REG - HgCapital Trust PLC - Annual Financial Report
10/03/2025 07:00
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RNS Number : 9032Z HgCapital Trust PLC 10 March 2025
HgCapital Trust plc
ANNUAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2024
RESILIENT NAV PERFORMANCE DRIVEN BY STRONG TRADING IN THE UNDERLYING PORTFOLIO
AND CONTINUED REALISATION ACTIVITY IN A CHALLENGING MACRO ENVIRONMENT
London, 10 March 2025: HgCapital Trust plc ('HgT'), today announces its
annual results for the year ended 31 December 2024.
HgT provides investors with a listed vehicle to invest in unquoted businesses
managed by Hg, Europe's largest investor in software & services companies.
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 businesses where value can be created through strategic and
operational change.
This objective has been demonstrated with a 10-year share price total return
of +20.5% p.a., outperforming the FTSE All-Share Index by +14.3% p.a. over
this period.
Highlights over 2024 included:
§ 25.7% total share price return
§ 10.4% NAV per share growth on a total return basis, with net assets of
£2.5 billion
§ Discount narrowed from 13% to 2% premium(1)
§ LTM revenue and EBITDA growth of 19% and 23% respectively for the top 20
companies (76% of the portfolio), with an average EBITDA margin of 34%
§ Investments of £606 million and gross realisations of £508 million
§ £336 million of liquid resources available, including a £375 million
credit facility, of which £98 million was drawn at year end
§ £735 million of outstanding commitments to Hg funds to be invested over
the next two to three years
Based on HgT's share price at 31 December 2024 and allowing for all historic
dividends being reinvested, an investment of £1,000 made 20 years ago would
now be worth £19,166, a total return of 1,817%. An equivalent investment in
the FTSE All-Share Index would be worth £3,777.
Jim Strang, Chairman of HgT, commented:
"I am happy to report that HgT performed well in 2024, successfully navigating
the challenging investment environment in the Private Equity market. The
portfolio continued to see strong underlying trading performance, with sales
and EBITDA across the top 20 investments (76% of the portfolio) growing at 19%
and 23% respectively. Investment and realisation activity continued at a pace
in 2024 and beyond, consistent with the cycle that underpins long term value
creation at HgT. The strong progress in 2024 supported a near 26% increase in
the share price of HgT alongside a material narrowing of the discount. HgT
shares ended the year at a 2% premium to NAV(1)."
David Toms, Head of Research at Hg, commented:
"The portfolio demonstrates exceptional operational strength with LTM EBITDA
growth of 23% outpacing revenue growth of 19%, driving margins to 34%. With
resilient business models and strong recurring revenues, the portfolio is
well-positioned for both organic growth and strategic M&A opportunities in
the current market environment."
SUMMARY performance
28 February YTD 31 December 31 December 2024
2025
Total
2024
2023
Total
return
return
NAV per share 545.0p -0.1% 545.5p 500.5p +10.4%
Share price 526.0p -2.4% 539.0p 434.5p +25.7%
FTSE All-Share Index +6.9% +9.5%
YTD 2025 2024
Movement
Movement
Net Asset Value £2.5bn -£2.3m £2.5bn £2.3bn +£206m
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 31 March 2025, therefore the movement in unrealised
value of the portfolio to the end of February 2025 is predominantly
attributable to FX.
Performance overview
Net assets of £2.5 billion, with continued long-term outperformance of the
FTSE All-Share over one, three, five, ten and twenty-year periods:
- NAV per share of 545.5p, a total annual return of +10.4% to 31
December 2024.
- Share price total return of +25.7% over the year.
- Proposed final dividend of 3.5p per share (full year dividend of
5.5p per share).
Strong double-digit growth from the top 20 (76% of the portfolio):
- Revenue and EBITDA growth of 19% and 23% respectively across the top 20
investments over the last twelve months, EBITDA margins of 34%.
- Valuation multiple (EV/EBITDA) of 26.1x and net debt to EBITDA ratio of
7.4x for the top 20 investments.
Continued portfolio activity to drive future value:
- £508 million of gross realisations
- Full and partial exits in the last year were achieved at an average of
15% above their last reported carrying value.
- Continued investment with £606 million invested on behalf of HgT into
companies that Hg (the Manager) has known for many years and have demonstrated
a track record of strong performance across market cycles.
POST PERIOD TO 28 FEBRUARY 2025
§ Pro forma NAV per share of 545.0p.
§ Pro forma Net assets of £2.5 billion.
§ Share price of 526.0p, performance of -2.4% since 31 December 2024.
Realisations and investments
§ Estimated £87 million realised post December 2024, primarily from the
refinancing of The Citation Group that completed in the first quarter of 2025
and the full exit of Trackunit announced in February 2025.
§ £30 million invested by HgT, primarily into The Citation Group.
Liquid resources and commitments
§ Commitment of $1 billion to Hg Saturn 4, expected to be called over the
next three to four years
§ Available liquid resources (including the £375 million credit facility, of
which £21 million was drawn at the end of February) post-completion of all
announced transactions and the full year dividend payable in May 2025, are
£376 million (15% of 28 February pro-forma NAV). Outstanding commitments of
£1.4 billion (57% of 28 February pro-forma NAV).
Outlook
Commentary from Hg (the Manager):
The combination of the long-term nature of listed private equity investment,
the types of growth businesses that Hg invests in, is expected to continue to
drive long-term performance
§ Resilient trading performance underpinned by mission-critical nature of
products and services provided by portfolio companies
§ Improving deal environment and increased Hg Investment Committee activity
is supportive of further investment activity
§ We continue to focus on consistency of realisations, with further liquidity
events anticipated
§ We remain excited by the long-term investment opportunity, as businesses
seek to automate workflow to improve productivity and manage rising labour
costs
(1) Based on the last published NAV per share at 31 December 2024
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.
- Ends -
HgT's 2024 Annual Report, results presentation and an animated presentation
from Hg to accompany the results are available to view at:
http://www.hgcapitaltrust.com/ (http://www.hgcapitaltrust.com/) .
For further details:
HgCapital Trust
Laura Dixon and George Crowe
+44 (0)20 8396 0930
Cadarn
Lucy Clark
lucy@cadarncapital.com (mailto:lucy@cadarncapital.com)
+44 (0)7984 184 461
Cadarn
David Harris
david@cadarncapital.com (mailto:david@cadarncapital.com)
+44 (0)7368 883 211
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
(http://www.hgcapitaltrust.com) and www.hgcapital.com
(http://www.hgcapital.com)
LEI: 213800J7QUJJBEFSIN38
HgCapital Trust plc
Annual Report and Accounts and Notice of Annual General Meeting
HgCapital Trust plc (the "Company" or "HgT") announces its annual results for
the year ended 31 December 2024 and the publication of its annual report and
accounts for the same period, which includes the notice of Annual General
Meeting.
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
2024 performance at a glance
+25.7%
Share price (539.0p)
31 December 2023: +26.2%
£2.5bn
Market capitalisation
31 December 2023: £2.0bn
+10.4%
NAV per share (545.5p)
31 December 2023: +11.1%
£2.5bn
Net assets
31 December 2023: £2.3bn
5.5p
Full year dividend
31 December 2023: 6.5p
1.4%
Total ongoing charges
31 December 2023: 1.7%
£606m
Invested on behalf of HgT
31 December 2023: £74m
£508m
Realisations to HgT
31 December 2023: £346m
£336m
Available liquid resources (13% of NAV)
31 December 2023: £625m (27% of NAV)
£735m
Outstanding commitments (29% of NAV)
31 December 2023: £1.2bn (53% 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'). Please see the definitions of the APM's in the
glossary pages 119 to 120 of the full Annual Report and Accounts for the year
ended 31 December 2024.
Top 20 investments (76% of portfolio value)
A snapshot as at 31 December 2024
+19%
LTM sales growth
31 December 2023: +25%
+23%
LTM EBITDA growth
31 December 2023: +30%
34%
EBITDA margin
31 December 2023: 31%
26.1x
EV to EBITDA multiple
31 December 2023: 26.1x
7.4x
Net debt to EBITDA ratio
31 December 2023: 7.4x
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. Figures are based on the Top 20 investments as at
the balance sheet date and basis of calculation can therefore change year on
year.
CHAIRMAN'S STATEMENT
I am happy to report that HgT performed well in 2024, successfully navigating
the challenging investment environment in the private equity market. The
portfolio continued to see strong underlying trading performance, with sales
and EBITDA across the top 20 investments (76% of the portfolio) growing at 19%
and 23% respectively. Investment and realisation activity continued at pace in
2024, consistent with the cycle that underpins long term value creation at
HgT. The strong progress in 2024 supported a near 26% increase in the share
price of HgT alongside a material narrowing of the discount. HgT shares ended
the year at a 2% premium to NAV.(1)
(1)Based on the last published NAV per share at 31 December 2024
Jim Strang, Chairman, HgT
2024 saw good progress for HgT, maintaining the momentum reported in the
interim results. The overall deal markets for Private Equity transactions
continue to gradually improve, aided by increased investor confidence and more
accommodative conditions in credit markets. Furthermore, as I noted in the
interim results, the kind of high-quality software companies that make up the
majority of the HgT portfolio remain some of the most attractive areas in
which to invest across private markets and continue to command significant
valuation multiples, in my view. HgT has been a very active participant in the
markets in 2024 with a number of new investments and realisations taking place
throughout the year.
The portfolio, which numbered 55 businesses at 31 December, has traded well
over the last twelve months, reflecting the characteristics of the types of
companies targeted for investment by the Manager ('Hg'), namely those with a
competitive advantage, high recurring revenues and strong customer
relationships. Importantly, Hg continues to refine and enhance its in-house
value creation capabilities to support these portfolio companies in reaching
their full potential. Hg consistently invests in its own team and resources to
support this, notably into AI where the kind of application software companies
in the portfolio are expected to be net beneficiaries of this new technology.
Given the discipline and rigour of the investment approach, the focus on
continual improvement at Hg and the strength of both the portfolio and the HgT
balance sheet, the Board maintains a positive outlook for the year ahead.
Highlights to 31 December 2024 included:
• 25.7% total share price return
• 10.4% NAV per share growth on a total return basis, with net assets of
£2.5 billion
• Discount narrowed from 13% to 2% premium(1)
• LTM revenue and EBITDA growth of 19% and 23% respectively for the top 20
companies (76% of the portfolio), with an average EBITDA margin of 34%
• Investments of £606 million and gross realisations of £508 million
• £336 million of liquid resources available, including a £375 million
credit facility, of which £98 million was drawn at year end
• £735 million of outstanding commitments to Hg funds to be invested over
the next two to three years
Performance
The NAV of HgT increased by 10.4% on a total return basis over the year,
reflecting the ongoing strength of the operating performance of the HgT
portfolio. HgT's share price saw a total return of 25.7% over 2024. On a
long-term basis, HgT has seen a CAGR on a total return basis of 15.9% p.a.
over the past 20 years, outperforming the FTSE All Share index by 9.0% p.a.
over the same period.
The total net assets of HgT at 31 December 2024 were £2.5 billion, an
increase of £206 million over the reported figures at 31 December 2023. An
analysis of NAV movements and movement within the underlying portfolio is set
out on page 39 of the full Annual Report and Accounts for the year ended 31
December 2024.
At the end of December 2024, the HgT portfolio consisted of 55 investments,
which focus on mission-critical B2B software and services businesses. This
portfolio has continued to perform well with the top 20 underlying companies
(76% of the portfolio) delivering revenue and EBITDA growth of 19% and 23%
respectively over the last 12 months, reflecting the defensive-growth nature
of the businesses in which HgT is invested. Profitability has improved with
average EBITDA margin of 34% (December 2023: 31%). Currently, 98% 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 businesses typically exhibit highly predictable forward cash flows and
are appropriately financed, including significant debt covenant flexibility
around their financial structures. The top 20 investments have a weighted
average net debt to EBITDA ratio of 7.4x (December 2023: 7.4x), which is
consistent with the highly recurring revenues of the businesses that make up
the Hg portfolio and is typical for large, high quality software assets in
general. Given that the average valuation multiple for the top 20 portfolio
companies is 26.1x EV-to-EBITDA (December 2023: 26.1x), this implies that debt
accounts for less than 30% of the portfolio company capital structures. This
allows a significant equity cushion within the portfolio reflecting the
Manager's prudent approach to leveraging and consistent with similar peer
companies in the market. Hg has a dedicated capital markets team which
continually monitors and manages 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 maturity.
As I have noted in the past, HgT aims to achieve long-term growth in the net
asset value per share and in the share price, rather than to deliver a
specific dividend yield, with the dividend primarily determined by the level
of income from the underlying portfolio, which can vary over time. As regards
the current financial year, HgT will pay a final dividend of 3.5 pence per
share (2023: 4.5 pence per share), payable in May. This brings the full year
dividend to 5.5 pence per share (2023: 6.5 pence per share).
Dividend: see page 116 of the full Annual Report and Accounts for the year
ended 31 December 2024.
Dividend re‑investment plan: page 116 of the full Annual Report and Accounts
for the year ended 31 December 2024.
Investments and realisations
In order to grow the NAV of the portfolio, and to deliver returns for
shareholders, HgT operates in a continual cycle of commitments to new vehicles
managed by Hg, as well as co-investments at manager/HgT-level.
Investment activity was robust over 2024, with a total of £606 million of new
and further capital deployed over the year, including Visma, AuditBoard, IRIS,
GGW, Ivalua, Septeo and NContracts. Further investments to finance bolt-on
M&A are 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, product and
service offering.
An additional follow-on investment in Citation completed in February 2025.
HgT has seen increased co-investment activity (free of management fees and
performance fees), over which are 2024 and the Board believes this is set to
continue over the next twelve months. HgT currently has 9% of net assets in
co-investment (vs 6% in 2023) and aims to grow this to 10-15% in line with
stated policy. Increasing the allocation to co-investments allows HgT to more
fully utilise its available liquid resources, to improve returns and to reduce
the overall fee load for shareholders.
The Hg investment model is based around supporting portfolio companies to
achieve their full potential and in creating larger, more valuable and
attractive businesses. As a result of this work, these have proved to be
sought after businesses from both trade and financial buyers. Consequently,
despite the challenging market conditions, Hg continued to deliver a number of
liquidity events over the last year, which included the full and partial exits
of IRIS, GGW, team.blue, Argus, Visma, TeamSystem, Septeo and Dext. In total,
HgT saw £508 million in realisations from the underlying portfolio.
Post-period, HgT expects to realise a further £87 million from the partial
exits of Citation and Trackunit.
Exits in the last year achieved an average of 15% above the last reported
carrying value of the investments. Valuations remain an area of continued
focus for the HgT Audit Valuation and Risk Committee ('AVRC'), with the long
term and ongoing record of exits above recent holding values providing
comfort.
Realisation activity continues to distinguish Hg, as the Private Equity
industry in general finds generating liquidity events challenging. Hg's recent
record of delivering more than 40 realisations over the last two years
highlights the fundamental strengths and attractiveness of the underlying
portfolio to both trade and financial buyers, despite the challenging overall
market conditions.
Portfolio transaction activity:
see pages 44 to 47 of the full Annual Report and Accounts for the year ended
31 December 2024.
Fundraising
Hg's record in building and creating value in the portfolio supports Hg's
fundraising. In February 2025, HgT committed $1.0 billion to Hg's Saturn 4
fund which will be deployed over the next three to four years. As shareholders
will be aware, committing to Hg funds is the single greatest lever HgT has to
support the long term growth in NAV. Participating in this latest fundraising
process will thus support HgT's long‑term NAV growth ambitions while the
sizing of this commitment is appropriate for the resources available to
support both this new Saturn fund and others in the Hg fund family when they
return to market. HgT continues to participate as Hg's largest single client.
Hg funds: see page 32 of the full Annual Report and Accounts for the year
ended 31 December 2024.
Capital Allocation
As part of the Board of HgT's commitment to shareholders, our primary
objective is to maximise investment returns through a disciplined approach to
the allocation of available liquid resources. This incorporates the ongoing
monitoring by the Board, working with the Manager, of forecast cash flows and
estimated returns. As I have stated in past reports, the Board continually
seeks ways to improve the effectiveness of governance. As part of this
process, much attention has been devoted, and shareholder feedback garnered,
on the topic of capital allocation. The approach, framework and tools adopted
are set out below.
Investments
At the core of the capital allocation policy is the imperative to drive
compelling investment returns for shareholders. As you will be aware HgT has
delivered strong shareholder returns to investors over a period of more than
two decades, a fact recently highlighted by the AIC.
www.theaic.co.uk
The Board seeks to maintain this long-term record by continuing to access the
repeatable returns delivered by the Hg investment platform since inception.
HgT's commitments to Hg funds ensure that HgT maintains exposure to Hg's deal
flow, which is the single biggest driver of investment opportunities with the
potential to generate long-term returns. As such, the first priority of the
Board is to ensure that HgT is positioned to access these returns to the
fullest extent possible, at acceptable levels of risk. This includes
co-investment opportunities (free of management fees and performance fees), in
what is anticipated to be an attractive investment environment.
Buybacks
From time to time, market conditions can create divergence between the share
price of HgT and its stated net asset value. The Board, the Manager and HgT's
broker monitor such divergence closely, following a clearly defined share
buyback policy. The Board has developed a process with a number of 'triggers'
set by absolute and relative levels of share price discount over various time
periods. Where two or more such 'triggers' are activated, the Board is
informed and a decision is taken as to whether to allocate resources to buying
back shares. Any such buybacks are viewed with suitable caution, reflecting
the relative merits of any immediate gain with the considerable impact that
utilising current cash has on long term NAV growth.
Dividends
HgT's ability to pay dividends is mainly determined by the levels of income
that are generated by the underlying assets in the portfolio. As deal
structures used by Hg have evolved, the general trend in that level of income
generated is downwards, albeit it is also variable from one year to the next.
Given this feature, the Board has in recent years guided shareholders to
viewing 5p per share as a reasonable basis for a dividend 'floor'. This year,
taking into account the levels of income available, the Board considers a 5.5p
per share to be appropriate and within the requirements to maintain investment
trust tax status.
Debt facility
The final element of the capital allocation policy relates to the use of
leverage. HgT maintains a Revolving Credit Facility of £375 million to
support the implementation of the investment strategy.
Balance sheet
A key role of the Board is to balance considerations of HgT's future
commitments to Hg funds, balance sheet and cash position, while maintaining a
clear focus on risk. This is a continuous cycle of activity which has to adapt
to unpredictable events. In the last year, HgT has invested in upgrading the
systems used to manage this process, aligning them with similar tools that Hg,
the Manager, uses to manage its own cash-flow forecasting. As a result, the
Board benefits from being able to assess the various scenarios with a greater
degree of granularity which should benefit the quality of decision making.
As one of the tools used to manage the balance sheet, HgT has a revolving
credit facility to support the investment programme and to improve balance
sheet efficiency. In 2024, HgT increased its facility to £375 million,
representing c.15% of NAV, consistent with the historical sizing of this
facility. This will aid HgT's future cash flow management.
HgT benefits from a unique opt out clause within its underlying investment
agreements with Hg (please refer to business model on page 15 of the full
Annual Report and Accounts for the year ended 31 December 2024 for further
detail), which provides a useful risk management tool for the Board in
managing and optimising the HgT balance sheet.
Impact and responsible investment
The 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 shareholders be attractive but, they must be
delivered in a manner which is consistent with our responsibility to society.
As a technology investor, The Board understands the need to ensure that those
businesses in which we invest reduce their carbon footprint and contribute to
tackling climate change.
The UN Principles for Responsible Investment (UNPRI) assessment of Hg's
approach to responsible investment is 5* (94/100) for policies and stewardship
and 5* (97/100) 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. The Foundation is funded by the Hg management company and its team
members.
Responsible Investment:
see pages 34 to 35 of the full Annual Report and Accounts for the year ended
31 December 2024.
The Hg Foundation:
see page 35 of the full Annual Report and Accounts for the year ended 31
December 2024.
Reporting and Transparency
The Board continues to look at ways to increase the effectiveness of
communications for shareholders.
We are now providing preliminary trading updates, which provide our
shareholders with earlier guidance on the performance of HgT ahead of the full
year and interim results, after approval by the HgT Audit Valuation and Risk
Committee ('AVRC') and the HgT Board.
Over the past year, we have upgraded our website, our reporting materials and
our public engagement through enhanced social media activity. Additionally,
the capital markets day in June saw record numbers of attendees and was
received very positively. These initiatives are part of a concerted effort to
continue to improve shareholder engagement.
HgT has also engaged with third party marketing specialists to increase the
scope and reach of marketing activities for HgT in the UK and overseas, where
regulations permit.
Board and governance
As I noted in March, Anne West retired from the Board at the AGM in May 2024,
after ten years of service. On behalf of myself and my fellow Directors, I
would like to thank Anne for her important contribution to HgT throughout her
time on the Board. Following Anne's departure, Erika Schraner has been
appointed Senior Independent Director and Helena Coles has taken on the role
of Chair of the Management Engagement Committee.
In late 2023, we commenced the process to find a new Non-Executive Director
and an external search firm was engaged to support the Nomination Committee
and the Board in delivering a successful outcome to this process, noting the
skills and experience which would be most additive to HgT.
We were pleased to announce in May the appointment of John Billowits to the
Board. John has over 25 years of operational experience and a wealth of
investment expertise in the software sector, and brings valuable international
perspective, through his past roles and current appointments on Boards of US,
Canadian and European software companies. As a former CFO and CEO and as a
Chartered Accountant, John has significant depth of financial knowledge and
experience. He is a highly regarded investor and operator in the software
sector and brings a unique combination of skills and personal strengths that
are highly complementary to HgT and we are delighted he has chosen to join the
Board.
Nomination Committee report see page 106 of the full Annual Report and
Accounts for the year ended 31 December 2024.
Prospects
HgT delivered a strong performance in 2024, both in NAV growth and notably in
share price appreciation driven by value creation in the portfolio. Investment
activity accelerated over the year, as conditions improved from the previous
year and as the market looked favourably on the kinds of high-quality assets
that make up the HgT portfolio. Importantly, the manager, Hg, continued to
develop its own capability throughout the year.
Turning to the year ahead, it seems likely that the elevated risk levels
discussed earlier in this report will remain very much a factor and HgT will
have to continue to navigate these. Amongst key external risk, both
geo-political risk and cyber risk are expected to remain elevated and the
environment in which HgT operates to remain volatile. Risk is very much front
and centre of the considerations of the Board and as a group, we continue to
refine and enhance the tools and processes we use in this area to identify,
articulate and mitigate the risks HgT faces as best we can.
HgT benefits from the unquestioned quality of Hg as manager and from the
successful investment strategy Hg has developed, investing in resilient
businesses with strong repeat revenue business models where they solve key
business problems for their numerous customers around the world. The
investment "machine" that drives the performance of HgT is working well,
delivering attractive new opportunities for the portfolio while continuing to
successfully monetise successful exits from the mature assets HgT holds.
Trading across the active portfolio remains very much in line with the record
of recent years, delivering strong growth in sales and profitability at
attractive margins.
While very much aware of the risk environment, the Board is cautiously
optimistic for the performance of HgT in the year ahead.
Jim Strang,
Chairman,
07 March 2025
As we have noted in the long-term viability statement (page 16 of the full
Annual Report and Accounts for the year ended 31 December 2024), the
Director's report (page 88 of the full Annual Report and Accounts for the year
ended 31 December 2024) and in the notice of the Annual General Meeting, (page
121 of the full Annual Report and Accounts for the year ended 31 December
2024), in line with HgT's Articles of Association, the Board proposes an
ordinary resolution to continue the life of HgT for a further five years.
Given the outperformance of HgT over many historic time periods under the
management of Hg and with feedback from our investors and commentators, we
believe that this proposal will be passed at the May 2025 AGM.
Notice of AGM: see page 121 of the full Annual Report and Accounts for the
year ended 31 December 2024.
MANAGER'S UPDATE
As long-term technology investors, we've seen various technology waves over
the past three decades, and one feature recurs every time. The world might
overestimate the speed of change, but it also underestimates the scale of
change.
David Toms, Head of Research, Hg
2024 was a year of consistent performance across the broad software industry,
with a listed proxy, the IGV ETF(1) showing an 18% increase in Next Twelve
Months ('NTM') forecast Earnings Per Share ('EPS'). This was consistent with
the first half, and above the long-term trend of c.13%. It also marked a
return to software's long track record of outperformance over the broader
market; the broad market IVV ETF(2) (which tracks the S&P500) showed 12%
EPS growth on an equivalent basis. As in the first half, our analysis
continues to show that public software companies have seen a slight softening
of organic revenue growth (c.1-2PP(3)) over the course of 2024. Margin
expansion has more than counteracted this and continues to drive earnings
growth well ahead of revenue growth.
The Hg portfolio maintained its long-term trend of outperformance against the
broader industry. The top 20 investments saw EBITDA growth of 23% which
resulted from a healthy combination of 19% revenue growth plus some modest
margin expansion. Both revenue and earnings have been underpinned by a broadly
equal mix of organic growth and M&A.
Through 2024, we commented that we did not expect 2023's multiple expansion to
persist and, up until the fourth quarter, our speculation was closely tracking
the actual outcome. However, Q4 benefited from a more buoyant mood in stock
markets generally, and some particularly strong performances by companies such
as Palantir and Salesforce.com, partly fuelled by increased AI enthusiasm. As
a result, the NTM Price:Earnings multiple ended the year modestly (4%) higher
than it started, providing a small extra boost to the sector's strong double
digit earnings performance. In contrast, our portfolio valuation multiple
remained stable through the year, with, as is nearly always the case, earnings
being the dominant driver of our performance.
Trading in our portfolio remains relatively robust, although headwinds to
growth increased slightly over the course of 2024. In particular, lower
inflation means that even if real growth rates are sustained, nominal (i.e.
reported) growth sees modest headwind. However, we should contextualise this
for the kinds of businesses we own, because it might not align with how other,
more generalist investors, describe the environment. The vast majority of our
revenue arises from the existing customer base of our portfolio companies,
which typically is enough to drive modest growth even absent any new business.
Previous cycles have shown that B2B software follows a late cycle, with a very
muted effect of economic slowdown as software purchase / upgrade decisions are
modestly deferred or scaled back. For our portfolio, when life gets a bit
tougher and new business slows, or inflation falls, the actual impact on
organic growth is much more limited. The listed software universe contains a
broader range of companies, sometimes with more economically exposed business
models, and thus saw a larger reduction in growth expectations during the
course of 2024.
Following the last two years of strong exit and liquidity activity, we have
crystallised positive performance from the mature fund vintages, substantially
de-risking these funds and providing further validation of the valuations at
which we hold our portfolio companies. All Hg fund vintages from 2012 to 2018
rank in the top quartile for Distributed to Paid-In Capital ('DPI', FN) when
compared to peers. Across 2024, ten of our businesses saw new investors,
either as a minority alongside Hg, or as majority investors.
New investment activity accelerated considerably in 2024 with thirteen
platform investments in the period. These covered a broad range of sizes
(enterprise values from c.£100 million up to c.£2.5 billion) and clusters.
Nine of the investments were new to Hg, and the remaining four represented
opportunities to deploy new fund capital into businesses where we have a
pre-existing relationship.
Looking to 2025, as we have previously observed, a key attraction of investing
in software and services is that earnings growth is the dominant factor in
driving long-term returns. The nature of the revenue models (recurring) and
costs (largely controllable by the companies) in this sector mean that the
resulting earnings growth is robust and predictable. Consensus forecasts
suggest c.17% EPS growth for the sector in 2025(4), through a combination of
low-double-digit revenue growth, continuing margin expansion and modest
M&A. We expect to continue our track record of long-term outperformance,
although we do caution that our portfolio is typically slow to react to market
changes, which can induce a lag in either direction. A recovery in the
industry may take longer to feed through to our own trading, just as the 2022
slowdown had less negative impact on our portfolio than it did the broader
industry.
We continue to be alert to opportunities and challenges arising from GenAI.
Building on our annual Software Leadership Gathering in Lucerne, we recently
ran a "Silicon Valley Leadership Gathering" for our portfolio. As well as
exploring the transformation of existing application software, we heard from a
number of AI-first companies. This further enhanced not just our understanding
of the opportunities, but also our enthusiasm for the scale of these. We
remain firmly of the view that established software companies are so valuable
because of their sector IP, accumulated experience, customer relationships,
and data; all of which enable them to deliver the best possible customer
propositions at the lowest cost when using modern tools.
Live examples of AI success in the portfolio continue to increase; we are now
tracking over 300 AI projects in the portfolio. These remain biased towards
productivity increases (particularly around customer support, and product
development) - for example, we are seeing some very material reductions in the
cost of modernizing older code bases that might otherwise not have been
economical to redevelop. Evidence continues to build for the appeal of
AI-enabled products for customers - some early launches have seen rapid
adoption at premium price points and we remain confident that there is
significant runway ahead for these capabilities.
As we stated in the H1 report, "The world might overestimate the speed of
change, but it also underestimates the scale of change... Our role is to
invest deeply in our capabilities and understanding to support the kinds of
workflow companies that Hg backs to leverage this next generation of
automation into their customers."
We remain focused on generating liquidity, with 11 total liquidity events
occurring during 2024.
Luke Finch, Head of Client Services, Hg
Activity levels
In any rolling 12-month period, the investment teams across Hg would ideally
make between eight and 16 new platform investments in total across the active
Hg Saturn, Hg Genesis and Hg Mercury funds. We would also seek to deliver
similar numbers of liquidity events (sales, or partial sales of investments
and refinancings) each year. We believe the pace of investment should continue
at broadly this level over the medium term. During 2024 we made new platform
investments in nine businesses: AuditBoard, Ivalua, Ncontracts, Focus Group,
CINC Systems, CTAIMA, Empyrean, Cube Global and Induver.
The current run rate of Investment Committee activity is at a level that
historically has proven appropriate to deliver our long-term average goal of
10 to 12 investments a year; with the Investment Committee busy looking at
opportunities across Saturn, Genesis and Mercury funds. Given the period over
which we track potential investments, rising investment committee activity
takes time to convert to new closed deals. Nevertheless, we are encouraged by
the volume of activity and are starting to see this flow through to
investments.
The quality of our portfolio is evidenced by our continuous ability to
generate liquidity. Since the beginning of 2022, we have announced 42
liquidity events, comprising full exits, partial exits, and refinancings,
including 11 over the course of 2024. In a market often sceptical of private
equity valuations, cash returns offers the most compelling evidence of their
accuracy.
M&A within the existing portfolio is a strong source of value creation.
Deal volumes have accelerated over the past three years and remain at a high
level - around 300 transactions a year. The valuations for such investments
tend to be materially lower than those of the platform companies that are
acquiring them, providing an attractive source of enhanced returns. Of similar
importance are the operational opportunities that this M&A enables as the
platform company is able to drive both revenue growth and cost synergies.
(1)Source: IGV: Factset
(2)Source: IVV: Factset
(2)Source: Hg proprietary analysis of c.150 publicly listed software
companies, on a revenue-weighted basis
(4)Source: Factset, 05 February 2025; IGV EPS FY2 of 2.78/FY1 of 2.37
OVERVIEW OF THE UNDERLYING PORTFOLIO
held through HgT's limited partnerships
Investments Fund Sector Location Year(1) Residual Total Portfolio Cum.
(in order of value) cost valuation(2) value Value
£000 £000 % %
1 Visma S1/S2/S3/HGT Tax & Accounting/ERP & Payroll Scandinavia 2024 205,767 373,008 12.8 12.8
2 Access S3/G8/HGT ERP & Payroll UK 2020 164,874 286,431 9.8 22.6
3 Howden S2/HGT Insurance UK 2024 85,825 180,787 6.2 28.8
4 IFS S3/HGT ERP & Payroll Scandinavia 2022 116,415 155,781 5.3 34.1
5 AuditBoard S3/HGT Legal & Regulatory Compliance N.America 2024 114,482 128,700 4.4 38.5
6 Litera G8/G9 Legal & Regulatory Compliance N.America 2021 28,919 121,593 4.1 42.6
7 Septeo G10/G9/HGT Legal & Regulatory Compliance France 2020 63,165 108,523 3.7 46.3
8 P&I S1/HGT ERP & Payroll Germany 2020 41,303 106,359 3.6 49.9
9 Ideagen G10/G9/M3 Legal & Regulatory Compliance UK 2021 66,448 97,659 3.3 53.2
10 IRIS S3/HGT Tax & Accounting/ERP & Payroll UK 2024 75,381 93,128 3.2 56.4
11 Sovos S2/HGT Tax & Accounting N.America 2020 49,593 79,470 2.7 59.1
12 FE fundinfo M2/G9 Fintech UK 2021 26,229 78,337 2.7 61.8
13 insightsoftware S2/HGT Tax & Accounting N.America 2021 53,056 71,211 2.4 64.2
14 team.blue G10/HGT Tech Services Benelux 2022 35,911 57,512 2.0 66.2
15 Caseware G8 Tax & Accounting N.America 2020 21,255 53,393 1.8 68.0
16 Rhapsody M2/M3/HGT Healthcare IT N.America 2022 20,814 52,113 1.8 69.8
17 Trackunit G9 Automation & Engineering Scandinavia 2021 26,593 50,590 1.7 71.5
18 GGW S3 Insurance Germany 2024 45,061 48,160 1.6 73.1
19 Gen II G9 Fintech N.America 2020 19,921 47,887 1.6 74.7
20 Benevity S2/HGT ERP & Payroll N.America 2021 32,124 47,077 1.6 76.3
21 Waystone S2 Legal & Regulatory Compliance UK 2022 40,904 44,984 1.5 77.8
22 Citation G8 Tech Services UK 2020 16,417 44,865 1.5 79.3
23 Azets G7/HGT Tax & Accounting UK 2016 26,505 42,780 1.5 80.8
24 Ivalua G10 Tax & Accounting France 2024 37,817 39,755 1.3 82.1
25 HHAeXchange G9 Healthcare IT N.America 2021 24,633 38,740 1.3 83.4
26 LucaNet G9 Tax & Accounting Germany 2022 20,050 37,671 1.3 84.7
27 Project CH S2 Tax & Accounting Germany 2021 18,337 32,474 1.1 85.8
28 smartTrade M2/HGT Fintech France 2020 18,862 32,274 1.1 86.9
29 Ncontracts G10 Legal & Regulatory Compliance N.America 2024 31,404 31,928 1.1 88.0
30 Prophix G9 Tax & Accounting N.America 2021 12,458 27,349 0.9 88.9
31 Norstella M2/G9/HGT Healthcare IT N.America 2020 24,730 26,334 0.9 89.8
32 CINC M4/HGT Tax & Accounting N.America 2024 19,235 23,185 0.8 90.6
33 Focus Group G10 Tech Services UK 2024 21,876 22,912 0.8 91.4
34 Geomatikk M2/HGT Tech Services Scandinavia 2021 11,392 22,552 0.8 92.2
35 Intelerad G8 Healthcare IT N.America 2020 11,870 21,547 0.7 92.9
36 Pirum M3/HGT Fintech UK 2022 13,928 19,085 0.6 93.5
37 Auvesy M3 Automation & Engineering Germany 2021 8,130 17,542 0.6 94.1
38 GTreasury M4/HGT Tax & Accounting N.America 2023 15,008 17,071 0.6 94.7
39 Fonds Finanz M3 Insurance Germany 2022 8,309 15,640 0.5 95.2
40 Mitratech G7/HGT Legal & Regulatory Compliance N.America 2017 3,328 14,619 0.5 95.7
41 MeinAuto G8 Automation & Engineering Germany 2017 15,343 13,984 0.5 96.2
42 Ctaima M4 Legal & Regulatory Compliance Spain 2024 12,005 13,240 0.4 96.6
43 Quantios M3 Fintech UK 2022 8,970 12,144 0.4 97.0
44 Bright M3 ERP & Payroll Ireland 2021 6,529 12,126 0.4 97.4
45 Serrala G9 Tax & Accounting Germany 2021 23,086 12,004 0.4 97.8
46 Cube M4 Legal & Regulatory Compliance UK 2024 10,013 11,858 0.4 98.2
47 Empyrean M4 Fintech N.America 2024 11,408 11,279 0.4 98.6
48 Blinqx M3 ERP & Payroll Benelux 2022 6,729 10,283 0.3 98.9
49 JTL M4 ERP & Payroll Germany 2023 7,559 9,961 0.3 99.2
50 NomadIA M3 ERP & Payroll France 2023 7,190 9,176 0.3 99.5
51 Revalize G9 ERP & Payroll N.America 2021 18,839 6,875 0.2 99.7
52 Nitrogen M3/HGT Fintech N.America 2021 15,868 6,565 0.2 99.9
53 Induver M4 Insurance Benelux 2024 5,230 5,998 0.2 100.1
54 Project Cyrus G10 Tax & Accounting France 2024 4,011 4,012 0.1 100.2
55 F24 M2/HGT Tech Services Germany 2020 3,625 3,720 0.1 100.3
Total buyout investments (55) 1,834,733 2,954,251 100.3 100.3
Other Hedges (7,563) (0.3) 100.0
Total all investments 1,834,733 2,946,688 100.0 100.0
(1 ) Where re-investment has occurred the investment date is based on the
closing of the largest tranche of the investment holding.
(2 ) Including accrued income of £115.0 million. Note that this is summary
of the underlying investments held indirectly by HgT at fair value within the
fund limited partnerships. Please refer to page 68 of the full Annual Report
and Accounts for the year ended 31 December 2024 for a reconciliation to the
fair value of the funds held directly by HgT.
DIVIDEND
The final dividend proposed in respect of the year ended 31 December 2024 is
3.5 pence per share (following the interim dividend of 2.0 pence, bringing the
full year dividend to 5.5 pence per share).
Ex-dividend date 20 March 2025
(date from which shares are transferred without dividend)
Record date 21 March 2025
(last date for registering transfers to receive the dividend)
Last date for registering DRIP instructions (see below) 25 April 2025
Dividend payment date 19 May 2025
NOTICE OF ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held on Wednesday, 14 May
2025 at 11.00 am at the Hilton London Tower Bridge, 5 More London Place,
Tooley Street, London, SE1 2BY. The formal Notice of AGM can be found within
the Annual Report. The Board is of the opinion that the passing of all
resolutions being put to the AGM would be in the best interests of HgT and its
shareholders. The Directors therefore recommend that shareholders vote in
favour of all resolutions as set out in the Notice of Meeting (pages 121 to
128 of the Annual Report available on HgT's website) as they intend to do in
respect of their own shareholdings.
FURTHER INFORMATION
HgT's Annual Report and Accounts for the year ended 31 December 2024 (which
includes the Notice of Meeting for the Company's AGM) will be available today
on www.hgcapitaltrust.com (http://www.hgcapitaltrust.com/)
It will also be submitted shortly in full unedited text to the Financial
Conduct Authority's National Storage Mechanism and will be available for
inspection at data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) in accordance with
DTR 6.3.5(1A) of the Financial Conduct Authority's Disclosure Guidance and
Transparency Rules.
The financial information set out in this announcement does not constitute the
Company's statutory accounts for the years ended 31 December 2023 or 2024 but
is derived from those accounts. Statutory accounts for 2023 have been
delivered to the Registrar of Companies, and those for 2024 will be delivered
in due course. The text of the Auditors' report can be found in the Company's
full Annual Report and Accounts at www.hgcapitaltrust.com
(https://www.hgcapitaltrust.com)
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.
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