REG - ICG Enterprise Trust - Final Results
The final results announcement released at 7:00am under RNS number 7012L should have been issued under the company name of ICG Enterprise Trust and not under the name of Intermediate Capital Group.
The announcement text is unchanged and is reproduced in full below.
ICG Enterprise Trust
Unaudited Preliminary Results
For the 12 months ended 31 January 2018
CONTINUED STRONG PERFORMANCE AND EXCELLENT PROGRESS
AGAINST STRATEGIC GOALS
· NAV per share of 959p - total return of 12.5%1 in the year
· Growth driven by strong operating performance and realisation uplifts
· High quality Portfolio1 and record period for realisations
· 16.4% constant currency return on the investment Portfolio; 15.3% return in sterling
· 12% average LTM earnings growth from Largest 30 Companies; 47% of the Portfolio
· £227m of realisations; cash proceeds 37% of the opening Portfolio value
· Realisations at 40% uplift to carrying value; 2.7x multiple to cost
· Selective investment into compelling opportunities
· £142m of new capital deployed; 42% into high conviction investments
· Flexibility to adapt investment mix according to where the investment team see the best relative value
· £110m committed to nine primary funds; four new relationships
· Strategic benefits of move to ICG continue to add significant value
· £30m of co-investment alongside ICG; ICG managed investments now represents 18% of the Portfolio
· Focus on defensive growth companies and structural downside protection
· Continued geographic diversification; US now represents 22% of the Portfolio
· Move to progressive annual dividend policy - dividend of 21p
· 5% increase on previous year and 2.6% yield on year end share price
· Move to quarterly dividend payments
· Continued short, medium and long-term outperformance of public markets
Performance to 31 January 2018
1 year
3 year
5 year
10* year
Net asset value per share (total return)
12.5%
48.0%
67.8%
113.0%
Share price (total return)
20.1%
55.1%
89.7%
107.3%
FTSE All-Share Index (total return)
11.3%
27.4%
50.3%
80.9%
All performance figures are stated on a total return basis (i.e. including the effect of re-invested dividends)
*As the Company changed its year end in 2010, the ten-year figures are for the 121-month period to 31 January 2018.
1 Alternative Performance Measure
Jeremy Tigue, Chairman, commented:
"This has been another very successful year with continued strong performance and excellent progress against strategic goals.
"The current market dynamics play to the core strengths of our strategy and the team's expertise; a patient and highly selective approach and the ability to be flexible and ensure downside risks are limited. These strengths and our high-quality portfolio should serve us well, and I am confident the Company will continue to deliver long term growth ahead of public markets."
Emma Osborne, ICG, commented:
"I am pleased that the portfolio has continued to perform well, with strong underlying profit growth and a record period for realisations translating into another year of double digit growth.
"Our flexible mandate has meant that we have been able to adapt the mix of new investments for the current market environment, benefitting from proprietary deal flow from ICG and our strong third-party manager relationships.
"We have a strong pipeline of new opportunities and believe the portfolio is well positioned to continue to generate significant shareholder value."
Enquiries
Analyst / Investor enquiries:
Emma Osborne, Portfolio Manager, ICG
+44 (0) 20 3201 7700
Nikki Edgar, Finance and Investor Relations, ICG
+44 (0) 20 3201 7700
Media
Helen Gustard, Head of Corporate Communications, ICG
+44 (0) 20 3201 7917
Vikki Kosmalska, Associate Partner, Maitland
+44 (0) 20 7379 5151
Comparison to prior year
31 Jan 2018
31 Jan 2017
NAV
959p
871p
Realisations in the 12 months
£227m
£86m
Cash proceeds as a % of opening portfolio value
37%
20%
Realisations - uplift to carrying value
40%
24%
Realisations - multiple to cost
2.7x
1.9x
Capital deployed
£142m
£128m
% of Capital deployed into high conviction investments
42%
39%
New primary fund commitments
£110m
£118m
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. This report contains information which, prior to this announcement, was inside information.
Chairman's Statement
Another year of excellent progress and strong returns
I am very pleased to report another year of excellent progress and strong returns, further extending the Company's track record of consistently strong growth over multiple cycles.
Highly selective and balanced approach continuing to drive significant shareholder value
A record period of realisations at significant uplifts to carrying value and continued strong portfolio company operating performance have again driven returns that have outperformed the wider market, with NAV per share increasing from 871p to 959p, a 12.5%1 total return in the year.
These results and the underlying progress of our Portfolio2 are driven by the highly selective and balanced approach taken by our investment team. With a focus on consistent and strong returns, the team has, over many years, delivered significant growth, while limiting downside risk. In an environment where volatility is rising and pricing for new investments is high, our flexible mandate allows us to strike the right balance between risk and reward; adjusting the mix of investments to where the team sees the best relative value and increasing exposure to companies that the team believes will outperform, through the cycle.
This approach and our flexible mandate is unique among listed private equity funds and we believe will continue to drive better returns than public markets.
Leveraging the strengths of ICG's global platform
ICG is a leading alternative asset manager, a specialist investor in private credit, debt and equity with €27bn of assets under management and a strong track record spanning 29 years.
The strategic benefits of our move to ICG two years ago are gaining momentum. Not only do insights on the marketplace and private equity managers help inform investment decisions, but we are also seeing significant tangible benefits of the move, in particular, an increase in proprietary deal flow of highly attractive investments. We have become more diversified geographically, with the US now representing 22% of the Portfolio. At the same time there has been more capital deployed into the high conviction portfolio (co-investments, ICG managed funds and secondary fund investments), which we expect to produce the best returns. We have set more precise targets for how and where the Portfolio is invested and over the next five years expect exposure to the US to represent 30% ‒ 40% of the Portfolio and the weighting to high conviction investments to increase to 50% ‒ 60%.
I am delighted with the significant progress we have made in a short period of time and believe that the strategic benefits of the move to ICG will only increase over time.
Move to progressive annual dividend policy and quarterly payments
Towards the end of the year, we announced our intention to grow the annual dividend progressively and move to quarterly dividend payments (subject to sufficient distributable reserves). In line with this, the Directors are proposing a final dividend of 6p, which, together with the interim dividends of 10p and 5p, will take total dividends for the year to 21p. This is a 5% increase on the prior year dividend of 20p and a 2.6% yield on the year end share price. Subject to shareholder approval at the AGM, the final dividend of 6p will be paid on 13 July 2018 to shareholders on the register on 22 June 2018. Further information on the timing of dividend payments can be found in the Annual Report.
Strong balance sheet and accretive share buybacks
The Company had net assets of £664m at the year end (31 January 2017: £613m).
The strong exit environment of the last few years has continued into 2018, a dynamic reflected in our Portfolio with £227m of realisations in the 12 months (31 January 2017: £86m). Against this, £142m of capital has been deployed (31 January 2017: £128m), and we ended the year with cash balances of £78m (31 January 2017: £39m), or 12% of net assets.
Nine primary commitments were made during the 12 months and uncalled commitments stood at £321m at the year end (31 January 2017: £300m). While the Company has an undrawn £104m working capital borrowing line in place (31 January 2017: £103m), we anticipate that these uncalled commitments will be met from cash resources and proceeds from future realisations.
During the year, the Company bought back £8m of shares at a 17% discount to our January 2018 net asset value per share. We have a high quality Portfolio with strong growth prospects and will continue to purchase shares on an opportunistic basis.
Continued evolution of the board
The Board is evolving. I succeeded Mark Fane as Chairman after the AGM in June 2017, and Peter Dicks will be retiring at this year's AGM. Peter has been on the board for 20 years and was chairman of the Audit Committee and Senior Independent Director for many years. He has made a significant contribution to the success of the Company and I would like to thank him for his wise counsel and support.
We have appointed a new non-executive director, Alastair Bruce, with effect from 1 May 2018. Alastair was formerly the Managing Partner of Pantheon Ventures and brings extensive financial and private equity experience to the Board and I welcome him.
Annual general meeting
The Annual General Meeting will be held at The Wren Suite, The Crypt, St Paul's Cathedral, St Paul's Churchyard, London, EC4M 8AD on 18 June 2018 at 3.00pm. There will be a presentation by the Company's investment team and an opportunity for shareholders to meet the investment team and the Board. I encourage you to attend.
Current market environment plays to the strengths of our balanced approach and flexible mandate
This has been another very successful year with the returns driven by the continued strong portfolio company operating performance and realisations at significant uplifts to carrying value.
While private equity managers continue to take advantage of the supportive conditions to sell companies, competition for good quality assets and an abundance of capital available to invest means that pricing for new investments remains high. These market dynamics play to the core strengths of our strategy and the team's expertise; a patient and highly selective approach and the ability to be flexible and ensure downside risks are limited. These strengths and our high quality Portfolio should serve us well, and I am confident the Company will continue to deliver long-term growth ahead of public markets.
Jeremy Tigue
Chairman
23 April 2018
Footnotes
1 Including reinvested dividends. Please refer to the Glossary for definition of Total Return.
2 In the Chairman's Statement, Manager's Review and Supplementary Information, reference is made to the "Portfolio". 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 glossary.
Manager's Review
We believe our strategy leads to a portfolio which strikes the right balance between concentration and diversification. While diversification at both the manager and company level reduces risk, concentration in our high conviction portfolio ensures that individual winners can make a difference to performance.
Performance overview
Excellent performance across the PortfolioThe Portfolio has continued to build on its strong performance, generating a gain of 16.4% in constant currencies, or 15.3% in sterling (31 January 2017: 28.9%), and ending the year valued at £601m (31 January 2017: £594m). These returns have been driven by both strong operating performance and realisation activity and further extend the average 15.0% p.a. constant currency growth that the Portfolio has generated over the last five years.
Performance in the year was driven primarily by strong earnings growth, which combined with a modest increase in valuation multiples, has translated into valuation write-ups across the Portfolio. In particular, our largest 30 underlying companies, which represent 47% of the Portfolio, continue to perform well, with aggregate LTM earnings growth of 12% and revenue growth of 11%. As we look at the entire Portfolio, the growth and valuation trends are similar, reflecting the high quality of the Portfolio overall. Almost a third of the underlying Portfolio gains came from companies which were realised during the year.
Year-ended
Year-ended
Movement in the portfolio
31 January
31 January
£m
2018
2017
Opening Portfolio**
594.4
428.2
Third-party funds portfolio drawdowns
82.3
80.0
High conviction investments - ICG funds, secondary investments and co-investments
59.6
47.9
Total new investment
141.9
127.8
Realisation Proceeds
(226.6)
(85.5)
Net cash (inflow)/outflow
(84.7)
42.4
Underlying Valuation Movement*
97.7
93.5
% underlying Portfolio growth
16.4%
21.8%
Currency movement
(6.7)
30.3
% currency movement
(1.1%)
7.1%
Closing Portfolio**
600.7
594.4
* 94% of the Portfolio is valued using 31 December 2017 (or later) valuations.
** Refer to the Glossary for reconciliation to the portfolio balance presented in the unaudited results.
Portfolio overview
Our Portfolio combines investments managed by ICG with those managed by third-parties, in each case both through funds and directly. This approach enables us to enhance returns by proactively increasing exposure to companies that we have a high conviction will outperform through the cycle. The common theme in our high conviction portfolio is that ICG has made the decision to invest in the underlying company, unlike in a conventional fund-of-funds model where the third-party managers make all of the underlying investment decisions.
We believe that our strategy strikes the right balance between concentration and diversification and combines the best elements of both the direct and fund-of-funds models which are prevalent in the listed private equity sector, differentiating us from our peers.
Investment category
% of portfolio
High conviction portfolio
ICG managed investments
18.3
Third party co-investments
17.1
Third party secondary investments
6.6
Total High Conviction investments
42.0
Third party funds' portfolio
Graphite Capital primary funds
15.1
Third party primary funds
Total diversified fund investments
42.9
58.0
Total
100.0%
Portfolio of leading private equity funds provides a base of strong diversified returns
Our third-party funds portfolio accounted for 58% of value at the year end and comprised 72 funds, managed by 37 leading private managers with a bias to mid-market and large-cap European and US private equity managers. This part of the Portfolio underpins our strategy providing a base of strong diversified returns and deal flow for the third-party direct co-investments and secondary investments in our high conviction portfolio, which are almost invariably sourced from managers with whom we have a primary fund investment relationship.
Over the last five years, the third-party funds portfolio has generated a constant currency return of 13.1% p.a. and is well positioned to continue to deliver strong diversified returns and ongoing deal flow for our high conviction portfolio.
High conviction portfolio of actively sourced investments enhance returns
The high conviction portfolio of ICG investments, third-party direct co-investments and third-party secondary fund investments, represents 42% of value.
The exposure to ICG managed investments increased to 18% from 10% at the start of the year, with much of this increase driven by co-investment activity. Within this weighting, we are invested in three of ICG's 16 strategies with a focus on funds that have a bias to equity returns, targeting gross annualised returns of at least 15% - 20% p.a. We expect our exposure to ICG investments to increase to between 20% - 30% of the Portfolio over the next three to five years as we continue to selectively co-invest, uncalled commitments are drawn, and further funds added.
Almost a quarter of the Portfolio is weighted towards third-party direct co-investments and secondary fund investments. These investments enhance returns through selectively investing in attractive companies on an opportunistic basis.
Over the last five years, our high conviction portfolio has been a significant driver of performance, generating constant currency returns of 18.6% p.a. and we believe the high conviction portfolio is well positioned to continue to deliver significant shareholder value.
Realisation activity
Record year for realisations at significant uplifts to carrying value and cost
Our underlying managers took advantage of the continued favourable exit environment to sell 59 of our underlying portfolio companies compared with 40 in the prior year. This includes seven of our top 30 companies which helped drive proceeds to a record high of £217m or 2.5 times the amount generated in the previous year. At 37% of the opening portfolio this cash conversion rate is the highest for over a decade.
Realisations generated an average uplift of 40% to the previous carrying value and an average multiple of 2.7x original cost. These significant uplifts build on the Portfolio's strong track record. Over the last five years, realisations have generated average uplifts of 33% and a multiple of 2.2x cost.
In addition to the realisations by our underlying managers, we also executed the sale of one of the third-party funds in the secondary market, reflecting our active approach to managing the Portfolio and bringing total proceeds in the year to £227m (31 January 2017: £86m).
Largest underlying realisations in the year to 31 January 2018
Investment
Manager
Year of investment
Realisation type
Proceeds £m
Micheldever
Graphite Capital
2006
Trade
36.0
Standard Brands
Graphite Capital
2001 & 2014
Trade
16.1
CPA Global
Cinven
2012
Financial buyer
11.2
Formel D
Deutsche Beteiligungs
2013
Financial buyer
7.1
ProXES
Deutsche Beteiligungs
2013
Financial buyer
6.4
AVS Group
Steadfast Capital
2013
Financial buyer
6.2
Quironsalud
CVC
2011
Trade
5.9
Visma
Cinven
2014
Financial buyer
5.5
ista
CVC
2013
Financial buyer
5.4
Froneri
PAI Partners
2013
Recapitalisation
4.9
Total of 10 largest underlying realisations
104.7
Total realisations
226.6
New investment activity
Increased investment rate into high conviction assets
In the current market environment, a patient and selective investment approach is key, and our focus has mainly been on the highest quality defensive businesses.
High conviction investments accounted for 42% of the £142m of capital deployed in the year, up from 39% last year reflecting our medium-term strategic objective of increasing high conviction investments to 50% - 60% of the Portfolio. The increase in high conviction investments was primarily driven by an increase in ICG investments which accounted for 35% of new investment in the year. This increased from 25% in the previous year, highlighting the continuing strategic benefits of the move to ICG.
Alongside ICG Europe we invested £18m in DomusVi (a leading European nursing home operator) and added £10m to our 2014 investment in Visma (a market leading provider of software for small and medium-sized businesses in Northern Europe). We also participated in a secondary fund recapitalisation which increased our exposure to Gerflor (a global market leading flooring manufacturer) to £13m. Alongside ICG Asia Pacific we invested £8m in Yudo (a leading global manufacturer of mission-critical components for the injection moulding industry). All of these investments have a bias towards structural downside protection, by typically investing in a blend of subordinated debt and equity. This helps to limit downside risk while remaining within our target return range. We believe this approach is particularly attractive at this point in the cycle.
Elsewhere in our high conviction portfolio, we completed a £5m secondary investment in two funds managed by Oak Hill Capital Partners, a US mid-market manager and signed a £7m co-investment alongside Leeds Equity Partners, another US mid-market manager, although this investment did not close until shortly after the year end.
While high quality defensive growth remains our overarching investment philosophy, our flexible strategy allows us also to be opportunistic, and during the year, we were able to find a number of relative value situations facilitated by the transaction dynamics, such as fund recapitalisations and late primary investments (as described below).
Largest underlying new investments in the year to 31 January 2018
Investment
Description
Manager
Country
Cost £m
DomusVi*
Operator of retirement homes
ICG
France
17.6
Visma*
Provider of accounting software and accounting outsourcing services
ICG
Norway
9.9
Yudo
Manufacturer of components for injection moulding
ICG
South Korea
8.2
Gerflor**
Manufacturer of vinyl flooring for professional, sports and residential applications
ICG
France
6.9
YSC
Provider of leadership consulting and management assessment services
Graphite Capital
UK
6.6
Compass Community
Provider of fostering services and children's residential care
Graphite Capital
UK
5.4
Random42
Provider of medical animation and digital media services to the healthcare and pharmaceutical industry
Graphite Capital
UK
5.2
Allegro
Operator of an online marketplace and price comparison website
Cinven/Permira
Poland
2.2
PSB Academy
Provider of private tertiary education
ICG
Singapore
2.1
Park Holidays
Operator of caravan parks
ICG
UK
1.9
Total of 10 largest underlying new investments
66.0
Total new investment
141.9
* Represents additional investment via co-invest alongside and fund holding in ICG Europe Fund VI; both investments were already in the portfolio at 31 January 2017.
** Represents a secondary position via ICG Recovery Fund 2008B; Gerflor was already in the portfolio at 31 January 2017.
Selective new commitments to both existing and new manager relationships
We completed eight new third-party fund commitments and increased the commitment to ICG Strategic Secondaries Fund II resulting in a total of £110m of primary fund commitments in the year (31 January 2017: £118m). Four of the new third-party funds were raised by managers we have backed successfully for many years (CVC, PAI, TH Lee and Hollyport), while four are new to the Portfolio (New Mountain, Oak Hill, Leeds and HgCapital). Three of the new manager relationships (New Mountain, Oak Hill, and Leeds) are focused on the US mid to upper mid-market reflecting our strategic objective to increase exposure to this important market.
All new commitments are to established managers with successful track records of investing and adding value through cycles and with a bias towards high quality, defensive businesses. We believe that focusing on the most established managers in developed markets reduces risk and leads to more consistent and less volatile returns.
Both the Oak Hill IV and Leeds VI funds had already invested in several portfolio companies giving us good visibility into the underlying portfolios and opportunities for immediate cash deployment as well as early valuation gains. In the case of Oak Hill IV, the fund recently announced the sale of a portfolio company for a multiple of 3x cost, returning 43% of capital deployed to that fund to date. Situations such as this, known as "late primary" investments, suit our style of investing by applying our bottom-up, underlying company focused due diligence style and help us to deploy capital more efficiently. In the last two years, we have completed 18 new fund commitments of which six were late primary investments.
The £8m increase in commitment to the ICG Strategic Secondaries Fund II is a further example of a late primary investment, with the demonstrable progress of the existing portfolio making the fund a compelling opportunity. To date, the fund has completed six transactions at highly attractive valuations of 6x to 7x EBITDA. The total commitment to this fund is now $35m, with a further $15m co-invested alongside the fund in one of its transactions.
Portfolio analysis
A modest increase in valuation multiples
Within the largest 30 companies, the valuation multiple has increased to 10.6x, up from 9.7x at the start of the year. This increase has been driven by a combination of a change in the mix and overall weightings of the largest underlying companies and a modest increase in aggregate multiples overall. Looking across the wider portfolio, the aggregate valuation multiples are in-line with our largest 30 companies.
The net debt/EBITDA ratio of the largest 30 companies increased to 4.2x from 3.6x, a result of the change of mix and weightings of the underlying companies.
Focus on mid-market companies
Our strategy is focused exclusively on the buyout segment of the private equity market, in which target companies are almost invariably established, profitable and cash generative. The Portfolio is biased towards the mid-market (48%) and large deals (43%), which we view as more defensive, benefiting from experienced management teams and often leading market positions. In contrast, we view small companies as tending to be more vulnerable to economic cycles and we believe our focus on mid-market and larger deals offers the best balance of risk and reward.
Exposure to US increasing
The Portfolio is focused on developed private equity markets: primarily continental Europe (40%), the UK and the US, with almost no emerging markets exposure. In line with one of our strategic objectives, our weighting to the US increased to 22% from 14% at the time of the move to ICG two years ago while the UK bias has reduced to 35% from 45% over the same period.
We expect both of these trends to gather pace as the benefits of being part of ICG's global alternative asset manager platform are further realised. We have a three to five year target to increase the US focus to 30% - 40% of the Portfolio. The US is the largest and most developed private equity market in the world, and we believe will provide the Portfolio with attractive returns and further geographic diversification.
Sector bias towards growth sectors
The Portfolio is weighted towards sectors that primarily have non-cyclical drivers, such as demographics, with 22% of the Portfolio invested in healthcare and education and 16% in business services. The remainder of the portfolio is broadly spread across the industrial (17%), consumer goods and services (15%), leisure (12%) and TMT (10%) sectors.
Attractive and well-balanced vintage year exposure
The Portfolio has an attractive maturity profile which balances near-term realisation prospects with a strong pipeline of medium to longer-term growth.
Investments completed in 2014 or earlier, which are more likely to generate gains from realisations in the shorter-term, represent 45% of the Portfolio. Against this, 55% of value is in investments made between 2015 and 2017, providing the Portfolio with medium to longer term growth as value created within these businesses translates into gains. Within the more mature holdings, relatively little value remains in companies acquired before 2008, with this category falling from 13% to 3% in the year.
Balance sheet and financing
Strong balance sheet and positive financing outlook
The exceptionally high level of proceeds of £227m far outweighed capital deployed of £142m, and after allowing for dividends, buybacks and expenses resulted in an increase in cash balances to £78m from £39m a year earlier.
Undrawn commitments of £321m provide the Company with a robust medium-term investment pipeline. With total liquidity of £182m, including the undrawn bank facility, commitments therefore exceeded liquidity by 21% of net asset value. This remains within the Company's historical conservative parameters.
31 Jan 2018
31 Jan 2017
Portfolio
£601m
£594m
Cash
£78m
£39m
Net liabilities
(£15m)
(£20m)
Net assets
£664m
£613m
Outstanding commitments
£321m
£300m
Total available liquidity (including facility)
£182m
£142m
Overcommitment (including facility)
£139m
£159m
Overcommitment %
21%
26%
Commitments are typically drawn down over a period of four to five years 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 investment pace to the end of their respective remaining investment periods, we estimate that approximately £80m would be called over the next 12 months. This leaves significant available capital for high conviction investments over and above those that will be made by our underlying funds.
In managing the Company's balance sheet our objective is to be broadly fully invested through the cycle while ensuring that we have sufficient liquidity to be able to take advantage of attractive investment opportunities as they arise. We do not intend to be geared other than, potentially, for short-term working capital purposes.
Outlook
Continued investment activity and a strong pipeline of new opportunities
Since the year end, the Portfolio has continued to benefit from the favourable exit environment, with £18m of proceeds received in the two months to 31 March 2018. Against this, we have paid £17m of calls and have recently committed £30m to Graphite Capital IX and €40m to ICG Europe VII, ICG's latest European mezzanine and equity fund.
Portfolio well positioned to generate significant shareholder value
We have a high quality Portfolio with strong underlying profit growth and realisation activity continuing to drive performance across the Portfolio.
Against the current backdrop of a favourable exit environment, continuing geopolitical uncertainties and increasing volatility, we remain cautious in deploying the high levels of cash generated by the Portfolio. Our flexible mandate allows us to be patient and selective, adapting the Portfolio mix to market conditions and where we see the best relative value in our high conviction portfolio. We remain focused on investing in the highest quality defensive businesses and situations where we have clear visibility on performance drivers.
We have a strong pipeline of new opportunities and believe the Portfolio is well positioned to continue to generate significant shareholder value.
Private Equity Funds Investment Team
Supplementary information
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 2018. 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.
Company
Manager
Year of investment
Country
Value
as a % of portfolio1
City & County Healthcare Group
Provider of home care services
Graphite Capital
2013
UK
3.5%
2
DomusVi 1 / 2
Operator of retirement homes
ICG
2017
France
2.9%
3
Visma 1
Provider of accounting software and accounting outsourcing services
ICG & Cinven
2014 & 2017
Europe
2.5%
4
Gerflor 2
Manufacturer of vinyl flooring
ICG
2011
France
2.2%
5
Education Personnel 1 / 2
Provider of temporary staff for the education sector
ICG
2014
UK
2.2%
6
David Lloyd Leisure 1
Operator of premium health clubs
TDR Capital
2013
UK
2.1%
7
Roompot 1
Operator and developer of holiday parks
PAI Partners
2016
Netherlands
2.1%
8
nGAGE
Provider of recruitment services
Graphite Capital
2014
UK
2.0%
9
PetSmart 1
Retailer of pet products and services
BC Partners
2015
USA
1.9%
10
ICR Group
Provider of repair and maintenance services to the energy industry
Graphite Capital
2014
UK
1.7%
11
Froneri 1 / 2
Manufacturer and distributor of ice cream products
PAI Partners
2013
UK
1.7%
12
System One 1
Provider of specialty workforce solutions
TH Lee
2016
USA
1.6%
13
Beck & Pollitzer
Provider of industrial machinery installation and relocation
Graphite Capital
2016
UK
1.6%
14
The Laine Pub Company 1
Operator of pubs and bars
Graphite Capital
2014
UK
1.6%
15
Skillsoft 1
Provider of off the shelf e-learning content
Charterhouse
2014
USA
1.5%
16
Frontier Medical 1
Manufacturer of medical devices
Kester Capital
2013
UK
1.5%
17
TMF 2
Provider of management and accounting outsourcing services
Doughty Hanson
2008
Netherlands
1.5%
18
Yudo 1
Manufacturer of components for injection moulding
ICG
2018
South Korea
1.4%
19
Cambium 2
Provider of educational solutions and services
ICG
2016
USA
1.3%
20
Swiss Education 1
Provider of hospitality training
Invision Capital
2015
Switzerland
1.2%
21
YSC
Provider of leadership consulting and management assessment services
Graphite Capital
2017
UK
1.1%
22
New World Trading Company
Operator of distinctive pub restaurants
Graphite Capital
2016
UK
1.1%
23
U-POL 2
Manufacturer and distributor of automotive refinishing products
Graphite Capital
2010
UK
1.0%
24
Cognito 1
Supplier of communications equipment, software & services
Graphite Capital
2002
UK
1.0%
25
Compass Community
Provider of fostering services and children's residential care
Graphite Capital
2017
UK
0.9%
26
Random42
Provider of medical animation and digital media services
Graphite Capital
2017
UK
0.9%
27
Ceridian 1
Provider of payment processing services
TH Lee
2007
USA
0.8%
28
Odgers 1
Provider of recruitment services
Graphite Capital
2009
UK
0.6%
29
Minimax 2
Supplier of fire protection systems and services
ICG
2014
Germany
0.6%
30
CeramTec
Manufacturer of high performance ceramics
Cinven
2013
Germany
0.6%
Total of the 30 largest underlying investments
46.6%
1 All or part of this investment is held directly as a co-investment or other direct investment.
2 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 2018. The valuations are net of any carried interest provision.
Fund
Year of
Commitment
Country/
Region
Value
£m
Outstanding
Commitment
£m
1
Graphite Capital Partners VIII 1
Mid-market buyouts
2013
UK
74.8
26.6
2
ICG Europe VI 2
Mezzanine and equity in mid-market buyouts
2015
Europe
21.6
4.6
3
BC European Capital IX 2
Large buyouts
2011
Europe/USA
20.5
0.8
4
Fifth Cinven Fund
Large buyouts
2012
Europe
16.0
1.6
5
CVC European Equity Partners VI
Large buyouts
2013
Europe/USA
15.8
2.2
6
CVC European Equity Partners V 2
Large buyouts
2008
Europe/USA
12.8
0.4
7
Graphite Capital Partners VII 1 / 2
Mid-market buyouts
2007
UK
12.6
4.7
8
ICG Strategic Secondaries Fund II
Secondary fund recapitalisations
2016
Europe/USA
12.0
16.2
9
Permira V
Large buyouts
2013
Europe/USA
10.9
0.6
10
Thomas H Lee Equity Fund VII
Mid-market and large buyouts
2015
USA
10.8
6.1
11
ICG Velocity Partners Co-Investor 2
Mid-market buyout fund recapitalisations
2016
USA
10.7
2.0
12
Thomas H Lee Parallel Fund VI
Mid-market and large buyouts
2007
USA
10.0
1.0
13
One Equity Partners VI
Mid-market buyouts
2016
Europe/USA
9.4
2.1
14
PAI Europe VI
Mid-market and large buyouts
2013
Europe
9.4
6.7
15
TDR Capital III
Mid-market and large buyouts
2013
Europe
8.8
3.1
16
Egeria Private Equity Fund IV
Mid-market buyouts
2012
Netherlands
8.7
2.0
17
Doughty Hanson & Co V 2
Mid-market and large buyouts
2006
Europe
8.6
6.7
18
Hollyport Secondary Opportunities V
Tail-end secondary portfolios
2015
Global
8.5
2.3
19
ICG Europe V 2
Mezzanine and equity in mid-market buyouts
2012
Europe
8.4
0.9
20
Activa Capital Fund III
Mid-market buyouts
2013
France
8.0
5.9
21
IK VII
Mid-market buyouts
2013
Europe
7.9
0.4
22
ICG European Fund 2006 B2
Mezzanine and equity in mid-market buyouts
2014
Europe
7.5
2.1
23
Graphite Capital Partners VI 2
Mid-market buyouts
2003
UK
7.5
2.1
24
Bowmark Capital Partners IV
Mid-market buyouts
2007
UK
7.5
-
25
Deutsche Beteiligungs Fund VI
Mid-market buyouts
2012
Germany
7.4
1.2
26
Nordic Capital Partners VIII
Mid-market and large buyouts
2013
Europe
7.4
1.9
27
ICG Asia Pacific Fund III
Mezzanine and equity in mid-market buyouts
2016
Asia Pacific
5.9
5.4
28
Advent Global Private Equity VIII
Large buyouts
2016
Europe/USA
5.8
7.2
29
Activa Capital Fund II
Mid-market buyouts
2007
France
5.6
1.9
30
Gridiron Capital Fund III
Mid-market buyouts
2016
USA
5.6
5.4
Total of the largest 30 fund investments
366.4
124.1
Percentage of total investment Portfolio
61.0%
1 Includes the associated Top Up funds.
2 All or part of an interest acquired through a secondary fund purchase.
Portfolio analysis
Closing Portfolio by value at 31 January 2018
Portfolio by investment type
% of value of
underlying
investments
Mid-market buyouts
48.1%
Large buyouts
42.4%
Small buyouts
8.2%
Other
1.3%
Total
100.0%
Portfolio by calendar year of investment
% of value of underlying investments
2018
2.1%
2017
19.3%
2016
20.9%
2015
12.9%
2014
17.8%
2013
12.4%
2012
3.3%
2011
2.4%
2010
2.2%
2009
1.2%
2008
2.1%
2007
1.3%
2006 and before
2.1%
Total
100.0%
Portfolio by sector
% of value of underlying investments
Healthcare and education
22.4%
Industrials
17.4%
Business services
15.6%
Consumer goods and services
14.7%
Leisure
12.1%
TMT
10.2%
Financials
4.9%
Other
2.7%
Total
100.0%
Portfolio by geographic distribution based on location of company headquarters
% of value of
underlying
investments
Europe
40.0%
UK
35.2%
North America
21.8%
Rest of world
3.0%
Total
100.0%
Commitments analysis
The following tables analyse commitments at 31 January 2018. Original commitments are translated at 31 January 2018 exchange rates.
Total undrawn commitments
Original
commitment
£'000Outstanding
commitment
£'000Average
drawdown
percentage
% of
commitments
Investment period not commenced
35,962
35,962
0.0%
11.2%
Funds in investment period
483,217
231,466
52.1%
72.1%
Funds post investment period
678,006
53,738
92.1%
16.7%
Total
1,197,185
321,166
73.2%
100.0%
Movement in outstanding commitments in year ended 31 January 2018
£m
As at 1 February 2017
300.3
New primary commitments
109.9
New commitments relating to co-investments and secondary purchases
9.5
Drawdowns
(99.3)
Currency and other movements
0.8
As at 31 January 2018
321.2
New commitments during the year to 31 January 2018
Fund
Strategy
Geography
£m
Primary commitments
PAI VII
Mid-market and large buyouts
Europe
22.0
CVC VII
Large buyouts
Europe/USA
20.9
THLee VIII
Mid-market and large buyouts
USA
14.9
Oak Hill IV
Mid-market buyouts
USA
12.0
New Mountain V
Mid and large market buyouts
USA
11.5
ICG Strategic Secondaries II
Secondary fund recapitalisations
Europe/USA
8.0
Hollyport VI
Tail-end secondary portfolios
Global
7.6
Leeds VI
Mid-market buy-outs
USA
7.5
Hg Capital 8
Mid-market buy-outs
Europe
5.5
Total primary commitments
109.9
Commitments relating to co-investments and secondary investments
9.5
Total new commitments
119.4
Currency exposure
Portfolio1
31 January
2018
£m
31 January
2018
%
31 January
2017
£m
31 January
2017
%
Sterling
235.8
39.3
269.1
45.3
Euro
174.3
29.0
156.5
26.3
US Dollar
119.6
19.9
115.4
19.4
Other European
49.8
8.3
41.5
7.0
Other
21.2
3.5
11.8
2.0
Total
600.7
100.0
594.3
100.0
1 Currency exposure is calculated by reference to the location of the underlying Portfolio companies' headquarters.
Outstanding commitments
31 January
2018
£m
31 January
2018
%
31 January
2017
£m
31 January
2017
%
- Sterling
63.2
19.7
77.5
25.8
- Euro
170.0
52.9
166.2
55.4
- US Dollar
86.1
26.8
54.5
18.1
- Other European
1.9
0.6
2.1
0.7
Total
321.2
100.0
300.3
100.0
Principal Risks and uncertainties
Risk management
The Board is responsible for risk management and determining the overall risk appetite. The Audit Committee assesses and monitors the risk management framework and specifically reviews the controls and assurance programmes in place.
The Board accepts a level of investment risk to achieve its targeted returns. There is 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, there is a very low risk tolerance with respect to legal, taxation and regulatory risk.
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. A comprehensive risk assessment process is undertaken regularly to re-evaluate the impact and probability of each risk materialising and the financial 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 are set out on pages 35 to 39 of the Financial Statements.
Risk
Mitigation
Investment
Investment performance
The Manager selects the fund investments and direct co-investments for the Company's Portfolio. The underlying managers of those funds in turn select individual investee companies. The origination, investment selection and management capabilities of both the Manager and the third-party managers are therefore key to the performance of the Company.
The Manager has a highly selective investment approach and disciplined process. Further, the Company's Portfolio is diversified reducing the likelihood of a single investment decision impacting portfolio performance. ICG Enterprise's investment committee within the Manager comprises a balance of skills and perspectives.
Valuation
By valuing its investments in private equity funds and unquoted companies and publishing its NAV, the Company relies to a significant extent on the accuracy of financial and other information provided by these funds and companies to the Manager. There is the potential for inconsistency in the valuation methods adopted by the managers of these funds and companies.
The Manager carries out a formal valuation process involving a quarterly review of third-party valuations, verification of the latest audited reports, as well as a review of any potential adjustments that are required to ensure the valuation of the underlying investments are in accordance with the fair market value principles required under International Financial Reporting Standards ("IFRS").
Political and macroeconomic uncertainty
Political and macroeconomic uncertainty, including impacts from the EU referendum or similar scenarios, could impact the environment in which the Company, and its investment portfolio companies, operate.
The Manager actively monitors these developments, with the support of a dedicated in-house economist and professional advisers where appropriate, to ensure it is prepared for any potential impacts.
Private equity sector
The private equity sector could fall out of favour with investors leading to a reduction in demand for the Company's shares and a widening of the Company's discount. This has the potential to damage the Company's reputation and cause shareholder dissatisfaction.
Private equity has outperformed public markets over the long term and it has proved to be an attractive asset class through various cycles.
The Manager is active in marketing the Company's shares to a wide variety of investors to ensure the market is informed about the Company's performance and investment proposition.
The Board monitors the discount to NAV and considers appropriate solutions to address any ongoing or substantial discount to NAV, including share buybacks.
Operational
Regulatory, legislative and taxation compliance
Failure by the Manager to comply with relevant regulation and legislation could have an adverse impact on the Company. This includes the Corporation Tax Act 2010, the Companies Act, the Alternative Investment Fund Managers Directive, accounting standards, investment trust regulations and the Listing Rules and Disclosure Guidance and Transparency Rules.
The Board is responsible for ensuring the Company's compliance with all applicable regulations. Monitoring of this compliance, and regular reporting to the Board thereon, has been delegated to the Manager. The Manager's in-house legal counsel provides regular updates to the Board covering relevant changes to legislation and regulation.
People
Loss of a key investment professional at the Manager could impair the Company's ability to deliver its investment strategy if replacements are not found in a timely manner.
The Manager regularly updates the Board on team developments. The Manager's compensation policy is designed to minimise turnover of key people and historically turnover has been low. 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.
The Manager and other third party advisers
The Company is dependent on third parties for the provision of all systems and services (in particular, those of the Manager, the Administrator and the Depository) and any control failures and gaps in these systems and services could result in a loss or damage to the Company.
The Audit Committee formally assesses the internal controls of the Manager, the Administrator and Depositary on an annual basis. The assessment in respect of the current year is discussed in the Report of the Audit Committee.
The Management Agreement is subject to a notice period that is designed to provide the Board with adequate time to put in place alternative arrangements.
Information security
The Company is dependent on effective information technology systems at both the Manager and Administrator. These systems support key business functions and are an important means of safeguarding sensitive information. Any significant disruption to these IT systems, including breaches of data confidentiality or cybersecurity, could result in, among other things, financial losses, in inability to perform business critical functions, regulatory censure, legal liability and reputational damage.
Application of the Manager's and Administrator's information security policies is supported by a governance structure and a risk framework that allows for the identification, control and mitigation of technology risks. The adequacy of the systems and controls the Manager and the Administrator has in place to mitigate the technology risks is continuously monitored and subject to regular testing. The effectiveness of the framework is periodically assessed.
Financial (Credit and liquidity)
Foreign exchange
Foreign exchange The Company makes investments in US dollars, Euros and other currencies as well as Sterling. Accordingly, the movement in exchange rates between these currencies may have a material effect on the performance of the Company.
The Board regularly reviews the Company's exposure to currency risk and reconsiders possible hedging strategies on an annual basis. Furthermore, the Company's multi-currency bank facility permits the borrowings to be drawn in Euro's if required. At present the Company does not hedge its currency exposures.
Financing
The Company has outstanding commitments in excess of total liquidity to private equity funds that may be drawn down at any time. The ability to fund this difference is dependent on receiving cash proceeds from investments (the timing of which are unpredictable) and the availability of financing facilities. There is a risk the Company will encounter difficulties in meeting its outstanding commitments.
The Manager monitors the Company's liquidity on a frequent basis and provides regular updates to the Board. If necessary the Company can reduce the level of co-investments and secondary investments, which are discretionary, to preserve liquidity for funding its commitments. The Company could also dispose of assets.
The total available liquidity as at 31 January 2018 stood at £182m, comprising £78m in cash balances and £104m in undrawn bank facilities. As a result, the available financing along with the private equity portfolio exceeded the outstanding commitments by a factor of 2.4 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. Under that law the directors have prepared the financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. Under company law the directors must 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 that 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 the 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 the group and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the company and the group and hence 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 EU, 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
23 April 2018
Income statement (unaudited)
Year to 31 January 2018
Year to 31 January 2017
Notes
Revenue
return
£'000Capital
return
£'000Total
£'000Revenue
return
£'000Capital
return
£'000Total
£'000Investment returns
Income, gains and losses on investments
8
22,257
60,124
82,381
9,892
105,194
115,086
Deposit interest
59
-
59
242
-
242
Other income
70
-
70
17
-
17
Foreign exchange gains and losses
-
826
826
-
2,993
2,993
22,386
60,950
83,336
10,151
108,187
118,338
Expenses
Investment management charges
4
(1,791)
(5,374)
(7,165)
(1,552)
(4,657)
(6,209)
Other expenses
(1,659)
(1,075)
(2,734)
(1,638)
(1,145)
(2,783)
(3,450)
(6,449)
(9,899)
(3,190)
(5,802)
(8,992)
Profit before tax
18,936
54,501
73,437
6,961
102,385
109,346
Taxation
5
(2,435)
2,294
(141)
(1,184)
787
(397)
Profit for the year
16,501
56,795
73,296
5,777
103,172
108,949
Attributable to:
Equity shareholders
16,501
56,795
73,296
5,777
103,172
108,949
Basic and diluted earnings per share
6
105.56p
153.43p
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 the Statement of Recommended Practice for Financial Statements of Investment Trust Companies and Venture Capital Trusts issued by the Association of Investment Companies. There is no Other Comprehensive Income.
Balance sheet (unaudited)
Notes
31 January
2018
£'00031 January
2017
£'000Non-current assets
Investments held at fair value
Unquoted investments
8
478,362
491,099
Quoted investments
8
1,733
364
Subsidiary investments
8
96,392
80,718
576,487
572,181
Current assets
Cash and cash equivalents
78,389
38,522
Receivables
9
10,410
2,384
88,799
40,906
Current liabilities
Payables
10
963
354
Net current assets
87,836
40,552
Total assets less current liabilities
664,323
612,733
Capital and reserves
Share capital
11
7,292
7,292
Capital redemption reserve
2,112
2,112
Share premium
12,936
12,936
Capital reserve
630,738
581,753
Revenue reserve
11,245
8,640
Total equity
664,323
612,733
Net asset value per share (basic and diluted)
12
959.1p
871.0p
Cash flow statement (unaudited)
Notes
Year to
31 January
2018
£'000Year to
31 January
2017
£'000Operating activities
Sale of portfolio investments
147,888
50,338
Purchase of portfolio investments
(99,601)
(102,621)
Interest income received from portfolio investments
15,967
7,263
Dividend income received from portfolio investments
6,230
2,629
Other income received
129
259
Investment management charges paid
(7,090)
(6,143)
Other expenses paid
(1,456)
(1,380)
Net cash inflow/(outflow) from operating activities
62,067
(49,655)
Financing activities
Bank facility fee
(1,320)
(1,089)
Purchase of shares into treasury
(7,810)
(6,201)
Equity dividends paid
7
(13,896)
(11,357)
Net cash outflow from financing activities
(23,026)
(18,647)
Net increase/(decrease) in cash and cash equivalents
39,041
(68,302)
Cash and cash equivalents at beginning of year
38,522
103,831
Net increase/(decrease) in cash and cash equivalents
39,041
(68,302)
Effect of changes in foreign exchange rates
826
2,993
Cash and cash equivalents at end of year
78,389
38,522
Statement of changes in equity (unaudited)
Company
Share capital
£'000Capital
redemption reserve
£'000Share premium
£'000Realised
capital
reserve
£'000Unrealised
capital reserve
£'000Revenue
reserve
£'000Total
shareholders'
equity
£'000Year to 31 January 2018
Opening balance at 1 February 2017
7,292
2,112
12,936
355,946
225,807
8,640
612,733
Profit for the year and total comprehensive income
-
-
-
(34,586)
91,381
16,501
73,296
Dividends paid or approved
-
-
-
-
-
(13,896)
(13,896)
Purchase of shares into treasury
-
-
-
(7,810)
-
-
(7,810)
Closing balance at 31 January 2018
7,292
2,112
12,936
313,550
317,188
11,245
664,323
Company
Share capital
£'000Capital
redemption reserve
£'000Share premium
£'000Realised
capital
reserve
£'000Unrealised
capital reserve
£'000Revenue
reserve
£'000Total
shareholders'
equity
£'000Year to 31 January 2017
Opening balance at 1 February 2016
7,292
2,112
12,936
363,325
121,457
14,220
521,342
Profit for the year and total comprehensive income
-
-
-
(1,178)
104,350
5,777
108,949
Dividends paid or approved
-
-
-
-
-
(11,357)
(11,357)
Purchase of shares into treasury
-
-
-
(6,201)
-
-
(6,201)
Closing balance at 31 January 2017
7,292
2,112
12,936
355,946
225,807
8,640
612,733
Notes to the financial statements (unaudited)
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 domiciled in England. The registered office is Juxon House, 100 St Paul's Churchyard, London EC4M 8BU. The Company's objective is to provide shareholders with long term capital growth through investment in unquoted companies, mostly through private equity funds but also directly.
2) Unaudited financial report
This financial report does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year to 31 January 2017 were approved by the Board of Directors on 4 May 2017 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.
Statutory accounts for the year to 31 January 2018 will be delivered to the Registrar of Companies following the Company's Annual General Meeting which will be held at The Wren Suite, St Paul's Cathedral at 3.00pm on 18 June 2018.
3) Basis of preparation
The financial information for the year ended 31 January 2018 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") as amended in November 2014 and updated in January 2017 with consequential amendments issued by the Association of Investment Companies.
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 2018.
These financial statements have been prepared on a going concern basis and on the historical cost basis of accounting, modified for the revaluation 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 Statement of certain assets at fair value.
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 Recommended Practice for investment trusts issued by the Association of Investment Companies in November 2014. The following requirements of the SORP have been followed:
· The income statement shows a revenue column and a capital column prepared in accordance with the guidance per the SORP.
· 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 included in unquoted investments at fair value as the subsidiaries are also deemed to be investment entities.
Investments
All investments are designated 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 note 13.
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 2015 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 2018, 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) Investment Management charges
Management fees amounted to 1.12% (2017:1.10%) of the average net assets in the period. The management fee charged for managing the Company remains at 1.4% (2017: 1.4%) of the fair value of invested assets and 0.5% (2017: 0.5%) of outstanding commitments, in both cases excluding funds managed by Graphite Capital Management LLP and ICG. No fee is charged on cash or liquid asset balances. The allocation of the total investment management charge was unchanged in 2018 with 75% of the total allocated to capital and 25% allocated to revenue.
The amounts charged during the year are set out below.
Year ended 31 January 2018
Year ended 31 January 2017
Revenue
£'000Capital
£'000Total
£'000Revenue
£'000Capital
£'000Total
£'000Investment management charge
1,791
5,374
7,165
1,552
4,657
6,209
The table below sets out the management charges that the Company has borne in respect of its investments in funds managed by members of the ICG Group on an arms length basis.
Year ended
31 January
2018
£'000Year ended
31 January
2017
£'000ICG Europe Fund VI
234
299
ICG Europe Fund V
100
320
ICG Europe Fund 2006B
54
94
ICG Recovery Fund 2008B
59
-
ICG Strategic Secondaries Fund II
469
185
ICG Velocity Partners Co-investor
143
115
ICG Asia Pacific III
272
124
1,331
1,137
5) Taxation
In both the current and prior years the tax charge was lower than the standard rate of corporation tax, principally due to the Company's status as an investment trust, which means that capital gains are not subject to corporation tax. The standard rate of corporation tax in the UK changed from 20% to 19% with effect from 1 April 2017. Accordingly the Company's profits for the year ended 31 January 2018 are taxed at an effective rate of 19.16%. The effect of this and other items affecting the tax charge is shown in note 5(b) below.
Year ended
31 January
2018
£'000Year ended
31 January2017
£'000a) Analysis of charge in the year
Tax charge on items allocated to revenue
2,435
787
Tax charge on items relating to prior years
-
397
Total tax charge allocated to revenue
2,435
1,184
Tax credit on items allocated to capital
(2,294)
(787)
Corporation tax
141
397
b) Factors affecting tax charge for the year
Profit on ordinary activities before tax
73,437
109,346
Profit on ordinary activities multiplied by standard rate of corporation tax in the UK of 19.16% (2017: 20%)
14,072
21,869
Effect of:
- net investment returns not subject to corporation tax
(11,679)
(21,637)
- dividends not subject to corporation tax
(1,194)
(526)
- current year management expenses (utilised)/not utilised
(1,058)
294
- overseas tax suffered
-
397
Total tax charge
141
397
The Company has no carried forward excess management expenses (2017: £5.5m). There are no carried forward deferred tax assets or liabilities (2017: nil). Due to the Company's status as an investment trust, and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments. For all investments the tax base is equal to the carrying amount.
The total tax charge in the prior year relates to the write off of irrecoverable Italian withholding tax previously recognised on the balance sheet.
6) Earnings per share
Year ended
31 January
2018Year ended
31 January
2017Revenue return per ordinary share
23.76p
8.13p
Capital return per ordinary share
81.80p
145.30p
Earnings per ordinary share (basic and diluted)
105.56p
153.43p
Revenue return per ordinary share is calculated by dividing the revenue return attributable to equity shareholders of £16.5m (2017: £5.8m) 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 £56.8m (2017: £103.2m) 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 £73.3m (2017: £108.9m) 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 69,435,737 (2017: 71,010,218). There were no potentially dilutive shares, such as options or warrants, in either year.
7) Dividends
Year ended
31 January
2018
£'000Year ended
31 January
2017
£'000Interim in respect of year ended 31 January 2017: 10.0p per share
-
7,077
Final in respect of year ended 31 January 2017: 10.0p (PY: 6.0p) per share
6,960
4,280
Interim in respect of year ended 31 January 2018: 10.0p per share
6,936
-
Total
13,896
11,357
The Company paid an interim dividend of 5.0p per share in March 2018. The Board has proposed a final dividend of 6.0p per share (totalling £4,155,723) in respect of the year ended 31 January 2018 which, if approved by shareholders, will be paid on 13 July 2018, to shareholders on the register of members at the close of business on 22 June 2018.
8) Investments
The tables below analyse the movement in the carrying value of the investment portfolio in the year. In accordance with accounting standards, this note has been prepared on a fund-level basis rather than an underlying investment basis.
A fund is considered to generate realised gains if it is more than 85% drawn and has returned at least the amount invested by the Company. All gains and losses arising from the underlying investments of such funds are presented as realised. All gains and losses in respect of other funds are presented as unrealised.
Direct investments are considered realised when they are sold.
Investments are held by both the Company and through the underlying subsidiary Partnerships. The subsidiary Partnerships hold investments which are eligible for the co-investment incentive scheme. An analysis of gains and losses on a looking-through legal structure on an underlying investment basis is presented in the Supplementary Information.
Quoted
£'000Unquoted
£'000Subsidiary
Undertakings
£'000Total
£'000Cost at 1 February 2017
432
333,579
40,281
374,292
Unrealised appreciation at 1 February 2017
(68)
157,520
40,437
197,889
Valuation at 1 February 2017
364
491,099
80,718
572,181
Movements in the year:
Purchases at cost
1,983
97,976
11,029
110,988
Transfer of instrument to level 1
469
(469)
-
-
Sales
- capital proceeds
(932)
(165,874)
-
(166,806)
- realised gains and losses based on carrying value at previous balance sheet date
(69)
(31,188)
-
(31,257)
Movement in unrealised appreciation
(82)
86,818
4,645
91,381
Valuation at 31 January 2018
1,733
478,362
96,392
576,487
Cost at 31 January 2018
1,552
338,539
51,310
391,401
Unrealised appreciation at 31 January 2018
181
139,823
45,082
185,086
Valuation at 31 January 2018
1,733
478,362
96,392
576,487
Cost at 1 February 2016
-
264,466
28,184
292,650
Unrealised appreciation at 1 February 2016
-
92,473
28,984
121,457
Valuation at 1 February 2016
-
356,939
57,168
414,107
Movements in the year:
Purchases at cost
460
102,161
12,097
114,718
Sales
- capital proceeds
(29)
(61,809)
-
(61,838)
- realised gains and losses based on carrying value at previous balance sheet date
-
844
-
844
Movement in unrealised appreciation
(67)
92,964
11,453
104,350
Valuation at 31 January 2017
364
491,099
80,718
572,181
Cost at 31 January 2017
432
333,579
40,281
374,292
Unrealised appreciation at 31 January 2017
(68)
157,520
40,437
197,889
Valuation at 31 January 2017
364
491,099
80,718
572,181
31 January
2018
£'00031 January
2017
£'000Realised gains based on cost
72,927
28,762
Amounts recognised as unrealised in previous years
(104,184)
(27,918)
Realised gains based on carrying values at previous balance sheet date
(31,257)
844
Increase in unrealised appreciation
91,381
104,350
Gains on investments
60,124
105,194
Related undertakings
At 31 January 2018, the Company held interests in three limited partnership subsidiaries, ICG Enterprise Trust Limited Partnership, ICG Enterprise Trust (2) Limited Partnership, and ICG Enterprise Trust Co-investment Limited Partnership. The value of these interests represented 94%, 70%, and 69% (2017: 89%, 70% and 100%) respectively of the net assets of each partnership at the balance sheet date. The registered address and principal place of business of the partnerships is Juxon House, 100 St Paul's Churchyard, London EC4M 8BU.
In addition the Company held an interest (including indirectly through its subsidiaries) of more than 20% in the following entities:
As at 31 January 2018
Investment
Instrument
% interest*
Cognito IQ Limited^
Preference shares
44.0%
Cognito IQ Limited^
Ordinary shares
36.1%
CSP Secondary Opportunities II Unit Trust**
Limited partnership interests
59.7%
Graphite Capital Partners VI+
Limited partnership interests
20.8%
Graphite Capital Partners VII Top Up Plus+
Limited partnership interests
20.0%
Graphite Capital Partners VIII Top Up+
Limited partnership interests
41.1%
The Groucho Club Limited***
Ordinary shares
21.6%
The Laine Pub Company Limited****
Preference shares
42.6%
The Laine Pub Company Limited****
Ordinary shares
32.4%
As at 31 January 2017
Investment
Instrument
% interest*
Cognito IQ Limited^
Preference shares
43.7%
Cognito IQ Limited^
Ordinary shares
34.1%
CSP Secondary Opportunities II Unit Trust**
Limited partnership interests
59.7%
Graphite Capital Partners VI+
Limited partnership interests
20.8%
Graphite Capital Partners VII Top Up Plus+
Limited partnership interests
20.0%
Graphite Capital Partners VIII Top Up+
Limited partnership interests
41.1%
Standard Brands (UK) Limited#
Ordinary shares
65.8%
The Groucho Club Limited***
Ordinary shares
21.6%
The Laine Pub Company Limited****
Preference shares
42.6%
The Laine Pub Company Limited****
Ordinary shares
32.4%
* The percentage shown for limited partnership interests represents the proportion of total commitments to the relevant fund. The percentage shown for shares represents the proportion of total shares in issue.
^ Address of principal place of business is Rivergate House, Newbury Business Park, London Road, Newbury, United Kingdom, RG14 2PZ.
** Address of principal place of business is No 1 Seaton Place, St Helier, Jersey JE4 8YJ.
+ Address of principal place of business is Berkeley Square House, Berkeley Square, London, United Kingdom W1J 6BQ.
# Address of principal place of business is Cleeve Court, Cleeve Rd, Leatherhead KT22 7SD.
*** Address of principal place of business is 45 Dean Street, London, England, W1D 4QB.
**** Address of principal place of business is Park House Crawley Business Quarter, Manor Royal, Crawley, West Sussex, United Kingdom, RH10 9AD.
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.
9) Receivables - current
31 January
2018
£'00031 January
2017
£'000Fund distribution receivable
6,095
-
Prepayments and accrued income
992
939
Subsidiary undertakings
3,323
1,445
10,410
2,384
As at 31 January 2018, prepayments and accrued income included £0.5m (2017: £0.5m) of unamortised costs in relation to the bank facility. Of this amount £0.3m (2017: £0.3m) is expected to be amortised within 12 months from the Balance Sheet date.
10) Payables - current
31 January
2018
£'00031 January
2017
£'000Accruals
464
354
Corporation tax payable
141
-
Fund capital call payables
358
-
963
354
11) Share capital
Equity share capital
Number
Authorised Nominal
£'000Number
Issued and
fully paid
Nominal
£'000Balance at 31 January 2017 and 31 January 2018
120,000,000
12,000
72,913,000
7,292
All ordinary shares have a nominal value of 10.0p. At 31 January 2018, 72,913,000 shares had been allocated, called up and fully paid. Of this total, the Company held 3,650,945 shares in treasury (2017: 2,568,508) leaving 69,262,055 (2017: 70,344,492) shares outstanding, all of which have equal voting rights. The market value of the Company's ordinary shares at 31 March 1982 was 16p.
12) Net asset value per share
The net asset value per share is calculated on equity attributable to equity holders of £664.3m (2017: £612.7m) and on 69,262,055 (2017: 70,344,492) ordinary shares in issue at the year end. There were no potentially dilutive ordinary 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 959.1p (2017: 871.0p).
13) Financial instruments and risk management
The Company is an investment company as defined by section 833 of the Companies Act 2006 and conducts its affairs so as to qualify as an investment trust under the provisions of section 1158 of the Corporation Tax Act 2010 ("Section 1158"). The Company's objective is to provide shareholders with long term capital growth through investment in unquoted companies, mostly through specialist funds but also directly.
Investments in funds have anticipated lives of approximately ten years. Direct investments are made with an anticipated holding period of between three and five years. Investment agreements will, however, usually provide that any loans advanced to investee companies are for a longer period than this. The agreements will usually provide for repayments to be made by instalments with provision for full repayment on sale or flotation.
Financial risk management
The Company's activities expose it to a variety of financial risks: market risk (comprising currency risk, interest rate risk and price risk), investment risk, credit risk and liquidity risk. The Company's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Company's financial performance. The Manager has overall responsibility for managing the risks and the framework for monitoring and coordinating these risks. This is monitored by the Board. The Company's financial risk management objectives and processes used to manage these risks have not changed from the previous period and the policies are set out below:
Market risk
(i) Currency risk
The Company's investments are principally in the UK and continental Europe and are primarily denominated in sterling and in euros. There are also smaller amounts in US dollars and in other European currencies. The Company is exposed to currency risk in that movements in the value of sterling against these foreign currencies will affect the net asset value and the cash required to fund undrawn commitments. The Board regularly reviews the level of foreign currency denominated assets and outstanding commitments in the context of current market conditions and may decide to buy or sell currency or put in place currency hedging arrangements.
The composition of the net assets of the Company by currency at the year end is set out below:
31 January 2018
Sterling
£'000Euro
£'000USD
£'000Other
£'000Total
£'000Investments
266,602
219,281
83,700
6,904
576,487
Cash and cash equivalents and other net current assets
40,090
44,526
2,168
1,052
87,836
306,692
263,807
85,868
7,956
664,323
31 January 2017
Sterling
£'000Euro
£'000USD
£'000Other
£'000Total
£'000Investments
274,454
223,854
66,694
7,179
572,181
Cash and cash equivalents and other net current assets
33,447
2,611
4,338
156
40,552
307,901
226,465
71,032
7,335
612,733
These figures are based on the currency of the location of the underlying portfolio companies' headquarters.
The effect of a 25% increase or decrease in the sterling value of the euro would be a fall and a rise of £51.0m and £51.3m in the value of shareholders' equity at 31 January 2018 respectively (2017: £36.5m and £36.3m based on 25% increase or decrease). The effect of a 25% increase or decrease in the sterling value of the euro on profit after tax would be a fall and a rise of £32.6m and £77.6m (2017: fall and rise of £18.9m and £60.6m based on 25% movement).
The effect of a 25% increase or decrease in the sterling value of the USD would be a fall and a rise of £27.8m and £29.3m in the value of shareholders' equity at 31 January 2018 respectively (2017: fall and a rise of £30.6m and £31.8m based on 25% movement). The effect of a 25% increase or decrease in the sterling value of the USD on profit after tax would be a fall and a rise of £7.9m and £53m (2017: fall and a rise of £12.5m and £54.2m based on 25% movement).
The percentages applied are based on market volatility in exchange rates over recent periods.
(ii) Interest rate risk
The fair value of the Company's investments and cash balances are not directly affected by changes in interest rates.
(iii) Price risk
The risk that the value of a financial instrument will change as a result of changes to market prices is one that is fundamental to the Company's objective, which is to provide long term capital growth through investment in unquoted companies. The investment portfolio is continually monitored to ensure an appropriate balance of risk and reward in order to achieve the Company's objective. No hedging of this risk is undertaken.
The Company is exposed to the risk of change in value of its private equity investments. For all investments the market variable is deemed to be the price itself. The table below shows the impact of a 30% increase or decrease in the valuation of the investment portfolio. The percentages applied are reasonable based on the managers' expectation of potential changes in portfolio valuation in light of volatility in the market.
31 January 2018
31 January 2017
Increase
in variable
£'000Decrease
in variable
£'000Increase
in variable
£'000Decrease
in variable
£'00030% (2017: 30%) movement in the price of investments
Impact on profit after tax
202,759
(157,662)
199,156
(157,465)
Impact as a percentage of profit after tax
276.6%
(215.1%)
182.8%
(144.5%)
Impact on shareholders' equity
167,507
(169,018)
165,350
(168,413)
Impact as a percentage of shareholders' equity
25.2%
(25.4%)
27.0%
(27.5%)
Investment and credit risk
(i) Investment risk
Investment risk is the risk that the financial performance of the companies in which ICG Enterprise invests either improves or deteriorates, thereby affecting the value of that investment. Investments in unquoted companies whether indirectly or directly are by their nature subject to potential investment losses. The investment portfolio is highly diversified.
(ii) Credit risk
The Company's exposure to credit risk arises principally from its investment in cash deposits. The Company aims to invest the majority of its liquid portfolio in assets which have low credit risk. The Company's policy is to limit exposure to any one investment to 15% of gross assets. This is regularly monitored by the Manager as a part of its cash management process.
Cash is held on deposit with three UK banks and totalled £78.4m (2017: £38.5m). Of this amount £47.8m was deposited at Royal Bank of Scotland ("RBS"), which currently has a credit rating of BAA3 from Moody's, and this represents the maximum exposure to credit risk at the balance sheet date. No collateral is held by the Company in respect of these amounts. None of the Company's cash deposits were past due or impaired at 31 January 2018 (2017: nil).
Liquidity risk
The Company has significant investments in unquoted companies which are inherently illiquid. The Company also has substantial undrawn commitments to funds, the great majority of which are likely to be called over the next five years. The Company aims to manage its affairs to ensure sufficient cash, other liquid assets and undrawn borrowing facilities will be available to meet contractual commitments when they are called and also seek to have cash generally available to meet other short term financial needs. All cash and cash equivalents are available on demand. The Company's liquidity management policy involves projecting cash flows and considering the level of liquidity necessary to meet these.
The Company has access to committed bank facilities of a headline £104m, which are structured as parallel sterling and euro facilities of £50m and €61.7m (£54.0m). The facilities are provided jointly by Lloyds and The Royal Bank of Scotland ("RBS"). Of the total facilities, the balance of £20m and €23.6m will expire in March 2020 after being renewed in March 2017 on the following basis:
· Upfront Cost: 90bps
· Non-utilisation fees: 90bps
· Margin: 300bps
The remaining balance of £30m and €38.1m will expire in April 2019.
As at 31 January 2018 the Company's financial liabilities amounted to £1.0m of payables (2017: £0.3m) which were due in less than one year.
Capital risk management
The Company's capital is represented by its net assets, which are managed to achieve the Company's investment objective. The Company currently has no debt.
The Board can manage the capital structure directly since it has taken the powers, which it is seeking to renew, to issue and buy-back shares and it also determines dividend payments. The Company is subject to externally imposed capital requirements with respect to the obligation and ability to pay dividends by section 1159 Corporation Tax Act 2010 and by the Companies Act 2006, respectively.
Total equity at 31 January 2018, the composition of which is shown on the balance sheet was £664.3m (2017: £612.7m).
Fair values estimation
IFRS 7 requires disclosure of fair value measurements of financial instruments categorised according to the following fair value measurement hierarchy:
· Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
· Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).
· Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).
The valuation techniques applied to level 1 and level 3 assets are described in note 3.
The sensitivity of the Company's investments to a change in value is discussed on page 36.
The following table presents the assets that are measured at fair value at 31 January 2018. The Company had no financial liabilities measured at fair value at that date.
Level 1
£'000Level 2
£'000Level 3
£'000Investments held at fair value
Unquoted investments - indirect
-
-
379,921
Unquoted investments - direct
-
-
98,441
Quoted investments - direct
1,733
-
-
Subsidiary undertakings
-
-
96,392
Total investments held at fair value
1,733
-
574,754
The following table presents the assets that are measured at fair value at 31 January 2017. The Company had no financial liabilities measured at fair value at that date.
Level 1
£'000Level 2
£'000Level 3
£'000Investments held at fair value
Unquoted investments - indirect
-
-
383,068
Unquoted investments - direct
-
-
108,031
Quoted investments - direct
364
-
-
Subsidiary undertakings
-
-
80,718
Total investments held at fair value
364
-
571,817
All unquoted and quoted investments are valued at fair value in accordance with IFRS 13.
The following tables present the changes in level 3 instruments for the year to 31 January 2018.
31 January 2018
Unquoted investments (indirect) at fair value through profit or loss £'000
Unquoted investments (direct) at fair value through profit or loss £'000
Subsidiary undertakings £'000
Total
£'000Opening balances
383,068
108,031
80,718
571,817
Additions
81,122
16,853
11,029
109,004
Disposals
(128,941)
(36,933)
-
(165,874)
Transfer of instrument to level 1
-
(469)
-
(469)
Gains and losses recognised in profit or loss
44,672
10,959
4,645
60,276
Closing balance
379,921
98,441
96,392
574,754
Total (losses)/gains for the year included in income statement for assets held at the end of the reporting period
(53,072)
(7,277)
4,645
(55,704)
The following tables present the changes in level 3 instruments for the year to 31 January 2017.
31 January 2017
Unquoted investments (indirect) at fair value through profit or loss £'000
Unquoted investments (direct) at fair value through profit or loss £'000
Subsidiary undertakings £'000
Total
£'000Opening balances
272,495
84,444
57,168
414,107
Additions
94,116
8,365
12,097
114,578
Disposals
(49,920)
(11,889)
-
(61,809)
Gains and losses recognised in profit or loss
66,377
27,111
11,453
104,941
Closing balance
383,068
108,031
80,718
571,817
Total gains for the year included in income statement for assets held at the end of the reporting period
45,734
19,838
11,453
77,025
14) Related Party Transactions
Significant transactions between the Company and its subsidiaries are shown below:
Subsidiary
Nature of transaction
Year ended
31 January
2018
£'000Year ended
31 January
2017
£'000ICG Enterprise Trust Limited Partnership
Increase in amounts owed to subsidiaries
7,623
3,338
Income allocated
1,205
248
ICG Enterprise Trust (2) Limited Partnership
Increase in amounts owed to subsidiaries
11,192
1,683
Income allocated
1,719
1,080
ICG Enterprise Trust Co - Investment Limited Partnership
Increase in amounts owed by subsidiaries
30,441
14,991
Income allocated
426
204
Amounts owed by subsidiaries represent funding provided by the Company to its subsidiaries to allow them to make investments. The balances will be repaid out of proceeds from their portfolios.
Amounts owed by subsidiaries
Amounts owed to subsidiaries
Subsidiary
31 January 2018 £'000
31 January 2017 £'000
31 January 2018 £'000
31 January 2017
£'000ICG Enterprise Trust Limited Partnership
-
-
36,332
28,709
ICG Enterprise Trust (2) Limited Partnership
36,939
36,939
14,136
2,944
ICG Enterprise Trust Co - Investment Limited Partnership
45,432
14,991
-
-
A full list of related undertakings is presented in note 8.
Funds managed by the Company's Manager:
Year ended 31 January 2018
Year ended 31 January 2017
Fund
Original
commitment £'000
Remaining
commitment
£'000Fair
value
£'000
Original
commitment
£'000Remaining
commitment
£'000
Fair
value
£'000ICG Europe Fund VI*
21,868
4,561
21,601
21,457
12,101
9,683
ICG Europe Fund V*
13,451
892
8,392
13,198
1,191
10,828
ICG Europe Fund 2006B*
9,204
2,104
7,531
19,312
2,065
7,163
ICG Recovery Fund 2008B*
10,497
8,135
2,821
-
-
-
ICG Strategic Secondaries Fund II**
24,664
16,176
12,032
19,879
14,005
6,873
ICG Velocity Partners Co-Investor**
10,570
2,012
10,703
11,927
2,270
10,994
ICG Asia Pacific III**
10,570
5,383
5,923
11,927
9,510
3,119
Total
100,824
39,263
69,003
97,700
41,142
48,660
* Euro denominated positions translated to sterling at spot rate on 31 January 2017 and 31 January 2018.
** US dollar denominated positions translated to sterling at spot rate on 31 January 2017 and 31 January 2018.
At the balance sheet date the Company has fully funded its share of all commitments due to ICG managed funds in which it is invested.
Glossary
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 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.
CAGR or Compound Annual Growth Rate represents the annual growth rate of an investment over a specified period of time longer than one year.
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 2018 and 31 January 2017, 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.
Discount arises when the Investment trust 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 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 the annualised 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 funds 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 receives a priority profit share ahead of distributions to limited partners.
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 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 the amount of cash immediately available 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 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.
£m
Investments
at fair value
as per balance sheetCash held by subsidiary
limited
partnershipsBalances receivable
from
subsidiary
limited
partnershipsCo-investment incentive scheme
accrual
Portfolio
31 January 2018
576.5
-
1.7
22.5
600.7
31 January 2017
572.2
-
1.4
20.7
594.3
Post-crisis investments are defined as those completed in 2009 or later.
Pre-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") The purchase of all of a listed company's shares using a special-purpose vehicle 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.
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 Ongoing Charges is explained in the Director's Report.
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.
Underlying valuation movement is the change in the valuation of the Company's Portfolio, before the effect of currency movements.
Undrawn commitments are commitments that have not yet been drawn down (see definition of drawdowns).
Unquoted company is any company whose shares are not listed or traded on a recognised stock exchange.
Uplift on exit represents the increase in gross value relative to the underlying manager's most recent valuation prior to the announcement of the disposal. Excludes a small number of investments that were public throughout the life of the investment. May differ from valuation gains in the reporting period in certain instances due to timing differences.
Valuation multiples are earnings or revenue multiples applied in valuing a business enterprise
The tables below set 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 both an unadjusted basis (i.e. without dividends re-invested) and on a Total Return basis.
Unadjusted performance in years to 31 January 2018
1 year
3 year
5 year
10 year*
Net asset value per share
10.1%
38.0%
51.9%
84.7%
Share price
17.1%
42.3%
68.0%
72.6%
FTSE All-Share Index
7.2%
14.2%
25.9%
25.9%
Total Return performance in years to 31 January 2018
1 year
3 year
5 year
10 year*
Net asset value per share
12.5%
48.0%
67.8%
113.0%
Share price
20.1%
55.1%
89.7%
107.3%
FTSE All-Share Index
11.3%
27.4%
50.3%
80.9%
* As the Company changed its year end in 2010, the ten year figures are for the 121 month period to 31 January 2018.
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.
This information is provided by RNSThe company news service from the London Stock ExchangeENDFR SEMSMDFASEEL
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