Final Results - Part 2

18th Mar 2008 07:02

HG Capital Trust PLC18 March 2008 Directors' report The Directors present the annual report and financial statements of the Companyfor the year ended 31 December 2007. BUSINESS REVIEW Background The business review has been prepared in accordance with Section 234ZZB of theCompanies Act 1985. The purpose of the business review is to provide an overview of the business ofthe Company by: • Analysing development and performance using appropriate key performance indicators (KPIs) • Outlining the principal risks and uncertainties affecting the Company • Describing how the Company manages these risks • Explaining the future business plans of the Company Principal activity and business review The principal activity of the Company is to operate as an investment trustproviding access to a diversified portfolio of private equity investments. Areview of the business for the year is given in the Chairman's statement and inthe Manager's review. Status of the Company HMRC has accepted the Company as an investment trust for the purposes of section842 of the Income and Corporation Taxes Act 1988 (ICTA) for the year ended 31December 2006. In the opinion of the Directors, the Company has conducted itsaffairs so as to enable it to continue to maintain acceptance as an investmenttrust since that date. It is the Company's intention to continue to seekauthorisation under section 842 of ICTA. The Company is not a close company within the meaning of the provisions of ICTA. The Company is an investment company within the meaning of section 266 of theCompanies Act 1985. The Company's shares are eligible investments within the stocks and sharescomponent of an Individual Savings Account (ISA). Going concern The Company is in a position to meet all of its liabilities from its liquidassets and consequently the accounts of the Company have been prepared on agoing concern basis. Business and strategy The objective of the Company is to provide shareholders with long-term capitalappreciation in excess of the FTSE All-Share Index by investing in unquotedcompanies. The strategy of the Manager is to maximise returns from mid-marketprivate equity through sector specialisation and proactive work with portfoliocompanies. It concentrates on buyouts in Europe with enterprise values between£50 million and £500 million. No material change will be made to the investment policy without shareholderapproval. Investment Policy Investments • The principal policy of the Company is to invest in a portfolio of unlisted companies that are expected to grow organically or by acquisition. • The Company's maximum exposure to unlisted investments is therefore 100% of gross assets. At the time of acquisition no single investment will exceed a maximum of 15% of gross assets. • The Company may invest in assets other than companies where the Manager believes that its expertise in private equity investment can be profitably applied. • The Company may invest in unlisted funds, whether managed by the Company's Manager or not, up to a maximum at the time of acquisition of 15% of gross assets. • The Company may invest in other listed investment companies, including investment trusts, up to a maximum at the time of acquisition of 15% of gross assets. • The Company invests its liquid funds in government or corporate securities, or in bank deposits, in each case with an investment grade rating, or in managed funds with a similar investment policy. Range and diversification • The Company invests primarily in companies whose operations are headquartered or substantially based in or which serve markets in Europe. • The Company invests in companies operating in a range of countries, but there is no policy of making allocations to specific countries or markets. • The Trust invests across a range of sectors, but there is no policy of making allocations to sectors. Gearing • Underlying investments or funds are typically leveraged to enhance value creation, but it is impractical to set a maximum for such gearing. • The Company may over-commit to invest in underlying assets in order to maintain the proportion of gross assets that are invested at any time. • The Company may borrow against its portfolio. Hedging • The Company may use derivatives to hedge its exposure to interest rates, currencies, equity markets or specific investments. Borrowing facility The Company has a £25 million borrowing facility which it may use from time totime to exploit investment opportunities. The Board regularly reviews cash flowand the use of gearing. Performance In the year to 31 December 2007, the Company's net asset value per share(including dividends re-invested) increased by 30.0%. This compares with a risein the FTSE All-Share Index (total return) of 5.3%. The Company's ordinary shareprice increased by 8% on a total return basis. Results and dividend The total return for the Company is set out in the Income statement. The totalreturn for the year, after taxation, was £55,208,000 (2006: £33,167,000) ofwhich £7,446,000 is revenue return (2006: £4,519,000). The Directors recommend the payment of a final dividend of 25p per ordinaryshare for the year ended 31 December 2007 (2006: 14.0p). Subject to approval ofthis dividend at the forthcoming Annual General Meeting (AGM), it will be paidon 12 May 2008 to shareholders on the register of members at the close ofbusiness on 28 March 2008. Key performance indicators Each Board meeting conducts a detailed review of the portfolio and reviews anumber of indices and ratios to understand the impact on the Company'sperformance of the individual portfolio holdings. The key performance indicators(KPIs) used to measure the progress and performance of the Company over time andwhich are comparable to those reported by other investment trusts include netasset value per share, share price, earnings per share, average monthly tradingvolumes and cash flow. The Directors recognise that it is in the long-terminterest of shareholders that shares do not trade at a significant discount tothe prevailing NAV and they also monitor the Company's discount or premiumregularly. Principal risks The key risks faced by the Company are set out below. The Board regularlyreviews and agrees policies for managing each risk, as summarised below. Performance risk The Board is responsible for deciding the investment strategy to fulfil theCompany's objectives and for monitoring the performance of the Manager. Aninappropriate strategy may lead to poor performance. To manage this risk theManager provides an explanation of all investment decisions and the rationalefor the composition of the investment portfolio. The Board monitors andmaintains an adequate spread of investments, based on the diversificationrequirements inherent in the Company's investment policy, in order to minimisethe risks associated with particular countries or factors specific to particularsectors. Income/dividend risk The amount of dividends and future dividend levels will depend on the incomereceived from the Company's underlying portfolio. Regulatory risk The Company operates as an investment trust in accordance with section 842 ofICTA. As such, the Company is exempt from capital gains tax on the profitsrealised from the sale of its investments. The Manager monitors investmentmovements, the level and type of forecast income and expenditure, and the amountof retained income (if any) to ensure that the provisions of section 842 are notbreached. The results are reported to the Board at each meeting. Operational risk In common with most other investment trust companies, the Company has noemployees. The Company therefore relies upon the services provided by thirdparties and is dependent upon the control systems of the Manager and theCompany's other service providers. The security, for example, of the Company'sassets, dealing procedures, accounting records and maintenance of regulatory andlegal requirements, depend on the effective operation of these systems. Theseare regularly tested and monitored and an internal control report, whichincludes an assessment of risks together with procedures to mitigate such risks,is prepared by the Manager and reviewed by the Audit and Valuation Committeetwice a year. Financial risks The Company's investment activities expose it to a variety of financial risksthat include valuation risk, liquidity risk, market price risk, foreign exchangerisk and interest rate risk. Further details are disclosed in note 15, togetherwith a summary of the policies for managing these risks. Liquidity risk The Company, by the very nature of its investment objective, invests in unquotedcompanies, and liquidity in their securities can be constrained, making theinvestments difficult to realise at, or near, the Directors' published valuationat any one point in time. The Manager has regard to the liquidity of theportfolio when making investment decisions, and the Company manages its liquidresources to ensure sufficient cash is available to meet its contractualcommitments. FUTURE PROSPECTS The Board's main focus is on the achievement of capital growth and the future ofthe Company is dependent upon the success of the investment strategy. Theoutlook for the Company is discussed in the Chairman's statement and theManager's review. DERIVATIVE TRANSACTIONS The Company has not entered into any derivative transactions during the year. DIRECTORS The Board undertook a review of committee membership and the resultant positionis detailed in the Corporate Governance and Directors' responsibilities report. In accordance with the Articles of Association, Mr Brooke and Mr Murison havingmost recently been re-elected in 2005 will retire by rotation at the Company'sAGM and, being eligible, offer themselves for re-election. Mr Brooman will bestanding for election at this year's AGM, having been appointed to the Board inOctober 2007. The Board has noted the recommendation in the 2006 Combined Code thatnon-executive directors serving longer than nine years since election should besubject to annual re-election. Accordingly, Mr Amies and Mr Gale will offerthemselves for re-election at this year's Annual General Meeting. The Board has considered all the retiring Directors' performance as part of itsevaluation process and recommends that all be proposed for re-election, based onthe following assessment of their contribution to the operation of the Board. Mr P Brooke He has many years' experience in financial markets and in management and boardlevel decision-making within publicly listed companies. He brings to Boarddiscussions particular expertise in corporate governance, business strategy andfinancial management. The Board recommends that Mr Brooke be re-elected. Mr A Murison Andrew Murison has experience both as a director and manager of companies fundedby private equity, and as a portfolio investor in unlisted equity, which informboard discussions. He also brings current experience on the boards of two otherinvestment trusts. The Board recommends that Mr Murison be re-elected. Mr T Amies A chartered accountant, he has over thirty years' experience working in the Cityand currently chairs the Company's Audit & Valuation Committee. It is intendedthat Mr Brooman will succeed Mr Amies as chairman of the Committee on 1 Julythis year, but the Board believes that Mr Amies will continue to be an effectivemember of the Board and Audit & Valuation Committee, and his re-election isrecommended to shareholders. Mr P Gale Peter Gale is professionally responsible for the selection and monitoring of awide range of private equity managers on behalf of a major institutionalinvestor. His extensive knowledge of the private equity industry and of trendsin this market is of great value to the Board, especially when considering thestrategy of the Company and of the Manager. The Board recommends that Mr P Galebe re-elected. Mr R Brooman He is a chartered accountant with long experience as a finance director ofsubstantial publicly listed businesses and on the board of another investmenttrust. It is intended that Mr Brooman will be appointed Chairman of theCompany's Audit and Valuation Committee on 1 July 2008. Accordingly, the Boardproposes and recommends Richard Brooman for election at this year's AnnualGeneral Meeting. None of the Directors has a service contract with the Company. Directors' interests The interests of those persons who were Directors at the end of the year in theordinary shares of the Company were as follows (all holdings are beneficialunless stated otherwise): 31 December 1 January 2007 2007* T J Amies 30,000 30,000P L Brooke 2,000 -R J Brooman 1,200 -P Gale 9,996 4,000R P Mountford 10,000 10,000A H Murison 1,281 - *or date of appointment, if later No notification of any change in the above interests has been received from 31December 2007 to the date of this report. SUBSTANTIAL INTERESTS The Company is aware that the following shareholders had an interest in 3% ormore of the voting rights of the Company on 17 March 2008 Ordinary shares % of voting rights Hg Investment Managers Ltd* 1,337,063 6.4Hg Pooled Management Ltd** 1,019,619 4.0East Riding Pension Fund 1,750,000 6.9The Scottish Investment Trust plc 1,200,000 4.8Oxfordshire County Council 1,300,000 5.2Legal & General Investment Managers Ltd 1,026,903 4.1 * Held by HgCapital staff** Managed on behalf of RW SPLP LP, where the beneficial owner is the BBC Pension Trust Limited Fund RW The Company is not aware that any other shareholder had an interest of 3% ormore in the Company's ordinary share capital as at 17 March 2008. INVESTMENT MANAGEMENT AND ADMINISTRATION Under the management arrangements implemented in May 2003, the Company's assets,excluding cash and government securities, are held in HGT Limited Partnershipwhich is managed by Hg Pooled Management Ltd (HgCapital). At the time ofentering the new management agreement a new incentive scheme was introduced toalign the Manager's remuneration more closely with the performance of theCompany. A management fee of 1.5% per annum of NAV, excluding investments in othercollective investment funds, is payable. In addition, the Manager is entitled to a carried interest in which theexecutives of HgCapital participate in order to provide an incentive to delivergood performance. This arrangement allows for a carried interest of 20% of theexcess annual growth in average NAV over an 8% preferred return, based on athree-year rolling average NAV, calculated half-yearly and aggregated with anydividends declared by the Company in respect of that financial year. The firstcarried interest under this arrangement accrued in the year ended 31 December2005. The management agreement may be terminated on giving two years' notice and suchnotice shall be deemed to be given at the end of the half-year in which noticeis served. No penalty on termination is payable by the Company in the event thattwo years' notice is given to HgCapital, during which period HgCapital wouldreceive a management fee calculated on the basis of the value of assetsremaining under its management and not on the entire net assets of the Company. The Company has no obligation to pay any further fees in respect of managementof the cash portfolio by Hg Investment Managers Limited as this will be coveredby the Manager's fees. The Board has agreed that the Company will not invest more than 15% of its grossassets in other listed investment companies, including listed investment trusts. HgCapital has been appointed as secretary and administrator of the Company for afee equal to 0.1% of NAV. The Bank of New York Europe Limited (BNYE) is thecustodian of the Company's assets and its fees and expenses are met byHgCapital. Continued appointment of the Manager The Board has concluded that it is in shareholders' interests that HgCapitalshould continue as Manager of the Company on the existing terms. The Boardconsiders the arrangements for the provision of investment management and otherservices to the Company on an ongoing basis and a formal review is conductedannually. As part of this review the Board considered the quality and continuity of theManager's personnel, succession planning, sector and geographic coverage,investment process and the results achieved to date. The Board also consideredthe Manager's ongoing commitment to the promotion of the Company's shares. The principal contents of the agreement with the Manager have been set out inthe previous section. Having considered the terms of this agreement and those ofother private equity investment trust companies, the Board considers that theterms of the agreement represent an appropriate balance between cost andincentivisation of the Manager. Directors' remuneration report An ordinary resolution to approve this report will be put to members at theforthcoming AGM. No person's entitlement to remuneration is conditional upon theresolution being passed. VOTING POLICY The exercise of voting rights attached to the Company's portfolio has beendelegated to HgCapital, whose policy is to participate actively as ashareholder, reviewing each case separately. SOCIALLY RESPONSIBLE INVESTMENT The Company has committed to invest in the Hg Renewable Power Partners fund,which the Board believes offers a profitable route for the Company toparticipate in efforts to combat climate change. The Manager addresses other investment opportunities on a sector basis. Thesectors chosen do not generally raise ethical issues. DONATIONS The Company made no political or charitable donations during the period. PAYMENT OF SUPPLIERS It is the general policy of the Company to pay for the supply of goods andservices within thirty days of the date of any invoice. The Company has no tradecreditors. ANNUAL GENERAL MEETING The AGM of the Company, followed by a presentation by the Manager, with lightrefreshments available, will be held at the offices of HgCapital, 2 More LondonRiverside, London SE1 2AP on Tuesday 6 May 2008 at 12 noon. Authority to buy back shares The Directors' authority to buy back shares was renewed at last year's AGM andwill expire on 24 October 2008. Although no shares were bought back during theyear, the Directors are proposing to renew the authority at the forthcoming AGM,and are seeking authority to purchase up to 3,775,000 ordinary shares (being14.99% of the issued share capital) as set out in Resolution 11. This authority,unless renewed, will expire on 24 October 2009. Purchases of ordinary shares will only be made through the market for cash atprices below the prevailing NAV per ordinary share. Under the Listing Rules ofthe Financial Services Authority, the maximum price that can be paid is 5% abovethe average of the market values of the ordinary shares for the five businessdays before the purchase is made. The minimum price that may be paid will be25.0p per share (being the nominal value of a share). Any shares purchased underthis authority will be cancelled. In making purchases, the Company will dealonly with member firms of the London Stock Exchange. Authority of Directors to allot shares Resolutions 12 and 13 to be proposed at the AGM are similar to the authoritiesgiven to the Directors at last year's AGM. By law, directors are not permittedto allot new shares (or to grant rights over shares) unless authorised to do soby shareholders. Resolution 12 gives the Directors, for the period until theconclusion of the AGM in 2009, the necessary authority to allot securities up toan aggregate nominal amount of £314,800, which is equivalent to 1,259,300ordinary shares of 25.0p each, or approximately 5% of the issued ordinary sharecapital. Resolution 13 empowers the Directors until the conclusion of the AGM in 2009 or,if earlier, the expiry of fifteen months from the date on which the resolutionis passed, to allot securities for cash, otherwise than to existing shareholderson a pro rata basis, up to an aggregate nominal amount of £314,800, which isequivalent to 1,259,300 ordinary shares or approximately 5% of the issued sharecapital. In no circumstances would the Directors use this authority to dilutethe interests of existing shareholders by issuing shares at a price that is lessthan the NAV attributable to the shares at the time of issue. Directors' fees Resolution 14, to be proposed at the AGM, will increase the total available forpayment of Directors' fees, to take account of increases in fees and theenlargement of the Board. Amendment to Articles Company law and best practice have undergone a number of changes since thecurrent Articles of Association of the Company were adopted in April 2000,particularly since January 2007 when the staged implementation of the CompaniesAct 2006 (the "2006 Act") commenced. The Board considers that it is prudent toreplace the Company's existing Articles with new Articles that take account ofthose developments (the "New Articles"). A summary of the material changes brought about by the proposed adoption of theNew Articles is set out in the Appendix to the Notice of Annual General Meeting.Other changes, which are of a minor, technical or clarifying nature have notbeen noted in the Appendix. Further amendments to the New Articles may be required in the coming years as aresult of the implementation of the 2006 Act. The 2006 Act represents a majorreform of UK companies' legislation and is being brought into force in stages,with full implementation scheduled by October 2009. At this year's AnnualGeneral Meeting the Company proposes to adopt provisions which reflect changesin the law brought about by the 2006 Act in respect of, among other things,electronic communications, notice periods for meetings, proxy voting anddirectors' conflicts of interest. Over the course of the next year the Companyintends to conduct a further review of the New Articles in order to identify anyadditional amendments that might be necessary following the full implementationof the 2006 Act by October 2009. It is the Board's intention that any furtheramendments will be put to shareholders at the 2009 AGM. A draft copy of the New Articles will be available for inspection from the dateof this report until the conclusion of the Annual General Meeting during normalbusiness hours on any weekday at the registered office of the Company. The NewArticles will also be available for inspection at any time until the conclusionof the Annual General Meeting on the Company's website (www.hgcapitaltrust.com)and shall be available at the venue of the Annual General Meeting from 15minutes prior to and until the conclusion of the meeting. AUDITOR Ernst & Young LLP has indicated its willingness to continue in office asindependent auditor and resolutions proposing its re-appointment and authorisingthe Directors to determine its remuneration will be submitted at the AGM. Statement as to disclosure of information to auditors The Directors who held office at the date of approval of this Directors' reportconfirm that, so far as they are each aware, there is no relevant auditinformation of which the Company's auditor is unaware; and each Director hastaken all the steps that ought to have been taken as a Director to make himselfaware of any relevant audit information and to establish that the Company'sauditor is aware of that information. By order of the BoardHg Pooled Management LtdSecretary17 March 2008 Directors' remuneration report The Board presents the Directors' remuneration report for the year ended 31December 2007. The Board has prepared this report in accordance with therequirements of Schedule 7A to the Companies Act 1985, and an ordinaryresolution for the approval of this report will be put to members at theforthcoming Annual General Meeting. Directors' Remuneration Committee The Directors' Remuneration Committee consists of Roger Mountford (Chairman),Timothy Amies, Piers Brooke, Richard Brooman, Peter Gale and Andrew Murison andmeets when necessary to consider any change in the Directors' remunerationpolicy. The Company has no employees other than its Directors, who are allnon-executive and independent of the management company. The secretary (whoseduties are set out elsewhere in this report, and who is not appointed by theDirectors' Remuneration Committee) provides a comparison of the Directors'remuneration with other investment trusts of similar size and/or mandate. Thiscomparison, together with consideration of any change in non-executiveDirectors' responsibilities, is used to review whether any change inremuneration is appropriate. No element of the Directors' remuneration is performance related. The Companyhas not awarded any share options or long-term performance incentives to any ofthe Directors. None of the Directors has a service contract with the Company. The terms oftheir appointments are detailed in a letter sent to them when they join theBoard. These letters are available for inspection at the registered office ofthe Company. Director Remuneration 2007 2006 £ £ Timothy Amies (Chairman of the Audit Committee) 27,000 20,500Piers Brooke 22,500 18,500Richard Brooman (appointed 11/10/07) 5,600 -Peter Gale 22,500 18,500Roger Mountford (Chairman) 32,500 27,500Andrew Murison 22,500 18,500 The information in this table and in the paragraphs below has been audited. With effect from 1 July 2007 the remuneration of the Chairman was increased from£30,000 to £35,000 per annum, and that of the Chairman of the Audit Committeefrom £24,000 to £30,000. Remuneration of the other Board members was increasedfrom £20,000 to £25,000 per annum. Remuneration is reviewed on an annual basis. The Company's Articles of Association limit the aggregate remuneration of theDirectors to £150,000 per annum. The Board will seek to increase this at thisyear's AGM, to take account of the increases in fees and the enlargement of theBoard. None of the Directors receives any non-cash benefits or pension entitlements. Compensation for loss of office No past Director has been compensated for loss of office. Retirement of Directors All of the Company's Directors are subject to retirement by rotation inaccordance with the Company's Articles of Association. By order of the BoardHg Pooled Management Ltd Secretary17 March 2008 Corporate governance and Directors' responsibilities The Company is committed to high standards of corporate governance. The Boardhas put in place a framework for corporate governance which it believes issuitable for an investment trust and which enables the Company to comply withthe 2006 Combined Code on Corporate Governance (the "Combined Code"). The Boardhas made the appropriate disclosures in the annual report to ensure the Companymeets its continuing obligations under the Financial Services Authority,Investment Entities (Listing Rules and Conduct of Business) Instrument 2003. The Board considers that the Company has complied with the provisions containedwithin Section 1 of the Combined Code 2006 throughout this accounting period(except as described below), and this statement describes how the relevantprinciples of governance are applied to the Company. The Board The Board consists of six non-executive Directors all of whom the Company deemsto be independent of the Company's Manager. In the Board's opinion Mr Amies continues to qualify as an independent Directordespite his length of service, as he is independent of the Manager and free fromany business or other relationships that could materially interfere with theexercise of his judgment. For the same reasons and having considered Mr Gale's position as a senioremployee of Gartmore, a shareholder of the Company, the Board considers him tobe independent. Both Mr Gale and Mr Brooke are non-executive directors ofLothbury Property Trust plc. Their fellow Directors consider that eachdemonstrates that they are independent in character and judgment and that thiscommon directorship of another company does not impede their independence. The Directors' biographies highlight their wide range of business experience.The Board does not feel that it would be appropriate to adopt a policy wherebyDirectors serve for a limited period, as, with a private equity portfolio,historical knowledge is useful. The structure of the Board is such that it isconsidered unnecessary to identify a senior non-executive Director other thanthe Deputy Chairman. The Board is supplied in a timely manner with information in a form and of aquality appropriate to enable it to discharge its duties. Strategic issues andall operational matters of a material nature are determined by the Board. The Directors retire by rotation at every third Annual General Meeting (AGM),except for Directors who have served for longer than nine years, who stand forre-election annually. Any Directors appointed to the Board since the previousAGM also retire and stand for election. Accordingly, Mr Brooke and Mr Murison are being proposed for re-election at thisyear's AGM. Mr Gale and Mr Amies were both appointed on 1 May 1991. The CombinedCode 2006 recommends that any non-executive director serving for longer thannine years be subject to annual re-election. Therefore Mr Gale and Mr Amies willstand for annual re-election at this year's AGM. Mr Brooman will be standing forelection to the Board, having been appointed in October 2007. An external searchconsultancy was used to identify a suitable candidate. The Board'srecommendations that all should be re-elected are set out earlier in thisdocument. The Board meets at least five times a year and there is regular contact withHgCapital between these meetings. The Directors also have access to the adviceand services of the secretary, who is responsible to the Board for ensuring thatBoard procedures are followed and that applicable rules and regulations arecomplied with. Where necessary, in the furtherance of their duties, theDirectors may seek independent professional advice at the expense of theCompany. The Board has responsibility for ensuring that the Company keeps properaccounting records which disclose with reasonable accuracy at any time thefinancial position of the Company and enable it to ensure that the financialstatements comply with the Companies Act 1985. The Board is also responsible forsafeguarding the assets of the Company and for taking reasonable steps for theprevention and detection of fraud and other irregularities. Finally, it is theBoard's responsibility to present a balanced and understandable assessment ofthe Company's position in all public communications. As set out in last year's report, the Board has considered its long termsuccession planning and has appointed Mr Brooman. The Company has maintained appropriate Directors' Liability Insurance coverthroughout the year. Board/Audit and Valuation Committee/Directors' ongoing evaluation The Board formally reviews its performance on a regular basis, together withthat of the Audit and Valuation Committee. An appraisal system has been agreed by the Board for evaluation on a regularbasis of the Board, its committees and the individual Directors, including theChairman. The evaluation for the year ended 31 December 2007 has been carriedout. This took the form of a detailed questionnaire followed by discussions toidentify how the effectiveness of the Board's activities, including itscommittees, policies or processes might be improved. The results of theevaluation process were presented to and discussed by the Board and it wasagreed that the current composition of the Board and its committees reflects asuitable mix of skills and experience, that the Board was functioningeffectively, and that this would be augmented by the appointment of Mr Brooman.The Board is satisfied that collectively the members of the Audit and ValuationCommittee have a sufficient level of recent and relevant financial experience. Delegation of responsibilities The Board has delegated a number of areas of responsibility, outlined below. Management and administration The management of the investment portfolio has been delegated to HgCapital.HgCapital has also been appointed as secretary and administrator to the Company:certain of its corporate secretarial and fund administration duties have beendelegated to Capita Sinclair Henderson Limited (CSH) who have a teamspecialising in providing secretarial and accounting services to investmenttrusts. Custody and settlement services are undertaken by The Bank of New YorkEurope Limited (BNYE), a subsidiary of The Bank of New York. The Board has delegated the exercise of voting rights attaching to thesecurities held in the portfolio to HgCapital. HgCapital does not operate afixed policy when voting but reviews each case separately. All other matters are reserved for the approval of the Board. Board committees All the Directors of the Company are non-executive and serve on the NominationCommittee, which meets when necessary to select and propose suitable candidatesfor appointment. When looking for a new Director, the Board assesses the skillsof the Board as a whole, to identify any areas that need strengthening. Externalsearch consultants are also used. Separate Audit and Valuation, and Management Engagement, Committees have beenestablished. Since the appointment of Mr Brooman, these committees haveconsisted of all six Directors, each of whom has no previous or currentconnection with the investment management of the Company other than in theircapacity as a Director of the Company. The Audit and Valuation Committee, which has written terms of referencedetailing its scope and duties and which meets at least four times per year,examines the effectiveness of the control systems. All the Directors of theCompany, including the Chairman, are members of this committee to enable them tobe kept fully informed of any issues that may arise and to participate fully indiscussions on portfolio valuation. The committee reviews the interim and annualreports and also receives information from the relevant corporate audit andcompliance departments. The committee reviews the scope, results, costeffectiveness, independence and objectivity of the external auditor.Semi-annually, at each balance sheet date, the committee reviews in detail thevaluation of the unquoted investments within the portfolio. Non-audit fees of £4,500 were paid to Ernst & Young LLP for reviewing theinterim financial statements. Ernst & Young LLP provides details of any otherrelationship with the Manager and confirms to the Board each year that in itsopinion it is independent of the Manager. Based on the review of the non-auditservices provided by the auditor, the Board has concluded that Ernst & Young LLPis independent of the Manager. The external auditor is invited to attend the Audit and Valuation Committeemeeting at which the annual accounts are considered and has the opportunity tomeet with the committee without representatives of the Manager being present. The Management Engagement Committee, which also has written terms of referencedetailing its scope and duties, regularly reviews the terms of the investmentmanagement and administration contracts. The Directors' Remuneration Committee, which is made up of all the Directors,meets when necessary to consider any change to the Directors' remuneration. Theremuneration of the Chairman and Directors is reviewed against the fees paid todirectors of other specialist investment trusts and investment trusts of acomparable size, as well as taking account of published data. The terms of reference of all the committees are available on request and willalso be available at each Annual General Meeting. Membership of the Board Committees Mr Mountford is Chairman of the Directors' Remuneration Committee, theManagement Engagement Committee and the Nomination Committee. Mr Amies is theChairman of the Audit & Valuation Committee. The composition of the Board's standing committees was considered at the yearend and it was felt appropriate that every non-executive Director should be amember of all committees. Attendance record The following table summarises the Directors' attendance at meetings of theBoard and Audit and Valuation Committee, compared with the number they wereeligible to attend. Director Number of meetings attended/eligible to attend Board A&VC Peter Gale 6/6 3/4Tim Amies 6/6 4/4Piers Brooke 6/6 3/4Richard Brooman 2/2 0/0Roger Mountford 6/6 4/4Andrew Murison 6/6 3/4 Each of the other Committees met on at least one occasion during the year. Internal controls The Board is responsible for the internal controls of the Company and forreviewing their effectiveness, for ensuring that financial information publishedor used within the business is reliable, and for regularly monitoring compliancewith regulations governing the operation of investment trusts. The Boardcontinually reviews the effectiveness of the internal control system. Theprocesses indicated below have been put in place to ensure that the Companyfully complied with the Combined Code for the year ended 31 December 2007 and upto the date of this report, and will continue to do so for the year ending 31December 2008. As part of the Board's responsibility for the internal control system, anongoing process has been established in conjunction with HgCapital and CSH foridentifying, evaluating and managing the Company's significant risks. Controlsof the risks identified, covering financial, operational, compliance and riskmanagement, are embedded in the operations of HgCapital, CSH, BNYE and otheroutsourced service providers. There is a monitoring and reporting process toreview controls put in place to track risks identified, carried out by thecompliance function within HgCapital and the auditors of the other twoorganisations. This accords with the guidance in the Turnbull Report. HgCapitaland CSH report to the Company on their review of internal controls (which forHgCapital includes checks on the custodian) formally on an annual and asemi-annual basis and orally at each Board and Audit and Valuation Committeemeeting. The Board reviews the 'whistle blowing' procedures of HgCapital and CSH toensure that the concerns of their staff may be raised in a confidential manner. The Company does not have its own internal audit function, as all theadministration is delegated to the Manager. This matter is kept under annualreview. HgCapital prepares cash flow forecasts and management accounts, which allow theBoard to assess the Company's activities and to review its performance. The Board and HgCapital have agreed clearly-defined investment criteria,specified levels of authority and exposure limits. Reports on these issues,including performance statistics and investment valuations, are submitted to theBoard at each meeting. HgCapital's evaluation procedure and financial analysisof the companies within the portfolio include detailed research and appraisal,and also take into account environmental policies and other business issues. TheBoard recognises that these control systems can only be designed to managerather than eliminate the risk of failure to achieve business objectives and toprovide reasonable, but not absolute, assurance against material misstatement orloss. It relies on the operating controls established by HgCapital, CSH andBNYE. Financial statements The Board is required to ensure that the financial statements give a true andfair view of the affairs of the Company as at the end of each financial year andof the profit of the Company for that period. The Board considers that in preparing the financial statements the Company hasused appropriate accounting policies, consistently applied (except wheredisclosed) and supported by reasonable and prudent judgments and estimates andthat all accounting standards that it considers to be applicable have beenfollowed. Relations with shareholders All shareholders have the opportunity to attend and vote at the AGM. The noticeof the AGM which is sent out at least twenty working days in advance sets outthe business of the meeting and any item not of an entirely routine nature isexplained in the Directors' report. Separate resolutions are proposed forsubstantive issues. Both the Chairman of the Board and the Chairman of the Audit and ValuationCommittee, together with representatives of HgCapital, are available to answershareholders' questions at the AGM. Proxy voting figures are announced toshareholders at the AGM. HgCapital holds regular discussions with major shareholders, the feedback fromwhich is greatly valued by the Board. In addition, the Chairman and Directorsare available to enter into dialogue and correspondence with shareholdersregarding the progress and performance of the Company. The section of thisreport entitled "Shareholder Information", provides information useful toshareholders. Report of the independent auditor to the members of HgCapital Trust plc We have audited the financial statements of HgCapital Trust plc for the yearended 31 December 2007 which comprise the Income statement, the Balance sheet,the Cash flow statement, the Reconciliation of movements in shareholders' fundsand the related notes 1 to 19. These financial statements have been preparedunder the accounting policies set out therein. We have also audited theinformation in the Directors' remuneration report that is described as havingbeen audited. This report is made solely to the Company's members, as a body, in accordancewith Section 235 of the Companies Act 1985. Our audit work has been undertakenso that we might state to the Company's members those matters we are required tostate to them in an auditors' report and for no other purpose. To the fullestextent permitted by law, we do not accept or assume responsibility to anyoneother than the Company and the Company's members as a body, for our audit work,for this report, or for the opinions we have formed. Respective responsibilities of Directors and auditors The Directors' responsibilities for preparing the annual report, the Directors'remuneration report and the financial statements in accordance with applicableUnited Kingdom law and Accounting Standards (United Kingdom Generally AcceptedAccounting Practice) are set out in the Statement of Directors'responsibilities. Our responsibility is to audit the financial statements and the part of theDirectors' remuneration report to be audited in accordance with relevant legaland regulatory requirements and International Standards on Auditing (UK andIreland). We report to you our opinion as to whether the financial statements give a trueand fair view and whether the financial statements and the part of theDirectors' remuneration report to be audited have been properly prepared inaccordance with the Companies Act 1985. We also report to you whether in ouropinion the information given in the Directors' report is consistent with thefinancial statements. In addition we report to you if, in our opinion, the Company has not kept properaccounting records, if we have not received all the information and explanationswe require for our audit, or if information specified by law regardingdirectors' remuneration and other transactions is not disclosed. We review whether the Corporate governance statement reflects the Company'scompliance with the nine provisions of the 2006 Combined Code specified for ourreview by the Listing Rules of the Financial Services Authority, and we reportif it does not. We are not required to consider whether the Board's statementson internal control cover all risks and controls, or form an opinion on theeffectiveness of the Company's corporate governance procedures or its risk andcontrol procedures. We read other information contained in the annual report and consider whether itis consistent with the audited financial statements. The other informationcomprises only Investment objective, Financial highlights, Chairman's statement,Ten year track record, Investing in private equity, Manager's strategy,Manager's review, Investments, Realisations, Review of principal investments,Renewable energy, Investment portfolio, Top ten investment listing, Analysis ofregistered shareholders, Board of Directors, Directors' report and businessreview, the unaudited part of the Directors' remuneration report, Corporategovernance and Directors' responsibilities, Shareholder information, Glossary,Notice of Annual General Meeting and Management and administration. We considerthe implications for our report if we become aware of any apparent misstatementsor material inconsistencies with the financial statements. Our responsibilitiesdo not extend to any other information. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing(UK and Ireland) issued by the Auditing Practices Board. An audit includesexamination, on a test basis, of evidence relevant to the amounts anddisclosures in the financial statements and the part of the Directors'remuneration report to be audited. It also includes an assessment of thesignificant estimates and judgments made by the Directors in the preparation ofthe financial statements, and of whether the accounting policies are appropriateto the Company's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information andexplanations which we considered necessary in order to provide us withsufficient evidence to give reasonable assurance that the financial statementsand the part of the Directors' remuneration report to be audited are free frommaterial misstatement, whether caused by fraud or other irregularity or error.In forming our opinion we also evaluated the overall adequacy of thepresentation of information in the financial statements and the part of theDirectors' remuneration report to be audited. Opinion In our opinion: • the financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the Company's affairs as at 31 December 2007 and of its profit for the year then ended; • the financial statements and the part of the Directors' Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985; and • the information given in the Directors' report is consistent with the financial statements. Ernst & Young LLPRegistered auditorLondon17 March 2008 Shareholder information Financial calendar The announcement and publication of the Company's results may normally beexpected in the months shown below: March• Preliminary results and final dividend for year announced• Annual report and financial statements published April/May• Annual General Meeting• Final dividend paid August• Interim figures announced and half-yearly report published In accordance with the recently introduced Disclosure and Transparency Rules,the Company will be releasing Interim Management Statements ('IMS') for thequarters ending 31 March and 30 September. These will be released to the StockExchange and may be viewed at the Company's website. Dividend - 2007 The proposed final dividend in respect of the year ended 31 December 2007 is25.0p per share.Ex-dividend date 26 March 2008(shares transferred without dividend)Record date 28 March 2008(last date for registering transfers to receive the dividend)Last date for registeringDRIP instructions (see below) 18 April 2008Dividend payment date 12 May 2008 Payment of dividends Cash dividends will be sent by cheque to the first-named shareholder at theirregistered address, together with a tax voucher, to arrive on the payment date.Alternatively, dividends may be paid direct into a shareholder's bank accountvia BACS (Bankers' Automated Clearing Service). This may be arranged bycontacting the Company's registrar, Computershare Investor Services plc(Computershare), on 0870 707 1037. Dividend reinvestment scheme (DRIP) Shareholders may request that their dividends be used to purchase further sharesin the Company. Dividend reinvestment forms may be obtained from Computershareon 0870 707 1037 or may be downloaded from www-uk.computershare.com/investor.Shareholders who have already opted for dividend reinvestment do not need tore-apply. The last date for registering for this service for the forthcomingdividend is 18 April 2008. Share price The Company's mid-market ordinary share price is published daily in theFinancial Times, Daily Telegraph and Evening Standard under the section"Investment Companies". ISIN/SEDOL numbers The ISIN/SEDOL numbers and mnemonic code for the Company's Ordinary shares are:ISIN GB0003921052SEDOL 0392105Reuters code HGT.L Share dealing Investors wishing to purchase or sell shares in the Company may do so through astockbroker or most banks. The following share dealing services are available through our Registrars,Computershare Investor Services plc: Internet share dealing Please note that, at present, this service is only available to shareholders incertain European jurisdictions, including the UK. Please refer to the websitefor an up to date list of these countries. This service provides shareholderswith an easy way to buy or sell the Company's ordinary shares on the LondonStock Exchange. The commission is just 0.5%, subject to a minimum charge of £15.In addition stamp duty, currently 0.5%, is payable on purchases. There is noneed to open an account in order to deal. Real time dealing is available duringmarket hours. In addition there is a convenient facility to place your orderoutside of market hours. Up to 90 day limit orders are available for sales. Toaccess the service log on to www.computershare.com/dealing/uk. Shareholders should have their Shareholder Reference Number (SRN) available. TheSRN appears on share certificates. A bank debit card will be required forpurchases. Telephone share dealing Please note this service is, at present, only available to shareholders residentin the UK and Ireland. The commission is 1%, subject to a minimum charge of £15.In addition stamp duty, currently 0.5%, is payable on purchases. The service isavailable from 8am to 4.30pm Monday to Friday, excluding bank holidays, ontelephone number 0870 703 0084. Shareholders should have their ShareholderReference Number (SRN) ready when making the call. The SRN appears on sharecertificates. A bank debit card will be required for purchases. Detailed termsand conditions are available on request by telephoning 0870 703 0084. These services are offered on an execution only basis and subject to theapplicable terms and conditions. This is not a recommendation to buy, sell orhold shares in HgCapital Trust plc. Shareholders who are unsure of what actionto take should obtain independent financial advice. Share values may go down aswell as up which may result in a shareholder receiving less than he/sheoriginally invested. To the extent that this statement is a financial promotion for the share dealingservice provided by Computershare Investor Services plc, it has been approved byComputershare Investor Services plc for the purpose of Section 21 (2) (b) of theFinancial Services and Markets Act 2000 only. Computershare Investor Servicesplc is authorised and regulated by the Financial Services Authority. Where thishas been received in a country where the provision of such a service would becontrary to local laws or regulations, this should be treated as for informationonly. Uncertificated Securities Regulations 1995 - CREST The Company's ordinary shares have joined CREST, an electronic system foruncertificated securities trading. Private investors can continue to retain their share certificates and remainoutside the CREST system. Private investors are able to buy and sell theirholdings in the same way as they did prior to the introduction of CREST,although there may be differences in dealing charges. Income tax Currently, all UK dividends are paid to stockholders net of a tax credit of 10%.Changes to the tax regime mean that since April 1999 non-taxpayers have nolonger been able to reclaim the tax credit. Non-PEP and ISA stockholders liable for higher rates of tax are assessed for anyadditional tax through their annual tax return. Capital gains tax (CGT) Investment trusts currently pay no CGT on gains made within the portfolio. Wheninvestors sell all or part of their holdings, they may be liable to CGT. For thetax year 2007/8, the first £9,200 per annum of such gains from all sources isexempt. Up to 5 April 1998 the cost of investments for CGT purposes was adjusted toallow for inflation. However, from 6 April 1998 this indexation was replaced bya taper relief and from this date chargeable gains will be reduced in line withthe length of time the investment has been held. PEP and ISA investments will continue to remain exempt from CGT.Please remember that we are unable to offer individual investment or taxationadvice. Investors who are in any doubt as to their liability for CGT should seekprofessional advice. Risk factors • Investments in unquoted companies, which form the majority of the Company's investments, may not be as readily realisable as investments in quoted companies • As the Company invests in Continental Europe and in companies that trade internationally, the value of its shares may be affected by changes in rates of exchange • The Company invests in a portfolio of smaller-cap companies, with enterprise values between £50 million and £500 million, the performance of which can fluctuate • The price at which the Company's shares trade on the London Stock Exchange is not the same as their net asset value (although they are related) and therefore you may realise returns that are lower or higher than NAV performance • Past performance is not necessarily a guide to future performance and an investor may not get back the amount originally invested • The value of investments in the Company and the income from it can fluctuate as the value of the underlying investments fluctuates • The Company invests in unquoted companies and although great care is taken in their valuation such valuations cannot, by their nature, be exact and are liable to change Duration of the Company At an Extraordinary General Meeting held in April 2003, shareholders agreed toextend the life of the Company to 2011. The Articles of Association, as amended,now provide for an ordinary resolution to be put to shareholders at the AnnualGeneral Meeting in the year 2011 to continue the life of the Company for afurther five years and a similar resolution will be put to the shareholders in2016 and every fifth year thereafter. If the resolution to continue the life ofthe Company is not approved in 2011, an Extraordinary General Meeting will beconvened within six months after the date of the AGM to wind up the Companyvoluntarily. Nominee code Where shares are held in a nominee company name, the Company undertakes: • To provide the nominee company with multiple copies of shareholder communications, so long as an indication of quantities has been provided in advance • To allow investors holding shares through a nominee company to attend general meetings, provided the correct authority from the nominee company is available Nominee companies are encouraged to provide the necessary authority to underlying shareholders to attend the Company's general meetings. Shareholder enquiries In the event of queries regarding your shares, please contact the ComputershareInvestor Centre. Computershare now offers a free secure share management websitethat allows you to: • View your share portfolio and see the latest market price of your shares• Elect to receive your shareholder communications online• Calculate the total market price of each shareholding• View price histories and trading graphs• Update bank mandates and change of address details• Use online dealing services Log on to www-uk.computershare.com/investor and enter your Shareholder ReferenceNumber and Company Code (this information can be found on the last dividendvoucher or your share certificate). Changes of name or address must be notified in writing to: Computershare Investor Services plcThe PavilionsBridgwater RoadBristol BS99 6ZY General enquiries about the Company should be directed to: The SecretaryHg Pooled Management Ltd2 More London RiversideLondon SE1 2APTelephone: 020 7089 7888 Glossary Investment trusts Net asset value per share (NAV) This is the value of the Company's assets attributable to one ordinary share. Itis calculated by dividing "shareholders' funds" by the total number of shares inissue. For example, as at 31 December 2007, shareholders' funds were£238,817,000 and there were 25,186,755 ordinary shares in issue; the NAV wastherefore 948.2p per share. Shareholders' funds are calculated by deducting current and long-termliabilities, and any provision for liabilities and charges, from the Company'stotal assets. Discount Investment trust shares frequently trade at a discount to NAV. This occurs whenthe share price is less than the NAV. In this circumstance, the price that aninvestor pays or receives for a share would be less than the value attributableto it by reference to the underlying assets. The discount is the differencebetween the share price and the NAV, expressed as a percentage of the NAV. Forexample, if the NAV were 950p and the share price were 800p, the discount wouldbe 15.8%. Premium A premium occurs when the share price is higher than the NAV and investors wouldtherefore be paying more than the value attributable to the shares by referenceto the underlying assets. For example, if the share price were 1,000p and theNAV were 950p, the premium would be 5.3%. Discounts and premiums are mainly the consequence of supply and demand for theshares on the stock market. Total return The total return comprises both changes in the Company's NAV or share price anddividends paid to shareholders; it is calculated on the basis that dividends arereinvested in the Company's shares on the date the dividend is paid. Private equity Carried interest Equivalent to a performance fee, this represents a share of the capital profitsthat will accrue to the Manager, after achievement of an agreed hurdle rate. Enterprise value (EV) This is the aggregate value of a company's entire issued share capital and netdebt. Expansion capital The provision of capital to an existing, established business, to financeorganic growth or acquisitions - sometimes also known as venture capital. IPO (initial public offering) An offering by a company of its share capital to the public with a view toseeking an admission of its shares to a recognised stock exchange. IRR (internal rate of return) The annual internal rate of return received by an investor in a fund. It iscalculated from cash drawn from and returned to the investor together with theresidual value of the fund unit. LBO (leveraged buyout) The purchase of all or most of a company's share capital, usually by itsmanagers, funded mainly by borrowings often secured on the company's assets,resulting in a post-financing capital structure of the company that is heavilygeared. LP (limited partnership) An organisation made up of a managing general partner and limited partners, whoinvest money but have limited liability, are not involved in day-to-daymanagement, and usually cannot lose more than their capital contribution.Usually limited partners receive income, capital gains and tax benefits; thegeneral partner usually receives a fee and the founder partner a percentage ofcapital gains and income. MBI (management buy-in) A change of ownership, where an incoming management team raises financialbacking, normally a mix of equity and debt, to acquire a business. MBO (management buyout) A change of ownership, where the incumbent management team raises financialbacking, normally a mix of equity and debt, to acquire a business it manages. P2P (public to private) The purchase of all of a listed company's shares using a special-purpose vehiclefunded with a mixture of debt and unquoted equity. Preferred return A preferential rate of return on an individual investment or a portfolio ofinvestments.Quoted company Any company whose shares are listed or traded on a recognised stock exchange. Unquoted company Any company whose shares are not listed or traded on a recognised stockexchange. Venture capital Investing in companies at a point in that company's life cycle that is either atthe concept, start-up or early stage of development. Notice of annual general meeting Notice is hereby given that the Annual General Meeting of HgCapital Trust plcwill be held at the Company's offices at 2 More London Riverside, London SE12AP, on Tuesday 6 May 2008 at 12 noon to transact the following business: Ordinary business 1. To receive the report of the Directors and the financial statements for theyear ended 31 December 2007, together with the report of the independent auditorthereon 2. To approve the Directors' remuneration report 3. To declare a dividend of 25.0p per share 4. To re-elect Mr P Brooke as a Director 5. To re-elect Mr A Murison as a Director 6. To re-elect Mr T Amies as a Director 7. To re-elect Mr P Gale as a Director 8. To elect Mr R Brooman as a Director 9. To re-appoint Ernst & Young LLP as independent auditor to the Company 10. To authorise the Directors to determine the independent auditor'sremuneration Special business To consider and, if thought fit, pass the following resolutions numbered 11, 13,14 and 15 as special resolutions and resolution 12 as an ordinary resolution. 11. THAT in substitution for the Company's existing authority to make marketpurchases of ordinary shares of 25p in the Company (ordinary shares), theCompany be and it is hereby authorised in accordance with section 166 of theCompanies Act 1985 (the Act) to make market purchases of ordinary shares (withinthe meaning of section 163 of the Act) provided that: (i) the maximum number of ordinary shares hereby authorised to be purchased is3,775,000; (ii) the minimum price which may be paid for an ordinary share shall be 25p; (iii) the maximum price (exclusive of expenses) which may be paid for anordinary share shall be the lower of 5% above the average of the market valuesof the ordinary shares for the five business days immediately preceding the dateof the purchase and the net asset value per ordinary share on the date ofpurchase; and (iv) unless renewed, the authority hereby conferred shall expire on 24 October2009 save that the Company may, prior to such expiry, enter into a contract topurchase ordinary shares which will or may be completed or executed wholly orpartly after such expiry. 12. THAT: (i) the Directors be and they are hereby generally and unconditionallyauthorised, in accordance with section 80 of the Companies Act 1985 (the Act),to exercise all the powers of the Company to allot relevant securities (asdefined in that section) up to an aggregate nominal amount of £314,800 providedthat this authority shall expire on the date of the next Annual General Meetingof the Company after the passing of this resolution, but so that this authorityshall allow the Company, acting by its Directors, to make offers or agreementsbefore the expiry of this authority which would or might require relevantsecurities to be allotted after such expiry; (ii) all authorities previously conferred under section 80 of the Act be andthey are hereby revoked, provided that such revocation shall not haveretrospective effect; and (iii) words and expressions defined in or for the purposes of Part IV of the Actshall bear the same meanings in this resolution. 13. THAT, subject to and conditional upon the passing as an ordinary resolutionof the resolution numbered 12 set out in the notice of this meeting, theDirectors be and they are hereby empowered, pursuant to section 95 of theCompanies Act 1985 (the Act), to allot equity securities (as defined in section94 of the Act) of the Company for cash pursuant to the authority conferred bythe previous resolution as if section 89 (1) of the Act did not apply to anysuch allotment, provided that this power shall be limited to the allotment ofequity securities: (i) which are, or are to be, wholly paid up in cash up to an aggregate nominalvalue of £314,800 at a price of not less than the net asset value per ordinaryshare as at the most recent practicable date, as determined by the Directors; (ii) (otherwise than pursuant to sub-paragraph (i) above) in connection withissues by way of rights in favour of all holders of ordinary shares where theequity securities respectively attributable to the interests of all such holdersare either proportionate (as nearly as may be) to the respective numbers ofordinary shares held by them or are otherwise allotted in accordance with therights conferred on such equity securities (but subject in either case to suchexclusions or other arrangements as the Board may deem necessary or expedient inrelation to fractional entitlements or legal practical problems under the lawsof, or the requirements of, any regulatory body or any stock exchange in anyterritory or otherwise howsoever); and shall expire on the earlier of the datewhich is 15 months after the date on which this resolution is passed and thedate of the next Annual General Meeting of the Company after the passing of thisresolution, save that the Company may before such expiry make an offer oragreement which would or might require equity securities to be allotted aftersuch expiry; (iii) all powers previously conferred under section 95 of the Act be and theyare hereby revoked, provided that such revocation shall not have retrospectiveeffect; and (iv) words and expressions defined in or for the purposes of Part IV of the Actshall bear the same meanings in this resolution. 14. THAT the following amendment to the Articles of Association of the Companydated 18 April 2000 be and is hereby approved and sanctioned: The amount of £150,000, referred to in article 62, be increased to £230,000 sothat the article 62 will read as follows: "The directors (other than any director who for the first time being holds anexecutive office or employment with the Company or a subsidiary of the Company)shall be paid out of the funds of the Company by way of remuneration for theirservices as directors such fees not exceeding in aggregate £230,000 per annum(or such larger sum as the Company may, by ordinary resolution, determine) asthe directors may decide to be divided among them in such proportion and manneras they may agree or, failing agreement, equally. Any fee payable under thisarticle shall be distinct from any remuneration or other amounts payable to adirector under other provisions of these articles and shall accrue from day today." 15. That the draft regulations produced to the meeting and, for the purposes ofidentification, initialled by the Chairman of the meeting be adopted as thearticles of association of the Company in substitution for, and to the entireexclusion of, the existing articles of association of the Company. By order of the BoardHg Pooled Management LtdSecretary17 March 2008 Notes: 1. Members are entitled to appoint a proxy to exercise all or any of theirrights to attend and to speak and vote on their behalf at the meeting. Ashareholder may appoint more than one proxy in relation to the Annual GeneralMeeting provided that each proxy is appointed to exercise the rights attached toa different share or shares held by that shareholder. A proxy need not be ashareholder of the Company. A proxy form that may be used to make suchappointment and give proxy instructions accompanies this notice. If you do nothave a proxy form and believe that you should have one, or if you requireadditional forms, please contact the Company's registrars, ComputershareInvestor Services plc on 0870 707 1037. 2. To be valid, the enclosed reply-paid form of proxy, together, if appropriate,with the power of attorney or the authority (if any) under which it is signed,or a notarially certified copy of such power or authority must be deposited atthe offices of Computershare Investor Services plc, The Pavilions, BridgewaterRd, Bristol BS99 6ZY, not later than 12 noon on 4 May 2008. 3. The return of a completed proxy form or any CREST Proxy Instruction (asdescribed in paragraph 9 below) will not prevent a shareholder attending theAnnual General Meeting and voting in person if he/she wishes to do so. 4. Any person to whom this notice is sent who is a person nominated undersection 146 of the Companies Act 2006 to enjoy information rights (a "NominatedPerson") may, under an agreement between him/her and the shareholder by whom he/she was nominated, have a right to be appointed (or to have someone elseappointed) as a proxy for the Annual General Meeting. If a Nominated Person hasno such proxy appointment right or does not wish to exercise it, he/she may,under any such agreement, have a right to give instructions to the shareholderas to the exercise of voting rights. 5. The statement of the rights of shareholders in relation to the appointment ofproxies in paragraphs 1 and 2 above does not apply to Nominated Persons. Therights described in these paragraphs can only be exercised by shareholders ofthe Company. 6. To be entitled to attend and vote at the Annual General Meeting (and for thepurpose of the determination by the Company of the votes they may cast),shareholders must be registered in the Register of Members of the Company at6.00 p.m on 4 May 2008 (or, in the event of any adjournment, 6.00 p.m. on thedate which is two days before the time of the adjourned meeting). Changes to theRegister of Members after the relevant deadline shall be disregarded indetermining the rights of any person to attend and vote at the meeting. 7. As at 17 March 2008 (being the last business day prior to the publication ofthis Notice) the Company's issued share capital consists of 25,186,755 Ordinaryshares, carrying one vote each. Therefore, the total voting rights in theCompany as at 17 March 2008 are 25,186,755. 8. CREST members who wish to appoint a proxy or proxies through the CRESTelectronic proxy appointment service may do so by using the procedures describedin the CREST Manual. CREST Personal Members or other CREST sponsored members,and those CREST members who have appointed a service provider(s), should referto their CREST sponsor or voting service provider(s), who will be able to takethe appropriate action on their behalf. 9. In order for a proxy appointment or instruction made using the CREST serviceto be valid, the appropriate CREST message (a "CREST Proxy Instruction") must beproperly authenticated in accordance with Euroclear UK & Ireland Limited'sspecifications, and must contain the information required for such instruction,as described in the CREST Manual. The message, regardless of whether itconstitutes the appointment of a proxy or is an amendment to the instructiongiven to a previously appointed proxy must, in order to be valid, be transmittedso as to be received by the Company's agent (ID 3RA50) by 12 noon on 4 May 2008.For this purpose, the time of receipt will be taken to be the time (asdetermined by the timestamp applied to the message by the CREST ApplicationHost) from which the Company's agent is able to retrieve the message by enquiryto CREST in the manner prescribed by CREST. After this time any change ofinstructions to proxies appointed through CREST should be communicated to theappointee through other means. 10. CREST members and, where applicable, their CREST sponsors, or voting serviceproviders should note that Euroclear UK & Ireland Limited does not makeavailable special procedures in CREST for any particular message. Normal systemtimings and limitations will, therefore, apply in relation to the input of CRESTProxy Instructions. It is the responsibility of the CREST member concerned totake (or, if the CREST member is a CREST personal member, or sponsored member,or has appointed a voting service provider, to procure that his CREST sponsor orvoting service provider(s) take(s)) such action as shall be necessary to ensurethat a message is transmitted by means of the CREST system by any particulartime. In this connection, CREST members and, where applicable, their CRESTsponsors or voting system providers are referred, in particular, to thosesections of the CREST Manual concerning practical limitations of the CRESTsystem and timings. 11. The Company may treat as invalid a CREST Proxy Instruction in thecircumstances set out in Regulation 35(5)(a) of the Uncertificated SecuritiesRegulations 2001. 12. In order to facilitate voting by corporate representatives at the meeting,arrangements will be put in place at the meeting so that (i) if a corporateshareholder has appointed the chairman of the meeting as its corporaterepresentative to vote on a poll in accordance with the directions of all of theother corporate representatives for that shareholder at the meeting, then on apoll those corporate representatives will give voting directions to the chairmanand the chairman will vote (or withhold a vote) as corporate representative inaccordance with those directions; and (ii) if more than one corporaterepresentative for the same corporate shareholder attends the meeting but thecorporate shareholder has not appointed the chairman of the meeting as itscorporate representative, a designated corporate representative will benominated, from those corporate representatives who attend, who will vote on apoll and the other corporate representatives will give voting directions to thatdesignated corporate representative. Corporate shareholders are referred to theguidance issued by the Institute of Chartered Secretaries and Administrators onproxies and corporate representatives (www.icsa.org.uk) for further details ofthis procedure. The guidance includes a sample form of appointment letter if thechairman is being appointed as described in (i) above. Appendix Explanatory notes of principal changes to the Company's Articles of association 1. Articles which duplicate statutory provisions Provisions in the Current Articles that replicate provisions contained in theCompanies Act 2006 are in the main to be amended to bring them into line withthe Companies Act 2006. Certain examples of such provisions include provisionsas to the form of resolutions, the variation of class rights, the requirement tokeep accounting records and provisions regarding the period of notice requiredto convene general meetings. The main changes made to reflect this approach aredetailed below. 2. Form of resolution The Current Articles contain a provision that, where for any purpose an ordinaryresolution is required, a special or extraordinary resolution is also effectiveand that, where an extraordinary resolution is required, a special resolution isalso effective. This provision is being amended, as the concept of extraordinaryresolutions has not been retained under the Companies Act 2006. 3. Change of name Currently, a company can only change its name by special resolution. Under theCompanies Act 2006 a company will be able to change its name by other meansprovided for by its articles. To take advantage of this provision, the NewArticles will enable the Directors to pass a resolution to change the Company'sname once the relevant provisions in the Companies Act 2006 Act are in force. 4. Redeemable shares and consolidation, division or sub-division At present, if a company wishes to issue redeemable shares it must include inits articles the terms and manner of redemption. The Companies Act 2006 willenable directors to determine such matters instead provided they are soauthorised by the articles. The New Articles contain such an authorisation thatwill take effect once the relevant provisions in the Companies Act 2006 Act arein force. The Company has no plans to issue redeemable shares but if it did sothe Directors would need shareholders' authority to issue new shares in theusual way. In addition, the New Articles permit the Company to retain for itsown benefit the net proceeds up to £5 of selling fractional entitlements arisingon a consolidation, division or sub-division of its shares. 5. Convening extraordinary and annual general meetings The provisions in the Current Articles dealing with the convening of generalmeetings and the length of notice required to convene general meetings are beingamended to conform to new provisions in the Companies Act 2006. In particular,any general meeting other than an annual general meeting can be convened on 14days' notice. 6. Votes of members Under the Companies Act 2006 proxies are entitled to vote on a show of handswhereas under the Current Articles proxies are only entitled to vote on a poll.Multiple proxies may be appointed provided that each proxy is appointed toexercise the rights attached to a different share held by the shareholder. TheNew Articles reflect all of these new provisions. 7. Conflicts of interestThe Companies Act 2006 sets out Directors' general duties that largely codifythe existing law but with some changes. Under the Companies Act 2006, from 1October 2008 a Director must avoid a situation where he has, or can have, adirect or indirect interest that conflicts, or possibly may conflict, with theCompany's interests. The requirement is very broad and could apply, for example,if a Director becomes a director of another company or a trustee of anotherorganisation. The Companies Act 2006 allows directors of public companies toauthorise conflicts and potential conflicts, where appropriate, where thearticles of association contain a provision to this effect. The Companies Act2006 also allows the articles of association to contain other provisions fordealing with directors' conflicts of interest to avoid a breach of duty. The NewArticles give the Directors authority to approve such situations and to includeother provisions to allow conflicts of interest to be dealt with in a similarway to the current position. There are safeguards that will apply when Directors decide whether to authorisea conflict or potential conflict. First, only Directors who have no interest inthe matter being considered will be able to take the relevant decision, andsecondly, in taking the decision the Directors must act in a way they consider,in good faith, will be most likely to promote the Company's success. TheDirectors will be able to impose limits or conditions when giving authorisationif they think this is appropriate. It is also proposed that the New Articles should contain provisions relating toconfidential information, attendance at board meetings and availability of boardpapers to protect a Director from being in breach of duty if a conflict ofinterest or potential conflict of interest arises. These provisions will onlyapply where the position giving rise to the potential conflict has previouslybeen authorised by the Directors. It is the Board's intention to report annually on the Company's procedures forensuring that the Board's powers of authorisation of conflicts are operatedeffectively and that the procedures have been followed. 8. Electronic and web communications Provisions of the Companies Act 2006 that came into force in January 2007 enablecompanies to communicate with members by electronic and/or websitecommunications. The New Articles allow communications to members in electronicform and, in addition, they also permit the Company to take advantage of the newprovisions relating to website communications. Before the Company cancommunicate with a member by means of website communication, the relevant membermust be asked individually by the Company to agree that the Company may send orsupply documents or information to him by means of a website, and the Companymust either have received a positive response or have received no responsewithin the period of 28 days beginning with the date on which the request wassent. The Company will notify the member (either in writing, or by otherpermitted means) when a relevant document or information is placed on thewebsite and a member can always request a hard copy version of the document orinformation. 9. Directors' indemnities and loans to fund expenditure The provisions dealing with indemnification of Directors and other officers isbeing amended in line with legislative changes. Broadly, the New Articles wouldallow the Company to indemnify any of its Directors (or any director of anassociated company) against liabilities in a civil action by a person other thanthe Company (or an associated company), and against his defence costs as theaction proceeded, but in the case of actions by the Company (or an associatedcompany) an indemnity could only cover the defence costs, and only if judgmentwas not given against the Director. The indemnity could cover the costs ofdefending criminal proceedings or of making certain applications for relief -although not if the Director was convicted or denied relief - or of defendingregulatory actions. The Company would also be able to lend Directors monies tofund their defence expenditure in any civil or criminal proceedings takenagainst them as Directors, whether by a third party or by the Company itself, orin connection with any application for relief or any action taken by aregulatory authority. Except where the arrangement related to regulatory action,any loan by the Company would have to be on terms that required it to be repaidimmediately (after taking account of any appeal periods) if the Director lost inthe criminal or civil proceedings or the application for relief was refused. Theexisting authority to indemnify the Company's auditor has also been deleted andaccordingly the Directors will not approve the granting of any such indemnity bythe Company. 10. Age of Directors The provision in the Current Articles requiring Directors to retire at the nextannual general meeting after attaining seventy years of age and, if reappointed,at each subsequent annual general meeting, has been removed as it may breach theEmployment Equality (Age) Regulations 2006. 11. Updating statutory and regulatory references The opportunity is being taken to update references to legislation as well asregulatory and other bodies. Management and administration HgCapital Trust plc2 More London RiversideLondonSE1 2APwww.hgcapitaltrust.com Registered office(Registered in EnglandNo. 1525583)2 More London RiversideLondonSE1 2AP ManagerHgCapital*+2 More London RiversideLondonSE1 2APTelephone: 020 7089 7888www.hgcapital.com Secretary and administratorHgCapital2 More London RiversideLondonSE1 2APTelephone: 020 7089 7888 StockbrokerWinterflood Securities*The Atrium BuildingCannon Bridge25 Dowgate HillLondon EC4R 2EATelephone: 020 7621 0004www.winsresearch.co.uk CustodianThe Bank of New York Europe Limited*One Canada SquareLondon E14 5AL RegistrarComputershare Investor Services plc*The PavilionsBridgwater RoadBristol BS99 6ZYTelephone: 0870 707 1037www-uk.computershare.com/investor Independent auditorErnst & Young LLP1 More London PlaceLondon SE1 2AF iPEITInitiative for Private Equity Investment Trustswww.ipeit.com HgCapital Trust is a founder member of the Initiative for Private EquityInvestment Trusts (iPEIT). This group of UK-listed PEITs was formed to raiseawareness and increase understanding of what PEITs are and how PEITs enable allinvestors - not just institutions - to invest in private equity. iPEIT providesinformation on PEITs and private equity in general, undertakes and publishesresearch on the PEIT sector and works to improve levels of knowledge about PEITsamong investors and their advisors. *Authorised and regulated bythe Financial Services Authority. +HgCapital is the trading name ofHg Pooled Management Limited This information is provided by RNS The company news service from the London Stock Exchange

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HgCapital Trust plc