Last checked at 
15 Apr 2016 07:00
15 April 2016
ICG ENTERPRISE TRUST PLC
(formerly Graphite Enterprise Trust PLC)
UNAUDITED RESULTS FOR THE
YEAR ENDED 31 JANUARY 2016
ICG Enterprise Trust plc ('ICG Enterprise' or 'the Company') presents its unaudited results for the year ended 31 January 2016.
Summary of the Year
On 1 February 2016 ICG1 was appointed manager, with the Graphite Capital fund investment team transferring to ICG and the Company being renamed ICG Enterprise Trust plc. The investment strategy remains the same.
ICG Enterprise continued to make good progress in the year to January 2016 with the net asset value per share rising by 8.2%.
The investment portfolio performed well, rising by 11.1% in value on a local currency basis, driven by growth in profits of the underlying companies.
Realisations remained very high and significantly in excess of the rate of new investments with the portfolio generating £56 million of net cash in the year.
A combination of share buy-backs and the dividends paid and proposed will return £17 million of cash for the year to shareholders.
After a very successful 35 years under the stewardship of Graphite Capital, ICG Enterprise is well positioned to continue its excellent long term performance with ICG as manager.
+8.2% Net asset value per share The NAV per share increased 36p to 731p, extending its period of growth to seven years. Net assets at the period end were £521 million. | -1.9% Share price The share price2 fell 1.9% to 545p in the period against a 4.6% fall in the FTSE All Share Index. The share price has outperformed the Index over 1, 3, 5 and 10 years.
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+11.1% Underlying growth in the value of the portfolio in local currencies This performance was split evenly between realisations and increases in the unrealised value of the remaining portfolio.
| £17m Cash returned for the year A final dividend of 6.0p is proposed taking the total dividend for the year to 11.0p (£8 million). Share buy-backs returned a further £9 million.
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£120m Realisation proceeds Proceeds remained at the very high level of recent years with 28% of the opening portfolio being realised in the 12 months. | £64m Investment in the portfolio New investments totalled £64 million, materially lower than last year, reflecting the greater discretion of underlying managers in a more competitive market.
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Chairman's Statement
Change of manager
After a very successful 35 years under the stewardship of Graphite Capital, the Board approved the appointment of ICG as the new manager following its acquisition of Graphite Capital's private equity fund investment business. The Company has had a highly successful relationship with ICG for more than 25 years. The change of manager took effect from 1 February 2016 and Graphite Enterprise Trust PLC was renamed ICG Enterprise Trust plc on that date.
The five investment professionals dedicated to the management of the Company, including two former Graphite partners, Emma Osborne and Kane Bayliss, have transferred across to ICG ensuring continuity. This transition has gone smoothly and the team is fully integrated into ICG.
ICG's appointment provides a number of major benefits to the Company, reinforcing ICG Enterprise's proposition in the market and offering to investors, including:
· Access to a wider range of investment opportunities through ICG's global office network and local relationships.
· Access to market intelligence from ICG's large international direct investment team.
· Incremental secondary and co-investment opportunities resulting from ICG's greater scale.
· Access to ICG's infrastructure expertise in areas such as treasury, investor relations and information technology.
· A reduction in headline fund management fees and no fees on ICG funds.
The manager's core philosophy of applying a direct investment skillset to private equity fund investing will be maintained with no change in investment strategy. The relationship with Graphite will continue through our current and future anticipated investments in Graphite's funds.
The access and insight that comes from ICG's broader network of relationships in the market means that ICG Enterprise is now even better positioned to continue its excellent long term performance.
Annual review
"The Company has outperformed the FTSE All-Share Index over the short, medium and long term."
ICG Enterprise continued to make good progress in the year to 31 January 2016 with both the net asset value per share and the share price outperforming the FTSE All-Share Index on a total return basis2. This extended the Company's period of continued growth to seven years, over which time the net asset value per share has increased by 77.5%.
The portfolio3 extended its strong performance of recent years increasing by 11.1% in local currencies in the year to 31 January 2016. The net asset value per share rose 8.2% to 730.9p.
The share price total return fell by 1.9% in the period, closing at 545p, outperforming the 4.6% fall in the FTSE All-Share Index. The long term performance of the Company continues to excel with the net asset value per share and the share price beating the performance of the Index over one, three, five and ten years.
Performance in years to 31 January 20162 | 1 | 3 | 5 | 10* |
Net asset value per share | +8.2% | +22.8% | +47.0% | +108.1% |
Share price | -1.9% | +20.0% | +93.5% | +75.3% |
FTSE All-Share Index | -4.6% | +12.5% | +30.4% | +66.5% |
* As the Company changed its year end in 2010, the ten year figures are for the 121 month period to 31 January 2016.
Of the 11.1% increase in the value of the portfolio half was generated from profits on realisations and half from uplifts in valuation across the remaining portfolio.
Portfolio3
The rate of investment in the year at £64 million remained behind the rate of realisations at £120 million as fund managers took a cautious approach to new investments in the face of reduced mid-market transaction volumes and greater competition. This impacted the level of fund drawdowns and co-investment opportunities. The secondary market for commitments to existing funds proved to be as competitive and the manager was increasingly selective during the year.
At 31 January 2016, the Company had total assets of £533 million of which the portfolio represented £428 million with the balance substantially held in cash. Graphite Capital managed investments represented £107 million, ICG managed investments £28 million and third party investments £293 million.
Post-2008 financial crisis investments now comprise 77% of the portfolio with the 30 largest investments accounting for half of the portfolio. The valuation of the top 30 investments at 9.4 times EBITDA4 is at a substantial discount to the valuation of FTSE All-Share Index.
Balance sheet
The level of new commitments made to funds in the year was substantially up on last year at £59 million whilst drawdowns of existing commitments were £46 million. Outstanding commitments increased to £254 million at the period end.
Those outstanding commitments are matched by total liquidity of £201 million, of which £104 million was in cash and £97 million covered by the undrawn bank facility. Commitments therefore exceed total liquidity by £53 million or 10% of the year end net asset value. This level of overcommitment is consistent with our cautious approach to managing the balance sheet.
Distributions
In last year's report we indicated that we would consider buying back shares to return cash to shareholders. In the year the Company repurchased 1,586,000 shares at a cost of £9.1 million at an average discount to the estimated prevailing net asset value of 18%. This improved the net asset value per share in the year by 0.6%. At the same time, in 2015 we introduced a first ever interim dividend of 5.0p per share totalling £3.6 million.
The Board is of the view that the total dividend should be covered by net revenues over the short to medium term and so is recommending a final dividend of 6.0p per share taking the total dividend for the year to 11.0p per share or £7.9 million5.
Including the contribution of the cash returned by the share repurchases this takes the total distributions to shareholders for the year to £17.0 million or 23.8p per share4 against total distributions for the year to 31 January 2015 of 15.5p.
The proposed total dividend represents a yield of 2.0% on the share price at 31 January 2016. If approved by shareholders, the final dividend will be paid on 20 June. The Company has elected to pay the dividend as an "income distribution" that reduces the tax charge payable by the Company.
Outlook
The portfolio has delivered a healthy growth in earnings and this performance compares favourably to the fall in profits of the FTSE All-Share Index. At the same time the portfolio is valued at a significant discount to the Index giving us considerable comfort about the future performance of the Company.
The Company is well placed to operate through periods of economic uncertainty with the risk profile of the underlying investments and the liquidity position of the balance sheet remaining low.
Since the downturn, the Company has been managed to give us the flexibility to adapt the mix of investments, cash and commitments to changing market conditions and to deploy our large cash balance where we see the best relative value. Now managed by ICG, with its insight and access to a broader network of local relationships, we believe that the Company is even better positioned to take advantage of future investment opportunities as they arise. It is encouraging that in the short space of time since appointing ICG we are seeing real opportunities to deploy capital alongside them.
We expect the backdrop of continuing economic uncertainty to result in ongoing levels of equity market volatility. Whilst this may result in short term volatility to the Company's share price, having now repositioned the portfolio since the crisis and delivered seven years of continued growth we are confident that the portfolio that we have built can continue to perform over the medium to long term.
Mark Fane
15 April 2016
Manager's Review of the Portfolio
Overview
The portfolio made solid progress in the year against a backdrop of market volatility, rising in value by 11.1% in local currencies. After adjusting for the impact of foreign currency movements, the sterling value of the portfolio increased by 12.1%.
Gains generated by realisations accounted for half of the underlying valuation increase. Uplifts in unrealised valuations were primarily driven by earnings growth while valuation multiples were broadly flat.
Movement in the portfolio | £m |
Opening portfolio | 431.9 |
Additions | 64.3 |
Realisation proceeds | (120.3) |
Net cash inflow | (56.0) |
Underlying valuation movement* | 48.0 |
Currency | 4.3 |
Closing portfolio^ | 428.2 |
* In this report 96% of the portfolio is valued using 31 December 2015 (or later) valuations.^ See footnote 2 for reconciliation to the portfolio balance presented in the financial statements.
At 31 January the portfolio was valued at £428.2 million which was marginally lower than at the start of the year primarily because realisation proceeds continued to exceed new investment.
RealisationsThe portfolio generated proceeds of £120.3 million in the year, equivalent to 28% of the opening portfolio. While this was lower than the 33% generated in the prior year, it is in line with the medium and long term average cash conversion rate.
Full realisations
Investments in 41 portfolio companies were fully realised in the year, compared with 39 in the previous year, and these accounted for £82.4 million of proceeds.
Full realisations continued to be completed at uplifts to the previous holding values. Although the 22% uplift achieved in the year was lower than in the recent past, the fall reflected the size mix rather than a general trend downwards. Last year we observed that the uplifts on the remaining investments made prior to the financial crisis had started to decline and this trend has continued. Pre-crisis investments realised a valuation uplift of 13% while investments made since the financial crisis generated uplifts of 27%.
Post-crisis investments represented two thirds of proceeds and achieved a strong return of 2.4 times cost with an average holding period of 4.6 years. In contrast, the pre-crisis investments were realised for an average return multiple of only 1.4 times original cost with an average holding period of 8.0 years, reflecting the relative underperformance of the remaining investments from these vintages. It is, however, worth noting that the pre-crisis investments overall have performed better than many investors expected with, for example, those made in 2007 generating returns of approximately 1.9 times cost.
The largest realisation in the year was Graphite Capital Partners VII's disposal of National Fostering Agency ("NFA"), a provider of foster carers to local authorities, from which the Company received proceeds of £11.9 million. NFA was a 2012 investment which grew strongly both organically and by acquisition prior to its sale in April this year. The sale achieved a return of just over two times cost and the uplift added 0.5% to the net asset value in the year.
Further details of the ten largest underlying realisations are set out in the Supplementary Information section.
Partial realisations
A further £37.9 million was received from partial realisations of portfolio companies. The most significant element of this was the £19.4 million of proceeds received from sales of listed holdings. Most of these were from companies taken public in previous years with only 6 companies achieving flotations in the year, compared with 15 in the last financial year.
New investmentsNew investment fell sharply in the year to £64.3 million, almost half the exceptionally high level of £125.4 million invested in the prior year. All types of new investment were substantially lower.
The rate of drawdown of fund commitments was £46.4 million, almost a third lower than the previous year's figure of £68.0 million in the last financial year. This was primarily due to a low level of investment in the UK, particularly in the mid-market. It is worth noting, however, that despite the decrease in drawdowns in the year, most funds remain on track to complete their investment programmes on schedule following the high level of investment in the previous year. We are therefore not currently concerned about pressure on managers to invest.
Three co-investments were completed in the year, the same number as in the prior year. However, they were on average smaller and the total co-investment therefore fell from £20.9 million to £10.8 million.
A total of 64 new underlying companies were added to the portfolio compared with 74 in the year to January 2015. The largest new investment was in PetSmart, the leading retailer of pet products and services in North America which was acquired by BC Partners in March. The Company invested a total of £4.7 million in PetSmart both through BC European Capital IX and in a co-investment alongside the fund. Further details of the ten largest underlying new investments are set out in the Supplementary Information section.
New investments in the year were acquired at broadly similar multiples of EBITDA as last year. Therefore, while the level of new investment was lower than expected, it is reassuring that our managers appear to be maintaining pricing discipline.
Secondary investments showed the steepest fall in the year. We highlighted in last year's annual report that pricing in the market for secondary fund interests had become more competitive and this continued in the year. One secondary acquisition, of an interest in BC European Capital IX, was completed for £7.1 million, which compares with the £26.6 million invested in five secondaries last year. Despite the low level of secondaries completed, we came close to investing in a number of other transactions and are continuing to focus on sourcing secondaries as a way of both accelerating cash deployment and generating value in the portfolio.
New commitmentsNew commitments of £58.6 million to six funds were significantly higher than the £22.0 million committed to three new funds last year. Five of the six new funds were raised by managers we have been investing with for many years. The manager of the sixth new fund, Fourth Alcuin, which focuses on small buy-outs in the UK, is new to the portfolio.
Further details of new fund commitments are set out in the Supplementary Information section.
Closing portfolioAt 31 January, the portfolio was valued at £428.2 million with investments in almost 400 underlying companies through 60 funds managed by 33 private equity firms. Investments are well diversified across a wide range of sectors, geographies and investment vintages.
We aim for the portfolio to strike a balance between diversification and concentration. While the level of diversification reduces risk, many individual investments are large enough to have an impact on overall performance. The top 30 underlying companies accounted for 49.5% of the portfolio and the performance of these investments is therefore likely to be a key driver of future growth. In the year to December 2015 the revenues and EBITDA of these companies increased by an average of 5.3% and 10.2% respectively. In contrast, the FTSE All-Share Index reported falls in both revenue and EBITDA of 16.6% and 14.2% respectively over the same period.
The top 30 companies were valued on an average multiple of 9.4 times last twelve months EBITDA at December 2015 which is reasonable for the strong growth being achieved. In comparison, the FTSE All-Share Index was valued at 12.1 times EBITDA at December despite the lack of profit growth noted above. Despite the subsequent fall in quoted markets, the valuation of the Index remains at over 12 times. It is interesting to note that over the last 5 years, the EBITDA valuation multiple of the Company's top 30 companies has been highly consistent (although its constituents have changed almost entirely over that period) while the EBITDA multiple of the FTSE All-Share Index has increased from 8 to its current level of over 12.
The leverage of the top 30 companies averaged 3.5 times EBITDA which has fallen marginally relative to the top 30 at the start of the year. At this level, leverage is relatively modest but should enhance future equity returns without involving undue financial risk, particularly given the relatively flexible terms on which many of the underlying companies have been able to borrow over the last few years.
The share of the portfolio represented by investments made since the financial crisis has continued to increase. At 31 January, post-crisis investments represented 77.1% of underlying investments. This is despite strong realisations from these vintages and reflects both the value of new investments added to the portfolio in the last twelve months and strong increases in the valuations of post-crisis investments. We expect post-crisis investments to continue to generate the most significant future uplifts and it is therefore encouraging that the portfolio is now heavily concentrated in these vintages.
Co-investments and secondaries accounted for 40.1% of the portfolio at the year end. This proportion has been increasing gradually over time from approximately 18% immediately prior to the financial crisis and gives us greater control over investments into the portfolio than a typical fund of funds investor. Of the 59.9% in primary funds, 14.3% is managed by Graphite Capital and 1.8% by ICG and, following the change of manager, no management fees are charged on either of these segments of the portfolio. In total Graphite Capital and ICG directly manage 25.1% and 6.5% of the portfolio respectively including co-investments and secondaries.
The portfolio was valued at an average of 1.4 times original cost in local currencies, of which 0.4 times cost had already been returned in cash. At these levels, and with an increasing proportion of the portfolio in the less mature investments with the most upside potential, there is scope for considerable value growth in the future.
Commitments and liquidityAt 31 January, the Company had outstanding commitments of £253.8 million and total liquidity of £200.9 million, of which £103.8 million was in cash and £97.1 million in the undrawn bank facility. Commitments therefore exceeded total liquidity by £52.9 million or 10.1% of the net asset value.
Funds in investment period represented £206.9 million of undrawn commitments. These are typically drawn down over a period of four to five years from the start of a fund and 10-15% of commitments are usually retained at the end of the investment period to fund follow-on investments and expenses and for contingencies. If outstanding commitments to each of the funds were to be drawn down at a constant rate over their remaining investment periods, approximately £60-65 million of commitments would be drawn down over the next 12 months.
The Company therefore has sufficient resources in cash and undrawn facilities to fund drawdowns for more than two years even if no realisations were to be achieved. With realisations remaining at a relatively high level, the substantial liquidity gives us the ability to take advantage of a range of potential investment opportunities.
Events since the year end
Since the move to ICG we have completed two new primary fund commitments: €15.0 million to Advent International GPE VIII, a $13 billion fund focused on upper mid-market and large buy-outs in Europe and the US; and $15.0 million to ICG Strategic Secondaries II, a fund raised to take advantage of the growing opportunity for end of life fund restructurings in the US and Europe. A number of other primary fund commitments are at an advanced stage of due diligence and we expect to complete several more in the current financial year.
We have additionally committed $15.0 million to a new co-investment alongside the ICG Strategic Secondaries II fund noted above. One other new co-investment with a third party manager is in final review.
ProspectsThe environment for realisations remains favourable despite the volatility in quoted equity markets and some macro uncertainties. We therefore expect the portfolio to generate further realisations this year which should drive growth in value given the uplifts generally achieved on sale. It is also reassuring that the portfolio continues to perform well with underlying profit growth significantly stronger than that of quoted companies.
Since the downturn, our strategy has evolved to enable us to respond to changing market conditions by adjusting the mix of investments towards those areas we perceive as offering the best balance of reward and risk. This approach remains unchanged following our move to ICG. It is encouraging that in the short space of time since starting at ICG we are seeing dealflow opportunities, both in-house and alongside our third party managers, to deploy the Company's cash balances in attractive investments.
ICG Private Equity Fund Investment Team15 April 2016 For enquiries please contact:
Emma Osborne (Head of Private Equity Fund Investment) - 020 3201 1302
Mark Crowther (Investor Relations) - 020 3201 7842
Michael Pote (Finance) - 020 3201 1307
1. ICG Alternative Investment Limited, a regulated subsidiary of Intermediate Capital Group plc, acts as the manager of the Company.
2. Throughout the report, all performance figures are stated on a total return basis (i.e. including the effect of re-invested dividends).
3. In the financial statements, in accordance with IFRS 10, the portfolio value (£414.1 million) is presented net of the accrual for the co-investment incentive scheme (£11.9 million) and balances receivable by the Company from its subsidiary partnerships (£2.2 million). In the Chairman's Statement and Manager's Review of the Portfolio, all references to the portfolio are on a look-through basis to the investment portfolio held by the Company (£428.2 million), which is consistent with the commentary in previous annual and interim reports.
4. EBITDA is earnings before interest, tax, depreciation and amortization.
5. Based on 71,326,837 shares (excluding treasury shares) in issue at the date of this report.
SUPPLEMENTARY INFORMATION
The 30 largest underlying INVESTMENTS
The table below presents the 30 companies in which ICG Enterprise had the largest investments by value at 31 January 2016. 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 investment portfolio | |
1 | Micheldever + | ||||
Distributor and retailer of tyres | Graphite Capital | 2006 | UK | 5.4% | |
2 | City & County Healthcare Group | ||||
Provider of home care services | Graphite Capital | 2013 | UK | 3.2% | |
3 | Education Personnel + | ||||
Provider of temporary staff for the education sector | ICG | 2014 | UK | 2.9% | |
4 | nGAGE (previously Human Capital Investment Group) | ||||
Provider of recruitment services | Graphite Capital | 2014 | UK | 2.9% | |
5 | Spheros + ^ | ||||
Provider of bus climate control systems | Deutsche Beteiligungs | 2011 | Germany | 2.5% | |
6 | Skillsoft + | ||||
Provider of off-the-shelf e-learning content | Charterhouse | 2014 | USA | 2.1% | |
7 | Standard Brands + | ||||
Manufacturer of fire lighting products | Graphite Capital | 2001 | UK | 2.1% | |
8 | PetSmart + | ||||
Retailer of pet products and services | BC Partners | 2015 | USA | 1.9% | |
9 | R&R Ice Cream + | ||||
Manufacturer and distributor of ice cream products | PAI Partners | 2013 | UK | 1.8% | |
10 | Frontier Medical + | ||||
Manufacturer of medical devices | Kester Capital | 2013 | UK | 1.8% | |
11 | David Lloyd Leisure + | ||||
Operator of premium health and fitness clubs | TDR Capital | 2013 | UK | 1.7% | |
12 | TMF | ||||
Provider of management and accounting outsourcing services | Doughty Hanson | 2008 | Netherlands | 1.6% | |
13 | U-POL | ||||
Manufacturer and distributor of automotive refinishing products | Graphite Capital | 2010 | UK | 1.5% | |
14 | The Laine Pub Company + | ||||
Operator of pubs and bars | Graphite Capital | 2014 | UK | 1.5% | |
15 | ICR Group | ||||
Provider of repair and maintenance services to the energy industry | Graphite Capital | 2014 | UK | 1.5% | |
16 | Parques Reunidos | ||||
Operator of attraction parks | Arle Capital | 2007 | Spain | 1.5% | |
17 | Algeco Scotsman | ||||
Supplier and operator of modular buildings | TDR Capital | 2007 | USA | 1.5% | |
18 | CPA Global + | ||||
Provider of patent and legal services | Cinven | 2012 | UK | 1.4% | |
19 | Co-investment + / * | ||||
Provider of business services | Large buy-out manager | 2014 | Europe | 1.2% | |
20 | TMP | ||||
Provider of recruitment services | Graphite Capital | 2006 | UK | 1.1% | |
21 | Cognito + | ||||
Supplier of communications equipment, software and services | Graphite Capital | 2002 | UK | 1.1% | |
22 | Formel D | ||||
Provider of quality control for automotive services | Deutsche Beteiligungs | 2013 | Germany | 0.9% | |
23 | Swiss Education + | ||||
Provider of hospitality training | Invision Capital | 2015 | Europe | 0.9% | |
24 | Odgers + | ||||
Provider of recruitment services | Graphite Capital | 2009 | UK | 0.8% | |
25 | Swissport ^ | ||||
Provider of airport ground and cargo handling services | PAI Partners | 2011 | Switzerland | 0.8% | |
26 | Gerflor | ||||
Manufacturer of vinyl flooring | ICG | 2011 | France | 0.8% | |
27 | Technogym | ||||
Manufacturer of premium fitness equipment and wellness products | Arle Capital | 2006 | Italy | 0.8% | |
28 | Ceridian + | ||||
Provider of payment processing services | Thomas H. Lee Partners | 2007 | USA | 0.8% | |
29 | Aero Technics | ||||
Provider of civil aircraft maintenance | Graphite Capital | 2015 | UK | 0.8% | |
30 | Quironsalud | ||||
Provider of private healthcare services | CVC Capital | 2011 | Spain | 0.7% | |
Total of the 30 largest underlying investments | 49.5% | ||||
+ All or part of this investment is held directly as a co-investment or other direct investment.
* We are not permitted to disclose the details of this co-investment under the terms of a confidentiality agreement.
^ Realised since the year end.
The 30 largest fund investments
The 30 largest funds by value at 31 January 2016 are set out below:
Fund | Outstanding commitment £ million | Year of commitment | Country/region | Value£ million | |
1 | Graphite Capital Partners VIII * | ||||
Mid-market buy-outs | 56.0 | 2013 | UK | 36.3 | |
2 | Graphite Capital Partners VI ** | ||||
Mid-market buy-outs | 2.1 | 2003 | UK | 23.8 | |
3 | CVC European Equity Partners V ** | ||||
Large buy-outs | 1.3 | 2008 | Europe/ USA | 16.7 | |
4 | Deutsche Beteiligungs Fund V | ||||
Mid-market buy-outs | 0.3 | 2006 | Germany | 14.6 | |
5 | BC European Capital IX ** | ||||
Large buy-outs | 4.6 | 2011 | Europe | 14.5 | |
6 | Graphite Capital Partners VII */** | ||||
Mid-market buy-outs | 7.6 | 2007 | UK | 13.3 | |
7 | PAI Europe V ** | ||||
Mid-market and large buy-outs | 1.2 | 2007 | Europe | 13.1 | |
8 | Thomas H. Lee Parallel Fund VI | ||||
Large buy-outs | 1.7 | 2007 | USA | 13.0 | |
9 | Candover 2005 Fund | ||||
Large buy-outs | 0.1 | 2005 | Europe | 12.1 | |
10 | TDR Capital II | ||||
Mid-market and large buy-outs | 0.7 | 2006 | Europe | 11.2 | |
11 | Fifth Cinven Fund | ||||
Large buy-outs | 4.9 | 2012 | Europe | 10.9 | |
12 | Activa Capital Fund II | ||||
Mid-market buy-outs | 0.8 | 2007 | France | 10.7 | |
13 | Bowmark Capital Partners IV | ||||
Mid-market buy-outs | 1.0 | 2007 | UK | 10.5 | |
14 | Doughty Hanson & Co V ** | ||||
Mid-market and large buy-outs | 5.8 | 2006 | Europe | 8.6 | |
15 | ICG European Fund 2006 B ** | ||||
Mezzanine | 8.9 | 2014 | Europe | 8.0 | |
16 | ICG Europe V | ||||
Mezzanine | 0.5 | 2012 | Europe | 7.8 | |
17 | IK VII | ||||
Mid-market buy-outs | 1.6 | 2013 | Europe | 6.7 | |
18 | Permira V | ||||
Large buy-outs | 2.6 | 2013 | Europe | 5.3 | |
19 | CVC Capital Partners VI | ||||
Large buy-outs | 9.7 | 2013 | Global | 5.2 | |
20 | Deutsche Beteiligungs Fund VI | ||||
Mid-market buy-outs | 2.8 | 2012 | Germany | 5.1 | |
21 | Piper Private Equity Fund V | ||||
Small buy-outs | 1.3 | 2010 | UK | 4.8 | |
22 | PAI Europe VI | ||||
Mid-market and large buy-outs | 10.6 | 2013 | Europe | 4.4 | |
23 | TDR Capital III | ||||
Mid-market and large buy-outs | 4.1 | 2013 | Europe | 4.3 | |
24 | Charterhouse Capital Partners IX ** | ||||
Large buy-outs | 0.8 | 2008 | Europe | 4.2 | |
25 | Hollyport Secondary Opportunities IV | ||||
Tail-end secondary portfolios | 0.8 | 2013 | Global | 4.0 | |
26 | Fourth Cinven Fund ** | ||||
Large buy-outs | 2.9 | 2006 | Europe | 3.8 | |
27 | Nordic Capital Partners VIII | ||||
Mid-market and large buy-outs | 3.9 | 2013 | Nordic | 3.7 | |
28 | Segulah IV | ||||
Mid-market buy-outs | 1.2 | 2008 | Nordic | 3.1 | |
29 | Advent Global Private Equity VII | ||||
Large buy-outs | 0.7 | 2012 | Europe/ USA | 2.8 | |
30 | Bowmark Capital Partners V | ||||
Mid-market buy-outs
| 7.1 | 2013 | UK | 2.8 | |
Total of the largest 30 fund investments | 147.6 | 285.3 | |||
Percentage of total investment portfolio | 66.6% |
* Includes the associated Top Up funds.
** All or part of interest acquired through a secondary fund purchase.
ANALYSIS OF THE 30 LARGEST UNDERLYING INVESTMENTS
The tables below analyse the 30 companies in which ICG Enterprise had the largest investments by value at 31 January 2016. These investments may be held directly or through funds or, in some cases, in both ways.
30 largest investments - revenue growth | |
% growth | % by number |
30.0% | |
0-10% | 30.0% |
10-20% | 30.0% |
20-30% | 10.0% |
30 largest investments* - EBITDA growth | |
% growth | % by number |
23.3% | |
0-10% | 16.7% |
10-20% | 26.7% |
20-30% | 16.7% |
>30% | 13.3% |
30 largest investments* - enterprise value as a multiple of EBITDA | |
Multiple | % by number |
16.7% | |
7.0-8.0x | 13.3% |
8.0-9.0x | 13.3% |
9.0-10.0x | 16.7% |
10.0-11.0x | 10.0% |
11.0-12.0x | 3.3% |
>12.0x | 23.4% |
30 largest investments - net debt as a multiple of EBITDA | |
Multiple | % by number |
33.3% | |
2.0-3.0x | 16.7% |
3.0-4.0x | 6.7% |
4.0-5.0x | 13.3% |
5.0-6.0x | 13.3% |
6.0-7.0x | 6.7% |
>7.0x | 10.0% |
* Excludes Cognito where this metric is not meaningful.
Portfolio analySIS
The following five tables analyse the companies in which ICG Enterprise had investments at 31 January 2016.
Portfolio - Investment type | % of value of underlying investments | |
Large buy-outs | 45.9% | |
Mid-market buy-outs | 42.0% | |
Mezzanine | 8.0% | |
Small buy-outs | 4.1% | |
Total | 100.0% |
Portfolio - Geographic distribution* | % of value of underlying investments | |
UK | 45.1% | |
North America | 14.1% | |
Germany | 12.0% | |
France | 10.1% | |
Scandinavia | 5.2% | |
Benelux | 5.1% | |
Spain | 2.6% | |
Italy | 2.6% | |
Other Europe | 2.9% | |
Rest of world | 0.3% | |
Total | 100.0% | |
NB: Total Continental Europe | 40.5% |
* Location of headquarters of underlying companies in the portfolio. Does not necessarily reflect countries to which companies have economic exposure.
Portfolio - Year of investment | Valuation as multiple of cost | % of value of underlying investments | |
2015 and onwards | 1.1x | 12.5% | |
2014 | 1.2x | 22.3% | |
2013 | 1.5x | 17.8% | |
2012 | 1.6x | 8.7% | |
2011 | 1.4x | 8.1% | |
2010 | 1.6x | 6.1% | |
2009 | 2.6x | 1.7% | |
2008 | 1.0x | 5.7% | |
2007 | 1.6x | 6.1% | |
2006 | 1.6x | 8.7% | |
2005 and before | 1.2x | 2.3% | |
Total | 1.4x | 100.0% |
Portfolio - Sector analysis | % of value of underlying investments | |
Business services | 21.1% | |
Industrials | 17.9% | |
Healthcare and education | 16.4% | |
Consumer goods and services | 14.6% | |
Leisure | 9.7% | |
Automotive supplies | 8.0% | |
Financials | 5.6% | |
Technology and telecommunications | 3.2% | |
Media | 2.3% | |
Chemicals | 1.2% | |
Total | 100.0% |
Quoted equity holdings at 31 January 2016
All quoted holdings are held indirectly through third party funds and may have restrictions on their sale. The timing of any disposal of these interests is determined by the managers of those funds.
Underlying investment | Ticker | £ million | % of investment portfolio |
VWR International | VWR | 2.6 | 0.6% |
Partnership | PA | 2.2 | 0.5% |
ComHem | COMH | 1.6 | 0.4% |
Saga | SAGA | 1.5 | 0.3% |
Black Knight | BKFS | 1.4 | 0.3% |
Party City | PRTY | 1.2 | 0.3% |
Elior | ELIOR | 1.0 | 0.2% |
Tumi | TUMI | 0.9 | 0.2% |
Fogo de Chao | FOGO | 0.7 | 0.2% |
Evonik | EVK | 0.6 | 0.1% |
West Corporation | WSTC | 0.6 | 0.1% |
Coor | COOR | 0.5 | 0.1% |
Univar N.V | UNVR | 0.5 | 0.1% |
Others (less than £0.5 million) | 3.0 | 0.8% | |
Total | 18.3 | 4.2% |
The following table analyses the closing portfolio by value.
Third party, Graphite Capital and ICG investments at 31 January 2016
Portfolio |
Third party £ million |
Graphite Capital £ million |
ICG £ million |
Total £ million |
% of investment portfolio |
Primary investments in funds | 187.4 | 61.2 | 7.8 | 256.4 | 59.9% |
Secondary investments in funds | 45.9 | 12.3 | 8.0 | 66.2 | 15.5% |
Direct and co-investments | 59.6 | 34.0 | 12.0 | 105.6 | 24.6% |
Total portfolio | 292.9 | 107.5 | 27.8 | 428.2 | 100.0% |
Investment activity
New investments
Financial period ended |
Drawdowns £ million |
Co-investments and secondary fund purchases £ million |
Total new investments £ million | |
31 December 2006 | 74.6 | 5.7 | 80.3 | |
31 December 2007 | 95.2 | 7.9 | 103.1 | |
31 December 2008 | 65.8 | 12.1 | 77.9 | |
31 December 2009 | 21.5 | 2.5 | 24.0 | |
31 January 2011 | 65.6 | 19.2 | 84.8 | |
31 January 2012 | 51.3 | 29.9 | 81.2 | |
31 January 2013 | 48.8 | 5.2 | 54.0 | |
31 January 2014 | 54.2 | 36.4 | 90.6 | |
31 January 2015 | 68.0 | 57.4 | 125.4 | |
31 January 2016 | 46.4 | 17.9 | 64.3 |
Largest new underlying investments
Investment | Description |
Manager | Country | Cost £ million |
PetSmart | Retailer of pet products and services | BC Partners | USA | 4.7 |
Swiss Education | Provider of hospitality training | Invision Capital | Switzerland | 3.3 |
Aero Technics | Provider of civil aircraft maintenance | Graphite Capital | UK | 3.2 |
The Groucho Club* | Operator of members' club | Alcuin Capital | UK | 3.0 |
Salad Signature | Manufacturer of spreads, dips and salads | IK Partners | Benelux | 1.6 |
Synlab | Provider of laboratory services | Cinven | Germany | 1.2 |
Curo | Provider of hospice care | Thomas H Lee | USA | 1.1 |
AS Adventure | Retailer of outdoor equipment and clothing | PAI Partners | Belgium | 0.9 |
Essenden | Operator of indoor bowling centres | Harwood | UK | 0.9 |
Douglas ^ | Retailer of cosmetics | CVC Capital | UK | 0.9 |
Total of 10 largest new underlying investments | 20.8 | |||
* Sold by Graphite Capital in the year. The Company re-invested alongside Alcuin Capital.
^ Sold by Advent in the year.
Realisations*
Financial period ended | £ million | % of opening portfolio | ||
31 December 2006 | 92.9 | 53.3% | ||
31 December 2007 | 112.4 | 54.5% | ||
31 December 2008 | 25.8 | 12.9% | ||
31 December 2009 | 14.0 | 7.3% | ||
31 January 2011 | 19.8 | 8.5% | ||
31 January 2012 | 92.9 | 26.0% | ||
31 January 2013 | 74.2 | 19.7% | ||
31 January 2014 | 118.3 | 28.5% | ||
31 January 2015 | 142.2 | 32.8% | ||
31 January 2016 | 120.3 | 27.9% |
* Excluding secondary sales of fund interests
Largest underlying realisations
Investment | Manager |
Year of investment |
Realisation type | Proceeds £ million |
National Fostering Agency | Graphite Capital | 2012 | Secondary | 11.9 |
Guardian Financial | Cinven | 2011 | Trade | 7.3 |
Intermediate Capital Group | ICG | 1989 | Sale of quoted shares | 5.8 |
Eurofiber | Doughty Hanson | 2012 | Trade | 4.2 |
SAFE | Euromezzanine | 2006 | Secondary | 3.3 |
Spire Healthcare | Cinven | 2007 | Public offering | 3.1 |
The Groucho Club* | Graphite Capital | 2006 | Secondary | 3.1 |
Lowell Group | TDR | 2011 | Trade | 2.7 |
Celsis | Harwood | 2009 | Trade | 2.6 |
Suddenlink | BC Partners | 2012 | Trade | 2.4 |
Total of 10 largest underlying realisations | 46.4 | |||
* Sold by Graphite Capital in the year. The Company re-invested alongside Alcuin Capital.
Commitments analysis
The following four tables analyse ICG Enterprise's commitments at 31 January 2016.
Commitments | Original commitment* £ million | Outstanding commitment £ million | Average drawdown percentage |
% of commitments |
Funds in investment period | 336.9 | 206.9 | 38.6% | 81.5% |
Funds post investment period | 503.4 | 46.9 | 90.7% | 18.5% |
Total | 840.3 | 253.8 | 69.8% | 100.0% |
* Original commitments are translated at 31 January 2016 exchange rates.
Commitments - remaining investment period | % of commitments |
4-5 years | 20.1% |
3-4 years | 21.8% |
2-3 years | 32.9% |
1-2 years | 2.6% |
4.1% | |
Investment period complete | 18.5% |
Total | 100.0% |
Movement in outstanding commitments in the year to31 January 2016 |
£ million |
Opening | 234.0 |
Drawdowns | (46.3) |
New primary commitments | 58.6 |
New commitments arising through secondary purchase of fund interests | 4.9 |
New commitments relating to co-investments* | 0.6 |
Currency | 2.7 |
Other | (0.7) |
Closing | 253.8 |
\* This represents a follow-on commitment in Swiss Education Group.
New commitments in the year to 31 January 2016
Fund | Strategy | Geography | £ million |
Primary commitments | |||
Thomas H. Lee Equity Fund VII | Large buy-outs | USA | 13.0 |
Charterhouse Capital Partners X | Large buy-outs | Europe | 11.0 |
ICG Europe Fund VI | Mezzanine | Europe | 10.6 |
The Fourth Alcuin Fund | Small buy-outs | UK | 9.0 |
Harwood Private Equity IV | Small buy-outs | UK | 7.5 |
Hollyport Secondary Opportunities V | Tail-end secondary portfolios | Global | 7.5 |
Total primary commitments | 58.6 | ||
Commitments arising from secondary purchases of fund interests | |||
BC European Capital IX | Large buy-outs | Europe | 4.9 |
Commitments relating to co-investments | |||
Swiss Education Group | Provider of hospitality training | Europe | 0.6 |
Total new commitments | 64.1 | ||
CURRENCY EXPOSURE
31 January 2016 £ million | 31 January 2016 % | 31 January 2015 £ million | 31 January 2015 % | |
Portfolio* | ||||
- Sterling | 209.1 | 48.8% | 230.1 | 53.3% |
- Euro | 122.8 | 28.7% | 119.7 | 27.7% |
- US dollar | 60.9 | 14.2% | 54.9 | 12.7% |
- Other European | 33.5 | 7.8% | 25.1 | 5.8% |
- Other | 1.9 | 0.5% | 2.1 | 0.5% |
Total | 428.2 | 100.0% | 431.9 | 100.0% |
*Currency exposure is calculated by reference to the location of the underlying portfolio companies' headquarters.
31 January 2016 £ million | 31 January 2016 % | 31 January 2015 £ million | 31 January 2015 % | |
Outstanding commitments | ||||
- Sterling | 102.3 | 40.3% | 91.8 | 39.2% |
- Euro | 131.2 | 51.7% | 135.0 | 57.7% |
- US dollar | 18.4 | 7.2% | 6.1 | 2.6% |
- Other European | 1.9 | 0.8% | 1.1 | 0.5% |
Total | 253.8 | 100.0% | 234.0 | 100.0% |
UNAUDITED RESULTS
Income Statement (unaudited)
Year to 31 January 2016 (unaudited) |
Year to 31 January 2015 (unaudited) | |||||
Revenue return | Capital return |
Total | Revenue return | Capital return |
Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Investment returns | ||||||
Income, gains and losses on investments | 12,100 | 33,761 | 45,861 | 13,896 | 19,854 | 33,750 |
Deposit interest | 309 | - | 309 | 228 | - | 228 |
Other income | 115 | - | 115 | 417 | - | 417 |
Foreign exchange gains and losses | - | 747 | 747 | - | (754) | (754) |
12,524 | 34,508 | 47,032 | 14,541 | 19,100 | 33,641 | |
Expenses | ||||||
Investment management charges | (1,509) | (4,260) | (5,769) | (1,452) | (4,357) | (5,809) |
Other expenses | (1,722) | (1,123) | (2,845) | (1,593) | (1,835) | (3,428) |
(3,231) | (5,383) | (8,614) | (3,045) | (6,192) | (9,237) | |
Profit before tax | 9,293 | 29,125 | 38,418 | 11,496 | 12,908 | 24,404 |
Taxation | (1,292) | 1,292 | - | (2,044) | 2,044 | - |
Profit for the year | 8,001 | 30,417 | 38,418 | 9,452 | 14,952 | 24,404 |
Attributable to: Equity shareholders |
8,001 |
30,417 |
38,418 |
9,452 |
14,952 |
24,404 |
Basic and diluted earnings per share | 53.1p | 33.5p |
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. There is no Other Comprehensive Income.
Balance Sheet (unaudited)
31 January 2016 | 31 January 2015 | |
£'000 | £'000 | |
Non-current assets | ||
Investments held at fair value | ||
- Unquoted investments | 356,939 | 357,830 |
- Quoted investments | - | 4,962 |
- Subsidiary investments | 57,168 | 56,217 |
414,107 | 419,009 | |
Current assets | ||
Cash and cash equivalents | 103,831 | 90,137 |
Receivables | 4,038 | 4,177 |
107,869 | 94,314 | |
Current liabilities | ||
Payables | 634 | 6,459 |
Net current assets | 107,235 | 87,855 |
Total assets less current liabilities | 521,342 | 506,864 |
Capital and reserves | ||
Share capital | 7,292 | 7,292 |
Capital redemption reserve | 2,112 | 2,112 |
Share premium | 12,936 | 12,936 |
Capital reserve | 484,782 | 463,489 |
Revenue reserve | 14,220 | 21,035 |
Total equity | 521,342 | 506,864 |
Net asset value per share (basic and diluted) | 730.9p | 695.2p |
Cash Flow Statement (unaudited)
Year to | Year to | |
31 January | 31 January | |
2016 | 2015 | |
£'000 | £'000 | |
Operating activities | ||
Sale of portfolio investments | 91,167 | 132,953 |
Purchase of portfolio investments | (57,439) | (102,185) |
Interest income received from portfolio investments | 8,951 | 8,382 |
Dividend income received from portfolio investments | 2,882 | 5,458 |
Other income received | 384 | 644 |
Investment management charges paid | (5,840) | (5,815) |
Other expenses paid | (1,259) | (983) |
Net cash inflow from operating activities | 38,846 | 38,454 |
Financing activities | ||
Bank facility fee | (1,963) | (1,651) |
Purchase of shares into treasury | (9,110) | - |
Equity dividends paid | (14,816) | (11,302) |
Net cash outflow from financing activities | (25,889) | (12,953) |
Net increase in cash and cash equivalents | 12,957 | 25,501 |
Cash and cash equivalents at beginning of year | 90,137 | 65,390 |
Net increase in cash and cash equivalents | 12,957 | 25,501 |
Effect of changes in foreign exchange rates | 737 | (754) |
Cash and cash equivalents at end of year | 103,831 | 90,137 |
Statement of Changes in Equity (unaudited)
Sharecapital | Capital redemption reserve |
Sharepremium |
Capital reserve |
Revenue reserve | Total shareholders' equity | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Year to 31 January 2016 | ||||||
Opening balance at1 February 2015 | 7,292 | 2,112 | 12,936 | 463,489 | 21,035 | 506,864 |
Profit for the year and total comprehensive income | - | - | - | 30,417 | 8,001 | 38,418 |
Transfer on disposal of investments | - | - | - | - | - | - |
Dividends paid or approved | - | - | - | - | (14,816) | (14,816) |
Purchase of shares into treasury | - | - | - | (9,124) | - | (9,124) |
Closing balance at 31 January 2016 | 7,292 | 2,112 | 12,936 | 484,782 | 14,220 | 521,342 |
Sharecapital | Capital redemption reserve |
Sharepremium |
Capital reserve |
Revenue reserve | Total shareholders' equity | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Year to 31 January 2015 | ||||||
Opening balance at1 February 2014 | 7,292 | 2,112 | 12,936 | 448,537 | 22,885 | 493,762 |
Profit for the year and total comprehensive income | - | - | - | 14,952 | 9,452 | 24,404 |
Transfer on disposal of investments | - | - | - | - | - | - |
Dividends paid or approved | - | - | - | - | (11,302) | (11,302) |
Purchase of shares into treasury | - | - | - | - | - | - |
Closing balance at 31 January 2015 | 7,292 | 2,112 | 12,936 | 463,489 | 21,035 | 506,864 |
NOTES TO THE FINANCIAL REPORT (unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
1 GENERAL INFORMATION ICG Enterprise Trust plc (formerly Graphite Enterprise Trust PLC, "the Company") 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. During the year ended 31 January 2016, Graphite Capital Management LLP ("Graphite Capital" or "the Former Manager") served as manager of the Company. On 1 February 2016, the Board appointed ICG Alternative Investment Limited ("ICG" or "the Manager") as the new manager of the Company. At the same time, the name of the Company was changed from Graphite Enterprise Trust PLC to ICG Enterprise Trust plc, and the names of its subsidiaries Graphite Enterprise Trust Limited Partnership and Graphite Enterprise Trust (2) Limited Partnership were changed to ICG Enterprise Trust Limited Partnership and ICG Enterprise Trust (2) Limited Partnership (together "the Partnerships"). The Company's objective remains unchanged following the appointment of ICG. Further details regarding the change of manager are provided in the Chairman's Statement. This report was approved for issue by the Board of Directors on 14 April 2016.
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 2015 were approved by the Board of Directors on 24 April 2015 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 2016 will be delivered to the Registrar of Companies following the Company's Annual General Meeting which will be held at the Stationers' Hall, Ave Maria Lane, London EC4M 7DD at 1.00pm on 14 June 2016.
3 BASIS OF PREPARATION The financial information for the year ended 31 January 2016 has been prepared in accordance with the Companies Act 2006 and International Financial Reporting Standards ("IFRS"). IFRS comprises standards and interpretations approved by the International Accounting Standards Board ("IASB") and the International Financial Reporting Interpretations Committee ("IFRIC") as adopted in the European Union as at 31 January 2016. The financial information has been prepared on a going concern basis and on the historical cost basis of accounting, modified for the revaluation of certain assets. At previous balance sheet dates the Partnerships were consolidated into the accounts as subsidiaries of ICG Enterprise Trust plc. In accordance with IFRS 10, the Company has elected to treat the Partnerships as "investment entities". As a result, the Company no longer prepares consolidated accounts. The Partnerships' cash balances (which were previously included in cash and cash equivalents) together with the amounts previously presented as non-controlling interests are included in unquoted investments. This is purely a presentational change and there has been no impact on the net asset value of the Company. INVESTMENTS All investments are designated upon initial recognition as held at fair value through profit or loss (described in this financial report 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 Statement of Recommended Practice for investment trusts issued by the Association of Investment Companies in November 2014. 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 International Private Equity and Venture Capital Valuation ("IPEV") 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. CURRENT ASSET INVESTMENTS HELD AT FAIR VALUE Current asset investments may include investments in fixed income funds or instruments. These are valued based on the redemption price as at the balance sheet date, which is based on the value of the underlying investments. 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. IAS 28 requires certain disclosures to be made about associates, including summary historical financial information, even where these associates have been accounted for in accordance with IAS 39 and held at fair value. ICG Enterprise has a small number of investments which fall within the definition of an associate, all of which are held at fair value. The disclosures required by IAS 28 have not been made. It is considered that, in the context of the investment portfolio, such information would not be useful to users of the accounts. Information is considered useful if it helps users assess the net asset value of the Company or the future growth therein. Many factors are taken into account in determining the fair value of individual investments, of which historical financial information is only one. Taken alone, this information would not be useful in making such an assessment and would be misleading in some instances.
4 INVESTMENT MANAGEMENT CHARGES The investment management charges set out in the table below were payable to the Former Manager, Graphite Capital Management LLP, in the year. The Former Manager is a related party.
The allocation of the total investment management charges was unchanged in 2016 with 75% of the total allocated to capital and 25% allocated to income. The management fee charged by the Former Manager was 1.5% of the value of invested assets and 0.5% of outstanding commitments, in both cases excluding funds managed by Graphite Capital. No fee is charged on cash or liquid asset balances. The amounts payable during the year are set out above. Following the appointment of ICG as Manager on 1 February 2016 (see note 1), the management fee charged has been reduced to 1.4% (from 1.5%) of the value of invested assets and 0.5% of outstanding commitments, in both cases excluding funds managed by Graphite Capital and also funds managed by ICG. At 31 January 2016 management fees of £1,312 (excluding VAT) were prepaid (31 January 2015: accrual of £70,000). The Company has borne management charges in respect of its investments in funds managed by Graphite Capital as set out below:
* In the year to 31 January 2016, Graphite Capital Partners VI credited the Company with £120,000 of management charges 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 21% to 20% with effect from 1 April 2015. Accordingly the Company's profits for the year ended 31 January 2016 are taxed at an effective rate of 20.17%. The effect of this and other items affecting the tax charge is shown in note 5 (b) below.
The Company has no carried forward excess management expenses (2015: nil). There are no carried forward deferred tax assets or liabilities (2015: 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.
6 EARNINGS PER SHARE
The earnings per share figures are based on the weighted average numbers of shares set out above.
7 DIVIDENDS
8 RECEIVABLES - CURRENT
The Company has access to committed bank facilities, which are undrawn. The set up costs in relation to these were capitalised and are recognised over the lives of the facilities on a straight line basis. At 31 January 2016, £989,561 of bank facility costs are included within receivables. Of this, £467,867 is expected to be amortised in less than one year.
9 PAYABLES - CURRENT
10 SHARE CAPITAL At 31 January 2016, 72,913,000 shares had been allocated, called up and fully paid. Of this total, the Company held 1,586,163 shares in treasury (31 January 2015: nil) leaving 71,326,837 in issue. 11 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. 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. (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. 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 £103,831,000 (2015: £90,137,000). Of this amount £35,731,000 was deposited at Lloyds Bank ("Lloyds") 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 2016 (2015: 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 seeks 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 £97 million, which are structured as parallel sterling and euro facilities of £50 million and €61.7 million. The facilities are provided jointly by Lloyds and The Royal Bank of Scotland ("RBS"). Of the total facilities, balances of £20 million and €23.6 million will expire in March 2017. The remaining balances of £30 million and €38.1million will expire in April 2019. As at 31 January 2016 the Company's financial liabilities amounted to £634,000 of payables (2015: £6,459,000) 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 2016, the composition of which is shown on the balance sheet was £521,342,000 (2015: £506,864,000).
12 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). All private equity and quoted investments are valued at fair value in accordance with IFRS 13. The Company's unquoted investments and subsidiary undertakings are all classified as Level 3 investments. Fair value for unquoted investments is established by using various valuation techniques. Funds 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 International Private Equity and Venture Capital Valuation ("IPEV") Guidelines issued in December 2015. The primary valuation methodology used is an earnings multiple methodology, with other methodologies used where they are more appropriate. The Company makes unquoted investments through its subsidiary undertakings, as well as directly. The fair value of these unquoted investments is calculated in the same way as the direct unquoted investments discussed above. The fair value of the subsidiary undertakings also takes into account the value of interests in the co-investment incentive scheme. At 31 January 2016, this was estimated as the theoretical value of the interests if the portfolio had been sold at the carrying value at the balance sheet date. The fair value of the Company's unlisted investments is sensitive to changes in the assumed earnings multiples. An increase in the earnings multiple would lead to an increase in the fair value of the investment portfolio and a decrease in the earnings multiple would lead to a decrease in the fair value. The realised and unrealised gains and losses have been recognised in Income, gains and losses on investments in the Income Statement. The following table presents the changes in level 3 instruments for the year to 31 January 2016.
The following tables present the assets that are measured at fair value. The Company did not have any financial liabilities measured at fair value at these dates.
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There have been no significant transfers between levels 1, 2 and 3 for the year ended 31 January 2016 (31 January 2015: £nil).
13 RELATED PARTY TRANSACTIONS
Transactions between the Company and the Former Manager are disclosed in note 4. Significant transactions between the Company and its subsidiaries are shown below:
Year ended 31 January 2016 | Year ended 31 January 2015 |
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Subsidiary | Nature of transaction | £'000 | £'000 |
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ICG Enterprise Trust Limited Partnership | Increase in loan to Company | 3,549 | 17,554 |
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Income allocated | 875 | 1,261 |
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ICG Enterprise Trust (2) Limited Partnership | Increase in loan from Company | 2,325 | 9,591 |
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Income allocated | 1,284 | 797 |
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Amounts owed by subsidiaries | Amounts owed to subsidiaries | ||||
31 January 2016 | 31 January 2015 | 31 January 2016 | 31 January 2015 | ||
Subsidiary | £'000 | £'000 | £'000 | £'000 | |
ICG Enterprise Trust Limited Partnership | - | - | 25,371 | 21,822 | |
ICG Enterprise Trust (2) Limited Partnership | 35,678 | 33,353 | - | - | |
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.
END