ICG Enterprise Trust Plc: Preliminary Results for the twelve months ended 31 January 2023
* ICG Enterprise Trust plc*
*Preliminary Results for the twelve months ended 31 January 2023*
*11 May 2023* *Delivering defensive growth* *Highlights*
· NAV per Share of 1,903p at 31 January 2023 (31 January 2022: 1,690p)
· FY23 NAV per Share Total Return of 14.5% (5 year annualised: 16.9%)
· 14^th consecutive year of double-digit Portfolio growth: Portfolio Return on a Local Currency Basis of 10.5% (Sterling return 17.0%)
· Strong year for primary commitments, building pipeline for future years' investment programme
· Investment and realisation activity in line with historical averages
· 54 Full Exits during the year, realised at a weighted average Uplift To Carrying Value of 23.9% and a weighted average Multiple to Cost of 2.7x
· Final dividend of 9p brings FY23 total dividend per share to 30p (+11.1% YoY); progressive policy maintained
· £5.2m of shares bought back at weighted average discount to last reported NAV of 41.2% since programme initiated in October 2022^1; buyback programme continuing
· Updated Management Fee Agreement and improved cost-sharing with the Manager, effective from 1 February 2023
^1 Up to and including 2 May 2023
*Oliver Gardey* *Head of Private Equity Fund Investments, ICG* The defensive growth characteristics of our actively managed Portfolio are increasingly apparent in our financial results. As a listed private equity investment trust focused exclusively on buyouts in North America and Europe, we offer investors access to a differentiated Portfolio that has delivered high levels of revenue and earnings growth over the last twelve months and which has increased in value by 17.0% in Sterling terms. We have not invested in more speculative parts of private markets such as venture capital or growth equity.
Our Portfolio is delivering growth over the long-term: FY23 marks the 14^th consecutive year of double-digit portfolio returns on a local currency basis, and our annualised NAV per Share Total Return over the last five years has been 16.9%.Portfolio activity continued through the year. Investments and realisations as a proportion of our opening Portfolio value were broadly in line with historical averages, and the Full Exits being executed at a 23.9% Uplift to Carrying Value helps support our confidence in our valuations. We made new fund commitments totalling £203.2m, which we expect to be invested over the coming three to four years. These commitments have sown the seeds of our primary and direct investment program in the coming years, in what could be a very attractive vintage for private equity.The current market is creating some attractive conditions for investing our shareholders’ capital, and our strong capitalisation and dedicated team with experience of investing through market cycles enable us to capture these opportunities. We continue to believe that ICG Enterprise Trust is well-positioned to execute on its strategy and to generate resilient returns.
*PERFORMANCE OVERVIEW*
*Annualised*
*Performance to 31 January 2023* 3 months 6 months 1 year 3 years 5 years 10 years
Portfolio Return on a Local Currency Basis 2.3 % 2.6 % 10.5 % 21.3 % 19.1 % 17.0 %
NAV per Share Total Return (0.3) % 3.3 % 14.5 % 20.4 % 16.9 % 13.8 %
Share Price Total Return 15.3 % (0.7) % (2.3) % 8.5 % 9.7 % 11.6 %
FTSE All-Share Index Total Return 10.4 % 5.3 % 5.2 % 5.0 % 4.2 % 6.3 %
*Portfolio activity overview for FY23* *Primary* *Direct* *Secondary* *Total* *ICG-managed*
Local currency return 8.0% 15.5% 11.5% *10.5%* 11.8%
Sterling return 14.0% 22.5% 19.0% *17.0%* 18.8%
New Investments £138.6m £70.1m £78.5m *£287.2m* £137.3m
Total Proceeds £137.3m £47.8m £66.9m *£252.0m* £101.3m
New Fund Commitments £137.3m – £65.9m *£203.2m* £65.9m
*Closing Portfolio value* *£761.7m* *£383.9m* *£260.9m* *£1,406.4m* *£410.3m*
% Total Portfolio 54.1 % 27.3 % 18.6 % 100.0 % 29.2 %
*ENQUIRIES*
Institutional investors and analysts:
Oliver Gardey, Head of Private Equity Fund Investments, ICG: +44 (0) 20 3545 2000
Colm Walsh, Managing Director, Private Equity Fund Investments, ICG
Chris Hunt, Head of Shareholder Relations, ICG
Livia Bridgman Baker, Shareholder Relations, ICG
Media:
Clare Glynn, Corporate Communications, ICG: +44 (0) 20 3545 1395
Website:
www.icg-enterprise.co.uk
*EVENTS AND COMPANY TIMETABLE*
A presentation for investors and analysts will be held at 14:30 BST today. A link for the presentation can be found on the Results & Reports page of the Company website. A recording of the presentation will be made available on the Company website after the event.
Annual General Meeting: 27 June 2023
Q1 trading update: 27 June 2023
Ex-dividend date: 06 July 2023
Record date: 07 July 2023
Dividend payment date: 21 July 2023
*ABOUT ICG ENTERPRISE TRUST*
ICG Enterprise Trust is a leading listed private equity investor focused on creating long-term growth by delivering consistently strong returns through selectively investing in profitable, cash-generative private companies, primarily in Europe and the US, while offering the added benefit to shareholders of daily liquidity.
We invest in companies directly as well as through funds managed by Intermediate Capital Group ('ICG') and other leading private equity managers who focus on creating long-term value and building sustainable growth through active management and strategic change.
We have a long track record of delivering strong returns through a flexible mandate and selective approach that strikes the right balance between concentration and diversification, risk and reward.
*NOTES*
Included in this document are Alternative Performance Measures (“APMs”). APMs have been used if considered by the Board and the Manager to be the most relevant basis for shareholders in assessing the overall performance of the Company, and for comparing the performance of the Company to its peers and its previously reported results. The Glossary includes further details of APMs and reconciliations to International Financial Reporting Standards (“IFRS”) measures, where appropriate.
In the Chair’s Foreword, Manager’s Review and Supplementary Information, all performance figures are stated on a Total Return basis (i.e., including the effect of re-invested dividends). ICG Alternative Investment Limited, a regulated subsidiary of Intermediate Capital Group plc, acts as the Manager of the Company.
*DISCLAIMER*
The information contained herein and on the pages that follow does not constitute an offer to sell, or the solicitation of an offer to acquire or subscribe for, any securities in any jurisdiction where such an offer or solicitation is unlawful or would impose any unfulfilled registration, qualification, publication or approval requirements on ICG Enterprise Trust PLC (the "Company") or its affiliates or agents. Equity securities in the Company have not been and will not be registered under the applicable securities laws of the United States, Australia, Canada, Japan or South Africa (each an “Excluded Jurisdiction”). The equity securities in the Company referred to herein and on the pages that follow may not be offered or sold within an Excluded Jurisdiction, or to any U.S. person ("U.S. Person") as defined in Regulation S under the U.S. Securities Act of 1933, as amended (the "U.S. Securities Act"), or to any national, resident or citizen of an Excluded Jurisdiction.
The information on the pages that follow may contain forward looking statements. Any statement other than a statement of historical fact is a forward looking statement. Actual results may differ materially from those expressed or implied by any forward looking statement. The Company does not undertake any obligation to update or revise any forward looking statements. You should not place undue reliance on any forward looking statement, which speaks only as of the date of its issuance.
*CHAIR’S STATEMENT*
I am pleased to report that your Company has continued to grow and invest for the future during the last financial year. In a period characterised by geopolitical and macro-economic uncertainty, ICG Enterprise Trust’s performance reinforces the Board’s confidence in the resilience of the Portfolio and the benefits through economic cycles of our strategic focus on ‘defensive growth’.
ICG Enterprise Trust’s NAV at 31 January 2023 was £1.3bn, equating to 1,903p NAV per Share. The Company has delivered 14.5% NAV per Share Total Return for the financial year, and 16.9% on a five-year annualised basis, net of all fees. Further details on the composition and performance of the Portfolio and NAV can be found in the Manager’s review.
In public markets the macroeconomic uncertainty in 2022 was reflected in amplified volatility, downward pressure on earnings estimates and lower valuations placed on earnings. Understandably there have been questions about the seemingly less volatile nature of private valuations compared to public valuations. The Portfolio of ICG Enterprise Trust is notably different from that of frequently-cited public indices and is not weighted towards consumer, financials and energy companies (in the case of the FTSE 100) or towards a narrow group of technology companies (in the case of the S&P500). In addition, private market valuations have not typically seen the same levels of exuberance as public markets during periods when valuations have expanded dramatically.
When reviewing the valuation of the Portfolio, there are a number of factors to consider; but the ultimate validation is how an investment is realised, and whether at exit a buyer is willing to pay the value that we had it marked at. During FY23 the Portfolio experienced 54 Full Exits, generating £133.2m of cash proceeds (representing 11.4% of the opening Portfolio value for the year). These were executed at a weighted average Uplift to Carrying Value of 23.9% - slightly lower than recent years, but still a significant uplift. I believe our track record of Full Exits being at an Uplift to Carrying Value should give shareholders comfort that the valuations in our Portfolio are generally robust, and this is an area the Board continues to discuss in detail with the Manager.
Despite this consistent and strong track record, our share price has been impacted by widening discounts across the listed private equity investment trust sector. During this financial year our shareholders endured a negative Share Price Total Return of (2.3)% and on 31 January 2023 our shares traded at a 40.1% discount to the last published NAV of 1,918p (as at 31 October 2022). The Board considers that the Company’s performance and the value of its Portfolio and strategy are not appropriately recognised in its share price, and has implemented several additional measures this year to optimise shareholder returns. These include a long-term buyback program, running alongside our existing progressive dividend policy, and an improved management fee agreement that introduces a cap on the fee rate payable to our Manager and the Manager assuming a greater proportion of the Company’s ongoing costs.
*ACCESS TO PRIVATE EQUITY*
Private equity can play a valuable role in generating differentiated returns for investors with a long-term perspective. It is, however, a fundamentally illiquid asset class. The closed-end nature of investment trusts solves the potential liquidity mismatch for investors by creating traded shares that can be bought and sold on a stock exchange. As a result, the portfolio can be managed for long-term value creation without the risk of having to sell assets to fund redemptions. By investing in vehicles such as ICG Enterprise Trust, shareholders gain access to a mature and actively managed portfolio of private equity investments, with the added benefit of daily liquidity.
A consequence of the investment trust structure, however, is that shares can trade at discounts to the published NAVs, and currently the sector as a whole – including ICG Enterprise Trust – is trading at quite notable discounts. As discussed elsewhere, your Board continues to work with the Manager to make shares in ICG Enterprise Trust more attractive to a wider range of investors.
I continue to believe that investment trusts such as ICG Enterprise Trust serve a useful purpose in helping provide access to private equity to a more diverse range of investors who are seeking to commit capital to this asset class.
*HOW ICG ENTERPRISE TRUST IS MANAGED - UPDATING OUR OBJECTIVES*
Six years ago, ICG Enterprise Trust outlined three objectives. We are pleased to have delivered against each of these since they were introduced:
*Former objectives* *Medium-term target* *FY16* *FY23*
Portfolio / net assets 100% 82.1% 108.1%
North America as percentage of Portfolio 40-50% 14.1% 46.6%
High Conviction Investments as percentage of deployment 50% 33.0% 57.6%
The Company has evolved since these objectives were introduced, and to reflect this the Board has revised these objectives to the following, which focus on 1) Target Portfolio composition and 2) Balance sheet:
*New objectives* *Medium-term target* *Five-year average* *FY23*
*1. Target Portfolio composition *^*1*
Investment category
Primary ~50% 59.2% 54.1%
Direct ~25% 27.3% 27.3%
Secondary ~25% 13.5% 18.6%
Geography^2
North America ~50% 37.2% 46.6%
Europe (inc. UK) ~50% 62.8% 47%
*2. Balance sheet*
(Net cash)/debt^3 ~0% (3.0)% 3.4%
1 As percentage of Portfolio; 2 FY23 excludes 6.3% Other geographical exposure; 3 (Net cash)/debt as a percentage of NAV
Importantly this does not indicate a change in the composition of the Portfolio; it merely more completely reflects how the Portfolio and our balance sheet are being managed, and how they are expected to be constructed over the medium term.
I believe that today we have a very high quality investment team through our Manager, and that these objectives will enable us to maximise the value they generate for our shareholders.
*DIVIDEND AND SHARE BUYBACK*
During the financial year, the Board gave careful consideration to the level, form and mechanism of shareholder returns.
The nature of private equity investments means that compounding capital appreciation is likely to be the largest single component of shareholder returns over the long term.
The progressive dividend is an important component of shareholder returns, and the Board remains committed to this policy. In line with this, the Board is proposing a final dividend of 9p per share. Together with the three interim dividends of 7p per share each, this will result in total dividends for the year of 30p per share, representing an 11.1% increase on the prior year dividend and the seventh consecutive year of dividend increases.
In October 2022, the Board introduced a long-term share buyback programme. The Board believes this programme demonstrates the Manager’s discipline around capital allocation; underlines the Board’s confidence in the long-term prospects of the Company, its cash flows and NAV; will enhance the NAV per Share; and over time may reduce the volatility of the Company’s discount and increase its trading liquidity. At 2 May 2023 the Company has repurchased 472,178 shares since this programme was initiated, at an estimated weighted average discount to the last reported NAV of 41.2%. In aggregate these buybacks represent a capital return of £5.2m.
*IMPROVED MANAGEMENT FEE AND COST SHARING WITH THE MANAGER*
During the year we negotiated a revised fee agreement with the Manager, effective from 1 February 2023. This agreement caps the maximum fee rate payable to the Manager, and allows our shareholders to benefit from economies of scale as our NAV grows. Had the revised agreement been in place during FY23, the management fee paid would have been reduced by approximately 6.5% (£1.1m).
It was also agreed that the Manager will absorb a number of ongoing costs previously paid for by ICG Enterprise Trust. The Board estimates that these are equivalent to approximately 25-30% of the general expenses (which exclude management fees and finance costs) that would have been paid by ICG Enterprise Trust prior to this agreement being reached.
I am grateful to ICG for their co-operation during these negotiations and am pleased with the outcome.
*BOARD EVOLUTION *
Following the retirement of Sandra Parajola in June 2022, we were delighted to strengthen our Board with the appointment of two new non-executive directors, Adiba Ighodaro and Janine Nicholls. Adiba and Janine each bring a depth and breadth of knowledge which is complementary to the Board’s existing skillset.
*ANNUAL GENERAL MEETING *
The Annual General Meeting will be held on 27 June 2023. The Board will be formally communicating with shareholders outlining the format of the meeting separately in the Notice of Meeting. This will include details of how shareholders may register their interest in attending the Annual General Meeting, either in person or via video conference.
I am confident that our Company is well-positioned to successfully execute on its strategy. We have historically generated significant value over the long term, and I believe we will continue to do so. Our ability to continue to commit, deploy and realise capital through uncertain economic times means that our Portfolio is not exposed to particular vintage risk.
We have a distinctive strategy, a Portfolio managed by an experienced and well-networked team, and our Board has demonstrated its disciplined approach to capital allocation. Taken as a whole I believe this results in a differentiated and attractive offering to shareholders.
Finally, I want to thank you for the continued trust and support you give to ICG Enterprise Trust.
*Jane Tufnell*
*Chair*
10 May 2023
*MANAGER’S REVIEW*
*Alternative Performance Measures*
The Board and the Manager monitor the financial performance of the Company on the basis of Alternative Performance Measures (APM), which are non-IFRS measures. The APM predominantly form the basis of the financial measures discussed in this review, which the Board believes assists shareholders in assessing their investment and the delivery of the investment strategy.
The Company holds certain investments in subsidiary entities. The substantive difference between APM and IFRS is the treatment of the assets and liabilities of these subsidiaries. The APM basis “looks through” these subsidiaries to the underlying assets and liabilities they hold, and it reports the investments as the Portfolio APM. Under IFRS, the Company and its subsidiaries are reported separately. The assets and liabilities of the subsidiaries are presented on the face of the IFRS balance sheet as a single carrying value. The same is true for the IFRS and APM basis of the Cash flow statement.
The following table sets out IFRS metrics and the APM equivalents:
*IFRS (£m)* *31 January 2023* 31 January 2022 *APM (£m)* *31 January 2023* 31 January 2022
Investments 1,349.1 1,123.7 Portfolio 1,406.4 1,172.2
NAV 1,300.6 1,158.0
Cash flows from the sale of portfolio investments 32.1 101.0 Total Proceeds 252.0 333.5
Cash flows related to the purchase of Portfolio investments 62.2 75.1 Total New Investment 287.2 303.7
The Glossary includes definitions for all APM and, where appropriate, a reconciliation between APM and IFRS.
*Our investment strategy*
We focus on investing in buyouts of profitable, cash-generative businesses in developed markets that exhibit defensive growth characteristics which might support strong and resilient returns across economic cycles. There are a number of themes that contribute to a business having, in our view, such characteristics. These include (among others) attractive market positioning, providing mission-critical services to their clients and customers, ability to pass on price increases, and structurally high margins.
We take an active approach to portfolio construction, with a flexible mandate that enables us to deploy capital in Primary, Secondary and Direct investments. We believe our investment strategy results in a differentiated Portfolio with attractive growth characteristics. Our Portfolio composition is shown below:
*Investment category* *31 January 2023*
*£m* *31 January 2023*
*% of Portfolio*
Primary 761.7 54.1%
Direct 383.8 27.3%
Secondary 260.9 18.6%
*Total* *1,406.4* *100.0* *%*
Investments managed by ICG accounted for 29.2% of the Portfolio.
Geographically we focus on the developed markets of North America and Europe, including the UK, which have deep and mature private equity markets supported by a robust corporate governance framework. The geographic profile of the Portfolio is shown below:
*Geography*^*1* *31 January 2023*
*% of Portfolio*
North America 46.6 %
Europe (inc. UK) 47.1 %
Other 6.3 %
*Total* *100.0* *%*
1 Calculated by reference to the location of the headquarters of the underlying Portfolio companies on a value-weighted basis
*Implementing our investment strategy during the year*
In a year of elevated macroeconomic and geopolitical volatility, we remained consistent in our investment approach, seeking to identify attractive investments that align to our focus on defensive growth. Our flexible investment mandate enabled us to react efficiently to changing market dynamics in order to capitalise on opportunities across Primary, Secondary and Direct investments.
During the year we were able to take advantage of favourable market conditions to make 14 new fund commitments to a range of leading managers. These commitments, which we expect to be invested over the next 3-4 years, ensure that we will remain appropriately invested through the cycle.
Our dedicated investment team has concentrated on identifying investment opportunities where they believe they have good visibility on the likely performance of the underlying assets and on transactions with potentially lower volatility of returns than the broader market. Reflecting this, Direct Investment activity during the period included three Direct investments alongside our Manager, benefiting from their expertise in structured transactions. We also made a number of follow-on investments into existing portfolio holdings where we have greater visibility of, and confidence in, the performance of the underlying company.
*Performance overview*
At 31 January 2023, our Portfolio was valued at £1,406.4m, and the Portfolio Return on a Local Currency Basis for the financial year was 10.5% (FY22: 29.4%). This performance extends our track record of generating double-digit Portfolio returns on a Local Currency basis to 14 consecutive years.
The Portfolio returns during FY23 were seen across Primary, Direct and Secondary investments:
· Primary investments generated a local currency return of 8.0%. Valuation increases are primarily driven by operational performance. There was notably strong performance from a number of funds including those managed by PAI, Graphite, and Gridiron
· Direct Investments generated a return of 15.5%, reflecting resilient operational performance, as well as a number of meaningful realisations agreed during the year, including Endeavor Schools (exit agreed during FY23 and completed post period end), and IRI (which completed its merger with NPD on 1 August 2022)
· Secondary investments generated a return of 11.5%, driven by strong performance from underlying investments within ICG LP Secondaries and ICG Strategic Equity
Over the last five years, our Portfolio has generated an annualised Portfolio Return on a Local Currency Basis of 19.1%.
Due to the geographic diversification of our Portfolio, the reported value is impacted by changes in foreign exchange rates. During the period, the Portfolio increased by £76.4m (+6.5%) due to FX movements, driven primarily by the US Dollar strengthening against Sterling. Portfolio growth during the period was 17.0% in Sterling terms.
The net result was that ICG Enterprise Trust generated a NAV per Share Total Return of 14.5% during FY23, ending the period with a NAV per Share of 1,903p. The NAV per Share Total Return during Q4 was (0.3%), driven predominantly by negative FX movements more than offsetting a positive underlying return at the Portfolio level.
Over the last five years, ICG Enterprise Trust has generated an annualised NAV per Share Total Return of 16.9%.
*Movement in the Portfolio*
*£m* *Twelve months to*
*31 January 2023* *Twelve months to*
*31 January 2022*
*Opening Portfolio1* *1,172.2* *949.2*
Total New Investments 287.2 303.7
Total Proceeds (252.0) (342.9)
Net (proceeds)/investments 35.2 (39.2)
Valuation movement2 122.6 279.4
Currency movement 76.4 (17.2)
*Closing Portfolio* *1,406.4* *1,172.2*
*% Portfolio growth (local currency)* *10.5* *%* *29.4* *%*
% currency movement 6.5 % (1.8) %
*% Portfolio growth (Sterling)* *17.0* *%* *27.6* *%*
Impact of (net cash)/net debt 0.2 % (0.1) %
Expenses and other income (1.8) % (1.5) %
Co-investment Incentive Scheme Accrual (1.2) % (1.8) %
Impact of share buybacks and dividend reinvestment 0.3 % 0.2 %
*NAV per Share Total Return* *14.5* *%* *24.4* *%*
1. Refer to the Glossary
2. 93% of the Portfolio is valued using 31 December 2022 (or later) valuations (2022: 98%)
*Performance of Portfolio companies*
Our largest 30 underlying companies (“Top 30 companies”) represented 38.3% of the Portfolio by value at 31 January 2023 (31 January 2022: 39.0%). There were four new entrants to our Top 30 companies within the period: Newton (#15); ECA Group (#23), KronosNet (#24) and Vistage (#30).
The Top 30 companies delivered impressive operational performance during the year, generating LTM revenue growth of 21.9%. The weighted-average valuation of the Top 30 companies, as measured by EV/EBITDA multiple, reduced from 14.6x to 14.3x. Over the same period, Net Debt / EBITDA increased from 4.3x to 4.8x, which is largely due to differences in the composition of the Top 30 companies between the two dates and re-financings undertaken during the period.
*Top 30 companies performance overview* *31 January 2023* *31 January 2022*
LTM revenue growth¹ 21.9 % 27.1 %
LTM EBITDA growth¹ 21.5 % 29.6 %
LTM EBITDA margin^2 25.8 % 26.6 %
Net Debt / EBITDA^3 4.7x 4.3x
Enterprise Value / EBITDA^3 14.3x 14.6x
*Total % of Portfolio* *38.3* *%* *39.0* *%*
1 Growth rates exclude PetSmart; Ambassador Theatre Group; MoMo Online Mobile Services (#1; #14; #28 /30 respectively), for which prior year comparators are not meaningful
2 Excludes MoMo Online Mobile Services (#28/30), for which EBITDA is not a relevant metric
3 Excludes PetSmart and MoMo Online Mobile Services (#1 and #28 /30 respectively) for which EBITDA multiple is not an appropriate valuation metric
*Quoted company exposure*
We do not actively invest in publicly quoted companies but gain listed investment exposure when IPOs are used as a route to exit an investment. In these cases, exit timing typically lies with the manager with whom we have invested.
At 31 January 2023, ICG Enterprise Trust’s exposure to quoted companies was valued at £109.4m, equivalent to 7.8% of the Portfolio value (FY22: 10.3%). The share price of our largest listed exposure, Chewy, increased 4.5% in local currency (USD) during the year. ICG Enterprise Trust’s investment in PetSmart (which includes Chewy) has delivered a strong return on investment for our shareholders and remains our largest underlying exposure. Across the Portfolio, local currency losses from declines in public market valuations were largely offset in Sterling terms by positive FX gains.
At 31 January 2023 there was one quoted investment that individually accounted for 0.5% or more of the Portfolio value:
*Company* *Ticker* *31 January 2023*
*% of Portfolio value*
Chewy (part of PetSmart)^1 CHWY-US 3.6 %
Other companies 4.2 %
Total *7.8* *%*
1 Value includes entire holding of PetSmart and Chewy. Majority of value is within Chewy
*Realisation activity*
Realisation Proceeds during the year amounted to £252.0m, equivalent to 21.5% of our opening Portfolio value (five year average: 23.9%).
There were 54 Full Exits of Portfolio holdings during the period, generating proceeds of £133.2m. These were completed at a weighted average Uplift to Carrying Value of 23.9% and weighted average Multiple to Cost of 2.7x. We believe that the ability to continue to sell assets at an uplift to NAV reflects the sustained demand for high-quality assets and underpins our confidence in the valuation of our Portfolio.
The 10 largest underlying realisations in the period, which represent 33.9% of Total Realisation Proceeds, are set out in the table below:
*Investment* *Description* *Manager* *Country* *Proceeds £m*
DOC Generici Manufacturer of generic pharmaceutical products ICG Italy 24.3
IRI Provider of mission-critical data and predictive analytics to consumer goods manufacturers New Mountain Capital United States 22.8
Random42 Provider of medical animation and digital media services Graphite Capital United Kingdom 5.6
proALPHA Provider of application software services ICG Germany 5.1
YSC Consulting Provider of leadership consultancy and assessment services Graphite Capital United Kingdom 4.9
Park Holidays UK Operator of UK campsites and holiday parks ICG United Kingdom 4.9
Konecta Provider of business process outsourcing ICG Spain 4.8
The Groucho Club Operator of members' club Graphite Capital United Kingdom 4.4
Romans Provider of residential sales & letting services Bowmark United Kingdom 4.3
Pirum Systems Provider of financial services technology Bowmark United Kingdom 4.2
*Total of 10 largest underlying **realisations* *85.4*
*New investment activity*
Total new investment of £287.2m for the financial year, with new investment by category detailed in the table below. Within our Primary investments during the period, £131.5m was to Third Party managers and the remainder (£7.1m) was to ICG-managed funds.
*Investment Category* *31 January 2023*
*Cost £m* *31 January 2023*
*% of new investments*
Primary 138.6 48.3 %
Direct 70.1 24.4 %
Secondary 78.5 27.3 %
*Total* *287.2* *100.0* *%*
During the year we made nine new Direct Investments for a combined value of £68.3m: The balance of Direct Investments is comprised of £1.8m of incremental drawdowns across existing Direct Investments.
In total, 47.8% (£137.3m) of our new investments were alongside ICG.
The 10 largest underlying new investments in the period were as follows:
*Investment* *Description* *Manager* *Country* *Cost £m*^*1*
Precisely Provider of enterprise software Clearlake Capital United States 15.5
ECA Group Provider of autonomous systems for the aerospace and maritime sectors ICG France 13.0
KronosNet Provider of tech-enabled customer engagement and business solutions ICG Spain 12.5
Newton Provider of management consulting services ICG United Kingdom 12.4
Vistage Provider of CEO leadership and coaching for small and midsize businesses in the US ICG United States 8.6
Access Provider of business management software to mid-market companies HgCapital United Kingdom 6.4
Zips Car Wash Provider of car washing services ICG United States 4.2
Gateway Services Provider of pet aftercare and cremation services ICG Canada 3.9
Partou Operator of kindergartens in the Netherlands ICG Netherlands 3.2
Pro Alpha II Provider of application software services ICG Germany 2.9
*Top 10 largest underlying new investments* *82.4*
1 Represents ICG Enterprise Trust's indirect investment (share of fund cost) plus any direct investments in the period.
*Commitments*
During the year, we made new fund Commitments of £203.2m, including £65.9m to funds managed by ICG.
We maintained our diligence in identifying leading managers who complement our long-term strategic objectives, are committed to values aligned to our Responsible Investing framework, and have an investment approach that suits our defensive growth focus. A number of commitments were made to managers with whom we have longstanding relationships and who have a strong track record of offering us attractive co-investment opportunities, such as PAI and Gridiron. At the same time, we continued to originate new manager relationships, making commitments to three new managers during the financial year, Leonard Green & Partners, Thoma Bravo and Integrum.
The breakdown of new Commitments to funds was as follows:
*Fund* *Manager* *Focus* *Commitment during the period* *Local currency* *£m*
ICG LP Secondaries Fund I ICG LP-led secondary transactions $60.0m £45.5m
ICG Ludgate Hill III ICG Secondary portfolio $25.0m £20.4m
PAI Europe VIII PAI Mid-market and large buyouts €25.0m £20.9m
Green Equity Investors Side IX Leonard Green & Partners Large buyouts $20.0m £17.2m
Advent X Advent Large buyouts €20.0m £16.8m
Gridiron V Gridiron Mid-market buyouts $20.0m £15.0m
CDR XII Clayton, Dubilier & Rice Mid-market and large buyouts $15.0m £13.4m
Permira VIII Permira Large buyouts €15.0m £12.6m
Bain Capital Europe VI Bain Capital Mid-market and large buyouts €15.0m £12.6m
Integrum I Integrum Mid-market buyouts $10.0m £8.5m
Thoma Bravo XV Thoma Bravo Mid-market and large buyouts $10.0m £8.0m
Hg Genesis X Hg Capital Mid-market buyouts €5.0m £4.2m
Bain Tech Opportunities II Bain Capital Mid-market buyouts $5.0m £4.1m
Hg Saturn III Hg Capital Mid-market and large buyouts $5.0m £4.0m
At 31 January 2023 we had Total Undrawn Commitments of £496.7m, of which £367.0m were to funds within their investment period:
*£m* *31 January 2023*
* £m* *31 January 2022 *
*£m*
Undrawn Commitments – funds in Investment Period 367.0 323.0
Undrawn Commitments – funds outside Investment Period 129.7 96.0
*Total Undrawn Commitments* *496.7* *419.0*
Total available liquidity (including facility) (167.0) (208.0)
*Overcommitment net of total available liquidity* *329.7* *211.0*
*Overcommitment % of net asset value* *25.3* *%* *18.0* *%*
The increase in Total Undrawn Commitments during the year was due to the large number of funds seeking investors during the year, which ICG Enterprise Trust had anticipated and which allowed us to make a number of attractive Primary commitments. These commitments help lay the foundations of our investment program for the coming years.
Our commitments are made in the funds' underlying currencies, and the currency split of the outstanding commitments at 31 January 2023 was as follows:
*Outstanding Commitments* *31 January 2023*
* £m* *31 January 2023*
* %* *31 January 2022 *
*£m* *31 January 2022 *
*%*
– Sterling 16.9 3.4 % 28.7 6.8 %
– Euro 226.1 45.5 % 200.4 47.9 %
– US Dollar 253.7 51.1 % 189.5 45.3 %
*Total* *496.7* *100.0* *%* *418.6* *100.0* *%*
*Liquidity*
At 31 January 2023 we had a cash balance of £20.7m (31 January 2022: £41.3m) and total available liquidity of £167.0m. At 31 January 2023, the drawn debt was £65.4m (31 January 2022: nil). As a result we had a net debt position of £44.7m.
*£m*
*Cash at 31 January 2022* *41.3*
Realisation Proceeds 252.0
New investments (287.2)
Debt drawn down 65.4
Shareholder returns (21.9)
Management fees (21.2)
FX and other expenses (7.7)
*Cash at 31 January 2023* *20.7*
Available undrawn debt facilities 146.3
*Cash and undrawn debt facilities (total available liquidity)* *167.0*
At 31 January 2023 the Portfolio represented 108.1% of net assets (31 January 2022: 101.2%).
*£m* *% of net assets*
Portfolio 1,406.4 108.1 %
Cash 20.7 1.6 %
Drawn debt (65.4) (5.0) %
Co-investment Incentive Scheme Accrual (58.1) (4.5) %
Other net current liabilities (3.0) (0.2) %
*Net assets* *1,300.6* *100.0* *%*
Our objective is to be fully invested through the cycle, while ensuring that we have sufficient financial resources to be able to take advantage of attractive investment opportunities as they arise. Drawdowns of commitments are funded from Total Proceeds and, where appropriate, the debt facility.
*Dividend and share buyback*
In line with ICG Enterprise Trust’s progressive dividend policy, the Board has declared a final dividend of 9p per share, taking total dividends for the period to 30p (FY22: 27p), which represents an increase of 11.1% on the previous financial year.
As part of its ongoing focus on optimising the returns the Company delivers for its shareholders, in October the Board announced the introduction of a long-term program of share buybacks, which may be executed at any discount to NAV. Details of share repurchases made under this programme up to 31 January 2023 are provided below:
*FY23*
Number of shares purchased 191,480
Aggregate consideration £2.1m
Weighted average discount to last reported NAV 40.0 %
The Board believes the buyback programme demonstrates the Manager’s discipline around capital allocation; underlines the Board’s confidence in the long-term prospects of the Company, its cashflows and NAV; will enhance the NAV per share; and, over time, may positively influence the volatility of the Company’s discount and its trading liquidity.
The Board reviews the size, mandate and efficacy of the buyback programme on a quarterly basis, to ensure it is working in the long-term interests of shareholders and in line with the objectives outlined above.
The Board retains absolute discretion as to the execution, pricing and timing of any share buybacks, subject to the conditions set out in the authority to execute share buybacks approved at the Company's 2022 Annual General Meeting. Any shares repurchased by the Company will be held in treasury.
Both the progressive dividend policy and the buyback programme are being maintained.
*Changes to management fees and costs*
As announced at our Q3 FY23 trading update, the ICG Enterprise Trust Board and the Manager have agreed a revised management fee rate, effective from 1 February 2023. While the management fee arrangement will remain unchanged, a tiered cap as a proportion of NAV has been introduced at the following thresholds:
*ICG Enterprise Trust NAV* *Management Fee Cap*
< £1.5bn 1.25 %
≥ £1.5bn ≤ £2.0bn 1.10 %
> £2.0bn 1.00 %
The Board believes that this arrangement fairly compensates the Manager, while ensuring that ICG Enterprise Trust shareholders benefit from the economies of scale generated from growth in the Company’s NAV.
In FY23, management fees were equivalent to 1.34% of NAV. As an illustration, had the revised agreement been in place during this period, management fees would have been capped at 1.25%. This would have reduced the management fee by approximately 6.5% (approximately £1.1m).
The Manager has also agreed to absorb a number of ongoing costs previously paid for by ICG Enterprise Trust, in particular a material share of Sales and Marketing costs. The Board estimates that these are equivalent to approximately 25-30% of the General Expenses (which exclude management fees and finance costs) that would have been paid by ICG Enterprise Trust prior to this agreement being reached.
*Foreign exchange rates*
The details of relevant FX rates applied in this report are provided in the table below:
*Average rate for FY23* *Average rate for FY22* *31 January 2023 year end* *31 January 2022 year end*
GBP:EUR 1.1680 1.1696 1.1341 1.1971
GBP:USD 1.2257 1.3749 1.2320 1.3447
EUR:USD 1.0491 1.1758 1.0863 1.1229
*Activity since the period end*
Notable activity between 1 February 2023 and 31 March 2023 has included:
· Realisation Proceeds of £49.4m, including initial proceeds from the sale of Endeavor Schools, announced on 2 February 2023
· New investments of £19.8m, which included one follow-on Direct Investment of £0.5m
· 3 new Fund Commitments for a combined value of £55.6m
· £3.1m shares bought back at a weighted average discount to NAV of 42.0%^1
*Outlook*
We remain alert to continued macroeconomic headwinds such as increased input costs, rising rates, and capital constraints in the wider financial markets. These factors continue to have the potential to impact the performance of our Portfolio companies, the valuation of our Portfolio and the rate of deployments and realisations our Portfolio experiences. We are continuing to monitor the environment closely and are in regular dialogue with our Managers.
As outlined in our updated objectives, we are targeting a long-term Portfolio composition of approximately 50% Primary, 25% Direct and 25% Secondary investments, and evenly split between North America and Europe.
We are encouraged by the continued momentum of transaction activity within our portfolio throughout FY23. Our financial and operational ability to capitalise on the very attractive market for primary commitments has sown the seeds for our future primary and direct investment programme in the coming years, in what could be an attractive vintage for private equity investments.
As we reflect on a year characterised by uncertainty, we remain confident in our defensive growth strategy and are encouraged by the robust operating performance of our Portfolio.
*ICG Private Equity Fund Investments Team*
10 May 2023
*SUPPLEMENTARY INFORMATION*
This section presents supplementary information regarding the Portfolio (see Manager’s Review and the Glossary for further details and definitions).
*Portfolio composition*
We have a flexible mandate that enables us to deploy capital in primary, secondary and Direct Investments. Investments managed by ICG account for 29.2% of the Portfolio.
*Portfolio by calendar year of investment* *% of value of underlying investments *
*31 January 2023* *% of value of underlying investments *
* 31 January 2022*
2022 19.6 % 0.1 %
2021 25.1 % 25.1 %
2020 10.3 % 12.3 %
2019 12.0 % 15.4 %
2018 12.0 % 17.9 %
2017 6.7 % 9.6 %
2016 4.1 % 5.9 %
2015 4.1 % 6.6 %
2014 and older 6.1 % 7.1 %
*Total* *100.0* *%* *100.0* *%*
*Portfolio by sector* *% of value of underlying investments *
*31 January 2023* *% of value of underlying investments *
* 31 January 2022*
TMT 22.5 % 24.1 %
Consumer goods and services 20.9 % 20.8 %
Healthcare 13.3 % 16.6 %
Business services 12.6 % 11.0 %
Industrials 8.4 % 8.3 %
Education 7.0 % 5.1 %
Financials 5.0 % 5.5 %
Leisure 3.9 % 3.9 %
Other 6.4 % 4.7 %
*Total* *100.0* *%* *100.0* *%*
*Portfolio by fund currency*^1 *31 January 2023*
* £m* *31 January 2023*
* %* *31 January 2022 *
*£m* *31 January 2022 *
*%*
US Dollar 690.1 49.1 % 508.7 43.4 %
Euro 602.9 42.9 % 558.5 47.6 %
Sterling 113.0 8.0 % 104.7 9.0 %
Other 0.4 — % 0.3 — %
*Total* *1,406.4* *100.0* *%* *1,172.2* *100.0* *%*
^1 Currency exposure by reference to the reporting currency of each fund .
*Top 30 companies Portfolio Dashboard*
The Top 30 companies represented 41.8% of the Portfolio value at 31 January 2023. The tables below provide enhanced disclosure on the dispersion of financial and operational performance among the Top 30 on a value-weighted basis.
*Sector exposure* *% of value of Top 30 *
*31 January 2023*
TMT 26.8 %
Consumer goods and services 19.2 %
Business services 14.6 %
Healthcare 8.0 %
Education 10.8 %
Industrials 14.1 %
Leisure 6.5 %
*Total* *100.0* *%*
*Geographic exposure*^1 *% of value of Top 30 *
*31 January 2023*
North America 45.7 %
Europe 45.9 %
Other 8.4 %
*Total* *100.0* *%*
1 Geographic exposure is calculated by reference to the location of the headquarters of the underlying Portfolio companies
*LTM revenue growth* *% of value of Top 30 *
*31 January 2023*
<0% 12.8 %
0-10% 12.1 %
10-20% 26.1 %
20-30% 14.8 %
>30% 20.3 %
n.a.^1 13.9 %
*Total* *100.0* *%*
1 Reflects Petsmart (#1/30), Ambassador Theatre Group (#14/30) and MoMo Online Mobile Services (#28/30), for which EBITDA multiple or YoY comp is not relevant. For consistency, any excluded investments are excluded for all dispersion analysis
Top 30 average LTM revenue growth: 21.9% (weighted average, based on contribution to Portfolio value at 31 January 2023; any exclusions from average calculation are detailed in the footnotes to the table).
*LTM EBITDA growth* *% of value of Top 30 *
*31 January 2023*
<0% 17.1 %
0-10% 28.1 %
10-20% 21.2 %
20-30% 5.4 %
>30% 14.3 %
n.a^1 13.9 %
*Total* *100.0* *%*
1 n.a reflects Petsmart (#1/30), Ambassador Theatre Group (#14/30) and MoMo Online Mobile Services (#28/30), for which EBITDA multiple or YoY comp is not relevant. For consistency, any excluded investments are excluded for all dispersion analysis
Top 30 average LTM EBITDA growth: 21.6% (weighted average, based on contribution to Portfolio value at 31 January 2023; any exclusions from average calculation are detailed in the footnotes to the table).
*LTM EBITDA margin* *% of value of Top 30 *
*31 January 2023*
<10% — %
10-20% 27.8 %
20-30% 21.4 %
30-40% 22.8 %
>40% 14.1 %
n.a.^1 13.9 %
*Total* *100.0* *%*
1 n.a reflects Petsmart (#1/30), Ambassador Theatre Group (#14/30) and MoMo Online Mobile Services (#28/30), for which EBITDA multiple or YoY comp is not relevant. For consistency, any excluded investments are excluded for all dispersion analysis
Top 30 average LTM EBITDA margin: 27.7% (weighted average, based on contribution to Portfolio value at 31 January 2023; any exclusions from average calculation are detailed in the footnotes to the table).
*EV/EBITDA multiple* *% of value of Top 30 *
*31 January 2023*
0-10x 8.0 %
10-12x 10.3 %
12-13x 22.6 %
13-15x 19.2 %
15-17x 12.0 %
17-20x 6.4 %
>20x 7.5 %
n.a.^1 13.9 %
*Total* *100.0* *%*
1 n.a reflects Petsmart (#1/30), Ambassador Theatre Group (#14/30) and MoMo Online Mobile Services (#28/30), for which EBITDA multiple or YoY comp is not relevant. For consistency, any excluded investments are excluded for all dispersion analysis
Top 30 average EV/EBITDA multiple: 14.3x (weighted average, based on contribution to Portfolio value at 31 January 2023; any exclusions from average calculation are detailed in the footnotes to the table).
*Net Debt / EBITDA* *% of value of Top 30 *
*31 January 2023*
<2x 9.8 %
2-4x 12.7 %
4-5x 19.2 %
5-6x 18.2 %
6-7x 14.3 %
>7x 11.9 %
n.a.^1 13.9 %
*Total* *100.0* *%*
1 n.a reflects Petsmart (#1/30), Ambassador Theatre Group (#14/30) and MoMo Online Mobile Services (#28/30), for which EBITDA multiple or YoY comp is not relevant. For consistency, any excluded investments are excluded for all dispersion analysis
Top 30 average Net Debt/EBITDA multiple: 4.7x (weighted average, based on contribution to Portfolio value at 31 January 2023; any exclusions from average calculation are detailed in the footnotes to the table).
*Top 30 companies*
The table below presents the 30 companies in which ICG Enterprise Trust had the largest investments by value at 31 January 2023. The valuations are gross of underlying managers fees and carried interest.
*Company* *Manager* *Year of investment* *Country* *Value as a % of Portfolio*
*1* *PetSmart / Chewy* Retailer of pet products and services BC Partners 2015 United States 3.6 %
*2* *Minimax* Supplier of fire protection systems and services ICG 2018 Germany 2.8 %
*3* *Endeavor Schools* Provider of paid private schooling Leeds Equity 2018 United States 2.2 %
*4* *Froneri* Manufacturer and distributor of ice cream products PAI 2013 / 2019 United Kingdom 2.0 %
*5* *Leaf Home Solutions* Provider of home maintenance services Gridiron 2016 United States 1.8 %
*6* *Yudo* Designer and manufacturer of hot runner systems ICG 2017 / 2018 South Korea 1.6 %
*7* *Precisely* Provider of enterprise software Clearlake 2021 / 2022 United States 1.4 %
*8* *AML **RightSource* Provider of compliance and regulatory services and solutions Gridiron 2020 United States 1.3 %
*9* *European Camping Group* Operator of premium campsites and holiday parks PAI 2021 France 1.3 %
*10* *Curium Pharma* Supplier of nuclear medicine diagnostic pharmaceuticals ICG 2020 United Kingdom 1.2 %
*11* *DomusVi* Operator of retirement homes ICG 2017 / 2021 France 1.2 %
*12* *DigiCert* Provider of enterprise security solutions ICG 2021 United States 1.2 %
*13* *David Lloyd Leisure* Operator of premium health clubs TDR 2013 / 2020 United Kingdom 1.2 %
*14* *Ambassador Theatre Group* Operator of theatres and ticketing platforms ICG / Providence 2021 United Kingdom 1.2 %
*15* *Newton* Provider of management consulting services ICG 2021 / 2022 United Kingdom 1.1 %
*16* *IRI/NPD* Provider of mission-critical data and predictive analytics to consumer goods manufacturers New Mountain 2022 United States 1.1 %
*17* *Visma* Provider of business management software and outsourcing services HgCapital / ICG 2017 / 2020 Norway 1.1 %
*18* *Planet Payment* Provider of integrated payments services focused on hospitality and luxury retail Advent / Eurazeo 2021 Ireland 1.1 %
*19* *Ivanti* Provider of IT management solutions Charlesbank / ICG 2021 United States 1.1 %
*20* *PSB Academy* Provider of private tertiary education ICG 2018 Singapore 1.0 %
*21* *Crucial Learning* Provider of corporate training courses focused on communication skills and leadership development Leeds Equity 2019 United States 0.9 %
*22* *Brooks Automation* Provider of semiconductor manufacturing solutions THL 2021 / 2022 United States 0.9 %
*23* *ECA Group* Provider of autonomous systems for the aerospace and maritime sectors ICG 2022 France 0.9 %
*24* *KronosNet* Provider of tech-enabled customer engagement and business solutions ICG 2022 Spain 0.9 %
*25* *Davies Group* Provider of speciality business process outsourcing services BC Partners 2021 United Kingdom 0.9 %
*26* *Class Valuation* Provider of residential mortgage appraisal management services Gridiron 2021 United States 0.8 %
*27* *AMEOS Group* Operator of private hospitals ICG 2021 Switzerland 0.7 %
*28* *MoMo** Online Mobile Services* Operator of remittance and payment services via mobile e-wallet ICG 2019 Vietnam 0.6 %
*29* *RegEd* Provider of SaaS-based governance, risk and compliance enterprise solutions Gryphon 2018 / 2019 United States 0.6 %
*30* *Vistage* Provider of CEO leadership and coaching for small and mid-size businesses in the US Gridiron 2022 United States 0.6 % *Total of the 30 largest underlying investments* *38.3* *%*
*The 30 largest fund investments*
The table below presents the 30 largest funds by value at 31 January 2023. The valuations are net of underlying managers’ fees and Carried interest.
*Fund* *Year of commitment* *Value *
*£m* *Outstanding commitment £m*
*1* *ICG Strategic Equity Fund III* GP-led secondary transactions 2018 35.6 11.3
*2* *ICG Ludgate Hill I* Secondary portfolio 2021 34.4 14.4
*3* *ICG Europe VII* Mezzanine and equity in mid-market buyouts 2018 33.4 6.8
*4* *CVC European Equity Partners VII* Large buyouts 2017 32.2 1.8
*5* *Gridiron Capital Fund III* Mid-market buyouts 2016 31.2 4.4
*6* *ICG LP Secondaries Fund I* LP-led secondary transactions 2022 30.8 27.4
*7* *PAI Strategic Partnerships* Mid-market and large buyouts 2019 27.0 0.5
*8* *Graphite Capital Partners VIII* Mid-market buyouts 2013 26.0 2.2
*9* *Gridiron Capital Fund IV* Mid-market buyouts 2019 24.3 1.4
*10* *CVC European Equity Partners VI* Large buyouts 2013 23.8 1.9
*11* *ICG Ludgate Hill III* Secondary portfolio 2022 23.4 1.8
*12* *PAI Europe VII* Mid-market and large buyouts 2017 23.0 4.5
*13* *ICG Strategic Equity Fund IV* GP-led secondary transactions 2021 22.1 15.9
*14* *Sixth **Cinven** Fund* Large buyouts 2016 21.4 1.4
*15* *New Mountain Partners V* Mid-market buyouts 2017 20.6 1.1
*16* *BC European Capital IX* Large buyouts 2011 19.3 0.7
*17* *Oak Hill V* Mid-market buyouts 2019 18.7 1.0
*18* *Resolute IV* Mid-market buyouts 2018 18.3 1.5
*19* *Advent Global Private Equity VIII* Large buyouts 2016 17.3 0.0
*20* *Advent Global Private Equity IX* Large buyouts 2019 17.2 1.7
*21* *BC European Capital X* Large buyouts 2016 16.6 1.4
*22* *Thomas H Lee Equity Fund VIII* Mid-market and large buyouts 2017 15.6 2.4
*23* *ICG Augusta Partners Co-Investor* Secondary fund restructurings 2018 15.4 18.9
*24* *Resolute V* Mid-market buy-outs 2021 15.0 2.3
*25* *Gryphon V* Mid-market buyouts 2019 14.2 2.6
*26* *AEA VII* Mid-market buyouts 2019 13.9 3.0
*27* *Graphite Capital Partners IX* Mid-market buyouts 2018 13.9 5.8
*28* *TDR Capital III* Mid-market and large buyouts 2013 13.8 1.5
*29* *Seventh **Cinven** Fund* Large buyouts 2019 13.8 6.4
*30* *PAI Europe VI* Mid-market and large buyouts 2013 12.9 1.1 *Total of the largest 30 fund investments* *645.1* *147.0* *Percentage of total investment Portfolio* *45.9* *%*
*PRINCIPAL RISKS AND UNCERTAINTIES *
*Risk management*
The execution of the Company’s investment strategy is subject to a variety of risks and uncertainties, and the Board and Manager have identified several principal risks to the Company’s business. As part of this process, the Board has put in place an ongoing process to identify, assess and monitor the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity.
*Risk management framework*
The Board is responsible for risk management and determining the Company’s overall risk appetite. The Audit Committee assesses and monitors the risk management framework and specifically reviews the controls and assurance programmes in place.
*Principal risks*
The Company’s principal risks are individual risks, or a combination of risks, that could threaten the Company’s business model, future performance, solvency or liquidity.
Details of the Company’s principal risks, potential impact, controls and mitigating factors are set out on pages 24 to 28.
*Other risks*
Other risks, including reputational risk, are potential outcomes of the principal risks materialising. These risks are actively managed and mitigated as part of the wider risk management framework of the Company and the Manager.
*Emerging Risks*
Emerging risks are considered by the Board as they come into view and are regularly assessed to identify any potential impact on the Company and to determine whether any actions are required.
Emerging risks often include those related to regulatory/legislative change and macro-economic and political change.
The Company depends upon the experience, skill and reputation of the employees of the Manager. The Manager’s ability to retain the service of these individuals, who are not obligated to remain employed by the Manager, and recruit successfully, is a significant factor in the success of the Company.
*Principal risks and uncertainties *
The Company considers its principal risks (as well as several underlying risks comprising each principal risk) in four categories:
*Investment risks:* the risk to performance resulting from ineffective or inappropriate investment selection, execution or monitoring.
*External risks:* the risk of failing to deliver the Company’s investment objective and strategic goals due to external factors beyond the Company’s control.
*Operational risks:* the risk of loss resulting from inadequate or failed internal processes, people or systems and ext