HGCapital Trust PLC · LSE:HGT
HGCapital Trust — Q3 2022 Earnings Presentation
29 slides from HGCapital Trust's earnings presentation, November 2022
Slide 1: Q3 Results: Get connected to the 2nd largest software business in Europe
HgCapital Trust plc Get connected Q3 Results To the 2nd largest software business in Europe This document accompanies the Q3 report to 30 September 2022. The information in this document contains a summary of information set out in this report. Reference should also be made to the full interim Repor
Slide 2: Overview
Overview ▪ FTSE 250 investment company listed on the LSE STRUCTURE ▪ A Board of 6 NEDs with a wide range of skills, a strong focus on governance, that make all decisions on commitments ▪ Objective to provide consistent, long-term returns through investment in unquoted companies ▪ Largest LP investor
Slide 3: Compounding growth: the power of a long-term investment strategy
Compounding growth: the power of a long-term investment strategy 17% NAV per share and 16% share price CAGR over the past 10 years v. 6% CAGR from the FTSE All-Share generated from consistently strong trading and realisations above book value 2,500 650 550 2,000 450 Indexed total return 1,500 £m 350
Slide 4: Q3 2022: Continued positive NAV performance in a challenging environment
Q3 2022: Continued positive NAV performance in a challenging environment Q3 NAV total return: +2.3% YTD 2022: +4.1% Strong trading continues to be the main driver of NAV NAV per share: 450.7p performance, absorbing the negative impact of multiple 30 June: 443.2p contraction on valuations Net assets:
Slide 5: Returning cash to HGT with significant realisations at uplifts to book value
Returning cash to HGT with significant realisations at uplifts to book value Estimated £480m realised YTD with average uplifts on exits to December 2021 value of c. 29% 62 realisations over L10Y at: £232m Average multiple of cost 2.6x Average gross IRR £47m £33m £32m 26% £28m £20m £16m £9m Average u
Slide 6: Hg has continued to selectively invest in companies tracked for many years
Hg has continued to selectively invest in companies tracked for many years Repeatable investments into companies with similar defensive business models building a store of future value for HGT £148m £138m £71m £39m £30m £21m 2022 YTD £16m £14m £12m Estimated Invested in Q3 invested YTD £9m by HGT by
Slide 7: Trading performance has continued to drive portfolio growth
Trading performance has continued to drive portfolio growth 35% 31% 29% 29% 27% 28.8x LTM 25% 24% 23% 22% EV/EBITDA 19% Multiple compression typically assumed at investment stage, limited compression at exit due to business models with tailwinds for businesses in Hg's clusters 7.5x LTM net debt/EBIT
Slide 8: Not all software is the same: high growth/low profitability companies saw largest valuation drops
Not all software is the same: it is the high growth/low profitability companies which have seen the largest valuations drop EV:Sales multiple, based on profitability 16 14 12 10 8 Profitable: c. (10%) 6 4 Unprofitable: c. (66%) 2 0 Note; Based on Russell 3000 listed US software & Services sector, c
Slide 9: Valuations
Valuations Governance and audit of Valuations ▪ Hg valuation policy is consistent with IPEV guidelines, used across the industry ▪ Valuations are audited twice – once for Hg, and then by an independent team acting purely for HGT, instructed by the HGT AVRC Key inputs LTM earnings Multiple ▪ Adjusted
Slide 10: Multiple levers in place to manage the balance sheet efficiently
Q3 2022: Multiple levers in place to manage the balance sheet efficiently, with the flexibility to steer the pace of investment £172m at 30 September £352m pro-forma* Available liquid resources (8% of NAV), incl. undrawn Available liquid resources (17% of NAV), incl. undrawn balance of balance of £1
Slide 11: HGT is Hg's largest client, committed to all Hg funds
HGT is Hg’s largest client, committed to all Hg funds Pension Plans, SWFs, Endowments, Insurance Cos etc > $55bn Hg’s portfolio Hg’s largest companies LP investor HGT HGT provides listed shareholders access to “the free float” of the $106bn EV of Hg Software “Inc” HGT provides shareholders with acce
Slide 12: Building businesses that change how we all do business
Building businesses that change how we all do business © Copyright Hg 2022 12 © Copyright Hg 2022
Slide 13: 'Hg Inc' is the #2 largest software firm in Europe, and the fastest growing
‘Hg Inc’ is the #2 largest software firm in Europe, and the fastest growing >25 Aggregate EV ($m) and LTM revenue growth (%) years of investing >170 $109bn investments $106bn 5 investment offices across Europe and the US >300 Staff including >180 professionals >$55bn funds under $46bn management $25
Slide 14: Targeting robust and resilient 'Hg sweet-spot' business models
Targeting robust and resilient ‘Hg sweet-spot’ business models with unique scale in European tech Tax & Accounting Business critical software or service ERP & Payroll Legal and Compliance Subscription / repeat revenue model BUSINESS DEEP MODEL Sweet-spot SECTOR Automation and Engineering ATTRIBUTES
Slide 15: Long-term approach has driven deep sub-sector knowledge and networks
A long-term focused approach has driven deep sub-sector knowledge and networks TAX & ACCOUNTING ERP & PAYROLL LEGAL & REGULATORY AUTOMATION & ENGINEERING >18 years >18 years >15 years >14 years SME TECHNOLOGY SERVICES CAPITAL MKTS AND WEALTH MGT IT INSURANCE HEALTHCARE IT >12 years >9 years >8 years
Slide 16: Exit case-study: MediFox DAN
Exit case-study: scaled MediFox DAN to be the leading provider of software solutions to the outpatient care, elderly care and therapy sectors in Germany Investment summary Investment highlights Cluster Healthcare IT ▪ Description: MediFox DAN supports care providers with key operational challenges i
Slide 17: Operational expertise with dedicated professionals across a wide range of areas
Operational expertise with 45 dedicated professionals across a wide range of areas reflecting core repeatable value creation opportunities Growth Tech, Product, Cyber Data Sales R&D and tech platform BI, warehousing, snowballs Marketing Right-shoring Data cleansing & enrichment Pricing Product manag
Slide 18: Longstanding commitment to ESG & Sustainability
Longstanding commitment to ESG & Sustainability AA++ 100% Goal to be net zero by UNPRI rating carbon neutral a signatory since 2012 2050 since 2019 48% 35% >40 female employees women in Hg’s nationalities investment team Signatory to ILPA Diversity in Action One of first PE firms $400k Initiative &
Slide 19: Maintaining a disciplined approach to drive HGT's long-term performance
Maintaining a disciplined approach in the current environment to drive HGT’s long-term performance Portfolio Positive trading outlook underpinned by increasing digitalisation of business processes Resilient business models with recurring revenues and pricing power Robust balance sheet Multiple lever
Slide 20: Appendices
Listed access to the 4th largest software business in Europe December 2019 Appendices This document accompanies the Interim Report & Accounts for the third quarter ended 30 September 2019 and contains a summary of information set out in that document. Reference should be made to the full and Interim
Slide 21: Top portfolio companies (c. 56% of the total portfolio)
Top 10 portfolio companies (c. 56% of the total portfolio) Company Cluster Location Description % Portfolio ▪ A leading ERP business, providing a range of software solutions to SME, mid-market and enterprise customers in ERP & Payroll UK the UK, Ireland and Australia 17.1 ▪ Helps >60k businesses, pu
Slide 22: Portfolio split by cluster, vintage and geography
Portfolio split by cluster, vintage and geography Note: As at 30 September 2022 © Copyright Hg 2022 22
Slide 23: Portfolio analysis (I/II)
Portfolio analysis (I/II) Note: Top 20 (78% of the portfolio at 30 September 2022). These figures are calculated on a value-weighted basis (not a straight average). © Copyright Hg 2022 23
Slide 24: Portfolio analysis (II/II)
Portfolio analysis (II/II) Note: Top 20 (78% of the portfolio at 30 September 2022). These figures are calculated on a value-weighted basis (not a straight average). © Copyright Hg 2022 24
Slide 25: Large and well-resourced investment "machine"
Large and well-resourced investment “machine” GOVERNANCE Hg LLP BOARD INVESTMENT COMMITTEE REALISATION COMMITTEE • Nic Humphries (Chair) • Matthew Brockman (Chair) • Andrew Land (Chair) • Matthew Brockman • Nic Humphries • Justin von Simson • Justin von Simson • Sebastien Briens • Steven Batchelor •
Slide 26: Multi-layered investment processes to drive net fund returns
Multi-layered investment processes to drive net fund returns INVESTMENT COMMITTEE REALISATION COMMITTEE Approves investment decisions Approves exit and recap decisions Develop investment themes “MOMENT Monitor investment themes OF TRUTH REVIEW” IC (6-9 months in) RC Chaired by Matthew Brockman, Chai
Slide 27: Contact
Contact For further information on HgCapital Trust plc, please visit our website: www.hgcapitaltrust.com Or contact our Investor Relations Team at: investorrelations@hgcapitaltrust.com Laura Dixon Hannah Brown +44 78 2459 2894 +44 20 8078 9144 You can also follow us: Linkedin at www.linkedin.com/com
Slide 28: Disclaimer
Disclaimer NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, INTO OR WITHIN THE UNITED STATES OR TO “US PERSONS” (AS DEFINED IN REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR INTO OR WITHIN AUSTRALIA, CANADA,
Slide 29: Disclaimer
Disclaimer These materials include statements that are, or may be deemed to be, "forward-looking statements" which are based on current expectations and projections about future events. In some cases, these forward-looking statements may be identified by the use of forward-looking terminology, inclu