ICG Enterprise Trust Plc: Quarterly Update for ...

17 June 2020
ICG Enterprise Trust Plc
Quarterly Update
For the 3 months to 30 April 2020

FOCUS ON DEFENSIVE GROWTH DRIVES RESILIENT PERFORMANCE IN THE QUARTER

Highlights

• NAV per share of 1,100p; a total return of -4.1%
• Investment portfolio return of -3.8%
• Resilient performance reflects our focus on defensive growth
• Q1 dividend declared of 5.0p

Business review

Resilient performance with single digit decline in Portfolio valuation

• Investment Portfolio valued at £774m¹
  • Return of -3.8% on the Investment Portfolio; -7.0% in local currency
  • High conviction investments (42% of Portfolio).
    • Underlying fall in local currency valuations of less than 3%
    • Significant bias to defensive sectors or investments that benefit from structural downside protection
  • Top 30 companies (46% of Portfolio) weighted towards high conviction investments
    • A number of the Top 30 investments are continuing to trade well
  • Third party funds portfolio (58% of Portfolio)
    • Underlying fall in local currency valuation of 10%
    • Portfolio is focused on top tier managers in the mid-market and large segment of the market.
  • Portfolio performance during the first quarter of the year is encouraging given the sharp decline seen in public markets
    • We anticipate the impact from COVID-19 on global economic activity and on company valuations will continue to weigh on valuations in the coming months

Portfolio is well positioned in current environment

• The majority of Portfolio falls into a low to moderate range when assessing the impact of COVID-19
  • Detailed assessment covered 84% of the Portfolio and is based on discussions we with the underlying managers and a review of recent financial performance and liquidity of the underlying companies
  • Portfolio is well balanced across a range of developed markets and has large exposures to more resilient sectors such as healthcare and education (24%), business services (14%) and technology (15%).
  • Exposure to Industrials (15%) and Consumer (16%) sectors with higher potential impact of COVID-19, is concentrated in ‘High Conviction’ investments with defensive characteristics and in a number of cases, structural downside protection.
    • Limited exposure to energy and financials
  • We continue to closely monitor the impact of global macroeconomic events on our Portfolio and are in regular contact with our third party managers and colleagues at ICG
     
• 10 full realisations in the quarter with £34m of proceeds received (4% of opening portfolio value).
  • Majority of the proceeds derived from transactions agreed before the impact of the COVID-19 pandemic had become apparent
  • Full realisations were at a 7% uplift to carrying value and at an average of a 2.1x multiple of cost
    • Largest realisation was French vinyl floor manufacturer, Gerflor, from ICG funds, generating total proceeds in the period of £6m
  • £5m received from the completion of a secondary sale at a premium to the underlying manager’s valuation
  • We continue to actively manage the Portfolio, drawing on the team’s significant expertise in the secondary market

Continued cash generation and uplifts

Selective new commitments

• £32m of new investments in the quarter
  • All new investment cashflows related to drawdowns on existing commitments with no new co-investment or secondary activity
• £13m new primary commitments to two funds in the quarter
  • €10m (£9m) commitment to Apax X, a global buyout fund, focused on the Technology & Telecoms, Services, Healthcare, and Consumer sectors
  • $5m (£4m) commitment to Hg Saturn 2, a fund managed by Hg Capital.

Signs of slowdown in activity since quarter end ²

• Further £5m of proceeds received since the quarter end and £1m of new investment, both significantly below the trend observed in recent years.
  • We believe that the level of drawdowns and new realisations are likely to remain low over the next 3-6 months before returning to a normal pace as economic activity begins to recover

The balance sheet remains robust

• Closing net asset value of £757m; investment Portfolio represents 102% of net asset value
• During the quarter £40m was drawn down from the bank facility as a precautionary short term liquidity measure
• Gross cash balance of £49m (£9m cash, £40m drawn from facility); uncalled commitments of £451m
  • £164m total liquidity (including £40m drawn and £115m undrawn bank facility)
  • £91m of commitments outside their investment periods.

Q1 dividend of 5.0p

• Q1 interim quarterly dividend of 5.0p declared
  • Maintained at Q1 2019 level
  • Will be paid 4 September 2020
  • The ex-dividend date will be 13 August 2020 and the record date 14 August 2020

Significant outperformance of public markets over the medium and long term

• The Company continues out-performed the FTSE All Share Index over 1,3, 5 and 10 years in terms of both its NAV growth and share price growth.

Performance to 30 April		3 months	1 year	3 years	5 years	10* years
Net asset value per share (TR)		-4.1%	+5.0%	+34.1%	+76.7%	+177.9%
Share price (TR)		-23.4%	-14.3%	+8.1%	+46.7%	+181.8%
FTSE All-Share Index (TR)		-18.8%	-16.7%	-7.5%	+4.8%	+61.1%

* As the Company changed its year end in 2010, the 10-year figures are for the 121 month period to 30 April 2020.

 Oliver Gardey, Head of Private Equity Fund Investments, ICG, commented:
“We are encouraged by the resilience shown by the Portfolio in the first quarter of the year, with the majority of our portfolio companies expected to experience only short term headwinds or to be minimally impacted by the COVID-19 pandemic and its economic fallout. We note a number of our portfolio companies are performing well as their business models have adapted to current market conditions. We are also seeing the benefits of the private equity model in more challenged investments, where the ability to react quickly and decisively to the changing economic environment is now more vital than ever.

 

Our investment approach means that we have built a Portfolio that is focused almost exclusively on buy-outs in developed markets and has minimal exposure to early stage investments or sectors such as financials and energy. Our focus on top tier managers with experience of managing through cycles gives the portfolio access to strong in-house operating capabilities and dedicated support in areas such as managing liquidity and financing, which we believe means they are well placed to manage through current market volatility.

 

We are pleased with the seamless transition of our team’s remote working capabilities which has allowed our business operations to continue uninterrupted during these challenging times; our staff are the most important part of the business and we are still taking the necessary actions to protect them. Having navigated the initial stages of the crisis, our focus is on actively managing the Portfolio and remaining nimble. While in the short term, we do not expect to see significant new investment activity, when markets stabilise we are well placed to benefit from more favourable entry valuations and take advantage of the opportunities as they arise”

 

EnquiriesAnalyst / Investor enquiries:  [phone]

Oliver Gardey, Head of Private Equity Fund Investments, ICG 
Colm Walsh, Managing Director, ICG 
Ian Stanlake, Investor Relations, ICG 

 

Media:
Alicia Wyllie, Co-Head of Corporate Communications, ICG   [phone]
Ed Gascoigne Pees, Eddie Livingstone-Learmonth, Camarco  [phone]  

Disclaimer

This report may contain forward looking statements. These statements have been made by the Directors in good faith based on the information available to them up to the time of their approval of this report and should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying such forward-looking information. These written materials are not an offer of securities for sale in the United States. Securities may not be offered or sold in the United States absent registration under the US Securities Act of 1933, as amended, or an exemption therefrom. The issuer has not and does not intend to register any securities under the US Securities Act of 1933, as amended, and does not intend to offer any securities to the public in the United States. No money, securities or other consideration from any person inside the United States is being solicited and, if sent in response to the information contained in these written materials, will not be accepted.

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 30 April 2020. These investments may be held directly or through funds, or in some cases in both ways. The valuations are gross and are shown as a percentage of the total investment Portfolio.

	Company	Manager	Year of investment		Country	Value as a % of Portfolio
1	DomusVi +
	Operator of retirement homes	ICG	2017		France	3.9%
2	PetSmart +
	Retailer of pet products and services	BC Partners	2015		USA	3.4%
3	Minimax +
	Supplier of fire protection systems and services	ICG	2018		Germany	3.0%
4	City & County Healthcare Group
	Provider of home care services	Graphite Capital	2013		UK	2.6%
5	Leaf Home Solutions
	Provider of gutter protection solutions	Gridiron	2016		USA	2.5%
6	Roompot +
	Operator and developer of holiday parks	PAI Partners	2016		Netherlands	2.1%
7	Yudo +
	Manufacturer of components for injection moulding	ICG	2018		Hong Kong	1.9%
8	Visma +
	Provider of accounting software and accounting outsourcing services	ICG	2017		Norway	1.9%
9	Doc Generici +
	Retailer of pharmaceutical products	ICG	2019		Italy	1.8%
10	Supporting Education Group +^
	Provider of temporary staff for the education sector	ICG	2014		UK	1.8%
11	Froneri^
	Manufacturer and distributor of ice cream products	PAI Partners	2019		UK	1.8%
12	IRI +
	Provider of data and predictive analytics to consumer goods manufacturers	New Mountain	2018		USA	1.5%
13	System One +
	Provider of specialty workforce solutions	Thomas H Lee Partners	2016		USA	1.5%
14	Endeavor Schools +
	Operator of schools	Leeds Equity Partners	2018		USA	1.4%
15	nGAGE
	Provider of recruitment services	Graphite Capital	2014		UK	1.3%
16	Beck & Pollitzer
	Provider of industrial machinery installation and relocation	Graphite Capital	2016		UK	1.2%
17	Berlin Packaging +
	Provider of global packaging services and supplies	Oak Hill Capital Partners	2019		USA	1.2%
18	YSC
	Provider of leadership consulting and management assessment services	Graphite Capital	2017		UK	1.2%
19	ICR Group
	Provider of repair and maintenance services to the energy industry	Graphite Capital	2014		UK	1.2%
20	VitalSmarts +
	Provider of corporate training courses focused on communication skills and leadership development	Leeds Equity Partners	2019		USA	1.1%
21	U-POL^
	Manufacturer and distributor of automotive refinishing products	Graphite Capital	2010		UK	1.0%
22	PSB Academy +
	Provider of private tertiary education	ICG	2018		Singapore	1.0%
23	Compass Community
	Provider of fostering services and children residential care	Graphite Capital	2017		UK	0.9%
24	David Lloyd Leisure +
	Operator of premium health clubs	TDR Capital	2013		UK	0.8%
25	Cognito +^
	Supplier of communications equipment, software & services	Graphite Capital	2002 & 2014		UK	0.7%
26	EG Group
	Operator of petrol station forecourts	TDR Capital	2014		UK	0.7%
27	Alerian^
	Provider of data and investment products focused on natural resources	ICG	2018		USA	0.7%
28	TeamViewer
	Provider of secure remote support and online meeting software	Permira	2014		Germany	0.6%
29	RegEd +
	Provider of regulatory compliance and management software products	Gryphon Investors	2019		USA	0.6%
30	Ceridian +
	Provider of payroll and human capital software	Thomas H Lee Partners	2007		USA	0.6%
	Total of the 30 largest underlying investments					45.9%
	⁺ All or part of this investment is held directly as a co-investment or other direct investment.
	^ All or part of this investment was acquired as part of a secondary purchase.

The 30 largest fund investments

The 30 largest funds by value at 30 April 2020 are:

	Fund	Year of commitment	Country/ region	Value £m	Outstanding commitment £m
1	Graphite Capital Partners VIII *
	Mid-market buyouts	2013	UK	69.3	14.7
2	Gridiron Capital Fund III
	Mid-market buyouts	2016	North America	24.6	4.5
3	CVC European Equity Partners VI
	Large buyouts	2013	Europe/USA	18.5	3.0
4	ICG Europe VI **
	Mezzanine and equity in mid-market buyouts	2015	Europe	18.2	3.4
5	ICG Europe VII
	Mezzanine and equity in mid-market buyouts	2018	Europe	15.9	21.3
6	Thomas H Lee Equity Fund VII
	Mid-market and large buyouts	2015	USA	15.9	1.6
7	ICG Strategic Secondaries Fund II
	Secondary fund restructurings	2016	Europe/USA	15.7	14.6
8	BC European Capital IX **
	Large buyouts	2011	Europe/USA	15.6	1.5
9	PAI Europe VI
	Mid-market and large buyouts	2013	Europe	15.3	1.6
10	PAI Strategic Partnerships **
	Mid-market and large buyouts	2019	Europe	14.9	1.6
11	Sixth Cinven Fund
	Large buyouts	2016	Europe	13.9	4.3
12	Graphite Capital Partners VII * / **
	Mid-market buyouts	2007	UK	13.7	2.8
13	Advent Global Private Equity VIII
	Large buyouts	2016	Europe/USA	13.1	0.9
14	Silverfleet II
	Mid-market buyouts	2014	Europe	13.1	1.0
15	One Equity Partners VI
	Mid-market buyouts	2016	Europe/USA	11.7	0.9
16	BC European Capital X
	Large buyouts	2016	Europe	11.5	2.1
17	Permira V
	Large buyouts	2013	Europe/USA	11.3	0.9
18	TDR Capital III
	Mid-market and large buyouts	2013	Europe	10.5	1.6
19	CVC European Equity Partners VII
	Large buyouts	2017	Europe/North America	10.4	10.4
20	Gryphon V
	Mid-market buyouts	2019	North America	10.4	2.1
21	ICG Asia Pacific Fund III
	Mezzanine and equity in midmarket buyouts	2016	Asia Pacific	10.1	2.8
22	Resolute II **
	Mid-market buyouts	2018	USA	9.5	1.9
23	Activa Capital Fund III
	Mid-market buyouts	2013	France	9.2	0.9
24	Oak Hill Capital Partners IV
	Mid-market buyouts	2017	USA	8.7	2.8
25	New Mountain Partners V
	Mid-market buyouts	2017	North America	8.7	3.8
26	IK VIII
	Mid-market buyouts	2016	Europe	8.4	0.8
27	Permira VI
	Large buyouts	2016	Europe	8.1	0.9
28	Resolute IV
	Mid-market buyouts	2018	USA	7.8	5.6
29	Bain Capital Europe IV
	Mid-market buyouts	2014	Europe	7.5	0.6
30	Charterhouse Capital Partners X
	Large buyouts	2015	Europe	7.5	5.9
	Total of the largest 30 fund investments			429.0	120.8
	Percentage of total investment Portfolio			55.4%
	* Includes the associated Top Up funds.
	** All or part of an interest acquired through a secondary fund purchase.

Portfolio analysis
All balance sheet data is presented on a look-through basis to the investment portfolio held by the Company, which is consistent with the commentary in previous annual and interim reports

Investment category	% of portfolio
High conviction portfolio ICG	22.9%
Third party co-investments	14.1%
Third party secondary investments	5.2%
Total High Conviction investments	42.2%
Third party primary funds	57.8%
Total	100.0%

Portfolio by investment type			% of value of underlying investments
Large buyouts			47.0%
Mid-market buyouts			40.0%
Small buyouts			10.3%
Other			2.7%
Total			100.0%
Portfolio by calendar year of investment		% of value of underlying investments
2020		1.8%
2019		19.5%
2018		20.3%
2017		18.6%
2016		14.7%
2015		7.4%
2014		8.2%
2013		5.0%
2012		1.3%
2011		0.1%
2010		1.4%
2009		0.6%
2008		0.0%
2007		0.8%
2006 and before		0.3%
Total		100.0%

Portfolio by sector		% of value of underlying investments
Healthcare and education		23.9%
Consumer goods and services		15.8%
TMT		14.7%
Industrials		14.5%
Business Services		14.3%
Leisure		6.6%
Financials		6.0%
Other		4.2%
Total		100.0%

Portfolio by geographic distribution based on location of Company headquarters		% of value of underlying investments
Europe		36.0%
North America		32.3%
UK		24.8%
Rest of world		6.9%
Total		100.0%

Balance sheet information

The summary balance sheet at 30 April 2020 is set out below.

	30 April 2020	% of net assets	31 January 2020	% of net assets
	£m		£m
Total portfolio	773.9	102.3%	806.4	101.6%
Cash and liquid assets	48.9	6.5%	14.5	1.8%
Bank facility repayable	(40.0)	(5.3)%	0.0	0.0%
Other net current liabilities	(26.2)	(3.5%)	(27.4)	(3.4)%
Net assets	756.6	100.0%	793.5	100.0%

	Movement in the portfolio		30 April
	£m		20
	Opening Portfolio*		806.4
	Third-party funds portfolio drawdowns		25.9
	High conviction investments – ICG funds, secondary   investments and co-investments		6.2
	Total new investment		32.1
	Realisation Proceeds		(33.8)
	Net cash (inflow)/outflow		(1.7)
	Underlying Valuation Movement**		(56.2)
	Currency movement		25.4
	Closing Portfolio*		773.9
	% underlying Portfolio growth (local currency)		(7.0)%
	% currency movement		3.2%
	% underlying Portfolio growth (Sterling)		(3.8%)
	** 84% of the Portfolio is valued using 31 March 2020 (or later) valuations (31 Jan 20: 95%).
Movement in liquid assets
£m			3 months 30 April 20
Additions			(32.1)
Cash proceeds generated by the portfolio (including income)			33.8
Net cash generated by the investment portfolio			1.7
Drawn from credit facility			40.0
Non-investment cash flows			33.3)
Effect of changes in foreign exchange rates			0.2
Cash inflow before shareholder distributions			38.6
Dividends paid to shareholders			(3.4)
Share buy backs			(0.8)
Net cash movement			34.4
Opening cash and liquid assets			14.5
Closing cash and liquid assets			48.9
Bank facility repayable			(40.0)
Closing net cash position			8.9

Uncalled commitment coverage
					30 April 2020 £m	31 January 2020
						£m
Cash and liquid assets					48.9	14.5
Undrawn bank facility					114.9	147.8
Total liquidity					163.8	162.3
Outstanding commitments					451.0	458.6
Less: Total liquidity					(163.8)	(162.3)
Over-commitment					287.2	296.3
Over-commitment as % of net assets					38.0%	37.3%
	Total undrawn commitments	Original commitment £’000	Outstanding commitment £’000	Average drawdown percentage		% of commitments
	Investment period not commenced	-	-	0.0%		0.0%
	Funds in investment period	544,331	360,448	33.8%		79.9%
	Funds post investment period	862,149	90,541	89.5%		20.1%
	Total	1,406,480	450,989	67.9%		100.0%

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¹ 84% of the Portfolio is valued using 31 March 2020 (or later) valuations from underlying managers.

² As at 31 May 2020