HGCapital Trust PLC · LSE:HGT
HGCapital Trust — FY2023 Earnings Presentation
35 slides from HGCapital Trust's earnings presentation, March 2024
Slide 1: FY 2023 results: Get connected to a universe of software and services businesses
FY 2023 results Get connected to a universe of software and services businesses This document accompanies the annual report to 31 December 2023. The information in this document contains a summary of information set out in this report. References in this document to HgCapital Trust plc have been abb
Slide 2: Compounding growth: the power of a long-term investment strategy
Compounding growth: the power of a long-term investment strategy Both HgT’s share price and net asset value per share have consistently outperformed the FTSE All-Share Index over the long-term +18.8% p.a. 700 Long-term performance NAV (basic) 10-year share price return 650 Share price 600 FTSE All S
Slide 3: HgCapital Trust (“HgT”)
HgCapital Trust (“HgT”) HgT is a FTSE 250 investment company listed on the main market of the London Stock Exchange and managed by Hg, Europe’s largest software investor1 Investment strategy Objective to provide focused on profitable consistent, long-term Resilient business and growing returns throu
Slide 4: HgT is Hg’s largest client, committed to all Hg funds
HgT is Hg’s largest client, Pension Sovereign Wealth Endowments and insurance plans Funds companies committed to all Hg funds HgT provides listed access to “the free float” of >$130bn EV of Hg HgT’s underlying Hg’s largest Software “Inc” c. $65bn Hg’s portfolio listed investor base LP investor compa
Slide 5: UK and European public market investors face a shrinking universe of technology options
UK and European public market investors are faced with a shrinking universe of options to invest in technology 1% tech $161bn HgT provides listed access to “the free float” of >$130bn EV of Hg’s portfolio of growing and profitable software and services businesses >$130bn EV FTSE 350 7% tech $57bn ST
Slide 6: Targeting robust and resilient ‘Hg sweet-spot’ business models
Targeting robust and resilient ‘Hg sweet-spot’ business models Company maturity Business model Deep sector Typical deal equity requirement of attributes knowledge >€100m Tax & Accounting Business critical software ERP & Payroll or service Legal and Compliance Subscription / repeat Automation and Eng
Slide 7: A long-term focused approach has driven deep sub-sector knowledge and networks
A long-term focused approach has driven deep sub-sector knowledge and networks Tax & Accounting >19 years ERP & Payroll >19 years Legal & Regulatory >16 years Automation & Engineering >15 years Technology Services >13 years Fintech >10 years Healthcare IT >9 years Insurance >10 years Invested across
Slide 8: Hg has a large specialist portfolio team to drive value creation
Hg has heavily invested in its operational focus, and now has a large specialist portfolio team to drive value creation >85 Number of team members in Hg’s portfolio team Leadership Board advisors Serial chairs & Operating partners Data & Analytics HR & Talent Technology Growth Value creation project
Slide 9: 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 10: Hg organic EBITDA growth has outperformed public peers
Hg organic EBITDA growth has outperformed public peers EBITDA growth, year-on-year, Hg vs. wider sector vs. wider market 25% 20% Hg organic +19% 15% US S&S1 10% +12% 5% US equities -2% 0% Dec-22 Jan-23 Feb-23 Mar-23 Apr-23 May-23 Jun-23 Jul-23 Aug-23 Sep-23 Oct-23 Nov-23 -5% Notes: Based on Hg and p
Slide 11: Demographics – the inescapable driver of everything?
Demographics – the inescapable driver of everything? Long-term decline in labour force is expected to underpin growth in demand for automation for decades to come OECD working age population (m) 950 2022: All time high 900 850 800 750 700 650 600 550 500 1960 1980 2000 2020 2040 Source: World Popula
Slide 12: Tech spend versus labour cost
Tech spend versus labour cost JP Morgan staff vs technology spend (2010=100) 250 JPM tech costs +122% 200 150 100 JPM staff costs +24% 50 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Staff comp Tech spend Source: Hg analysis, JP Morgan annual reports. Note that graph is indexed; in absol
Slide 13: Software market – in the long run, earnings growth is what matters
Software market – in the long run, earnings growth is what matters Earnings drive consistent returns. Public market multiples have been much more volatile 60% 40% 20% Annual return 0% -20% Returns from multiple -40% Returns from earnings -60% 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 Note: H
Slide 14: HgT – 2023 key figures
HgT – 2023 key figures + 11.1% NAV total return + 26.2% Share price total return ISA Millionaires FY 2023 FY 2023 For the third year in a row, HgT tops a list of investment companies that would have made investors more than £ 2.3bn £ 2.0bn Market cap £1 million, according to research from The Associ
Slide 15: Consistent growth from portfolio of “Rule of 40+” software businesses
Consistent growth from portfolio of “Rule of 40+” software businesses LTM sales, EBITDA growth and margin for top 20 portfolio companies EBITDA margin 29% 33% 35% 29% 31% “Rule of 40+” 35% portfolio Good balance between growth and 31% margins; with an average ~16% 30% 30% 30% organic revenue growth
Slide 16: Strong trading has continued to drive HgT’s portfolio growth in 2023
Strong trading has continued to drive HgT’s portfolio growth in 2023 2,800 496 9 (103) 2,600 74 (404) (59) 4 2,400 £ million 2,200 2,465 2,482 20% 0% (4%) (2%) 0% 2,000 £347 million unrealised gain 1,800 December 2022 Acquisitions Disposals Trading Ratings Increase in net debt Forex movements Other
Slide 17: Returning cash to HgT with realisations at uplifts to book value
Returning cash to HgT with realisations at uplifts to book value, despite market turbulence HgT has continued to generate significant liquidity despite Consistent realisation activity throughout 2023 and post-period. a collapse in PE market exit volumes from the peak in 2021 Full and partial realisa
Slide 18: Continuing to invest more behind proven winners, while selectively adding new platforms
Continuing to invest more behind proven winners, while selectively adding new platforms £74m invested £7m £148m invested £15m in 2023 £14m post-period £15m £15m £44m £8m £6m £6m £5m £3m £84m £2m Source: Hg. £74m total is net of impact of fund closings and syndications, and includes immaterial invest
Slide 19: Hg’s fund architecture and HgT’s permanent capital allow us to run winners for longer
Hg’s fund architecture and HgT’s permanent capital allow us to run winners for longer, compounding growth over many years HgT first invested in Visma in 2006 through Genesis 5, and has been a longstanding shareholder since through Genesis 7, Saturn 1, Saturn 2, Saturn 3, and as a co-investor. Post-c
Slide 20: Prudent capital structures across the portfolio
Prudent capital structures across the portfolio Valuation and net debt multiples for top 20 portfolio companies (76% of portfolio) >70% 26.0x Debt, 28% 7.4x equity in capital structures EV/EBITDA net debt/EBITDA 26.1x 30 Sept 2022: 28.8x 31 Dec 2022: 8.0x EV/EBITDA 31 Dec 2022: 27.2x Equity, 72% ~75
Slide 21: Robust balance sheet supports future investment activity
Robust balance sheet supports future investment activity Pro-forma undrawn commitments and available liquid resources Undrawn commitments of £957m New commitments and increased credit facility (42% of NAV) to be called over 3-4 years • £183m of further commitments to Hg funds during 2023 Available l
Slide 22: Outlook
Outlook Resilient trading performance underpinned by mission-critical nature of products provided by portfolio companies Improving deal environment is supportive of increased investment activity in 2024 We continue to focus on consistency of realisations, with further liquidity events anticipated We
Slide 23: Appendices
Appendices
Slide 24: Top portfolio companies (55% of the total portfolio)
Top 10 portfolio companies (55% 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 12.3 • Helps >60k businesses, public-sector and not-for-profit organ
Slide 25: Portfolio diversified by cluster, vintage and geography
Portfolio diversified by cluster, vintage and geography Hg cluster by value Investment vintage by value Geographic spread by value Automation & 2023 Healthcare IT 1% Other Europe Engineering 5% pre-2020 2022 10% 4% 22% 13% UK Technology Services Tax & Accounting 37% 6% 27% Germany 13% Insurance 9% C
Slide 26: Largest realised and unrealised movements in the value of investments
Largest realised and unrealised movements in the value of investments Note: Movements during the y/e 31 December 2023. 1. Other includes movements across 21 portfolio companies not shown. 26 Past performance is not a reliable indicator of future results.
Slide 27: Introduction to Hg
Introduction to Hg 30+ year $65bn 8th largest track record funds under PE firm globally and 2nd of investing management largest in Europe1 >3x / 32% #1 c.400 track record on realised and partially Private equity tech professionals including realised buyout investments investor globally2 250+ executi
Slide 28: #1 tech private equity investor globally
#1 tech private equity investor globally Most Active PE Tech Acquirers in 2023 62 57 40 30 28 25 24 22 20 19 Total deal count – tech PE acquisitions in 2023 Source: AGC Partners 2023 Tech PE Year-End Report 28
Slide 29: Hg’s performance is ranked 4th best globally for 2023
Hg’s performance is ranked 4th best globally for 2023 HEC–Dow Jones PE Performance Rankings (2023) # Firm Firm Region 1 US 2 US 3 US 4 Transatlantic 5 US 6 Europe 7 US 8 US 9 US 10 US Source: HEC-Dow Jones PE Performance Ranking. 1. Aggregate performance based on all funds raised over a 10-year peri
Slide 30: >20-year track record of consistent investment performance and low volatility returns
>20-year track record of consistent investment performance and low volatility returns ~90% of realised investments have returned >2x MOIC / >20% IRR 69% 8.7x 75% 8.4x 57% 6.4x c.1% L10Y loss ratio 112% 43% 5.6x 5.5x 33% 77% 5.2x 5.1x 25% 4.9x 39% 4.7x 29% 4.4x 25% 56% 41% 4.2x 45% 4.1x 4.1x 36% 4.0x
Slide 31: Longstanding commitment to ESG & Sustainability
Longstanding commitment to ESG & Sustainability For more information: https://hgcapital.com/responsibility UNPRI Signatory since 2012 Goal to be ★★★★★ Direct – PE ★★★★☆ Investment & 100% net zero Removing barriers to education & skills in technology carbon neutral since 2019 Stewardship by 2050 15 5
Slide 32: 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 Partner and Partner and Partner and Partner and Title Chairman of I
Slide 33: 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 34: 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 35: 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, incl