ICG: First Half Results for the six months ended 30 September 2020
** **
**17 November 2020**
**First Half Results for the six months ended 30 September 2020**
**Fund Management Company profits up 6%; Interim dividend up 13%**
**Growth-orientated and resilient business model drives strong performance**
Intermediate Capital Group plc (ICG or the Group) announces its first half results for the six months ended 30 September 2020.
**Highlights**
· Strong, off-cycle fundraising, despite the pandemic, with €2.6bn of new money raised in the period resulting in AUM of €46.1bn (+2% on 31 March 2020). Fundraising of €6bn expected for the full year
· Exceptional period of investment activity, particularly for our Strategic Equity and European Corporate funds, with a total of €2.1bn deployed and a further €4.0bn signed or in exclusivity
· Strong investment performance particularly in our European and Asian Corporate funds
· Fund Management Company profit before tax up 6% to £89.8m (H1 2020: £85.0m), representing an operating profit margin of 51.1% (H1 2020: 51.7%)
· Investment Company profit before tax of £108.0m (H1 2020: £68.4m) reflecting recovery in portfolio valuations and favourable realisations
· Group profit before tax on an IFRS basis up 29% to £197.8m (H1 2020: £153.4m); earnings per share up 32% to 66.9p (H1 2020: 50.8p)
· Robust financial position: strong balance sheet, with £1bn of available liquidity and net gearing of 0.67x (31 March 2020: 0.76x)
· Interim ordinary dividend up 13% to 17.0p per share (H1 2020: 15.0p), in line with our policy of paying a third of the prior full year dividend
Outlook:
· Fundraising timetable accelerated: Strategic Equity Fund IV launched, and Europe Fund VIII expected to launch in the next twelve months.
· Confident in maintaining our growth momentum given our performance track record and resilient business model, which additionally benefits from structural tailwinds for alternative asset management
**Commenting on the results, Benoit Durteste, CEO, said:**
“The sustained growth of our Fund Management Company profits demonstrates the strength of our business model in these challenging times, as we continue to see investor demand for a broad range of our funds, including a number of new strategies. Our long-life funds are designed to withstand economic cycles; our portfolios are performing well, and that is flowing through to profits. While remaining disciplined, we have experienced a period of exceptional investment activity since June. The pace of deployment in our flagship funds is such that we have already launched Strategic Equity IV and expect Europe Fund VIII to be in the market in the next twelve months. This is much sooner than planned for both strategies which are expected to be larger than their predecessors. This will accelerate the growth of our Fund Management Company.
“I would like to thank all our employees for their continued dedication and hard work during the pandemic.”
**Commenting on the results Lord Davies of Abersoch, Chairman, said:**
“ICG has an outstanding team who continue to build one of the world’s leading diversified alternative asset management platforms, underpinned by a strong, well-capitalised balance sheet. Our performance during the pandemic demonstrates the resilience of our business model, which is supported by strong long-term industry dynamics, enabling us to maintain our commitment to value generation and shareholder returns through both earnings growth and an attractive ordinary dividend. We expect to emerge from this crisis stronger than before.”
**Financials**
*Unaudited*
*6 months to*
* 30 September 2020* Unaudited
6 months to
30 September 2019
% change Audited
12 months to
31 March 2020
Alternative Performance Measures * *
Fund Management Company profit before tax¹ *£89.8m* £85.0m 6% £183.1m
Investment Company profit/(loss) before tax¹ *£103.0m* £66.0m 56% £(72.3)m
Group profit before tax¹ *£192.8m* £151.0m 28% £110.8m
Earnings per share¹ *64.6p* 50.4p 28% 38.3p
Net gearing¹ *0.67x* 0.80x (16%) 0.76x
Net asset value per share *£4.88* £5.00 (2%) £4.63 * *
IFRS Consolidated * *
Fund Management Company profit before tax *£89.8m* £85.0m 6% £183.1m
Investment Company profit/(loss) before tax *£108.0m* £68.4m 58% £(68.6)m
Group profit before tax *£197.8m* £153.4m 29% £114.5m
Earnings per share *66.9p* 50.8p 32% 38.2p
Dividend per share in respect of the period *17.0p* 15.0p 13% 50.8p
¹ These are non-GAAP alternative performance measures and exclude the impact of the consolidation of certain funds and CLOs following the adoption of IFRS 10. Further details and a reconciliation are included on page 31.
**Assets under management¹**
*30 September 2020* 30 September 2019 31 March 2020
Third-party assets under management *€43,688m* €38,380m €42,829m
Balance sheet investment portfolio¹ *€2,410m* €2,694m €2,471m
Total assets under management *€46,098m* €41,074m €45,300m
Third-party fee-earning assets under management *€37,105m* €32,892m €35,868m
Balance sheet portfolio as a percentage of total assets under management *5.2%* 6.6% 5.5%
The following foreign exchange rates have been used.
*30 September 2020*
*Average* 30 September 2019
Average 31 March 2020
Average *30 September 2020*
*Period end* 30 September 2019
Period end 31 March 2020
Period end
GBP:EUR *1.1166* 1.1237 1.1447 *1.1025* 1.1282 1.1249
GBP:USD *1.2786* 1.2497 1.2712 *1.2920* 1.2292 1.2420
**Enquiries**A presentation for investors and analysts will be held at 09:00 GMT today on our website via the Webcast link under Latest Results https://www.icgam.com/shareholders. For those unable to dial in it will be available on demand https://www.icgam.com/shareholders later in the day.
**Analyst / investor enquiries: **
Ian Stanlake, Investor Relations, ICG +44 (0) 20 3545 1994
** **
**Media enquiries:**
Alicia Wyllie, Corporate Communications, ICG +44 (0) 20 3545 1338
Neil Bennett, Sam Turvey, Maitland +44 (0) 20 7379 5151
This Half Year Results statement has been prepared solely to provide additional information to shareholders and meets the relevant requirements of the UK Listing Authority’s Disclosure and Transparency Rules. The Half Year Results statement should not be relied on by any other party or for any other purpose.
This Half Year Results statement 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.
**About ICG **ICG is a global alternative asset manager with over 30 years' history.
We manage €46.1bn of assets in private debt, credit and equity, principally in closed-end funds. We provide capital to help companies grow through private and public markets, developing long-term relationships with our business partners to deliver value for shareholders, clients and employees.
We operate across four asset classes – corporate, capital market, real asset and secondary investments. In addition to growing existing strategies, we are committed to innovation and pioneering new strategies across these asset classes where the market opportunity exists.
ICG is listed on the London Stock Exchange (ticker symbol: ICP). Further details are available at: www.icgam.com. You can follow ICG on LinkedIn https://www.linkedin.com/company/52126.
**Business review**We have continued to grow our global alternative asset management business in line with our strategic objectives, delivering:
· Strong fundraising: €2.6bn raised in an off-cycle year, with fundraising of €6bn expected for the full year
· Stable fee rates: weighted average fee rate¹ at 0.85% compared to 0.86% in the prior year
· Substantial investment opportunities: €2.1bn deployed with a further €4.0bn signed or in exclusivity across our strategies, which accelerates the fundraising timetable for our flagship funds
· Robust financial position: strong balance sheet, with £1bn of available liquidity
*Resilient and growth-orientated model*
In an extraordinary environment when our employees, clients and portfolio companies around the world are facing many challenges, the strength of our resilient and growth-orientated business model has been evident in our performance in the first half of the financial year.
The management and Board of ICG remain focused on the wellbeing of our employees and those of our portfolio companies, and the role we play in the communities where we are present, through those companies and more broadly. Thanks to the dedication and commitment of our employees, their ability to adapt successfully to new ways of working, and the strength of our platform, we have been fully operational throughout the pandemic.
We have built a business model that is designed to deliver strong and sustainable results over the long term, both for investors in our funds, for our shareholders, and other stakeholders. Our funds are primarily closed-ended and long in duration which enables us to withstand economic cycles and to invest where we see opportunities.
*Long-term industry tailwinds support ICG’s growth*
While the pandemic continues, visibility on the short-term economic outlook remains limited. At the same time, the long-term industry tailwinds which support ICG’s growth are, if anything, intensifying. Over the last decade, institutional investors, attracted by enhanced returns, lower volatility and diversification opportunities, have increased their allocations to alternative investment strategies year-on-year. Also, the private markets investment landscape has expanded, with companies staying private for longer, and continuing to seek alternative sources of financing. These long-term trends are accelerating the growth of the alternative asset management industry as a whole. In addition, there is a flight to quality as investors favour the larger and more diversified managers with a compelling fund performance track record, such as ICG.
*Fundraising set to be ahead of expectations in an off-cycle year*
At €2.6bn (H1 2020: €4.6bn) our fundraising in the first half of the financial year has been ahead of our expectations in what was always going to be a slower fundraising year given our natural fundraising cycle. We now expect overall fundraising in the current financial year to be in line with our well-established, long-term fundraising plan of €6bn.
We continued to see strong demand for Senior Debt Partners which has to date raised a total of €4.2bn across Fund IV and segregated mandates, including €1.0bn raised in the period. As fees are charged on invested capital, the pace of fundraising has had no impact on the income statement.
Our liquid open-ended credit strategies had net inflows in the period, raising €0.5bn of new money. We also raised capital for the fourth vintage of our Asia Pacific Fund; closed one European CLO; and continued to make good progress with our new Sale and Leaseback and Infrastructure Equity strategies. We have also started fundraising for the second vintage of our Recovery Fund, with a first close in the period, to invest in opportunities that may arise from the current economic disruption.
*Strong deployment for flagship funds bodes well for future fundraising*
We have had an exceptional period of investment activity, while maintaining our rigorous and disciplined investment approach. In managing long-term funds our portfolio managers actively prepare for economic cycles and have flexibility within fund mandates to take advantage of dislocated markets. In addition, we have benefited from real competitive advantages in accessing the attractive deal opportunities that are emerging, thanks in particular to our significant available dry powder and our local presence in multiple markets, which brings on-the-ground expertise and relationships while also avoiding the constraints of current international travel restrictions. We have deployed €2.1bn across our direct investment strategies with a further €4.0bn of deals closed, signed or in exclusivity since 30 September. This compares to €5.9bn deployed across the whole of the last financial year. As at the end of September 2020, we still had €10.8bn of capital available to deploy across all strategies, of which €6.5bn will be fee-earning once it is invested.
Our Strategic Equity fund in particular is benefiting significantly from current market conditions, with the investment opportunity expanding to include single-asset secondary transactions. The growth in this market is substantial, and as a global player with first-mover advantage, ICG is a market leader. The third-vintage fund, which only closed early in 2020, is deploying rapidly, and we have already launched fundraising for the next vintage, an unprecedentedly rapid return to market. Europe Fund VII is also deploying strongly and is likely to be back in the market in the next twelve months. As both of these flagship funds charge fees on committed capital fundraising will have an immediate positive impact on profit.
*Diversified portfolios support long-term fund performance*
Diversification is a core strength of our business model. We are investing across 22 strategies and have very little exposure to industries which are most negatively affected by the Covid-19 crisis. Our portfolios have performed well since the year-end and more strongly than initially expected. Portfolio investments in our Europe and Asia Pacific funds have performed exceptionally well in the period, particularly those in healthcare, education and technology. Consequently, we have very good visibility over the likely performance of these funds.
Our clients assess our performance on the returns we generate over the life of a fund, and we continue to expect to meet or exceed our fund-return hurdle rates over the longer term.
*Diversified and robust balance sheet *
We manage our balance sheet prudently, with a strong focus on liquidity, which stood at £1bn at 30 September 2020. We also continuously manage our sources of balance sheet financing while maintaining conservative financial leverage. The weighted-average life of drawn debt at 30 September 2020 was 4.8 years with £417m of maturities by the end of our next financial year (FY22), which includes a £250m unutilised revolving credit facility which we are currently in the process of refinancing.
These characteristics of prudence and liquidity gives us the flexibility and agility to support the growth of our business as opportunities arise. Our balance sheet capital is primarily invested alongside our funds and is both an enabler and an accelerator of the growth of our fund-management business. We expect the scale of our balance sheet commitment to remain broadly stable over time in absolute terms, and for it to represent a progressively smaller proportion of the overall AUM as we continue to grow our third-party fund management business. Our balance sheet portfolio is widely diversified, investing through our funds in over 300 companies, across 37 industries and 33 countries. The fund portfolio performance has driven the unrealised gains on our balance sheet portfolio in the period.
*Interim dividend increased *
In line with our stated policy that the interim dividend will equate to a third of the prior-year total, the Board has approved an interim dividend of 17.0p, an increase of 13%. The dividend will be paid on 8 January 2021 to shareholders on the register on 11 December 2020. We will continue to make the dividend reinvestment plan available.
*Outlook: well-placed for significant sustainable long-term growth*
The first half of 2020 was dominated by the social and economic impacts of Covid-19 globally. These will likely continue for some time.
While we remain cautious about the outlook for the remainder of this financial year, we expect to fundraise approximately €6bn, despite it being an off-cycle year and notwithstanding the challenges associated with Covid-19. We also believe that our resilient business model will deliver strong profitability, with the operating margin of our Fund Management business expected to be in line with our long-term guidance.
We are confident that the Group is in an excellent position for long-term growth and shareholder value creation. Our closed-end-funds model provides excellent visibility on future assets under management and Fund Management Company profits. We have significant growth potential from our existing portfolio of strategies, and we also expect the current environment to present further opportunities for us to innovate and increase diversification by asset class and geography. We therefore remain highly confident in our ability to grow our AUM over the long-term, supported by strong investor demand for our fund strategies and underpinned by our investment-performance track record.
¹ These are non-GAAP alternative performance measures. Please see the glossary on page 31 for further information.**Finance** and operating **review**The financial information prepared for, and reviewed by, management and the Board is on a non-GAAP basis. These are alternative performance measures as defined in the glossary on page 31. The IFRS financial statements are on pages 14 to 30.
Under IFRS, the Group is deemed to control funds when the Group is exposed, or has rights, to variable returns from its involvement with those funds and has the ability to affect those returns through its power over those funds. There are 15 credit funds and CLOs that are required to be consolidated under this definition of control. This has the impact of including all of the assets and liabilities of these funds in the consolidated statement of financial position and recognises all the related interest income and gains or losses on investments in the consolidated income statement. However, the legal and economic structure of these funds means that shareholders are only exposed to the Group’s own investment in, and the fee income from, these funds and CLOs.
The Board believes that presenting the financial information in this review on a non-GAAP basis, and therefore excluding the impact of the consolidated credit funds and CLOs, assists shareholders in assessing their investment and the delivery of the Group’s strategy through its financial performance. This is consistent with the approach taken by management, the Board and other stakeholders.
The Group’s profit after tax on an IFRS basis was above the prior year at £192.8m (H1 2020: £147.5m). On the alternative performance measurement basis, it was above the prior year at £183.9m (H1 2020: £143.5m). The reconciliation is below:
*6 months to 30 September 2020* 6 months to 30 September 2019
*Income Statement* *Alternative performance measurement basis*
*£m* *Adjustments*
*£m* *IFRS *
*as reported*
*£m* Alternative performance measurement basis
£m Adjustments
£m IFRS
as reported
£m
Revenue * * * * * *
Fee and other operating revenue 154.2 (6.1) 148.1 135.6 (8.0) 127.6
Finance and dividend income 11.7 (22.0) (10.3) 17.4 (5.7) 11.7
Net investment returns / gains on investments 186.6 27.7 214.3 131.6 33.1 164.7
*Total revenue* *352.5* *(0.4)* *352.1* *284.6* *19.4* *304.0*
Finance costs (37.9) 7.4 (30.5) (20.3) (8.8) (29.1)
Administrative expenses (121.8) (2.2) (124.0) (113.3) (9.6) (122.9)
Other - 0.2 0.2 - 1.4 1.4
*Profit before tax* *192.8* *5.0* *197.8* *151.0* *2.4* *153.4*
Tax (8.9) 3.9 (5.0) (7.5) 1.6 (5.9)
*Profit after tax* *183.9* *8.9* *192.8* *143.5* *4.0* *147.5*
Non-GAAP measures are denoted by ¹ throughout this review. The definition, and where appropriate, reconciliation to a GAAP measure, is included in the glossary on page 31.
*Overview*
The Group’s profit before tax¹ for the period under the alternative performance measurement basis was 28% higher at £192.8 (H1 2020: £151.0m), with Fund Management Company (FMC) profit 6% higher at £89.8m (H1 2020: £85.0m) and Investment Company (IC) profit 56% higher at £103.0m (H1 2020: £66.0m).
Our principal profit metric is FMC profit which has benefited from the increase in assets under management and increased fee income, partially offset by lower dividend income and increased operating costs in the period. The IC has reported increased profits with net investment returns higher primarily due to the recognition of unrealised gains arising from the period end portfolio valuations.
The IC profit also includes a non-cash loss of £7.4m (H1 2020: gain of £8.5m) arising from the fair value movement of hedging derivatives. We use these to match the currency exposure of our Investment Company assets and related liabilities.
*Income statement *
*Alternative performance measurement basis* *6 months to 30 September 2020*
*£m* 6 months to 30 September 2019
£m Change
%
Fund Management Company 89.8 85.0 6%
Investment Company 103.0 66.0 56%
Profit before tax 192.8 151.0 28%
Tax (8.9) (7.5) 19%
Profit after tax 183.9 143.5 28%
The effective tax rate is lower than the standard corporation tax rate of 19%, as detailed on page 29. This is due to a significant proportion of the Investment Company’s assets being invested directly into funds based outside the United Kingdom. Investment returns from these funds are paid to the Group in the form of non-taxable dividend income. This is in line with other UK investment companies. The Investment Company’s taxable costs offset the taxable profits of our UK Fund Management business, reducing the overall Group charge.
Based on the alternative performance measurement profit above, the Group generated a ROE¹ of 28.5% (H1 2020: 21.0%). Adjusted earnings per share¹ for the period of 64.6p (H1 2020: 50.4p) consisted of: Fund Management Company 30.1p (H1 2020: 28.4p) and Investment Company 34.5p (H1 2020: 22.0p).
Net current assets¹ of £511.7m are down from £762.3m at 31 March 2020, with a net decrease in cash and financial liabilities maturing within one year of £254.5m.
*Fund Management Company*
*Assets under management*
A key measure of the success of our strategy to generate value from our fund management business is our ability to grow assets under management¹. AUM is our best lead indicator of sustainable future fee streams and therefore sustainable profit growth. In the six-month period to 30 September 2020, the net impact of fundraising and realisations saw third party AUM increase 2% to €43.7bn. AUM by strategic asset class is detailed below, where all figures are quoted in €m.
*Third party AUM by strategic asset class * Corporate Investments
€m Capital Market Investments
€m Real Asset Investments
€m Secondary Investments
€m
Total
Third-party AUM
€m
At 1 April 2020 20,689 13,831 4,944 3,365 42,829
Additions 1,441 869 244 - 2,554
Realisations (561) (226) (159) (18) (964)
FX and other (222) (160) (145) (204) (731)
*At 30 September 2020* *21,347* *14,314* *4,884* *3,143* *43,688*
Change % 3% 3% (1%) (7%) 2%
*Corporate Investments*
Corporate Investments third-party funds under management increased 3% to €21.3bn in the period as additions of €1.4bn, including €1.0bn for Senior Debt Partners, €0.2bn for Asia Pacific Fund IV and €0.2bn for our recently launched Recovery Fund, outweighed the realisations from our older funds.
*Capital Market Investments*
Capital Markets third-party funds under management increased 3% to €14.3bn, with new third party AUM of €0.9bn raised in the period. We priced a €0.4bn European CLO in March which closed in the current period. The remaining €0.5bn was raised across our other liquid credit funds and multi-asset mandates.
*Real Asset Investments*
Real Assets third-party funds under management decreased 1% to €4.9bn. This reflects the fundraising cycle for our real estate strategies, with no funds currently being raised and realisations from our older funds. We raised €0.2bn of new AUM in the period across our Infrastructure Equity and Sale and Leaseback funds.
*Secondary Investments*
Secondary’s third-party funds under management decreased 7% to €3.1bn. With Strategic Equity closing its latest fund at the beginning of this calendar year, there were no funds being raised during the period. The decrease in AUM is therefore attributable to realisations from our older funds.
*Fee earning AUM*
The deployment rate for our Senior Debt Partners strategy, our Real Estate funds and our North American Private Debt Fund has a direct impact on FMC income as fees are charged on an invested-capital basis. The total amount of third-party capital deployed on behalf of the direct investment funds was €2.1bn in the period compared to €2.2bn in the first half of the last financial year. The direct investment funds are investing as follows, based on third-party funds raised at 30 September 2020:
*Strategic asset class* *Fund* *% invested at*
*30 September 2020* *% invested at*
*31 March 2020* *Assets in fund at
30 September 2020* *Deals completed*
* in period*
Corporate Investments ICG Europe Fund VII 53% 52% 8
Corporate Investments Europe Mid-Market Fund 14% 7% 2 1
Corporate Investments North American Private Debt Fund II 42% 26% 11 4
Corporate Investments Senior Debt Partners IV* 22% 15% 10 6
Real Asset Investments ICG Longbow Real Estate Fund V 69% 61% 15 1
Secondary Investments Strategic Equity III 48% 30% 5 2
* Co-mingled fund, excluding mandates and undrawn commitments
Fee-earning AUM has increased 3% to €37.1bn since 1 April 2020 primarily due to the immediate impact of those funds which charge fees on committed capital, fundraising across our capital markets strategies, and the deployment of Senior Debt Partners and Real Estate funds. New investments made in our direct investment funds are partially offset by realisations as detailed below:
*Third party fee earning AUM * Corporate Investments
€m Capital Market
Investments
€m Real Asset
Investments
€m Secondary Investments
€m
Total
Third Party Fee Earning AUM
€m
At 1 April 2020 15,641 13,182 3,784 3,261 35,868
Additions 1,347 1,068 475 5 2,895
Realisations (665) (262) (147) (24) (1,098)
FX and other (156) (108) (79) (217) (560)
*At 30 September 2020* *16,167* *13,880* *4,033* *3,025* *37,105*
Change % 3% 5% 7% (7%) 3%
*Fee income*
Third-party fee income¹ of £154.2m was 14% higher than the prior year due to the successful fundraising in the current and prior year of funds which charge fees on committed capital as well as investments made by other funds that charge fees on invested capital. Details of movements are shown below:
*Fee income* *6 months to *
*30 September 2020*
*£m* 6 months to
30 September 2019
£m Change
%
Corporate Investments *88.5* 81.2 9%
Capital Market Investments *29.3* 25.8 14%
Real Asset Investments *17.0* 11.3 50%
Secondary Investments *19.4* 17.3 12%
*Total third-party funds* *154.2* 135.6 14%
IC management fee *10.0* 11.4 (12%)
*Total * *164.2* 147.0 12%
Third-party fees include £15.5m of net performance fees (H1 2020: £15.6m), primarily related to Corporate Investments. Performance fees are an integral recurring part of the fee income profile and profit stream of the Group.
Third-party fees are 84% denominated in Euros or US Dollars. The Group’s policy is to hedge non-Sterling fee income to the extent that it is not matched by costs and is predictable. Total fee income included a £1.9m FX benefit in the period.
The weighted-average fee rate¹, excluding performance fees, across our fee earning AUM is 0.85% (March 2020: 0.86%).
*Weighted-average fee rates* *30 September 2020*
*£m* 31 March 2020
£m
Corporate Investments *1.07%* 1.05%
Capital Market Investments *0.46%* 0.49%
Real Asset Investments *0.96%* 0.91%
Secondary Investments *1.25%* 1.49%
Total third-party funds *0.85%* 0.86%
*Other income *
In addition to fees, the FMC recorded CLO dividend receipts¹ of £11.7m (H1 2020: £17.4m). The reduction resulted from Covid-related credit-rating downgrades of some of the underlying assets meaning that they are temporarily unable to make dividend distributions. The level of credit rating downgrades has stabilised, but we remain cautious in our short-term outlook for CLO dividend receipts.
*Operating expenses*
Operating expenses of the FMC were £86.1m (H1 2020: £79.4m).
Salaries were £30.3m (H1 2020: £27.5m) as average headcount increased 13% from 326 to 369, the result of continued investment across our platform in the prior year. This also led to increased incentive scheme costs of £33.9m (H1 2020: £30.0m). Other administrative costs remained flat at £21.9m (H1 2020: £21.9m), with higher costs from our new head office offset by lower travel and entertainment expense.
The FMC operating margin¹ was 51.1%, down from 51.7% in the prior year, as a result of lower CLO dividend receipts and continued investment in newer strategies. Average fee earning AUM increased 10% to €36.6bn for the six months ending 30 September thereby increasing the operating leverage of our existing strategies.
*Investment Company *
*Balance sheet investments*
*The balance sheet investment portfolio¹ remained flat in the period at £2.2bn, representing 5.2% (2020: 5.5%) of total assets under management, as illustrated in the investment portfolio bridge below. *
** **
* *
£m
At 1 April 2020 2,196.8
New investments * * 123.0
Realisations * * (280.7)
Net investment returns* * * 182.2
Cash interest received * * (31.7)
FX and other * * (3.3)
*At 30 September 2020* * * * * * * *2,186.3*
* Excludes net investment returns of £3.9m from current assets held on the balance sheet prior to being transferred to third party investors or funds
Realisations comprise the return of £269.8m of principal and the crystallisation of £10.9m of net investment returns.
In the period £39.4m was invested alongside our Corporate Investments strategies for new and follow-on investments. Of the remaining £83.6m, £18.1m was invested in new and reset CLOs, £42.7m in our Real Asset Investment strategies and £22.8m in our Strategic Equity strategy.
The Sterling value of the portfolio decreased by £2.3m due to FX movements. The portfolio is 41% Euro denominated, 24% US dollar denominated and 23% Sterling denominated.
The balance sheet investment portfolio is weighted towards the higher-returning asset classes as detailed below:
* * *As at*
*30 September 2020
£m* *% of total* As at
31 March 2020
£m % of total
Corporate Investments * * *1,329* *61%* 1,327 60%
Capital Market Investments * * *446* *21%* 433 20%
Real Asset Investments * * *248* *11%* 297 14%
Secondary Investments * * *163* *7%* 140 6%
*Total balance sheet portfolio* * * *2,186* *100%* 2,197 100%
In addition, £22.0m (31 March 2020: £12.8m) of current assets are held on the balance sheet prior to being transferred to third-party investors or funds.
*Net investment returns *
Net investment returns¹ of £186.1m (H1 2020: £131.6m) represents the total return generated in the period from the balance sheet investments in our third-party funds and represents 17.0% of the average balance sheet portfolio (H1 2020: 10.8%). As with unrealised losses, unrealised gains do not result in cash movements. The Group’s long-term business model, involving management of predominantly closed-end funds, means that teams are not forced to exit investments to meet liquidity needs. They have the benefit of time and portfolios are structured to perform through economic cycles.
Net investment returns by asset class were as follows:
*As at*
*30 September 2020
£m* As at
30 September 2019
£m Change %
Corporate Investments *156.4* 87.0 80%
Capital Market Investments *17.9* 10.3 74%
Real Asset Investments *7.6* 6.3 21%
Secondary Investments *4.2* 28.0 (85%)
Total net investment returns *186.1* 131.6 41%
The fair value of the funds that the Group’s Corporate Investments represent is determined in line with industry guidelines and uses both earnings multiple and discounted cash flow valuation techniques. The increase in net investment return is primarily due to unrealised gains arising from the half year valuations reflecting the stronger performance of the fund portfolio investments in the healthcare, education and technology sectors, and more broadly those in Asia Pacific.
Within Capital Market Investments is the Group’s regulatory investment in the CLOs it manages. The fair value of the CLO equity assets is assessed using discounted cash flow models, with CLO debt assets valued based on observable market prices. Valuations can therefore be volatile in the short term. With a small number of assets currently in default – representing only 2% of the CLO portfolio – we have reduced our peak default rate assumption from 8% to 6%. The impact of this reduction has been more than offset by other assumptions, including extending the peak default timeframe, as we continue to apply a cautious valuation approach in the light of ongoing uncertainties related to the pandemic.
Net investment returns on our Secondary Investments in the prior year were enhanced by a significant uplift on one individual portfolio investment.
*Interest expense*
Interest expense¹ of £30.5m was £1.7m higher than the prior period (H1 2020: £28.8m), due to an increase in the average level of drawn debt in the period.
*Operating expenses*
Operating expenses¹ of the IC amounted to £35.7m (H1 2020: £33.9m), of which incentive scheme costs of £24.2m (H1 2020: £24.4m) were the largest component. Other staff and administrative costs were £11.5m compared to £9.5m in the first half of last year, a £2.0m increase primarily due to increased head-office costs and investment in our platform in the prior year.
*Group cash flow and debt *
*Balance sheet liquidity remains healthy, with £1,015m of available cash and unutilised debt facilities at 30 September 2020, excluding the consolidated structured entities. The movement in the Group’s cash and unutilised debt facilities during the period is detailed as follows:*
£m
At 1 April 2020 1,216.5
Private placement notes repaid (170.4)
Retail bond repaid (80.0)
Movement in cash (433.6)
Movement in drawn debt 515.4
FX and other * * (33.4)
*At 30 September 2020* * * * * * * *1,014.5*
Total drawn debt at 30 September 2020 was £1,405m compared to £1,915m at 31 March 2020, with available cash of £465m compared to £917m at 31 March 2020.
*Capital position*
Shareholders’ funds increased by £80.9m to £1,390.1m (31 March 2020: £1,309.2m), as the retained profits in the period were offset by the payment of the ordinary dividend. Total net debt¹ to shareholders’ funds (net gearing¹) as at 31 March 2020 decreased to 0.67x from 0.76x at 31 March 2020, a level we are comfortable with given the current economic environment.
**Principal risks and uncertainties**The principal risks and uncertainties to which the Group is exposed for the remainder of the year have been subject to robust assessment by the Directors and remain consistent with those outlined in our annual report for the year ended 31 March 2020.
The Group is contending with several challenges posed by the Covid-19 pandemic, including market volatility and new ways of working. In the first half of 2020, we responded positively to the early challenges presented by the pandemic and adapted successfully to operating remotely, with minimal disruption to business continuity. Our priority has been, and remains, the safety and wellbeing of our colleagues and our ability to continue to serve our clients. Any return to our office locations has been carefully considered in respect of the best interests of our team members, risk assessments being conducted in line with local guidance, and robust return-to-office procedures. We are monitoring carefully those locations operating in a hybrid home and office environment which presents its own distinct challenges. While our working arrangements will continue to evolve with the varied impact of Covid-19 regionally, we are prepared for our offices to operate with fewer colleagues on site for an extended period of time, if required.
Our investment teams acted quickly and decisively to take the measures necessary to best navigate the unexpected challenges presented by the pandemic, and they continue to interact regularly with clients and portfolio company management and hold meetings virtually. In line with our well-established fundraising plan, this was also going to be a lower fundraising year, but there may also be a slowdown in the broader fundraising market as clients focus on managing existing portfolios. Additionally, although it is difficult to fully replace the benefits of in-person meetings, remote due diligence has been effective, allowing transactions to still be completed.
Careful attention is being paid to the ongoing potential impacts of Covid-19 and the resulting impact on our principal risks and the overall risk profile of the Group. We will continue to monitor the situation and potential exposures as matters evolve and develop a range of further plans to put into action should this be required.
**Responsibility Statement**
We confirm to the best of our knowledge:
· The condensed set of financial statements have been prepared in accordance with IAS 34 ‘Interim Financial Reporting’;
· The interim management report, which is incorporated into the Directors’ report, includes a fair review of the development and performance of the business and the position of the Group and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and
· There have been no material related-party transactions that have an effect on the financial position or performance of the Group in the first six months of the current financial year since that reported in the 31 March 2020 Annual Report.
This responsibility statement was approved by the Board of Directors on 16 November 2020 and is signed on its behalf by:
Benoit Durteste Vijay Bharadia
CEO CFOO
**Independent Review Report to Intermediate Capital Group plc **
*Introduction *
We have been engaged by Intermediate Capital Group plc (the ‘Company’ or the ‘Group’) to review the condensed consolidated financial statements in the Half-year financial report for the six months ended 30 September 2020 which comprises the Condensed consolidated income statement, Condensed consolidated statement of comprehensive income, Condensed consolidated statement of financial position, Condensed consolidated statement of cash flows, Condensed consolidated statement of changes in equity and the related notes 1 to 9 (together the ‘condensed consolidated financial statements’). We have read the other information contained in the Half-year financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated financial statements.
This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.
*Directors' Responsibilities *
The Half-year financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Half-year financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in Note 1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The condensed consolidated financial statements included in this Half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
*Our Responsibility *
Our responsibility is to express to the Company a conclusion on the condensed consolidated financial statements in the Half-year financial report based on our review.
*Scope of Review *
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
*Conclusion *
Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated financial statements in the Half-year financial report for the six months ended 30 September 2020 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
London
16 November 2020
**Condensed Consolidated Income Statement**For the six months ended 30 September 2020
Notes * * *Six months ended
30 September 2020
(Unaudited)
£m*
Six months ended
30 September 2019
(Unaudited)
£m
Fee and other operating income 2 *148.1* 127.6
Finance (loss)/income *(10.3)* 11.7
Net gains on investments *214.3* 164.7
Total revenue *352.1* 304.0
Finance costs *(30.5)* (29.1)
Administrative expenses *(124.0)* (122.9)
Share of results of joint ventures accounted for using equity method *0.2* 1.4
Profit before tax * * *197.8* 153.4
Tax charge 7 * * *(5.0)* (5.9)
Profit after tax * * *192.8* 147.5
*Attributable to:*
Equity holders of the parent *190.5* 144.5
Non controlling interests *2.3* 3.0
* * * * *192.8* 147.5
* *
*Earnings per share* 5 *66.9p* 50.8p
*Diluted earnings per share* 5 *66.0p* 50.0p
All activities represent continuing operations. The accompanying notes are an integral part of these financial statements.
**Condensed Consolidated Statement of Comprehensive Income**For the six months ended 30 September 2020
* *
*Six months ended
30 September 2020
(Unaudited)
£m* Six months ended
30 September 2019
(Unaudited)
£m
Profit after tax *192.8* 147.5
*Items that will be reclassified subsequently to profit or loss* * *
Exchange differences on translation of foreign operations *(1.5)* 9.6
Tax on items taken to other comprehensive income *3.8* 1.1 *2.3* 10.7
*Total comprehensive income for the period* *195.1* 158.2
* * * *
*Attributable to:* * *
Equity holders of the parent *192.8* 154.6
Non controlling interests *2.3* 3.6 *195.1* 158.2
The accompanying notes are an integral part of these financial statements.
**Condensed Consolidated Statement of Financial Position**As at 30 September 2020
* * Notes *30 September 2020*
* (Unaudited)*
* £m * 31 March 2020(Audited)£m
*Non current assets* * *
Intangible assets * * *26.0* 26.7
Property, plant and equipment 9 *65.8* 13.4
Investment property *1.7* 8.1
Investment in joint venture accounted for under the equity method *2.8* 2.5
Financial assets at fair value 4 *5,868.6* 5,492.6
Derivative financial assets 4 *3.5* 12.8
Deferred tax asset *13.2* 11.1 *5,981.6* 5,567.2
*Current assets*
Trade and other receivables *271.8* 201.8
Financial assets at fair value 4 *22.0* 12.8
Derivative financial assets 4 *111.5* 126.5
Current tax debtor *20.9* 22.8
Cash and cash equivalents *602.5* 1,086.9 *1,028.7* 1,450.8
*Total assets* *7,010.3* 7,018.0
* *
*Equity and reserves*
Called up share capital *77.2* 77.2
Share premium account *179.9* 179.9
Other reserves *(11.8)* (28.3)
Retained earnings *1,144.8* 1,080.4
*Equity attributable to owners of the Company* *1,390.1* 1,309.2
Non controlling interest *3.8* 1.5
*Total equity* *1,393.9* 1,310.7
* *
*Non current liabilities*
Provisions *0.2* 0.1
Financial liabilities at fair value 4,8 *3,725.0* 3,329.3
Financial liabilities at amortised cost 8 *1,308.3* 1,664.1
Other financial liabilities 8 *56.3* 5.5
Derivative financial liabilities 4 *48.6* 41.4
Deferred tax liabilities *1.8* 1.9 *5,140.2* 5,042.3
*Current liabilities*
Provisions *0.6* 0.7
Trade and other payables *304.7* 336.0
Financial liabilities at amortised cost 8 *96.5* 252.8
Other financial liabilities 8 *3.2* 3.2
Current tax creditor *4.9* 6.6
Derivative financial liabilities 4 *66.3* 65.7 * * *476.2* 665.0
*Total liabilities* * * *5,616.4* 5,707.3
*Total equity and liabilities* * * *7,010.3* 7,018.0
The accompanying notes are an integral part of these financial statements.
**Condensed Consolidated Statement of Cash Flows**For the six months ended 30 September 2020
*Six months ended*
*30 September 2020*
* (Unaudited)*
* £m* Six months ended 30 September 2019 (Unaudited)£m
*Operating activities* * *
Interest received *125.2* 124.0
Fees received *120.2* 106.5
Dividends received *2.2* 0.5
Payments to suppliers and employees *(139.1)* (56.3)
Proceeds from sale of current financial assets and disposal groups *7.2* 80.7
Purchase of current financial assets and disposal groups *(12.9)* (82.1)
Proceeds from sale of non current financial assets *990.9* 1,031.4
Purchase of non current financial assets *(872.6)* (1,294.0)
Net cash inflow from derivative contracts *8.7* 15.4
Cash generated from / (used in) operating activities *229.8* (73.9)
Taxes (paid) / received *(0.9)* 0.9
Net cash generated from / (used in) operating activities *228.9* (73.0)
*Investing activities* * *
Purchase of property, plant and equipment *(6.7)* (2.7)
Purchase of intangible assets *(2.2)* -
Net cash used in investing activities *(8.9)* (2.7)
*Financing activities* * *
Dividends paid *(102.3)* (100.0)
Interest paid *(85.1)* (93.8)
Payment of lease liabilities *(5.8)* (2.4)
Increase in long term borrowings *-* 496.8
Repayment of long term borrowings *(496.7)* (150.5)
Purchase of own shares *-* (48.5)
Net cash (used in) / generated from financing activities *(689.9)* 101.6
*Net (decrease) / increase in cash* *(469.9)* 25.9
Cash and cash equivalents at beginning of period *1,086.9* 354.0
Effect of foreign exchange rate changes *(14.5)* (26.8)
*Net cash and cash equivalents at end of period* *602.5* 353.1
Presented on the statement of financial position as: * *
*Cash and cash equivalents* *602.5* 353.1
* *
*The Group’s cash and cash equivalents includes £138.0m (31 March 2020: £172.2m) of restricted cash held principally by structured entities controlled by the Group. *
*The accompanying notes are an integral part of these financial statements.
*Condensed Consolidated Statement of Changes in Equity**For the six months ended 30 September 2020
*(Unaudited)* Share
capital
£m Share
premium
£m Capital
redemption
reserve
£m Share based
payments reserve
£m Own
shares
£m Foreign currency translation reserve
£m Retained
earnings
£m Total
£m Non controlling interest
£m Total
equity
£m
Balance at 1 April 2020 *77.2* *179.9* *5.0* *58.4* *(114.4)* *22.7* *1,080.4* *1,309.2* *1.5* *1,310.7*
Profit after tax *-* *-* *-* *-* *-* *-* *190.5* *190.5* *2.3* *192.8*
Exchange differences on
translation of foreign operations *-* *-* *-* *-* *-* *(1.5)* *-* *(1.5)* *-* *(1.5)*
Tax on items taken to other comprehensive income *-* *-* *-* *3.8* *-* *-* *-* *3.8* *-* *3.8*
Total comprehensive income for the period *-* *-* *-* *3.8* *-* *(1.5)* *190.5* *192.8* *2.3* *195.1*
Options/awards exercised *-* *-* *-* *(31.1)* *31.9* *-* *(23.8)* *(23.0)* *-* *(23.0)*
Credit for equity settled
share schemes *-* *-* *-* *13.4* *-* *-* *-* *13.4* *-* *13.4*
Dividends paid *-* *-* *-* *-* *-* *-* *(102.3)* *(102.3)* *-* *(102.3)*
*Balance at 30 September 2020 * *77.2* *179.9* *5.0* *44.5* *(82.5)* *21.2* *1,144.8* *1,390.1* *3.8* *1,393.9*
For the six months ended 30 September 2019
*(Unaudited)* Share
capital
£m Share
premium
£m Capital
redemption
reserve
£m Share based
payments reserve
£m Own
shares
£m Foreign currency translation reserve
£m Retained
earnings
£m Total
£m Non controlling interest
£m Total
equity
£m
Balance at 1 April 2019 *77.2* *179.5* *5.0* *64.3* *(92.8)* *20.0* *1,130.2* *1,383.4* *10.9* *1,394.3*
Adjustment on initial application
of IFRS 16 *-* *-* *-* *-* *-* *-* *(1.8)* *(1.8)* *-* *(1.8)*
Profit after tax *-* *-* *-* *-* *-* *-* *144.5* *144.5* *3.0* *147.5*
Exchange differences on
translation of foreign operations *-* *-* *-* *-* *-* *9.0* *-* *9.0* *0.6* *9.6*
Tax on items taken to other comprehensive income *-* *-* *-* *1.1* *-* *-* *-* *1.1* *-* *1.1*
Total comprehensive income for the period *-* *-* *-* *1.1* *-* *9.0* *142.7* *152.8* *3.6* *156.4*
Movement in control of subsidiary - - - - - - *(0.9)* *(0.9)* *0.9* *-*
Own shares acquired in the period *-* *-* *-* *-* *(36.9)* *-* *-* *(36.9) * *-* *(36.9)*
Options/awards exercised *-* *0.4* *-* *(30.3)* *48.5* *-* *(18.2)* *0.4* *-* *0.4*
Credit for equity settled
share schemes *-* *-* *-* *12.5* *-* *-* *-* *12.5* *-* *12.5*
Dividends paid *-* *-* *-* *-* *-* *-* *(100.0)* *(100.0)* *-* *(100.0)*
*Balance at 30 September 2019 * *77.2* *179.9* *5.0* *47.6* *(81.2)* *29.0* *1,153.8* *1,411.3* *15.4* *1,426.7*
The accompanying notes are an integral part of these financial statements*.*
**Notes to the Half Year Report**For the six months ended 30 September 2020
*1. **Basis of preparation *
(i) Basis of preparation
The interim condensed consolidated financial statements included in this half year financial report have been prepared in accordance with the Disclosure Rules and Transparency Rules of the Financial Conduct Authority and International Accounting Standard (IAS) 34 ‘Interim Financial Reporting’ as adopted by the European Union, and on the basis of the accounting policies and methods of computation set out in the consolidated financial statements of the Group for the year ended 31 March 2020.
While the financial information included in this announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs) as adopted by the European Union, this announcement does not itself contain sufficient information to comply with IFRSs.
The financial information for the year ended 31 March 2020 contained within this half year financial report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The statutory accounts for the year to 31 March 2020 have been reported on by Deloitte LLP and delivered to the Registrar of Companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
The consolidated financial statements of the Group as at and for the year ended 31 March 2020 which were prepared under International Financial Reporting Standards as adopted by the EU are available on the Group’s website, www.icgam.com.
ii) Going concern
The interim condensed consolidated financial statements are prepared on a going concern basis, as the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.
In making this assessment, the Directors have considered a range of information relating to present and future conditions, including future projections of profitability, cash flows and capital resources. The Group has good visibility on future management fees due to the long term and diversified nature of its funds, underpinned by a strong, well capitalised balance sheet and over £1bn of liquidity in cash and undrawn facilities at 30 September 2020.
The Directors continue to monitor the impact of the Covid-19 pandemic in assessing the Group’s ability to continue in its capacity as a going concern. The enhanced infrastructure put in place since reporting at 31 March 2020 to ensure the health and wellbeing of employees and to support business continuity has continued to prove successful during these unprecedented times. Such enhanced measures will continue to be reviewed and enhanced where necessary.
The Directors have concluded that the preparation of the interim condensed consolidated financial statements on a going concern basis continues to be appropriate.
(iii) Related party transactions
Antje Hensel Roth was appointed Executive Director effective 16 April 2020. Antje joins Vijay Bharadia and Benoit Durteste as Executive Directors of the Group.
There have been no other material changes to the nature or size of related party transactions since 31 March 2020.
(iv) Changes in significant accounting policies
The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group’s annual consolidated financial statements for the year then ended 31 March 2020. The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.
*1. **Basis of preparation continued*
(iv) Changes in significant accounting policies continued
The FCA and the Bank of England have imposed significant interest rate benchmarking reform. As a result, there will be the imminent cessation of LIBOR. LIBOR publication is expected to cease by 31 December 2021. Those instruments within the Group that may have exposure to the cessation of LIBOR will apply the practical expedient as permitted under the transition rules. The rules permit the change to the contractual interest rates, from LIBOR to the newly applied rate, to be treated as a movement in market interest rates rather than as a modification. Amendments to IFRS 9 ‘Financial Instruments’ were issued in September 2019 and August 2020. The recent amendments to IFRS 9 provide a number of reliefs, which apply to all hedging relationships that are directly affected by interest rate benchmark reform. A hedging relationship is affected if the reform gives rise to uncertainties about the timing and or amount of benchmark based cash flows of the hedged item or the hedging instrument. These amendments had no impact on the interim condensed consolidated financial statements of the Group as it does not apply hedge accounting to its interest rate hedge relationships.
*2. **Revenue *
Revenue and its related cashflows, within the scope of IFRS 15, are all derived from the Group’s fund management company activities. The significant components of the Group’s fund management revenues are as follows:
*Type of contract/service*
* *
* * *Six months ended
30 September 2020
(Unaudited)
£m* Six months ended
30 September 2019
(Unaudited)
£m
Management fees* *144.2* 124.0
Other income *3.9* 3.6
*Fee and other operating income* *148.1* 127.6
***Included within management fees is £15.5m (H1 2020: £15.6m) of performance related fee income.
*Management Fees*
The Group earns management fees from its performance of investment management services. Management fees are charged on third party money managed by ICG and are based on an agreed percentage of either committed money, invested money or net asset value (NAV), dependent on the fund. Management fees are variable fee revenue streams which relate to one performance obligation and contain a non-performance and performance related fee element. Non-performance related management fees for the period of £128.7m (H1 2020: £108.4m) are charged in arrears and are recognised in the period services are performed.
Performance related fees are recognised only where it is highly probable that the revenue will not be reversed in the future. This is generally near the end of the performance period or upon early liquidation of a fund. The estimate of performance fees is made with reference to the liquidation profile of the fund, which factors in portfolio exits and timeframes. A constraint is applied to the estimate to reflect uncertainty of future fund performance. Performance fees of £15.5m (H1 2020: £15.6m) have been recognised for services performed during the period. Performance related fees will only be crystallised and subsequently paid out in cash when a performance hurdle is met, and portfolio liquidations are made.
Depending on the strategy of a fund, the Group has contracted fees based on committed and invested funds. The quantum of the contracted fees cannot be reliably forecast, without making significant assumptions around the investment rate, realisation pace and the amount and weighted average fee rate of new funds raised. There are no other individually significant components of revenue from contracts with customers.
*3. **Operating segments *
For management purposes, the Group is currently organised into the Fund Management Company (FMC) and the Investment Company (IC). Segment information about these businesses is presented below and is reviewed by the Executive Directors.
The Group reports the profit of the FMC separately from the profits generated by the IC. The FMC incurs the majority of the Group’s costs, including the cost of the investment teams, as well as the cost of support functions supporting the investment teams, primarily marketing, operations, information technology and human resources.
The IC is charged a management fee of 1% of the carrying value of the average investment portfolio by the FMC and this is shown below as Inter-segmental fee. The costs of finance, treasury and legal teams, and the other group costs primarily related to being a listed entity, are allocated to the IC. The remuneration of the Executive Directors is allocated equally to the FMC and the IC.
The amounts reported for management purposes in the tables below are reconciled to the IFRS reported amounts on the following pages.
*Six months ended*
*30 September 2020*
*(Unaudited)* *
FMC*
*£m* *IC*
*£m* *Operating segments*
*£m*
External fee income *154.2* *-* *154.2*
Inter-segmental fee *10.0* *(10.0)* *-*
Fund management fee income *164.2* *(10.0)* *154.2*
Net investment returns *-* *186.6* *186.6*
Dividend income *11.7* *-* *11.7*
Total revenue *175.9* *176.6* *352.5*
Interest expense *-* *(30.5)* *(30.5)*
Net fair value loss on derivatives *-* *(7.4)* *(7.4)*
Staff costs *(30.3)* *(6.3)* *(36.6)*
Incentive scheme costs *(33.9)* *(24.2)* *(58.1)*
Other administrative expenses *(21.9)* *(5.2)* *(27.1)*
*Profit before tax* *89.8* *103.0* *192.8*
Six months ended
30 September 2019
(Unaudited)
FMC
£m IC
£m Operating segments
£m
External fee income 135.6 - 135.6
Inter-segmental fee 11.4 (11.4) -
Fund management fee income 147.0 (11.4) 135.6
Net investment returns - 131.6 131.6
Dividend income 17.4 - 17.4
Total revenue 164.4 120.2 284.6
Interest expense - (28.8) (28.8)
Net fair value gain on derivatives - 8.5 8.5
Staff costs (27.5) (4.0) (31.5)
Incentive scheme costs (30.0) (24.4) (54.4)
Other administrative expenses (21.9) (5.5) (27.4)
*Profit before tax* 85.0 66.0 151.0
*3. **Operating segments continued*
*Reconciliation of amounts reported to the Executive Directors to the financial statements reported
under IFRS*
Included in the table below are statutory adjustments made for the following:
· All income generated from Investment Company investments is presented as net investment returns for total operating segments purposes, whereas under IFRS it is presented within gains on investments and other operating income. Total operating segment figures are alternative performance measures (‘APMs’).
· The structured entities controlled by the Group are presented as fair value investments for operating segments, whereas the statutory financial statements present these entities on a consolidated basis.
*Condensed Consolidated Income Statement *
*Six months ended *
*30 September 2020*
*(Unaudited)* * * *Operating segments*
* £m* *Consolidated struct