Final Results - Part 2

HG Capital Trust PLC 18 March 2008 Directors' report The Directors present the annual report and financial statements of the Company for the year ended 31 December 2007. BUSINESS REVIEW Background The business review has been prepared in accordance with Section 234ZZB of the Companies Act 1985. The purpose of the business review is to provide an overview of the business of the Company by: â€¢ Analysing development and performance using appropriate key performance indicators (KPIs) â€¢ Outlining the principal risks and uncertainties affecting the Company â€¢ Describing how the Company manages these risks â€¢ Explaining the future business plans of the Company Principal activity and business review The principal activity of the Company is to operate as an investment trust providing access to a diversified portfolio of private equity investments. A review of the business for the year is given in the Chairman's statement and in the Manager's review. Status of the Company HMRC has accepted the Company as an investment trust for the purposes of section 842 of the Income and Corporation Taxes Act 1988 (ICTA) for the year ended 31 December 2006. In the opinion of the Directors, the Company has conducted its affairs so as to enable it to continue to maintain acceptance as an investment trust since that date. It is the Company's intention to continue to seek authorisation under section 842 of ICTA. The Company is not a close company within the meaning of the provisions of ICTA. The Company is an investment company within the meaning of section 266 of the Companies Act 1985. The Company's shares are eligible investments within the stocks and shares component of an Individual Savings Account (ISA). Going concern The Company is in a position to meet all of its liabilities from its liquid assets and consequently the accounts of the Company have been prepared on a going concern basis. Business and strategy The objective of the Company is to provide shareholders with long-term capital appreciation in excess of the FTSE All-Share Index by investing in unquoted companies. The strategy of the Manager is to maximise returns from mid-market private equity through sector specialisation and proactive work with portfolio companies. It concentrates on buyouts in Europe with enterprise values between Â£50 million and Â£500 million. No material change will be made to the investment policy without shareholder approval. Investment Policy Investments â€¢ The principal policy of the Company is to invest in a portfolio of unlisted companies that are expected to grow organically or by acquisition. â€¢ The Company's maximum exposure to unlisted investments is therefore 100% of gross assets. At the time of acquisition no single investment will exceed a maximum of 15% of gross assets. â€¢ The Company may invest in assets other than companies where the Manager believes that its expertise in private equity investment can be profitably applied. â€¢ The Company may invest in unlisted funds, whether managed by the Company's Manager or not, up to a maximum at the time of acquisition of 15% of gross assets. â€¢ The Company may invest in other listed investment companies, including investment trusts, up to a maximum at the time of acquisition of 15% of gross assets. â€¢ The Company invests its liquid funds in government or corporate securities, or in bank deposits, in each case with an investment grade rating, or in managed funds with a similar investment policy. Range and diversification â€¢ The Company invests primarily in companies whose operations are headquartered or substantially based in or which serve markets in Europe. â€¢ The Company invests in companies operating in a range of countries, but there is no policy of making allocations to specific countries or markets. â€¢ The Trust invests across a range of sectors, but there is no policy of making allocations to sectors. Gearing â€¢ Underlying investments or funds are typically leveraged to enhance value creation, but it is impractical to set a maximum for such gearing. â€¢ The Company may over-commit to invest in underlying assets in order to maintain the proportion of gross assets that are invested at any time. â€¢ The Company may borrow against its portfolio. Hedging â€¢ The Company may use derivatives to hedge its exposure to interest rates, currencies, equity markets or specific investments. Borrowing facility The Company has a Â£25 million borrowing facility which it may use from time to time to exploit investment opportunities. The Board regularly reviews cash flow and the use of gearing. Performance In the year to 31 December 2007, the Company's net asset value per share (including dividends re-invested) increased by 30.0%. This compares with a rise in the FTSE All-Share Index (total return) of 5.3%. The Company's ordinary share price increased by 8% on a total return basis. Results and dividend The total return for the Company is set out in the Income statement. The total return for the year, after taxation, was Â£55,208,000 (2006: Â£33,167,000) of which Â£7,446,000 is revenue return (2006: Â£4,519,000). The Directors recommend the payment of a final dividend of 25p per ordinary share for the year ended 31 December 2007 (2006: 14.0p). Subject to approval of this dividend at the forthcoming Annual General Meeting (AGM), it will be paid on 12 May 2008 to shareholders on the register of members at the close of business on 28 March 2008. Key performance indicators Each Board meeting conducts a detailed review of the portfolio and reviews a number of indices and ratios to understand the impact on the Company's performance of the individual portfolio holdings. The key performance indicators (KPIs) used to measure the progress and performance of the Company over time and which are comparable to those reported by other investment trusts include net asset value per share, share price, earnings per share, average monthly trading volumes and cash flow. The Directors recognise that it is in the long-term interest of shareholders that shares do not trade at a significant discount to the prevailing NAV and they also monitor the Company's discount or premium regularly. Principal risks The key risks faced by the Company are set out below. The Board regularly reviews and agrees policies for managing each risk, as summarised below. Performance risk The Board is responsible for deciding the investment strategy to fulfil the Company's objectives and for monitoring the performance of the Manager. An inappropriate strategy may lead to poor performance. To manage this risk the Manager provides an explanation of all investment decisions and the rationale for the composition of the investment portfolio. The Board monitors and maintains an adequate spread of investments, based on the diversification requirements inherent in the Company's investment policy, in order to minimise the risks associated with particular countries or factors specific to particular sectors. Income/dividend risk The amount of dividends and future dividend levels will depend on the income received from the Company's underlying portfolio. Regulatory risk The Company operates as an investment trust in accordance with section 842 of ICTA. As such, the Company is exempt from capital gains tax on the profits realised from the sale of its investments. 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 section 842 are not breached. The results are reported to the Board at each meeting. Operational risk In common with most other investment trust companies, the Company has no employees. The Company therefore relies upon the services provided by third parties and is dependent upon the control systems of the Manager and the Company's other service providers. The security, for example, 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 an assessment of risks together with procedures to mitigate such risks, is prepared by the Manager and reviewed by the Audit and Valuation Committee twice a year. Financial risks The Company's investment activities expose it to a variety of financial risks that include valuation risk, liquidity risk, market price risk, foreign exchange risk and interest rate risk. Further details are disclosed in note 15, together with a summary of the policies for managing these risks. Liquidity risk The Company, by the very nature of its investment objective, invests in unquoted companies, and liquidity in their securities can be constrained, 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. FUTURE PROSPECTS The Board's main focus is on the achievement of capital growth and the future of the Company is dependent upon the success of the investment strategy. The outlook for the Company is discussed in the Chairman's statement and the Manager's review. DERIVATIVE TRANSACTIONS The Company has not entered into any derivative transactions during the year. DIRECTORS The Board undertook a review of committee membership and the resultant position is detailed in the Corporate Governance and Directors' responsibilities report. In accordance with the Articles of Association, Mr Brooke and Mr Murison having most recently been re-elected in 2005 will retire by rotation at the Company's AGM and, being eligible, offer themselves for re-election. Mr Brooman will be standing for election at this year's AGM, having been appointed to the Board in October 2007. The Board has noted the recommendation in the 2006 Combined Code that non-executive directors serving longer than nine years since election should be subject to annual re-election. Accordingly, Mr Amies and Mr Gale will offer themselves for re-election at this year's Annual General Meeting. The Board has considered all the retiring Directors' performance as part of its evaluation process and recommends that all be proposed for re-election, based on the following assessment of their contribution to the operation of the Board. Mr P Brooke He has many years' experience in financial markets and in management and board level decision-making within publicly listed companies. He brings to Board discussions particular expertise in corporate governance, business strategy and financial management. The Board recommends that Mr Brooke be re-elected. Mr A Murison Andrew Murison has experience both as a director and manager of companies funded by private equity, and as a portfolio investor in unlisted equity, which inform board discussions. He also brings current experience on the boards of two other investment trusts. The Board recommends that Mr Murison be re-elected. Mr T Amies A chartered accountant, he has over thirty years' experience working in the City and currently chairs the Company's Audit & Valuation Committee. It is intended that Mr Brooman will succeed Mr Amies as chairman of the Committee on 1 July this year, but the Board believes that Mr Amies will continue to be an effective member of the Board and Audit & Valuation Committee, and his re-election is recommended to shareholders. Mr P Gale Peter Gale is professionally responsible for the selection and monitoring of a wide range of private equity managers on behalf of a major institutional investor. His extensive knowledge of the private equity industry and of trends in this market is of great value to the Board, especially when considering the strategy of the Company and of the Manager. The Board recommends that Mr P Gale be re-elected. Mr R Brooman He is a chartered accountant with long experience as a finance director of substantial publicly listed businesses and on the board of another investment trust. It is intended that Mr Brooman will be appointed Chairman of the Company's Audit and Valuation Committee on 1 July 2008. Accordingly, the Board proposes and recommends Richard Brooman for election at this year's Annual General Meeting. None of the Directors has a service contract with the Company. Directors' interests The interests of those persons who were Directors at the end of the year in the ordinary shares of the Company were as follows (all holdings are beneficial unless stated otherwise): 31 December 1 January 2007 2007* T J Amies 30,000 30,000 P L Brooke 2,000 - R J Brooman 1,200 - P Gale 9,996 4,000 R P Mountford 10,000 10,000 A H Murison 1,281 - *or date of appointment, if later No notification of any change in the above interests has been received from 31 December 2007 to the date of this report. SUBSTANTIAL INTERESTS The Company is aware that the following shareholders had an interest in 3% or more of the voting rights of the Company on 17 March 2008 Ordinary shares % of voting rights Hg Investment Managers Ltd* 1,337,063 6.4 Hg Pooled Management Ltd** 1,019,619 4.0 East Riding Pension Fund 1,750,000 6.9 The Scottish Investment Trust plc 1,200,000 4.8 Oxfordshire County Council 1,300,000 5.2 Legal & General Investment Managers Ltd 1,026,903 4.1 * Held by HgCapital staff ** Managed on behalf of RW SPLP LP, where the beneficial owner is the BBC Pension Trust Limited Fund RW The Company is not aware that any other shareholder had an interest of 3% or more in the Company's ordinary share capital as at 17 March 2008. INVESTMENT MANAGEMENT AND ADMINISTRATION Under the management arrangements implemented in May 2003, the Company's assets, excluding cash and government securities, are held in HGT Limited Partnership which is managed by Hg Pooled Management Ltd (HgCapital). At the time of entering the new management agreement a new incentive scheme was introduced to align the Manager's remuneration more closely with the performance of the Company. A management fee of 1.5% per annum of NAV, excluding investments in other collective investment funds, is payable. In addition, the Manager is entitled to a carried interest in which the executives of HgCapital participate in order to provide an incentive to deliver good performance. This arrangement allows for a carried interest of 20% of the excess annual growth in average NAV over an 8% preferred return, based on a three-year rolling average NAV, calculated half-yearly and aggregated with any dividends declared by the Company in respect of that financial year. The first carried interest under this arrangement accrued in the year ended 31 December 2005. The management agreement may be terminated on giving two years' notice and such notice shall be deemed to be given at the end of the half-year in which notice is served. No penalty on termination is payable by the Company in the event that two years' notice is given to HgCapital, during which period HgCapital would receive a management fee calculated on the basis of the value of assets remaining under its management and not on the entire net assets of the Company. The Company has no obligation to pay any further fees in respect of management of the cash portfolio by Hg Investment Managers Limited as this will be covered by the Manager's fees. The Board has agreed that the Company will not invest more than 15% of its gross assets in other listed investment companies, including listed investment trusts. HgCapital has been appointed as secretary and administrator of the Company for a fee equal to 0.1% of NAV. The Bank of New York Europe Limited (BNYE) is the custodian of the Company's assets and its fees and expenses are met by HgCapital. Continued appointment of the Manager The Board has concluded that it is in shareholders' interests that HgCapital should continue as Manager of the Company on the existing terms. The Board considers the arrangements for the provision of investment management and other services to the Company on an ongoing basis and a formal review is conducted annually. As part of this review the Board considered the quality and continuity of the Manager's personnel, succession planning, sector and geographic coverage, investment process and the results achieved to date. The Board also considered the Manager's ongoing commitment to the promotion of the Company's shares. The principal contents of the agreement with the Manager have been set out in the previous section. Having considered the terms of this agreement and those of other private equity investment trust companies, the Board considers that the terms of the agreement represent an appropriate balance between cost and incentivisation of the Manager. Directors' remuneration report An ordinary resolution to approve this report will be put to members at the forthcoming AGM. No person's entitlement to remuneration is conditional upon the resolution being passed. VOTING POLICY The exercise of voting rights attached to the Company's portfolio has been delegated to HgCapital, whose policy is to participate actively as a shareholder, reviewing each case separately. SOCIALLY RESPONSIBLE INVESTMENT The Company has committed to invest in the Hg Renewable Power Partners fund, which the Board believes offers a profitable route for the Company to participate in efforts to combat climate change. The Manager addresses other investment opportunities on a sector basis. The sectors chosen do not generally raise ethical issues. DONATIONS The Company made no political or charitable donations during the period. PAYMENT OF SUPPLIERS It is the general policy of the Company to pay for the supply of goods and services within thirty days of the date of any invoice. The Company has no trade creditors. ANNUAL GENERAL MEETING The AGM of the Company, followed by a presentation by the Manager, with light refreshments available, will be held at the offices of HgCapital, 2 More London Riverside, London SE1 2AP on Tuesday 6 May 2008 at 12 noon. Authority to buy back shares The Directors' authority to buy back shares was renewed at last year's AGM and will expire on 24 October 2008. Although no shares were bought back during the year, the Directors are proposing to renew the authority at the forthcoming AGM, and are seeking authority to purchase up to 3,775,000 ordinary shares (being 14.99% of the issued share capital) as set out in Resolution 11. This authority, unless renewed, will expire on 24 October 2009. Purchases of ordinary shares will only be made through the market for cash at prices below the prevailing NAV per ordinary share. Under the Listing Rules of the Financial Services Authority, the maximum price that can be paid is 5% above the average of the market values of the ordinary shares for the five business days before the purchase is made. The minimum price that may be paid will be 25.0p per share (being the nominal value of a share). Any shares purchased under this authority will be cancelled. In making purchases, the Company will deal only with member firms of the London Stock Exchange. Authority of Directors to allot shares Resolutions 12 and 13 to be proposed at the AGM are similar to the authorities given to the Directors at last year's AGM. By law, directors are not permitted to allot new shares (or to grant rights over shares) unless authorised to do so by shareholders. Resolution 12 gives the Directors, for the period until the conclusion of the AGM in 2009, the necessary authority to allot securities up to an aggregate nominal amount of Â£314,800, which is equivalent to 1,259,300 ordinary shares of 25.0p each, or approximately 5% of the issued ordinary share capital. Resolution 13 empowers the Directors until the conclusion of the AGM in 2009 or, if earlier, the expiry of fifteen months from the date on which the resolution is passed, to allot securities for cash, otherwise than to existing shareholders on a pro rata basis, up to an aggregate nominal amount of Â£314,800, which is equivalent to 1,259,300 ordinary shares or approximately 5% of the issued share capital. In no circumstances would the Directors use this authority to dilute the interests of existing shareholders by issuing shares at a price that is less than the NAV attributable to the shares at the time of issue. Directors' fees Resolution 14, to be proposed at the AGM, will increase the total available for payment of Directors' fees, to take account of increases in fees and the enlargement of the Board. Amendment to Articles Company law and best practice have undergone a number of changes since the current Articles of Association of the Company were adopted in April 2000, particularly since January 2007 when the staged implementation of the Companies Act 2006 (the '2006 Act') commenced. The Board considers that it is prudent to replace the Company's existing Articles with new Articles that take account of those developments (the 'New Articles'). A summary of the material changes brought about by the proposed adoption of the New Articles is set out in the Appendix to the Notice of Annual General Meeting. Other changes, which are of a minor, technical or clarifying nature have not been noted in the Appendix. Further amendments to the New Articles may be required in the coming years as a result of the implementation of the 2006 Act. The 2006 Act represents a major reform of UK companies' legislation and is being brought into force in stages, with full implementation scheduled by October 2009. At this year's Annual General Meeting the Company proposes to adopt provisions which reflect changes in the law brought about by the 2006 Act in respect of, among other things, electronic communications, notice periods for meetings, proxy voting and directors' conflicts of interest. Over the course of the next year the Company intends to conduct a further review of the New Articles in order to identify any additional amendments that might be necessary following the full implementation of the 2006 Act by October 2009. It is the Board's intention that any further amendments will be put to shareholders at the 2009 AGM. A draft copy of the New Articles will be available for inspection from the date of this report until the conclusion of the Annual General Meeting during normal business hours on any weekday at the registered office of the Company. The New Articles will also be available for inspection at any time until the conclusion of the Annual General Meeting on the Company's website (www.hgcapitaltrust.com) and shall be available at the venue of the Annual General Meeting from 15 minutes prior to and until the conclusion of the meeting. AUDITOR Ernst & Young LLP has indicated its willingness to continue in office as independent auditor and resolutions proposing its re-appointment and authorising the Directors to determine its remuneration will be submitted at the AGM. Statement as to disclosure of information to auditors The Directors who held office at the date of approval of this Directors' report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's auditor is unaware; and each Director has taken all the steps that ought to have been taken as a Director to make himself aware of any relevant audit information and to establish that the Company's auditor is aware of that information. By order of the Board Hg Pooled Management Ltd Secretary 17 March 2008 Directors' remuneration report The Board presents the Directors' remuneration report for the year ended 31 December 2007. The Board has prepared this report in accordance with the requirements of Schedule 7A to the Companies Act 1985, and an ordinary resolution for the approval of this report will be put to members at the forthcoming Annual General Meeting. Directors' Remuneration Committee The Directors' Remuneration Committee consists of Roger Mountford (Chairman), Timothy Amies, Piers Brooke, Richard Brooman, Peter Gale and Andrew Murison and meets when necessary to consider any change in the Directors' remuneration policy. The Company has no employees other than its Directors, who are all non-executive and independent of the management company. The secretary (whose duties are set out elsewhere in this report, and who is not appointed by the Directors' Remuneration Committee) provides a comparison of the Directors' remuneration with other investment trusts of similar size and/or mandate. This comparison, together with consideration of any change in non-executive Directors' responsibilities, is used to review whether any change in remuneration is appropriate. No element of the Directors' remuneration is performance related. The Company has not awarded any share options or long-term performance incentives to any of the Directors. None of the Directors has a service contract with the Company. The terms of their appointments are detailed in a letter sent to them when they join the Board. These letters are available for inspection at the registered office of the Company. Director Remuneration 2007 2006 Â£ Â£ Timothy Amies (Chairman of the Audit Committee) 27,000 20,500 Piers Brooke 22,500 18,500 Richard Brooman (appointed 11/10/07) 5,600 - Peter Gale 22,500 18,500 Roger Mountford (Chairman) 32,500 27,500 Andrew Murison 22,500 18,500 The information in this table and in the paragraphs below has been audited. With effect from 1 July 2007 the remuneration of the Chairman was increased from Â£30,000 to Â£35,000 per annum, and that of the Chairman of the Audit Committee from Â£24,000 to Â£30,000. Remuneration of the other Board members was increased from Â£20,000 to Â£25,000 per annum. Remuneration is reviewed on an annual basis. The Company's Articles of Association limit the aggregate remuneration of the Directors to Â£150,000 per annum. The Board will seek to increase this at this year's AGM, to take account of the increases in fees and the enlargement of the Board. None of the Directors receives any non-cash benefits or pension entitlements. Compensation for loss of office No past Director has been compensated for loss of office. Retirement of Directors All of the Company's Directors are subject to retirement by rotation in accordance with the Company's Articles of Association. By order of the Board Hg Pooled Management Ltd Secretary 17 March 2008 Corporate governance and Directors' responsibilities The Company is committed to high standards of corporate governance. The Board has put in place a framework for corporate governance which it believes is suitable for an investment trust and which enables the Company to comply with the 2006 Combined Code on Corporate Governance (the 'Combined Code'). The Board has made the appropriate disclosures in the annual report to ensure the Company meets its continuing obligations under the Financial Services Authority, Investment Entities (Listing Rules and Conduct of Business) Instrument 2003. The Board considers that the Company has complied with the provisions contained within Section 1 of the Combined Code 2006 throughout this accounting period (except as described below), and this statement describes how the relevant principles of governance are applied to the Company. The Board The Board consists of six non-executive Directors all of whom the Company deems to be independent of the Company's Manager. In the Board's opinion Mr Amies continues to qualify as an independent Director despite his length of service, as he is independent of the Manager and free from any business or other relationships that could materially interfere with the exercise of his judgment. For the same reasons and having considered Mr Gale's position as a senior employee of Gartmore, a shareholder of the Company, the Board considers him to be independent. Both Mr Gale and Mr Brooke are non-executive directors of Lothbury Property Trust plc. Their fellow Directors consider that each demonstrates that they are independent in character and judgment and that this common directorship of another company does not impede their independence. The Directors' biographies highlight their wide range of business experience. The Board does not feel that it would be appropriate to adopt a policy whereby Directors serve for a limited period, as, with a private equity portfolio, historical knowledge is useful. The structure of the Board is such that it is considered unnecessary to identify a senior non-executive Director other than the Deputy Chairman. The Board is supplied in a timely manner with information in a form and of a quality appropriate to enable it to discharge its duties. Strategic issues and all operational matters of a material nature are determined by the Board. The Directors retire by rotation at every third Annual General Meeting (AGM), except for Directors who have served for longer than nine years, who stand for re-election annually. Any Directors appointed to the Board since the previous AGM also retire and stand for election. Accordingly, Mr Brooke and Mr Murison are being proposed for re-election at this year's AGM. Mr Gale and Mr Amies were both appointed on 1 May 1991. The Combined Code 2006 recommends that any non-executive director serving for longer than nine years be subject to annual re-election. Therefore Mr Gale and Mr Amies will stand for annual re-election at this year's AGM. Mr Brooman will be standing for election to the Board, having been appointed in October 2007. An external search consultancy was used to identify a suitable candidate. The Board's recommendations that all should be re-elected are set out earlier in this document. The Board meets at least five times a year and there is regular contact with HgCapital between these meetings. The Directors also have access to the advice and services of the secretary, who is responsible to the Board for ensuring that Board procedures are followed and that applicable rules and regulations are complied with. Where necessary, in the furtherance of their duties, the Directors may seek independent professional advice at the expense of the Company. The Board has responsibility for ensuring that the Company keeps proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and enable it to ensure that the financial statements comply with the Companies Act 1985. The Board is also responsible for safeguarding the assets of the Company and for taking reasonable steps for the prevention and detection of fraud and other irregularities. Finally, it is the Board's responsibility to present a balanced and understandable assessment of the Company's position in all public communications. As set out in last year's report, the Board has considered its long term succession planning and has appointed Mr Brooman. The Company has maintained appropriate Directors' Liability Insurance cover throughout the year. Board/Audit and Valuation Committee/Directors' ongoing evaluation The Board formally reviews its performance on a regular basis, together with that of the Audit and Valuation Committee. An appraisal system has been agreed by the Board for evaluation on a regular basis of the Board, its committees and the individual Directors, including the Chairman. The evaluation for the year ended 31 December 2007 has been carried out. This took the form of a detailed questionnaire followed by discussions to identify how the effectiveness of the Board's activities, including its committees, policies or processes might be improved. The results of the evaluation process were presented to and discussed by the Board and it was agreed that the current composition of the Board and its committees reflects a suitable mix of skills and experience, that the Board was functioning effectively, and that this would be augmented by the appointment of Mr Brooman. The Board is satisfied that collectively the members of the Audit and Valuation Committee have a sufficient level of recent and relevant financial experience. Delegation of responsibilities The Board has delegated a number of areas of responsibility, outlined below. Management and administration The management of the investment portfolio has been delegated to HgCapital. HgCapital has also been appointed as secretary and administrator to the Company: certain of its corporate secretarial and fund administration duties have been delegated to Capita Sinclair Henderson Limited (CSH) who have a team specialising in providing secretarial and accounting services to investment trusts. Custody and settlement services are undertaken by The Bank of New York Europe Limited (BNYE), a subsidiary of The Bank of New York. The Board has delegated the exercise of voting rights attaching to the securities held in the portfolio to HgCapital. HgCapital does not operate a fixed policy when voting but reviews each case separately. All other matters are reserved for the approval of the Board. Board committees All the Directors of the Company are non-executive and serve on the Nomination Committee, which meets when necessary to select and propose suitable candidates for appointment. When looking for a new Director, the Board assesses the skills of the Board as a whole, to identify any areas that need strengthening. External search consultants are also used. Separate Audit and Valuation, and Management Engagement, Committees have been established. Since the appointment of Mr Brooman, these committees have consisted of all six Directors, each of whom has no previous or current connection with the investment management of the Company other than in their capacity as a Director of the Company. The Audit and Valuation Committee, which has written terms of reference detailing its scope and duties and which meets at least four times per year, examines the effectiveness of the control systems. All the Directors of the Company, including the Chairman, are members of this committee to enable them to be kept fully informed of any issues that may arise and to participate fully in discussions on portfolio valuation. The committee reviews the interim and annual reports and also receives information from the relevant corporate audit and compliance departments. The committee reviews the scope, results, cost effectiveness, independence and objectivity of the external auditor. Semi-annually, at each balance sheet date, the committee reviews in detail the valuation of the unquoted investments within the portfolio. Non-audit fees of Â£4,500 were paid to Ernst & Young LLP for reviewing the interim financial statements. Ernst & Young LLP provides details of any other relationship with the Manager and confirms to the Board each year that in its opinion it is independent of the Manager. Based on the review of the non-audit services provided by the auditor, the Board has concluded that Ernst & Young LLP is independent of the Manager. The external auditor is invited to attend the Audit and Valuation Committee meeting at which the annual accounts are considered and has the opportunity to meet with the committee without representatives of the Manager being present. The Management Engagement Committee, which also has written terms of reference detailing its scope and duties, regularly reviews the terms of the investment management and administration contracts. The Directors' Remuneration Committee, which is made up of all the Directors, meets when necessary to consider any change to the Directors' remuneration. The remuneration of the Chairman and Directors is reviewed against the fees paid to directors of other specialist investment trusts and investment trusts of a comparable size, as well as taking account of published data. The terms of reference of all the committees are available on request and will also be available at each Annual General Meeting. Membership of the Board Committees Mr Mountford is Chairman of the Directors' Remuneration Committee, the Management Engagement Committee and the Nomination Committee. Mr Amies is the Chairman of the Audit & Valuation Committee. The composition of the Board's standing committees was considered at the year end and it was felt appropriate that every non-executive Director should be a member of all committees. Attendance record The following table summarises the Directors' attendance at meetings of the Board and Audit and Valuation Committee, compared with the number they were eligible to attend. Director Number of meetings attended/eligible to attend Board A&VC Peter Gale 6/6 3/4 Tim Amies 6/6 4/4 Piers Brooke 6/6 3/4 Richard Brooman 2/2 0/0 Roger Mountford 6/6 4/4 Andrew Murison 6/6 3/4 Each of the other Committees met on at least one occasion during the year. Internal controls The Board is responsible for the internal controls of the Company and for reviewing their effectiveness, for ensuring that financial information published or used within the business is reliable, and for regularly monitoring compliance with regulations governing the operation of investment trusts. The Board continually reviews the effectiveness of the internal control system. The processes indicated below have been put in place to ensure that the Company fully complied with the Combined Code for the year ended 31 December 2007 and up to the date of this report, and will continue to do so for the year ending 31 December 2008. As part of the Board's responsibility for the internal control system, an ongoing process has been established in conjunction with HgCapital and CSH for identifying, evaluating and managing the Company's significant risks. Controls of the risks identified, covering financial, operational, compliance and risk management, are embedded in the operations of HgCapital, CSH, BNYE and other outsourced service providers. There is a monitoring and reporting process to review controls put in place to track risks identified, carried out by the compliance function within HgCapital and the auditors of the other two organisations. This accords with the guidance in the Turnbull Report. HgCapital and CSH report to the Company on their review of internal controls (which for HgCapital includes checks on the custodian) formally on an annual and a semi-annual basis and orally at each Board and Audit and Valuation Committee meeting. The Board reviews the 'whistle blowing' procedures of HgCapital and CSH to ensure that the concerns of their staff may be raised in a confidential manner. The Company does not have its own internal audit function, as all the administration is delegated to the Manager. This matter is kept under annual review. HgCapital prepares cash flow forecasts and management accounts, which allow the Board to assess the Company's activities and to review its performance. The Board and HgCapital have agreed clearly-defined investment criteria, specified levels of authority and exposure limits. Reports on these issues, including performance statistics and investment valuations, are submitted to the Board at each meeting. HgCapital's evaluation procedure and financial analysis of the companies within the portfolio include detailed research and appraisal, and also take into account environmental policies and other business issues. The Board recognises that these control systems can only be designed to manage rather than eliminate the risk of failure to achieve business objectives and to provide reasonable, but not absolute, assurance against material misstatement or loss. It relies on the operating controls established by HgCapital, CSH and BNYE. Financial statements The Board is required to ensure that the financial statements give a true and fair view of the affairs of the Company as at the end of each financial year and of the profit of the Company for that period. The Board considers that in preparing the financial statements the Company has used appropriate accounting policies, consistently applied (except where disclosed) and supported by reasonable and prudent judgments and estimates and that all accounting standards that it considers to be applicable have been followed. Relations with shareholders All shareholders have the opportunity to attend and vote at the AGM. The notice of the AGM which is sent out at least twenty working days in advance sets out the business of the meeting and any item not of an entirely routine nature is explained in the Directors' report. Separate resolutions are proposed for substantive issues. Both the Chairman of the Board and the Chairman of the Audit and Valuation Committee, together with representatives of HgCapital, are available to answer shareholders' questions at the AGM. Proxy voting figures are announced to shareholders at the AGM. HgCapital holds regular discussions with major shareholders, the feedback from which is greatly valued by the Board. In addition, the Chairman and Directors are available to enter into dialogue and correspondence with shareholders regarding the progress and performance of the Company. The section of this report entitled 'Shareholder Information', provides information useful to shareholders. Report of the independent auditor to the members of HgCapital Trust plc We have audited the financial statements of HgCapital Trust plc for the year ended 31 December 2007 which comprise the Income statement, the Balance sheet, the Cash flow statement, the Reconciliation of movements in shareholders' funds and the related notes 1 to 19. These financial statements have been prepared under the accounting policies set out therein. We have also audited the information in the Directors' remuneration report that is described as having been audited. This report is made solely to the Company's members, as a body, in accordance with Section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of Directors and auditors The Directors' responsibilities for preparing the annual report, the Directors' remuneration report and the financial statements in accordance with applicable United Kingdom law and Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the Statement of Directors' responsibilities. Our responsibility is to audit the financial statements and the part of the Directors' remuneration report to be audited in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the part of the Directors' remuneration report to be audited have been properly prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the information given in the Directors' report is consistent with the financial statements. In addition we report to you if, in our opinion, the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors' remuneration and other transactions is not disclosed. We review whether the Corporate governance statement reflects the Company's compliance with the nine provisions of the 2006 Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the Board's statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Company's corporate governance procedures or its risk and control procedures. We read other information contained in the annual report and consider whether it is consistent with the audited financial statements. The other information comprises only Investment objective, Financial highlights, Chairman's statement, Ten year track record, Investing in private equity, Manager's strategy, Manager's review, Investments, Realisations, Review of principal investments, Renewable energy, Investment portfolio, Top ten investment listing, Analysis of registered shareholders, Board of Directors, Directors' report and business review, the unaudited part of the Directors' remuneration report, Corporate governance and Directors' responsibilities, Shareholder information, Glossary, Notice of Annual General Meeting and Management and administration. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the part of the Directors' remuneration report to be audited. It also includes an assessment of the significant estimates and judgments made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Company's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the Directors' remuneration report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the Directors' remuneration report to be audited. Opinion In our opinion: â€¢ the financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the Company's affairs as at 31 December 2007 and of its profit for the year then ended; â€¢ the financial statements and the part of the Directors' Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985; and â€¢ the information given in the Directors' report is consistent with the financial statements. Ernst & Young LLP Registered auditor London 17 March 2008 Shareholder information Financial calendar The announcement and publication of the Company's results may normally be expected in the months shown below: March â€¢ Preliminary results and final dividend for year announced â€¢ Annual report and financial statements published April/May â€¢ Annual General Meeting â€¢ Final dividend paid August â€¢ Interim figures announced and half-yearly report published In accordance with the recently introduced Disclosure and Transparency Rules, the Company will be releasing Interim Management Statements ('IMS') for the quarters ending 31 March and 30 September. These will be released to the Stock Exchange and may be viewed at the Company's website. Dividend - 2007 The proposed final dividend in respect of the year ended 31 December 2007 is 25.0p per share. Ex-dividend date 26 March 2008 (shares transferred without dividend) Record date 28 March 2008 (last date for registering transfers to receive the dividend) Last date for registering DRIP instructions (see below) 18 April 2008 Dividend payment date 12 May 2008 Payment of dividends Cash dividends will be sent by cheque to the first-named shareholder at their registered address, together with a tax voucher, to arrive on the payment date. Alternatively, dividends may be paid direct into a shareholder's bank account via BACS (Bankers' Automated Clearing Service). This may be arranged by contacting the Company's registrar, Computershare Investor Services plc (Computershare), on 0870 707 1037. Dividend reinvestment scheme (DRIP) Shareholders may request that their dividends be used to purchase further shares in the Company. Dividend reinvestment forms may be obtained from Computershare on 0870 707 1037 or may be downloaded from www-uk.computershare.com/investor. Shareholders who have already opted for dividend reinvestment do not need to re-apply. The last date for registering for this service for the forthcoming dividend is 18 April 2008. Share price The Company's mid-market ordinary share price is published daily in the Financial Times, Daily Telegraph and Evening Standard under the section 'Investment Companies'. ISIN/SEDOL numbers The ISIN/SEDOL numbers and mnemonic code for the Company's Ordinary shares are: ISIN GB0003921052 SEDOL 0392105 Reuters code HGT.L Share dealing Investors wishing to purchase or sell shares in the Company may do so through a stockbroker or most banks. The following share dealing services are available through our Registrars, Computershare Investor Services plc: Internet share dealing Please note that, at present, this service is only available to shareholders in certain European jurisdictions, including the UK. Please refer to the website for an up to date list of these countries. This service provides shareholders with an easy way to buy or sell the Company's ordinary shares on the London Stock Exchange. The commission is just 0.5%, subject to a minimum charge of Â£15. In addition stamp duty, currently 0.5%, is payable on purchases. There is no need to open an account in order to deal. Real time dealing is available during market hours. In addition there is a convenient facility to place your order outside of market hours. Up to 90 day limit orders are available for sales. To access the service log on to www.computershare.com/dealing/uk. Shareholders should have their Shareholder Reference Number (SRN) available. The SRN appears on share certificates. A bank debit card will be required for purchases. Telephone share dealing Please note this service is, at present, only available to shareholders resident in the UK and Ireland. The commission is 1%, subject to a minimum charge of Â£15. In addition stamp duty, currently 0.5%, is payable on purchases. The service is available from 8am to 4.30pm Monday to Friday, excluding bank holidays, on telephone number 0870 703 0084. Shareholders should have their Shareholder Reference Number (SRN) ready when making the call. The SRN appears on share certificates. A bank debit card will be required for purchases. Detailed terms and conditions are available on request by telephoning 0870 703 0084. These services are offered on an execution only basis and subject to the applicable terms and conditions. This is not a recommendation to buy, sell or hold shares in HgCapital Trust plc. Shareholders who are unsure of what action to take should obtain independent financial advice. Share values may go down as well as up which may result in a shareholder receiving less than he/she originally invested. To the extent that this statement is a financial promotion for the share dealing service provided by Computershare Investor Services plc, it has been approved by Computershare Investor Services plc for the purpose of Section 21 (2) (b) of the Financial Services and Markets Act 2000 only. Computershare Investor Services plc is authorised and regulated by the Financial Services Authority. Where this has been received in a country where the provision of such a service would be contrary to local laws or regulations, this should be treated as for information only. Uncertificated Securities Regulations 1995 - CREST The Company's ordinary shares have joined CREST, an electronic system for uncertificated securities trading. Private investors can continue to retain their share certificates and remain outside the CREST system. Private investors are able to buy and sell their holdings in the same way as they did prior to the introduction of CREST, although there may be differences in dealing charges. Income tax Currently, all UK dividends are paid to stockholders net of a tax credit of 10%. Changes to the tax regime mean that since April 1999 non-taxpayers have no longer been able to reclaim the tax credit. Non-PEP and ISA stockholders liable for higher rates of tax are assessed for any additional tax through their annual tax return. Capital gains tax (CGT) Investment trusts currently pay no CGT on gains made within the portfolio. When investors sell all or part of their holdings, they may be liable to CGT. For the tax year 2007/8, the first Â£9,200 per annum of such gains from all sources is exempt. Up to 5 April 1998 the cost of investments for CGT purposes was adjusted to allow for inflation. However, from 6 April 1998 this indexation was replaced by a taper relief and from this date chargeable gains will be reduced in line with the length of time the investment has been held. PEP and ISA investments will continue to remain exempt from CGT. Please remember that we are unable to offer individual investment or taxation advice. Investors who are in any doubt as to their liability for CGT should seek professional advice. Risk factors â€¢ Investments in unquoted companies, which form the majority of the Company's investments, may not be as readily realisable as investments in quoted companies â€¢ As the Company invests in Continental Europe and in companies that trade internationally, the value of its shares may be affected by changes in rates of exchange â€¢ The Company invests in a portfolio of smaller-cap companies, with enterprise values between Â£50 million and Â£500 million, the performance of which can fluctuate â€¢ The price at which the Company's shares trade on the London Stock Exchange is not the same as their net asset value (although they are related) and therefore you may realise returns that are lower or higher than NAV performance â€¢ Past performance is not necessarily a guide to future performance and an investor may not get back the amount originally invested â€¢ The value of investments in the Company and the income from it can fluctuate as the value of the underlying investments fluctuates â€¢ The Company invests in unquoted companies and although great care is taken in their valuation such valuations cannot, by their nature, be exact and are liable to change Duration of the Company At an Extraordinary General Meeting held in April 2003, shareholders agreed to extend the life of the Company to 2011. The Articles of Association, as amended, now provide for an ordinary resolution to be put to shareholders at the Annual General Meeting in the year 2011 to continue the life of the Company for a further five years and a similar resolution will be put to the shareholders in 2016 and every fifth year thereafter. If the resolution to continue the life of the Company is not approved in 2011, an Extraordinary General Meeting will be convened within six months after the date of the AGM to wind up the Company voluntarily. Nominee code Where shares are held in a nominee company name, the Company undertakes: â€¢ To provide the nominee company with multiple copies of shareholder communications, so long as an indication of quantities has been provided in advance â€¢ To allow investors holding shares through a nominee company to attend general meetings, provided the correct authority from the nominee company is available Nominee companies are encouraged to provide the necessary authority to underlying shareholders to attend the Company's general meetings. Shareholder enquiries In the event of queries regarding your shares, please contact the Computershare Investor Centre. Computershare now offers a free secure share management website that allows you to: â€¢ View your share portfolio and see the latest market price of your shares â€¢ Elect to receive your shareholder communications online â€¢ Calculate the total market price of each shareholding â€¢ View price histories and trading graphs â€¢ Update bank mandates and change of address details â€¢ Use online dealing services Log on to www-uk.computershare.com/investor and enter your Shareholder Reference Number and Company Code (this information can be found on the last dividend voucher or your share certificate). Changes of name or address must be notified in writing to: Computershare Investor Services plc The Pavilions Bridgwater Road Bristol BS99 6ZY General enquiries about the Company should be directed to: The Secretary Hg Pooled Management Ltd 2 More London Riverside London SE1 2AP Telephone: 020 7089 7888 Glossary Investment trusts Net asset value per share (NAV) This is the value of the Company's assets attributable to one ordinary share. It is calculated by dividing 'shareholders' funds' by the total number of shares in issue. For example, as at 31 December 2007, shareholders' funds were Â£238,817,000 and there were 25,186,755 ordinary shares in issue; the NAV was therefore 948.2p per share. Shareholders' funds are calculated by deducting current and long-term liabilities, and any provision for liabilities and charges, from the Company's total assets. Discount Investment trust shares frequently trade at a discount to NAV. This occurs when the share price is less than the NAV. In this circumstance, the price that an investor pays or receives for a share would be less than the value attributable to it by reference to the underlying assets. The discount is the difference between the share price and the NAV, expressed as a percentage of the NAV. For example, if the NAV were 950p and the share price were 800p, the discount would be 15.8%. Premium A premium occurs when the share price is higher than the NAV and investors would therefore be paying more than the value attributable to the shares by reference to the underlying assets. For example, if the share price were 1,000p and the NAV were 950p, the premium would be 5.3%. Discounts and premiums are mainly the consequence of supply and demand for the shares on the stock market. Total return The total return comprises both changes in the Company's NAV or share price and dividends paid to shareholders; it is calculated on the basis that dividends are reinvested in the Company's shares on the date the dividend is paid. Private equity Carried interest Equivalent to a performance fee, this represents a share of the capital profits that will accrue to the Manager, after achievement of an agreed hurdle rate. Enterprise value (EV) This is the aggregate value of a company's entire issued share capital and net debt. Expansion capital The provision of capital to an existing, established business, to finance organic growth or acquisitions - sometimes also known as venture capital. IPO (initial public offering) An offering by a company of its share capital to the public with a view to seeking an admission of its shares to a recognised stock exchange. IRR (internal rate of return) The annual internal rate of return received by an investor in a fund. It is calculated from cash drawn from and returned to the investor together with the residual value of the fund unit. LBO (leveraged buyout) The purchase of all or most of a company's share capital, usually by its managers, funded mainly by borrowings often secured on the company's assets, resulting in a post-financing capital structure of the company that is heavily geared. LP (limited partnership) An organisation made up of a managing general partner and limited partners, who invest money but have limited liability, are not involved in day-to-day management, and usually cannot lose more than their capital contribution. Usually limited partners receive income, capital gains and tax benefits; the general partner usually receives a fee and the founder partner a percentage of capital gains and income. MBI (management buy-in) A change of ownership, where an incoming management team raises financial backing, normally a mix of equity and debt, to acquire a business. MBO (management buyout) A change of ownership, where the incumbent management team raises financial backing, normally a mix of equity and debt, to acquire a business it manages. P2P (public to private) The purchase of all of a listed company's shares using a special-purpose vehicle funded with a mixture of debt and unquoted equity. Preferred return A preferential rate of return on an individual investment or a portfolio of investments. Quoted company Any company whose shares are listed or traded on a recognised stock exchange. Unquoted company Any company whose shares are not listed or traded on a recognised stock exchange. Venture capital Investing in companies at a point in that company's life cycle that is either at the concept, start-up or early stage of development. Notice of annual general meeting Notice is hereby given that the Annual General Meeting of HgCapital Trust plc will be held at the Company's offices at 2 More London Riverside, London SE1 2AP, on Tuesday 6 May 2008 at 12 noon to transact the following business: Ordinary business 1. To receive the report of the Directors and the financial statements for the year ended 31 December 2007, together with the report of the independent auditor thereon 2. To approve the Directors' remuneration report 3. To declare a dividend of 25.0p per share 4. To re-elect Mr P Brooke as a Director 5. To re-elect Mr A Murison as a Director 6. To re-elect Mr T Amies as a Director 7. To re-elect Mr P Gale as a Director 8. To elect Mr R Brooman as a Director 9. To re-appoint Ernst & Young LLP as independent auditor to the Company 10. To authorise the Directors to determine the independent auditor's remuneration Special business To consider and, if thought fit, pass the following resolutions numbered 11, 13, 14 and 15 as special resolutions and resolution 12 as an ordinary resolution. 11. THAT in substitution for the Company's existing authority to make market purchases of ordinary shares of 25p in the Company (ordinary shares), the Company be and it is hereby authorised in accordance with section 166 of the Companies Act 1985 (the Act) to make market purchases of ordinary shares (within the meaning of section 163 of the Act) provided that: (i) the maximum number of ordinary shares hereby authorised to be purchased is 3,775,000; (ii) the minimum price which may be paid for an ordinary share shall be 25p; (iii) the maximum price (exclusive of expenses) which may be paid for an ordinary share shall be the lower of 5% above the average of the market values of the ordinary shares for the five business days immediately preceding the date of the purchase and the net asset value per ordinary share on the date of purchase; and (iv) unless renewed, the authority hereby conferred shall expire on 24 October 2009 save that the Company may, prior to such expiry, enter into a contract to purchase ordinary shares which will or may be completed or executed wholly or partly after such expiry. 12. THAT: (i) the Directors be and they are hereby generally and unconditionally authorised, in accordance with section 80 of the Companies Act 1985 (the Act), to exercise all the powers of the Company to allot relevant securities (as defined in that section) up to an aggregate nominal amount of Â£314,800 provided that this authority shall expire on the date of the next Annual General Meeting of the Company after the passing of this resolution, but so that this authority shall allow the Company, acting by its Directors, to make offers or agreements before the expiry of this authority which would or might require relevant securities to be allotted after such expiry; (ii) all authorities previously conferred under section 80 of the Act be and they are hereby revoked, provided that such revocation shall not have retrospective effect; and (iii) words and expressions defined in or for the purposes of Part IV of the Act shall bear the same meanings in this resolution. 13. THAT, subject to and conditional upon the passing as an ordinary resolution of the resolution numbered 12 set out in the notice of this meeting, the Directors be and they are hereby empowered, pursuant to section 95 of the Companies Act 1985 (the Act), to allot equity securities (as defined in section 94 of the Act) of the Company for cash pursuant to the authority conferred by the previous resolution as if section 89 (1) of the Act did not apply to any such allotment, provided that this power shall be limited to the allotment of equity securities: (i) which are, or are to be, wholly paid up in cash up to an aggregate nominal value of Â£314,800 at a price of not less than the net asset value per ordinary share as at the most recent practicable date, as determined by the Directors; (ii) (otherwise than pursuant to sub-paragraph (i) above) in connection with issues by way of rights in favour of all holders of ordinary shares where the equity securities respectively attributable to the interests of all such holders are either proportionate (as nearly as may be) to the respective numbers of ordinary shares held by them or are otherwise allotted in accordance with the rights conferred on such equity securities (but subject in either case to such exclusions or other arrangements as the Board may deem necessary or expedient in relation to fractional entitlements or legal practical problems under the laws of, or the requirements of, any regulatory body or any stock exchange in any territory or otherwise howsoever); and shall expire on the earlier of the date which is 15 months after the date on which this resolution is passed and the date of the next Annual General Meeting of the Company after the passing of this resolution, save that the Company may before such expiry make an offer or agreement which would or might require equity securities to be allotted after such expiry; (iii) all powers previously conferred under section 95 of the Act be and they are hereby revoked, provided that such revocation shall not have retrospective effect; and (iv) words and expressions defined in or for the purposes of Part IV of the Act shall bear the same meanings in this resolution. 14. THAT the following amendment to the Articles of Association of the Company dated 18 April 2000 be and is hereby approved and sanctioned: The amount of Â£150,000, referred to in article 62, be increased to Â£230,000 so that the article 62 will read as follows: 'The directors (other than any director who for the first time being holds an executive office or employment with the Company or a subsidiary of the Company) shall be paid out of the funds of the Company by way of remuneration for their services as directors such fees not exceeding in aggregate Â£230,000 per annum (or such larger sum as the Company may, by ordinary resolution, determine) as the directors may decide to be divided among them in such proportion and manner as they may agree or, failing agreement, equally. Any fee payable under this article shall be distinct from any remuneration or other amounts payable to a director under other provisions of these articles and shall accrue from day to day.' 15. That the draft regulations produced to the meeting and, for the purposes of identification, initialled by the Chairman of the meeting be adopted as the articles of association of the Company in substitution for, and to the entire exclusion of, the existing articles of association of the Company. By order of the Board Hg Pooled Management Ltd Secretary 17 March 2008 Notes: 1. Members are entitled to appoint a proxy to exercise all or any of their rights to attend and to speak and vote on their behalf at the meeting. A shareholder may appoint more than one proxy in relation to the Annual General Meeting provided that each proxy is appointed to exercise the rights attached to a different share or shares held by that shareholder. A proxy need not be a shareholder of the Company. A proxy form that may be used to make such appointment and give proxy instructions accompanies this notice. If you do not have a proxy form and believe that you should have one, or if you require additional forms, please contact the Company's registrars, Computershare Investor Services plc on 0870 707 1037. 2. To be valid, the enclosed reply-paid form of proxy, together, if appropriate, with the power of attorney or the authority (if any) under which it is signed, or a notarially certified copy of such power or authority must be deposited at the offices of Computershare Investor Services plc, The Pavilions, Bridgewater Rd, Bristol BS99 6ZY, not later than 12 noon on 4 May 2008. 3. The return of a completed proxy form or any CREST Proxy Instruction (as described in paragraph 9 below) will not prevent a shareholder attending the Annual General Meeting and voting in person if he/she wishes to do so. 4. Any person to whom this notice is sent who is a person nominated under section 146 of the Companies Act 2006 to enjoy information rights (a 'Nominated Person') may, under an agreement between him/her and the shareholder by whom he/ she was nominated, have a right to be appointed (or to have someone else appointed) as a proxy for the Annual General Meeting. If a Nominated Person has no such proxy appointment right or does not wish to exercise it, he/she may, under any such agreement, have a right to give instructions to the shareholder as to the exercise of voting rights. 5. The statement of the rights of shareholders in relation to the appointment of proxies in paragraphs 1 and 2 above does not apply to Nominated Persons. The rights described in these paragraphs can only be exercised by shareholders of the Company. 6. To be entitled to attend and vote at the Annual General Meeting (and for the purpose of the determination by the Company of the votes they may cast), shareholders must be registered in the Register of Members of the Company at 6.00 p.m on 4 May 2008 (or, in the event of any adjournment, 6.00 p.m. on the date which is two days before the time of the adjourned meeting). Changes to the Register of Members after the relevant deadline shall be disregarded in determining the rights of any person to attend and vote at the meeting. 7. As at 17 March 2008 (being the last business day prior to the publication of this Notice) the Company's issued share capital consists of 25,186,755 Ordinary shares, carrying one vote each. Therefore, the total voting rights in the Company as at 17 March 2008 are 25,186,755. 8. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so by using the procedures described in the CREST Manual. CREST Personal Members or other CREST sponsored members, and those CREST members who have appointed a service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. 9. In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a 'CREST Proxy Instruction') must be properly authenticated in accordance with Euroclear UK & Ireland Limited's specifications, and must contain the information required for such instruction, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or is an amendment to the instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by the Company's agent (ID 3RA50) by 12 noon on 4 May 2008. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Application Host) from which the Company's agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means. 10. CREST members and, where applicable, their CREST sponsors, or voting service providers should note that Euroclear UK & Ireland Limited does not make available special procedures in CREST for any particular message. Normal system timings and limitations will, therefore, apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member, or sponsored member, or has appointed a voting service provider, to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting system providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. 11. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001. 12. In order to facilitate voting by corporate representatives at the meeting, arrangements will be put in place at the meeting so that (i) if a corporate shareholder has appointed the chairman of the meeting as its corporate representative to vote on a poll in accordance with the directions of all of the other corporate representatives for that shareholder at the meeting, then on a poll those corporate representatives will give voting directions to the chairman and the chairman will vote (or withhold a vote) as corporate representative in accordance with those directions; and (ii) if more than one corporate representative for the same corporate shareholder attends the meeting but the corporate shareholder has not appointed the chairman of the meeting as its corporate representative, a designated corporate representative will be nominated, from those corporate representatives who attend, who will vote on a poll and the other corporate representatives will give voting directions to that designated corporate representative. Corporate shareholders are referred to the guidance issued by the Institute of Chartered Secretaries and Administrators on proxies and corporate representatives (www.icsa.org.uk) for further details of this procedure. The guidance includes a sample form of appointment letter if the chairman is being appointed as described in (i) above. Appendix Explanatory notes of principal changes to the Company's Articles of association 1. Articles which duplicate statutory provisions Provisions in the Current Articles that replicate provisions contained in the Companies Act 2006 are in the main to be amended to bring them into line with the Companies Act 2006. Certain examples of such provisions include provisions as to the form of resolutions, the variation of class rights, the requirement to keep accounting records and provisions regarding the period of notice required to convene general meetings. The main changes made to reflect this approach are detailed below. 2. Form of resolution The Current Articles contain a provision that, where for any purpose an ordinary resolution is required, a special or extraordinary resolution is also effective and that, where an extraordinary resolution is required, a special resolution is also effective. This provision is being amended, as the concept of extraordinary resolutions has not been retained under the Companies Act 2006. 3. Change of name Currently, a company can only change its name by special resolution. Under the Companies Act 2006 a company will be able to change its name by other means provided for by its articles. To take advantage of this provision, the New Articles will enable the Directors to pass a resolution to change the Company's name once the relevant provisions in the Companies Act 2006 Act are in force. 4. Redeemable shares and consolidation, division or sub-division At present, if a company wishes to issue redeemable shares it must include in its articles the terms and manner of redemption. The Companies Act 2006 will enable directors to determine such matters instead provided they are so authorised by the articles. The New Articles contain such an authorisation that will take effect once the relevant provisions in the Companies Act 2006 Act are in force. The Company has no plans to issue redeemable shares but if it did so the Directors would need shareholders' authority to issue new shares in the usual way. In addition, the New Articles permit the Company to retain for its own benefit the net proceeds up to Â£5 of selling fractional entitlements arising on a consolidation, division or sub-division of its shares. 5. Convening extraordinary and annual general meetings The provisions in the Current Articles dealing with the convening of general meetings and the length of notice required to convene general meetings are being amended to conform to new provisions in the Companies Act 2006. In particular, any general meeting other than an annual general meeting can be convened on 14 days' notice. 6. Votes of members Under the Companies Act 2006 proxies are entitled to vote on a show of hands whereas under the Current Articles proxies are only entitled to vote on a poll. Multiple proxies may be appointed provided that each proxy is appointed to exercise the rights attached to a different share held by the shareholder. The New Articles reflect all of these new provisions. 7. Conflicts of interest The Companies Act 2006 sets out Directors' general duties that largely codify the existing law but with some changes. Under the Companies Act 2006, from 1 October 2008 a Director must avoid a situation where he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the Company's interests. The requirement is very broad and could apply, for example, if a Director becomes a director of another company or a trustee of another organisation. The Companies Act 2006 allows directors of public companies to authorise conflicts and potential conflicts, where appropriate, where the articles of association contain a provision to this effect. The Companies Act 2006 also allows the articles of association to contain other provisions for dealing with directors' conflicts of interest to avoid a breach of duty. The New Articles give the Directors authority to approve such situations and to include other provisions to allow conflicts of interest to be dealt with in a similar way to the current position. There are safeguards that will apply when Directors decide whether to authorise a conflict or potential conflict. First, only Directors who have no interest in the matter being considered will be able to take the relevant decision, and secondly, in taking the decision the Directors must act in a way they consider, in good faith, will be most likely to promote the Company's success. The Directors will be able to impose limits or conditions when giving authorisation if they think this is appropriate. It is also proposed that the New Articles should contain provisions relating to confidential information, attendance at board meetings and availability of board papers to protect a Director from being in breach of duty if a conflict of interest or potential conflict of interest arises. These provisions will only apply where the position giving rise to the potential conflict has previously been authorised by the Directors. It is the Board's intention to report annually on the Company's procedures for ensuring that the Board's powers of authorisation of conflicts are operated effectively and that the procedures have been followed. 8. Electronic and web communications Provisions of the Companies Act 2006 that came into force in January 2007 enable companies to communicate with members by electronic and/or website communications. The New Articles allow communications to members in electronic form and, in addition, they also permit the Company to take advantage of the new provisions relating to website communications. Before the Company can communicate with a member by means of website communication, the relevant member must be asked individually by the Company to agree that the Company may send or supply documents or information to him by means of a website, and the Company must either have received a positive response or have received no response within the period of 28 days beginning with the date on which the request was sent. The Company will notify the member (either in writing, or by other permitted means) when a relevant document or information is placed on the website and a member can always request a hard copy version of the document or information. 9. Directors' indemnities and loans to fund expenditure The provisions dealing with indemnification of Directors and other officers is being amended in line with legislative changes. Broadly, the New Articles would allow the Company to indemnify any of its Directors (or any director of an associated company) against liabilities in a civil action by a person other than the Company (or an associated company), and against his defence costs as the action proceeded, but in the case of actions by the Company (or an associated company) an indemnity could only cover the defence costs, and only if judgment was not given against the Director. The indemnity could cover the costs of defending criminal proceedings or of making certain applications for relief - although not if the Director was convicted or denied relief - or of defending regulatory actions. The Company would also be able to lend Directors monies to fund their defence expenditure in any civil or criminal proceedings taken against them as Directors, whether by a third party or by the Company itself, or in connection with any application for relief or any action taken by a regulatory authority. Except where the arrangement related to regulatory action, any loan by the Company would have to be on terms that required it to be repaid immediately (after taking account of any appeal periods) if the Director lost in the criminal or civil proceedings or the application for relief was refused. The existing authority to indemnify the Company's auditor has also been deleted and accordingly the Directors will not approve the granting of any such indemnity by the Company. 10. Age of Directors The provision in the Current Articles requiring Directors to retire at the next annual general meeting after attaining seventy years of age and, if reappointed, at each subsequent annual general meeting, has been removed as it may breach the Employment Equality (Age) Regulations 2006. 11. Updating statutory and regulatory references The opportunity is being taken to update references to legislation as well as regulatory and other bodies. Management and administration HgCapital Trust plc 2 More London Riverside London SE1 2AP www.hgcapitaltrust.com Registered office (Registered in England No. 1525583) 2 More London Riverside London SE1 2AP Manager HgCapital*+ 2 More London Riverside London SE1 2AP Telephone: 020 7089 7888 www.hgcapital.com Secretary and administrator HgCapital 2 More London Riverside London SE1 2AP Telephone: 020 7089 7888 Stockbroker Winterflood Securities* The Atrium Building Cannon Bridge 25 Dowgate Hill London EC4R 2EA Telephone: 020 7621 0004 www.winsresearch.co.uk Custodian The Bank of New York Europe Limited* One Canada Square London E14 5AL Registrar Computershare Investor Services plc* The Pavilions Bridgwater Road Bristol BS99 6ZY Telephone: 0870 707 1037 www-uk.computershare.com/investor Independent auditor Ernst & Young LLP 1 More London Place London SE1 2AF iPEIT Initiative for Private Equity Investment Trusts www.ipeit.com HgCapital Trust is a founder member of the Initiative for Private Equity Investment Trusts (iPEIT). This group of UK-listed PEITs was formed to raise awareness and increase understanding of what PEITs are and how PEITs enable all investors - not just institutions - to invest in private equity. iPEIT provides information on PEITs and private equity in general, undertakes and publishes research on the PEIT sector and works to improve levels of knowledge about PEITs among investors and their advisors. *Authorised and regulated by the Financial Services Authority. +HgCapital is the trading name of Hg Pooled Management Limited This information is provided by RNS The company news service from the London Stock Exchange

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