TIDMICGT
28 April 2020
ICG ENTERPRISE TRUST PLC
Preliminary Results
For the 12 months ended 31 January 2020
STRONG PORTFOLIO PERFORMANCE DELIVERS DOUBLE DIGIT GROWTH FOR THE YEAR
Continued short, medium and long-term outperformance of public markets
Performance to 31 January 2020 1 year 3 year 5 year 10* year
----------------------------------------- ------ ------ ------ --------
Net asset value per share (total return) 11.2% 40.6% 85.0% 190.5%
Share price (total return) 20.5% 49.1% 92.6% 286.1%
FTSE All-Share Total Return 10.7% 18.4% 35.6% 111.2%
*As the Company changed its year end in 2010, the ten-year figures are
for the 121-month period to 31 January 2020.
Highlights:
-- NAV per share of 1,152p - total return of 11.2%1 in the year
-- Growth driven by strong EBITDA growth and realisation uplifts
-- 11th consecutive year of double-digit underlying Portfolio growth
-- 16.6%1 constant currency return from the investment Portfolio;
14.6%1 return in sterling
-- 17% average LTM earnings growth from Top 30 Companies; 46% of the
Portfolio
--Strong period for realisations with selective new investment
-- GBP149m of proceeds received, equivalent to 20% of opening portfolio
value
-- Realisations at 37%1 uplift to carrying value; 2.4x1 multiple to cost;
consistent with five-year average
-- GBP159m of new investment; 39% into high conviction investments
-- Four co-investments completed; one alongside ICG and three alongside
third party managers
-- GBP156m committed to 12 primary funds; five new relationships
--Portfolio well diversified - weighted towards larger companies and
more resilient sectors
-- Focus on defensive growth means Portfolio is weighted towards more
resilient sectors, such as healthcare, consumer staples, business
services and technology
-- Portfolio is invested in larger companies in Europe and the US; bias to
managers who have strong operational focus and demonstrable experience of
successfully managing investments through economic cycles
-- ICG managed investments now represents 22% of the Portfolio; invested
across the capital structure in companies with resilient business models
--Impact of COVID-19 on Portfolio companies
-- Situation is continually evolving, and we are working closely with our
underlying managers, who have moved decisively to address immediate risks
and implement plans to protect and preserve value
-- We believe the diversified and resilient nature of the Portfolio is well
placed to navigate the challenges ahead
-- Performance and speed of recovery will vary between geographies, sectors
and companies and will be dependent on business models, end markets and
government policy
--Sharp decline in public markets and economic fall-out from COVID-19
likely to impact Net Asset Value in the short term
-- The Net Asset Value at January 2020 is based on valuations which preceded
the current crisis
-- We expect recent falls in public markets and the broader consequences of
COVID-19 to impact valuations in the coming months and we anticipate the
rate of realisations from the Portfolio to slow
-- We will provide shareholders with an update in the announcement of our
NAV as at 30 April 2020 in June
--Balance sheet and liquidity
-- Closing net asset value of GBP794m; investment portfolio represents 102%
of net asset value
-- GBP162m total liquidity (including GBP14m of cash and GBP148m undrawn
bank facility); uncalled commitments of GBP459m of which GBP82m are to
funds outside their investment periods
-- New EUR176m (GBP148m) bank facility signed during the year
-- To provide increased flexibility, GBP40m was drawn from our bank facility
in March, taking total gross cash balances to GBP56m at 23 April 2020
--Annual dividend of 23p and buybacks
-- Final dividend of 8p, taking total dividends for the year to 23p
-- 4.5% increase on previous year and 2.4% yield on year end share price
-- GBP3m of shares bought back in year; a further GBP1m purchased since the
year end
Oliver Gardey, Head of Private Equity Fund Investments, ICG, commented:
"The portfolio delivered strong underlying returns in the year,
extending the record of double-digit growth to 11 consecutive years. We
continued to deploy capital selectively into companies with strong
defensive characteristics in sectors with non-cyclical growth drivers
and build new relationships with leading managers both in the US and
Europe. We are especially pleased with the progress made in increasing
our portfolio weighting to the US in line with our long-term strategic
objectives.
"While the current economic conditions are uncertain, our portfolio is
weighted towards more resilient and defensive companies. We invest with
leading managers in the US and Europe, focused on mid-market and larger
buyouts, with a bias towards those with strong in-house operating teams
and capital markets specialists. In the weeks since the COVID-19 crisis
unfolded, we have seen some of the benefits of the private equity model,
with managers acting quickly and decisively to preserve and protect
value. We believe the private equity model is well suited to dealing
with current market conditions and are confident that our managers will
adapt to future events and continue to grow value.
"Our flexible mandate, and in particular our high conviction approach,
allows us to be nimble and adapt the mix of new investment to evolving
market conditions. While in the short term, we do not expect to see
significant new investment activity, when markets stabilise we are well
placed to benefit from more favourable entry valuations and take
advantage of the opportunities as they arise.
"Finally, it goes without saying that a key priority for us is the
wellbeing and safety of our staff; they are the most important part of
our business and we have taken the necessary actions to protect our
employees, as well as maintaining business continuity."
Enquiries
Analyst / Investor enquiries: +44 (0) 20 3201 7700
Oliver Gardey, Head of Private Equity Fund Investments, ICG
Colm Walsh, Managing Director, Private Equity Fund Investments, ICG
Ian Stanlake, Investor Relations, ICG
Media:
Alicia Wyllie, Co-Head of Corporate Communications, ICG
+44 (0) 20 3201 7994
Ed Gascoigne Pees, Eddie Livingstone-Learmonth, Camarco
+44 (0) 20 3757 4993
Website:
www.icg-enterprise.co.uk
Comparison to prior year
31 Jan 2020 31 Jan 2019
NAV per share 1,152p 1,057p
Realisations in the 12 months GBP149m GBP163m
Realisations -- uplift to carrying value 37% 35%
Realisations -- multiple to cost 2.4x 2.4x
Capital deployed GBP159m GBP158m
% of Capital deployed into high conviction
investments 39% 50%
New primary fund commitments GBP156m GBP162m
Notes
Included in this document are Alternative Performance Measures ("APMs").
APMs have been used if considered by the Board and the Manager to be the
most relevant basis for shareholders in assessing the overall
performance of the Company, and for comparing the performance of the
Company to its peers and its previously reported results. The Glossary
includes further details of APMs and reconciliations to IFRS measures,
where appropriate. The rationale for the APMs is discussed in detail in
the Manager's Review.
In the Chairman's Statement, Manager's Review and Supplementary
Information, reference is made to the "Portfolio". This is an APM. The
Portfolio is defined as the aggregate of the investment portfolios of
the Company and of its subsidiary limited partnerships. The rationale
for this APM is discussed in detail in the Manager's Review. The
Glossary includes a reconciliation of the Portfolio to the most relevant
IFRS measure. In the Chairman's Statement, Manager's Review and
Supplementary Information, all performance figures are stated on a total
return basis (i.e. including the effect of re-invested dividends). ICG
Alternative Investment Limited, a regulated subsidiary of Intermediate
Capital Group plc, acts as the Manager of the Company.
Disclaimer
This report may contain forward looking statements. These statements
have been made by the Directors in good faith based on the information
available to them up to the time of their approval of this report and
should be treated with caution due to the inherent uncertainties,
including both economic and business risk factors, underlying such
forward-looking information. These written materials are not an offer of
securities for sale in the United States. Securities may not be offered
or sold in the United States absent registration under the US Securities
Act of 1933, as amended, or an exemption therefrom. The issuer has not
and does not intend to register any securities under the US Securities
Act of 1933, as amended, and does not intend to offer any securities to
the public in the United States. No money, securities or other
consideration from any person inside the United States is being
solicited and, if sent in response to the information contained in these
written materials, will not be accepted.
CHAIRMAN'S STATEMENT
The year to 31 January 2020 was another strong period of double-digit
growth for ICG Enterprise Trust, with NAV per share increasing from
1,057p to 1,152p, an 11.2% total return, ahead of the FTSE All-Share
Total Return of 10.7%. Performance was again driven by strong underlying
trading and realisations at significant uplifts to carrying value and
cost.
Since our year end, the spread of COVID-19 has dramatically altered the
economic and investment landscape. We cover the potential short to
medium term impact of this global pandemic on the Portfolio later in my
statement and in the Manager's Review.
Delivering on our strategic goals
We made further progress towards our strategic goals of becoming more
fully invested, increasing our weighting towards high conviction
investments and extending our geographical diversification.
Over the last three years, we have reduced the impact of cash drag on
performance by becoming more fully invested without compromising the
quality of the Portfolio(2) . This has been achieved without being any
less selective and with a focus on investing responsibly, leveraging
ICG's strong Environmental, Social and Governance ("ESG") credentials.
Our flexible mandate has meant that we have been able to increase the
capital deployed into our high conviction portfolio, which remains a
significant driver of growth. These are investments the team has
proactively decided to increase exposure to, either by individual
co-investments alongside third party managers, proprietary investments
managed by ICG or secondary fund holdings.
Our high conviction portfolio has generated a return of 19% p.a.(3) in
local currencies over the last five years. We expect these investments
to continue to enhance the strong returns generated from our third-party
funds portfolio, which underpins our strategy, and has returned 14% p.a.
in local currency over the last five years. During the year, 39% of
total capital deployed was into high conviction investments, which
represent 41% of the Portfolio.
In addition, we continue to diversify geographically with our US
investments now representing 30% of the Portfolio, overtaking our
exposure to the UK market for the first time. The US is the largest
private equity market in the world, with a deep pool of leading private
equity managers who have long track records of outperformance. We expect
our weighting to the US market to continue to grow.
The importance of investing responsibly
Responsible investing remains a key focus for our investment team, who
continue to work closely with ICG's ESG team to ensure that our
investment programme is compatible with our ESG framework. The Board
believes that the long-term success of the Company requires the
effective management of both financial and non-financial measures, and
fully endorses the increasing emphasis on responsible investment. We
believe that companies that are successful in managing ESG risks, while
embracing opportunities, will outperform over the long term.
Continued investment in the ICG Enterprise team
ICG has continued to invest in the development of the team, and we now
have 14 people managing the Portfolio and overseeing the finance, legal
and investor relations functions of the Company. In September Oliver
Gardey joined ICG and the Investment Committee to lead the investment
team, succeeding Emma Osborne. Emma remains on the investment committee
as a Senior Adviser. Oliver has over 25 years' experience in the private
equity industry, joining ICG from Pomona Capital, where he was a partner
for 10 years and a member of its global investment committee. The
strength of Oliver's experience, alongside that of our existing team,
will be of great value to the Company and to our focus on delivering
consistently strong returns. We are delighted with the smooth transition
and the leadership that he has demonstrated since his appointment. Colm
Walsh, who has been a key team member for 10 years, also joined the
investment committee during the year.
Board evolution
Jane Tufnell and Gerhard Fusenig joined the Board in the year. The Board
currently comprises six independent non-executive Directors, with a
diverse range of skills and expertise, and an equal ratio of men and
women. We expect to appoint one new Director during this year, and we
will continue to evolve the Board and make further appointments, as
appropriate. Further details of the Board are set out in our Annual
Report.
This is my last year as your Chairman as I will step down from the Board
at the AGM, having been a director since 2008. The Nominations Committee,
led by the Senior Independent Director, undertook a rigorous search for
my successor and recommended Jane Tufnell becomes your new Chair. Jane
has a wealth of experience working in financial services, asset
management and with listed companies and we are delighted that she has
agreed to accept this appointment. It has been a privilege to serve as
your Chairman and I know I am leaving the Company in extremely capable
hands.
Dividend
The Company reported another strong set of results for the 12 months to
31 January 2020, and while there is limited visibility on the impact of
COVID-19 on the Portfolio's performance this financial year, the Board
is proposing a final dividend of 8p, which, together with the three
interim dividends of 5p each, will take total dividends for the year to
23p. This is a 4.5% increase on the prior year dividend of 22p and a
2.4% yield on the year-end share price. The Board recognises the
importance of a reliable source of income for our shareholders.
Annual General Meeting
The Annual General Meeting will be held on 17 June 2020. The Board is
mindful of the current travel and social gathering restrictions arising
from the COVID-19 pandemic and will be communicating with shareholders
outlining the format of the meeting, with the Notice of Meeting, in the
coming weeks.
Impact of COVID-19 pandemic on the Portfolio and performance
The economic impact of COVID-19 is likely to become more apparent over
the coming months and it is impossible to gauge the long term impact on
the Portfolio accurately at this stage. What we know today is that
companies across the globe are being impacted by the significant
reduction in economic activity, and while it is too early to assess the
depth and duration of this impact, we expect major economies to
experience large-scale economic contractions in the first half of 2020.
Performance and the speed of any recovery will vary between geographies,
sectors and companies and will be dependent on business models, end
markets and government policy. In the short term, we expect the sharp
fall in public markets and broader immediate consequences of COVID-19 to
impact valuations and slow the rate of realisations from the Portfolio.
Beyond the short term, we have a well-diversified global Portfolio that
is invested in developed economies and weighted towards more resilient
sectors, such as healthcare, consumer staples, business services and
technology. Our Portfolio also has a bias to managers who have a strong
operational focus and demonstrable experience of successfully managing
investments through periods of economic stress. Our managers have moved
decisively to address immediate risks and are implementing plans to
protect and preserve long term value.
Well placed to navigate the current challenging environment
I joined the Board in 2008, just prior to the financial crisis. At the
time, the Company's net assets stood at GBP327m, invested in a
predominantly UK and European portfolio. Since then we have grown our
net assets to GBP794m and returned GBP127m to shareholders, a 166% total
return over the 12 years, well ahead of the 93% total return from the
FTSE All-Share. Over the same period our share price total return has
been 157%.
We are again facing an incredibly challenging environment. With 11
consecutive years of double-digit growth, we do this from a base of
consistently strong returns. We have a diversified global portfolio of
market leading companies, led by expert management teams and supported
by some of the world's best private equity managers. We have significant
financial resources available to us and substantial expertise within our
investment team and, more broadly, ICG has a long track record of
managing private companies through multiple financial and economic
cycles. Just as we did in the financial crisis, I am confident that we
will manage and protect shareholder value through the current
challenging environment and are well placed to continue to generate
value for our shareholders over the longer term.
Jeremy Tigue
27 April 2020
MANAGER'S REVIEW
Performance overview
The potential for COVID-19 to cause widespread disruption was not
evident at our year end date. The valuation of the Portfolio at 31
January 2020 was therefore not negatively impacted by COVID-19 and does
not reflect the subsequent stock market falls in late February and early
March.
Profit growth and realisations drive the 11(th) consecutive year of
double-digit underlying growth
Continued strong operating performance and realisations at significant
uplifts to carrying value generated a return of 16.6% in local
currencies, or 14.6% in sterling. These results represent the 11(th)
consecutive year of double-digit underlying portfolio growth, over which
time period the Portfolio return has averaged 16% p.a. in local
currencies.
All parts of the Portfolio performed well and contributed to growth in
the year, with particularly strong performance from our US,
co-investment and ICG portfolios, with growth driven by a combination of
strong trading performance, realisations, IPOs and movements in quoted
share prices.
Within our high conviction portfolio, notable contributors include three
US co-investments: PetSmart (a leading US pet retailer), which
successfully listed its online business, Chewy; Abode Healthcare (a
provider of at-home hospice care), which was sold during the year at
2.0x cost and a gross IRR of 69%; and Ceridian (a human capital
management software provider), which was listed in 2018 and whose share
price increased by almost 80% in the year taking the return to 4.6x
cost. In addition, three of our recent co-investments alongside ICG's
flagship European strategy (Domus, Minimax and Visma) all outperformed
the wider portfolio following strong underlying growth.
Outside of our high conviction portfolio, Gridiron III, a US mid-market
fund which is currently our second largest fund holding by value,
reported significant gains in the year, with one of its portfolio
companies, Leaf Home Solutions, driving a significant proportion of the
gain. This follows exceptionally strong trading performance. The
business, which provides gutter protection solutions that reduce the
requirement for homeowners to clear gutters, is considered one of the
fastest growing home maintenance companies in the US.
Year Year
ended ended
Movement in the portfolio 31 Jan 31 Jan
GBPm 2020 2019
----------------------------------------------------- -------- --------
Opening Portfolio* 694.8 600.7
Third party funds portfolio drawdowns 97.4 79.2
High conviction investments -- ICG funds, secondary
investments and co-investments 61.2 78.4
-------- --------
Total new investment 158.6 157.6
Realisation Proceeds (148.8) (163.0)
-------- --------
Net cash outflow/(inflow) 9.8 (5.4)
Underlying Valuation Movement** 115.4 90.4
Currency movement (13.6) 9.1
Closing Portfolio* 806.4 694.8
-------- --------
% underlying Portfolio growth (local currency) 16.6% 15.0%
% currency movement (2.0%) 1.6%
-------- --------
% underlying Portfolio growth (Sterling) 14.6% 16.6%
-------- --------
* Refer to the Glossary for reconciliation to the
portfolio balance presented in the preliminary results.
** 95% of the Portfolio is valued using 31 December
2019 (or later) valuations (Jan 19: 91%).
Portfolio overview
High conviction investments underpinned by a portfolio of leading funds
Our strategy is focused on investing in larger companies, those with
leading market positions and strong management teams as we believe they
will generate the most consistently strong returns through the cycle.
Our Portfolio combines investments managed by ICG and those managed by
third parties, in both cases directly and through funds, and at 31
January 2020 the Portfolio was valued at GBP806m (31 Jan 19: GBP695m).
Third party funds were valued at GBP477m (31 Jan 19: GBP407m) providing
the Portfolio with a base of strong diversified returns and also deal
flow for our high conviction portfolio. The underlying funds are managed
by leading mid-market and large-cap European and US private equity firms,
with a bias to managers who have a strong defensive growth and
operational focus. Over the last five years this portfolio has generated
a net return of 14% p.a. in local currencies.
High conviction investments were valued at GBP329m (31 Jan 19: GBP288m).
The common characteristic of our high conviction investments is that ICG
selects the underlying companies, in contrast to a conventional fund of
funds in which third party managers make all the underlying investment
decisions.
Our high conviction portfolio allows us to proactively increase exposure
to companies that benefit from long term structural trends, those which
we believe would be more resilient in an economic downturn. We are able
to enhance returns and increase visibility on underlying performance
drivers, and we mitigate the more concentrated risk through a highly
selective approach and our focus on defensive growth companies. Over the
last five years, high conviction investments have generated a net return
of 19% p.a. in local currencies and we have a strategic goal to increase
the weighting to these investments towards 50% - 60% of the overall
Portfolio.
31 Jan
2020 31 Jan 2019
% of
Investment category Portfolio % of portfolio
------------------------------------ ---------- --------------
High conviction investments
ICG managed investments 22 20
Third party co-investments 14 16
Third party secondary investments 5 5
Total High conviction investments 41 41
Third party funds' portfolio
Third party primary funds 59 59
Total diversified fund investments 59 59
------------------------------------ ---------- --------------
Total 100 100
------------------------------------- ---------- --------------
Top 30 companies performed well in the year, dominated by high
conviction investments and defensive growth companies
Our largest 30 companies ("Top 30 Companies") represent 46% of the
Portfolio by value (31 Jan 19: 46%), and are weighted towards our high
conviction investments, which make up 71% of the Top 30 Companies by
value (31 Jan 19: 70%).
During the year, the Top 30 Companies performed well, reporting average
LTM earnings growth of 17% and revenue growth of 12%. It is particularly
encouraging that a quarter of these companies generated LTM earnings
growth in excess of 20% in the year, driven by both organic growth and
M&A activity. The valuation multiples of the Top 30 Companies increased
from 10.9x to 11.7x, a reflection of the change of mix and weightings,
rather than an increase in aggregate multiples overall. The net
debt/EBITDA ratio remained relatively unchanged at 4.1x, although mix
and weightings also had an impact with the majority of companies
de-levering in the year on a like-for-like basis. As we look across the
Portfolio, the growth and valuation trends are similar
Since the year end the economic landscape has altered dramatically. In
the 71% of the Top 30 Companies portfolio which are high conviction
investments, there is a strong bias towards investments in sectors which
have defensive characteristics. This includes a number of recent
co-investments in sub-sectors such as software and packaging which
continue to perform well even in the current climate. We also believe
that our investments alongside ICG will, in addition to having defensive
business models, benefit from being structured to provide downside
protection. This makes these investments less sensitive to short term
earnings or valuation pressure compared to a conventional buyout deal
structure.
Performance in the current environment will vary between sector and
company, and, while our underlying portfolio companies are not immune to
the impact of a global pandemic, we believe that the vast majority of
our Top 30 Companies are well placed to weather the current uncertainty
and take advantage of any recovery. Three of our Top 30 Companies are
quoted, and it is worth noting that two of these have increased in value
since 31 January 2020 with Chewy and TeamViewer's share price increasing
by 64%, and 29% respectively(4) . The third, Ceridian, has declined
since the onset of the crisis, however, more than a third of our January
holding was sold at a premium to the January valuation in February 2020.
Realisations(5)
Continued strong realisation activity at significant uplifts to carrying
value and cost
Realisations continued at a healthy level during the year with
GBP141m(6) of cash being generated from the Portfolio. Although lower
than the historical highs of the two previous years, at 20% of the
opening Portfolio it is in line with our 10 year average.
The realisation of 48 companies completed at an average uplift of 37%(7)
to the previous carrying value, which is consistent with the long-term
trend of significant uplifts being generated when companies are sold.
The average return multiple of 2.4x cost was also strong, reflecting a
number of highly successful investments realised in the year, with 40%
by number being sold for at least 2.5x cost. Over the last five years
exits have averaged 33% uplift to carrying value and a multiple of 2.3x
cost.
The largest realisation in the year came from our co-investment in
Froneri and its associated fund PAI V which together generated GBP18m of
proceeds. This fund, which has performed extremely well, had two assets
remaining with strong prospects but was coming to the end of its term.
PAI therefore offered investors the opportunity to realise their
holdings in these companies or reinvest into a new vehicle, PAI
Strategic Partnerships, giving more time to maximise the potential from
these companies. Given the continued strong performance of Froneri and
its future prospects, we decided to re-invest the majority of the
proceeds into the new transaction ensuring the company remains in our
Top 30 Companies.
The public market listing of technology investments was a strong source
of underlying valuation gains and proceeds with 15% of amounts received
arising from sales of listed shareholdings. The partial sell down of
human capital management software provider Ceridian by Thomas H Lee was
the largest contributor with GBP11m being returned in the year, mainly
from our co-investment. Permira's successful listing of remote support
software provider TeamViewer was also a significant contributor both in
terms of proceeds (GBP2m) and gain in the year, with the investment
being written up to 13.6x cost as at 31 January 2020, based on the
closing share price at this date. Both of these companies are in our Top
30 Companies at the year-end.
In addition to sales by our underlying managers, we completed a
secondary sale of one of our third party fund holdings at a premium to
the GP's valuation, which generated a further GBP8m of proceeds. We also
completed the sale of two more holdings, at premiums to the most recent
valuation, shortly after the year-end generating another GBP5m. These
transactions highlight our active approach to managing the Portfolio and
we will continue to pursue further sales opportunistically, taking
advantage of our in-house secondary market expertise.
From our largest 30 underlying companies at the start of the year, two
were fully realised: Atlas for Men from the third party funds portfolio
and Abode Healthcare from the co-investment portfolio, both of which
generated strong returns. In addition, our investment in Visma was
partially realised, with our co-investment managed by Cinven realised,
generating a 2.5x return. We still retain an interest in this company
via an ICG fund holding and co-investment from a later transaction.
New investments
Selective new investment
We invested GBP159m in the year, broadly in line with the GBP158m of new
investment in the year to January 2019. 39% of new investment was into
our high conviction portfolio, down from 50% in the year to January
2019. While we had a similar volume of opportunities compared to the
prior year, we executed fewer co-investments, given our cautious stance
on valuation multiples being paid for acquisitions. We completed three
US co-investments and the Froneri secondary transaction, totalling
GBP35m and one co-investment alongside ICG (GBP10m).
Co-investments have always been a feature of our strategy and have
outperformed both primary and secondary investments over the short and
long term, generating a local currency return of 21% p.a. over the last
five years. Our focus remains on defensive growth businesses with high
cash flow conversion which have demonstrated resilience to economic
cycles. The co-investments made in the year were:
-- DOC Generici is a leading independent generic pharmaceutical company and
the third largest company in the Italian pharmaceutical market. It is
active in the supply of drugs for the treatment of all the common medical
conditions with a strong presence in areas including cardiovascular,
gastrointestinal, metabolism and neurological treatments. We invested
GBP12m in this company.
-- Berlin Packaging, provider of global packaging services with a focus on
the food and healthcare industries in which we invested GBP9m alongside
Oak Hill Capital Partners. The company provides its clients with a fully
integrated service to design, finance and commission packaging. It is the
number one distributor of rigid packaging in North America operating in a
$7bn core addressable market. It has a strong financial track record and
a highly cash generative business model with demand that has proved
resilient through the cycle.
-- VitalSmarts, a US provider of on-line and in-person leadership training,
our second co-investment alongside Leeds Equity Partners, in which we
invested GBP8m. Both the manager and company have an excellent track
record in corporate education and the deal dynamics at entry were
attractive in terms of both entry multiple and the company's capital
structure. The company has worked with over 300 of the Fortune 500
companies and has a highly diversified income base.
-- RegEd is a leading provider of regulatory compliance software services,
primarily to broker-dealers, insurance companies and banks in the United
States. The company's customers include over 200 blue-chip customers
including 80% of the top 25 financial services firms in the US. We
invested GBP5m in RegEd alongside a new US manager, Gryphon Investors. We
expect RegEd to benefit from a number of favourable trends as its clients
transition towards greater automation and less reliance on manual
processes.
All of these companies have defensive business models. Additionally, DOC
Generici features a combination of subordinated debt and equity
investments giving an element of structural downside protection, a
consistent feature of many of our investments with ICG.
12 new fund commitments to both existing and new manager relationships
We completed 12 new primary fund commitments in the year totalling
GBP156m. 11 of these were to third party managers. Of these third party
fund commitments, six were raised by managers we have backed
successfully before: two European funds (IK and Cinven), two global
funds (Advent and Permira), and two US funds (Oak Hill and Gridiron). We
also made a commitment to ICG Europe Mid-Market Fund, ICG's latest
European fund. The managers we back tend to raise funds that are
oversubscribed and therefore difficult to access, and the calibre of
these managers speaks to the relationships that we have built with these
firms over many years. A key area of focus in our selection and due
diligence process relates to the performance of managers during periods
of significant financial stress.
We also added five new manager relationships, of which three are focused
on the US mid-market (AEA, Gryphon Investors and Charlesbank) and two
are focused on the European market (Carlyle Europe and
Investindustrial). Since the move to ICG we have built many new
relationships with US managers and they have been a key source of
co-investment and secondary deal flow in addition to the in-house deal
flow that ICG has given the Company access to. As a result, the
Portfolio is increasingly geographically diverse; of our 29 core manager
relationships, 12 are US managers and we have successfully increased our
US exposure to 30% of the portfolio. Over the medium term we expect our
weighting to the US market to further increase to up to approximately
40% of the Portfolio.
Portfolio analysis(8)
Focus on mid-market and large cap companies
The Portfolio is biased towards mid-market (42%) and large deals (46%)
which we view as more defensive than smaller deals, benefiting from
stronger management teams and often market leading positions.
Portfolio increasingly focused on international markets
The Portfolio is focused on developed private equity markets, primarily
continental Europe (37%), the US (30%) and the UK (27%). Investments in
the Asia Pacific region represent 6% of value, which is primarily in
developed Asian markets such as South Korea and Singapore through ICG's
Asia Pacific subordinated debt and equity team. We have minimal emerging
markets exposure. In line with one of our strategic objectives, our
weighting to the US has increased from 14% at the time of the move to
ICG in 2016. Over the same period, the UK bias has reduced from 45%.
Portfolio bias towards sectors with defensive growth characteristics
The Portfolio is weighted towards more resilient sectors, such as
healthcare, technology and business services. 23% of the Portfolio is
invested in healthcare (17%) and education (6%), with the remainder of
the portfolio broadly spread across the industrial (16%) business
services (15%), consumer goods and services (15%) and technology (14%)
sectors. The company has a lower exposure to the leisure (8%) and
financial (5%) sectors. Within our exposure to the consumer and
industrial sectors, we have a bias to companies with more defensive
business models with non-cyclical growth drivers and high recurring
revenue streams.
Well-balanced vintage year exposure
Our vintage year exposure is balanced with 44% of the Portfolio invested
in transactions completed in 2016 or earlier, and 56% of the value in
investments made in 2017 or later.
Balance sheet and financing
Efficient balance sheet with good liquidity
There was net investment of GBP10m into the Portfolio during the period,
and, after allowing for dividends and expenses, the outstanding cash
balance fell to GBP14m (2019: GBP61m). At the year end the Portfolio
represented 102% of net assets, an increase from 95% at 31 January 2019.
GBPm 31 Jan 2020 31 Jan 2019
-------------------------------- ------------ ------------
Portfolio* 806 695
Cash 14 61
Net obligations (26) (25)
-------------------------------- ------------ ------------
Net assets 794 731
-------------------------------- ------------ ------------
Portfolio as % of net assets 101.6% 95.0%
* Refer to the Glossary for reconciliation to the
portfolio balance presented in the preliminary results
and definition of net obligations.
At 31 January 2020, we had uncalled commitments of GBP459m, against
which we had available liquidity of GBP162m (including GBP148m of
undrawn bank line). Of these uncalled commitments, GBP82m were to funds
outside their investment period.
In managing the Company's balance sheet our objective is to be broadly
fully invested through the cycle. We do not intend to be geared for long
periods of time. Outstanding commitments tend to be substantially drawn
down over a four to six-year period with approximately 10%--15% retained
at the end of the investment period to fund follow-on investments and
expenses. If outstanding commitments were to follow a linear drawdown
rate to the end of their respective remaining investment periods, we
estimate that approximately GBP85m would be called over the next 12
months. However, it is important to note that in previous periods of
economic and financial market distress, drawdown rates from underlying
funds slowed materially.
During the year we strengthened the Company's financial position by
agreeing a new bank facility of EUR176m (GBP148m), which matures in two
equal tranches in April 2021 and April 2022. Our anticipation is that
economic impact from COVID-19 will result in the rate of realisations
from the Portfolio slowing and this enlarged facility gives us greater
flexibility.
Since the year end, we have drawn GBP40m from our facility, taking our
gross cash balances to GBP56m at 23 April 2020. We have sufficient
headroom within our facility's covenants and are well placed to manage
the Portfolio cash flows. As demonstrated by the secondary sales
completed in the year, we also have a Portfolio that attracts strong
demand in the secondary market and continue to be active in this market.
GBPm 31 Jan 2020 31 Jan 2019
----------------------------------------------- ----------- -----------
Outstanding commitments 459 411
Total available liquidity (including facility) (162) (164)
----------- -----------
Overcommitment (including facility) 297 247
----------------------------------------------- ----------- -----------
Overcommitment % of net asset value 37% 34%
----------------------------------------------- ----------- -----------
Activity since the year-end
Since the year-end, the Portfolio has continued to generate cash
proceeds. In total GBP25m of distributions have been received in the two
months to 31 March 2020 and we have paid GBP19m of capital calls. We
committed EUR10m to Apax X, a global buyout fund, focused on the
Technology & Telecoms, Services, Healthcare, and Consumer sectors. We
also committed $5m to Hg Saturn 2, a new strategy with an existing
European mid-market manager.
Outlook
We are working closely with our managers to understand both the
immediate and potential future impact of the COVID-19 pandemic, and its
economic fallout, on the performance of our portfolio companies. We
expect the decline in public markets seen after the year-end and the
broader consequences of COVID-19 on global economies to have an impact
on portfolio valuations in the months ahead and for the rate of
realisations to slow. The speed of any recovery, in the medium term,
will depend on business models, end markets and government policy, and
will also vary by geography, by sector and by company.
ICG Enterprise has a well-diversified Portfolio, invested primarily in
companies with strong defensive characteristics and weighted towards
more resilient sectors. We invest with leading managers in the US and
Europe focused on mid-market and larger buyouts, with a bias towards
those with strong in-house operating teams and capital markets
specialists. The managers that we invest with have access to capital to
support portfolio companies and significant experience in managing
companies through periods of economic stress. In the weeks since the
crisis unfolded, we have begun to see some of the benefits of the
private equity model, with managers acting quickly and decisively to
preserve and protect value. We believe private equity is well suited to
dealing with current market conditions and have confidence that our
managers will be able to adapt to future events.
Our flexible mandate, and in particular our high conviction approach,
allows us to be nimble and adapt the mix of new investment to evolving
market conditions. While we do not expect significant new investment
activity until markets stabilise, we are well placed to benefit from
more favourable entry valuations and take advantage of the opportunities
as they arise.
ICG Private Equity Fund Investments Team
27 April 2020
Supplementary information (unaudited)
This section presents supplementary information regarding the Portfolio
(see Manager's Review and the Glossary for further details and
definitions).
The 30 largest underlying companies
The table below presents the 30 companies in which ICG Enterprise had
the largest investments by value at 31 January 2020. These investments
may be held directly or through funds, or in some cases in both ways.
The valuations are gross and are shown as a percentage of the total
investment Portfolio.
Value as
Year of a % of
Company Manager investment Country Portfolio
------------------------------------------------------------ --------- ----------- ------------ ---------
1 DomusVi +
Operator of retirement homes ICG 2017 France 3.6%
2 City & County Healthcare Group
Graphite
Provider of home care services Capital 2013 UK 2.9%
3 Minimax +
Supplier of fire protection systems and services ICG 2018 Germany 2.9%
4 Roompot +
PAI
Operator and developer of holiday parks Partners 2016 Netherlands 2.5%
5 PetSmart +
BC
Retailer of pet products and services Partners 2015 USA 2.4%
6 Leaf Home Solutions
Provider of gutter protection solutions Gridiron 2016 USA 2.1%
7 Visma +
Provider of accounting software and accounting outsourcing
services ICG 2017 Norway 1.8%
8 Yudo +
Manufacturer of components for injection moulding ICG 2018 South Korea 1.8%
9 Doc Generici +
Retailer of pharmaceutical products ICG 2019 Italy 1.8%
10 System One +
Thomas H
Lee
Provider of specialty workforce solutions Partners 2016 USA 1.7%
11 Supporting Education Group +^
Provider of temporary staff for the education sector ICG 2014 UK 1.7%
12 Gerflor^
Manufacturer of vinyl flooring ICG 2017 France 1.7%
13 Froneri^
PAI
Manufacturer and distributor of ice cream products Partners 2019 UK 1.6%
14 nGAGE
Graphite
Provider of recruitment services Capital 2014 UK 1.5%
15 Beck & Pollitzer
Provider of industrial machinery installation and Graphite
relocation Capital 2016 UK 1.5%
16 IRI +
Provider of data and predictive analytics to consumer New
goods manufacturers Mountain 2018 USA 1.4%
17 Endeavor Schools +
Leeds
Equity
Operator of schools Partners 2018 USA 1.4%
18 YSC
Provider of leadership consulting and management assessment Graphite
services Capital 2017 UK 1.4%
19 ICR Group
Provider of repair and maintenance services to the Graphite
energy industry Capital 2014 UK 1.3%
20 Compass Community
Provider of fostering services and children residential Graphite
care Capital 2017 UK 1.1%
21 Berlin Packaging +
Oak Hill
Capital
Provider of global packaging services and supplies Partners 2019 USA 1.1%
22 VitalSmarts +
Leeds
Provider of corporate training courses focused on Equity
communication skills and leadership development Partners 2019 USA 1.0%
23 PSB Academy +
Provider of private tertiary education ICG 2018 Singapore 1.0%
24 U-POL^
Manufacturer and distributor of automotive refinishing Graphite
products Capital 2010 UK 0.9%
25 Ceridian +
Thomas H
Lee
Provider of payroll and human capital software Partners 2007 USA 0.9%
26 David Lloyd Leisure +
TDR
Operator of premium health clubs Capital 2013 UK 0.8%
27 Cognito +^
Graphite
Supplier of communications equipment, software & services Capital 2002 / 2014 UK 0.7%
28 Random42
Graphite
Provider of medical animation and digital media services Capital 2017 UK 0.6%
29 EG Group
TDR
Operator of petrol station forecourts Capital 2014 UK 0.6%
30 TeamViewer
Provider of secure remote support and online meeting
software Permira 2014 Germany 0.6%
------------------------------------------------------------ --------- ----------------- ---------
Total of the 30 largest underlying investments 46.3%
-------------------------------------------------------------------------------------------------- ---------
All or part of this investment is held directly as
a co-investment or other direct investment.
^ All or part of this investment was acquired as part
of a secondary purchase.
The 30 largest fund investments
The table below presents the 30 largest funds by value at 31 January
2020. The valuations are net of any carried interest provision.
Outstanding
Value commitment
Fund Year of commitment Country/ region GBPm GBPm
---------------------- ------------------ --------------------- ------ -----------
Graphite Capital
1 Partners VIII *
Mid-market buyouts 2013 UK 90.1 14.9
Gridiron Capital Fund
2 III
Mid-market buyouts 2016 North America 24.3 4.1
3 ICG Europe VI **
Mezzanine and equity
in mid-market
buyouts 2015 Europe 20.0 3.3
CVC European Equity
4 Partners VI
Large buyouts 2013 Europe/USA 18.0 2.9
Thomas H Lee Equity
5 Fund VII
Mid-market and large
buyouts 2015 USA 17.9 1.6
BC European Capital IX
6 **
Large buyouts 2011 Europe/USA 15.7 2.1
7 PAI Europe VI
Mid-market and large
buyouts 2013 Europe 14.7 1.5
Advent Global Private
8 Equity VIII
Large buyouts 2016 Europe/USA 14.6 1.4
9 Permira V
Large buyouts 2013 Europe/USA 14.4 0.8
PAI Strategic
10 Partnerships **
Mid-market and large
buyouts 2019 Europe 14.4 1.5
11 Sixth Cinven Fund
Large buyouts 2016 Europe 13.7 5.3
Graphite Capital
12 Partners VII * / **
Mid-market buyouts 2007 UK 13.7 2.8
13 ICG Europe VII
Mezzanine and equity
in mid-market
buyouts 2018 Europe 13.6 22.6
14 BC European Capital X
Large buyouts 2016 Europe 12.4 1.9
ICG Strategic
15 Secondaries Fund II
Secondary fund
restructurings 2016 Europe/USA 12.3 14.4
16 One Equity Partners VI
Mid-market buyouts 2016 Europe/USA 11.8 0.8
17 Silverfleet II
Mid-market buyouts 2014 Europe 11.5 2.0
ICG Asia Pacific Fund
18 III
Mezzanine and equity
in midmarket buyouts 2016 Asia Pacific 11.3 2.7
CVC European Equity
19 Partners VII
Large buyouts 2017 Europe/North America 10.9 10.0
20 TDR Capital III
Mid-market and large
buyouts 2013 Europe 10.3 2.1
21 Resolute II **
Mid-market buyouts 2018 USA 10.3 2.3
Oak Hill Capital
22 Partners IV
Mid-market buyouts 2017 USA 8.9 2.7
23 Permira VI
Large buyouts 2016 Europe 8.9 1.8
Activa Capital Fund
24 III
Mid-market buyouts 2013 France 8.7 1.9
Nordic Capital
25 Partners VIII
Mid-market and large
buyouts 2013 Europe 8.6 1.3
Hollyport Secondary
26 Opportunities VI
Tail-end secondary
portfolios 2017 Global 8.3 2.3
27 IK VIII
Mid-market buyouts 2016 Europe 8.1 1.5
28 Gryphon V
Mid-market buyouts 2019 North America 8.0 3.9
29 IK VII
Mid-market buyouts 2013 Europe 8.0 0.4
30 Bain Capital Europe IV
Mid-market buyouts 2014 Europe 8.0 0.8
Total of the largest 30 fund investments 451.4 117.6
Percentage of total investment Portfolio 56.0%
----------------------------------------------------------------- ------ -----------
* Includes the associated Top Up funds.
** All or part of an interest acquired through a secondary
fund purchase.
Portfolio analysis
Closing Portfolio by value
% of value of % of value of
underlying underlying
investments investments
Portfolio by investment type 31 January 2020 31 January 2019
----------------------------- ---------------- ----------------
Large buyouts 46.4% 44.7%
Mid-market buyouts 42.2% 47.2%
Small buyouts 8.7% 4.6%
Other 2.7% 3.5%
----------------------------- ---------------- ----------------
Total 100.0% 100.0%
----------------------------- ---------------- ----------------
Portfolio by calendar year of % of value of underlying investments
investment 31 January 2020
----------------------------------- ------------------------------------
2020 0.1%
2019 17.2%
2018 19.7%
2017 19.2%
2016 16.2%
2015 7.7%
2014 8.5%
2013 5.5%
2012 1.4%
2011 0.9%
2010 1.3%
2009 0.6%
2008 0.1%
2007 1.3%
2006 and before 0.3%
------------------------------------ ------------------------------------
Total 100.0%
------------------------------------ ------------------------------------
Portfolio by % of value of underlying investments % of value of underlying investments
sector 31 January 2020 31 January 2019*
------------ ------------------------------------ ------------------------------------
Healthcare
and
education 23.2% 20.8%
Industrials 15.5% 16.4%
Business
services 15.4% 17.8%
Consumer
goods and
services 15.1% 14.2%
TMT 13.6% 11.8%
Leisure 7.7% 8.7%
Financials 5.3% 5.5%
Other 4.2% 4.8%
------------ ------------------------------------ ------------------------------------
Total 100.0% 100.0%
------------ ------------------------------------ ------------------------------------
* Restated following the reclassification of four
underlying investments in the current year
% of value of % of value of
underlying underlying
Portfolio by geographic distribution based on location investments investments
of company headquarters 31 January 2020 31 January 2019
Europe 36.7% 38.8%
UK 27.1% 30.9%
North America 29.9% 25.9%
Rest of world 6.3% 4.4%
------------------------------------------------------- ---------------- ----------------
Total 100.0% 100.0%
------------------------------------------------------- ---------------- ----------------
Commitments analysis
The following tables analyse commitments at 31 January 2020. Original
commitments are translated at 31 January 2020 exchange rates.
Total undrawn commitments
Original Outstanding Average
commitment commitment drawdown % of
GBP'000 GBP'000 percentage commitments
------------------------- ----------- ----------- ----------- ------------
Investment period not
commenced 16,801 16,801 0.0% 3.7%
Funds in investment
period 543,836 360,044 33.8% 78.5%
Funds post investment
period 804,907 81,793 89.8% 17.8%
------------------------- ----------- ----------- ----------- ------------
Total 1,365,544 458,639 66.4% 100.0%
------------------------- ----------- ----------- ----------- ------------
Movement in outstanding commitments in year ended
31 January 2020 GBPm
--------------------------------------------------------- -------
As at 1 February 2019 411.2
New primary commitments 156.3
New commitments relating to co-investments and secondary
purchases 2.0
Drawdowns (113.3)
Secondary disposals (1.5)
Currency and other movements 3.9
--------------------------------------------------------- -------
As at 31 January 2020 458.6
--------------------------------------------------------- -------
New commitments during the year to 31 January 2020
Fund Strategy Geography GBPm
------------------------- ------------------------ ---------------- -----
Primary commitments
ICG Europe Mid-Market Mezzanine and equity in
Fund mid-market buyouts Europe 17.9
Seventh Cinven Large buyouts Europe 17.3
Oak Hill V Mid-market buyouts USA 15.8
AEA VII Mid-market buyouts North America 15.3
Investindustrial VII Mid-market buyouts Southern Europe 13.6
IK IX Mid-market buyouts Europe 13.5
Permira VII Large buyouts Global 13.4
Advent IX Large buyouts Europe/USA 13.2
Gridiron IV Mid-market buyouts North America 12.4
Gryphon V Mid-market buyouts North America 11.5
Carlyle Europe V Mid-market buyouts Europe 8.6
CB Technology Lower middle-market
Opportunities Fund buyouts North America 3.8
Total primary commitments 156.3
Commitments relating to co-investments and secondary
investments 2.0
--------------------------------------------------------------------- -----
Total new commitments 158.3
------------------------- ----------------------------------------- -----
Currency exposure
31 January 31 January 31 January 31 January
2020 2020 2019 2019
Portfolio(1) GBPm % GBPm %
--------------- ---------- ---------- ---------- ----------
Sterling 246.0 30.5 241.9 34.8
Euro 226.6 28.1 190.8 27.5
US Dollar 224.2 27.8 173.3 25.0
Other European 59.6 6.2 53.8 7.7
Other 50.0 7.4 35.0 5.0
--------------- ---------- ---------- ---------- ----------
Total 806.4 100.0 694.8 100.0
--------------- ---------- ---------- ---------- ----------
(1) Currency exposure is calculated by reference to
the location of the underlying Portfolio companies'
headquarters.
31 January 31 January 31 January 31 January
2020 2020 2019 2019
Outstanding commitments GBPm % GBPm %
------------------------ ---------- ---------- ---------- ----------
-- Sterling 65.3 14.2 83.3 20.3
-- Euro 213.0 46.5 172.2 41.9
-- US Dollar 178.5 38.9 153.9 37.4
-- Other European 1.8 0.4 1.8 0.4
------------------------ ---------- ---------- ---------- ----------
Total 458.6 100.0 411.2 100.0
------------------------ ---------- ---------- ---------- ----------
Realisation activity
Year of Proceeds
Investment Manager investment Realisation type GBPm
-------------- ------------- ------------- ------------------ ------------
Froneri PAI Partners 2013 Restructuring(1) 17.8
Abode Tailwind
Healthcare Capital 2018 Financial buyer 10.8
Thomas H Lee
Ceridian Partners 2007 Sell down post IPO 10.7
Visma Cinven 2014 Financial buyer 8.3
Atlas for Men Activa 2016 Financial buyer 4.6
Stella ICG 2015 Financial buyer 3.7
SK:N Limited Graphite
(Lasercare) Capital 2006 Financial buyer 3.6
Aston Scott Bowmark 2015 Financial buyer 3.5
Parex CVC 2014 Trade 2.9
Integer ICG 2018 Financial buyer 2.9
-------------- ------------- ------------- ------------------ ------------
Total of 10 largest
underlying realisations 68.9
----------------------------- -------------------------------- ------------
Total realisations 148.8
---------------------------------------------------------------- ------------
(1) Majority of proceeds from current year sale re-invested
into a rollover vehicle managed by PAI Partners.
Investment activity
Cost(1)
Investment Description Manager Country GBPm
------------ ------------------------------------------------------------ ---------- ---------- -------
PAI
Froneri(2) Manufacturer and distributor of ice cream products Partners UK 13.1
Doc Generici Retailer of pharmaceutical products ICG Italy 12.4
Leeds
Provider of corporate training courses focused on Equity
VitalSmarts communication skills and leadership development Partners USA 8.3
Oak Hill
Berlin Capital
Packaging Provider of global packaging services and supplies Partners USA 8.1
Provider of regulatory compliance and management software Gryphon
RegEd products Investors USA 4.6
NRS Provider of community products and services which Graphite
Healthcare are used to help elderly and disabled live independently. Capital UK 2.9
Organiser of B2B conferences for pharmaceutical and Graphite
Hanson Wade biotech industries. Capital UK 2.8
Horizon Care
and Graphite
Education Provider of specialist care for children and adolescents. Capital UK 2.6
Tat Hong Operator of crane rental company ICG Singapore 2.5
Provider of consulting and managed services for telecom/DSP
Prodapt ecosystems ICG India 2.4
------------ ------------------------------------------------------------ ---------- ---------- -------
Total of 10 largest underlying new investments 59.7
-------------------------------------------------------------------------------------------------- -------
Total new investment 158.6
-------------------------------------------------------------------------------------------------- -------
(1) Represents ICG's indirect exposure (share of fund
cost) plus any amounts paid for co-investments in
the period.
(2) Majority of proceeds from current year sale re-invested
into a rollover vehicle managed by PAI Partners.
PRINCIPAL RISKS AND UNCERTAINTIES
Risk management
The Board is responsible for risk management and determining the
Company's overall risk appetite. The Audit Committee assesses and
monitors the risk management framework and specifically reviews the
controls and assurance programmes in place.
Principal risks and uncertainties
The execution of the Company's investment strategy is subject to risk
and uncertainty and the Board and Manager have identified a number of
principal risks to the Company's business. As part of this process, the
Board have carried out a robust assessment of the principal risks facing
the entity, including those that would threaten its business model,
future performance, solvency or liquidity.
The Company considers its principal risks (as well as a number of
underlying risks comprising each principal risk) in four categories:
Investment Risks -- the risk to performance resulting from ineffective
or inappropriate investment selection, execution, monitoring.
External Risks -- the risk of failing to deliver the Company's strategic
objectives due to external factors beyond the Company's control.
Operational Risks -- the risk of loss or missed opportunity resulting
from a regulatory failure or the failure of people, processes or
systems.
Financial Risks -- the risks of adverse impact on the Company due to
having insufficient resources to meet its obligations or counterparty
failure and the impact any material movement in foreign exchange rates
may have on underlying valuations.
Emerging risks are regularly considered to assess any potential impact
on the Company and to determine whether any actions are required.
Emerging risks include those related to regulatory/legislative change
and macro-economic and political change, which in the current year have
included the impact of ESG on the Company and the UK's trade
negotiations with the EU.
Following the year end, there have been significant developments in
relation to the COVID-19 outbreak. These developments are unprecedented
and likely to have a material impact on a number of our principal risks,
in particular on investment performance risk and valuation risk. The
Manager and the Board are working closely to understand and mitigate the
immediate and potential future impact of the COVID-19 pandemic, and its
economic fallout, on the Company. The Manager is in regular contact with
the underlying managers, who have a strong operational focus, to
understand the impact on their portfolios and mitigating actions that
they may take. In addition, the Company has drawn GBP40m on its bank
facility since the year end to further strengthen its liquidity
position. Given the rapid escalation of the crisis, we currently have
limited visibility on the short and longer-term impact of COVID-19 on
the global economy. It is difficult to fully assess the impact on the
Company at this stage, but clearly a number of risks are heightened
currently.
Other risks, including reputational risk, are seen as potential outcomes
of the core principal risks materialising. These risks are managed as
part of the overall risk management of the Company.
A comprehensive risk assessment process is undertaken regularly to
re-evaluate the impact and probability of each risk materialising and
the nancial or strategic impact of the risk. Where the residual risk is
determined to be outside of appetite, appropriate action is taken.
Further information on risk factors is set out within the financial
statements.
Risk appetite and tolerance
The Board acknowledges and recognises that in the normal course of
business the Company is exposed to risk and that it is willing to accept
a certain level of risk in managing the business to achieve its targeted
returns.
As part of its risk management framework, the Board considers its risk
appetite in relation to each principal risk and monitors this on an
ongoing basis. Where a risk is approaching or is outside the tolerance
set, the Board will consider the appropriateness of actions being taken
to manage the risk.
In particular, the Board has a very low tolerance for financing risk
with the aim to ensure that even under the most severe stress scenario,
the Company is likely to meet its funding requirements and financial
obligations. Similarly, the Board has a low-risk tolerance concerning
operational risks including legal, taxation, regulatory and business
process and continuity risk.
RISK IMPACT MITIGATION CHANGE IN
THE YEAR
Investment Risks
------------------------------------------------------------
Investment performance Poor origination, investment selection and monitoring The Manager has a strong track record of investing Stable(9)
The Manager selects the fund investments and direct by the Manager and/or third party managers could significantly in private equity through multiple economic cycles. The Board reviews the activities and performance of
co-investments for the Company's Portfolio. The underlying affect the performance of the portfolio. The Manager has a highly selective investment approach the Manager on an ongoing basis and reviews the investment
managers of those funds in turn select individual and disciplined process, which is overseen by ICG strategy annually. Following this assessment and other
investee companies. Enterprise's Investment Committee within the Manager, considerations, the Board concluded that there was
The origination, investment selection and management which comprises a balance of skills and perspectives. no material change in investment performance risk
capabilities of both the Manager and the third party Further, the Company's Portfolio is diversified reducing during the year.
managers are key to the performance of the Company. the likelihood of a single investment decision impacting
portfolio performance.
Valuation Incorrect valuations being provided would lead to The Manager carries out a formal valuation process Stable(9)
In valuing its investments in private equity funds an incorrect overall NAV. involving a quarterly review of third party valuations, The Board discussed the valuation process in detail
and unquoted companies and publishing its NAV, the verification of the latest audited reports, as well with the Manager and the external auditors, including
Company relies to a significant extent on the accuracy as a review of any potential adjustments that are the sources of valuation information and methodologies
of financial and other information provided by the required to ensure the valuation of the underlying used. Following this assessment and other considerations,
underlying managers to the Manager. There is the potential investments are in accordance with the fair market the Board concluded that there was no material change
for inconsistency in the valuation methods adopted value principles required under International Financial in valuation risk during the year.
by the managers of these funds and companies and for Reporting Standards ("IFRS").
valuations to be misstated
External
Political and macroeconomic uncertainty Changes in the macro-economic The Manager actively monitors these developments, Stable(9)
Political and macroeconomic uncertainty, including or political environment could significantly affect with the support of a dedicated in-house economist The Board monitors and reviews the potential impact
impacts from the performance of existing investments (and valuations) and professional advisers where appropriate, to ensure on the Company from political and economic developments
the UK's trade negotiations with the EU, uncertainty and prospects for realisations. In addition, it could it is prepared for any potential impacts (to the extent on an ongoing basis, including input and discussions
around US trade negotiations, or similar scenarios, impact the number of credible investment opportunities possible). with the Manager. Incorporating these views and other
could impact the environment in which the Company the Company can originate. considerations, the Board concluded that there was
and its investment portfolio companies operate. no material change in political and macro-economic
uncertainty risk during the year.
Private equity sector A change in sentiment to the sector has the potential Private equity has outperformed public markets over Stable(9)
The private equity sector could fall to damage the Company's reputation and impact the the long term and it has proved to be an attractive The Board receives regular updates from the Company's
out of favour with investors leading to a reduction performance of the Company's share price and widen asset class through various cycles. broker and is kept informed of all material discussions
in demand for the Company's shares. the discount the shares trade at relative to NAV per The Manager is active in marketing the Company's shares with investors and analysts. Incorporating these updates
share, causing shareholder dissatisfaction. to a wide variety of investors to ensure the market and other considerations, the Board concluded that
is informed about the Company's performance and investment there was no material change in private equity sector
proposition. sentiment risk during the year.
The Board monitors the discount to NAV and considers
appropriate solutions to address any ongoing or substantial
discount to NAV, including share buybacks.
Foreign exchange At present, the Company does The Board regularly reviews the Company's exposure Stable(9)
The Company has continued to expand its geographic not hedge its foreign exchange exposure. Therefore, to currency risk and reconsiders possible hedging The Board reviewed the Company's exposure to currency
diversity by making investments in a number of countries. movement strategies on an annual basis. Furthermore, the Company's risk and possible hedging strategies and concluded
Accordingly, a number of investments are denominated in exchange rates between these currencies may have multicurrency bank facility permits the borrowings that there was no material change in foreign exchange
in US dollars, euros and other currencies other than a material effect on the underlying valuations of to be drawn in euros and US dollars, if required. risk during the year and that it remained appropriate
sterling. the investments and performance of the Company. for the Company not to hedge its foreign exchange
exposure.
Operational Risks
------------------------------------------------------------
Regulatory, legislative If applicable law and regulations are not complied The Board is responsible for ensuring the Company's Increased
and taxation compliance with, the Company could face regulatory sanction and compliance with all applicable regulations. Monitoring As a result of the Company entering the FTSE 250 index
Failure by the Manager to comply with relevant regulation penalties as well as a significant damage to its reputation. of this compliance, and regular reporting to the Board during the year, as well as other regulatory and corporate
and legislation could have an adverse impact on the thereon, has been delegated to the Manager. The Manager's governance developments, the financial or reputational
Company, or adherence to such could become onerous. in-house legal counsel, supported by the Compliance impact resulting from potential regulatory or legislative
This includes the Corporate Governance Code, Corporation and Risk functions, provides regular updates to the failings has increased. During the year, both the
Tax Act 2010, the Companies Act 2006, the Companies Board covering relevant changes to legislation and Board and the Manager's risk function have closely
(Miscellaneous Reporting) Regulations 2018, the Alternative regulation. The Manager and the Board ensure compliance monitored and evaluated the risks resulting from these
Investment Fund Managers Directive, accounting standards, with applicable regulation and legislation occurs developments, and the Company has continued to enhance
investment trust regulations and the Listing Rules in an effective manner. its processes and controls in order to remain compliant
and Disclosure Guidance and Transparency Rules. with current and expected legislation.
People If the Manager's investment team The Manager regularly updates the Board on team developments Decreased
Loss of key investment professionals were not able to deliver, investment opportunities and succession planning. Oliver Gardey was appointed as head of the Company's
at the Manager could impair the Company's ability could be missed or misevaluated, while existing investment The Manager places significant focus on developing investment team, succeeding Emma Osborne. As a result
to deliver its investment strategy if replacements performance may suffer. key individuals to ensure that there is a pipeline of the successful transition, the Board believes that
are not found in a timely manner. of potential succession candidates internally. External the risk in respect of People has now reduced.
appointments are also considered if that best satisfies
the business needs at the appropriate time.
The Company's investment team
within the Manager has always taken
a team-based approach to decision-making which helps
to mitigate against key person risk. In addition,
no one investment professional has sole responsibility
for an investment or fund manager relationship and,
to ensure that insights and knowledge are widely spread
across the investment team, the team meets weekly
to discuss all potential new investments and the overall
performance of the portfolio.
The Manager's compensation policy is designed to minimise
turnover of key people. In addition, the senior investment
professionals are required to co-invest alongside
the Company for which they are entitled to a share
of investment profits if performance hurdles are met,
which aids retention.
Information security A significant disruption to these IT systems, including Application of the Manager's and Administrator's information Stable(9)
The Company is dependent on effective information breaches of data confidentiality or cybersecurity, security policies is supported by a governance structure The Board carries out a formal assessment of the Manager's
technology systems at both the Manager and Administrator. could result in, among other things, financial losses, and a risk framework that allows for the identification, internal controls and risk management systems every
These systems support key business functions and are an inability to perform business critical functions, control and mitigation of technology risks. year. Following this review and other considerations,
an important means of safeguarding sensitive information. regulatory censure, legal liability and reputational The adequacy of the systems and controls the Manager the Board concluded that there was no material change
damage. and Administrator have in place to mitigate the technology in information security risk during the year.
risks is continuously monitored and subject to regular
testing. The effectiveness of the framework is periodically
assessed.
The Manager and other A significant failure of or disruption The Audit Committee formally assesses the internal Stable
third party advisers, including business processes to the Manager, Administrator or Depositary's processes controls of the Manager, the Administrator and Depositary The Board carries out a formal assessment of the Manager's
and continuity could result on an annual basis to ensure adequate controls are internal controls and risk management systems every
The Company is dependent on third parties for the in, among other things, financial losses, an inability in place. year. Following this review and other considerations,
provision of all systems and services. to perform business critical functions, regulatory The assessment in respect of the current year is discussed the Board concluded that there was no material change
In particular, the Company is dependent on the business censure, legal liability and reputational damage. in the Report of the Audit Committee within the Annual in the manager and other third party advisers risk
processes of the Manager, Administrator and Depositary Report. during the year.
operating effectively. These systems support key business The Management Agreement and agreements with other
functions. key service providers are subject to notice periods
Control failures and gaps in these systems and services that are designed to provide the Board with adequate
could result time to put in place alternative arrangements.
in a loss or damage to the Company.
Financial Risks
------------------------------------------------------------
Financing If the Company encountered difficulties in meeting The Manager monitors the Company's liquidity and covenants Stable(9)
The Company has outstanding commitments that may be its outstanding commitments, there would be significant on a frequent basis, and undertakes cash flow monitoring, The Board received written reports and updates from
drawn down at any time in excess of total liquidity reputational damage as well as risk of damages being and provides regular updates on these activities to the Manager on at least a quarterly basis and as appropriate
to private equity funds. The ability claimed from managers and other counterparties. the Board. on the Company's balance sheet position and financing
to fund this difference is dependent It is also possible that the Company might need to Commitments are expected to be mostly deployed over arrangements. Incorporating these reports, updates
on receiving cash proceeds from investments (the timing raise new equity to fund its outstanding commitments. a four-year period. If necessary the Company can reduce and other considerations, the Board concluded that
of which are unpredictable) and the availability the level of co-investments and secondary investments, there was no material change in financing risk during
of financing facilities. which are discretionary, to preserve liquidity the year.
for funding its commitments. The Company could also
dispose of assets.
The Company has a EUR176m (GBP148m), multi-currency
bank facility which was renewed on 2 April 2019. The
facility is split into two equal tranches, maturing
in April 2021 and April 2022.
The total available liquidity as at 31 January 2020
stood at GBP162.3m, comprising GBP14.5m in cash balances
and GBP147.8m in undrawn bank facilities. As a result,
the available financing along with the private equity
portfolio exceeded the outstanding commitments by
a factor of 2.1 times.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the Annual Report, the
Directors' Remuneration Report and the financial statements in
accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for
each financial year. Accordingly, the directors have prepared the
financial statements in accordance with International Financial
Reporting Standards (IFRS) as adopted by the European Union. Company law
also requires that the directors do not approve the financial statements
unless they are satisfied that they give a true and fair view of the
state of affairs of the Company and of the profit or loss of the Company
for the relevant period. In preparing these financial statements, the
directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and accounting estimates that are reasonable and
prudent;
-- state whether applicable IFRS, as adopted by the European Union, have
been followed, subject to any material departures disclosed and
explained in the financial statements; and
-- prepare the financial statements on a going concern basis unless it
is inappropriate to presume that the Company will continue in business.
The directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Company's transactions and
disclose with reasonable accuracy at any time the financial position of
the Company and enable them to ensure that the financial statements and
the Directors' Remuneration Report comply with the Companies Act 2006
and, as regards the Company's financial statements, Article 4 of the
International Accounting Standards Regulation (EC) No 1606/2002. They
are also responsible for safeguarding the assets of the Company and for
taking reasonable steps for the prevention and detection of fraud and
other irregularities.
The directors are responsible for the maintenance and integrity of the
Company's website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Having taken advice from the Audit Committee, the directors consider
that the Annual Report, taken as a whole, is fair, balanced and
understandable and provides the information necessary for shareholders
to assess the Company's position and performance, business model and
strategy.
Each of the directors confirm that, to the best of their knowledge:
-- the financial statements, which have been prepared in accordance with
IFRS as adopted by the European Union, give a true and fair view of the
assets, liabilities, financial position and profit of the Company; and
-- the Strategic Report includes a fair review of the development and
performance of the business and the position of the Company, together
with a description of the principal risks and uncertainties that it
faces.
On behalf of the Board
Jeremy Tigue
Chairman
27 April 2020
INCOME STATEMENT
Year to 31 January 2020 Year to 31 January 2019
Revenue Capital Revenue Capital
return return Total return return Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------- ------ -------- -------- -------- -------- -------- --------
Investment
returns
Income, gains and
losses on
investments 7,060 85,660 92,720 5,753 85,769 91,522
Deposit interest 300 -- 300 156 -- 156
Other income 81 -- 81 60 -- 60
Foreign exchange
gains and losses -- 208 208 -- 938 938
-------- -------- -------- -------- -------- --------
7,441 85,868 93,309 5,969 86,707 92,676
-------- -------- -------- -------- -------- --------
Expenses
Investment management
charges (2,393) (7,179) (9,572) (1,996) (5,988) (7,984)
Other expenses (1,738) (1,494) (3,232) (1,851) (1,052) (2,903)
-------- -------- -------- -------- -------- --------
(4,131) (8,673) (12,804) (3,847) (7,040) (10,887)
-------- -------- -------- -------- -------- --------
Profit before tax 3,310 77,195 80,505 2,122 79,667 81,789
-------- -------- -------- -------- -------- --------
Taxation (538) 538 -- (260) 260 --
-------- -------- -------- -------- -------- --------
Profit for the year 2,772 77,733 80,505 1,862 79,927 81,789
-------- -------- -------- -------- -------- --------
Attributable
to:
-------- -------- -------- -------- -------- --------
Equity shareholders 2,772 77,733 80,505 1,862 79,927 81,789
-------- -------- -------- -------- -------- --------
Basic and 4 116.63p 118.12p
diluted
earnings per
share
The columns headed 'Total' represent the income statement for the
relevant financial years and the columns headed 'Revenue return' and
'Capital return' are supplementary information in line with guidance
published by the AIC. There is no Other Comprehensive Income.
31 January 31 January
2020 2019
BALANCE SHEET Notes GBP'000 GBP'000
---------------------------------------------- ------ ---------- ----------
Non-current assets
Investments held at fair value 778,416 670,072
---------- ----------
Current assets
Cash and cash equivalents 14,470 60,626
Receivables 1,142 548
---------- ----------
15,612 61,174
---------- ----------
Current liabilities
Payables 483 386
---------- ----------
Net current assets 15,129 60,788
---------- ----------
Total assets less current liabilities 793,545 730,860
---------- ----------
Capital and reserves
Share capital 7,292 7,292
Capital redemption reserve 2,112 2,112
Share premium 12,936 12,936
Capital reserve 771,205 708,520
Revenue reserve -- --
---------- ----------
Total equity 793,545 730,860
---------- ----------
Net asset value per share (basic and diluted) 6 1,152.1p 1,056.5p
CASH FLOW STATEMENT
Year to Year to
31 January 31 January
2020 2019
Notes GBP'000 GBP'000
--------------------------------------------- ----- ----------- -----------
Operating activities
Sale of portfolio investments 107,179 135,461
Purchase of portfolio investments (95,417) (101,790)
Net cash flows to subsidiary investments (34,446) (32,427)
Interest income received from portfolio
investments 5,832 3,994
Dividend income received from portfolio
investments 1,290 1,883
Other income received 381 216
Investment management charges paid (9,499) (7,956)
Other expenses paid (1,227) (1,749)
----------- -----------
Net cash (outflow)/inflow from operating
activities (25,907) (2,368)
----------- -----------
Financing activities
Bank facility fee (2,576) (1,081)
Interest paid (61) --
Purchase of shares into treasury (2,628) (709)
Equity dividends paid 5 (15,192) (14,543)
----------- -----------
Net cash outflow from financing activities (20,457) (16,333)
----------- -----------
Net (decrease)/increase in cash and cash
equivalents (46,364) (18,701)
----------- -----------
Cash and cash equivalents at beginning of
year 60,626 78,389
Net (decrease)/increase in cash and cash
equivalents (46,364) (18,701)
Effect of changes in foreign exchange rates 208 938
----------- -----------
Cash and cash equivalents at end of year 14,470 60,626
----------- -----------
STATEMENT OF CHANGES IN EQUITY
Realised Total
Capital capital Unrealised Revenue shareholders'
Share capital redemption reserve Share premium reserve capital reserve reserve equity
Company GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------- ------------- ------------------- ------------- -------- ---------------- -------- --------------
Year to 31
January 2020
Opening
balance at 1
February
2019 7,292 2,112 12,936 348,632 359,888 -- 730,860
Profit for the
year and
total
comprehensive
income -- -- -- 22,809 54,924 2,772 80,505
Dividends paid
or approved -- -- -- (12,420) -- (2,772) (15,192)
Purchase of
shares into
treasury -- -- -- (2,628) -- -- (2,628)
------------- ------------------- ------------- -------- ---------------- -------- --------------
Closing
balance at 31
January 2020 7,292 2,112 12,936 356,393 414,812 -- 793,545
------------- ------------------- ------------- -------- ---------------- -------- --------------
Realised Total
Capital capital Unrealised Revenue shareholders'
Share capital redemption reserve Share premium reserve capital reserve reserve equity
Company GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------- ------------- ------------------- ------------- -------- ---------------- -------- --------------
Year to 31
January 2019
Opening
balance at 1
February
2018 7,292 2,112 12,936 313,550 317,188 11,245 664,323
Profit for the
year and
total
comprehensive
income -- -- -- 37,227 42,700 1,862 81,789
Dividends paid
or approved -- -- -- (1,436) -- (13,107) (14,543)
Purchase of
shares into
treasury -- -- -- (709) -- -- (709)
------------- ------------------- ------------- -------- ---------------- -------- --------------
Closing
balance at 31
January 2019 7,292 2,112 12,936 348,632 359,888 -- 730,860
------------- ------------------- ------------- -------- ---------------- -------- --------------
NOTES TO THE FINANCIAL STATEMENTS
1) General information
These financial statements relate to ICG Enterprise Trust plc ('the
Company'). ICG Enterprise Trust plc is registered in England and Wales
and is incorporated in the UK. The Company is domiciled in the United
Kingdom and its registered office is Juxon House, 100 St Paul's
Churchyard, London EC4M 8BU. The Company's objective is to provide
long-term growth by investing in private companies managed by leading
private equity managers.
2) Financial information
The financial information for the year ended 31 January 2020 has been
extracted from the statutory accounts for that year and do not comprise
statutory accounts within the meaning of section 434 of the Companies
Act 2006. The report of the auditors on those accounts was unqualified,
did not contain an emphasis of matter paragraph and did not contain any
statements under section 498(2) or (3) of the Companies Act 2006.
Statutory accounts for that year will be delivered to the Registrar of
Companies following the Company's Annual General Meeting which will be
held at 2a Luttrell Avenue, London, SW15 6PF on 17 June 2020 at 10 a.m.
The financial information for the year ended 31 January 2019 has been
extracted from the statutory accounts for that year which were approved
by the Board of Directors on 12 April 2019 and delivered to the
Registrar of Companies. The report of the auditors on those accounts
was unqualified, did not contain an emphasis of matter paragraph and did
not contain any statements under section 498(2) or (3) of the Companies
Act 2006.
The financial information for the year ended 31 January 2020 has been
prepared in accordance with the Companies Act 2006 as applicable to
companies using International Financial Reporting Standards ('IFRS') and
the Statement of Recommended Practice ('SORP') for investment trusts
issued by the Association of Investment Companies in October 2019.
3) Basis of preparation
IFRS comprises standards and interpretations approved by the
International Accounting Standards Board ('IASB') and the IFRS
Interpretations Committee as adopted in the European Union as at 31
January 2020.
These financial statements have been prepared on a going concern basis
and on the historical cost basis of accounting, modified for the
revaluation of certain assets at fair value. Further detail is provided
in the Report of the Directors, which includes the Board's assessment of
the impact of the COVID-19 outbreak on the going concern basis of
accounting.
The principal accounting policies adopted are set out below. These
policies have been applied consistently throughout the current and prior
year. In order to reflect the activities of an investment trust company,
supplementary information which analyses the income statement between
items of revenue and capital nature has been presented alongside the
income statement. In analysing total income between capital and revenue
returns, the directors have followed the guidance contained in the SORP
as follows:
-- Capital gains and losses on investments sold and on investments held
arising on the revaluation or disposal of investments classified as held
at fair value through profit or loss should be shown in the capital
column of the income statement.
-- Returns on any share or debt security for a fixed amount (whether in
respect of dividends, interest or otherwise) should be shown in the
revenue column of the income statement.
-- The Board should determine whether the indirect costs of generating
capital gains should also be shown in the capital column of the income
statement. If the Board decides that this should be so, the management
fee should be allocated between revenue and capital in accordance with
the Board's expected long term split of returns, and other expenses
should be charged to capital only to the extent that a clear connection
with the maintenance or enhancement of the value of investments can be
demonstrated.
The accounting policy regarding the allocation of expenses is set out in
note 1(i).
In accordance with IFRS 10 (amended), the Company is deemed to be an
investment entity on the basis that:
(a) it obtains funds from one or more investors for the purpose of
providing investors with investment management services;
(b) it commits to its investors that its business purpose is to invest
funds for both returns from capital appreciation and, investment income;
and
(c) it measures and evaluates the performance of substantially all of
its investments on a fair value basis.
As a result, the Company's subsidiaries are deemed to be investment
entities and are included in subsidiary investments classified as held
at fair value through profit or loss.
Investments
All investments are classified upon initial recognition as held at fair
value through profit or loss (described in these financial statements as
investments held at fair value) and are measured at subsequent reporting
dates at fair value. Changes in the value of all investments held at
fair value, which include returns on those investments such as dividends
and interest, are recognised in the income statement and are allocated
to the revenue column or the capital column in accordance with the SORP
(see note 1(a)). More detail on certain categories of investment is set
out below. Given that the subsidiaries and associates are held at fair
value and are exposed to materially similar risks as the Company, we do
not expect the risks to materially differ from those disclosed in the
Annual Report.
Unquoted investments
Fair value for unquoted investments is established by using various
valuation techniques.
Funds and co-investments are valued at the underlying investment
manager's valuation where this is consistent with the requirement to use
fair value.
Where this is not the case, adjustments are made or alternative methods
are used as appropriate. The most common reason for adjustments is to
take account of events occurring after the date of the manager's
valuation, such as realisations.
The fair value of direct unquoted investments is calculated in
accordance with the 2018 International Private Equity and Venture
Capital Valuation Guidelines. The primary valuation methodology used is
an earnings multiple methodology, with other methodologies used where
they are more appropriate.
Quoted investments
Quoted investments are held at the last traded bid price on the balance
sheet date. When a purchase or sale is made under contract, the terms of
which require delivery within the timeframe of the relevant market, the
contract is reflected on the trade date.
Subsidiary undertakings
The investments in the subsidiaries are recognised at fair value through
profit and loss.
The valuation of the subsidiaries takes into account an accrual for the
estimated value of interests in the co-investment incentive scheme.
Under these arrangements, ICG and certain of its executives and, in
respect of certain historic investments, the executives and connected
parties of Graphite Capital Management LLP (the 'Former Manager')
(together 'the Co-investors'), are required to co-invest alongside the
Company, for which they are entitled to a share of investment profits if
certain performance hurdles are met. These arrangements are discussed
further in the Report of the Directors. At 31 January 2020, the accrual
was estimated as the theoretical value of the interests if the portfolio
had been sold at the carrying value at that date.
Associates
Investments which fall within the definition of an associate under IAS
28 (Investments in associates) are accounted for as investments held at
fair value through profit or loss, as permitted by that standard.
The Company holds an interest (including indirectly through its
subsidiaries) of more than 20% in a small number of investments that may
normally be classified as subsidiaries or associates. These investments
are not considered subsidiaries or associates as the Company does not
exert control or significant influence over the activities of these
companies/partnerships as they are managed by other third parties.
4) Earnings per share
Year ended Year ended
31 January 31 January
2020 2019
----------------------------------------------- ----------- -----------
Revenue return per ordinary share 4.02p 2.69p
Capital return per ordinary share 112.61p 115.43p
Earnings per ordinary share (basic and diluted) 116.63p 118.12p
Revenue return per ordinary share is calculated by dividing the revenue
return attributable to equity shareholders of GBP2.8m (2019: GBP1.9m) by
the weighted average number of ordinary shares outstanding during the
year.
Capital return per ordinary share is calculated by dividing the capital
return attributable to equity shareholders of GBP77.7m (2019: GBP79.9m)
by the weighted average number of ordinary shares outstanding during the
year.
Basic and diluted earnings per ordinary share are calculated by dividing
the earnings attributable to equity shareholders of GBP80.5m (2019:
GBP81.8m) by the weighted average number of ordinary shares outstanding
during the year.
The weighted average number of ordinary shares outstanding (excluding
those held in treasury) during the year was 69,027,192 (2019:
69,243,466). There were no potentially dilutive shares, such as options
or warrants, in either year.
5) Dividends
Year ended Year ended
31 January 31 January
2020 2019
GBP'000 GBP'000
---------------------------------------------------- ----------- -----------
No second interim dividend in respect of prior year
(2019: 5.0p per share) -- 3,463
Third quarterly dividend in respect of year ended
31 January 2019: 5.0p per share (2019: 5.0p) 3,459 --
Final dividend in respect of year ended 31 January
2019: 7.0p per share (2019: 6.0p) 4,839 4,156
First quarterly dividend in respect of year ended
31 January 2020: 5.0p per share (2019: 5.0p) 3,450 3,463
Second quarterly dividend in respect of year ended
31 January 2020: 5.0p per share (2019: 5.0p) 3,444 3,461
----------- -----------
Total 15,192 14,543
----------- -----------
The Company paid a third quarterly dividend of 5.0p per share in March
2020. The Board has proposed a final dividend of 8.0p per share in
respect of the year ended 31 January 2020 which, if approved by
shareholders, will be paid on 24 July 2020, to shareholders on the
register of members at the close of business on 3 July 2020.
6) Net asset value per share
The net asset value per share is calculated as the net assets
attributable to shareholders of GBP793.5m (2019: GBP730.9m) and on
68,877,055 (2019: 69,177,055) ordinary shares in issue at the year end.
There were no potentially dilutive shares, such as options or warrants,
at either year end. Calculated on both the basic and diluted basis the
net asset value per share was 1,152.1p (2019: 1,056.5p).
7) Post balance sheet events
Following the year end, there have been developments in relation to the
COVID-19 outbreak resulting in significant market volatility and wider
disruption. The Manager has taken action to protect its people and
maintain business continuity, with all team members working remotely and
the Company's key service providers continuing to operate effectively.
The Manager is working closely with the Company's underlying managers to
understand the immediate and potential future impact of the COVID-19
pandemic, and its economic fallout, on the Company and its Portfolio.
The majority of the Company's valuations rely on information provided by
underlying portfolio managers who report on a quarterly basis. While
there have been no subsequent valuations received as at the date of this
report the Manager expects, based on discussions with the underlying
portfolio managers, that the reduction in the Portfolio value since the
balance sheet date has been less severe than the reduction in public
markets.
As noted within the Manager's Review, during the year the Company's
financial position was strengthened by agreeing a new bank facility of
EUR176m (GBP148m), which matures in two equal tranches in April 2021 and
April 2022 and is subject to a number of covenants. Since the year end,
the Company has drawn GBP40m from its facility, taking the Company's
gross cash balances to GBP56m at 23 April 2020.
As part of the Board's assessment of the going concern basis and
viability of the Company, as detailed in the Corporate Governance Report,
a range of stressed scenarios and sensitivity analyses were examined to
identify conditions that might result in the facility's covenants being
breached. This included the consideration of possible remedial action
that the Company could undertake to avoid such breaches. The
diversification and defensive characteristics of the Portfolio were also
considered.
The output from the scenario analysis is sensitive to the reduction in
Portfolio value which is dependent on external factors. The Company is
not in breach of any of its facility covenants, has sufficient headroom
and is well placed to manage the Portfolio cash flows. However, in the
event of an extreme fall in Portfolio value, the Company would need to
undertake remedial actions in order to continue to meet these covenants.
Given the depth of the secondary markets, and the Company's track record
of secondary sales, the most likely route would be for the Company to
undertake secondary transactions of its existing assets and commitments.
The Company would also discuss alternative arrangements with its
existing lenders. Based on the Board's review and drawing on its
extensive skills and experience it expects that, even in this extreme
scenario, the Company would continue as a viable entity.
The COVID-19 pandemic is considered to be a non-adjusting post balance
sheet event and as such no adjustments have been made to the valuation
of assets and liabilities at 31 January 2020.
Between 1 February 2020 and 23 April 2020, being the latest practical
date before publication of this document, the Company purchased 110,000
ordinary shares at an average price of 700p, for a total cost of GBP0.8m
at a weighted average discount of 40%. These shares are held in
treasury.
GLOSSARY (UNAUDITED)
Alternative Performance Measures ('APMs') are a term defined by the
European Securities and Markets Authority as 'financial measures of
historical or future performance, financial position, or cash flows,
other than a financial measure defined or specified in the applicable
financial reporting framework'.
APMs are used in this report if considered by the Board and the Manager
to be the most relevant basis for shareholders in assessing the overall
performance of the Company and for comparing the performance of the
Company to its peers, taking into account industry practice.
Definitions and reconciliations to IFRS measures are provided in the
main body of the report or denoted *in this Glossary, where appropriate.
Buyout funds are funds that acquire controlling interests in companies
with a view towards later selling those companies or taking them public.
Compound Annual Growth Rate ('CAGR') represents the annual growth rate
of an investment over a specified period of time longer than one year.
Capital deployed* please see 'Total new investment'.
Carried interest is equivalent to a performance fee. This represents a
share of the profits that will accrue to the underlying private equity
managers, after achievement of an agreed preferred return.
Co-investment is a direct investment in a company alongside a private
equity fund.
Co-investment incentive scheme accrual represents the estimated value of
interests in the co-investment incentive scheme operated by the Company.
At both 31 January 2020 and 31 January 2019, the accrual was estimated
as the theoretical value of the interests if the Portfolio had been sold
at its carrying value at those dates.
Commitment represents the amount of capital that each limited partner
agrees to contribute to the fund which can be drawn at the discretion of
the general partner.
Direct investments are investments in a single underlying company.
Discount* arises when the Company's shares trade at a discount to NAV.
In this circumstance, the price that an investor pays or receives for a
share would be less than the value attributable to it by reference to
the underlying assets. The discount is the difference between the share
price and the NAV, expressed as a percentage of the NAV. For example, if
the NAV was 100p and the share price was 90p, the discount would be 10%.
Drawdowns are amounts invested by the Company into funds when called by
underlying managers in respect of an existing commitment.
EBITDA stands for earnings before interest, tax, depreciation and
amortisation, which is a widely used performance measure in the private
equity industry.
Enterprise value is the aggregate value of a company's entire issued
share capital and net debt.
FTSE All-Share Index Total Return is the change in the level of the FTSE
All-Share Index, assuming that dividends are re-invested on the day that
they are paid.
Full realisations are exit events (e.g. trade sale, sale by public
offering, or sale to a financial buyer) following which the residual
exposure to an underlying company is zero or immaterial.
Funds in investment period are those funds which are able to make new
platform investments under the terms of their fund agreements, usually
up to five years after the initial commitment.
General Partner ('GP') is the entity managing a private equity fund that
has been established as a limited partnership. This is commonly referred
to as the Manager.
Hedging is an investment technique designed to offset a potential loss
on one investment by purchasing a second investment that is expected to
perform in the opposite way.
High conviction portfolio* comprises co-investments, ICG managed funds
and secondary fund investments.
Initial Public Offering ('IPO') is an offering by a company of its share
capital to the public with a view to seeking an admission of its shares
to a recognised stock exchange.
Internal Rate of Return ('IRR') is a measure of the rate of return
received by an investor in a fund. It is calculated from cash drawn from
and returned to the investor together with the residual value of the
investment.
Last Twelve Months ('LTM') refers to the time frame of the immediately
preceding 12 months in reference to a financial metric used to evaluate
the Company's performance.
Limited Partner ('LP') is an institution or individual who commits
capital to a private equity fund established as a limited partnership.
These investors are generally protected from legal actions and any
losses beyond the original investment.
Limited Partnership includes one or more general partners, who have
responsibility for managing the business of the partnership and have
unlimited liability, and one or more limited partners, who do not
participate in the operation of the partnership and whose liability is
ordinarily capped at their capital and loan contribution to the
partnership. In typical fund structures, the general partner will not
receive a profit share until cost has been returned and an agreed
preferred return has been achieved.
Local currency return is the change in the valuation of the Company's
Portfolio, before the effect of currency movements and co-investment
scheme accrual. The local currency return of 16.6% is calculated as
follows:
GBPm 2020 2019
------------------------------------------------------ ----- -----
Income, gains and losses on investments 92.7 91.5
Foreign exchange gains and losses included in gains
and losses on investments 13.8 (8.7)
Incentive accrual valuation movement 8.9 7.6
------------------------------------------------------ ----- -----
Total gains on Portfolio investments excluding impact
of foreign exchange 115.4 90.4
------------------------------------------------------ ----- -----
Opening Portfolio valuation 694.8 600.7
Portfolio return on a local currency basis 16.6% 15.0%
------------------------------------------------------ ----- -----
Management Buyin ('MBI') is a change of ownership, where an incoming
management team raises financial backing, normally a mix of equity and
debt, to acquire a business.
Management Buyout ('MBO') is a change of ownership, where the incumbent
management team raises financial backing, normally a mix of equity and
debt, to acquire a business it manages.
Net asset value per share ('NAV') is the value of the Company's net
assets attributable to one ordinary share. It is calculated by dividing
'shareholders' funds' by the total number of ordinary shares in issue.
Shareholders' funds are calculated by deducting current and long-term
liabilities, and any provision for liabilities and charges, from the
Company's total assets.
Net asset value per share Total Return* is the change in the Company's
net asset value per share, assuming that dividends are re-invested at
the end of the quarter in which the dividend was paid.
Net debt is calculated as the total short-term and long-term debt in a
business, less cash and cash equivalents.
Overcommitment* refers to where private equity fund investors make
commitments exceeding available liquidity for investment. When
determining the appropriate level of overcommitment, careful
consideration needs to be given to the rate at which commitments might
be drawn down, and the rate at which realisations will generate cash,
and therefore liquidity, from the existing portfolio to fund new
investment.
Portfolio* represents the aggregate of the investment Portfolios of the
Company and of its subsidiary limited partnerships. This is consistent
with the commentary in previous annual and interim reports. The Board
and the Manager consider that this is the most relevant basis for
shareholders to assess the overall performance of the Company and
comparison with its peers.
The closest equivalent amount reported on the balance sheet is
'investments at fair value'. A reconciliation of these two measures is
presented below.
Balances receivable
from
Investments Cash held by subsidiary subsidiary
at fair value limited limited Co-investment incentive scheme
GBPm as per balance sheet partnerships partnerships accrual Portfolio
-------- --------------------- ----------------------- ------------------- ------------------------------ ---------
31
January
2020 778.4 -- -- 28.0 806.4
31
January
2019 670.1 -- -- 24.7 694.8
-------- --------------------- ----------------------- ------------------- ------------------------------ ---------
Post 2008 crisis investments are defined as those completed in 2009 or
later.
Pre 2008 crisis investments are defined as those completed in 2008 or
before, based on the date the original deal was completed, which may
differ from when the Company invested if acquired through a secondary.
Preferred return is the preferential rate of return on an individual
investment or a portfolio of investments, which is typically 8% per
annum.
Premium occurs when the share price is higher than the NAV and investors
would therefore be paying more than the value attributable to the shares
by reference to the underlying assets.
Public to private ('P2P') is the purchase of all of a listed company's
shares and the subsequent delisting of the company, usually funded with
a mixture of debt and unquoted equity.
Quoted company is any company whose shares are listed or traded on a
recognised stock exchange.
Realisation proceeds* are amounts received by the Company in respect of
the Portfolio, which may be in the form of capital proceeds or income
such as interest or dividends. In accordance with IFRS 10, the Company's
subsidiaries are deemed to be investment entities and are included in
subsidiary investments within the financial statements. Movements in the
cash flow statement within the financial statements reconcile to the
movement in the Portfolio as follows:
GBPm 2020 2019
------------------------------------------------------ ------ ------
Per Cash flow statement
Sale of portfolio investments 107.2 135.5
Sale of portfolio investments, interest received
and dividends received within subsidiary investments 34.5 21.6
Interest income 5.8 4.0
Dividend income 1.3 1.9
------------------------------------------------------ ------ ------
Realisation proceeds 148.8 163.0
------------------------------------------------------ ------ ------
Realisations -- multiple to cost* is the average return from full exits
from the Portfolio in the period on a primary investment basis, weighted
by cost.
GBPm 2020 2019
--------------------------------------------------- ---- -----
Cumulative realisation proceeds from full exits in
the year 99.2 156.6
Cost 41.9 64.6
Average return multiple of cost 2.4x 2.4x
--------------------------------------------------- ---- -----
Realisations -- uplift to carrying value* is the aggregate uplift on
full exits from the Portfolio in the period excluding publicly listed
companies that were exited via sell downs of their shares.
GBPm 2020 2019
---------------------------------------------- ---- -----
Realisation proceeds 73.5 118.4
Carrying value prior to exit 53.7 87.6
Realisation uplift to previous carrying value 37% 35%
---------------------------------------------- ---- -----
Secondary investments occur when a Company purchases existing private
equity fund interests and commitments from an investor seeking
liquidity.
Share price Total Return* is the change in the Company's share price,
assuming that dividends are re-invested on the day that they are paid.
Total new investment is the total of direct co-investment and fund
investment drawdowns in respect of the Portfolio. In accordance with
IFRS 10, the Company's subsidiaries are deemed to be investment entities
and are included in subsidiary investments within the financial
statements.
Movements in the cash flow statement within the financial statements
reconcile to the movement in the Portfolio as follows:
GBPm 2020 2019
---------------------------------------------------- ----- -----
Per Cash flow statement
Purchase of portfolio investments 95.4 101.8
Purchase of portfolio investments within subsidiary
investments 63.2 55.8
---------------------------------------------------- ----- -----
Total new investment 158.6 157.6
---------------------------------------------------- ----- -----
Total Return is a performance measure that assumes the notional
re-investment of dividends. This is a measure commonly used by the
listed private equity sector and listed companies in general.
The table below sets out the share price and the net asset value per
share growth figures for periods of one, three, five and ten years to
the balance sheet date on a Total Return basis.
Total Return performance in years to 31
January 2020 1 year 3 year 5 year 10 year*
-------------------------------------------- ------ ------ ------ --------
Net asset value per share 11.2% 40.6% 85.0% 190.5%
Share price 20.5% 49.1% 92.6% 286.1%
FTSE All-Share Index 10.7% 18.4% 35.6% 111.2%
-------------------------------------------- ------ ------ ------ --------
* As the Company changed its year end in 2010, the ten year figures are
for the 121 month period to 31 January 2020.
Undrawn commitments are commitments that have not yet been drawn down
Unquoted company is any company whose shares are not listed or traded on
a recognised stock exchange.
Valuation multiples are earnings or revenue multiples applied in valuing
a business enterprise
Venture capital refers to investing in companies at a point in that
company's life cycle that is either at the concept, start-up or early
stage of development.
(1) Alternative Performance Measure
(2) In the Chairman's Statement, Manager's Review and Supplementary
Information, reference is made to the "Portfolio". This is an APM.
(3) Net of underlying private equity managers fees and carried interest
(4) As at 23 April 2020
(5) Refer to Financials section within highlights for comparative
information.
(6) Refers to proceeds generated from underlying portfolio (excludes
secondary sales)
(7) Uplift figure excludes publicly listed companies that were exited
via multiple share sales.
(8) Refer to supplementary information at the end of this review for
comparative information.
(9) Subsequent to the end of the year, this risk has been heightened
due to the effect of the COVID-19 pandemic. The Board is keeping this
risk under review accordingly.
(END) Dow Jones Newswires
April 28, 2020 02:00 ET (06:00 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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