to ensure that Hg's management of investments takes account of social, environmental and ethical factors where appropriate. The sectors in which the Manager invests do not generally raise material ethical issues.

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

Modern Slavery
The Company has no employees of its own. The Directors are satisfied that, to the best of their knowledge, Hg complies with the provisions of the UK Modern Slavery Act 2015. For further information please visit https://hgcapital.com/wp-content/themes/hgcapital/pdf/Slavery.pdf

Diversity
All financial decisions are made under conditions of uncertainty. The Board recognises the value of both identity and cognitive diversity in ensuring that varied perspectives are considered when making decisions.

The Board places value on attracting directors with diverse outlooks and experience. The skills and experience that the current members of the Board bring to the Company's leadership are described on pages 103 to 105 of the full Annual Report and Accounts. The Board's policy is to make appointments to the Board to achieve the balance of skills, outlook and experience needed, but to do so solely on merit. At the end of the year under review, the Board of Directors of the Company comprised five men and one woman. The Company seeks to enhance diversity and looks for the best qualified male and female candidates. The Manager has an equal opportunities policy and currently employs 86 men and 68 women. Nic Humphries, Senior Partner, Hg, is a member of the Level 20 Advisory Council, a not‑for‑profit organisation that aims to inspire more women to join and succeed in the European private equity industry.

For and on behalf of the Board
Roger Mountford
Chairman of the Board
8 March 2019

Hg's review

Building businesses that change how we all do business

Hg is an investor predominantly in unquoted technology and service businesses.

Our business model combines deep sector specialisation with dedicated portfolio management support. Hg invests in growth companies in expanding sectors, primarily via leveraged buyouts across Europe.

Hg's vision is to be the most sought after private equity investor within our sector focus in Europe, being a partner of choice for management teams, so as to produce consistent, superior returns for the Company and other clients and a rewarding environment for our staff.

References in this Annual Report and Accounts to the 'portfolio', 'investments', 'companies' or 'businesses', refer to a number of investments, held as:

• indirect investments by the Company through its direct investments in fund limited partnerships (HGT LP, HGT 6 LP, HGT 7 LP, HGT 8 LP, HgCapital Mercury D LP ('Hg Mercury), HGT Mercury 2 LP, HGT Saturn LP and HGT Transition Capital LP) of which the Company is the sole Limited Partner;

• a secondary purchase of a direct interest in Hg's 6 fund through HgCapital 6E LP ('Hg6E'), in which the Company is a Limited Partner; and

• direct investments in renewable energy fund limited partnerships (Asper Renewable Power Partners LP ('Asper RPP I LP') and Asper Renewable Power Partners 2 C LP ('Asper RPP II LP'), of which the Company is a Limited Partner.

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

For further details, refer to pages 122 to 124 of the full Annual Report and Accounts.

About Hg

Overview

Hg began life as Mercury Private Equity, the private equity arm of Mercury Asset Management plc. Mercury Asset Management was acquired by Merrill Lynch in 1997. In December 2000, the executives of Mercury Private Equity negotiated independence from Merrill Lynch, and Hg was established as a fully independent partnership, owned entirely by its Partners and employees.

Since then, Hg has worked hard to develop a unique culture and approach - setting us apart from other investors. We're committed to building ambitious businesses across the technology and services space.

With investment offices in London and Munich and over 150 employees, including more than 90 investment professionals, further enhanced by the considerable experience of close to 20 Operating Partners, we have funds of close to £10 billion under management, serving more than 100 highly regarded institutional investors. These include private and public pension funds, endowments, insurance companies and funds of funds, investing alongside the Company.

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

The Company is the largest client of Hg, which has been contracted to manage the Company's assets since 1994 and offers investors a liquid investment vehicle, through which they can obtain exposure to Hg's diversified network of unquoted investments with minimal administrative burdens, no long‑term lock up or minimum size of investment, and with the benefit of an independent board and associated corporate governance. The Company is committed to invest in parallel with all of Hg's current funds.

One strategy over four funds across the size range in technology and service businesses

Fundraising activity has seen Hg close on c. £4.5 billion of institutional capital in the last two years, across four distinct funds. The Company has made commitments to invest on the same financial terms as institutional investors in all of these Hg funds.

Team	Year	Focus	Characteristics
Hg Saturn	2018	Large‑cap (EVs focus: >£1 billion)	• Fund size: £1.5 billion • Typical hold: £400 million - £500 million • Target number of investments: c. 4
Hg Genesis¹	2018	Mid‑market (EVs: £250 million - £1 billion)	• Fund size: £2.5 billion • Typical hold: £100 million - £250 million • Target number of investments: c. 12
Hg Mercury	2017	Lower mid‑market (EVs: £50 million - £250 million)	• Fund size: £575 million • Typical hold: £30 million - £60 million • Target number of investments: c. 12
Transition Capital²	2018	Lower mid‑market (EVs: £50 million - £250 million)	• Fund size: £75 million • Typical hold: £15 million - £30 million • Target number of investments: c. 3
¹ The Genesis team are currently working on investing the Hg8 fund. ² The Company is the sole investor in this strategy.

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"We focus our investments in technology and service businesses with specific business characteristics that we believe have the ability to grow across market cycles and are attractive to future buyers."

Nic Humphries, Senior Partner, Hg

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Investment strategy

Hg has a flexible approach to investing, primarily focused on defensive growth buyouts in technology and service businesses in specific end‑market 'clusters' with enterprise values ('EVs') of £50 million to over £1 billion predominantly, but not exclusively, in the UK and Northern Europe.

These companies typically provide opportunities for strategic and operational improvement and offer multiple exit options across market cycles, but with the scale and potential to attract high‑quality management.

We believe these markets offer a high volume of investment opportunities with proven financial performance and strong market positions.

Clear investment criteria

Hg applies a rigorous approach when evaluating all investment opportunities. Our objective is to invest in the most attractive businesses, rather than be constrained by a top‑down asset allocation.

We seek companies that share similar characteristics, such as: high levels of recurring or contracted revenues; a product or service that is business‑critical but typically low‑spend; low customer concentration; high customer loyalty and low sensitivity to market cycles; and often providing a platform for merger and acquisition('M&A') opportunities.

We believe that these companies have the potential for significant performance improvement.

The Hg "Sweet-spot" business model

A clear and robust business model focused on long‑term consistent growth predominantly through investment in buyouts with a Northern European angle.

Sector specialists in technology and services

Our experience means we can recognise the specific challenges faced by management teams and the know‑how required to support them to deliver business success.

We specialise in investing in technology and service companies focused on eight core end markets (or 'clusters'), with enterprise values of between £50 million and more than £1 billion. We offer a level of understanding, expertise and commercial drive you won't find anywhere else.

Technology

Technology is our largest sector of investment. We focus on businesses providing B2B vertical market application software and data, regulatory software and fintech and internet infrastructure.

We have invested in high‑quality, market leaders which have strong and defensible sector positions, diverse customer bases, and which feature subscription‑based business models generating predictable revenues and cash flows. With more than 20 technology companies in our portfolio, we bring a unique set of networks and insights to help support value creation in our businesses.

Services

Our services investments focus on companies with high levels of intellectual property, large fragmented customer bases, long‑term and stable customer relationships, and businesses which provide business‑critical services, preferably on a repeat or recurrent basis.

We target businesses with sector leading positions within a niche and we aim to grow and scale these businesses, either organically within existing markets or through acquisitions.

We primarily focus on eight core end markets to build deep know‑how

Tax & Accounting

Current: Sovos Compliance, Visma, Team System, Cogital Group, IRIS

Exited: Addison, Radius, e-conomic, Visma, IRIS

ERP & Payroll

Current: Access, BrightPay, P&I, IRIS, Team System, Visma

Exited: Raet, Visma, IRIS

Legal & Compliance

Current: Mitratech, Citation, STP, Trace One, Achilles

Exited: ATC, CSH, CS Group

Automotive

Current: Eucon, Mobility Holding

Exited: Zenith, SFC Koenig, Epyx, Parts Alliance

SME Tech Services

Current: Combell Group, Commify, IT Relation, DADA

Exited: Zitcom, Manx Telecom, NetNames, Noventic

Healthcare

Current: Rhapsody, Medifox, Evaluate, Allocate

Exited: Kinapse, Allocate

Capital Markets & Wealth Management

Current: Fundinfo, FE

Exited: Rolfe & Nolan, Intelliflo, Ullink

Insurance

Current: A-Plan, Eucon

Exited: Sequel, Relay

Hg Insight: The Transition to SaaS

Transforming the software industry

Software‑as‑a‑Service ('SaaS') is transforming the software industry. Whilst pure‑play newcomers receive considerable attention, the transformation of an existing franchise can be just as valuable.

Visma is in a rare group of companies that have delivered such a transformation, leveraging a combination of organic investment and M&A to pivot its business to a SaaS‑led model, thus creating a European‑centric SaaS provider that to our knowledge is second only to SAP in terms of scale of SaaS revenue.

By relieving its customers of much of the burden of installing, integrating and operating software, Visma's SaaS products deliver a better proposition at a lower overall IT cost.

Crucially, investors benefit from faster growth and higher multiples, as SaaS catalyses rapid adoption and new revenue opportunities. We show below Visma's swift evolution in this process, and also the profile at key US listed peer Intuit, where a similar mix shift has coincided with a doubling of its EV:Sales valuation multiple.

David Toms, Technology Research Director, Hg

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By relieving its customers of much of the burden of installing, integrating and operating software, Visma's SaaS products deliver a better proposition at a lower overall IT cost.

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" By continuing to invest in our people and our expertise, we are able to work with the best management teams in our target clusters and actively help them to build great businesses "

Steven Batchelor, Chief Operating Officer, Hg

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Our team

Hg succeeds through the analysis and understanding of new and emerging dynamics in the clusters in which it invests. This requires profound knowledge of technology, markets and business practices. To this end, we employ exceptionally talented teams to identify and execute investment opportunities and accelerate value creation during our ownership.

This specialisation - both in investment selection and portfolio management - requires significant resources and we have built a business employing over 150 people, including over 90 investment and other professionals.

Our people come from a range of backgrounds and experience including private equity, consulting, investment banking, accounting and industry specialists. Supporting these in‑house resources are Hg's Operating Partners, a group of senior individuals with many years of experience in operational and strategic roles, as well as individuals with strong functional expertise in a variety of areas. In addition, they have all worked with Hg and other private equity firms over long periods.

Investing primarily in European businesses, many of which have a global footprint, requires time and a deep understanding of local cultures. Accordingly, our people come from around the globe, including sixteen European countries and the USA. Our Partners have, on average, fifteen years' experience in the management of private businesses.

Positioning ourselves as a best-in-class recruiter
Hg's recruitment and selection processes are rigorous and agile which, along with our strong brand, leadership, sector focus, fund performance and vibrant culture, allows us to attract and hire the best talent in our industry.

Improving our ability to identify talent
We have enhanced our talent processes so that we can identify and accelerate the development of our top performers and high potential talent within the business. We believe that this is the basis of effective career and succession planning.

Employee engagement
Our people are highly motivated by, and committed to, delivering outstanding value to the Company, our other institutional clients, and our portfolio company leadership teams. They are engaged by their work, our values and the opportunity to grow to their full potential within Hg.

Our values have evolved over many years and are embodied in our working culture; these are aligned with our performance and reward structures. Hg works hard to ensure our employees are engaged. We use independent external benchmarks to gauge levels of engagement and take appropriate actions to ensure highest possible levels of engagement. We have a strong focus on career and development and provide a range of development solutions to enable our talent to reach their full potential.

Developing future leaders
We are explicit about the behaviours we wish to encourage at Hg and have aligned recruitment, training, coaching, performance and rewards to our values - for everybody across the organisation, including our leadership.

A description of Hg's key staff is available at www.hgcapital.com/meet-us/

Level 20
Level 20 is a not‑for‑profit organisation that was started a few years ago with the aim of inspiring more women to join and succeed in the European private equity industry.

Nic Humphries, Senior Partner, Hg, is a member of the Level 20 Advisory Council.

Working together

By virtue of the fact that Hg repeatedly invests in specific business models, our dedicated Operations Innovation ('OI') Team has been able to tailor a differentiated approach to driving value creation during our ownership. Following each investment, our OI team works with management to focus on a set of operational levers that are key to performance in an Hg 'sweet-spot' business model: sales, digital marketing, pricing, customer success, IT and data analytics. For each of these levers, the OI team has codified the Hg experience and best‑practices into set 'plays' that are deployed together with management.

Every company gets full access to the team up‑front, but the nature of support can take a variety of forms. Often, members of our OI team provide direct support, taking on roles to help the company pursue growth more quickly. Other times, our experienced operators will mentor senior executives, helping them build more scalable functions (through our Operating Partner relationships).

In other instances, most of the support comes through introducing management teams to their counterparts in other Hg companies, specifically those who have faced the same challenges.

One of the most powerful ways the OI team motivates change is through peer‑to‑peer collaboration. In 2018, over 700 portfolio company executives attended 14 forums hosted by Hg. These executives spent days together sharing and adopting each other's best practices. Across these Hg forums, Allocate explained how they achieved a tremendous step forward in Customer Success, Visma explained how to build in‑house capabilities to complete and integrate 20 acquisitions a year and Sovos presented a methodology to hire and retain the very best technology talent. In addition, we also hosted a diversity forum, specifically focused on rising female leaders in our portfolio companies.

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"This is not your grandmother's private equity. Progressive PE firms like Hg are doing things differently, focusing on growth, playing a longer game and, most importantly, embracing the power of the portfolio to help each business acquire the knowledge and skills required to lead their market. I'm grateful to be part of it."

Eric Olson, Chief Marketing Officer of Sovos

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Collaboration
To enable the continued collaboration across the portfolio, Hg launched 'Hive', its online trusted environment, in 2018. Hive far exceeds the capabilities that any other private equity firm currently offers to its portfolio. With 10 live communities and over 400 members, peer‑to‑peer collaboration is unparalleled. Individuals are able to pose questions, start discussions, share and collaborate on content, and have access to best practice playbooks from world‑class experts. This is a clear differentiator in the market.

For further information, please visit hive.hgcapital.com

Hg Insight: Customer success

Building your customer capabilities to unlock value in your business

The idea is simple: successful customers are your best customers. They adopt and use your product as it was intended when you developed it to solve one of their key business issues.

This, in turn, makes them more successful as a business - and they value this. They renew their subscriptions and buy more from you when you release additional products and services. They accept price changes as a product develops and recognise fair exchange of value. They advocate you amongst their peers and positively endorse your product and services - helping you win new business.

As a result, your revenue grows - not just when you add new customers - but because you lose less revenue from customers who would otherwise leave you or downgrade. You also generate more expansion revenue, e.g. from upsell and cross‑sell.

Of course, it's easier said than done. Products aren't always built with the user in mind. Expectations about what your product or service will do aren't always set clearly in the initial marketing and sales process. Onboarding and professional services don't always lead to good adoption. Customers don't always get the support they need along the way.

This is one area that Hg can help with and many of our companies are now well underway on this journey. It's a complex and cross‑functional problem - but getting it right can unlock meaningful business value.

One of the underlying problems that we've identified is the lack of alignment across an organisation. Functions operate in siloes, because that's a good way of organising individuals with different skillsets. But customer outcomes and customer experiences are created through many touchpoints and over a period of time. Product technology isn't geared up to deliver insights on whether customers use it as intended. Business IT systems (and the data within them) are created and maintained with individual, functional users in mind. Traditional management information does not tell you much about the quality of the end‑to‑end experience your customers are receiving, or whether they are achieving their business outcomes. Which makes it hard for you to manage as well.

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" To other businesses, you are providing compliance services solutions to other businesses you are providing something that is absolutely critical for that company. As such, customer satisfaction and trust are crucial. Once you have established trust, customers often see what other services you can help them with and what other problems you can help solve. "

Chris Morris, CEO of Citation

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For further insights from Hg, please refer to www.hgcapital.com/our-thinking/

Together. Better.

At this year's Hg Customer Success Forum, 38 executives from across Hg's portfolio, as well as a number of external experts and practitioners, came together to share tangible knowledge and experience - and to commit to specific actions to build their customer‑focused business capabilities and realise results. Speakers from Allocate Software and Access Group shared perspectives on their customer success journey to date. We also heard from independent advisers David Jackson, Jason Noble and the Customer Success leader at ATRAQT software, Jonathan Schradi.

It's all about value.	Make sure your customers realise value from your product or service, and in turn, create business value through growing customer revenue by optimising sales and pricing. A key metric for the latter is net revenue retention (NRR) - and the goal is to drive this above the inflection point of 100%, which will meaningfully change the value of your customer base - and your business.
If you don't measure it, you can't manage it.	This is true for both customer outcomes and experience, as well as realising your business value. Metrics are key - they allow you to prioritise activity, demonstrate impact - and further your career as an executive.
It's a team sport.	Everyone in the company has a role to play in - and a responsibility for - customer success. If you have a customer success function, they can help break down siloes and make connections - but you will fail if they are the only ones thinking about the customer.
It's a journey - get started somewhere.	It is best to prioritise. For example, start first with Net Promoter Score 'NPS', then customer health scoring for churn prediction, then up/cross‑sell propensity etc. Chop off the tip of the iceberg, then deal with the next section that subsequently emerges.
Be ready for the worms once you open the can.	Once you start listening to your customers, be prepared to get some uncomfortable news. But remember, critics make you stronger!
Customer data is an important asset.	It is worth investing in and safeguarding. Creating a single view of the customer and starting to generate insight might seem complex, but it's a challenge you can overcome! Whether it's using Excel, embarking on a data engineering project, or on IT systems changes - there is something you can start doing today.
Ultimately, it's all about your product or service.	That's what your customers are buying in the first place. Make sure you continuously leverage insights from increased customer intimacy to improve your product or service - making it easier for customers to adopt, use and obtain value. Can you create a 'driverless' experience to obtain value for your customers?

We work with executive and sales teams across our portfolio to encourage 'Customer Success' as a strategy and a business practice. From using detailed analytics to understand the causes of customer loss, through to creating processes to monitor customer health, taking proactive action to manage both high‑risk and healthy customers, as well as addressing the root causes of existing customer issues, we provide hands‑on support and genuine expertise, thereby bringing the value of Customer Success to the businesses we partner with.

Joachim Kiefer, Hg
Operations Innovation team

Case study: Building one of the UK's most trusted providers of business‑critical software

Hg first invested in IRIS in 2004, backing a long‑term thesis on the growth of software for small and medium sized enterprises ('SMEs') and for professionals. Since then, Hg has worked with IRIS to invest in cloud technology and transition the business to a Software‑as‑a‑Service ('SaaS') model.

website:	www.iris.co.uk
Investment sector:	Technology
Cluster:	Tax & Accounting
Location:	United Kingdom

Both revenue and EBITDA CAGR

17%+
since 2002

Growth of EV

>1,000%
£102m to £1.4bn+

Increase in employee numbers

+200%
500 to 1,500

IRIS Software Group is a leading UK provider of business‑critical software solutions for compliance and regulatory driven industries, such as the accountancy, education, bookkeeping and Human Capital Management markets.

Over the last decade, IRIS has become one of the most trusted providers of business‑critical software and services to SMEs and accounting professionals in the UK today.

Over 21,000 accountancy practices, 10,000 schools / academies and more than 80,000 SMEs, corporates and payroll bureaux rely on IRIS to run their businesses every day.

Whilst partnering with Hg, IRIS has shown strong, consistent growth of 17% p.a. over 17 years and completed over 15 acquisitions. IRIS' EV has grown from £102 million in 2004 to over £1.4 billion today - nearly 14x.

A 15‑year partnership in value creation

Creating a UK software champion in regulatory and compliance software

IRIS is one of the earliest examples of Hg's focus on business‑critical software firms operating in attractive, predictable end markets. IRIS is a UK software champion, operating a business model with over 85% of revenues coming from subscriptions. High customer retention rates are driven by consistent regulatory updates and new additional features delivered as part of the annual subscription.

By understanding the fundamental characteristics of IRIS and its market, Hg formed a long‑term thesis on the secular growth of software for the Tax & Accounting sector and developed a "cluster" investment strategy to make multiple investments into different companies in this sector.

Hg has invested in 11 platform companies in this cluster and made more than 200 acquisitions in this space over the last 15 years. We own businesses worth over $9bn in this sector including IRIS, Visma and Sovos, all growing faster than their quoted peer group.

This clustered investment focus gives us unique insights and experience which benefit the companies we back, their customers and their employees.

IRIS and Hg working together

IRIS started life providing software only to accounting practices. Management and Hg realised that they could grow their own business, and help their core customers, by also providing software to their customers - SMEs that were served by the accounting practices. Through several strategic acquisitions in bookkeeping, payroll, HR and education Hg helped IRIS to realise this ambition and expand its addressable market by 600%.

Through its experience with other software businesses, and its US West Coast contact network, Hg understood the potential of SaaS and cloud technology earlier than most European investors.

Transitioning to one of the UK's largest SaaS companies

As early as 2007, Hg pushed IRIS both to develop cloud products and to buy others. Today, the majority of IRIS' customers have access to cloud products, with over three million individual users and 30% of group revenues being derived from these products.

15 years of strong performance

By continually being ahead of technology trends and being prepared to reconsider and refocus IRIS every few years, management and Hg have delivered 15 years of consistently strong performance. Over this time, revenues and EBITDA have grown organically at over 10% p.a. Total growth including M&A has averaged 17% p.a. organic revenue and, over this fifteen year period, IRIS has grown every single year, including through the Global Financial Crisis - it has never had a negative growth quarter in any of that time.

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"Hg is Europe's leading software investor, that means they truly understand our business. They have enabled us to develop best‑in‑class products, continuously improve customer service and extend our product portfolio, through strategic acquisitions in new and existing markets."

Kevin Dady, CEO of IRIS

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2004 ‑ 2011
Reinforcing a subscription‑based model, introducing new products and M&A

Hg recognises the value of highly recurring, business‑critical, subscription software.

During the initial phase of Hg's investment, the aim was to increase the percentage of subscription renewals and sector share in IRIS's core accounting practice business.

As well as maintaining this solid revenue growth, Hg helped IRIS to sell‑through additional products and services into the existing practice client base, providing clients with both the best core product in its market and a wider choice of other modules and functionality than any competitor.

In addition to developing new products, Hg also supported a series of M&A transactions, focusing on strategically complementary products for SME customers - payroll, HRM and bookkeeping.

From an organisational point‑of‑view, by dividing IRIS into clearly defined units with different management teams focused on accounting practices and SMEs Hg was able to achieve tight customer focus and intimacy, which drove superior performance.

2012 ‑ 2018
Transition to SaaS and further accretive M&A

Hg's decision to re‑invest in IRIS in 2011 was driven by a belief that the business could continue to deliver over 10% p.a. revenue and EBITDA growth by using its very high customer engagement to deliver more new products and services via cloud subscription and delivery.

IRIS expanded into new areas for core accounting practice customers (e.g. website management, online client portals, cloud document storage) and also further penetrated the SME market - growing IRIS' SME payroll base and developing new propositions in both cloud bookkeeping and HR.

Transitioning to a SaaS model was a key part of this, with many of these newer products developed internally as cloud‑based, complemented by strategic cloud product acquisitions.

2018 >
Future ambitions - Repeating the Growth Playbook

IRIS has applied a repeatable 'growth playbook' into new sectors, providing core regulatory and compliance products at the heart of a customer's business operations, consistently for over 20 years. IRIS benefits from a trusted position driving the adoption of new functionality and modules to existing clients; it remains well‑positioned to continue this growth for many years to come, accelerated by Cloud technologies.

IRIS' scale allows it to invest in state-of‑the‑art infrastructure, including cloud IT and related analytics.

Artificial intelligence (AI) embedded into customer products is enhancing customer experience and the ability to analyse and understand their pools of data, IRIS' internal use of AI is improving operational efficiency and enriching customer service experiences. AI and cloud will be the fundamentals that drive the next wave of growth for IRIS for the next 5‑10 years.

Responsible investing

"Growing sustainable businesses which are great employers, have a low environmental impact and are good corporate citizens"

Why responsible investing is important to us

For Hg, Responsible Investment ('RI') means growing sustainable businesses which are great employers, have a low environmental impact and are good corporate citizens, whilst generating superior risk adjusted returns for the millions of pensioners and savers globally who are invested with us.

We want the businesses we invest in to be genuinely focused on doing well for all stakeholders including employees, customers, suppliers, shareholders and the wider society. We firmly believe that responsible business practices help generate superior long‑term performance.

Our responsible investing journey

Hg has been a signatory of the UN Principles for Responsible Investment ('UNPRI') since 2012. At the end of 2017, we reviewed and updated our RI framework, policy and approach to set our ambition and ensure we focus on the ESG opportunities and issues most relevant for the types of businesses we invest in. Our new Responsible Business framework forms the foundation of our work and all businesses are assessed against the framework on an annual basis. All businesses get a score from 1 - 10 (10 being the best) and a list of opportunities to consider. In 2018, the average score across the portfolio was 8.6. This is a good reflection of the performance of our companies and demonstrates the low level of inherent ESH risks across the sectors and geographies we invest in.

How we integrate Responsible Investment into our investment process

Investment screening & Due Diligence

• When considering potential new investments, we screen their activity against our exclusion list and assess the quality and sustainability of their business model.

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

Ownership

• We take an active approach to managing ESG during our ownership. This starts with an ESG onboarding and maturity assessment to prioritise ESG topics and agree an action plan.

• We conduct an annual ESG assessment and work with our businesses to identify areas for improvement and help them to realise their ambitions within and beyond our Responsible Business framework.

• We organise face‑to‑face events for our management teams to share best practice, network and receive support. In 2018, we have held forums on diversity, implementing GDPR and best practice in HR.

Realisation

•Upon realisation, we aim to demonstrate the increased value from improved ESG performance with case studies and performance metrics.

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"We've found it unique and reassuring that Hg values non‑financial metrics and ESG performance so highly, while genuinely caring about the employees across the portfolio. Hg's Responsible Business assessment helped us review measurements towards how we do business and the impact we have on our employees and society. It proved to be a valuable exercise in understanding how we perform against the rest of the industry and Hg's portfolio, while also enabling us to reflect on what we do well and what we could do differently.

Hg's portfolio forums are a great way to share these best practices and learn from others across the Hg family. Hg is truly a responsible investor and Sovos is happy to have their backing and support as we continue our mission to Solve Tax for Good."

Colleen Schlagel, Chief Talent Officer, Sovos

PRI

A signatory to the UNPRI since 2012.

AA 2018 PRI Assessment Score:
'A' for Strategy & Governance, and
'A' for Private Equity Ownership

Our Responsible Business framework

Hg's Responsible Business framework outlines key ESG areas of focus and how Hg can support our businesses.

The framework is used to assess prospects both before investment and businesses we own throughout our ownership. It focuses on three key areas:

Essentials

There are certain minimum ESG requirements that Hg expects from all our businesses. These include:

• Governance and Business Integrity, such as code of conduct, appropriate controls, board composition and appropriate health & safety and grievance procedures;

• Risk and Compliance, including compliance with all laws and regulations, active risk management, as well as standards and policies to combat bribery, corruption, money laundering and other malpractice;

• Data and Cybersecurity, which includes Hg's minimum standards for cybersecurity along with appropriate information protection practices and GDPR compliance.

Employees

Among the most important assets of our businesses are their employees. A diverse workplace with engaged and motivated employees is vital for growth and business success. We look at employees from four aspects:

• Diversity of talent and equal opportunities irrespective of ethnicity, gender, disability and background;

• Engagement and motivation by promoting transparent communications, health and wellbeing, learning opportunities, recognition and good leadership;

• Grow businesses and talent, including organic job growth, healthy staff turnover, talent management and succession planning;

• Purpose and culture, including appropriate and value driving vision, mission, values, norms and behaviours.

Society

Our businesses contribute to society in a number of ways:

• Community engagement including community engagement initiatives, apprenticeships, charitable giving and volunteering;

• Environmental impact - The majority of our businesses have low carbon footprints and minimal impact on the environment. We still encourage them to consider how they can improve their energy use and waste management, as well as reduce business travel;

• Positive relationships with key external stakeholders including customers and suppliers. For example, by responsible pricing and sales and supplier relationships;

• Transparency of company commitments and progress, including external reporting and sustainability communications.

For more information please go to www.hgcapital.com/responsibility

Case study: Maximising care, minimising cost in the healthcare sector

The siloed nature of most global healthcare systems makes effective treatment across the 'patient journey' a complex challenge to solve. Investment in technology provides one solution and we at Hg believe that the healthcare technology landscape will be transformed over the next decade.

website:                                 www.allocatesoftware.com
Investment sector:               Technology
Cluster:                                  Healthcare
Location:                               United Kingdom

Healthcare IT is an area that we at Hg have followed for many years and we initially invested in Allocate Software ('Allocate'), a leading international provider of workforce solutions to the healthcare, defence and maritime sectors, in 2014.

Allocate's software solutions help health and care organisations safeguard savings and safety by deploying their workforce effectively based on service and patient needs. Each client typically achieves annual savings in excess of £1 million - money which can be spent on creating even better care and service for patients.

Allocate optimises the medical profession's most valuable assets - its people - to deliver excellent care for patients. Its core software product allows for the smooth running of workforce rostering, time and attendance, monitoring and reporting, resulting in increased productivity and morale of staff and better care quality and safety for patients.

Allocate's Optima platform is a workforce optimisation solution deploying 800,000 nurses, care professionals and doctors in more than 800 organisations worldwide every day. Built around the specific needs of health and care organisations, the platform brings together staff and patient needs in one tool, providing a clear view of staffing for every audience from the bedside to the boardroom.

There is also increasing recognition that patient outcomes are reliant on strong operational delivery throughout their patient journey. Furthermore, the ways that healthcare systems are reimbursed, and regulated, are changing towards a system that rewards (or punishes) based on patient outcomes.

Not only do we see this new dynamic as creating opportunities to grow tech businesses in the healthcare space, but there is also a knock‑on positive effect for many stakeholders, including buyers of these systems (hospitals and other care providers), patients and, ultimately, wider society. For example, research shows that there is a positive correlation between technology maturity within hospitals and patient outcomes. More efficient systems result in reduced costs and the right level of staffing, which in turn has a positive impact on the flow of patients through the hospital as well as the service provided. With increasing evidence that better healthcare operations result in better healthcare outcomes, we also see a benefit to wider society, reducing the development of chronic conditions and the resulting need for follow up treatment.

Overall, Allocate enables healthcare organisations to ensure:

• Higher quality, safer care: ensuring the right staff are in the right place, at the right time to meet real patient needs.

• Engaged staff: greater involvement of staff in rostering process, visibility of schedules and fairness of allocations.

• Maximised use of highly skilled resources: staffing matched to patient needs, optimised over weeks and months to reduce costs of care.

• Reduced cost and administrative burden: 80% quicker to create rosters and improved compliance with workplace regulations and policies.

Hg's review

A high quality and focused portfolio of investments delivered a strong year of performance for the Company, driven primarily by robust trading across Hg's unrealised investments and a record year of realisations made above book value.

In October 2018, the Company was promoted to the FTSE 250 reflecting its growth in market capitalisation.

Highlights over 2018:

______________________________________________________________________________________________________

+£46m

gain on realised investments

______________________________________________________________________________________________________

+£85m

gain from the unrealised portfolio

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Top 20 investments:

(89% of the portfolio value)

______________________________________________________________________________________________________

+25%

Top 20 LTM sales growth

______________________________________________________________________________________________________

+27%

Top 20 LTM EBITDA growth

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"If Hg software and technology service companies were listed as a single group, it would be the third largest and fastest growing technology company in Europe."

Year in review

Net asset value (NAV)

During the year, the NAV of the Company increased by £84 million, from £721 million at 31 December 2017 to £805 million at 31 December 2018.

Attribution analysis of movements in NAV

	Revenue £'000	Capital £'000	Total £'000
Opening NAV as at 1 January 2018	34,058	686,966	721,024
Realised capital and income proceeds from investment portfolio in excess of 31 December 2017 book value	6,796	39,467	46,263
Net unrealised capital and income appreciation of investment portfolio	14,524	70,208	84,732
Net realised and unrealised gains from liquid resources	1,161	(355)	806
Dividend paid	(17,169)	-	(17,169)
Expenditure	(3,221)	(1,104)	(4,325)
Taxation	(242)	-	(242)
Investment management costs:
Priority profit share - current year paid	(11,678)	-	(11,678)
Priority profit share - re‑allocation between revenue and capital	6,325	(6,325)	-
Carried interest - current year paid	-	(55,023)	(55,023)
Carried interest - current year release of provision	-	40,599	40,599
Closing NAV as at 31 December 2018	30,554	774,433	804,987

Analysis of NAV movements

There were a number of underlying factors contributing to the increase in the NAV. Positive impacts were the £84.7 million revaluation of the unquoted portfolio and uplifts of £46.3 million on the realisation of investments compared with their carrying value at the start of the year. Reductions in the NAV included: the payment of £17.2 million of dividends to shareholders and Hg's remuneration (£11.7 million and £55.0 million with a corresponding £40.6 million reduction in the provision for future carried interest).

Realised and unrealised movements in the value of investments
Investment name and ranking by value at 31 December 2018	£'million
Visma (1)	31.1
IRIS (3)	25.6
Sovos (2)	13.0
DADA (14)	11.2
JLA (sold)	8.0
Commify (9)	7.7
A-Plan (7)	7.0
Intelliflo (sold)	6.7
Allocate Software (15)	6.6
Teufel (sold)	5.2
Access (4)	4.9
Citation (20)	4.4
CogitalGroup (5)	4.0
Mitratech (8)	3.9
Atlas (sold)	3.9
FE/fundinfo (12)	3.4
Other	3.0
Kinapse (sold)	2.8
Frösunda (sold)	(3.5)
Lumesse (sold)	(7.6)
Achilles (19)	(10.4)

Attribution analysis of movements in the value of investments¹

During the year, the value of the unrealised investments increased by £84.7 million, before the provision for carried interest. The majority of the increase (£99.2 million) relates to increases from profit growth in the underlying investments and £9.6 million from increased ratings.

These were partially offset by £38.2 million of decreases driven by realisations at carrying value net of acquisitions and an increase in net debt of £23.6 million resulting from refinancings that returned cash to the Company and further M&A activity within the portfolio.

¹Including accrued income and excluding carried interest provision.

Top 20 portfolio trading performance as at 31 December 2018

The top 20 investments (representing 89% of total investments by value) have delivered strong sales growth of 25% and EBITDA growth of 27% over the last twelve months ('LTM').¹

The business model characteristics of these companies give us confidence that this level of growth can be achieved consistently going forward.

More than 80% of the top 20 businesses we invest in are seeing double‑digit revenue growth, and more than 75% of these businesses have delivered double‑digit EBITDA growth over the last twelve months.

Profits have grown at a faster rate than revenues. Investment made over the last few years into the cost base of a number of our companies, for example, to finance increased sales and marketing capabilities, strengthen management and new product development, continues to bear fruit.

We have seen robust and consistent double‑digit trading performance from the majority of the portfolio including: FE/fundinfo, Access, DADA, Visma, IRIS, Allocate Software, Sovos, and Mitratech, in the technology sector; and Citation, IT Relation, CogitalGroup, and A‑Plan in the services sector.

Of the smaller investments, Commify, STP and Evaluate are all trading well. Whilst new to the portfolio, Brightpay and Medifox have had a good start to their lives with Hg.

During 2018, we took the decision to write down one of our top twenty investments, Achilles, whose operational performance has been below expectations over the year.

Overall, continued robust earnings growth and strong cash generation continue to drive equity value in our investments.

Top 20² LTM sales growth: +25%
Growth rates	LTM Sales £' million	Number of investments within associated band	% of top 20 portfolio by value within associated band
<0% p.a.	56	1	2%
0% to <10% p.a.	522	5	16%
10% to <20% p.a.	587	7	35%
>20% p.a.	1,883	6	47%

Top 20² LTM profit growth: +27%
Growth rates	LTM EBITDA £' million	Number of investments within associated band	% of top 20 portfolio by value within associated band
<0% p.a.	6	1	2%
0% to <10% p.a.	185	3	22%
10% to <25% p.a.	152	7	23%
>25% p.a.	489	8	53%

¹ Sales and EBITDA growth have been calculated on a weighted basis, based on the respective gross valuations of the underlying investments. In the 2017 Annual Report, these were calculated on an unweighted basis. The equivalent comparative figures as at 31 December 2017 using the new methodology, are 17% for sales and 15% for EBITDA

² Excluding Raet.

Valuation and gearing analysis as at 31 December 2018

Our valuation policy is applied consistently, in accordance with the IPEV Valuation Guidelines. Each company has been valued individually, based on the trading multiples of comparable businesses; this resulted in a weighted average EBITDA multiple¹ for the top 20 investments of 17.3x (16.8x at 30 June 2018).

Over 2018, the shift in the mix of the portfolio from legacy companies to higher growth businesses, in particular in the technology sector, continued. We hold a number of companies with substantial opportunities to grow their SaaS business. Visma, the largest holding within the Company's portfolio is now one of the world's most successful B2B SaaS companies.

Fourteen of the top 20 companies (representing 82% by value) are valued at a multiple of over 14x (including the four largest holdings: Visma, Access, IRIS and Sovos). All have attractive business models, are growing strongly and generating cash and are also in demand from investors.

We continue to take a considered and prudent approach in determining the level of maintainable earnings to use in each valuation. Most holdings have been valued using the LTM earnings to 30 November 2018, unless we have anticipated that the outlook for the full current financial year is likely to be lower, in which case we have used forecast earnings. In selecting an appropriate multiple to apply to a company's earnings, we look at a basket of comparable companies, primarily from the quoted sector, but where relevant and recent, we will also use M&A data.

Our companies make appropriate use of gearing, with an average net debt for the top 20 of 5.6x LTM EBITDA¹. Many of our businesses have highly predictable, strong earnings growth and are very cash generative, enabling us to use debt to leverage our returns. During 2018, we took the opportunity to refinance Trace One, Foundry, DADA, Citation, STP and Evaluate as detailed on page 46 of the full Annual Report and Accounts.

Top 20² EV to EBITDA valuation multiple: 17.3x
EV to EBITDA bands	EBITDA £' million	Number of investments within associated band	% of top 20 portfolio by value within associated band
<12.0x	41	3	8%
12.0x to <14.0x	113	2	10%
14.0x to <16.0x	116	7	20%
16.0x to <19.0x	47	2	7%
>19.0x	562	5	55%

Top 20² net debt to EBITDA ratio: 5.6x
Debt to EBITDA bands	Debt £' million	Number of investments within associated band	% of top 20 portfolio by value within associated band
<4.0x	354	6	21%
4.0x to <6.0x	2,252	6	49%
6.0x to <7.0x	556	2	8%
7.0x to <8.0x	1,525	4	14%
>8.0x	663	1	8%

¹ EBITDA multiple and net debt ratio have been calculated on a weighted basis, based on the respective valuations of the underlying investments. In the 2017 Annual Report, these were calculated on an unweighted basis. The equivalent comparative figures as at 31 December 2017, using the new methodology, are 15.9x for EBITDA multiple and 5.2x for net debt ratio.

² Excluding one investment valued on a basis other than earnings.

Outstanding commitments of the Company

2018 ended with liquid resources of £157 million, supported by an undrawn bank facility of £80 million. Outstanding commitments as at 31 December 2018 were £471 million, as listed below. We anticipate that the majority of these outstanding commitments will be drawn down progressively over the next two to three years and are likely to be partly financed by future cash flows from realisations. Additionally, to mitigate the risk of being unable to fund any draw‑down under its commitments to invest alongside Hg's funds, the Board has negotiated a right to opt out, without penalty, of the Company's obligation to fund such commitments where it does not have the funds to do so or certain other conditions exist.

Fund	Fund vintage	Original commitment £'million	Outstanding commitments as at 31 December 2018		Outstanding commitments as at 31 December 2017
Fund	Fund vintage	Original commitment £'million	£'million	% of NAV	£'million	% of NAV
Hg8	2018	350.0	247.9	30.8%	341.1	47.3%
Hg Saturn	2018	150.0	92.4	11.5%	-	-
Transition Capital	2018	75.0	59.5	7.4%	-	-
Hg Mercury 2	2017	80.0	49.8	6.2%	73.3	10.2%
Asper RPP II	2010	36.0¹	6.5	0.8%	8.3	1.1%
Hg7	2013	200.0	5.5	0.7%	-	-
Hg6	2009	285.0	3.8	0.5%	17.2	2.4%
Hg Mercury 1	2011	60.0	3.2	0.4%	6.2	0.9%
Pre‑Hg6 vintage	pre‑2009	120.0²	1.3	0.2%	1.3	0.2%
Asper RPP I	2006	19.0³	0.7	-	0.8	0.1%
Hg6E	2009	15.0⁴	0.2	-	0.9	0.1%
Total			470.8	58.5%	449.1	62.3%
Liquid resources			156.5	19.4%	160.3	22.2%
Net outstanding commitments unfunded by liquid resources			314.3	39.1%	288.8	40.1%
¹ Sterling equivalent of €40.0 million. ² Excluding any co‑investment participations made through HGT LP. ³ Sterling equivalent of €21.6 million. ⁴ Partnership interest acquired during 2011.

Investment portfolio of the Company

Fund limited partnerships	Residual cost £'000	Total valuation¹ £'000	Value %
Primary buyout funds:
HGT 7 LP	148,560	265,839	40.9%
HGT 7 LP - Provision for carried interest	-	(29,599)	(4.6%)
HGT LP	76,062	121,594	18.8%
HGT 8 LP	92,205	97,759	15.1%
HGT Saturn LP	56,935	67,812	10.5%
HgCapital Mercury D LP	23,781	44,110	6.8%
HgCapital Mercury D LP - Provision for carried interest	-	(8,868)	(1.4%)
HGT Mercury 2 LP	25,274	37,804	5.8%
HGT 6 LP	14,861	18,275	2.8%
HGT 6 LP - Provision for carried interest	-	(3,653)	(0.6%)
Total primary buyout funds	437,678	611,073	94.1%
Secondary buyout funds:
HgCapital 6 E LP	-	962	0.1%
HgCapital 6 E LP - Provision for carried interest	-	(192)	-
Total secondary buyout funds	-	770	0.1%
Total buyout funds	437,678	611,843	94.2%
Transition capital funds:
HGT Transition Capital LP	14,973	15,319	2.4%
Total transition capital funds	14,973	15,319	2.4%
Renewable energy funds:
Asper RPP II	21,042	20,267	3.1%
Asper RPP I	5,017	1,765	0.3%
Total renewable energy funds	26,059	22,032	3.4%
Total investments net of carried interest provision	478,710	649,194	100.0%

¹ Includes accrued income.

Sector by value

82% Technology

18% Services

Geographic spread by value

36% UK

26% Scandinavia

17% North America

11% Germany

10% Other Europe

Investment vintage by value

32% 2018

9% 2017

27% 2016

9% 2015

17% 2014

6% pre 2014

Analysis by value of investment return relative to its original cost

98% Above

2% Below

Representing aggregate realised proceeds and unrealised valuations of an investment

Investments and realisations

Investments 2018

Over the course of the year, Hg has invested a total of £1.4 billion on behalf of its clients, with the Company's share being £187 million.

The vast majority of our investments are generated by establishing and developing relationships with companies in our chosen segments over the longer term and typically pursuing opportunities where we have a strong relationship with a founder or management team. By doing this, we believe that we can invest in the very best businesses within our chosen sectors and clusters.

We continue to look for businesses that share similar underlying business model characteristics, such as: high levels of recurring revenues; a product or service that is business critical but typically low spend; low customer concentration;

and low sensitivity to market cycles. This is a theme that runs through many of our new investments and we believe companies with these characteristics will remain in high demand.

Over 2018, the Company has invested £4.4 million in MediFox by way of co‑investment, in addition to its commitment to invest alongside Hg Mercury 2. This is an attractive way to invest more funds, when available, with no fees or carried interest being payable.

New investments

IRIS

£36m invested on behalf of the Company

IRIS is a leading provider of business‑critical software and services to the UK accountancy, education and business market. Hg and IRIS have had a long‑standing joint history since 2004 and, in September, Hg Saturn completed a joint investment into IRIS with Intermediate Capital Group ('ICG'), representing an EV of £1.3 billion.

The Access Group

£30m invested on behalf of the Company

Access is a provider of fully integrated, business‑critical business management software to UK mid‑market organisations. Its portfolio spans finance, HR, payroll, hospitality, recruitment, health and social care, manufacturing and distribution, education and not‑for‑profit sectors.

Access has a strong management team focused on delivering an ever‑expanding portfolio of business‑critical software to a growing base of loyal customers demonstrating many of the business characteristics that Hg looks for. This investment has been made alongside TA Associates.

IT Relation

£16m invested on behalf of the Company

IT Relation is a leading Danish supplier of managed IT services to small and medium sized enterprises ('SMEs'). This investment is consistent with Hg's focus on SME Technology Services in Europe, with other activity in this sector including investments in Zitcom (2015) and DADA (2017), both providers of online hosting services to SMEs. Hg will support the management team to build a clear industry champion based on IT Relation's excellent customer service and operating platform.

BrightPay

£15m invested on behalf of the Company

Based near Dublin, BrightPay provides easy‑to‑use and cutting‑edge software solutions to enable SMEs to manage payroll, supported by excellent customer service. BrightPay's software is used by over 120,000 employers across the UK and Ireland under two brands, BrightPay and Thesaurus Software.

This represents the first investment of Transition Capital, a structured minority investment strategy and is within a cluster where Hg has invested for many years. Payroll in Ireland is undergoing significant change since January 2019, as Ireland rolls out PAYE modernisation, which will require employers to report PAYE in real time to the Irish Revenue Commissioners. BrightPay has invested significantly ahead of this change to prepare to support Irish SMEs through this transition.

Allocate Software

£14m invested on behalf of the Company

Hg initially invested in Allocate, a leading international provider of workforce management software to the healthcare, defence and maritime sectors, via Mercury 1 at the end of 2014. Hg sold the company to Vista Equity Partners, a leading US investor in technology, in April 2018. In August 2018, Hg completed the acquisition of a co‑controlling stake in Allocate in order to develop Allocate in line with a strategy agreed with Vista, with the benefit of both firms' expertise.

MediFox

£12m invested on behalf of the Company

MediFox is a provider of software solutions to outpatient and inpatient care providers and therapy practices in Germany. The investment from the Hg Mercury 2 Fund, recognises MediFox's attractive business model characteristics, being a well‑established player with a strong position in a fragmented sector, showing a positive underlying growth trajectory whilst also having a compelling product offering, a robust financial profile and a highly competent management team.

£7m invested on behalf of the Company

Financial Express ('FE') supplies investment data, research and software to the financial services industry in the UK and operates a proprietary database of complete retail funds data with global coverage and history, built up over 20 years. Trusted by thousands of investors, advisers, asset managers and platforms who use FE data, software and investment advice every day, FE is a leading player in supporting the UK fund industry. FE has a number of business characteristics that Hg looks for, including a strong position in the wealth/asset management software and data sector, a well‑recognised brand, business‑critical products, and a strong management team.

Rhapsody

£7m invested on behalf of the Company

In October, Hg completed the acquisition of the majority ownership of Orion Health's Rhapsody business and investment in Orion Health's Population Health business. Healthcare technology is a core investment area for Hg, having recently completed a number of transactions across the sector. This investment was made from the Hg Mercury 2 Fund. The combination of Rhapsody's global team and Hg's resources will extend Rhapsody as a leader in the interoperability platform space, building on both Rhapsody's world‑class technology and highly rated customer service.

Further investments

Mobility Concept (Holding)

£25m invested on behalf of the Company

Mobility Concept is a leading B2B fleet leasing company, headquartered in Germany. The business sits in the Hg investment 'sweet-spot', with a strong and predictable business model, including recurring revenues and a loyal customer base and continues Hg's strategy to develop technology‑enabled service providers in the automotive financing space. Mobility Concept is the result of considerable sector work undertaken in recent years and will, together with MeinAuto.de (a leading B2C online platform for new car purchases), be part of Mobility Holding, a platform set‑up by Hg to acquire businesses in the automotive distribution and financing space.

Visma

£21m invested on behalf of the Company

In March, Hg made a further investment in Visma, a leading provider of business‑critical business software to SMEs in the Nordic region via the Hg Saturn Fund. In 2002, Hg identified regulatory‑driven, subscription‑based software as an attractive sub‑sector with scope for considerable growth over the following decade and initially invested in Visma in 2006. Since this time the business has consistently exceeded our investment plans, having acquired more than 140 companies over our ownership to become one of today's leading and largest SaaS companies in Europe, with more than NOK 4 billion of pure SaaS revenues.

DADA

£1m invested on behalf of the Company

DADA is a key provider of online hosting services to SMEs in Italy, the UK and other regions across Europe. Following the initial acquisition made in October 2017, Hg announced in February 2018 that it had successfully completed a tender offer for the remaining Ordinary shares and would complete a public‑to‑private transaction of DADA from the Italian Stock Exchange.

This represents the first investment by the Hg Mercury 2 Fund and Hg has extensive experience of investing in SME‑focused technology businesses and is well placed to partner with DADA for the next phase of their growth.

Further investment since the year-end

Transporeon

An estimated £41m invested on behalf of the Company, including £6m in co-investment

In January, Hg announced that it had invested in Transporeon Group ('Transporeon'), one of the world's leading cloud‑based logistics platforms, via the Hg8 Fund. Founded in 2000 and headquartered in Ulm, Germany, Transporeon is a cloud‑based logistics platform with strong network effects, connecting a global network of over 1,000 shippers and almost 90,000 carriers, enabling them to source, communicate, collaborate and transact more efficiently, whilst also helping to lower CO2 emissions. This investment represents another example of Hg's focus on cloud‑based software and network companies, providing SaaS solutions to the business community.

Combell

£22m invested on behalf of the Company

In March, Hg completed an investment in Combell Group ('Combell'), a leader in mass hosting services for SMEs across Europe, via the Hg8 Fund, subject to regulatory approval. Established in 1999, Combell is a leading mass hosting player in Belgium and Denmark, with growing positions in the Netherlands, Sweden and Switzerland. Combell has over 800,000 SME and Small Office/Home Office ('SoHo') customers and is a one‑stop partner for web hosting, domains, e‑commerce and application solutions. This represents Hg's 8th investment in the technology services sector, with other recent hosting investments including Zitcom (2015), DADA (2017) and most recently, IT Relation (2018). Combell shows similar characteristics to these businesses, having consistently delivered strong organic revenue growth, best‑in‑class customer satisfaction metrics and an exceptional M&A track record.

Further detail on investments as at 31 December 2018 can be found on pages 50 to 72 of the full Annual Report and Accounts.

Realisations 2018

Over the course of the year, Hg has returned a total of £1.9 billion to its clients, including £272 million to the Company.

2018 was a very active year for realisations. We have made several references to 'frothy' markets over the past year and this has helped inform our approach to selling investments, whilst also carefully considering our appetite for selling versus the benefits of remaining invested in selected businesses for longer.

We have also taken advantage of buoyant debt markets during the period by refinancing investments where we have good visibility of their future earnings, returning cash proceeds to our clients, including the Company, and we will continue to assess further opportunities here.

Exits

IRIS

£93m returned to the Company

In September, Hg completed the sale of and reinvestment into IRIS, a leading provider of business‑critical software and services to the UK accountancy, education and business market, representing the largest UK and third largest European private equity software buyout ever.

Hg6 originally invested in IRIS in December 2011 and, over the course of the Fund's investment, the business has experienced strong revenue, EBITDA and cash flow growth, across market cycles. At an exit valuation of £1.3 billion, the business has more than trebled in size over the last six years. This transaction delivered a 4.2x investment multiple and a 26% gross IRR over the investment period. The sale of IRIS resulted in an uplift of 22% over the carrying value of the business at 31 December 2017.

JLA

£38m returned to the Company

In August, Hg completed the sale of JLA, a UK leader for critical‑asset solutions in the commercial laundry, catering, heating and fire safety markets, to Cinven. Hg's Genesis team invested in JLA at the beginning of 2010, identifying JLA as a 'hidden champion' services business. JLA displays best‑in‑class services characteristics: stable and predictable revenue streams, growth from both existing and new customers, and a wide customer base with high customer satisfaction levels. This transaction delivered a 4.9x investment multiple and a 26% gross IRR over the investment period. The sale of JLA resulted in an uplift of 26% over the carrying value of the business at 31 December 2017.

Ullink

£24m returned to the Company

In February, the Genesis team completed the sale of Ullink, a leading global provider of electronic trading and connectivity solutions to the financial community to Itiviti, a company backed by Nordic Capital. Hg initially invested in Ullink in 2014 and has been working with the management of the company since 2014 to build a leading Financial Information Exchange('FIX') based trading community through strong organic growth and the acquisitions of NYFIX and Metabit.

This transaction delivered a 3.0x investment multiple and a 35% gross IRR over the investment period. The sale of Ullink resulted in an uplift of 27% over the carrying value of the business at 31 December 2017.

Allocate Software

£20m returned to the Company

In April, the Mercury team announced the sale of Allocate Software ('Allocate'), an international provider of healthcare workforce management software, to Vista Equity Partners. Hg initially invested in Allocate at the end of 2014, completing a public‑to‑private transaction from the London Stock Exchange. Since then, Hg has worked with management to materially enhance the capabilities of Allocate's software suite, achieved greater customer engagement and supported a substantial increase in employment and skills development.

This transaction delivered a 3.6x investment multiple and a 50% IRR. The sale resulted in a 47% uplift to the carrying value of the investment as at 31 December 2017.

Radius

£18m returned to the Company

In April, the Genesis team completed the sale of Radius, which provides tailored solutions for fast growing companies that are looking to expand into international markets, to Vistra, one of the world's leading providers of corporate service to international corporations and to trust fiduciaries and fund administrators.

This transaction delivered a 1.0x investment multiple. The sale resulted in an 18% uplift to the carrying value of the investment as at 31 December 2017.

Intelliflo

£17m returned to the Company

In June, the Mercury team completed the sale of Intelliflo, a UK provider of front and back office software solutions to financial intermediaries, including IFAs, wealth managers, adviser networks, insurance/life companies and brokers. It was sold to Invesco, the Atlanta‑based global investment management company. Over the past five years, Hg has supported the business to implement best‑in‑class SaaS practices in development, operations, sales and marketing.

This transaction delivered a 4.7x investment multiple and a 39% gross IRR over the investment period. The sale of Intelliflo resulted in an uplift of 66% over the carrying value of the business at 31 December 2017.

Teufel

£15m returned to the Company

In June, Hg completed the sale of Teufel, a European direct‑to‑consumer online brand for audio solutions, based in Germany, to Naxicap Partners, one of France's leading private equity companies. Since Hg partnered with Teufel in 2010, it has supported the successful transition from a traditional loudspeaker company to a high‑quality brand for state‑of‑the‑art audio solutions, through the introduction of new categories and technologies, including wireless streaming, headphones and portables. This transaction delivered a 1.4x investment multiple. The sale resulted in a 56% uplift to the carrying value of the investment as at 31 December 2017.

Atlas

£10m returned to the Company

In November, Hg completed the sale of Atlas, a specialist Learning Technology Services business, offering learning solutions to safety critical industries, to Mintra Group, a leading provider of e‑learning and HR related solutions to the global oil and gas, maritime, construction and renewables market, and a portfolio company of The Riverside Company, a global private equity firm. This transaction resulted in an uplift of 60% over the carrying value of the business at 31 December 2017.

Kinapse

£7m returned to the Company

In August, Hg completed the realisation of Kinapse, a leading international provider of advisory, capability building and operational services to the life sciences and pharmaceutical industries, to Syneos Health, a Nasdaq‑listed, fully integrated, biopharmaceutical solutions organisation.

The sale of Kinapse has resulted in an uplift of c. 39% over the carrying value of the business at 31 December 2017.

Raet

£2m returned to the Company

In May, Hg agreed the sale to Visma of Raet's HR solutions operations. This transaction followed a competitive sales process, commenced earlier in the year by the Hg7 Fund. We strongly believe in the benefits of the integration and anticipated synergies. The Raet holding structure remains, owning [the right to] deferred consideration from the sale, of which the Company's share is £13.0 million. This transaction has delivered a 1.6x investment multiple and a 20% gross IRR over the investment period to date. The sale of Raet's operations resulted in an uplift of 25% over the carrying value of the business at 31 December 2017.

Lumesse

£2m returned to the Company

In October, Hg agreed the sale of Lumesse, a provider of strategic HR software to medium and large sized enterprises, to Saba Software Inc., a global leader in talent development solutions, and a portfolio company of Vector Capital, a leading global technology private equity firm based in San Francisco.

Frösunda

£0.5m returned to the Company

In February, Hg agreed the sale of Frösunda, a care home business based in Sweden, to Norlandia. The sale of Frösunda was largely based on deferred consideration which will be determined by future earnings.

Further realisation since the year‑end

Visma

An estimated £22m returned to the Company

In January 2019, Hg announced the part‑realisation of Visma, a leading provider of business‑critical software to private and public enterprises in the Nordic, Baltic and Benelux regions, from the Hg7 Fund, to the Canada Pension Plan Investment Board (CPPIB). Following completion of this transaction, Hg will remain the lead investor in Visma alongside some of the world's largest institutional investors. Together, Visma and its strong investor base will continue to reinforce Visma's position as a leading SaaS business in Europe and one of the world's most successful SaaS companies.

Refinancings

Trace One

£6m returned to the Company

In July, the Mercury team completed the refinancing of Trace One, a business that enables global retailers and suppliers to collaborate and develop high‑quality compliant private label products.

Foundry

£4m returned to the Company

In May, the Genesis team completed the refinancing of Foundry, a UK headquartered global developer of computer graphics, high‑end visual effects and 3D design software.

DADA S.p.A

£4m returned to the Company

In July, the Mercury team completed the refinancing of DADA, an international leader in digital services for professionals and SMEs.

Citation

£3m returned to the Company

In November, the Genesis team completed the refinancing of Citation, a provider of long‑term, subscription‑based Compliance (HR/Employment Law, Health & Safety) and Quality (ISO certification, supplier verification) services to over 35,000 SMEs throughout the UK.

STP

£1m returned to the Company

In October, the Mercury team refinanced STP, a provider of insolvency and law practice software in Germany.

Evaluate

£1m returned to the Company

In December, the Mercury team completed the refinancing of Evaluate, a platform that provides commercial data to the life sciences industry.

Further refinancing since the year‑end

A‑Plan

An estimated £14m returned to the Company

In January, the Genesis team announced the refinancing of A-Plan, a leading independent high‑street insurance broker in the UK, to the Hg7 fund. This transaction is expected to complete later in March. A‑Plan has now returned 1.4x the original investment made in April 2015 to the Hg7 fund.

Further detail on investments as at 31 December 2018 can be found on pages 50 to 72 of the full Annual Report and Accounts.

Investments made during the year
Company	Sector	Geography	Activity	Cost £'000
IRIS	Technology	UK	Software and services to the UK accountancy market	36,380
The Access Group	Technology	UK	Business‑management software	30,491
IT Relation	Services	Scandinavia	Managed IT services to SMEs	16,037
BrightPay	Technology	Ireland	Accounting and payroll software to SMEs	15,344
Allocate Software	Technology	UK	Software to the healthcare sector	13,959
MediFox	Technology	Germany	Software to the healthcare sector	11,796
Financial Express	Technology	UK	Investment data and research software to the finance sector	7,387
Rhapsody	Technology	North America	Software to the healthcare sector	6,689
New investments				138,083
Mobility Holding	Services	Germany	Automotive distribution and financing platform	24,998
Visma	Technology	Scandinavia	Provider of business software to SMEs	20,555
Other				3,702
Further investments				49,255
Total investments on behalf of the Company				187,338

Summary of investment and realisation activity

Realisations made during the year
Company	Sector	Exit route	Proceeds¹ £'000
IRIS	Technology	Secondary sale	93,113
JLA	Services	Secondary sale	38,254
Ullink	Technology	Trade sale	24,357
Allocate Software	Technology	Secondary sale	19,920
Radius	Services	Trade sale	18,312
Intelliflo	Technology	Trade sale	16,801
Teufel	Industrial Technology	Secondary sale	15,106
Atlas	Services	Trade sale	9,996
Kinapse	Services	Trade sale	6,812
Raet²	Technology	Trade sale	2,367
Lumesse	Technology	Trade sale	1,573
Frösunda	Healthcare	Trade sale	487
Full realisations			247,098
TraceOne	Technology	Refinancing	5,677
HgCapital 6 E LP Fund	Technology and Services	Distribution received	5,495
Foundry	Technology	Refinancing	3,795
DADA	Technology	Refinancing	3,733
Citation	Services	Refinancing	3,345
STP	Technology	Refinancing	1,320
Evaluate	Technology	Refinancing	762
Other			596
Partial realisations			24,723
Total proceeds from realisations			271,821
Carried interest paid to the Manager			(55,023)
Total proceeds from realisations received by the Company			216,798
¹Includes gross revenue received during the year ended 31 December 2018. ²Sale of operations to Visma

Hg's outlook

Strong trading from the unrealised portfolio, realisations at uplifts to book value, refinancing activity and ongoing support of the management teams we back should continue to drive value for shareholders in HgCapital Trust plc.

Realisations

It has been a very active year for Hg in realising capital for our investors. We have completed twelve full exits and six refinancings over 2018 and the Company is now invested in a relatively young portfolio, with an average age since acquisition of just under two years.

This exit activity has continued to demonstrate the attractiveness of Hg's "sweet‑spot" business model investments to both trade and financial buyers, as most recently evidenced by a partial sale of Visma to Canada Pension Plan Investment Board (CPPIB), announced in January 2019.

Going forward we will continue to focus on opportunities to crystallise value across our portfolio, with further exit and refinancing processes already underway. The current and planned level of realisations should be broadly commensurate with our levels of liquidity generation since the start of 2017.

Investments

We have an active pipeline for investments in 2019 and believe that, in the current market environment, the clarity and distinctive focus of our strategy provides us with several clear advantages as a cautious and disciplined investor.

Despite a focus on realisations, Hg has continued to invest selectively, capitalising on situations where we have a specific angle and have built many years of knowledge of the business and its end‑market cluster, and strong relationships with the founders and management teams. Indeed, the relative de‑risking of our existing portfolio gives our investment teams more time and space to consider attractive new investments in our core areas of focus, across our funds and the size spectrum.

Specifically, we will continue to concentrate on companies that provide a business‑critical product or service, to a fragmented customer base, and which benefit from strong contracted or recurring revenues. This should enable us to identify opportunities that will generate strong, risk adjusted returns for our clients.

Despite the heat of the current market, we do continue to see attractive investment opportunities in our target clusters, just as we did in the closing stages of the last period of high valuations, in 2005 to 2008. This has led to eight new investments and further capital deployed into businesses we know well, with Transporeon, announced in January 2019, being the most recent example.

Current Portfolio

The portfolio is in good health and growing strongly. Trading over 2018 has continued to generate double‑digit sales and EBITDA growth across almost all the businesses. Given their defensive growth characteristics and our focus on protected business models, we believe our current investments are well positioned to continue to create value on both an absolute and relative basis going forward, even if macro‑economic conditions deteriorate.

Our belief in these defensive qualities is reinforced by our historic portfolio's performance during the Global Financial Crisis from 2008 to 2010, when our businesses in aggregate continued to grow revenues and EBITDA, without a down year. We believe our current portfolio is of better quality than the one we held during the financial crisis.

Prospects

The scale and reach of Hg's network within the global technology and service sectors is now broader and deeper than ever before.

We continue to consider the UK's forthcoming exit from the EU and our prognosis remains that this will have a relatively limited impact on our current portfolio given the characteristics of these businesses, their geographic profile and their relatively protected nature. Hg's pan‑European focus and our office in Germany also offer flexibility in terms of the breadth of our focus, regulatory regime and general fund management approach.

The drive for operational improvements in our investments, aligned with the efforts of our dedicated Operations Group, means that we believe we can continue to generate significant long‑term value across the portfolio on a repeatable basis, irrespective of the challenges of the broader macro‑environment. From pricing analysis and customer success, to cybersecurity and bolt‑on M&A; these initiatives will continue to remain an area of real focus going forward.

We remain confident in our strong group of businesses with resilient, recurring growth characteristics that are benefiting from the wealth of expertise in the areas in which we invest and the scale to continue to be one of the largest software investors in Europe.

______________________________________________________________________________________________________

"A significant number of realisations in 2018 reflected a strong market for exits. This leaves us with a young, focused portfolio where we are very active in driving further capital growth through trading performance, business improvement initiatives and accretive M&A."

Matthew Brockman, Managing Partner, Hg

Overview of the underlying investments

held through the Company's limited partnerships

	Investments (in order of value)	Funds	Sector	Location	Year of investment	Residual cost £'000	Total Valuation7 £'000	Value %	Cum. value %
1	Visma¹	HGT 7/HGT/Saturn	Technology	Scandinavia	2014	65,921	153,636	22.2%	22.2%
2	Sovos²	HGT 7/HGT	Technology	N. America	2016	38,508	84,737	12.3%	34.5%
3	IRIS	HGT Saturn	Technology	UK	2018	36,380	45,387	6.6%	41.1%
4	The Access Group	HGT 8	Technology	UK	2018	30,491	35,388	5.1%	46.2%
5	CogitalGroup²	HGT 7/HGT	Services	UK	2016	20,966	33,090	4.8%	51.0%
6	Mobility Holding	HGT 8	Services	Germany	2018	31,718	32,248	4.7%	55.7%
7	A‑Plan	HGT 7	Services	UK	2015	10,447	29,463	4.3%	60.0%
8	Mitratech²	HGT 7/HGT	Technology	N. America	2017	22,258	23,491	3.4%	63.4%
9	Commify³	Mercury/HGT	Technology	UK	2016	12,548	22,066	3.2%	66.6%
10	IT Relation	HGT 8	Services	Scandinavia	2018	16,037	16,070	2.3%	68.9%
11	Foundry	HGT 7	Technology	UK	2015	15,142	15,726	2.3%	71.2%
12	FE/fundinfo	Mercury/Mercury 2	Technology	UK	2018	11,407	15,616	2.3%	73.5%
13	BrightPay	Transition Capital	Technology	Ireland	2018	14,973	15,477	2.2%	75.7%
14	DADA	Mercury 2	Technology	Italy	2017	3,800	14,962	2.2%	77.9%
15	Allocate Software	HGT 8	Technology	UK	2018	13,959	14,157	2.0%	79.9%
16	Raet⁴	HGT 7	Technology	Netherlands	2016	15,419	13,024	1.9%	81.8%
17	MediFox⁵	Mercury 2/HGT	Technology	Germany	2018	11,796	12,926	1.9%	83.7%
18	TeamSystem	HGT 6	Technology	Italy	2010	144	12,211	1.8%	85.5%
19	Achilles⁶	HGT	Technology	UK	2008	17,298	11,847	1.7%	87.2%
20	Citation	HGT 7	Services	UK	2016	7,904	11,564	1.7%	88.9%
21	P&I	HGT 7/HGT	Technology	Germany	2013	1,796	8,524	1.2%	90.1%
22	STP	Mercury	Technology	Germany	2016	4,260	7,761	1.1%	91.2%
23	Rhapsody	Mercury 2	Technology	N. America	2018	6,689	6,870	1.0%	92.2%
24	Eucon	Mercury	Technology	Germany	2015	4,658	6,489	0.9%	93.1%
25	EidosMedia	HGT 7	Technology	Italy	2015	8,414	6,467	0.9%	94.0%
26	Evaluate	Mercury	Technology	UK	2016	3,733	5,439	0.8%	94.8%
27	Trace One	Mercury	Technology	France	2016	493	4,342	0.6%	95.4%
28	Noventic	HGT 6	Technology	Germany	2012	922	4,229	0.6%	96.0%
29	Gentrack	HGT 7	Technology	New Zealand	2017	2,069	2,383	0.3%	96.3%
30	e‑conomic	HGT 6	Technology	Scandinavia	2013	-	1,006	0.1%	96.4%
	Non‑active investments (7)					22,501	1,873	0.3%	96.7%
	Total investments (37)					452,651	668,469	96.7%
	Currency hedges	Various	Forward sale of US$ and €			-	43	-	96.7%
	Secondary fund interests	Hg 6E	Secondary fund interests			-	962	0.1%	96.8%
	Renewable energy	Asper RPP I / II	Renewable energy			26,059	22,032	3.2%	100.0%
	Total all investments					478,710	691,506	100.0%

¹ Investment through HGT 7 LP, HGT Saturn LP and co‑investment participation through HGT LP.

² Investment through HGT 7 LP and co‑investment participation through HGT LP.

³ Investment through HgCapital Mercury D LP and co‑investment participation through HGT LP.

⁴Deferred consideration from sale of operations to Visma.

⁵ Investment through HGT Mercury 2 LP and co‑investment participation through HGT LP.

⁶ Investment and co‑investment participation through HGT LP.

⁷ Including accrued income but before the provision for carried interest of £42,312,000.

Non-Statutory Accounts

The financial information set out below does not constitute the Company's statutory accounts for the years ended 31 December 2017 and 2018 but is derived from those accounts. Statutory accounts for 2017 have been delivered to the Registrar of Companies, and those for 2018 will be delivered in due course. The Auditors have reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditors' report can be found in the Company's full Annual Report and Accounts at www.hgcapitaltrust.com

Financial statements

Income statement for the year ended 31 December 2018
	Notes	Revenue return		Capital return		Total return
	Notes	2018 £'000	2017 £'000	2018 £'000	2017 £'000	2018 £'000	2017 £'000
Gains on investments and liquidity funds	13	-	-	93,792	109,738	93,792	109,738
Losses on priority profit share loans advanced to General Partners	5(b)	-	-	(6,325)	(1,372)	(6,325)	(1,372)
Net income	4	17,128	22,920	-	-	17,128	22,920
Other expenses	6(a)	(2,468)	(2,009)	-	-	(2,468)	(2,009)
Net return before finance costs and taxation		14,660	20,911	87,467	108,366	102,127	129,277
Finance costs	6(b)	(753)	(825)	-	-	(753)	(825)
Net return before taxation		13,907	20,086	87,467	108,366	101,374	128,452
Taxation	9(a)	(242)	(43)	-	-	(242)	(43)
Net return after taxation attributable to reserves		13,665	20,043	87,467	108,366	101,132	128,409

Return per Ordinary share	10(a)	36.61p	53.70p	234.34p	290.33p	270.95p	344.03p
The total return column of this statement represents the Company's income statement. The supplementary revenue and capital return columns are both prepared under guidance published by the Association of Investment Companies ('AIC'). All recognised gains and losses are disclosed in the revenue and capital columns of the income statement and as a consequence, no statement of comprehensive income has been presented. The movements in reserves are set out in note 21 to the financial statements. All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year. The notes on pages 78 to 96 of the full Annual Report and Accounts form part of these financial statements.

Balance sheet as at 31 December 2018
	Notes	2018 £'000	2017 £'000
Fixed asset investments
Investments at fair value through profit or loss:
Unquoted investments	12	609,663	490,976
Total fixed asset investments		609,663	490,976
Current assets - amounts receivable after one year:
Accrued income on fixed assets	14	39,531	71,107
Current assets - amounts receivable within one year:
Debtors	14	154	414
Investments at fair value through profit or loss:
Liquidity funds	15	152,920	155,938
Uninvested capital in limited partnerships		169	429
Cash at bank	16	3,436	3,925
Total current assets		196,210	231,813
Creditors - amounts falling due within one year	17	(886)	(1,765)
Net current assets		195,324	230,048
Net assets		804,987	721,024
Capital and reserves:
Called up share capital	20	9,331	9,331
Share premium account	21	120,368	120,368
Capital redemption reserve	21	1,248	1,248
Capital reserve - unrealised	21	119,958	79,256
Capital reserve - realised	21	523,528	476,763
Revenue reserve	21	30,554	34,058
Total equity shareholders' funds		804,987	721,024
Net asset value per Ordinary share	10(b)	2,156.7p	1,931.7p
Ordinary shares in issue at 31 December		37,324,698	37,324,698
The financial statements of HgCapital Trust plc (registered number 01525583) on pages 74 to 96 of the full Annual Report and Accounts were approved and authorised for issue by the Board of Directors on 8 March 2019 and signed on its behalf by: Roger Mountford, Chairman Richard Brooman, Director The following notes form part of these financial statements.

Statement of cash flows for the year ended 31 December 2018
	Notes	2018 £'000	2017 £'000
Net cash (outflow)/inflow from operating activities	7	(17,850)	10,990
Investing activities:
Purchase of fixed asset investments	12	(187,338)	(73,021)
Proceeds from the sale of fixed asset investments	12	218,925	201,584
Purchase of liquidity funds	15	(222,882)	(166,409)
Redemption of liquidity funds	15	226,578	50,700
Net cash inflow from investing activities		35,283	12,854
Financing activities:
Servicing of finance		(753)	(760)
Equity dividends paid	11	(17,169)	(23,141)
Net cash outflow from financing activities		(17,922)	(23,901)

Decrease in cash and cash equivalents in the year	16	(489)	(57)
Cash and cash equivalents at 1 January	16	3,925	3,982
Cash and cash equivalents at 31 December	16	3,436	3,925
The following notes form part of these financial statements.

Statement of changes in equity for the year ended 31 December 2018
		Non-distributable				Distributable
	Notes	Share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Capital reserve - unrealised £'000	Capital reserve - realised £'000	Revenue reserve £'000	Total £'000
At 31 December 2017		9,331	120,368	1,248	79,256	476,763	34,058	721,024
Net return from ordinary activities		-	-	-	40,702	46,765	13,665	101,132
Equity dividends paid	11	-	-	-	-	-	(17,169)	(17,169)
At 31 December 2018	20, 21	9,331	120,368	1,248	119,958	523,528	30,554	804,987
At 31 December 2016		9,331	120,368	1,248	81,061	366,592	37,156	615,756
Net return from ordinary activities		-	-	-	(1,805)	110,171	20,043	128,409
Equity dividends paid	11	-	-	-	-	-	(23,141)	(23,141)
At 31 December 2017	20, 21	9,331	120,368	1,248	79,256	476,763	34,058	721,024
The following notes form part of these financial statements.

Notes to the financial statements

1. Principal activity

The principal activity of the Company is investment. The Company is an investment company as defined by Section 833 of the Companies Act 2006 and an investment trust under Sections 1158 and 1159 of the Corporation Tax Act 2010 ('CTA 2010'), and is registered as a public company in England and Wales under number 01525583 with its registered office at 2 More London Riverside, London SE1 2AP.

2. Basis of preparation

The financial statements have been prepared under the historical cost convention, except for the revaluation of financial instruments at fair value as permitted by the Companies Act 2006, and in accordance with applicable UK law and UK Accounting Standards ('UK GAAP'), including Financial Reporting Standard 102 - 'The Financial Reporting Standard applicable in the United Kingdom and Republic of Ireland' ('FRS 102') and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' ('SORP'), issued in November 2014 and updated in February 2018. All of the Company's operations are of a continuing nature.

The Company has considerable financial resources and, as a consequence, the Directors believe that the Company is well placed to manage its business risks. After making enquiries, the Directors have a reasonable expectation that the Company will have adequate resources to continue in operational existence for the next twelve-month period from the date of this Report.

Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and Accounts.

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

3. Organisational structure and accounting policies

Partnerships where the Company is the sole limited partner
The Company entered into six separate partnership agreements with general and founder partners in May 2003 (subsequently revised in January 2009), January 2009, July 2011, March 2013, December 2016, February 2017, January 2018 and February 2018; at each point an investment holding limited partnership was established to carry on the business of an investor, with the Company being the sole limited partner in these entities.

The purpose of these partnerships, HGT LP, HGT 6 LP, HGT 7 LP, HGT 8 LP, HgCapital Mercury D LP, HGT Mercury 2 LP, HGT Saturn LP and HGT Transition Capital LP, (together the 'primary buyout funds') is to hold all the Company's investments in primary buyouts. Under the partnership agreements, the Company made capital commitments into the primary buyout funds, with the result that the Company now holds direct investments in the primary buyout funds and an indirect investment in the fixed asset investments that are held by these funds, as it is the sole limited partner. These direct investments are included under fixed asset investments on the balance sheet and in the table of investments on page 39 of the full Annual Report and Accounts . The underlying investments that are held indirectly are included in the overview of investments on page 48 of the full Annual Report and Accounts.

Consolidated financial statements have not been prepared because the Company does not have control over the operating and financial activities of the underlying investment holding limited partnerships, as the general partners are responsible for the management of their activities.

Partnerships where the Company is a minority limited partner
In July 2011, the Company acquired a direct secondary investment in HgCapital 6 E LP ('Hg 6E LP'), one of the partnerships that comprise the Hg 6 Fund, in which the Company is now a limited partner pari passu with other limited partners. This is a direct investment in the Hg 6E LP Fund, as shown on the balance sheet and in the table of investments on page 39 of the full Annual Report and Accounts.

The Company also entered into partnership agreements with other limited partners with the purpose of investing in renewable energy projects by making capital commitments in Asper Renewable Power Partners LP ('Asper RPP I LP') and Asper Renewable Power Partners 2 C LP ('Asper RPP II LP') (together the 'renewable funds'). These are direct investments in the renewable funds, as shown on the balance sheet and in the table of investments on page 39 of the full Annual Report and Accounts.

Priority profit share and other operating expenses, payable by partnerships in which the Company is a minority limited partner, are recognised as unrealised losses in the capital return section of the income statement and are not separately disclosed within other expenses.

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

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

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

Accordingly, the Company's entitlement to net income and net capital gains is shown in the appropriate lines of the income statement. Notes 4, 5 and 12 to the financial statements disclose the gross income and gross capital gains of the primary buyout funds and also reflect the proportion of net income and capital gains in the buyout funds that have been paid to the general partner as its PPS and to the founder partner as carried interest, where applicable.

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

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

Investment income and interest receivable
As stated above, all income that is recognised by the primary buyout funds, net of PPS, is allocated to the Company and recognised when the right to this income is established. Income from Hg 6 E LP and the renewable energy funds would normally consist of income distributions and these distributions are recognised as income in the financial statements of the Company when the right to such distribution is established.

The accounting policies below apply to the recognition of income by the primary buyout funds, prior to allocation between the Partners:

Interest income on non‑equity shares and fixed income securities is recognised on a time apportionment basis so as to reflect the effective yield when it is probable that it will be realised. Dividends receivable on unlisted equity shares where there is no ex‑dividend date and on non‑equity shares are brought into account when the right to receive payment is established.

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

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

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

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

Cash comprises current accounts held with banks.

Foreign currency
The functional and presentation currency is pounds sterling, reflecting the economic environment in which the Company predominantly operates. All transactions in foreign currencies are translated into sterling at the rates of exchange ruling at the dates of such transactions and the resulting exchange differences are taken to the capital reserve - realised or revenue, as appropriate. Foreign currency assets and liabilities at the balance sheet date are translated into sterling at the exchange rates ruling at that date and the resulting exchange differences are taken to the capital reserve - unrealised or revenue as appropriate.

Taxation
Income taxes represent the sum of the tax currently payable, withholding taxes suffered and deferred tax. Tax is charged or credited in the income statement. Deferred tax is recognised on all timing differences at the reporting date. These timing differences arise from the inclusion of income and expenses in tax assessments in periods different from those in which they are recognised in the financial statements.

Investments
The general principle applied is that investments should be reported at 'fair value', in accordance with Sections 11 and 12 of FRS 102 and the International Private Equity and Venture Capital ('IPEV') Valuation Guidelines, December 2015 edition. The December 2018 revision will be adopted in the 2019 Interim and Annual financial statements.

Where relevant, the Company applies the policies stated below to the investments held by the primary buyout funds, in order to determine the fair value of its investments in these limited partnerships.

Purchases of investments are recognised on a trade date basis. Sales of investments held through the primary buyout funds are recognised at the trade date of the disposal. Sales from the investments in Hg 6 E LP and the renewable energy funds would normally consist of capital distributions and these distributions are recognised as a realisation when the right to such distribution is established. Proceeds are measured at fair value, which is regarded as the proceeds of sale less any transaction costs.

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

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

(i) initially, investments are valued at the price of recent investments less fees. Subsequently, investments are valued based on (ii) to (iv) below;

(ii) the level of maintainable earnings or revenue and an appropriate earnings or revenue multiple, unless (iv) is required;

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

(iv) appropriate fair value movements are made against all individual valuations where necessary to reflect unsatisfactory financial performance or a fall in comparable ratings.

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

Liquidity funds: these are short‑term investments made in a combination of fixed and floating rate securities and are valued at the current fair value as determined by the manager of the fund. They can be realised at short notice.

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

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

Capital reserves

Capital reserve - realised
The following are accounted for in this reserve:

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

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

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

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

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

Capital reserve - unrealised
The following are accounted for in this reserve:

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

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

(iii) unrealised exchange differences of a capital nature.

Critical accounting estimates and key sources of estimation uncertainty
The preparation of these financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported year. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results may ultimately differ from those estimates.

The estimates and assumptions are reviewed on an on‑going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

The key accounting estimate is in respect of the determination of the fair value of financial assets classified as fair value through profit or loss (FVTPL). The methodology used in determining fair values is disclosed above. An attribution analysis

of movements in the fair value of investments can be found on page 35 of the full Annual Report and Accounts and an analysis of the trading performance and valuation and gearing analysis of the top 20 buyout investments by value can be found on pages 36 and 37 of the full Annual Report and Accounts. A sensitivity analysis to equity price risk can be found in note 19.

4. Income
	Revenue return
	2018 £'000	2017 £'000
Total net income comprises:
Interest	16,349	22,706
Dividend	706	60
Non‑interest income	73	154
Total net income	17,128	22,920

All income that is recognised by the primary buyout funds, net of PPS, is allocated to the Company and recognised when the right to this income is established. This income and PPS is analysed further below.

	Revenue return
	2018 £'000	2017 £'000
Income from investments held by HGT LP, HGT 6 LP, HGT 7 LP, HGT 8 LP, HgCapital Mercury D LP, HGT Mercury 2 LP, HGT Saturn LP and HGT Transition Capital LP:
Unquoted investment income	19,453	27,332
Dividend income	706	60
Other investment income:
Unquoted investment income	1,161	685
Liquidity funds income	1,033	1,028
Total investment income	22,353	29,105
Total other income	128	154
Total income	22,481	29,259
Priority profit share charge against income:
Current year - HGT 7 LP	(2,445)	(3,179)
Current year - HGT 8 LP	(1,315)	-
Current year - HGT Mercury 2 LP	(736)	-
Current year - HgCapital Mercury D LP	(409)	(765)
Current year - HGT Saturn LP	(304)	-
Current year - HGT LP	(92)	(560)
Current year - HGT Transition Capital LP	(52)	-
Current year - HGT 6 LP	-	(1,835)
Total priority profit share charge against income (note 5(a))	(5,353)	(6,339)
Total net income	17,128	22,920

5. Priority profit share and carried interest

(a) Priority profit share payable to General Partners	Revenue return
(a) Priority profit share payable to General Partners	2018 £'000	2017 £'000
Priority profit share payable:
Current year amount	11,678	7,711
Less: Current year loans advanced to General Partners (note 5 (b))	(6,325)	(1,882)
Add: Prior year loans recovered from General Partners (note 5 (b))	-	510
Current year charge against income	5,353	6,339
Total priority profit share charge against income (note 4)	5,353	6,339

The priority profit share payable on the primary buyout funds rank as a first appropriation of net income from investments held in these partnerships respectively and is deducted prior to such income being attributed to the Company in its capacity as a Limited Partner. The net income of the primary buyout funds earned during the year, after the deduction of the priority profit share, is shown on the income statement. Details of these arrangements are disclosed in the Directors' report on page 106 of the full Annual Report and Accounts.

The terms of the above priority profit share arrangements during 2018 were:

Primary buyout Fund partnership	Priority profit share
HGT 8 LP	1.75% on the fund commitment during the investment period
HGT Mercury 2 LP	1.75% on the fund commitment during the investment period
HGT 7 LP	1.5% of original cost of investments in the fund less the original cost of investments that have been realised or written‑off (previously 1.75% of the fund commitment during the investment period that ended 30 September 2017).
HgCapital Mercury D LP	1.5% of original cost of investments in the fund less the original cost of investments that have been realised or written‑off (previously 1.75% of the fund commitment during the investment period that ended 30 September 2017).
HGT 6 LP	1.5% of original cost of investments in the fund less the original cost of investments that have been realised or written‑off.
HGT Saturn LP	1.0% on invested capital (commenced 19 March 2018)
HGT Transition Capital LP	1.25% on invested capital (commenced 20 September 2018)
HGT LP	0.5% on the value of investments in fund, excluding co‑investments (from 1 March 2017, previously 1.5% on the value of investments, excluding co‑investments).

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

Fund partnership	Priority profit share
Hg 6 E LP	1.5% of original cost of investments in the fund, less the original cost of investments that have been realised or written‑off.
Asper Renewable Power Partners 2 C LP	1.25% of lesser of value or cost of investments.
Asper Renewable Power Partners LP	1.5% of original cost of investments in the fund, less the original cost of investments that have been realised or written‑off.

(b) Priority profit share loans to General Partners	Capital return
(b) Priority profit share loans to General Partners	2018 £'000	2017 £'000
Movement on loans to General Partners:
Losses on current year loans advanced to General Partners	(6,325)	(1,882)
Gains on prior year loans recovered from General Partners	-	510
Total losses on priority profit share loans advanced to General Partners	(6,325)	(1,372)

In years in which the funds described in note 5(a) have not yet earned sufficient net income to satisfy the priority profit share, the entitlement is carried forward to the following years. The priority profit share is payable quarterly in advance, even if insufficient net income has been earned. Where the cash amount paid exceeds the net income, an interest free loan is advanced to the general partner by these primary buyout funds, which is funded via a loan from the Company. Such loan is only recoverable from the general partner by an appropriation of net income. Until sufficient net income is earned, no value is attributed to this loan and hence an unrealised capital loss is recognised and reversed if sufficient income is subsequently generated.

(c) Carried interest to Founder Partners	Capital return
(c) Carried interest to Founder Partners	2018 £'000	2017 £'000
Carried interest charge against capital gains:
Current year charge against realised capital gains (note 13)	55,023	-
Current year (credit)/charge against unrealised capital gains (note 13)	(40,599)	26,629
Total carried interest charge against capital gains	14,424	26,629

The carried interest payable ranks as a first appropriation of capital gains on the investments held in the primary buyout funds, limited partnerships established solely to hold the Company's investments, and is deducted prior to such gains being paid to the Company in its capacity as a Limited Partner. The net amount of capital gains of the primary buyout funds during the year, after the deduction of carried interest, is shown in the income statement.

The details of the carried interest contracts, disclosed in the Directors' report in the full Annual Report and Accounts on page 106, state that carried interest is payable once a certain level of repayments have been made to the Company. Based on the repayments made during 2018, £55,023,000 of carried interest was paid in respect of the current financial year (no carried interest was payable in respect of the prior financial year). If the investments in HGT 6 LP, HGT 7 LP, HgCapital Mercury D LP and Hg 6 E LP are realised at the current fair value and then distributed to Partners, an amount of £42,312,000 will be payable to the Founder Partner (2017: £82,911,000 payable to the Founder Partner) and therefore the Directors have made a provision for this amount (see note 12).

No provision is required in respect of the Company's investment in the other fund limited partnerships.

6. Other expenses

	Revenue return
(a) Operating expenses	2018 £'000	2017 £'000
Registrar, management and administration fees	837	721
Directors' remuneration (note 8)	261	216
Legal and other administration costs¹	1,302	1,004
	2,400	1,941
Fees payable to the Company's auditor in relation to the Company:
Audit fees	68	68
Total fees payable to the Company's auditor	68	68
Total other expenses	2,468	2,009

¹Includes employer's National Insurance contributions of £29,427 (2017: £24,113).

	Revenue return
(b) Finance costs	2018 £'000	2017 £'000
Interest paid	-	62
Non‑utilisation fees and other expenses	753	763
Total finance costs	753	825

7. Cash flow from operating activities

Reconciliation of net return before finance costs and taxation to net cash flow from operating activities	2018 £'000	2017 £'000
Net return before finance costs and taxation	102,127	129,277
Gains on investments held at fair value and liquidity funds	(54,297)	(138,826)
Carried interest paid	(55,023)	-
(Decrease)/increase in carried interest provision	(40,599)	26,629
(Increase) in accrued income from liquidity funds	(1,033)	(1,020)
Decrease/(increase) in prepayments, accrued income and other debtors	31,577	(5,815)
(Decrease)/increase in creditors	(616)	1,214
Taxation received/(paid)	14	(469)
Net cash (outflow)/inflow from operating activities	(17,850)	10,990

8. Directors' remuneration

The aggregate remuneration of the Directors for the year to 31 December 2018 was £261,462 (2017: £215,500). Further information on the Directors' remuneration is disclosed in the Directors' remuneration report on pages 119 and 120 of the full Annual Report and Accounts.

9. Taxation on ordinary activities

In the opinion of the Directors, the Company 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 reported in the capital return during the year. To the extent possible, the Company will elect to designate all of the proposed dividend (see note 11) as an interest distribution to its shareholders. This distribution is treated as a tax deduction against taxable income in the revenue return and results in a reduction of corporation tax being payable by the Company at 31 December 2018.

The rate of corporation tax in the UK for a company was 19% during the year (2017: effective tax rate of 19.25%). However, the tax charge in the current and prior year was lower than the standard and effective tax rate, largely due to the reduction in corporation tax from the interest distribution noted above. The effect of this and other items affecting the tax charge is shown in note 9(b) below.

	Revenue return
(a) Analysis of charge in the year	2018 £'000	2017 £'000
Current tax:
UK corporation tax	2,173	3,305
Income streaming relief	(2,173)	(3,305)
Prior year adjustment	(17)	(103)
Current revenue tax credit for the year	(17)	(103)
Deferred tax:
Reversal of timing differences	259	146
Total deferred tax charge for the year (note 9(c))	259	146
Total taxation charge	242	43
	Revenue return
(b) Factors affecting current tax charge for the year	2018 £'000	2017 £'000
Net revenue return before taxation	13,907	20,086
UK corporation tax charge at 19% thereon (2017: 19.25%)	2,642	3,867
Effects of:
Tax relief from interest distribution	(2,173)	(3,305)
Impact of change in tax rates	-	45
Tax relief from expenses allocated to capital	(210)	(461)
Prior year tax adjustment	(17)	(103)
Total differences	(2,400)	(3,824)
Total taxation charge	242	43

	Revenue return
(c) Deferred tax	2018 £'000	2017 £'000
Deferred tax:
Movement in taxable income not recognised in revenue return	259	146
Total deferred tax charge for the year (note 9(a))	259	146
Deferred tax recoverable:
Recoverable deferred tax at 31 December	363	509
Deferred tax charge for the year	(259)	(146)
Recoverable deferred tax at end of year (note 14)	104	363

Deferred tax assets of £104,000 (2017: £363,000) are recognised at a rate of 19% (2017: 19%) in respect of the net amounts of taxable income that have not yet been recognised in the revenue return, but are expected to be recognised in the revenue return for the accounting period ending 31 December 2019, during which the standard corporation tax rate will be 19%.

10. Return and net asset value per Ordinary share

(a) Return per Ordinary share	Revenue return		Capital return
(a) Return per Ordinary share	2018	2017	2018	2017
Amount (£'000):
Net return after taxation	13,665	20,043	87,467	108,366
Number of Ordinary shares ('000):
Weighted average number of Ordinary shares in issue	37,325	37,325	37,325	37,325
Return per Ordinary share (pence)	36.61	53.70	234.34	290.33

	Capital return
(b) Net asset value per Ordinary share	2018	2017
Amount (£'000):
Net assets	804,987	721,024
Number of Ordinary shares ('000):
Number of Ordinary shares in issue	37,325	37,325
Net asset value per Ordinary share (pence)	2,156.7	1,931.7

11. Dividends on Ordinary shares

	Record date	Payment date	2018 £'000	2017 £'000
Interim Dividend of 16.0p for the year ended 31 December 2018	20 September 2018	26 October 2018	5,972	-
Final Dividend of 30.0p for the year ended 31 December 2017	29 March 2018	27 April 2018	11,197	-
Interim Dividend of 16.0p for the year ended 31 December 2017	21 September 2017	27 October 2017	-	5,972
Dividend of 46.0p for the year ended 31 December 2016	6 April 2017	15 May 2017	-	17,169
Total equity dividends paid			17,169	23,141

The proposed final dividend of 30.0 pence per Ordinary share for the year ended 31 December 2018 is subject to approval by the shareholders at the annual general meeting and has not been included as a liability in these financial statements.

The total dividends payable in respect of the financial year, which form the basis of the retention test as set out in Section 1159 of the CTA 2010, are set out below:

	2018 £'000	2017 £'000
Revenue available for distribution by way of dividend for the year	13,665	20,043
Interim dividend of 16.0p (2017: 16.0p) for the year ended 31 December	(5,972)	(5,972)
Proposed final dividend of 30.0p (2017: 30.0p) for the year ended 31 December (based on 37,324,698 Ordinary shares in issue at 31 December 2018 - 2017: Same)	(11,197)	(11,197)
Distributions in excess of revenue for Section 1159 purposes	(3,504)	2,874

12. Fixed asset investments

	2018 £'000	2017 £'000
Investments held at fair value through profit and loss:
Unquoted investments held in HGT 7 LP	248,186	245,698
Unquoted investments held in HGT LP	111,544	98,204
Unquoted investments held in HGT 8 LP	93,887	6,904
Unquoted investments held in HGT Saturn LP	66,427	-
Unquoted investments held in HgCapital Mercury D LP	38,595	59,048
Unquoted investments held in HGT Mercury 2 LP	37,105	6,510
Other unquoted investments held by the Company	22,994	25,622
Unquoted investments held in HGT 6 LP	18,275	131,901
Unquoted investments held in HGT Transition Capital LP	14,962	-
Total fixed asset investments gross of carried interest provision	651,975	573,887
Carried interest provision (note 5(c))	(42,312)	(82,911)
Total fixed asset investments	609,663	490,976
Total fixed asset investments consist of:
Fund limited partnerships	609,663	490,976

	2018 £'000	2017 £'000
Opening valuation as at 1 January	490,976	506,961
Opening unrealised appreciation - investments	(166,260)	(138,423)
Opening carried interest provision	82,911	56,282
Opening book cost as at 1 January	407,627	424,820
Movements in the year:
Additions at cost	187,338	73,021
Disposals - proceeds	(218,925)	(201,584)
- realised gains on sales	102,670	111,370
Closing book cost of investments	478,710	407,627
Add: closing unrealised appreciation - investments	173,265	166,260
Less: closing carried interest provision	(42,312)	(82,911)
Closing valuation of investments at 31 December	609,663	490,976

The investments above include investments in companies that are indirectly held by the Company through its investment in the primary buyout funds as set out in note 3 above, and investments in fund limited partnerships in Hg 6 E LP, Asper Renewable Power Partners LP and Asper Renewable Power Partners 2 C LP. The net assets attributable to partners at 31 December 2017, being the date of the last audited balance sheet, of these primary buyout funds were £111,741,884 (HGT LP), £165,928,736 (HGT 6 LP), £261,926,931 (HGT 7 LP), £66,764,373 (HgCapital Mercury D LP), £5,631,128 (HGT 8 LP) and £6,540,546 (HGT Mercury 2 LP). The first set of audited financial statements for HGT Saturn LP and HGT Transition Capital LP will be prepared for the year‑ended 31 December 2018.

13. Gains/(losses) on investments and liquidity funds

	Capital return
	2018 £'000	2017 £'000
Realised:
Realised gains/(losses) - fixed asset investments	102,670	111,370
- liquidity funds	1,057	128
- aborted deal fees	(1,939)	(1,261)
- loan facility	-	(66)
	101,788	110,171
Carried interest charge against realised capital gains (note 5(c))	(55,023)	-
Net realised gains	46,765	110,171
Unrealised:
Unrealised gains/(losses) - fixed asset investments	7,005	27,837
- aborted deal fees	835	(1,132)
- liquidity funds	(1,412)	(509)
	6,428	26,196
Carried interest credit/(charge) against unrealised capital gains (note 5(c))	40,599	(26,629)
Net unrealised gains	47,027	(433)
Total gains	93,792	109,738

14. Debtors and accrued income

	2018 £'000	2017 £'000
Amounts receivable after one year:
Accrued income on fixed assets	39,531	71,107
Amounts receivable within one year:
Deferred tax recoverable (note 9(c))	104	363
Prepayments and accrued income	50	51
Total amounts receivable within one year	154	414
Total debtors	39,685	71,521

The Directors consider that the carrying amount of debtors approximates their fair value.

15. Liquidity funds

	2018 £'000	2017 £'000
Investments held at fair value through profit or loss:
Opening valuation	155,938	39,590
Purchases at cost	222,882	166,409
Redemptions	(226,578)	(50,700)
Movement in unrealised capital losses	(1,412)	(509)
Movement in accrued income	1,033	1,020
Realised capital gains	1,057	128
Closing valuation	152,920	155,938

16. Movement in net funds

	2018 £'000	2017 £'000
Analysis and reconciliation of net funds:
Change in cash	(489)	(57)
Net funds at 1 January	3,925	3,982
Net funds at 31 December	3,436	3,925
Net funds comprise:
Cash	3,436	3,925

17. Creditors ‑ amounts falling due within one year

	2018 £'000	2017 £'000
Taxation payable	-	3
Accruals	886	1,762
Total creditors	886	1,765

The Directors consider that the carrying amount of creditors approximates their fair value.

18. Bank facility

On 24 August 2011, the Company entered into a £40,000,000 multi‑currency revolving credit standby facility on an unsecured basis. In December 2015, the facility was extended by a further three and a half years to 30 June 2019. In addition, the facility was increased to £80,000,000. Under the facility agreement, the Company is liable to pay interest on any drawn amount at LIBOR plus a margin of 2.25% to 2.50%, dependent on the loan to value ratio. A commitment fee of 0.9% p.a. is liable on any undrawn commitment. The facility was undrawn as at the end of the year. In March 2019, the facility was extended until 30 June 2022 with the option of adding a further £80 million via an 'accordian' facility, subject to the bank's agreement at the time.

19. Financial risk

The following disclosures relating to the risks faced by the Company are provided in accordance with sections 11 and 12 of FRS 102. The reference to investments in this note is in relation to the Company's direct investments in Asper RPP I LP, Asper RPP II LP, Hg 6E LP and the underlying investments in HGT LP, HGT 6 LP, HGT 7 LP, HGT 8 LP, HgCapital Mercury D LP, HGT Mercury 2 LP, HGT Saturn LP and HGT Transition Capital LP as described in note 3 above.

Financial instruments and risk profile
The Company's investment objective is to achieve long‑term capital appreciation by indirectly investing in unquoted companies. It does this through its investments in fund partnerships, mostly in the UK and Europe. Additionally, the Company holds UK Government securities, cash, liquidity funds and items such as debtors and creditors arising directly from its operations. In pursuing its investment objective, the Company is exposed to a variety of risks that could result in either a reduction of the Company's net assets or a reduction in the profits available for distribution by way of dividends. Valuation risk, market risk (comprising currency risk and interest rate risk), liquidity risk and credit risk, and the Directors' approach to the management of them, are described below. The Board and Hg coordinate the Company's risk management. The objectives, policies and processes for managing the risks, and the methods used to manage the risks, that are set out below, have not changed from the previous accounting period.

Valuation risk
The Company's exposure to valuation risk arises mainly from movements in the value of the underlying investments (held through fund partnerships), the majority of which are unquoted. A breakdown of the Company's portfolio is given on page 39 of the full Annual Report and Accounts and a breakdown of the most significant underlying investments is given on page 48 of the full Annual Report and Accounts. In accordance with the Company's accounting policies, the investments in fund limited partnerships are valued by reference to their underlying unquoted investments, which are valued by the Directors following the IPEV Valuation Guidelines. The Company does not hedge against movements in the value of these investments, apart from foreign exchange movements as explained below, though the borrowing arranged to fund these investments is normally denominated in the currency in which the business is operating and valued (see page 93 of the full Annual Report and Accounts). The Company has exposure to interest rate movements, through bank deposits and liquidity funds.

In the opinion of the Directors, the diversified nature of the Company's investments significantly reduces the risks of investing in unquoted companies.

FRS 102 requires the Company to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

• Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).

• Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).

• Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).

The level in the fair value hierarchy, within which the fair value measurement is categorised in its entirety, is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that is a level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.

The determination of what constitutes an 'observable' input requires significant judgement by the Board. The Board considers observable data relating to investments actively traded in organised financial markets, in which case fair value is generally determined by reference to stock exchange quoted market bid prices at the close of business on the balance sheet date, without adjustment for transaction costs necessary to realise the asset.

The following table analyses, within the fair value hierarchy, the fund's financial assets (by class) measured at fair value at 31 December.

	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
Investments held at fair value through profit and loss:
Unquoted investments - Investment in HGT 7 LP	-	-	248,186	248,186
- Investment in HGT LP	-	-	111,544	111,544
- Investment in HGT 8 LP	-	-	93,887	93,887
- Investment in HGT Saturn LP	-	-	66,427	66,427
- Investment in HgCapital Mercury D LP	-	-	38,595	38,595
- Investment in HGT Mercury 2 LP	-	-	37,105	37,105
- Investment in Asper RPP II LP	-	-	20,266	20,266
- Investment in HGT 6 LP	-	-	18,275	18,275
- Investment in HGT Transition Capital LP	-	-	14,962	14,962
- Investment in Asper RPP I LP	-	-	1,766	1,766
- Investment in Hg 6 E LP	-	-	962	962
- Liquidity funds	-	152,920	-	152,920
- Carried interest provision	-	-	(42,312)	(42,312)
- Uninvested capital in limited partnerships	-	-	169	169
As at 31 December 2018	-	152,920	609,832	762,752

	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
Investments held at fair value through profit and loss:
Unquoted investments - Investment in HGT 7 LP	-	-	245,698	245,698
- Investment in HGT 6 LP	-	-	131,901	131,901
- Investment in HGT LP	-	-	98,204	98,204
- Investment in HgCapital Mercury D LP	-	-	59,048	59,048
- Investment in Asper RPP II LP	-	-	16,709	16,709
- Investment in Hg 6 E LP	-	-	8,119	8,119
- Investment in HGT 8 LP	-	-	6,904	6,904
- Investment in HGT Mercury 2 LP	-	-	6,510	6,510
- Investment in Asper RPP I LP	-	-	794	794
- Liquidity funds	-	155,938	-	155,938
- Carried interest provision	-	-	(82,911)	(82,911)
- Uninvested capital in limited partnerships	-	-	429	429
As at 31 December 2017	-	155,938	491,405	647,343

Investments whose values are based on quoted market prices in active markets, and therefore classified within level 1, include government securities and actively traded listed equities. The Company does not adjust the quoted bid price of these investments.

Financial instruments that trade in markets that are not considered to be active, but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs, are classified within level 2. As level 2 investments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non‑transferability, which are generally based on available market information.

Investments classified within level 3 have significant unobservable inputs. Level 3 instruments include private equity and corporate debt securities. As observable prices are not available for these securities, the Board has used valuation techniques to derive the fair value. In respect of unquoted instruments, or where the market for a financial instrument is not active, fair value is established by using recognised valuation methodologies, in accordance with IPEV Valuation Guidelines. Fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm's length transaction.

There were no transfers of assets from level 1 to level 2 or 3, level 2 to level 1 or 3 and level 3 to level 1 or 2.

The following table presents the movement in level 3 investments for the year ended 31 December 2018 by class of financial instrument.

	Total Investments in limited partnerships 2018 £'000
Unquoted investments:
Opening balance	490,976
Purchases	187,338
Realisations at 31 December 2017 valuation	(179,458)
Unrealised appreciation of fixed asset investments	70,208
Movement in carried interest provision	40,599
Closing unrealised valuation of level 3 investments	609,663

Equity price risk

Equity price risk is the risk of a fall in the fair value of the Company's ownership interests (comprising equities and shareholder loans) held by the Company indirectly through its direct investments in fund limited partnerships. The Board revalues each investment twice each year. The Board manages the risks inherent in the Company's investment activities by ensuring full and timely access to relevant information from Hg. The Board meets regularly and at each meeting reviews the trading performance of the principal underlying investments. If there appears to the Board to be a fair value movement in value between regular valuations, it can revalue the investment. The Board also monitors Hg's compliance with the Company's investment objective and investment policy.

Hg's best estimate of the effect on the net assets and total return due to a reasonably possible change in the value of all unquoted securities, with all other variables held constant, is as follows:

Change

£'000

NAV per

Ordinary

Pence

Sensitivity to equity price risk:

Unquoted investments

±10%

±64,919

±173.9

Credit risk
Credit risk is the risk of financial loss in the event that any of the Company's market counterparties fail to fulfil their contractual obligations to the Company. The Company's financial assets (excluding fixed asset investments) that are subject to credit risk, were neither impaired nor overdue at the year‑end. The Company's cash balances were held with the Royal Bank of Scotland International and amounts not required for day‑to‑day use were invested in liquidity funds managed by Royal London Asset Management which are rated AAA by Fitch. Foreign exchange forward contracts and options are held with counterparties which have credit ratings which the Board considers to be adequate. The Board regularly monitors the credit quality and financial position of these market counterparties. The credit quality of the above mentioned financial assets was deemed satisfactory.

Market risk
The fair value of future cash flows of a financial instrument held by the Company may fluctuate due to changes in market prices of comparable businesses. This market risk may comprise: currency risk (see below), interest rate risk and/or equity price risk (see above). The Board of Directors reviews and agrees policies for managing these risks. Hg assesses the exposure to market risk when making each investment decision, and monitors the overall level of market risk across all of the Company's investments on an ongoing basis.

Currency risk and sensitivity
The Company is exposed to currency risk as a result of investing in fund partnerships which invest in companies that operate and are therefore valued in currencies other than sterling. The value of these assets in sterling, being the Company's functional currency, can be significantly influenced by movements in foreign exchange rates. Borrowing raised to fund each acquisition in such companies is normally denominated in the currency in which the business is operating and valued, thus limiting the Company's exposure to the value of its investments, rather than the gross enterprise value. From time to time, the Company is partially hedged against movements in the value of foreign currency against sterling where a movement in exchange rate could affect the value of an investment, as explained below. Hg monitors the Company's exposure to foreign currencies and reports to the Board on a regular basis. The following table illustrates the sensitivity of the revenue and capital return for the year in relation to the Company's year‑end financial exposure to movements in foreign exchange rates against sterling. The rates represent the range of movements against sterling over the current year for the currencies listed.

In the opinion of the Directors, the sensitivity analysis below may not be representative of the year as a whole, since the level of exposure changes as the Company's holdings changes through the purchase and realisation of investments to meet the Company's objectives.

	Revenue return		Capital return
	£'000	NAV per Ordinary share Pence	£'000	NAV per Ordinary share Pence
Highest value against sterling during the year:
Danish krone (8.2009)	5	-	230	0.6
Euro (1.0996)	121	0.3	2,429	6.5
New Zealand dollar (1.8199)	-	-	104	0.3
Norwegian krone (10.5910)	-	-	5,924	15.9
Swedish krona (11.0099)	-	-	-	-
Swiss franc (1.2398)	-	-	-	-
US dollar (1.2525)	51	0.1	1,893	5.1
Potential gain if sterling depreciates	177	0.4	10,580	28.4
Lowest value against sterling during the year:
Danish krone (8.6312)	(14)	-	(613)	(1.6)
Euro (1.1589)	(355)	(1.0)	(7,141)	(19.1)
New Zealand dollar (2.0370)	-	-	(161)	(0.4)
Norwegian krone (11.1601)	-	-	(1,692)	(4.5)
Swedish krona (12.1385)	-	-	-	-
Swiss franc (1.3817)	-	-	-	-
US dollar (1.4330)	(334)	(0.9)	(12,469)	(33.4)
Value at risk if sterling appreciates	(703)	(1.9)	(22,076)	(59.0)

At 31 December 2018, the following rates were applied to convert foreign denominated assets into sterling: Danish krone (8.3140); euro (1.1141); New Zealand dollar (1.8993); Norwegian krone (11.0284); Swedish krona (11.2916); Swiss franc (1.2555); and US dollar (1.2736).

Hedging
At times, the Company uses derivative financial instruments such as forward foreign currency contracts and option contracts to manage the currency risks associated with its underlying investment activities. The contracts entered into by the Company are denominated in the foreign currency of the geographic areas in which the Company has significant exposure against its reporting currency. The contracts are used for hedging and the fair values thereof are recorded in the balance sheet as investments held at fair value. Unrealised gains and losses are taken to capital reserves. At the balance sheet date, there were no outstanding derivative financial instruments (2017: nil).

The Company does not trade in derivatives but may hold them from time to time to hedge specific exposures with maturities designed to match the exposures they are hedging. It is the intention to hold both the financial investments giving rise to the exposure and the derivatives hedging them until maturity and therefore no net gain or loss is expected to be realised.

Derivatives are held at fair value, which represents the replacement cost of the instruments at the balance sheet date. Movements in the fair value of derivatives are included in the income statement. The Company does not adopt hedge accounting in the financial statements.

Interest rate risk and sensitivity
The Company has exposure to interest rate movements as this may affect the fair value of funds awaiting investment, interest receivable on liquid assets and managed liquidity funds, and interest payable on borrowings. The Company has little immediate direct exposure to interest rates on its fixed assets, as the majority of the underlying investments are fixed rate loans or equity shares that do not pay interest. Therefore, and given that the Company has no borrowings and maintains low cash levels, the Company's revenue return is not materially affected by changes in interest rates.

However, funds awaiting investment have been invested in managed liquidity funds and, as stated above, their valuation is affected by movements in interest rates. The sensitivity of the capital return of the Company to movements in interest rates has been based on the UK base rate. With all other variables constant, a 0.25% decrease in the UK base rate should increase the capital return in a full year by about £400,000, with a corresponding decrease if the UK base rate were to increase by 0.25%. In the opinion of the Directors, the above sensitivity analyses may not be representative of the year as a whole, since the level of exposure changes as investments are made and realised throughout the year.

Liquidity risk
Investments in unquoted companies, which form the majority of the Company's investments, may not be as readily realisable as investments in quoted companies, which might result in the Company having difficulty in meeting its obligations. Liquidity risk is currently not significant as 19% of the Company's net assets at the year‑end are liquid resources and, in addition, the Company has an £80 million multi‑currency undrawn bank facility available. The Board gives guidance to Hg as to the maximum amount of the Company's resources that should be invested in any one company. For further details refer to the Company's Investment Policy on page 14 of the full Annual Report and Accounts.

Currency and interest rate exposure
The Company's financial assets that are subject to currency and interest rate risk are analysed below:

	2018					2017
	Fixed and floating rate £'000		Non‑ interest‑ bearing £'000	Total £'000	Total %		Fixed and floating rate £'000	Non‑ interest‑ bearing £'000	Total £'000	Total %
Sterling		156,525	177,523	334,048	41.5		160,292	182,885	343,177	47.5
Euro		-	193,686	193,686	24.0		-	165,980	165,980	23.0
Norwegian krone		-	143,429	143,429	17.8		-	97,009	97,009	13.4
US dollar		-	115,097	115,097	14.3		-	107,724	107,724	14.9
Danish krone		-	17,076	17,076	2.1		-	997	997	0.1
New Zealand dollar		-	2,383	2,383	0.3		-	3,335	3,335	0.5
Swedish krona		-	-	-	-		-	3,991	3,991	0.6
Swiss franc		-	-	-	-		-	162	162	-
Total	156,525		649,194	805,719	100.0		160,292	562,083	722,375	100.0

Short‑term debtors and creditors, which are excluded, are mostly denominated in sterling, the functional currency of the Company. The fixed and floating rate assets consisted of cash and liquidity funds, of which the underlying investments are a combination of fixed and floating rate. The non‑interest‑bearing assets represent the investments held in fund limited partnerships, net of the provision for carried interest.

Capital management policies and procedures
The Company's capital management objectives are to ensure that it will be able to finance its business as a going concern and to maximise the revenue and capital return to its equity shareholders.

The Company's capital at 31 December comprised:

	2018 £'000	2017 £'000
Equity:
Equity share capital	9,331	9,331
Share premium	120,368	120,368
Capital redemption reserve	1,248	1,248
Retained earnings and other reserves	674,040	590,077
Total capital	804,987	721,024

With the assistance of Hg, the Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review covers:

• the projected level of liquid funds (including access to bank facilities);

• the desirability of buying back equity shares, either for cancellation or to hold in treasury, balancing the effect (if any) this may have on the discount at which shares in the Company are trading against the advantages of retaining cash for investment;

• the opportunity to raise funds by an issue of equity shares; and

• the extent to which revenue in excess of that which is required to be distributed should be retained, whilst maintaining its status under Section 1158 of the CTA 2010.

The Company's objectives, policies and processes for managing capital are unchanged from the preceding accounting period.

20. Called‑up share capital

	2018		2017
	No. '000	£'000	No. '000	£'000
Ordinary shares of 25p each:
Allotted, called‑up and fully paid:
At 1 January	37,325	9,331	37,325	9,331
At 31 December	37,325	9,331	37,325	9,331
Total called‑up share capital	37,325	9,331	37,325	9,331

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

21. Share premium account and reserves

	Share premium account £'000	Capital redemption reserve £'000	Capital reserve unrealised £'000	Capital reserve realised £'000	Revenue reserve £'000
As at 1 January 2018	120,368	1,248	79,256	476,763	34,058
Transfer on disposal of investments	-	-	(63,203)	63,203	-
(Losses)/gains on liquidity funds	-	-	(1,412)	1,057	-
Gains/(losses) on aborted deal fees	-	-	835	(1,939)	-
Net gain on sale of fixed asset investments	-	-	-	39,467	-
Net movement in unrealised appreciation of fixed asset investments	-	-	70,208	-	-
Dividend paid	-	-	-	-	(17,169)
Net return for the year after taxation	-	-	-	-	13,665
Net loans recovered from General Partners	-	-	(6,325)	-	-
Carried interest	-	-	40,599	(55,023)	-
As at 31 December 2018	120,368	1,248	119,958	523,528	30,554

22. Commitment in fund partnerships and contingent liabilities

Fund	Original commitment £'000	Outstanding at 31 Dec
Fund	Original commitment £'000	2018 £'000	2017 £'000
HGT 8 LP¹	350,000	247,905	341,084
HGT Saturn LP¹	150,000	92,411	-
HGT Transition Capital LP¹	75,000	59,460	-
HGT Mercury 2 LP¹	80,000	49,774	73,306
Asper RPP II LP	35,903²	6,607³	8,354³
HGT 7 LP	200,000	5,451	-
HGT 6 LP²	285,029	3,750	17,174
HgCapital Mercury D LP²	60,000	3,228	6,182
HGT LP⁴	120,000	1,261	1,261
Asper RPP I LP	19,424⁵	749⁶	796⁶
Hg 6 E LP²	15,000	197	940
Total outstanding commitments		470,793	449,097
¹ The Company has the benefit of an opt‑out provision in connection with its commitments to invest alongside Hg8, Hg Mercury 2, and in Hg Saturn and Transition Capital, allowing it to opt out of its obligation to fund draw‑downs under its commitments, without penalty, where certain conditions exist. ² Sterling equivalent of €40,000,000. ³ Sterling equivalent of €7,361,000 (2017: €9,412,000). ⁴ 21.4% of the original £120 million commitment to the HgCapital 5 Fund, 5.0% of the original £300 million to the HgCapital 6 Fund and 7.6% of the £60 million to the Mercury 1 Fund, have subsequently been cancelled, as the Manager deemed that it was unlikely to be required. ⁵ Sterling equivalent of €21,640,000. ⁶Sterling equivalent of €834,000 (2017: €897,000).

23. Key agreements, related party transactions and ultimate controlling party

Hg acts as Manager of the Company through a management agreement and indirectly participates through fund limited partnership agreements as the general partners and, alongside a number of Hg's executives (past and present), as the founder partners of the fund partnerships in which the Company invests. In addition, Hg acts as Administrator of the Company.

The Company has no ultimate controlling party.

The Company's related parties are its Directors. Fees paid to the Company's board are disclosed in the Directors' Remuneration Report on page 119 of the full Annual Report and Accounts and employer's National Insurance contributions are disclosed in note 6 (a) above. There are no other identified related parties at the year‑end, and as of 8 March 2019.

24. Post Balance Sheet Events

There were no post balance sheet events

Independent auditor's report

to the members of HgCapital Trust plc

The Company's financial statements for the year ended 31 December 2018 have been audited by Grant Thornton LLP. The text of the Auditor's Report can be found on pages 97 to 101 of the full Annual Report and Accounts.

Extract from full Annual Report and Accounts

The Directors present the Annual Report and Accounts of HgCapital Trust plc (the 'Company') (Reg. No. 1525583) for the year ended 31 December 2018.

The Corporate Governance Statement forms part of this Directors' Report. Information about future developments and important events since the year end are included in the Chairman's statement on pages 4 to 13.

Results and dividend

The total return after taxation for the year, was £101,132,000 (2017: £128,409,000) of which the revenue return was £13,665,000 (2017: revenue return of £20,043,000).

Following payment of an interim dividend of 16 pence per Ordinary share in October 2018, the Directors recommend the payment of a final dividend of 30 pence per Ordinary share for the year ended 31 December 2018, making a total of 46 pence (2017: 46 pence). Subject to the approval of this dividend at the forthcoming Annual General Meeting ('AGM'), it will be paid on 30 April 2019 to shareholders on the register of members at the close of business on 22 March 2019.

Stewardship

Our Manager, Hg, seeks to invest the Company's funds in businesses that are well managed, with high standards of corporate governance.

The Directors of the Company believe this creates the proper conditions to enhance long‑term shareholder value and to achieve a high level of corporate performance.

The exercise of voting rights attached to the Company's underlying investments lies with Hg.

Hg has a policy of active portfolio management and ensures that significant time and resource is dedicated to every investment, with Hg executives and Operating Partners typically being appointed to investee company boards, in order to ensure the application of active, results‑orientated corporate governance. Further information regarding the stewardship of investee companies by Hg can be found in their review on pages 19 to 72 of the full Annual Report and Accounts.

Greenhouse gas emissions

The Company has no greenhouse gas emissions to report from the operations of the Company, nor does it have responsibility for any other emissions producing sources reportable under the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013.

Financial Instruments

The Company had no outstanding derivative contracts at 31 December 2018. Note 19 to the financial statements describes the financial risk management objectives and the Company's exposures to credit risk and liquidity risk.

Annual General Meeting ('AGM')

The AGM of the Company, which will include a presentation by Hg, will be held at the offices of Hg, 2 More London Riverside, London SE1 2AP on Tuesday 23 April 2019 at 11.00 a.m. Light refreshments will be available from 10.30 a.m. Notice of the AGM is given on pages 132 to 135 of the full Annual Report and Accounts. The Board is of the opinion that the passing of all resolutions being put to the AGM would be in the best interests of the Company and its shareholders.

The Directors therefore recommend that shareholders vote in favour of resolutions 1 to 15, as set out in the Notice of Meeting.

Directors' responsibility statement

in respect of the annual report and accounts

The Directors are responsible for preparing the Annual Report and Accounts in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law) including FRS 102, "The Financial Reporting Standard applicable in the UK and Ireland".

Under company law the Directors must not approve the financial statements, unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

In preparing these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and accounting estimates that are reasonable and prudent;

• state whether applicable UK Accounting Standards have been followed;

• assess the Company's ability to continue as a going concern, disclosing, as applicable, matters relating to going concern; and

• use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006.

They are responsible for such internal control as they determine necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statements that complies with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility statement

We confirm that to the best of our knowledge:

• the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company taken as a whole; and

• the Strategic Report and Hg's Review include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

We consider the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and the information provided to shareholders is sufficient to allow them to assess the Company's position, performance, business model and strategy.

On behalf of the Board

Roger Mountford, Chairman

8 March 2019

Dividend

The final dividend proposed in respect of the year ended 31 December 2018 is 30 pence per share.

Ex-dividend date (date from which shares are transferred without dividend)	21 March 2019
Record date (last date for registering transfers to receive the dividend)	22 March 2019
Last date for registering DRIP instructions (see below)	5 April 2019
Dividend payment date	30 April 2019

The final dividend is subject to approval of the shareholders at the forthcoming AGM.

Directors:

Roger Mountford

Richard Brooman

Peter Dunscombe

Jim Strang

Guy Wakeley

Anne West

National Storage Mechanism

A copy of the Annual Report and Accounts will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at: www.morningstar.co.uk/uk/nsm

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

FR LLFEDVVITIIA

Companies

HGCapital Trust (HGT)

Friday, 22nd November 2024

COMPANIES COVERED:

GAW AMGO ITH

Games Workshop shares jump in early trade as interim results are on track to impress, and Ithaca Energy continues its march higher off yesterday’s dividend news but Amigo slips as options for the future remain limited.

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UK 100

Latest directors dealings

41 minutes ago Wizz Air Holdings
52 minutes ago Ondine Biomedical Inc. NPV (CDI)
2 hours ago Streaks Gaming
15 hours ago Alphawave IP Group
15 hours ago WH Smith

All directors dealings today