Half-year Report and Dividend Declaration

HgCapital Trust PLC

18 September 2023

 

HgCapital Trust plc

INTERIM RESULTS FOR THE PERIOD ENDED 30 JUNE 2023

 Resilient NAV performance and continued realisation activity in a challenging macro environment

London, 18 September 2023:  HgCapital Trust plc ('HGT'), today announces its interim results for the period ended 30 June 2023. 

HGT provides investors with a listed vehicle to invest in unquoted businesses managed by Hg, Europe's largest investor in software & technology-enabled services businesses.

The objective of HGT 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.

Highlights over the first half of 2023 include:

¡ Strong portfolio trading continued to be the main driver of performance, contributing to a total return NAV increase of 4.6%, closing the period at 473.1p NAV per share and net assets of £2.2 billion

¡ Share price total return of +7.1% over the period, closing at 370.50p per share and a market capitalisation of £1.7 billion

¡ Against an uncertain macro environment, Hg maintained a disciplined approach to new investment, deploying £33 million on behalf of HGT, including one new investment and several follow-on investments in the portfolio to finance bolt-on M&A

¡ £229 million returned to HGT, including the full realisation of Transporeon

¡ Continued and significant long-term NAV outperformance of the FTSE All-Share

¡ Performance provided through access to Hg's investments, which would in aggregate represent the second largest and the fastest growing technology firm in Europe¹

An investment of £1,000 made 20 years ago in HGT would now be worth £24,963, a total return of 2,396%. An equivalent investment in the FTSE All-Share Index would be worth £4,208²

Jim Strang, Chairman of HGT, commented:

"Your Company has delivered a resilient performance over the first six months of the year. The portfolio continued to deliver strong underlying performance with sales and EBITDA across the top 20 investments (76% of the portfolio) growing at 29% and 30% respectively. Investment activity was noticeably slower in the first half of 2023 as the Manager took a cautious stance on adding to the portfolio. Conditions for transactions in the second half of the year appear more supportive."

¹ By Enterprise Value, Source: Hg, Factset

² All references to total return allow for all historic dividends being reinvested

Please note: Past performance is not a reliable indicator of future results. The value of shares and the income from them can go down as well as up as a result of market and currency fluctuations and investors may not get back the amount they originally invested.

David Toms, Head of Research at Hg, commented:

"Our portfolio continues to be driven by growth from existing customers, itself supported by strong renewal rates, cross and up-sell. We enhance this with consistent M&A, which remains a powerful accelerant of our performance."

SUMMARY performance

	31 August 2023	% Total return	30 June 2023	31 December 2022	% Total return
NAV per share	473.3p	+4.7%	473.1p	456.6p	+4.6%
Share price	389.0p	+12.4%	370.5p	350.5p	+7.1%
FTSE All-Share Index		+2.7%			+2.6%
		YTD 2023 Movement			H1 2023 Movement
Net Asset Value	£2.2bn	+£77m	£2.2bn	£2.1bn	+£76m

Source: Hg, Factset. All references to total return allow for all historic dividends being reinvested
Note: Hg undertakes full revaluations of the portfolio on a quarterly basis, the next process being 30 September 2023, therefore the movement in unrealised value of the portfolio to the end of August 2023 is attributable to post-period transactions and FX only.

Performance overview

Net assets of £2.2 billion, with continued long-term outperformance of the FTSE All-Share over one, three, five, ten and twenty-year periods:

-     NAV per share of 473.1p, a total return of +4.6% for the six months to 30 June 2023.

-     Share price total return of +7.1% over the year

-     Proposed interim dividend of 2.0p per share

Strong double-digit growth from the realised and unrealised portfolio:

-     Revenue and EBITDA growth of 29% and 30% respectively across the top 20 investments (76% of the portfolio) over the last twelve months.

-     £229 million of cash returned to HGT primarily through the realisation of Transporeon and secondary fund transactions

-     Valuation multiple (EV/ LTM EBITDA) of 26.2x and net debt to LTM EBITDA ratio of 7.4x for the top 20 investments (76% of the portfolio)

Continued investment and commitments to drive future value:

-     £33 million invested on behalf of HGT into one new platform investment, and several follow-on investments to support the growth of existing portfolio companies

-     New commitment of €125 million to Hg Mercury 4. Total outstanding commitments at 30 June 2023 of £1.1 billion (December 2022: £1.2 billion). These will be deployed over the next three to four years

-     HGT's strong liquidity position coupled with commitments across the most recent vintage of Hg funds ensure that the company is well-positioned to take advantage of investment opportunities as they arise

Credit facility increase:

-     The Board of HGT agreed a c.£60 million increase to the multi-currency revolving credit facility bringing the total facility to £350 million, the full balance of which was available at period-end

POST PERIOD EVENTS

§ NAV of 473.3p at 31 August, YTD performance of 4.7% reflecting post-period transactions and FX movements.

§ Net assets of £2.2 billion at 31 August.

§ Share price of 389.0p at 31 August, YTD performance of +12.4%.

§ Estimated gross proceeds of £55 million from the full exit of Commify, and partial exits of Azets and TeamSystem to be received post period, at an average uplift to carrying value of 39%.

§ New investment of £6m in Nomadia

§ Further €50m commitment to Hg Mercury 4 (€175 million total commitment)

§ Available liquid resources (including the credit facility) post-completion of all announced transactions and the interim dividend payable in October 2023, are £657 million (30% of 31 August pro-forma NAV).

§ Outstanding commitments of £1.1 billion (49% of 31 August pro-forma NAV). We expect these to be drawn down over the next three to four years.

Outlook

Commentary from Hg (the Manager):

We believe the combination of the long-term nature of listed private equity investment with the types of business that Hg invests in, and robust double-digit growth in trading, can continue to drive long-term performance

§  Against a challenging macro environment, Hg's portfolio has demonstrated resilient performance

§  The portfolio companies remain focused on selling business-critical and non-discretionary software and services to their underlying business customers, delivering predictable levels of recurring revenue

§  Positive trading outlook underpinned by long-term drivers for workplace automation and digitisation which are set to transform the workplace for professionals for decades to come

§  While we continue to screen a number of attractive investment opportunities, we remain cautious given the ongoing macro uncertainty. Bolt-on M&A remains a key focus to deploy capital and create incremental equity value in the portfolio

§  During the first half of 2023, we remained focused on returning capital to Hg clients, distributing c.£1 billion of liquidity, including £109 million to HGT. This followed an exceptionally strong 2022, when we returned a total of £4 billion, of which HGT's share was £404 million. Further liquidity events are expected over the next twelve months

- Ends -

The Company's 2023 Interim Report and an animated presentation from Hg to accompany the results are available to view at:  http://www.hgcapitaltrust.com/.

For further details:

	HgCapital Trust plc
	Laura Dixon George Crowe		[phone] [phone]
Brunswick
Azadeh Varzi		[phone]

About HgCapital Trust plc

HgCapital Trust plc is an investment company whose shares are listed on the London Stock Exchange (HGT.L). HGT 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

Interim report and accounts

30 June 2023

HgCapital Trust plc (the "Company" or "HGT") announces its interim results for the 6 months ended 30 June 2023 and the publication of its Interim Report for the same period.

The objective of HgCapital Trust ('HGT') 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.

Financial and performance highlights

2023 performance at a glance

£2.2bn

Net assets

As at 31 December 2022: £2.1bn

+4.6%

NAV per share (473.1p)

6 months ended 30 June 2022: +1.8%

£1.7bn

Market capitalisation

As at 31 December 2022: £1.6bn

+7.1%

Share price (370.5p)

6 months ended 30 June 2022: -20.5%

2.0p

Interim dividend

As at 30 June 2022: 2.5p

1.6%

Total annualised ongoing charges

As at 30 June 2022: 1.3%

£33m

Cash invested on behalf of HGT

6 months ended 30 June 2022: £71m

£229m

Cash returned to HGT

6 months ended 30 June 2022: £29m

£597m

Available liquid resources

(28% of NAV)

As at 31 December 2022: £476m (23% of NAV)

£1.1bn

Outstanding commitments
(50% of NAV)

As at 31 December 2022: £1.2bn (57% of NAV)

Note NAV per share and share price return on a total return basis assuming all historical dividends have been re-invested, which is an Alternative Performance Measure ('APM').

Top 20 investments (76% of portfolio value)

A snapshot as at 30 June 2023

+29%

LTM sales growth

LTM 30 June 2022: +31%

+30%

LTM EBITDA growth

LTM 30 June 2022: +26%

26.2x

EV to EBITDA multiple

As at 31 December 2022: 27.2x

7.4x

Net debt to EBITDA ratio

As at 31 December 2022: 8.0x

£10bn

LTM revenues

LTM 30 June 2022: £7.7bn

£3bn

LTM EBITDA

LTM 30 June 2022: £2.4bn

30%

EBITDA margin

LTM 30 June 2022: 31%

Our portfolio continues to be driven by growth from existing customers, supported by strong renewal rates, cross and up-sell. We enhance this with M&A, which remains a powerful contributor to our performance.

David Toms, Head of Research, Hg

Chairman's statement

Your Company has delivered a resilient performance over the first six months of the year. The portfolio continued to deliver strong underlying performance with sales and EBITDA across the top 20 investments (76% of the portfolio) growing at 29% and 30% respectively. Investment activity was noticeably slower in the first half of 2023 as the Manager took a cautious stance on adding to the portfolio. Conditions for transactions in the second half of the year appear more supportive.     

Jim Strang, Chairman, HgCapital Trust

Dear Shareholder,

The first six months of 2023 have provided a measure of respite from the volatile market conditions that prevailed throughout 2022. While the external environment continues to see elevated levels of risk, there has been a degree of stabilisation. At a macroeconomic level, it would appear interest rates are nearing their peaks for this current cycle, while there are encouraging signs of lower levels of inflation, especially in the USA. The geo-political environment remains challenging; however, it also appears to be stable for the time being.

Highlights in H1 2023 included:

• 4.6% NAV per share growth on a total return basis, with net assets of £2.2 billion;

• £229 million of proceeds returned to HGT, with one full realisation at an uplift to book value of 18%;

• £33 million of new and further investments by HGT, across the core investment clusters targeted by Hg;

• £107 million newly committed to invest alongside new Hg funds over the next three to four years.

Performance

The NAV of HGT increased by 4.6% on a total return basis over the first half of 2023, reflecting the ongoing strength of the operating performance of the HGT portfolio. HGT's share price saw a total return of 7.1% over the period and has seen a CAGR on a total return basis of 17.5% p.a. over the past 20 years, outperforming the FTSE All‑Share index by 10.1% p.a. over the same period.

The total net assets of HGT at 30 June 2023 were £2.2 billion, an increase of £76 million over the reported figures at 31 December 2022. The analysis of NAV movements (on page 30 of the full Interim Report and accounts) set out a breakdown of movements in the NAV and the underlying investment portfolio.

At the end of June 2023, the HGT portfolio consisted of 48 investments, all of which conform to the Hg sector focus and investment strategy, targeting software and tech-enabled services businesses. These assets have continued to perform well in aggregate. The underlying performance of the portfolio developed very much in line with progress seen in recent years. The top 20 underlying companies (76% of the portfolio) continued to show strong revenue growth over the last 12 months of 29% (June 2022: 31%) and EBITDA growth of 30% (June 2022: 26%), reflecting the defensive-growth nature of the businesses in which HGT is invested. The portfolio not only continues to generate strong top line growth but profitability remains as robust as ever, with the top 20 companies reporting an average EBITDA margin of 30%. Currently, 97% of the portfolio by value is held above its original cost of acquisition, a testament to the asset selection and value creation skills of the Manager.

These companies which benefit from highly predictable forward cash flows, are appropriately financed with significant covenant flexibility.The top 20 investments have seen a weighted average net debt‑to‑EBITDA ratio of 7.4x (December 2022: 8.0x), which we feel is appropriate given the highly recurring revenues of the businesses that make up the Hg portfolio. Given the average valuation multiple for the portfolio is 26.2x EV-to-EBITDA, this implies a loan-to-value across the portfolio of c.28%, implying significant equity cushion within the portfolio and giving the Manager confidence that this is a prudent level of leverage for the assets within the portfolio. The Manager has a dedicated capital markets team who continually monitor and manage the capital structures of the underlying portfolio companies to ensure they are as robust and flexible as possible in terms of tenor, interest cost and time to maturity.

Investments and realisations

New investment activity was relatively light over the first six months of the year with a total of £33 million deployed in one new acquisition (GTreasury; Hg Mercury 4) and several follow-on investments to finance bolt-on M&A, an area which the Manager has highlighted as particularly attractive in the current environment and where the sector-leading businesses across the portfolio can further improve their market positions.

A total of £229 million was received from full and partial exits, notably from the completion of the previously announced sale of Transporeon. This exit was originally signed in late 2022, generating proceeds of £109 million for HGT, an uplift of 18% to the last carrying value of the investment. The fund level portfolio rebalancing that was announced previously, involving a resizing of the commitment to Hg Saturn 3 and a partial secondary sale of Hg Genesis 8, has also now been completed.

Realisation activity has continued post-period, with the signings of partial exits of TeamSystem and Azets and the full exit of Commify. These transactions represented significant uplifts to carrying value of 68%, 16% and 32% to their last carrying value respectively. This illustrates the attractiveness of HGT's portfolio companies to buyers, despite the uncertain macro environment and rising cost of debt required to finance acquisitions.

Fundraising

Hg's success in building and creating value in the portfolio supported a new round of fundraising in the period, in which HGT participated, to support HGT's long-term NAV growth ambitions. Hg has raised significant capital over the last two years and HGT will continue to participate across the Hg fund families as Hg's largest single investor. HGT's commitments to the new Hg funds ensure that HGT maintains access to Hg's transactions, including co-investment opportunities, in what is anticipated to be an attractive environment for new investments. HGT continues to benefit from a unique opt out clause within its underlying investment agreements with Hg, allowing HGT to opt out of new investments without penalty, should it not have sufficient liquidity. This provides a useful risk management tool for the Board in managing and optimising the HGT balance sheet.

Balance sheet

In order to grow the NAV of our portfolio and deliver returns for shareholders, HGT operates in a continual cycle of commitment, investment and realisation of the underlying investments. This process involves continual monitoring and revision of forecasts and estimates, as they relate to the portfolio and the impact on HGT's balance sheet.

Consequently, the board has developed a wide range of tools to optimise the balance sheet to fund future investment activity.

As part of this tool-kit, HGT uses a revolving credit facility to support the investment programme and to improve balance sheet efficiency. In 2023, HGT increased its facility to £350 million, c.15% of NAV, consistent with the historical sizing of this facility. This will aid in the cash flow management of HGT in what seems likely to be a more uncertain transaction environment.

As I noted in my report to you in March, the Board has adopted a revised and improved policy as regards share buybacks and, as a result, executed one buyback in 2022. The level of the discount on the shares is monitored daily as part of this process, with the Board convening as guided by the process to discuss the merits of any buyback given the level of the discount, market conditions more broadly and the likely impact on future NAV growth and commitment levels from any actions contemplated.

There are signs that the challenging conditions for private equity transactions are easing somewhat as we enter the second half of the year and noticeably in the structurally growing sectors and with the types of highly resilient assets that align with your Company's investment strategy. Your Board and the Manager are optimistic that the remainder of 2023 will see not only ongoing strong performance from the portfolio but also an increase in the pace of the new investment activity that supports long-term value creation at HGT.

HGT portfolio management

As I noted in my previous full year report, in addition to seeking to optimise the balance sheet through debt and equity capital markets, the Board also looks to take advantage of market driven opportunities to manage the portfolio construction of HGT, achieving the optimal balance of asset and vintage exposure across the various Hg fund structures that constitute the portfolio.

As reported previously, HGT has now completed the sale of c.25% of HGT's remaining investment in Hg's Genesis 8 Fund, delivering a return of 3.2x invested cost. This transaction was priced at 100% of Hg Genesis 8's December 2022 NAV and provides further strong validation of the HGT valuation policy, generating net proceeds to HGT of just over £91 million. In April, the Board and the Manager also agreed to take advantage of the opportunity to resize HGT's original commitment to Hg Saturn 3, reducing it by c.15%, in light of a review of changes in the investment landscape before the final closing of the vehicle.

The adjustments to the HGT investment profile not only allow for significant cash to be returned to HGT at attractive valuations but allow for increased investment, particularly through increased exposure to co-investments where HGT has a stated goal of investing 10% -15% of capital. A final benefit of these adjustments is that they provide a mechanism to help manage the single asset concentration in the largest individual investments in the portfolio.

Impact and responsible investment

Your Board and the Manager, Hg, continue to increase their focus on the topics of ESG and sustainability. We share a firmly held view that not only should the financial returns to you, the shareholders, be attractive, but these must be delivered in a manner which is consistent with our responsibility to society. As a technology investor, we understand the need to ensure that those businesses in which we invest reduce their carbon footprint and contribute to tackling climate change. The UNPRI assessment of Hg's approach to responsible investment is 4* (82/100) for Investment Stewardship Policy and 5* (100/100) for Private Equity, and the Board of HGT meets regularly with the Hg Responsible Investment team to ensure that Hg's work is well understood and endorsed by the Board.

As we have previously reported, Hg launched The Hg Foundation in 2020 - a charitable initiative to provide funding and operational support to initiatives across Europe, the UK and the US. The Hg Foundation's goal is to have an impact on the development of those skills and learning most required for employment within the technology industry, focusing on individuals who might otherwise experience barriers to access this education. This Foundation is funded by the Hg management company and its team members.

Responsible Investment: see pages 26 to 27 of the full Interim Report and accounts.

The Hg Foundation: see page 27 of the full Interim Report and accounts.

Dividend

As a principle, your Company aims to achieve long-term growth in the net asset value per share and in the share price as a primary goal, rather than to deliver a specific dividend stream.

In order to maintain its status as an investment trust, HGT is not permitted to retain more than 15% of taxable income in any given financial year. Consequently, HGT distributes at least 85% of this taxable income each year as a dividend.

The level of this taxable income is influenced by the capital structures of the transactions entered into by Hg and by income received on liquid resources held by the balance sheet.

As a result, this income can and does vary from one year to another, with a relatively low level of predictability and this in turn has an impact on the funds available each year for dividends.

In the Report and Accounts for the year ended 31 December 2022, your Board indicated a full year dividend of 5.0 pence per share to be a reasonable basis for a level that the Company should be able to sustain, given all the aforementioned detail.

As regards the current financial year, HGT will pay an interim dividend of 2.0 pence per share (2022: 2.5 pence per share), payable in October.

The Board will communicate further guidance on the dividend to shareholders when it is practicable to do so.

Dividend: see page 61 of the full Interim Report and accounts.

Dividend re‑investment plan: page 61 of the full Interim Report and accounts.

Board and governance

As I noted in my previous statement, HGT is embarking on a process to find a new Non-Executive Director to replace Anne West, who has chosen not to stand for re-election to the Board at the next AGM in May 2024, after ten years of service on the Board. This process is now well underway. The Nominations Committee has defined a scope for the skills and experience which would be most additive to the Company and an external firm of headhunters has been engaged to support the Nomination Committee and the Board in delivering a successful outcome to this process. The expectation is that this process will conclude before the end of the year and any announcements will be made in due course.

Prospects

Your Company has delivered a resilient performance over the first six months of the year with the portfolio delivering strong underlying growth. Investment activity has been noticeably slower in the first half of 2023 as the prevailing high degree of uncertainty and tight capital markets conditions combined to make transactions challenging. There are signs that these conditions are starting to abate somewhat, and noticeably in the sectors and with the types of assets that align with your Company's investment strategy. The significant liquidity generated in the period not only validates the market value of the assets in the portfolio but further strengthens the balance sheet to be able to capitalise on future opportunities as they present themselves. With our defensive portfolio of companies and prudent management of the balance sheet, the Company is well positioned to take advantage of investment opportunities as they arise.

Jim Strang
Chairman
15 September 2023

Manager's update

Our portfolio continues to be driven by growth from existing customers, supported by strong renewal rates, cross and up-sell. We enhance this with M&A, which remains a powerful accelerant of our performance.

David Toms, Head of Research, Hg

All investments sit within Hg's sweet-spot in software and tech-enabled services across eight industry verticals or 'clusters' as we continue to build on Hg's position as one of the largest software groups in the world.

Luke Finch, Head of Client Services, Hg

The first half of 2023 has seen a marked improvement in investor sentiment towards software and tech-enabled services ('S&S') in the public markets. After stabilising in the second half of 2022, S&S multiples have rebounded strongly in 2023, with the valuation of the largest public software index up over 25% so far this year. We think it would be brave to extrapolate such valuation progression into the second half of the year, given we are already at pre-COVID valuation highs, but investor sentiment around the prospects for software and tech-enabled services is clearly much more positive than it was at the start of 2023.

From a trading perspective, we commented in May that "the broader backdrop is less benign than previous years", based on the lack of growth in sector earnings forecasts in the second half of 2022. However, the first half of 2023 has seen an improvement in this metric, with sector earnings growth forecasts increasing by c.10% on an annualised basis over the period. As currency headwinds abate further, we see scope for this to sustain in the second half. Across the industry, although we have seen some companies report increasing pressure on new business (and we are seeing some similar effects within the portfolio), the impact of this is relatively minor. The majority of our revenue arises from the existing customer base, where we continue to see strong renewal rates, driven by cross and up-sell.

We can see the impact of slower new business by analysing the growth rate expectations for US-listed public software companies. We categorise these into 'Typical Hg Businesses' with 5-15% estimated organic revenue growth, and 'High growth, Low margin' businesses with 15%+ estimated organic revenue growth rates. For the Typical Hg Businesses, the average growth rate expectation since December 2020 has been remarkably stable at c.10%. In contrast, the high growth companies, typically much more dependent on new business, have seen an 11pp reduction in growth rate expectations, from 26% to 15%. This resilience and ability to generate growth from the existing customer base, underpins the vast majority of our portfolio. 

The biggest news item of the first half is clearly the widespread publicity around generative AI (Chat GPT and its siblings), which has arguably been responsible for at least some of the renewed investor enthusiasm for software. This is not a new topic to us at Hg; in addition to a multi-year involvement in beta programs from some of the largest industry players in Generative AI products, our in-house data team continues to work across the portfolio on leveraging the capabilities of data analytics, machine learning and AI in its multiple forms. What has changed in the last six months has been the commercially available capabilities that we can leverage through all our businesses.

Our investment philosophy revolves heavily around the automation of business processes, and Generative AI dramatically increases the range of processes we can cover. In the same way that SMB accounting software enabled non-accountants to maintain their financial statements, AI opens a wide range of tasks up to non-specialists. Whether this will be automating graphic design (as demonstrated by Adobe, where its beta program for an AI enabled product saw uptake eighty-fold greater than management had expected) or legal workflow (as we are tackling within the Hg portfolio), we are very early in the democratisation of a wide range of additional software use cases that will drive a material increase in overall market opportunity. Innovation, in its multitude of forms, remains a secular long-term driver of opportunity.

Despite the Hg portfolio's positive NAV development in the first half, investors may notice that the performance has lagged public markets over the very short term. This is entirely a result of lower volatility in our valuation multiples; our earnings growth is comfortably ahead of public comparators. We use an unweighted valuation methodology (which tends to be less volatile as it is not skewed by movements in large index constituents) and we also include private transaction comps. As a result, we participate neither in the mood swings of extreme euphoria and extreme depression, to which the public markets (and particular indices) can be prone.

Furthermore, although our valuation process is based partly on public comparators, as with our companies, the vast majority of these are profitable, established businesses. Such businesses have shown much more limited valuation volatility in keeping with their robust, predictable nature.

As we have previously indicated, in any quarter, there are two main factors influencing our valuations:

•   Valuation change in public comparators, of which we, very broadly, see around half the impact in any one quarter. Our valuation model is driven partly by such inputs, but also by less volatile, longer-term M&A comps in the public and private markets.

•   Growth in earnings. Our companies have typically grown their EBITDA historically by 10-15% organically each year, i.e. c.3% each quarter, and approximately doubled this on an 'all in' basis including M&A.

The relative pace of both movements (rating changes can be relatively rapid; earnings growth tends to be much steadier) dictates movements in any one quarter, but over time, earnings growth tends to dominate. We remain aware, however, that events rarely align perfectly along a timeline, and there is a risk that a combination of geopolitical challenges, fiscal tightening, supply chain constraints, and cost increases, cause broad economic challenges to which our portfolio's end customers may respond with temporarily lower investment (postponing investments in systems and software), before the structural factors that drive the need for software reassert themselves. 

Looking to the second half of the year - we would be very surprised to see H1's multiple expansion repeat in H2. However, in our view, when set against the broader market context, software does not feel overly exposed at present, particularly given the stability of its growth.

Given the stability of growth and margin opportunity, we expect robust organic earnings growth to continue.

In our view, sector sentiment is likely to be underpinned by slightly more positive earnings reports from the US as last year's currency headwinds abate. Beyond this, for our portfolio, M&A remains a key driver of outperformance and we continue to execute on a strong set of opportunities.

Activity levels

As previously stated, in any rolling 12-month period, the investment teams across Hg look to make between 8 and 16 new platform investments in total across the active Hg Saturn, Hg Genesis and Hg Mercury funds, and we also seek to deliver similar numbers of liquidity events (sales or partial sales of portfolio companies and refinancings) each year. We believe the pace of investment should continue at broadly this level over the medium term. However, while we continue to see opportunities, we are in a period of reduced activity for platform acquisitions, as seller expectations adjust and react to the macro-outlook and in particular the new interest rate environment.

In contrast, M&A activity within the existing portfolio remains high. From any new investments we make, there is a further flow of M&A opportunities, adding to the breadth and depth of our organic development, and catalysing cross sales to existing and acquired customers. Portfolio M&A is at an all-time high, reflecting a more liquid and attractive pricing environment for these, typically smaller, opportunities. We have previously indicated a run-rate of somewhere in excess of 100 such acquisitions a year, and we are running at over twice that rate at present. The valuations for such investments tend to be around half the level of the platform companies that are acquiring them, providing an attractive source of enhanced returns.

To give a further sense of scale, the combined enterprise value of the businesses within Hg's portfolio now totals to over $125 billion at 30 June 2023.

Overview of the underlying investments

held through HGT's limited partnerships

Investments (in order of value)		Fund	Sector	Location	Vintage	Residual cost £000	Total valuation1 £000	Portfolio value %	Cum. Value %
1	Access	S3/G8/HGT	ERP & Payroll	UK	2020	149,243	290,918	12.4	12.4
2	Visma	G7/S1/S2/HGT	Tax & Accounting/ERP & Payroll	Scandinavia	2020	89,768	208,871	8.8	21.2
3	Howden	S2/HGT	Insurance	UK	2021	75,657	137,055	5.8	27.0
4	IFS Workwave	S3/HGT	ERP & Payroll	Scandinavia	2022	111,901	119,514	5.0	32.0
5	Litera	G8/G9	Legal & Regulatory Compliance	N.America	2019	28,919	107,867	4.5	36.5
6	IRIS	S1	Tax & Accounting/ERP & Payroll	UK	2018	36,380	99,143	4.2	40.7
7	P&I	G7/S1/HGT	ERP & Payroll	Germany	2020	44,156	99,130	4.2	44.9
8	Ideagen	G10/G9/M3	Legal & Regulatory Compliance	UK	2022	68,257	88,870	3.7	48.6
9	Septeo	G9	Legal & Regulatory Compliance	France	2020	38,545	79,191	3.3	51.9
10	insightsoftware	S2/HGT	Tax & Accounting	N.America	2021	57,494	74,353	3.1	55.0
11	FE fundinfo	M2/G9	Capital Mkts & Wealth Mgmt IT	UK	2017	26,154	71,621	3.0	58.0
12	Sovos	S2/HGT	Tax & Accounting	N.America	2020	54,455	60,703	2.6	60.6
13	team.blue	G10/G8	Tech Services	Benelux	2018	37,569	57,666	2.4	63.0
14	GGW	M2/M3	Insurance	Germany	2020	15,377	54,053	2.3	65.3
15	Azets	G7/HGT	Tax & Accounting	UK	2016	20,966	53,813	2.3	67.6
16	Argus Media	S1/HGT	Capital Mkts & Wealth Mgmt IT	UK	2020	27,384	49,830	2.1	69.7
17	Norstella	M2/G9/HGT	Healthcare IT	N.America	2021	29,274	45,458	1.9	71.6
18	Trackunit	G9	Automation & Engineering	Scandinavia	2021	26,593	40,826	1.7	73.3
19	Rhapsody	M2/M3/HGT	Healthcare IT	N.America	2018	20,814	37,056	1.6	74.9
20	MeinAuto	G8	Automation & Engineering	Germany	2017	25,233	36,439	1.5	76.4
21	Waystone	S2	Legal & Regulatory Compliance	UK	2022	38,449	36,224	1.5	77.9
22	Citation	G8	Tech Services	UK	2020	19,348	34,770	1.5	79.4
23	Prophix	G9	Tax & Accounting	N.America	2021	17,139	32,892	1.4	80.8
24	Benevity	S2/HGT	ERP & Payroll	N.America	2021	32,124	32,456	1.4	82.2
25	Caseware	G8	Tax & Accounting	N.America	2020	21,255	31,996	1.3	83.5
26	Gen II	G9	Capital Mkts & Wealth Mgmt IT	N.America	2020	19,921	31,842	1.3	84.8
27	Intelerad	G8	Healthcare IT	N.America	2020	11,870	29,664	1.3	86.1
28	TeamSystem	G8	Tax & Accounting/ERP & Payroll	Italy	2021	10,586	29,044	1.2	87.3
29	HHA	G9	Healthcare IT	N.America	2021	24,035	26,682	1.1	88.4
30	Project CH	S2	Tax & Accounting	Germany	2021	18,393	24,877	1.0	89.4
31	DEXT	S1/HGT	Tax & Accounting	UK	2021	15,620	23,830	1.0	90.4
32	smartTrade	M2/HGT	Capital Mkts & Wealth Mgmt IT	France	2020	18,821	23,111	1.0	91.4
33	LucaNet	G9	Tax & Accounting	Germany	2022	15,649	21,601	0.9	92.3
34	Nitrogen	M3/HGT	Capital Mkts & Wealth Mgmt IT	N.America	2021	15,868	19,652	0.8	93.1
35	GTreasury	M4	Tax & Accounting	N.America	2023	15,569	16,138	0.7	93.8
36	Silverfin	M2/HGT	Tax & Accounting	Benelux	2019	10,046	15,679	0.7	94.5
37	Commify	M1/HGT	Tech Services	UK	2017	4,080	15,451	0.7	95.2
38	Pirum	M3/HGT	Capital Mkts & Wealth Mgmt IT	UK	2022	13,928	15,215	0.6	95.8
39	Auvesy	M3	Automation & Engineering	Germany	2021	8,130	14,271	0.6	96.4
40	F24	M2/HGT	Tech Services	Germany	2020	10,589	14,189	0.6	97.0
41	Revalize	G9	ERP & Payroll	N.America	2021	18,686	12,495	0.5	97.5
42	Serrala	G9	Tax & Accounting	Germany	2021	23,086	12,415	0.5	98.0
43	Mitratech	G7/HGT	Legal & Regulatory Compliance	N.America	2017	3,328	12,138	0.5	98.5
44	Geomatikk	M2/HGT	Tech Services	Scandinavia	2021	11,392	11,469	0.5	99.0
45	Fonds Finanz	M3	Insurance	Germany	2022	8,309	10,912	0.5	99.5
46	TrustQuay	M3	Capital Mkts & Wealth Mgmt IT	UK	2022	8,970	9,842	0.4	99.9
47	Bright	M3	ERP & Payroll	Ireland	2021	6,529	8,622	0.4	100.3
48	Blinqx	M3	ERP & Payroll	Benelux	2022	3,833	5,141	0.2	100.5
	Total buyout investments (48)					1,409,692	2,384,995	100.5	100.5
	Other		Hedges and other fund interests			13,141	(12,411)	(0.5)	(0.5)
	Total all investments					1,422,833	2,372,584	100.0	100.0

¹Including accrued income of £136,778,000, but before a deduction for the provision for carried interest of £198,752,000 and fund level facilities of £362,028,000. Note that the investments held at fair within the Balance Sheet on page 48 of the full Interim Report and accounts exclude accrued income but include the deduction for carried interest and the fund level facilities.

Dividend

The interim dividend proposed in respect of the year ending 31 December 2023 is 2.0 pence per share.

Ex-dividend date (date from which shares are transferred without dividend)	28 September 2023
Record date (last date for registering transfers to receive the dividend)	29 September 2023
Last date for registering DRIP instructions	13 October 2023
Dividend payment date	27 October 2023

Further Information

HGT's Interim Report for the six months ended 30 June 2023 is available to view on HGT's website at:  https://www.hgcapitaltrust.com. In accordance with DTR 6.3.5(1A) of the Financial Conduct Authority's Disclosure Guidance and Transparency Rules, it has also been submitted in full unedited text to the Financial Conduct Authority's National Storage Mechanism and will shortly be available for inspection at  data.fca.org.uk/#/nsm/nationalstoragemechanism  

ENDS

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement.

 

END