HGCapital Trust PLC · LSE:HGT
HGCapital Trust — H1 2024 Earnings Presentation
35 slides from HGCapital Trust's earnings presentation, September 2024
Slide 1: H1 2024 update: Get connected
H1 2024 update Get connected to a universe of software and services businesses This document accompanies the interim report to 30 June 2024. 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 abbrevi
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 +20.0% p.a. Long-term performance 10-year share price return Based on HgT’s share price at 30 June 2024 and
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 >$150bn EV of Hg HgT’s underlying Hg’s largest Software “Inc” >$70bn Hg’s portfolio listed investor base LP investor FUM com
Slide 5: 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 equity investment of attributes knowledge >€100m Tax & Accounting Business critical software ERP & Payroll or service Legal and Compliance Subscription / repeat Automation and Engineeri
Slide 6: Focused ‘Hg Cluster’ approach has driven deep sub-sector knowledge
Focused ‘Hg Cluster’ approach has driven deep sub-sector knowledge Tax & Accounting >20 years ERP & Payroll >20 years Legal & Regulatory >17 years Automation & Engineering >15 years Technology Services >14 years Fintech >11 years Healthcare IT >10 years Insurance >10 years Note: Hg portfolio at 30 J
Slide 7: 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 8: Data & Analytics Team supporting portfolio with GenAI
Data & Analytics Team: 15+ person in-house team supporting the portfolio to harness the value creation potential of GenAI 1 2 3 Fundamental re-engineering of Process optimisation to drive AI embedded within company products, processes & margin expansion products & services companies Creating a parad
Slide 9: Demographics – the inescapable driver of everything?
Demographics – the inescapable driver of everything? Long-term decline in working age population is expected to drive up cost of labour and increase software adoption OECD working age population (m) Relationship between labour cost and software spend 950 2022: 1,800 900 All time high R2=0.80 1,600 U
Slide 10: Increasing adoption of software across multiple end-markets
Increasing adoption of software across multiple end-markets Produce legal documents Find insurance Policy administration Disclose to Regulator Bill suppliers Handle litigation Job Scheduling Pay Duty / VAT Provide Pensions Catalogue parts Run my website Produce Accounts Employment Taxes Trade securi
Slide 11: Companies are staying private for longer
Companies are staying private for longer Median Market Value of Tech Initial Public Offerings by year, $m 5,000 4,500 1980-1990s 2000s 2010-2020s Median IPO valuation of c.$100-150m Median IPO valuation of $300-600m Median IPO valuation of $600m-$1bn+ 4,000 Opportunities for private tech Opportuniti
Slide 12: Number of private European software investments at scale has increased
The number of private European software investments at scale has increased rapidly over time European software transactions (Private Equity & Trade) with an Enterprise Value of >€100m1,2 707 710 490 346 344 234 187 181 147 123 74 88 56 67 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2
Slide 13: HgT provides listed access to >$150bn EV of Hg’s portfolio
HgT provides listed access to “the free float” of >$150bn EV of Hg’s portfolio of private software and services businesses 6% $239bn 19% >$150bn 5% 2% 2% $50bn 21% $44bn $39bn Revenue 12% 7% $33bn growth 5% $11bn $15bn EV $5bn Source: Factset, Europe tech firm EVs and Hg’s EV reported as at 30 June
Slide 14: HgT H1 2024 key figures
HgT H1 2024 key figures + 6.4% NAV total return + 12.7% Share price total return ISA Millionaires H1 2024 H1 2024 For the third year in a row, HgT tops a list of investment companies that would have made investors more than £ 2.4bn £ 2.2bn 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 revenue, EBITDA growth and margin for top 20 portfolio companies “Rule of 40+” portfolio Good balance between growth and margins; with 33% 35% 29% 31% 34% average 11% organic revenue growth and 34% LTM EBITDA margins for the t
Slide 16: Earnings growth has continued to drive HgT’s portfolio growth
Earnings growth has continued to drive HgT’s portfolio growth 16 Note: Portfolio valuation including accrued income but excluding carried interest and fund level facilities. Past performance is not a reliable indicator of future results.
Slide 17: HgT portfolio company valuations are in-line with public companies
HgT portfolio company valuations are in-line with public companies EV/EBITDA progression for HgT top 20 companies (78% of portfolio at 30 June 2024) Approximate EV/LTM EBITDA 40 35 HgT 25.9x EV/LTM EBITDA 30 25 20 Public software and services 15 10 INDICATIVE Update chart 5 for H1 2024 0 Q1-20 Q2-20
Slide 18: Consistent realisation activity in a challenging environment for exits
Consistent realisation activity in a challenging environment for private equity exits HgT has continued to generate significant liquidity despite £348m of gross realisations in H1 2024 (H1 2023: £248m), a collapse in market exit volumes from the peak in 2021 representing 14% of opening portfolio val
Slide 19: Continuing to invest more behind proven winners
Continuing to invest more behind proven winners, while selectively adding new platforms £310m invested in H1 2024 (H1 2023: £33m), including £43m of fee-free co-investment Chart Title £10m£7m £19m H1 2024 saw a significant increase in investment activity £19m compared to H1 2023, a period where low
Slide 20: Portfolio company balance sheets: >70% equity in capital structures
Portfolio company balance sheets: >70% equity in capital structures HgT top 20 capital structures 71% 25.9x equity EV/EBITDA (Dec 2023: 26.1x) We have taken advantage of an improving environment to refinance a significant portion of portfolio company debt: • ~$140 million of annualised interest rate
Slide 21: HgT’s robust balance sheet supports future investment activity
HgT’s robust balance sheet supports future investment activity Pro-forma undrawn commitments and available liquid resources Undrawn commitments of £707m Credit facility increased and extended during H1 2024 (30% of August pro-forma NAV) to be called over 3-4 years • Revolving credit facility increas
Slide 22: Outlook
Outlook Resilient trading performance underpinned by mission-critical nature of products and services provided by portfolio companies Improving deal environment is supportive of increased investment activity We continue to focus on consistency of realisations, with further liquidity events anticipat
Slide 23: Appendices
Appendices
Slide 24: Top portfolio companies (58% of the total portfolio)
Top 10 portfolio companies (58% of the total portfolio) % Company Cluster Location Description Portfolio • Provides business-critical software to SMEs and the public sector in the Benelux and Nordic regions, providing c.1.8m Tax & Accounting/ Scandinavia enterprise customers with accounting; resourc
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 Healthcare IT Automation & 2024 Other Europe 5% Engineering 11% Technology Services pre-2021 14% 3% UK 6% 40% 2023 34% 1% Germany Tax & Accounting Fintech 32% 10% 7% 202
Slide 26: Largest realised and unrealised movements in value of investments
Largest realised and unrealised movements in value of investments 26 Note: Movement during 6 months to 30 June 2024. Other includes movements across 24 portfolio companies not shown. Past performance is not a reliable indicator of future results.
Slide 27: 30+ year track record of investing
30+ year 3.1x / 32% track record of investing Gross track record on realised and partially realised buyout investments c.$73bn #1 funds under management Private equity tech investor globally1 4th c.380 Best performing private equity professionals including >240 As at 30 June 2024; adjusted pro forma
Slide 28: Recognised as a major global tech investor
Recognised as a major global tech investor “Leading fund performance” “Tech Investor of the Year 2022” Hg ranked as the best performing 2023 #3 performing PE fund ($500m-$999m) European manager and 4th globally 2023 #5 performing PE fund ($1bn+) “GrowthCap’s top 30 Private Equity Firms for 2023 for
Slide 29: Most active European sponsor in software & services
Most active European sponsor in the software & services space in the past decade, with 3x more platform investments than anyone else +1,432 M&A bolt-ons completed by Hg in the L10Y >3x the second most active investor 57 18 12 12 12 11 11 11 11 11 11 9 8 8 7 6 5 5 5 4 #2 #3 #4 #5 #6 #7 #8 #9 #10 #11
Slide 30: Hg’s fund architecture allows 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 investor through Genesis 7, Saturn 1, Saturn 2, Saturn 3, and as a co-investor. 2006 2023 €2,451
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 31 5
Slide 32: Global team across five offices
Global team across five offices Senior Leadership Team Name Nic Humphries Matthew Brockman Justin von Simson Steven Batchelor Alan Cline David Issott JB Brian Managing Partner, Head of Munich Office, Senior Partner Partner and Partner and Partner and Partner and Title Chairman of IC, and Co-Head Man
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 Barty Bodilly +44 7467 992412 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