ENTERPRISE TRUST A leading listed private equity investor - Generating long term growth for shareholders
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ENTERPRISE TRUST
A leading listed private equity investor
Generating long term growth for shareholders
ICG ENTERPRISE TRUST PLC
Annual Report and Accounts 2019
ICG enterprise trust Highlights of the year
We focus on delivering consistently strong
returns through investing in profitable
private companies, primarily
1,057P
NAV PER SHARE
+12.4 %
NAV PER SHARE
1
+3.0%
Share price
1
in Europe and the US. (31 January 2018: 959p) total return
(31 January 2018: 12.5%)
total return
(31 January 2018: 20.1%)
We do this by investing in companies managed
by ICG and other leading private equity
managers, directly and through funds. 22P
Dividend
+ 15.0%
Portfolio return
1
+ 35.0%
Realisation uplift
1
A flexible mandate and highly selective (31 January 2018: 21p) on a local
currency basis
to previous
carrying value
approach allow us to strike the right balance (31 January 2018: 16.4%) (31 January 2018: 40%)
between concentration and diversification,
risk and reward.
Our continued strong performance
01
Strategic report
02 04 reflects the high quality of the Portfolio
Governance Supplementary Information
2 At a glance 40 Board of Directors 86 The 30 largest fund investments
and the benefits of our highly selective
4 Chairman’s statement 42 Corporate governance report 88 Private equity explained investment approach and focus on
Investing in private equity Report of the Directors Portfolio analysis
defensive growth companies.
6 45 90
8 Our approach 48 Investment policy 90 Realisation activity
10 How we create value 49 Directors’ Remuneration Report 90 Investment activity
12 A strong track record 52 Report of the Audit Committee 91 Commitments analysis Jeremy Tigue, Chairman
14 Key performance indicators 54 Additional disclosures required 92 Currency exposure
16
24
26
Manager’s review
Market review
30 largest underlying companies 55
by the Alternative Investment Fund
Managers Directive
Statement of Directors’
92
93
Dividend analysis
Glossary FOCUSED
30
32
34
ICG Enterprise Trust Team
Corporate social responsibility
Principal risks and uncertainties
responsibilities
05 FLEXIBLE
03 Shareholder Information
97 The Annual General Meeting
SELECTIVE
Financial statements
98 Notice of meeting
57 Independent auditors’ report to the 99 Notice of meeting: explanatory notes
members of ICG Enterprise Trust plc 101 Useful information
63 Income statement 102 How to invest in ICG Enterprise
64 Balance sheet 1 This is an Alternative Performance Measure (“APM”)
65 Cash flow statement We assess our performance using a variety of measures that are not specifically defined under IFRS and are therefore termed APMs. These 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
icg-enterprise.co.uk 66 Statement of changes in equity peers and its previously reported results. The Glossary includes further details of APMs and reconciliations to IFRS measures, where appropriate. Throughout this report, all share
price and NAV per share performance figures are stated on a total return basis (i.e. including the effect of reinvested dividends).
To view and download our Annual Report online 67 Notes to the financial statements
Strategic Governance Financial Supplementary Shareholder
AT A GLANCE report statements Information Information
We combine our proven strategy and
balanced approach with the strength
of ICG’s global platform
The Company Our unique approach
Proven strategy
ICG Enterprise Trust listed on the London Stock
ICG Enterprise is unique in the listed private equity sector in
Exchange in 1981, raising £23m. It has since grown
A leading listed private equity investor. its net assets to £731m, generating significant combining directly managed investments with those managed by
value for shareholders through multiple cycles. third parties, both directly and through funds.
Providing shareholders with access to a
portfolio of investments in profitable private
companies, primarily in Europe and the US.
We invest directly and through funds with
a flexible mandate that enables us to both
38 £731m1
Focused
on strong and
consistent returns
Flexible
investment mandate
Selective
investment driving
YEAR Track RECORD NET ASSETS enables us to both consistently strong
enhance returns and manage risk, optimising by investing in enhance returns and returns, while limiting
the portfolio mix and capital deployment.
profitable private manage risk. downside risk.
42x
return on original
£239m
returned to
companies, primarily in
Europe and the US.
Data as at 31 January 2019 capital raised shareholders
1 31 January 2018: £664m since listing
the manager
a Global network
ICG has offices in:
Global alternative asset manager in
private debt, credit and equity. • London • Stockholm • Hong Kong
• New York • Frankfurt • San Francisco
A leading global alternative asset manager • Paris • Luxembourg • Singapore Expertise Access Insights
with €35bn of assets under management • Madrid • Warsaw • Sydney and long track to proprietary deal into private equity
across 18 strategies. • Amsterdam • Tokyo record of lending flow from the wider managers and
ICG focuses on providing capital to help to and investing ICG network and companies through
companies grow. It develops long term in private equity through relationships local investment teams
relationships with its business partners to deliver
value for shareholders, clients and employees.
30
YEAR Track RECORD
€35bn
assets under
backed businesses. across the private
equity asset class.
across the globe.
management
ICG invests across the capital structure, with an
objective of generating income and consistently ICG Enterprise benefits from access to the proprietary deal flow
high returns while protecting against investment
downside. 13
countries
>300
employees
of investments from ICG’s network and its expertise and insights
gained from 30 years of investing in private markets.
Data as at 31 December 2018
2 ICG ENTERPRISE TRUST Annual Report and Accounts 2019 ICG ENTERPRISE TRUST Annual Report and Accounts 2019 3
Strategic Governance Financial Supplementary Shareholder
Chairman’s statement report statements Information Information
Strong growth across the We have a high quality Portfolio
Read more:
board of directors 40
portfolio delivers another that is increasingly geographically corporate
year of double digit growth diverse and continues to produce Governance 42
consistently strong returns
Performance to 31 January 2019 Strengthening of the ICG As part of this process, Alastair Bruce joined Progress against
Enterprise team and succession the Board in May 2018 and became Chairman strategic goals
FTSE All-Share Index 431%
ICG continues to invest in the development of the Audit Committee in February of this
Share price
of the investment team, which has year. Andrew Pomfret will be retiring from
Net asset value per share Investment portfolio
All figures are on a total return basis.
benefitted significantly from the enhanced the Board at the forthcoming AGM, having as % of net assets
support and oversight provided by ICG, served for over eight years, and I would
as a leading alternative asset manager. like to thank Andrew for his wise counsel
173% and guidance. 95%
148%
The team has grown over the last three
years. We now have an investment team Jane Tufnell will join the Board later this By increasing the
75% with over 60 years’ combined experience month. She brings extensive financial services capital invested in
63% 67%
54% individual
12%
29% 31% in private equity, which is supported by and investment management experience to co-investments, the
3% 82%
(4)% oversight from ICG on the Investment the Board, and I welcome her. We expect to team has been able to
1 year 3 years 5 years 10 years Committee, which includes ICG’s Chief appoint one further non-executive director increase capital
Investment Officer and Chief Executive, during the course of this year and I intend to deployment without
Benoît Durteste, and Andrew Hawkins, step down from the Board during 2020, the team being any less
selective.
ICG’s Head of Private Equity Solutions. We when I will have served on the Board for 2016 2019
Strong underlying earnings growth and previous year and 33% in 2016. A key driver
also have a strong dedicated team in legal, 12 years. We will continue to evolve the
realisations at material uplifts to carrying of this has been the increase in proprietary
HIGHLIGHTS finance and IR and access to a number of Board and make further appointments,
value have driven another year of double deal-flow from ICG. Over the last five years,
specialist shared resources, including risk, as appropriate.
digit growth and I am delighted to report high conviction investments have generated Increase amount deployed into
1,057p
NAV per share
a strong set of results. NAV per share
increased from 959p to 1,057p, a 12.4%
total return, significantly outperforming
a return of 19% p.a.2 in local currencies, and
we expect them to continue to produce
strong returns.
treasury, compliance and IT.
Emma Osborne, who has led the Company’s
investment team since 2004, will be moving
A cautious and selective
approach remains key in the
current environment
high conviction investments
as % of capital invested
the loss from the FTSE All-Share of -3.8%. to a senior adviser role within ICG at the The macro-economic backdrop remains Our high conviction
The Portfolio is more geographically 50%
end of 2019. Over the last 14 years, uncertain, geopolitical risks are increasing investments
Continued progress towards diverse. In particular, we have made a number
Emma has built a strong multi-disciplined and volatility is rising. Against this backdrop, (co-investments,
strategic goals of new commitments and co-investments in secondary fund
investment team with significant private the Manager remains patient and selective
the US, which now represents 26% of the investments and ICG
+12.4 %
We continue to make excellent progress equity expertise and a strong track record 33%
Portfolio. The US is the largest private equity in deploying capital, focusing on funds) represented
towards our strategic goals. In particular, of outperformance. As a senior adviser,
market in the world, and over the medium opportunities that the team has a high 41% of the Portfolio
becoming more fully invested, increasing our she will remain on the Investment and 50% of capital
term, we expect US investments to represent conviction will outperform and in sectors
NAV per share weighting towards high conviction Committee to provide oversight of the deployed in the year.
30% to 40% of the Portfolio. with non-cyclical growth drivers. In the
total return investments and becoming more Portfolio. ICG is in the process of Over the medium term
case of our ICG investments, many of we expect 50% to 60%
geographically diverse. identifying Emma’s successor, and with
Dividend these investments also have the benefit of the Portfolio to be
The Portfolio1 now represents 95% of net We know that a reliable source of income is her assistance, we expect that person of structural downside protection, which 2016 2019 weighted towards
assets versus 82% three years ago. By important for shareholders so last year we to transition into the leadership of the we believe will serve us well should the these investments.
increasing the capital invested in individual committed to a progressive annual dividend investment team in the second half of macro-economic environment deteriorate.
co-investments, we have been able to policy and quarterly payments. In line with this year. Emma has provided excellent
leadership of the team and I am I am confident our differentiated portfolio, Increase in exposure to US market (%)
increase capital deployment without being this, we are proposing a final dividend of 7p,
delighted we will continue to benefit highly selective approach and focus on
any less selective as the team recycles the which, together with the three interim
from her involvement. delivering consistently strong returns will
record levels of proceeds from the dividends of 5p each, will take total
continue to generate significant growth
Portfolio into compelling opportunities. dividends for the year to 22p. This is a 4.8% 26%
continued evolution well in excess of public markets.
increase on the prior year dividend of 21p Our exposure to the US
We have a target for high conviction of the board
and a 2.7% yield on the year-end share price. JEREMY TIGUE market has increased
investments to represent 50% – 60% of the We have worked closely over the last few from 14% three years
Portfolio and this year they made up 50% years to ensure that changes to the Board Chairman ago to 26% at the year
14%
of capital deployed, up from 42% in the strike the right balance between continuity 12 April 2019 end. Over the medium
1 In the Chairman’s Statement, Manager’s Review and
Supplementary Information, reference is made to the and succession. term we expect US
“Portfolio”. The Portfolio is defined as the aggregate investments to
of the investment portfolios of the Company and of its represent 30% to 40%
subsidiary limited partnerships. The rationale for this of the Portfolio.
APM is discussed in detail in the Glossary. 2016 2019
2 Net of management fees and carried interest.
4 ICG ENTERPRISE TRUST Annual Report and Accounts 2019 ICG ENTERPRISE TRUST Annual Report and Accounts 2019 5
Strategic Governance Financial Supplementary Shareholder
INVESTING IN PRIVATE EQUITY report statements Information Information
An active ownership Read more:
within private equity, we have a
model driving returns in Highly focused approach, aiming manager’s review 16
for strong and consistent returns
excess of public markets with relatively low downside risk
private equity
explained 88
OUR INVESTMENT philosophy
Targeting defensive growth
all private equity
Private equity backed companies touch AN ACTIVE OWNERSHIP MODEL Value
most of us in our everyday lives, whether it How private equity creates value creation
Buyouts offer more
be a restaurant chain, a manufacturer, a consistent returns with lower
buyouts
healthcare provider, or a software company. risk than other private equity
strategies e.g. venture capital
Most sectors in almost every country have Exit planning
and distressed debt
companies owned and funded through
Developed markets have a
private equity investment. With an more established private
Financial discipline developed
opportunity set far greater than that available equity sector and more
Active ownership
markets
experienced managers
in the listed market, private equity has, over
multiple cycles, generated returns that have Operational improvements
significantly outperformed public markets. Mid-market and larger
mid-market and companies are more likely to
It is an active ownership model. When you Strategic change be more resilient to economic
larger deals
cycles and typically attract
invest in private equity you are investing in stronger management teams
the skills and expertise of a manager to Governance and responsible investing
identify and work with companies whose Leading private equity
growth can be unlocked through a focused managers with track records leading private
Extensive due diligence of investing and adding value equity managers
and hands-on approach. It is not a simple through cycles
Structural
advantages
asset class to navigate, barriers to entry are Defensive growth – targeting
high and manager selection is key. However, Strong alignment of interest and focused stakeholder group companies with strong market
positions and high barriers to
when executed well private equity’s active Defensive
entry in industries with low
growth
ownership model and focus on creating value Long term investment horizon companies correlation to economic
cycles, strong cash flow
through operational and strategic change has conversion, high recurring
driven strong returns for investors. revenues and high margins
How private equity Extensive due diligence Strategic change, operational
creates value Due to the illiquid nature of investment in improvement and financial discipline
Long term investment horizon private companies, private equity managers Private equity managers provide focused
When compared to listed companies, there will only invest after a long period of deep strategic and operational guidance to Case study: CO-INVESTMENT
is less short term performance pressure. investigation, in most cases alongside management teams. They bring significant IN endeavor schools
This long term view means that fundamental management. financial and capital markets expertise,
value creation can be prioritised over short encouraging strong financial discipline.
Governance and responsible investing • Leading US operator of schools for children
term profit targets.
Through investing responsibly and Exit planning aged from four to 13
Strong alignment of interest and considering Environmental, Social and Ultimately, all private equity backed
• Currently has 43 campuses, serving over
focused stakeholder group Governance (“ESG”) issues at all stages of companies are for sale. Ensuring a business
6,500 students across nine states in the US
Remuneration structures prioritise equity the investment cycle, private equity is able is an attractive asset for a purchaser, by
incentivisation, aligning company management to manage ESG risks to generate long term creating value and generating a strong • Continuing to grow, both by greenfield
teams with private equity managers. In sustainable returns. return on capital invested, is fundamental expansion and by selectively acquiring
addition, private equity backed companies to the investment process. high performing schools
benefit from a focused group of stakeholders
• Endeavor benefits from strong underlying
that have the expertise and control to drive
growth trends and stable cash flows
strategic and operational change.
• Value of ICG Enterprise holding is £9m
6 ICG ENTERPRISE TRUST Annual Report and Accounts 2019 READ MORE ON PAGE 23 ICG ENTERPRISE TRUST Annual Report and Accounts 2019 7
Strategic Governance Financial Supplementary Shareholder
our approach report statements Information Information
balancing risk CONCENTRATION
and reward We proactively increase exposure to companies that we have a high
conviction will outperform through the cycle. We enhance returns
and increase visibility and control on underlying performance drivers
through co-investments and secondary fund investments. These
investments sit alongside ICG funds in our high conviction portfolio.
We mitigate the more concentrated risk in our high conviction
BALANCING CONCENTRATION portfolio through a highly selective approach, a focus on defensive
AND DIVERSIFICATION WITH growth and close monitoring of performance.
HIGH CONVICTION INVESTMENTS Over the medium term we expect 50% – 60% of the Portfolio to be
UNDERPINNED BY A PORTFOLIO weighted towards high conviction investments.
OF LEADING THIRD PARTY FUNDS
19.0% P.A.
local currency Returns from high conviction
investments over the last five years 1
We invest in companies managed by ICG and other
leading private equity managers, in both cases through
funds as well as directly.
This approach allows us to proactively increase
exposure to companies that we have a high conviction
will outperform, enabling us to strike the right balance
between concentration and diversification, risk and
reward. While diversification at both the manager and
company level reduces risk, concentration in our high
conviction investments enhances returns and allows
individual portfolio companies to make a difference DIVERSIFICATION
to performance. Our portfolio of leading third party private equity
funds provides a diversified base of strong returns
The common theme in our high conviction portfolio and forms the foundation of our strategy. It is the
is that we have selected the underlying companies key source of deal flow for the third party
for investment, whether this be an ICG managed co-investments and secondary fund investments in our
high conviction portfolio. It also provides insights that
investment, third party co-investment or secondary
inform the management of the portfolio as a whole.
fund investment. This approach is in contrast to
We manage risk in our funds portfolio through
a conventional fund of funds in which the third
diversification, strict application of our investment
party managers make all of the underlying criteria, close monitoring of performance and active Case study: TAILWIND CAPITAL
investment decisions. portfolio management through secondary sales. and abode healthcare
Our mandate allows us to be nimble and take advantage
of opportunities to adjust the mix of investments
dependent on market conditions, developments in the 13.1% p.a.
local CURRENCY Returns FROM THE THIRD PARTY
• US mid-market private equity investor,
focused on sectors with strong defensive
growth characteristics
portfolio, the flow of opportunities and relative value. FUNDS PORTFOLIO OVER THe LAST FIVE YEARS 1
• Committed $15m to Tailwind III in June
This flexibility and our highly selective approach allows 2018 and co-invested $6m alongside the
us both to enhance returns and to manage risk. fund in Abode Healthcare in July 2018
• Abode provides hospice and home-care
services across the US
• Situations such as these fit well with our
strategy, allowing us to deploy capital
1 This is an APM as defined in the Glossary into high conviction investments while
growing our primary investment
8 ICG ENTERPRISE TRUST Annual Report and Accounts 2019 programme in the US ICG ENTERPRISE TRUST Annual Report and Accounts 2019 9
Strategic Governance Financial Supplementary Shareholder
How we create value report statements Information Information
CREATING VALUE THROUGH Read more:
A HIGHLY SELECTIVE AND Manager’s review 16
key performance
ACTIVE INVESTMENT PROCESS INDICATORS 14
Investment strategy Investment process Growth
Source
15.3% p.a.
The team actively sources new
opportunities, maintaining close
relationships with private equity
managers and intermediaries. As part of
ICG, the team also benefits from insights
Portfolio growth
Reinvest and proprietary deal flow from the wider over the last five
or years (local currency)
ICG network.
Return
Source
Analyse and select
Ahead of any investment, deep and
granular due diligence is undertaken with
strict application of investment criteria
Our dedicated
and with the benefit of insights from ICG.
33%
A focused investment investment team has Monitor and actively Average realisation
strategy with a manage portfolio Generate uplift over the last
Finance a long track
flexible mandate and risk Underlying performance is closely growth five years
record of investing monitored and the Portfolio’s exposures
in private equity are actively managed to ensure
consistently strong performance.
Analyse
and
select Finance and risk
Financial strength is maintained
through the cycle, with a rigorous
risk-management framework to
support long term investment.
2.3x
Monitor and
Average multiple of
actively manage cost of realisations
portfolio Reinvest or return over the last five years
Proceeds from the sales of portfolio
companies are reinvested in new
investment opportunities, or returned
to shareholders through dividends or
share buybacks.
10 ICG ENTERPRISE TRUST Annual Report and Accounts 2019 ICG ENTERPRISE TRUST Annual Report and Accounts 2019 11
Strategic Governance Financial Supplementary Shareholder
A strong track record report statements Information Information
Outperforming public An investment in ICG Enterprise made
markets through on the year end date in any of the last
multiple cycles 20 years would have outperformed the
FTSE All-Share Index (Total Return)
if still held on 31 January 2019
net asset value share price
4.6x £4561
600
Our highly selective approach and flexible
mandate have delivered returns for our
The Company’s share price was 822p
at the year end, generating a total return
of 3.0% in the 12 months compared to the
share price 5.3x ICG Enterprise
£527
NAV TOTAL RETURN
shareholders well in excess of public total return NAV total return
500
OVER THe LAST nav Total return
markets over multiple cycles. FTSE All-Share (Total Return) which fell by 20 YEARS 1
OVER THe LAST 20 YEARS
3.8%, an outperformance of 6.8% over the
The 12.4% NAV per share total return in the
same period. £279
year further extends the Company’s long FTSE All-Share FTSE All-Share Index
track record of growth and outperformance. Over the longer term, ICG Enterprise’s ICG Enterprise total return
share price
share price has continued to deliver returns
Over the last 20 years ICG Enterprise’s NAV
has grown by 8.6% p.a., outperforming the
for shareholders above those of the
FTSE All-Share (Total Return). £100
400
FTSE All-Share (Total Return) by 3.4% p.a.
invested in ICG Enterprise in December
over the same period.
1998 would now be worth £456, compared
to £279 if invested in the FTSE All-Share
£100
£279
(Total Return). 300
Dec 1998 Jan 2019 Jan 2019
1 Share price and dividends at 31 January 2019.
200 £100
100
Case study: • Cambium provides educational software
0
CamBIum – icg for primary schools in the United States
strategic EQUITY • It was acquired as part of a restructuring
transaction originated by the ICG Strategic Dec 1998 Jan 2019
Equity team in 2016
• The ICG Strategic Equity team acquired
Cambium at an effective entry multiple of
less than 7x EBITDA. Over the next two
years ICG played an active role in the
management of Cambium, helping to drive
strategic change and to make key changes
to Cambium’s senior management team
• Between 2016 and 2018, EBITDA grew
by 10% p.a. and free cash flow was used
to completely deleverage the business
• In 2018, Cambium was realised generating
a return for ICG Enterprise of 4.8x cost
READ MORE ON PAGE 18
12 ICG ENTERPRISE TRUST Annual Report and Accounts 2019 ICG ENTERPRISE TRUST Annual Report and Accounts 2019 13
Strategic Governance Financial Supplementary Shareholder
Key performance indicators report statements Information Information
a focus on generating
long term growth for
shareholders
The Company regularly reviews its KPIs to ensure that they are the Key
most effective metrics for measuring the Company’s performance New KPI
and monitoring progress in delivering against its strategic objectives
of providing shareholders with long term capital growth through
investment in unquoted companies.
NAV per Share 15.4% p.a. Rationale
Progress in the year Links to strategic objective Examples of related factors that we monitor
Total Return Includes all of the components of the Company’s
12.4% The Company has continued to build on its • Maximising long term capital • Performance relative to the wider public market
11.8% p.a. performance. It reflects the attributable value of
strong performance, reporting NAV total growth through a flexible mandate and in particular the FTSE All-Share (TR)
12.4%
a shareholder’s investment in ICG Enterprise.
return of 12.4% in the 12 months to 31 January and highly selective approach • Performance relative to listed private equity
NAV per share growth is shown net of all costs 2019 (31 January 2018: 12.5%). peer group
associated with running the Company and includes • Monitoring of the Portfolio performance
This return compares favourably to the loss • Valuations provided by private equity managers
the impact of any movement in foreign exchange on
from the FTSE All-Share (Total Return) of -3.8% • Impact of foreign exchange on valuations
valuations.
over the same period. • Effect of financing (cash drag) on performance
• Accretive impact of any share buy backs
1 Year 3 Years 5 Years • Ongoing charges
Total shareholder 17.6% p.a. Rationale
Progress in the year Links to investment objective Examples of related factors that we monitor
return Measures performance in the delivery of
Share price increased from 818p to 822p, • Maximising shareholder returns • Performance relative to the wider public market
shareholder value, after taking into account share
which together with dividends of 21p through long term capital growth and in particular the FTSE All-Share (TR)
3.0% 10.8% p.a. price movements (capital growth) and any
generated a total shareholder return of 3.0% • Progressive annual dividend policy • Performance relative to listed private equity
dividends paid in the period.
in the 12 months to 31 January 2019 peer group
The share price total return will differ from NAV (31 January 2018: 20.1%). • Level of discount in absolute terms and relative
per share total return depending on the movement to the wider listed private equity peer group
This return compares favourably to the loss • Trading liquidity and demand for Company’s shares
3.0% in the share price discount to NAV per share.
from the FTSE All-Share (Total Return) of -3.8% in conjunction with marketing activity
over the same period.
1 Year 3 Years 5 Years
Portfolio 17.7% p.a. Rationale
Progress in the year Links to investment objective Examples of related factors that we monitor
Return on a local 15.0% 15.3% p.a. A measure of the performance of the investment
The Portfolio generated a local currency return • Maximising long term capital • Monitoring of the Portfolio performance and watchlist
Currency Basis team’s selective investment approach and
of 15.0% in the 12 months to 31 January 2019, growth through a flexible mandate • Valuations provided by private equity managers
management of the portfolio.
net of management fees and carried interest and highly selective approach • Performance of the high conviction investments and
15.0% Portfolio Return on a Local Currency Basis
measures the total movement in the underlying
investment portfolio valuation. It is net of underlying
managers’ fees and carried interest and before
charged by the underlying managers. funds portfolio
• Detailed analysis of the Top 30 companies’
performance, EBITDA and revenue growth, leverage,
valuation multiples, performance against investment
taking into account the impact of foreign exchange thesis and exit prospects
on valuations. • Monitoring of the overall EBITDA and revenue growth,
1 Year 3 Years 5 Years leverage and valuation multiples of the Portfolio
Total Dividend 22p Rationale
21p
20p Progress in the year Links to investment objective Examples of related factors that we monitor
per Ordinary share Demonstrates the Company’s commitment
The directors are proposing a final dividend of • The Board recognises that a • Distributable reserves
in Year to a progressive annual dividend.
7p, which, together with the interim dividends reliable source of growing • Cash balances
In the absence of unforeseen circumstances of 15p, will take total dividends for the year to dividends is an important part of • Proceeds received during the year
22p the Board intends to grow the annual dividend
progressively.
Distributions by way of dividends may be paid from
22p. This is a 4.8% increase on the prior year
dividend of 21p and a 2.7% yield on the year-end
share price of 822p.
shareholder total return over both
the short and the longer terms
• Investment pipeline and available financing
the revenue reserve and/or the realised capital
reserve, as permitted by the Company’s articles.
2017 2018 2019
14 ICG ENTERPRISE TRUST Annual Report and Accounts 2019 ICG ENTERPRISE TRUST Annual Report and Accounts 2019 15
Strategic Governance Financial Supplementary Shareholder
Manager’s review report statements Information Information
10th consecutive year of
double digit portfolio
growth
Performance overview
Profit growth and realisations drive
10th consecutive year of double digit
Top 30 companies dominated by high
conviction investments and generating
double digit earnings growth
15%
LOCAL CURRENCY PORTFOLIO RETURN1 Third party High conviction
underlying growth Our largest 30 underlying companies funds portfolio companies
Continued strong operating performance (“Top 30”) represent 46% of the Portfolio 12 months to 31 January 2018: 16%
• Underlying companies selected by • Underlying companies
and realisations at significant uplifts to by value (31 January 2018: 47%), and are
16%
36 leading private equity managers selected by ICG
carrying value generated a return of 15.0% weighted towards our high conviction
in local currencies, or 16.6% in sterling.
These results represent the 10th
investments, which make up 70% of the
Top 30 by value. TOP 30 COMPANIES EARNINGS GROWTH
• Strong relationships in many
cases over multiple fund cycles £695m
total value of
1 • Increases exposure to
attractive assets
(LAST 12 MONTHS) • A base of strong diversified returns • Enhances returns, increases
consecutive year of double digit underlying investment portfolio
The Top 30 performed well in the year, • Source of deal flow and insights visibility and control
portfolio growth, over which time period 31 January 2018: 12%
reporting average LTM earnings growth for the high conviction portfolio • Enables greater flexibility
the Portfolio return has averaged 16.4%
of 16% and revenue growth of 13%. It is 1 This is an APM as defined in the Glossary • Five year constant currency returns in portfolio management
p.a. in local currencies. Approximately 35%
particularly encouraging that a third of of 13.1% p.a.4 • Targeting 50% – 60% weighting
of the valuation gain in the year came from
realisations and IPOs.
these companies are generating LTM
earnings growth in excess of 20%, driven
19.9%
ICG managed investments
• Five year constant currency
returns of 19.0% p.a.4
Portfolio overview by both organic growth and M&A activity.
High conviction investments underpinned Over the year, the valuation multiples of
by a portfolio of leading funds the Top 30 increased marginally from
Our Portfolio combines investments
managed by ICG and those managed by
10.6x to 10.9x, a reflection of the change
of mix and weightings, rather than an 15.8%
third parties, in both cases through funds
and directly and at 31 January 2019 was
increase in aggregate multiples overall.
The net debt/EBITDA ratio remained flat
59% Third party direct
co-investments 41%
valued at £695m. at 4.2x, although mix and weightings
Third party funds were valued at £407m, also had an impact with the majority of
companies de-levering in the year on
5.7%
Third party secondary investments
providing the Portfolio with a base of
strong diversified returns and also deal
flow for our high conviction portfolio. The
underlying funds have a bias to mid-market
a like-for-like basis.
Compared with the portfolio as a whole,
£407m
Third party funds PORTFOLIO
2,4
£288m
high conviction COMPANIES
3,4
the Top 30 have a higher weighting to
and large-cap European and US private larger deals and to the healthcare and
equity managers and over the last five years education sectors, reflecting our strong 14.8% invested in funds managed Insights and Within the ICG weighting, we
this portfolio has generated a return of by the former manager, Graphite source of are invested in four of ICG’s
focus on defensive growth in our Capital, a leading mid-market deal flow for strategies with a focus on funds
13.1% p.a. in local currencies. co-investments. buyout manager. third party that have a bias to equity returns
co-investments targeting annualised gross
High conviction investments, which and secondary returns of 15% – 20%.
includes those managed directly by ICG as investments Of the 19.9% invested with ICG,
well as our third party co-investments and 10.1% is via funds (both primary
secondary funds, were valued at £288m. and secondary investments) and
9.8% is via co-investments.
These are underlying companies that we
have proactively increased exposure to,
where we have a high conviction they will
outperform and over the last five years we focus on the buyout
43.8% invested in other third
party funds. The funds portfolio
has a bias to mid-market and
58.6%
Third party 21.5% of the portfolio is
these investments have generated a local segment of the market, large cap European and US weighted towards third party
primary funds
currency return of 19.0% p.a. We have a in which target companies private equity managers. co-investments and secondary
strategic goal of increasing the weighting investments.
are almost invariably
of these investments to 50% – 60% of the established, profitable
Portfolio. and cash generative, which
we believe will generate 1 31 January 2018: £601m
STRONGER AND MORE 2 31 January 2018: £349m
CONSISTENT RETURNS THAN 3 31 January 2018: £252m
4 This is an APM as defined
OTHER PRIVATE EQUITY in the Glossary
STRATEGIES
16 ICG ENTERPRISE TRUST Annual Report and Accounts 2019 ICG ENTERPRISE TRUST Annual Report and Accounts 2019 17Strategic Governance Financial Supplementary Shareholder
Manager’s review continued report statements Information Information
ATTRACTIVE DEAL
DYNAMICS AND
ACTIVE OPERATIONAL
MANAGEMENT
Cambium provides educational
software for primary schools in
the United States. ICG Enterprise
Realisations
Continued strong realisation activity
at significant uplifts to carrying value
In addition to sales by our underlying
managers, we completed a secondary sale
35%
realisation uplift to previous
invested in the company in 2016 and cost of our interest in GCP Europe Fund II and carrying value3
alongside the ICG Strategic The Portfolio continued to be highly cash the co-investment in Frontier Medical
generative in the year as our underlying alongside it, which generated a further 31 January 2018: 40%
Equity team
managers took advantage of the sustained £10m of proceeds. These investments have
4.8x favourable exit environment, generating
proceeds of £153m1. While this is lower than
the record £217m, generated in the year to
performed well and we took the
opportunity to lock-in a strong return at a
time when we perceived the downside risks
2.4x
multiple of cost of realisations3
return on investment January 2018, at 26%1 of the opening to outweigh the further upside potential.
for icg enterprise 31 January 2018: 2.7x
Portfolio, cash generation remained This transaction highlights our active
Cambium was acquired in 2016 as part of a relatively high. approach to managing the portfolio.
restructuring transaction originated by the ICG The realisations of 60 companies From our largest 30 underlying companies
Strategic Equitys team. The team agreed to acquire completed at an average uplift of 35%2 at the start of the year, six were fully
interests in US based mid-market manager, Veronis to the previous carrying value, which is realised: Cambium from the ICG portfolio;
Suhler Stevenson’s (“VSS”) 2005 vintage fund. VSS consistent with the long term trend of The Laine Pub Company, Swiss Education
believed that the remaining portfolio needed additional significant uplifts being generated when and Frontier Medical, from our third party
time to optimise returns but much of the investor base companies are sold. The average return co-investment portfolio; and CeramTec and
wanted to realise their interests in the fund, which was multiple of 2.4x cost was also strong, TMF from the third party funds portfolio,
in its 11th year. reflecting a number of highly successful including a secondary investment in the
The restructuring of the fund resulted in ICG Strategic investments realised in the year with over a latter company.
Equity providing additional capital to invest in the third, by number, being sold for more than
3.0x cost. Over the last five years exits have New investments
underlying companies, extending the fund’s life and
averaged 33% uplift to carrying value and a Selective investment into high
providing existing investors with an option to exit. As a
multiple of 2.3x cost. conviction opportunities
result, the ICG Strategic Equity team acquired Cambium
We invested a total of £158m in the year,
at a highly attractive entry multiple. ICG Enterprise The sale of Cambium by the ICG Strategic up from £142m in the year to January 2018.
participated in the transaction through its commitment Equity team was by far the most significant Half of new investment was into our high
to ICG Strategic Secondaries II and directly. realisation in terms of both total proceeds conviction portfolio, up from 42% in the
The ICG Strategic Equity team played an active role in (£18.6m) and the gain in the year (+113%). year to January 2018. Investments
the management of the Cambium, helping to drive Cambium, which provides educational sourced through the ICG network
strategic change and to make key changes to software for US schools, was acquired as accounted for 27% of capital deployed,
Cambium’s senior management team. The team also part of a fund restructuring transaction in including two co-investments and a
helped to accelerate the digitisation of the business 2016 and was sold in December 2018 for secondary investment, totalling £22m,
and its conversion to a subscription based model as 4.8x the original cost, a gross IRR of 82%. sourced from three of the in-house teams
well as working with VSS to formulate an exit strategy. IPOs also contributed to performance, we partner with. We also completed three
Between 2016 and 2018, EBITDA grew by 10% p.a. with three companies listed during the year. co-investments and a secondary investment
and free cash flow was used to completely deleverage The most significant of these was Ceridian, alongside our third party managers,
the business. a global human capital management totalling £35m, all of which were US based.
In December 2018, Cambium was sold for $685m, a software company, in which we co-invested Co-investments have always been a feature
113% uplift to the January 2018 valuation and a gross in 2007 alongside Thomas H Lee. The of our strategy and have performed
IRR on the investment of 82%. The transaction company floated in April 2018 at $22 per strongly over multiple cycles. Over the
demonstrated the ability of the Strategic Equity team share and at the year end the share price last three years we have increased capital
to acquire companies at attractive valuations and the had risen to $41. Over the course of the deployed in individual co-investments,
value of its active operational involvement to generate year the value of our holding in Ceridian allowing us to increase deployment, while at
strong returns. increased by 178% which moved it from the the same time not being any less selective.
27th largest underlying company at the 1 Refers to proceeds generated from underlying
portfolio (excludes secondary sales)
start of the year to the 8th at January 2019.
2 Uplift figure excludes publically listed companies
that were exited via multiple share sales
3 This is an APM as defined in the Glossary
18 ICG ENTERPRISE TRUST Annual Report and Accounts 2019 ICG ENTERPRISE TRUST Annual Report and Accounts 2019 19Strategic Governance Financial Supplementary Shareholder
Manager’s review continued report statements Information Information
INVESTING IN STRONG
AND CONSISTENT GROWTH
Using our relationships with leading managers
to source attractive co-investments for our
high conviction portfolio
Our focus remains on defensive growth • IRI (a market leading provider of Of the seven third party fund commitments, iri is one of the world’s leading
businesses with high cash flow conversion “must-have” data and predictive analytics three are to European managers we have data providers to the Consumer
which have demonstrated resilience to to consumer goods manufacturers) invested with for many years (Graphite Capital, Packaged Goods (“CPG”) industries.
economic cycles. The investments with the co-investment alongside New Mountain Bowmark Capital and Bain Capital). We also ICG Enterprise co-invested $15
ICG Europe and Asia Pacific subordinated Capital, in which we invested £11m added four new manager relationships of million in the company in December
debt and equity teams also feature a • Endeavor Schools (a US schools which three are focused on the US mid-market 2018, alongside New Mountain
combination of investments across the capital operator) co-investment alongside (The Jordan Company, Tailwind Capital and
structure which provides an element of education investment specialist Leeds Five Arrows Capital Partners) and one on the IRI was established in 1979. The initial idea was to take
downside protection. While defensive growth Equity Partners, in which we invested £8m European mid-market (Five Arrows Principal advantage of the development of the then nascent
and structural downside protection are our Investments). The Portfolio is increasingly technology of barcode scanners to try to measure
10 new fund commitments to both
key areas of focus, we also remain alert to geographically diverse; of our 28 core consumer behaviour by supplying a small number of local
existing and new manager relationships
opportunities where we can find relative manager relationships, nine are US managers supermarkets with scanners. 40 years later, the company
We completed 10 new fund commitments
value in the current challenging market, and over the medium term we expect our has grown into a global leader, providing data about
in the year totalling £162m. In addition, we
usually as a result of unusual transaction weighting to the US market to increase to consumption patterns and behaviour to the world’s
committed £20m to a new ICG Strategic
dynamics. Relative value is a feature of 30% – 40% of the Portfolio. leading consumer packaged goods manufacturers.
Equity transaction, and a number of other
investments made by the ICG Strategic Equity
commitments relating to co-investments Four of the 10 new funds have already led to New Mountain originally acquired IRI from a specialist
team which completed five transactions in the
and secondaries, taking the total of new co-investments or secondaries, highlighting technology investor in 2012. During its period of
year at an average entry multiple significantly
commitments in the year to £185m. the effectiveness of our strategy of ownership, the business has grown consistently. New
below the market average.
leveraging manager relationships for high Mountain believes that there is considerable opportunity to
Three of the new funds, totalling £73m, are
The three largest new investments made in conviction investments. develop its existing service lines and we were invited to
managed by ICG including the addition of a
the year were: provide new equity alongside a consortium of institutional
fourth ICG strategy to our Portfolio with a The £20m committed alongside ICG
• Minimax (a global provider of fire $10m commitment to ICG’s North American Strategic Equity is part of a $1bn transaction investors arranged by New Mountain.
protection systems and services) Private Debt II. The fund invests in backing the spin-out of Standard Data provided by IRI is “mission critical” to CPG
alongside ICG Europe, in which we subordinated debt and equity of US private Chartered’s private equity team in Asia and manufacturers such as Pepsi, Nestlé and Unilever: it is
invested £17m. ICG has a 12 year history equity-backed mid-market companies, comprising a diversified portfolio of over 30 used to understand product demand patterns and to
with this business and is the sole targeting gross annualised returns of 13% companies. This transaction is expected to guide critical business decisions around promotional
institutional equity provider in the to 17% with low downside risk. We also complete in the first half of 2019. activities, production and performance. The business
most recent management buyout committed €40m to ICG Europe VII and model has many of the features we seek for our defensive
$40m to ICG Strategic Equity III, strategies growth theme: It has considerable barriers to entry given
the Company has backed since 1989 and the significant upfront costs required to replicate its
2016 respectively. intellectual property and databases. It has low customer
concentration and its core (syndicated data) business is
resilient and has demonstrated consistent revenue and
ICG investments summary
EBITDA growth through cycles. There is further potential
ICG Europe ICG Strategic Equity ICG Asia Pacific ICG North American for growth through the development of new ancillary
Private Debt tools such as predictive analytics.
Subordinated debt and equity Acquisitions of significant Subordinated debt and Subordinated debt, second
in European mid-market positions in funds and/or equity in mid-market lien debt, first lien debt and
companies targeting companies portfolios of companies companies in developed equity co-investments in
with experienced management
teams who have a proven
strategy, typically in non-cyclical
industries. The team works with
through fund restructurings,
recapitalisations and whole-fund
liquidity solutions. The team
works with incumbent private
Asia Pacific markets. The team
focuses on providing flexible
capital solutions to leveraged
buyouts, corporate
mid-market companies – both
private equity sponsored and
sponsorless. Targeting gross
returns of 13% – 17% p.a. with
£11m
Total ICG ENTERPRISE INVESTMENT
total value
businesses to develop flexible equity managers to provide investments and restructuring low downside risk, with the £138m
capital solutions tailored to liquidity options for investors in of capital structures (excluding majority of the return 20% of
achieve a company’s goals mature fund vehicles. Targeting those of distressed generated from current portfolio
and will usually be the sole gross returns in excess of companies). Targeting gross income.
institutional investor. Targeting 20% p.a. returns of 15 – 20% p.a. with
gross returns of 15 – 20% p.a. low downside risk. Undrawn
with low downside risk. commitment
Undrawn Undrawn Undrawn Undrawn £124m
Value commitment Value commitment Value commitment Value commitment 30% of uncalled
£91m £46m £22m £65m £25m £5m £- £8m commitments
20 ICG ENTERPRISE TRUST Annual Report and Accounts 2019 ICG ENTERPRISE TRUST Annual Report and Accounts 2019 21Strategic Governance Financial Supplementary Shareholder
Manager’s review continued report statements Information Information
Portfolio analysis Attractive and well-balanced Portfolio by investment type % mid-market managers ( $15m to Gryphon
Focus on mid-market companies vintage year exposure Investors and $20m to AEA Investors) and
£m 31 Jan 2019 31 Jan 2018
The Portfolio is biased towards mid-market The Portfolio’s maturity profile balances near one existing European relationship
term realisation prospects with a strong Portfolio* 695 601
(47%) and large deals (45%), which we view (€20m to Cinven VII). We have a strong
as more defensive than smaller deals, pipeline of medium to longer term growth. Cash 61 78 pipeline of further opportunities with a
benefiting from experienced management Investments completed in 2015 or earlier, number of co-investments under review and
teams and often market leading positions. Our which are more likely to generate gains from Net obligations (25) (15) several new and existing private equity
definition of large deals in a private equity realisations in the shorter term, represent Net assets 731 664 manager relationships fundraising this year,
context is those with an entry transaction size 42% of the Portfolio. Against this, 58% of Portfolio as % of net assets 95.0% 90.4% providing us with a wide choice of new
of over €500m , which would be small or mid value is in investments made in 2016 or later, fund opportunities.
cap for a public company. providing the Portfolio with medium to longer Large buyouts 44.7% * Refer to the Glossary for reconciliation to the Portfolio balance presented in the unaudited results and
Mid-market buyouts 47.2% definition of net obligations. Portfolio well positioned to generate
term growth potential as value created within
Portfolio becoming more Small buyouts 4.6% significant shareholder value
these businesses translates into gains. Other 3.5%
geographically diverse The Portfolio is highly cash generative and,
The Portfolio is focused on developed Bias towards sectors with non-cyclical Undrawn commitments of £411m provide €176m (£150m), which matures in two equal against the current backdrop of high
private equity markets: primarily continental growth drivers Portfolio by sector breakdown % the Company with a robust medium term tranches in April 2021 and April 2022. This valuations for new investments and
Europe (39%), the UK (31%) and the US The Portfolio is weighted towards sectors investment pipeline. If outstanding enlarged facility gives us greater flexibility to continuing geopolitical uncertainties, we
(26%). Investments in the Asia Pacific region that primarily have non-cyclical growth commitments, which are typically drawn take advantage of investment opportunities. remain cautious in re-deploying capital. Our
represent 4% of value, which is primarily in drivers, such as demographics, increasing down over a period of four to six years, follow The negotiation of the new facility was led by flexible mandate allows us to adapt the mix of
developed Asian markets through ICG’s Asia regulation and the provision of “must-have” a linear investment pace to the end of their ICG’s dedicated treasury team and has been new investment to evolving market conditions
Pacific subordinated debt and equity team, data. 21% of the Portfolio is invested in respective remaining investment periods, we agreed on more favourable terms than our and where we see the best relative value. The
while there is minimal emerging markets healthcare and education and 16% in business estimate that approximately £90m would be prior facility. Pro forma for this new facility, proprietary opportunities sourced through
exposure. In line with one of our strategic services with the remainder of the portfolio called over the next 12 months. Including overcommitment at the year end would have the ICG network, which have the additional
objectives, our weighting to the US has broadly spread across the industrial (21%), realisation proceeds likely to be generated in been 27%. benefit of structural downside protection, are
increased from 14% at the time of the move to consumer goods and services (14%), leisure the next 12 months, this leaves significant proving to be particularly attractive and these
ICG in 2016. Over the same period, the UK (9%) and technology (10%) sectors. Healthcare and education 20.8% available capital for high conviction Outlook are becoming a more significant part of the
bias has reduced from 45%. We expect both
Industrials 20.6%
investments over and above the investments Further realisations and a strong pipeline Portfolio.
Business services 15.8% of new opportunities
of these trends to gain momentum as the Balance sheet and financing that will be made by our underlying funds.
Consumer goods and services 13.6% We have a high quality Portfolio that is
benefits of being part of ICG’s global Strong balance sheet TMT 11.8%
Since the year end, the Portfolio has
At the year end the Portfolio represented At 31 January 2019, commitments exceeded continued to generate cash proceeds, with increasingly geographically diverse and
alternative asset manager platform are Leisure 8.7%
95% of net assets, an increase from 90% at Financials 5.5% available liquidity by £247m, or 34% of net £19m of distributions received in the two believe it is well positioned to continue to
further realised. assets. Since the year end, we have further
31 January 2018. Becoming more fully Other 3.2% months to 31 March 2019. Against this, we generate shareholder value.
invested, without compromising the quality of strengthened the Company’s financial have paid £12m in capital calls and have
position by agreeing a new bank facility of ICG Private Equity Fund Investments Team
Portfolio by calendar year the Portfolio, was one of our key strategic Portfolio by Geography % recently committed to two new US 12 April 2019
of investment % objectives at the time of the move to ICG
25 when the investment level was 82%.
In managing the Company’s balance sheet It has a particular focus on Montessori resources and above all specialist
20
20.0 20.1 Case study:
17.9 our objective is to be broadly fully invested education, which aims to create an ethos of experience to guide the business to
endeavor schools
through the cycle while ensuring that we critical thought, respect and independent its next phase of development.
15
have sufficient liquidity to be able to take Endeavor Schools is a leading US operator learning and which is becoming increasingly
11.9 Endeavor was recently named as one
9.8 advantage of attractive investment of schools for children aged from four to 13. popular in the United States.
10 9.2 of the top 1,000 growing private
opportunities as they arise. We do not It currently has 43 campuses, serving over
Leeds Equity acquired Endeavor in companies in the United States and one
intend to be geared other than, potentially, Europe 38.8%
6,500 students across nine states, and is
5 February 2018. Endeavor has begun to of the top 20 fastest growing companies
2.7 2.8
for short term working capital purposes. UK 30.9% continuing to grow, both by greenfield
0.8 1.1 1.7 1.4 expand the number of sites and is in the education sector. ICG Enterprise
0.3 0.3
0 US 25.9% expansion and by selectively acquiring high
Rest of world 4.4% performing well. Leeds has extensive co-invested directly as well as investing
‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17 ‘18 ‘19 performing schools.
and
before
knowledge of this sector having through its commitment to Leeds
The group is a supportive partner to its successfully managed a schools group in Equity VI.
schools, allowing them to maintain their a prior fund. Leeds was selected by the
identities and individual learning cultures
whilst providing support in areas such as
curriculum development and management.
company’s management team as the optimal
partner to grow the business with the £9M
TOTAL ICG ENTERPRISE HOLDING
3 Refer to supplementary information for
comparative information.
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