HGCapital Trust PLC · LSE:HGT
HGCapital Trust — Q3 2023 Earnings Presentation
26 slides from HGCapital Trust's earnings presentation, November 2023
Slide 1: Get connected: Q3 Update
HgCapital Trust plc Get connected Q3 Update to a combined enterprise value of >$135bn of software and tech-enabled services businesses November 2023 This document accompanies the quarterly report to 30 September 2023. The information in this document contains a summary of information set out in this
Slide 2: HGT is a FTSE 250 investment company managed by Hg
HGT is a FTSE 250 investment company listed on the main market of the London Stock Exchange and managed by Hg Hg’s largest and longest standing investor Objective to provide consistent, long-term returns to shareholders through investment in private companies located in Europe and North America wher
Slide 3: Compounding growth: the power of a long-term investment strategy
Compounding growth: the power of a long-term investment strategy 18.5% NAV per share and 16.1% share price CAGR over the past 10 years v. 5.6% CAGR from the FTSE All-Share generated from consistently strong trading and realisations above book value +4.8% +5.5% NAV per share Share price Q3 Q3 +9.6% +
Slide 4: Software market update: earnings have historically driven returns
Software market update: earnings have historically driven returns Earnings have driven consistent returns. Multiples have been much more volatile 60% 800% 600% 40% 400% 20% Cumulative return 200% Annual return 0% 0% -200% -20% -400% Returns from earnings -40% Returns from multiples -600% -60% -800%
Slide 5: Software market update: price is what you pay, value is what you get
Software market update: “price is what you pay, value is what you get” 10 cheapest vs 10 most expensive companies from 2013. Main drivers of 10 year performance 450 400 300 415 350 300 250 102 273 200 150 71 15 100 100 100 50 0 2013, cheapest Multiple Earnings growth 2023 value* 2013, most Multiple
Slide 6: Trading performance has continued to drive portfolio growth
Trading performance has continued to drive portfolio growth LTM sales, EBITDA growth and margin for top 20 portfolio companies* Continued strong trading offset a contraction in valuation multiples during Q3 2023 EBITDA margin 28% 33% 30% 29% 30% 35% Value creation, £’m 31% 29% 29% 28% 27% 27% 25% 24
Slide 7: Continuing to return cash to HGT with realisations at significant uplifts
Continuing to return cash to HGT with realisations at significant uplifts to book value, despite market turbulence Track record of generating liquidity across market cycles. £323m of proceeds YTD 2023, with an average uplift on Average uplift of 38% on all realisations since 2017 realisations of 31%
Slide 8: Slowed pace of new platform investments, not portfolio M&A activity
In an uncertain macro environment, we have deliberately slowed down the pace of new platform investments, but not our portfolio M&A activity £65m invested YTD 2023 Portfolio M&A at all-time high £34m of follow- on investment • Combination of a difficult macroeconomic environment and motivated seller
Slide 9: Robust capital structures across the portfolio
Robust capital structures across the portfolio Valuation and net debt multiples for top 20 portfolio companies (76% of portfolio) ▪ Hg focuses on software and services businesses with high recurring revenues and strong cash conversion to service debt ▪ 26.0x Hg Capital Markets team actively monitors
Slide 10: Robust balance sheet supports future investment activity
Robust balance sheet supports future investment activity Pro-forma undrawn commitments and available New commitments and increased credit facility, YTD 2023 liquid resources • €175m committed to Hg Mercury 4 • HGT maintains a unique provision allowing it to “opt-out” of new investments without penal
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 c. $65bn Hg’s portfolio Hg’s largest companies LP investor HGT’s underlying HGT provides listed listed investor access to “the free base c. £3bn float” of >$135bn EV of Hg Software “Inc” HGT prov
Slide 12: Hg's portfolio is amongst the world's leading compounding platforms
Hg’s portfolio is amongst the world’s leading compounding platforms Fastest growing companies of EV >$100bn, globally, all sectors 70% 62% 60% Average Revenue Growth rate 50% 40% 38% 36% 30% 27% 25% 24% 18% 17% 16% 20% 16% 10% 0% Note: Illustrative comparison to show how Hg portfolio compares to the
Slide 13: Targeting robust and resilient 'Hg sweet-spot' business models
Targeting robust and resilient ‘Hg sweet-spot’ business models 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 KNOWLEDGE Insurance Years of accumu
Slide 14: A long-term focused approach has driven deep sub-sector knowledge
A long-term focused approach has driven deep sub-sector knowledge and networks TAX & ACCOUNTING ERP & PAYROLL LEGAL & REGULATORY AUTOMATION & ENGINEERING >19 years >19 years >16 years >15 years TECHNOLOGY SERVICES CAPITAL MKTS AND WEALTH MGT IT INSURANCE HEALTHCARE IT >13 years >10 years >10 years >
Slide 15: Hg has heavily invested in its operational focus
Hg has heavily invested in its operational focus, and now has a large specialist portfolio team to drive value creation Number of team members in Hg’s portfolio team >85 Leadership Board advisors Serial chairs & Operating partners Data & Analytics HR & Talent Technology Growth Value creation project
Slide 16: Driving a material value impact across the Hg portfolio
Driving a material value impact across the Hg portfolio GROWTH >$100M in EBITDA lift from pricing in FY TECH DATA >$100m ARR uplift enabled via R&D projects >£10m EBITDA from AI-driven process optimisations in last 3 years (e.g., SaaS transformation) £30m+ ARR from past 3 Data monetisation Projects
Slide 17: Longstanding commitment to ESG & Sustainability
Longstanding commitment to ESG & Sustainability UNPRI Signatory since 2012 ★★★★★ Direct – PE 100% Goal to be net zero by ★★★★☆ Investment & carbon neutral Stewardship since 2019 2050 51% 36% 48 female employees female investment nationalities executives Signatory to ILPA Diversity in Action One of f
Slide 18: Maintaining a disciplined approach in the current environment
Maintaining a disciplined approach in the current environment to drive HGT’s long-term performance Portfolio • Portfolio companies remain focused on selling business-critical and non-discretionary software and services to their underlying business customers, generating predictable levels of recurrin
Slide 19: Appendices
Listed access to the 4th largest software business in Europe December 2019 Appendices © Copyright Hg 2023 19 19
Slide 20: Top 10 portfolio companies (54% of the total portfolio)
Top 10 portfolio companies (54% of the total portfolio) Company Cluster Location Description % Portfolio ▪ A leading provider of mission-critical, integrated business-management software to SME's in the UK and APAC ERP & Payroll UK 12.1 ▪ Helps >60k businesses, public-sector and not-for-profit organ
Slide 21: Portfolio diversified by cluster, vintage and geography
Portfolio diversified by cluster, vintage and geography Note: As at 30 September 2023 © Copyright Hg 2023 21
Slide 22: Global team of c. 400 professionals across five offices
Global team of c. 400 professionals across five offices Senior Leadership Team Name Nic Humphries Matthew Brockman Justin von Simson Steven Batchelor Alan Cline David Issott JB Brian Managing Partner, Senior Partner Managing Partner and Partner and Partner and Partner and Partner and Title Chairman
Slide 23: Multi-layered investment processes to drive net fund returns
Multi-layered investment processes to drive net fund returns Investment Realisation Committees Committee ✓ Approves investment decisions ✓ Approves exit and recap decisions ✓ Develop investment themes ✓ Monitor investment themes “Moment of truth review” IC RC Matthew Brockman (Chair), Nic Humphries,
Slide 24: 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 +44 78 2459 2894 George Crowe +44 20 8152 5880 Hannah Brown +44 20 8078 9144 You can also follow us: Li
Slide 25: 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 26: 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