I
n
t
e
r
m
e
d
i
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
l
c
A
n
n
u
a
l
R
e
p
o
r
t
&
A
c
c
o
u
n
t
s
2
0
1
3
Annual Report
& Accounts 2013
Intermediate Capital Group plc
Front cover office location: London
Overview:
About ICG
Founded in 1989, ICG is a specialist asset manager
providing private debt, mezzanine finance, leveraged
credit and minority equity, managing over €12.9bn
(£11.0bn) of assets in third party funds and proprietary
capital. ICG has a large and experienced investment
team operating from its head office in London with
a strong local network of offices in Paris, Madrid,
Stockholm, Frankfurt, Amsterdam, Hong Kong, Sydney,
New York and Singapore. Its stock (ticker symbol: ICP)
is listed on the London Stock Exchange and is a member
of the FTSE 250. ICG is regulated in the UK by the
Financial Conduct Authority (FCA). Further information
is available at: www.icgplc.com.
What you’ll find online
You’ll find past results and presentations,
shareholder information (including shares
calculator), press releases, fund information,
our full investment portfolio, company
history and our team.
+ View www.icgplc.com
How we performed
Contents
Third party funds under
management
£m
Balance sheet
investments
£m
Our business
1
2
–
1
7
O
u
r
b
u
s
n
e
s
s
i
£8,353m
+15%
8,497
7,984
7,340
7,233
£2,696m
+15%
8,353
2,923
2,718
2,575
2,696
2,352
09
10
11
12
13
09
10
11
12
13
Fund Management
Company profit before tax
£m
Investment Company
profit/(loss) before tax
£m
£40.4m
+7%
38.0
37.7
35.9
40.4
30.9
£102.2m
(37)%
150.4
161.1*
102.2
67.8
(97.6)
Our business model
Chairman and CEO’s statement
Our strategic priorities
Progress towards our
strategic priorities
Key performance indicators
Business review
Our markets
Operating review
Financial review
Principal risks and uncertainties
Corporate social responsibility
Funds and portfolio
Our investment culture
Funds overview
Investment company portfolio
Governance
Chairman’s introduction
Board of Directors
Corporate governance
2
4
8
10
12
19
21
26
31
36
39
42
44
47
48
50
09
10
11
12
13
09
10
11
12
13
Report of the Remuneration Committee 56
Profit/(loss) before tax
£m
Dividends per share
Pence
£142.6m
(28)%
20p
+5%
198.8*
186.3
142.6
17
17
18
19
20
105.8
(66.7)
09
10
11
12
13
09
10
11
12
13
* Excludes a £45m one off release of previously accrued costs in relation to the
termination of legacy remuneration schemes.
Directors’ report
Directors’ responsibilities
Independent auditor’s report
Financial statements
Consolidated income statement
68
74
75
78
Consolidated and Parent Company
statements of comprehensive income 79
Consolidated and Parent Company
statements of financial position
Consolidated and Parent Company
statements of cash flow
Consolidated and Parent Company
statements of changes in equity
Notes to the accounts
Glossary
Shareholder information
Company information
80
81
82
84
110
112
112
1
8
–
3
7
i
B
u
s
n
e
s
s
r
e
v
e
w
i
3
8
–
4
5
F
u
n
d
s
a
n
d
p
o
r
t
f
o
o
l
i
4
6
–
7
6
G
o
v
e
r
n
a
n
c
e
7
7
–
1
1
2
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
i
F
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
2
Our business:
Our business model
What we do
We are a specialist asset manager providing private debt, leveraged
credit and minority equity.
As a trusted partner to more than 200 investors, we manage
over €12.9bn of assets in third party funds and proprietary capital,
investing globally in income generating alternative assets.
How we create value
Our outstanding track record over more than two decades means that
we are trusted by our investors to meet their needs by taking appropriate,
considered risks when investing. Our investors’ capital, along with our
experienced, specialist investment teams, enables us to access and profit
from opportunities that other fund managers and financial institutions cannot.
Assemble
Invest
Manage
Realise
Our team combines
institutional capital and
our own resources,
and in doing so earns
a fee for managing
third party money,
either when it is
committed or invested,
depending on the
product.
Our highly disciplined
investment processes,
industry sector
specialisms and
knowledge of local
markets underpin
every investment
decision.
Our investment in
private debt and senior
equity teams remain
fully engaged with
every asset throughout
its life cycle.
Our specialist credit
fund teams actively
manage their portfolio
to maximise returns.
We provide returns
to our investors, and
generate income for
the Group, throughout
the life of an asset,
through a combination
of the asset’s income
returns and capital
growth.
We return much of our income to shareholders in the form of dividends,
which have increased 18% over the last three years. Cash not returned
directly to shareholders is reinvested in the business.
18%
Our structure
The Fund management Company (FmC)
The FmC is the operating business of ICG plc that sources and manages
investments on behalf of third party funds and the IC.
Private debt
and senior equity
ICG’s funds invest in
mezzanine and minority
equity assets of proven
midmarket companies with
leading market positions.
Credit funds
Real estate debt
ICG credit funds deploy
third party capital investing
in senior loans and high
yield bonds of proven
European companies.
ICG Longbow’s funds
deploy third party
capital investing in real
estate mezzanine and
senior debt.
Distribution
ICG’s in-house distribution team raises third party capital for new funds.
The Investment
Company (IC)
The IC is the investment
business of ICG plc.
Balance sheet
investments
The Investment Company
co-invests alongside
the third party funds
at predetermined ratios
and provides seed capital
to launch and develop
new funds.
Infrastructure
Infrastructure teams support all aspects of the business covering operations, finance, HR, legal and compliance.
3
2
–
1
7
O
u
r
b
u
s
n
e
s
s
i
1
8
–
3
7
i
B
u
s
n
e
s
s
r
e
v
e
w
i
3
8
–
4
5
F
u
n
d
s
a
n
d
p
o
r
t
f
o
o
l
i
4
6
–
7
6
G
o
v
e
r
n
a
n
c
e
11
lOCAl TEAmS
171
EmPlOyEES
25
NATIONAlITIES
29
DIFFERENT
lANGuAGES
SPOKEN
Our competitive advantages
Our people are our key competitive advantage
Our team’s long track record, with 24 years experience in generating
income from alternative assets, means that we are trusted by our
partners to deliver returns.
Our Investment Committee members have an average of 18 years’
investment experience, of which eight was gained at ICG.
Our network of specialist investment professionals have unparalleled
access to, and knowledge of, their local markets, enabling them to
originate opportunities not available to our competitors and giving them
better access to portfolio companies.
We are close to our assets. We have Board seats or observer rights
in more than 80% of Investment Company portfolio companies.
Our distribution team’s relationships with institutional investors enhances
our fundraising capabilities and supports the growth of the business.
Our scalable infrastructure enables the investment and distribution teams
to grow the business, and ensures that the Group effectively manages
risk and meets its governance obligations.
7
7
–
1
1
2
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
i
F
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
4
Our business:
Chairman’s and Chief Executive’s statement
Overview
The past year has been one of great strategic
significance at ICG as we continue to evolve
into a global asset manager with the products
and expertise to satisfy today’s yield conscious
investors, and to take advantage of the structural
shift in our markets towards direct lending.
We have been successfully implementing
these changes against a backdrop of ongoing
challenges to the macroeconomic environment.
Opportunities in a
challenging environment
Global budgetary constraints have left many
governments and central banks with just one single
weapon in their armoury to address the current
economic slowdown. In a move reminiscent of
previous financial crises, the major central banks
have flooded the markets with liquidity and have
allowed more risky assets to be used as collateral.
Recent developments in the uS and Japan have
continued that trend.
With historically low interest rates driving yields
on traditional assets to very low levels, investors
have turned to higher yielding assets with good
downside protection. Debt markets have therefore
attracted renewed appetite from pension funds,
insurance companies and other institutions.
This has led to a burst of activity in the more liquid
high yield bond market which offers a source of
financing to larger companies.
There is a sharp contrast in conditions in the
loan market. The uS collateralised loan obligations
(ClO) market had high levels of issuance both in
2012 and in the first months of 2013. This additional
capital has led to reduced returns for investors, but
risk standards have been maintained. There are
signs of ClO activity in Europe, but more stringent
regulatory constraints have considerably slowed the
return of the debt ClOs such that the syndicated
loan market, which finances larger transactions,
still has a relatively subdued level of activity.
This inflow of capital has, to date, had little
effect on the midmarket. In both European corporate
and real estate lending activities, traditional lenders,
mainly banks, remain constrained and unwilling
to engage actively. Whilst new players are slowly
emerging to take advantage of the lending gap,
conditions and potential yields remain attractive.
ICG is now geared to take full advantage of the
renewed activity in the debt markets by continuing
to expand our network and exploit our strengths:
local knowledge and lending skills. However, we
are mindful that global instability and loose monetary
policies have led to major economic slowdowns
in the past. We remain extremely vigilant for any
sign of increased instability or distorted risk/return
characteristics and will maintain our investment
discipline at all times.
€12.9bn
ASSETS uNDER
mANAGEmENT
Justin Dowley
Chairman
Christophe Evain
Chief Executive Officer
£142.6m
PROFIT BEFORE
TAx
Strong year for fundraising and investing
The global search for higher yielding assets has
contributed to our success in attracting new capital
into our funds. We raised a record volume of third
party money, €2.3bn, in a single financial year.
These funds were raised across a number of products
with a more geographical and institutionally diverse
investor base than previously achieved. This is not
only a reflection of the attractiveness of our offering
and track record, but demonstrates the benefit of
the investment in our own distribution capabilities
over the past two years.
Our flagship ICG Europe Fund V closed in
December 2012, at its maximum size of €2.5bn,
of which €0.5bn was contributed by our Investment
Company. This was well above our target of €2.0bn
and the largest fund of its kind raised since 2007.
In addition, in January 2013 ICG longbow
broadened its product offering by raising a £105m
uK property senior debt fund quoted on the london
Stock Exchange. This momentum has continued
with our next ICG longbow mezzanine fund
expected to close at its maximum permitted size
of £700m and our Senior Debt Partners fund having
a first close. A further close is expected in the first
half of the new financial year.
Our local investment teams have thrived
in complex and challenging macroeconomic
environment and are still able to identify investment
opportunities with attractive returns in order to
deploy the increased level of funds we are managing.
All of our funds are investing on target and in total
we deployed £782m on behalf of our mezzanine
funds and balance sheet in the year, well in excess
of the £406m deployed in the year to 31 march 2012.
Continuing to manage portfolio
to maximise value
The lack of available senior debt in the market in
the early part of the financial year and the continuing
valuation gap between sellers and buyers has resulted
in a year of low realisations and realised capital gains.
However, since the turn of the calendar year we have
seen more liquidity in the market and, should this
remain, we expect that this will result in an increase
in realisations and exits in the next 12 months.
Since our year end, we have already seen the
repayment of the medi Partenaires PIK investment,
our largest individual asset, and the sale of our
Allflex investment, our second largest individual asset,
which will realise a capital gain of £106m on completion.
We expect further realisations during the year.
The investment portfolio remains broadly
resilient despite the continuing economic uncertainty
in Europe. However, our performance in the year has
been held back by a higher than expected level
of provisions in the first half, predominantly due
to material provisions against two large assets.
The second half saw a low level of net provisions,
in part due to writebacks on five assets which
are performing strongly.
Excluding single name events, like those in
the first half, and the outcome of restructurings
which are inherently difficult to forecast, we expect
provisions to remain in line with our long term
average for the foreseeable future.
The balance sheet equity portfolio valuation
increased by £118.6m during the year, of which
£58.9m has been taken through the current year
income statement, primarily driven by the recent
strength of the equity market.
Results in line with expectations
and refinanced balance sheet
The low level of realisations and increased provisions
means that the adjusted Group profit before tax was
£148.3m compared with £198.8m last year.
We have continued to refresh the funding of our
balance sheet during the year, extending £640m
of facilities for a further three years. In addition, we
raised £80m with a second retail bond and €11m
in private placements. Since the year end we have
raised a further uS$150m from private placements
and signed £100m of new facilities maturing in 2016,
which include a £67m rollover of an existing facility
and a new banking relationship. We will continue
to seek to diversify our sources of debt funding and
reduce our reliance on our largest lenders over the
medium term.
5
2
–
1
7
O
u
r
b
u
s
n
e
s
s
i
1
8
–
3
7
i
B
u
s
n
e
s
s
r
e
v
e
w
i
3
8
–
4
5
F
u
n
d
s
a
n
d
p
o
r
t
f
o
o
l
i
4
6
–
7
6
G
o
v
e
r
n
a
n
c
e
7
7
–
1
1
2
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
i
F
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
6
Our business:
Chairman’s and Chief Executive’s statement continued
Outlook
We are in a strong growth phase and we are building
the infrastructure and developing the products that
will enable us to evolve into a global alternative asset
manager with enhanced levels of client service.
We have invested to ensure that we are a leading
participant in the structural shift towards greater
levels of non bank lending.
Our product pipeline is strong which, along with
our dedicated global distribution team, is underpinning
the momentum in our fundraising. Preparations are
well advanced for the launch of a dedicated uS
product which will further broaden the geographical
spread of the business.
Since the year end we have seen positive signs
for realisations with the repayment of our investment
in médi Partenaires and the agreement to sell our
investment in Allflex. A number of other processes
are ongoing as sponsors look to exit their older
assets. Therefore, subject to the economic backdrop
remaining favourable, this could be a year of high
realisations and refinancings.
We remain focused on managing our portfolio,
with a particular focus on a small number of assets
which are undergoing restructuring. We are continuing
to maintain our investment discipline and our
investment pipeline remains buoyant.
Dividends
The Board continues to review cash core income
over a rolling three year period when considering
the dividend. Despite the low level of realisations
impacting cash core income in the year, the prior
year was a good year for realisations and since our
year end there has been an increase in realisations,
including the Group’s two largest assets. This together
with the momentum within the Fund management
business, has led the Board to recommend a final
dividend of 13.7p per share, making a total of 20.0p
per share for the year, up 5% on last year.
The existing scrip dividend alternative is being
discontinued and, in its place, shareholders will be
offered a dividend reinvestment plan (DRIP) for the
Fy14 interim dividend. If approved at the AGm, the
dividend will be paid on 24 July 2013 to shareholders
on the register on 14 June 2013.
Employees, new hires and the Board
Our people are critical to the business achieving its
strategic objectives and we thank them wholeheartedly
for the tremendous efforts they have made during the
last 12 months. Without their dedication we would
not have been able to raise and invest our funds, and
manage our assets successfully.
We have made significant progress in strategic
global hiring and building our marketing and client
relations team. Significantly we now have a global
distribution team in place headed by Andreas
mondovits who joined ICG from uBS and our North
American team is headed by Salvatore Gentile who
previously worked for Blackstone. In total we have
added 13% to our headcount as we position ICG
as a truly global alternative asset manager.
We also take this opportunity to welcome
formally Kim Wahl and lindsey mcmurray who joined
the Board as Non Executive Directors during the year
and are already making a strong contribution.
Justin Dowley
Chairman
Christophe Evain
Chief Executive Officer
How we are investing
Arundel Street, Portsmouth
A diverse income profile
Our role
We enabled the borrower to refinance a multi let retail
property in the centre of Portsmouth. On a tight timescale,
we provided a £10.5m whole loan, representing the total
debt of the asset, for a period of six years.
Our rationale
The property is made up of eight retail units which provide
a steady income stream. We view the loan principal and
exit fee as highly secure due to conservative leverage
against current valuation, with strong growth potential
from a forthcoming contracted uplift in rental income.
7
2
–
1
7
O
u
r
b
u
s
n
e
s
s
i
1
8
–
3
7
i
B
u
s
n
e
s
s
r
e
v
e
w
i
£700m
COmmITTED
By THE
INVESTmENT
COmPANy:
£50m
3
8
–
4
5
F
u
n
d
s
a
n
d
p
o
r
t
f
o
o
l
i
4
6
–
7
6
G
o
v
e
r
n
a
n
c
e
7
7
–
1
1
2
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
I
I
I
D
N
u
F
W
O
B
G
N
O
l
G
C
I
3
1
0
2
y
A
m
e
s
a
h
p
t
n
e
m
t
s
e
v
n
i
n
I
i
F
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
£242m
COmmITTED
By THE
INVESTmENT
COmPANy:
£50m
£104.6m
COmmITTED
By THE
INVESTmENT
COmPANy:
£10m
I
I
D
N
u
F
W
O
B
G
N
O
l
G
C
I
1
1
0
2
R
E
B
m
E
T
P
E
S
y
T
R
E
P
O
R
P
K
u
D
E
R
u
C
E
S
I
R
O
N
E
S
W
O
B
G
N
O
l
G
C
I
S
T
N
E
m
T
S
E
V
N
I
T
B
E
D
3
1
0
2
y
R
A
u
N
A
J
D
E
T
m
l
I
I
Case
study
ICG Longbow
Deep property expertise
Investment strategy
ICG longbow is a specialist investment
manager focused on uK commercial real estate
debt. The management team has an average
of 25 years of experience in property, lending
and investment management.
ICG longbow has a strong track record in
senior, mezzanine and whole loans, focusing
on supporting acquisitions and recapitalisations
where there is a clear value creation plan and
the sponsor has material cash equity at risk.
Its second fund of £242m invested, ICG longbow
is in the process of investing its £105m listed
senior debt fund and is currently raising its third
fund, focused on newly originated first charge
whole loans and mezzanine debt, which has
a maximum size of £700m.
Portfolio managers:
Kevin Cooper
and martin Wheeler
8
Our business:
Our strategic priorities
Grow our Fund
Management Company
We aim to increase AUM by building on the strong record
of our credit strategies and launching new products for
institutional investors and, to this end, we have established
an experienced distribution team in order to deepen further
our institutional reach.
1
Invest selectively
ICG has one of the widest and most experienced local
networks dedicated to sub-investment grade investments
and as a result has a strong deal origination capability.
2
Manage our portfolio
to maximise value
Regular involvement with portfolio companies
is fundamental to managing and supporting the
value of our investments.
3
Private debt and senior equity
Real estate debt
In private debt and senior equity, we continue to build on
our leadership position and strong track record in European
and Asia Pacific debt and continue to expand our presence
in the uS.
In uK commercial real estate debt, we see opportunities to
grow our ICG longbow franchise and replicate the success
we have enjoyed in the buyout market.
Credit funds
As one of the longest established European credit
managers we are well placed to grow Aum in senior loans
and high yield bonds through a growing range of investment
products. We are further seeking to exploit new opportunities
arising as a result of the liquidity shortage in Europe. Our
expanded distribution team is further helping in marketing
these opportunities to investors. In addition we will continue
to review opportunities to expand our franchise
geographically and through selective acquisitions.
Expanding our asset classes
Over the past 24 years ICG has built a leading global
mezzanine platform and a strong European leveraged loan
and high yield bond business. This success was achieved
by combining local, dedicated teams of investment
specialists with a common investment discipline and
operating platform. Since 2010 we have been active in the
uK real estate debt market through ICG longbow. We will
continue to grow our product offering through measured
expansion into adjacent asset classes where our core skills,
global reach and infrastructure can create value for our
institutional clients and shareholders.
Disciplined approach to investment
Each investment opportunity is considered individually
on its merits and in the context of the expected risk and
return requirements set by the Investment Committee.
Particular emphasis is placed on limiting the downside
risk of the investment and the underlying focus is on cash
flow generation and repayment of the investment. ICG’s
investment strategy has been underpinned by rigorous
analysis of the credit fundamentals of each investment
to achieve this aim.
For private debt and senior equity investments, we
recognise the importance of having local teams which
speak the languages and understand the cultures of the
markets in which they operate. These investment
teams have established our reputation as a trusted and
experienced investment partner with innovative structuring
ability. Equally important, our investment teams have built
longstanding relationships with local private equity sponsors,
banks, advisors and management teams, providing deal
flow and early access to investment opportunities.
Our European credit funds team are an experienced group
of sector specialists, who understand the market in which
they invest. For our liquid debt instrument portfolios, we
actively manage risk when trading investments by using
experienced traders.
Strong track record
Post-investment monitoring is a key focus of both ICG
investment executives and the Investment Committee
and typically we seek board attendance rights from
portfolio companies. Investment executives are responsible
for attending monthly or quarterly board meetings.
Board representation assists in:
– Effective portfolio management due to access
to management and company information; and
– Building and strengthening relationships with stakeholders,
which has historically provided a significant number of both
follow-on and new investment opportunities.
Closely monitoring investments enables us to identify
risks within the portfolio at an early stage. ICG executives
have experience in default situations and the recovery
of principal.
Through our investment and monitoring processes we
have achieved a strong track record since inception, with
our funds performing strongly against their peers and the
investment company targeting an average mid teens
internal rate of return on exited assets.
9
2
–
1
7
O
u
r
b
u
s
n
e
s
s
i
1
8
–
3
7
i
B
u
s
n
e
s
s
r
e
v
e
w
i
3
8
–
4
5
F
u
n
d
s
a
n
d
p
o
r
t
f
o
o
l
i
4
6
–
7
6
G
o
v
e
r
n
a
n
c
e
7
7
–
1
1
2
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
i
F
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
10
Our business:
Progress towards our strategic priorities
Priorities for Fy13
Grow our Fund
Management Company
1
Market drivers
The fundraising environment is improving due to the increased
liquidity in the market and the search for yield. That said, investors
continue to be cautious and increasingly selective in their choice
of investment partners.
For many investors, this leads to concentrating and deepening
asset manager relationships and, while highly diversified platforms
continue to win market share, we believe in the merits of being
specialised.
Our long term track record, specific investment propositions
and higher yield strategies are resonating well and Investors are
searching for this combination of disciplined active management,
credit quality and attractive yield.
Priorities for Fy13
Invest selectively
2
Priorities for Fy13
Manage our portfolio
to maximise value
3
Market drivers
European bank lending is constrained by the pressures on capital
and liquidity as well as the need for banks to refocus on their
domestic markets. A considerable imbalance in supply and
demand has arisen in that part of the market, providing investors
with the potential for attractive risk adjusted returns in the direct
lending space. This is particularly true of the midmarket where
companies do not have access to the syndicated loan and
high yield markets that are available to the larger companies.
We continue to see disparity between the uncertain supply and
the increasing demand for lBO debt, as well as general corporate
debt. We expect this situation to persist for a long period of time,
providing our mezzanine and direct lending businesses with
attractive investment opportunities.
In contrast to the European markets, the uS debt markets,
assisted by a less restrictive regulatory environment, are fully
functioning and therefore more competitive. local Asia Pacific
banks were less significantly impacted by the financial crisis and
the buyout market remains open.
Market drivers
The lack of available senior debt in the market in the early part of
the financial year and the continuing valuation gap between sellers
and buyers has resulted in a low period of transactions. However,
since the turn of the calendar year we have seen more liquidity in
the market and, should this remain, we expect that this will result
in an increase in lBO transactions in the next 12 months.
Progress
Priorities for 2014
Our product pipeline is strong which, along with our
dedicated global distribution team, is underpinning the
momentum in our fundraising. Preparations are well
advanced for the launch of a dedicated uS product
which will further broaden the geographical spread
of the business.
We have had a successful year at raising new capital for our funds,
raising €2.3bn of third party money. These funds were raised across
a number of products with a more geographically and institutionally
diverse investor base than previously achieved. This is not only a
reflection of the attractiveness of our offerings and track record, but
demonstrates the benefit of the investment in our own distribution
capabilities over the past two years.
Our flagship fund ICG Europe Fund V closed in December 2012
at its maximum size of €2.5bn, of which €0.5bn was contributed
by our Investment Company. This was well above our target of
€2.0bn and the largest fund of its kind raised since 2007. Further,
in January 2013, ICG longbow broadened its product offering
by raising a £105m uK property senior debt fund quoted on the
london Stock Exchange. This momentum has continued with
our next ICG longbow debt fund expected to close at its maximum
permitted size of £700m and our Senior Debt Partners fund having
a first close.
11
2
–
1
7
O
u
r
b
u
s
n
e
s
s
i
1
8
–
3
7
i
B
u
s
n
e
s
s
r
e
v
e
w
i
Progress
Priorities for 2014
Our recent fundraising achievements mean that we have
a lot of capital available to deploy. We therefore expect
to maintain our current investment rate subject to finding
investment opportunities with the appropriate risk/return
balance. We will maintain our historical disciplined
approach to investment.
The year to 31 march 2013 was a strong investment year for
the Group.
Ongoing economic uncertainty and the lack of availability in
senior debt meant deal flow in the wider European market was
slow in the 2012 calendar year, although this has since picked up.
However, our local network of experienced investment
professionals was able to generate and complete seven European
transactions during the course of the financial year. Our Asia Pacific
and uS teams have also completed one transaction each in Fy13.
Our European credit funds business continues to see a good
pipeline of new opportunities, aided by improved deal activity in the
middle market and a buoyant high yield market. In particular, our
Senior Debt Partners fund benefits from a strong current pipeline
of deals, attractively priced and structured, of which we expect to
close a number over the course of the new financial year.
3
8
–
4
5
F
u
n
d
s
a
n
d
p
o
r
t
f
o
o
l
i
4
6
–
7
6
G
o
v
e
r
n
a
n
c
e
Progress
Priorities for 2014
The Investment Company’s portfolio continues to demonstrate
resilience, with 61% of our portfolio companies by number
(75% on a value weighted average basis) performing above or
at the same level as the previous year. There are no changes to
the names of our weaker assets and we are engaged in a small
number of restructurings, primarily amongst our French portfolio.
Repayments over the year were at a low level given the
slowness of the European buyout market. We realised £128.8m
of principal repayments and £28.7m of PIK for the Investment
Company during the year.
In recent months, private equity sponsors are
increasingly looking to exit or refinance a number of their
investments, with a number of processes having already
begun. Visibility on timing remains unclear as sales
transactions continue to be delayed due to a valuation
gap between buyers and sellers. However, we do
expect the number of realisations to increase during
the next 12 months with businesses taking advantage of
cheaper refinancing options or current sponsors having
to return cash to their investors and therefore realise
assets, even at lower valuations than they expected.
7
7
–
1
1
2
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
i
F
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
12
Our business:
Key performance indicators
We have identified a number of key performance indicators (KPIs) for ICG
as a group and each of its two businesses: the Fund management Company
(FmC) and the Investment Company (IC).
Group
KPI
Review of performance
Staff retention
ICG recognises that the continuous development and retention
of exceptional people is key to delivering our strategic objectives.
– Headcount at 31 march 2013 was 171, up from 152 at 31 march 2012.
We have invested in, and developed, our in house marketing and client
relations team to drive the growth in assets under management.
We have also strengthened our uS and ICG longbow teams as
we increased our presence in their respective markets.
– We continue to emphasise the importance of continuing professional
development, having provided 59 different development opportunities
to our employees and continuing to invest in staff development. Average
training days delivered per employee were 3.0 days (2012: 3.6 days).
– We have developed a company specific “leadership for growth”
programme aimed at mentoring and developing future leaders within
the business. To date, 51 people have completed or are part way through
the programme.
– We expect each employee to receive full and frank development
feedback at least twice a year, and tailor all development to the specific
requirements of our individual employees.
– Employees continue to be appropriately rewarded through compensation
schemes which directly align their interests with those of our shareholders.
– Over the course of the year, we have seen staff turnover reduce by 3%,
which we believe is a reflection of our employees feeling appropriately
challenged, motivated, developed and remunerated. Total staff turnover
was 9%: 4% employer initiated, 5% employee initiated. By comparison,
the latest available data (IRS survey (2010)) states that average turnover
across industries was 15.9% but for financial services it was 19%.
– We conducted an Employee Engagement survey during the year which
attained an 87% response rate. The results were very positive and we
outperformed the Global Financial Services norms in all ten categories.
In the more stretching uK leading companies norms we outperformed
in six of the ten categories.
Our people
Staff numbers
171
13%
141
130
126
122
128
123
171
161
152
143
09
10
11
12
13
Employees at year end
Average number of employees
Jo Zendel
Head of Human Resources
Joined ICG in 2006 from Barclays Capital where
she held leadership positions in a variety of
functional disciplines across their human resources
team. With over 20 years HR experience in the
financial services industry, Jo is a Chartered
member of the Institute of Personnel and Development.
Group continued
KPI
Review of performance
Profit before
tax
Profit before tax has been impacted in the current year by the
reduction in realised capital gains and a lower average IC loan book.
– Profit before tax for the FmC was £40.4m up 7% on last year.
– Profit before tax for the IC, was £102.2m, down 37% on last year.
– Group profit was £142.6m, down 28% on last year.
The IC numbers are adjusted to exclude the one off release of previously
accrued costs of £45m in relation to our legacy medium Term Incentive
Scheme (mTIS) in Fy12 and the impact of fair value movements on
derivatives (Fy13: £5.7m; Fy12: £nil).
Profit before tax
£m
142.6m
(28)%
198.8*
186.3
142.6
105.8
(66.7)
09
10
11
12
13
Return on
equity
We aim to deliver mid-teens ROE over the financing cycle.
Return on equity
%
– The Group generated a ROE of 8.9% in the 12 months to 31 march 2013
compared to 11.5% in the 12 months to 31 march 2012.
– Shareholders’ funds at 31 march 2013 stood at £1,562.9m, up £112.2m
compared to 31 march 2012 (£1,450.7m), due to retained profit in the
year and the uplift from fair valuing our equity portfolio, offsetting
dividends paid.
8.9%
(22)%
11.5*
10.8
8.9
7.2
(8.8)
13
2
–
1
7
O
u
r
b
u
s
n
e
s
s
i
1
8
–
3
7
i
B
u
s
n
e
s
s
r
e
v
e
w
i
3
8
–
4
5
F
u
n
d
s
a
n
d
p
o
r
t
f
o
o
l
i
4
6
–
7
6
G
o
v
e
r
n
a
n
c
e
Cash core
income
The trend in cash core income over a rolling three year period
is a key determinant in our dividend policy.
– Cash core income is defined in the glossary on page 110.
– Cash core income decreased by 65% to £39.9m in the year (Fy12
£113.5m). The slow exit environment has meant a low level of accrued
interest realisations which has negatively impacted cash core income.
09
10
11
12
13
Cash core income
£m
39.9m
(65)%
115.1
113.5
106.7
53.4
39.9
09
10
11
12
13
* Adjusted for £45m one off release of
previously accrued costs in relation
to the termination of legacy
remuneration schemes
7
7
–
1
1
2
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
i
F
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
14
Our business:
Key performance indicators continued
Fund management Company
KPI
Review of performance
Assets under
management
It is our ambition to grow AUM organically and through
strategic acquisitions.
– Total Aum at 31 march 2013 were €12,930m, an increase of 13% in Euro
terms compared to €11,408m at 31 march 2012.
– mezzanine funds under management have increased by 33% to €4,928m
(2012: €3,714m) due to ICG Europe Fund V, ICG longbow’s third fund
and the ICG longbow listed Fund. We raised €1,744m of new third party
commitments for these. At the same time, we realised €547m in our older
funds, leading to a net inflow of €1,197m.
– Credit funds under management were flat on last year at €4,972m
compared to €4,965m. New funds raised for the period totalled €516m,
which was offset by realisations from our older ClOs amounting to €510m.
– The IC investment portfolio stood at £2,696m, an increase of 11%
as we made nine new investments in the year and exits were slower
than anticipated.
Fee income
Fee income is received by the FMC both on third party funds
and assets managed on behalf of the IC.
– Fee income, including the IC management fee recharge, increased
by 10% to £100.7m.
– mezzanine and equity funds: fee income increased by 34% to £58.2m
primarily driven by our Recovery Fund and, ICG Europe Fund V which
generated fees £22.5m greater than Fy12 (of which £7m are catch up
fees relating to the prior year). There was £0.3m of carried interest in the
current year compared to £7.0m in Fy12.
– Credit funds: fee income of £19.2m (2012: £23.2m) was 17% lower as a
result of run off from older CDOs and £3.3m of performance and junior
fee recoveries which did not recur in Fy13.
– The average carrying value of the IC’s portfolio was down 5% at £2,328.4m,
generating a lower fee from the IC to the FmC of £23.3m (2012: £24.5m).
Profit before
tax
Profit before tax up 11% due to fee income derived from
our latest funds.
– The profit before tax for the FmC was £40.4m and has grown by 7%
compared to £37.7m last year.
– This is driven by a 16% increase in external fee income (9% increase in
total income) offset partially by the increase in our cost base.
30.9
– Operating costs have increased 10% in the year following the investment
in the distribution team and uS business.
Total AUM
€m
12,930m
+13%
3,016
5,007
4,166
2,942
2,743
2,729
4,667
5,575
4,965
3,572
3,461
3,714
3,030
4,972
4,928
09
10
11
12
13
Mezzanine and equity
CFM
IC assets
Fee income
£m
100.7m
+10%
26.7
27.8
25.7
21.7
31.8
16.2
34.6
23.7
32.4
23.3
19.2
58.2
24.5
23.2
43.5
09
10
11
12
13
Mezzanine and equity
CFM
IC assets
Profit before tax
£m
40.4m
+7%
38.0
35.9
37.7
40.4
09
10
11
12
13
Investment Company
KPI
Review of performance
Capital gains
and provisions
Our portfolio of investments remains resilient despite the continuing
economic uncertainty in Europe. The lack of available senior debt in
the market during FY13 has resulted in a year of low realisations and
realised capital gains. Managing our investments to maximise value
remains a key priority.
– Capital gains of £73.0m (2012: £118.0m), included £14.1m of realised
gains (2012: £73.8m). The Group added £118.6m to the equity portfolio
during the year, of which it is estimated two thirds is driven by the recent
strength of the equity market. This comprises of an income statement
movement of £58.9m and a reserves movement of £59.7m.
Capital gains
and impairments
£m
1
8
–
3
7
(7.0)m
(115)%
132
118
99
73
31
(71)
(71)
(80)
– Net impairments for the 12 months to 31 march 2013 were higher at
(162)
£80.0m (2012: £70.6m). Gross impairments for portfolio companies were
£141.1m (2012: £83.5m). Write backs of past impairments due to the assets
showing strong operational performance were £61.1m (2012: £12.9m).
(237)
09
10
11
12
13
Impairments
Capital gains
New
investments
and repayments
The year saw a high level of investments with our funds
investing on target.
New investments
and repayments
£m
– Despite the challenges of the macroeconomic environment our local
teams are able to still generate investment opportunities with attractive
returns in order to deploy the increased level of funds which we are
managing.
– We deployed £261m on behalf of our balance sheet in the year, well in
excess of the £122m deployed in the year to 31 march 2012.
– We made nine investments in Europe, the uS and Australia, and have
signed a further investment in Europe since the year end.
– We saw a low level of repayments and realisations during the year, but
a number of portfolio companies have begun exit processes which we
expect to complete during Fy14.
131.8m
+154%
411
311
261
97
122
(84)
(224)
(129)
09
10
(388)
11
(365)
12
13
Repayment
New investment
Investment
track record
Through the quality of our investment and monitoring process we
have achieved a very strong track record since inception. We aim to
maintain this track record through rigorous asset selection and active
portfolio monitoring.
– Since inception we have invested in 364 transactions on behalf of the
Investment Company. We have realised 272 of these investments with
an average internal rate of return (IRR) of 19% and average money
multiple of 1.6 times.
– The low level of realisations in the current year has resulted in no
significant impact on our historical track record.
– Based on the latest available information the majority of our funds
continue to demonstrate top quartile performance compared to private
equity funds.
15
2
–
1
7
O
u
r
b
u
s
n
e
s
s
i
i
B
u
s
n
e
s
s
r
e
v
e
w
i
3
8
–
4
5
F
u
n
d
s
a
n
d
p
o
r
t
f
o
o
l
i
4
6
–
7
6
G
o
v
e
r
n
a
n
c
e
7
7
–
1
1
2
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
i
F
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
16
Our business:
Case
study
Europe Fund V
Our most diverse investor base
Investment strategy
ICG Europe Fund V capitalises on the
Group’s highly successful European
investment strategy, built up over 24 years.
The fund will invest in support of buyouts,
refinancing and sponsorless investment
opportunities in European midmarket companies.
Portfolio managers:
Benoît Durteste
and Rolf Nuijens
€2bn
ICG EuROPE FuND V
2011
€1.2bn
ICG EuROPE FuND IV
2006
€85m
ICG mEzzANINE
FuND
1998
€668m
ICG mEzzANINE
FuND III
2003
€307m
ICG mEzzANINE
FuND II 2000
European Mezzanine third party funds raised since 1998
Fundraising
ICG Europe Fund V held its final close in December 2012, exceeding its €2bn target
(€500m of which is committed by the Investment Company) by €500m. At the time
ICG Europe Fund V constituted the largest fund of its type to be raised since 2007.
ICG Europe Fund V attracted investment from both a far wider geographical base and a
more diverse set of investors than have past offerings. The fund has a broad global base
of support evenly split between North America, Asia Pacific and EmEA, and the banks
were replaced by long term investors such as pension funds and sovereign wealth funds.
ICG European Fund Investor Geography
2006
Fund V
ICG European Fund Investor Type
2006
Fund V
17
2
–
1
7
O
u
r
b
u
s
n
e
s
s
i
1 Europe/middle East
70% 38%
1 Pension Funds
2 Asia Pacific
3 North America
20% 30%
2 Foundations
10% 32%
3 Sovereign Wealth Fund
1
1
3
2
3
2
4 Asset managers
5 Insurance companies
6 Banks
6
1
1
5
4
6
5
2
3
4
2
3
17% 38%
3%
3%
16% 33%
26% 11%
17% 14%
21%
1%
1
8
–
3
7
i
B
u
s
n
e
s
s
r
e
v
e
w
i
3
8
–
4
5
F
u
n
d
s
a
n
d
p
o
r
t
f
o
o
l
i
4
6
–
7
6
G
o
v
e
r
n
a
n
c
e
How we are investing
Esmalglass – Itaca
Discovering value
Our role
Our local team knew the asset well and identified
the opportunity early, taking advantage of a stagnant
Spanish lending market – we had a longstanding
relationship with the sponsor, and so were able
to approach them with a credible financing option.
ICG underwrote the full €105m Private Senior loan
and €6.6m of equity at a historically low entry valuation
to support the secondary buyout by Investcorp.
Our rationale
Esmalglass – Itaca is a leading global producer of pigments
for the ceramic tile industry, with a strong, experienced
and committed management team. Headquartered in
Spain, the company is a truly global business with
significant emerging market exposure and negligible
Spanish revenues. The company has industry leading
profit margins and solid cash flow generation which,
combined with an attractive valuation and low leverage
multiples, makes for a very attractive risk reward profile.
7
7
–
1
1
2
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
i
F
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
18
Office location: New York
Business review
Contents
Our markets
Operating review
Financial review
Principal risks and uncertainties 31
Corporate social responsibility
36
19
21
26
Business review:
Our markets
19
As central banks have continued their aggressive quantitative easing policies, this year has
seen a noticeable return of liquidity in global debt markets. However, the impact has differed
significantly across regions and for different sizes of borrower.
larger European companies have had improved
access to debt, particularly through capital markets,
but the sustainability of this recovery is questionable.
During the financial year there was an absence of
significant new fund issuance in Europe and the
ever closer expiration periods of ClOs leave a
significant funding gap in syndicated loan markets.
Whilst the relatively apathetic large leveraged buyout
(lBO) market continues to be supported by the
reducing rump of these ClOs which are still active,
all of this residual capacity will disappear between
2013 and 2014. There are early signs that the
European ClO market may be returning, but it is
unlikely to be sufficient to replace the run off of the
older ClOs, as European regulators have imposed
new capital rules which should only make it possible
for the stronger fund managers to sponsor new
vehicles. While in the short term the loan market
remains sufficiently well supplied, there is some
uncertainty as to the medium term prospects of this
market as a reliable funding source in the absence
of sufficient new fund issuance.
The high yield market has been strong, allowing
the largest companies to find alternative and relatively
cheap sources of finance. With interest rates at very
low levels for the foreseeable future we expect this
market to stay strong for some time. However, we have
seen volatility in this part of the market, demonstrating
there are limitations to the expectation that this
source of finance could be the sole answer to the
funding gap.
meanwhile, small and midsized companies and
lBOs have traditionally relied on the bank market.
European bank lending is constrained by the
pressures on capital and liquidity as well as the
need for banks to refocus on their domestic
markets. A considerable imbalance in supply and
demand has arisen in that part of the market,
providing investors with the potential for attractive
risk adjusted returns in the direct lending space.
This is particularly true of the midmarket where
companies do not have access to the syndicated
loan and high yield markets that are available to
the larger companies.
We continue to see disparity between the
uncertain supply and the increasing demand for
lBO debt, as well as general corporate debt.
We expect this situation to persist for a long period
of time providing our mezzanine and direct lending
businesses with attractive investment opportunities.
Risk/return characteristics of private debt assets
are now at a very attractive level and, as a result,
institutional investors are increasingly attracted by
this well protected, well priced and growing asset
class. We believe that experienced specialist asset
managers, such as ICG, will play a leading role in
reshaping the European debt market in the coming
years by providing institutional investors access to
higher yielding assets.
Our people
Jeff Boswell
Portfolio manager
Joined ICG in 2008 from Investec where he was
Head of Acquisition Finance and Senior Portfolio
manager for Investec’s Gresham Capital ClO
programme. He established Investec’s Acquisition
Finance department in 2004. Over 15 years’
experience in the financial services markets; Jeff is
a CFA Charterholder and a Chartered Accountant.
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112Our business2 – 17
20
Business review:
Our markets continued
Fundraising market
The fundraising environment is improving due to
the increased liquidity in the market and the search
for yield. That said, investors continue to be cautious
and are increasingly selective in their choice of
investment partners. For many investors, that leads
to concentrating and deepening asset manager
relationships and, while there are advantages with
highly diversified platforms we believe in the merits
of being specialised. We are finding that our long term
track record, specific investment propositions and
higher yield strategies are resonating well. Investors
are searching for this combination of disciplined
active management, credit quality and attractive yield.
We have increasingly seen demand from a diverse
range of pension schemes, insurance companies
and sovereign wealth funds for high quality investment
opportunities in the credit space. These types of
institutions contributed to our extremely successful
fundraising of ICG Europe Fund V, where we attracted
a wide variety of investors across all geographies
and have shown strong interest in our Senior Debt
Partners fund. Further, the development of our global
distribution capability is enabling us to compete for
mandates from those investors who want to manage
a concentrated number of relationships, each with a
global network.
Our
people
Max Mitchell
Portfolio manager
for ICG Senior Debt
Partners fund
Joined ICG in 2001
from Arthur Andersen
Corporate Finance. Over
15 years’ experience,
max has worked in ICG’s
mezzanine business
in Europe and Asia
Pacific for 11 years and
now manages ICG’s
Senior Direct lending
fund in london. max is
a Chartered Accountant.
The uK real estate market shows similar
characteristics in that whilst there is an availability
of financing for prime location assets in the london
area, elsewhere there continues to be a significant
funding gap. Banks, for instance, have made a timid
return to the real estate lending market and have
tended to focus on prime location assets, with limited
investment appetite beyond this.
In contrast to the European markets, the uS
debt markets are fully functioning and therefore more
competitive, assisted by a less restrictive regulatory
environment. Finding yield is more challenging in a
well funded market but the buyout market is growing
and with it demand for traditional mezzanine. In
addition, the uS institutional loan market reopened
during the year and a significant amount of capital
has been raised by new ClOs. Even though pricing
levels are competitive, investors have remained
disciplined in their risk appetite. With a strong team
now in place, ICG will be in a position to take
advantage of the recovery in the mezzanine market
as well as the broader credit market.
local Asia Pacific banks were less significantly
impacted by the financial crisis. The buyout market
remains open and we are well placed in the region
with a solid pipeline of investment and product
opportunities. The investment pipeline in our core
markets remains strong, particularly in China and
Australia. However, transactions in the region,
especially in China, typically have a longer gestation
and execution timetable than in Europe and the uS.
Elsewhere, the withdrawal of international banks
from the Australian senior debt market has left a
funding gap in the market for institutional investors.
We have already begun preparations to provide an
institutional product to meet this demand. In addition,
there are increasing opportunities in the wider Asia
Pacific region, outside of our traditional heartlands,
and we continue to expand the geographical scope
of our business.
Operating review
We have continued to make progress towards achieving our strategic objectives:
1 Grow our Fund management Company
2 Invest selectively
3 manage our portfolio to maximise value
21
Grow our
Fund
Management
Company
1
A key measure of the growth of the FmC is the
increase in Aum. In this respect the last 12 months
have been very successful.
In the year to 31 march 2013 we raised €2.3bn
in new money across multiple products. This is the
most third party money we have ever raised in a
single financial year and, together with the benefit
of a low number of realisations, has resulted in a
13% increase in Aum in the year to €12.9bn at
31 march 2013. This includes €9.9bn of third party
funds. As a result third party fees increased 16% to
£77.4m in the year as we have been able to retain
our pricing structures.
Our enhanced distribution capabilities, due to
the investment made in our marketing and
distribution team over the last two years, leave us
well positioned to continue raising funds across
products and geographies. In addition, we are now
able to market ourselves to investors who are
looking to mandate a small number of partners who
have a global reach. This growth potential is further
underpinned by a strong balance sheet which
provides the FmC with access to seed capital.
An important driver to attract new and repeat
investors is the ongoing performance of our existing
funds. Based on the latest available information,
the majority of our funds continue to demonstrate
top quartile performance compared to private
equity funds.
Our people
mezzanine and equity funds
Third party mezzanine and equity funds under
management, including ICG longbow, have
increased by 33% to €4,928m primarily due to the
final close of our flagship fund, ICG Europe Fund V,
at its hard cap of €2.5bn. This is well in excess of the
original target of €2.0bn and constitutes the largest
fund of its type to be raised since 2007. ICG Europe
Fund V is comprised of a €500m commitment from
ICG and €2.0bn from third parties and is currently
26% invested.
ICG Europe Fund V will have a significant impact
on our long term fee income with a run rate over the
five year investment period of €23.0m per annum,
gradually reducing over the following five years as
we realise the Fund.
ICG Europe Fund V has a more geographically
balanced investor base than its predecessor funds
which were predominantly raised from European
institutions. The investor base in ICG Europe V is
almost evenly split between the uS, Europe and
Asia Pacific. Furthermore, our investor base has
been further strengthened by the diversity of investor
type, with a much smaller portion of commitments
from capital constrained banks. These have been
replaced by traditional institutional investors, such
as pension and sovereign wealth funds. This
provides a strong base for future fundraising.
Elsewhere, preparations for a dedicated North
America fund are well advanced and we have begun
to prepare for the successor fund to Intermediate
Capital Asia Pacific Fund II 2008 (ICAP08), which is
currently 55% invested.
Martin Wheeler
ICG longbow Board member
Jointly founded ICG longbow in 2006. Prior to
this he was a founding member of GmAC’s uK
Commercial mortgage business established
in 2002. martin, who is a qualified surveyor
(mRICS), has over 22 years’ experience in property
asset management, direct investing roles and
property finance.
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112Our business2 – 17
22
Business review:
Operating review continued
ICG longbow
Our investment in ICG longbow continues to
deliver ahead of expectations.
During the year ICG longbow completed
investing its £242m second mezzanine fund and
followed this with the launch of a new fund, ICG
longbow Fund III. This has a target size of £500m
and a maximum size of £700m. A first close in
December 2012 of £215m, which included a £50m
commitment from the Investment Company, and
is expected to close at its £700m maximum
size shortly.
Elsewhere, the team have capitalised on their
strong track record, extensive sourcing network
and the lack of available senior debt in the uK real
estate market, by raising a £105m listed senior debt
fund, ICG longbow Senior Secured uK Property
Debt Investments limited.
Credit funds
Third party credit funds under management have
remained flat at €4,972m. During the year we have
added €516m to Aum through the launch of new
funds and segregated mandates. This offsets the
run off of our older ClO funds.
Our Senior Debt Partners fund is a closed end
fund combining our existing expertise in originating
investment opportunities and our knowledge of the
European senior debt market. The fund will invest
in senior secured loans in European midmarket
companies. These direct investment opportunities
are originated and structured by a dedicated team,
supported by our existing and established local
network. There was a first close in march 2013
and a further close is expected in the first half of the
new financial year. The fund has a €1bn target size.
Our Total Credit fund was launched on 13 July
2012 with €50m of seed capital from ICG. The fund
has shown a strong performance since its launch,
with net asset value (NAV) up 15%. A good track
record will enable us to attract further third party
funds to the product.
Our open ended High yield Bond Fund continues
to build on its very strong track record, generating
a gross return of 41% since its inception on
31 December 2009. This is a testament to our ability
to invest selectively.
Our people
Garland Hansmann
Portfolio manager for ICG High yield Fund
Joined ICG in 2007 from Credit Suisse Asset
management where he was European Head of Credit
Research and in charge of managing CSAm’s high
yield portfolio. Over 18 years’ experience in asset
management, Garland is a CFA Charterholder and
member of the uK Society of Investment Professionals.
23
The year to 31 march 2013 was a strong investment
year for the Group. We invested £782.2m, including
£261.9m for our Investment Company.
Ongoing economic uncertainty and the lack of
availability of senior debt meant deal flow in the wider
European market was slow in 2012, although this
has picked up since. However, our local network of
experienced investment professionals was able to
generate and complete seven European transactions
during the course of the financial year, a tremendous
achievement in this slow market.
We supported the management led buyouts
of ATPI, a uK corporate travel and management
business with a focus on need-to-work travel,
and Symington’s, a uK food business with a focus
on value and convenience products. In continental
Europe, we were the sole debt provider for the
acquisition of Esmalglass by Investcorp. Esmalglass
is a leading supplier of key intermediate products
for the ceramics industry worldwide with significant
exposure to emerging markets. Further investments
included the senior debt of Icopal, an international
manufacturer of roofing and water proofing products;
a £256m portfolio of performing senior loans from
a European bank acquired on attractive terms;
an investment in the uK pension’s advisory company
Punter Southall and an investment in Norwegian
road side assistance company, Viking. Following
these transactions, ICG Europe Fund V is 26% invested
within the first 18 months and is well on track to
maintain this investment rate.
Since the year end we have supported, subject
to regulatory clearance, the management led buyout of
Euro Cater A/S, the largest food distributor in Denmark.
This continues the momentum of investing ICG
Europe Fund V.
The diversity of these investments demonstrates
that in the current European market there are few
standard mezzanine deals. As a result our local
investment teams have to work harder to source
transactions and structure them in a way that meets
the requirements of all parties.
Our Asia Pacific and uS teams have also
completed one transaction each in the period.
In Asia Pacific, we supported the acquisition
of SCF, a leading provider of specialist containers
in the Australian market. This is the second ICG
sponsorless transaction in Australia and took ICAP
08 to 55% invested. To allow the remaining capacity
to be invested, the Fund approved the extension of
the investment period by one year to April 2014.
In the uS, we have backed KRG Capital Partners’
acquisition of Convergint Technologies, investing in
subordinated debt and equity. Convergint Technologies
is one of the leading commercial security and life
safety system integrators in North America.
Our European credit funds business continues
to see a good pipeline of new opportunities, aided
by improved deal activity in the middle market and
a buoyant high yield market. In particular, our Senior
Debt Partners fund benefits from a strong current
pipeline of deals, attractively priced and structured,
of which we expect to close a number over the
course of 2013.
We continue to see a strong pipeline of new
investments and have significant capital to deploy.
However, we will remain extremely selective and
maintain our historical rigour in investment decisions.
Invest
selectively
2
Our
people
Rolf Nuijens
Head of North Europe
Joined ICG in 1998, and is responsible for Northern
Europe investments. Prior to this he worked for HAl
Investments, a private equity firm in The Netherlands.
Over 19 years’ experience gained within the European
private equity industry.
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112Our business2 – 17
24
Business review:
Operating review continued
€117m
FuNDS RAISED
TO DATE
Case
study
€19m
FuNDS INVESTED
€200bn
ESTImATED mARKET
OPPORTuNITy
ICG Senior Debt
Partners
Direct senior loan origination
Investment strategy
ICG’s Senior Debt Partners’ fund exploits our
expertise in originating investment opportunities
and our knowledge of the European senior
debt market.
This fund will invest in senior secured loans in
European midmarket companies. These direct
investment opportunities are originated and
structured by a dedicated team, supported by
our established local network.
To date, €117m has been raised (including €25m
from ICG) and interest levels among potential
investors are high.
Portfolio managers:
max mitchell
and Jeff Boswell
How we are investing
AIM Aviation
A strong relationship
with management
Our role
The key to unlocking this opportunity was the strength
of the relationship which ICG built with AIm Aviation’s
management and sponsors. This factor, in combination
with our ability to execute on a tight timescale,
secured for us the opportunity to invest. We are the
company’s largest lender, providing £30m (between
three ICG funds) of senior debt alongside two banks.
Our rationale
AIm Aviation is dedicated to the design and manufacture
of cutting edge aircraft interiors. The company has
a leading market position, exposure to high growth
sectors and low operating leverage. long term
relationships (and contracts) with its key customers
ensure excellent revenue visibility.
25
Manage our
portfolio to
maximise
value
3
The Investment Company’s portfolio continues to
demonstrate resilience, with 61% of our portfolio
companies by number (75% on a value weighted
average basis) performing above or at the same level
as the previous year. There are no changes to the
names of our weaker assets and we are engaged in
a small number of restructurings, primarily amongst
our French portfolio. Our investment teams are
actively engaged in restructurings in order to protect
our investments which can lead to us having greater
involvement in these companies.
Gross provisions of £141.1m were significantly
more than the £83.5m last year. The first half saw
material provisions taken against two assets which
account for £86.2m of the total. The second half
saw a lower level of provisions offset by write backs
on five assets which have seen a strong operational
recovery. Together, this has resulted in net
impairments for the year of £80.0m compared to
£70.6m in the prior year.
Whilst we do not expect that aggregate net
provisions will exceed our long term average in the
foreseeable future, single name events do periodically
occur. Furthermore, the negotiation stance of individual
parties in restructuring negotiations is becoming
increasingly unpredictable making it difficult to forecast
the outcome of these negotiations with any degree
of certainty.
Our portfolio is well positioned to withstand further
economic pressure, with an average leverage of 4.7
times EBITDA. This is much lower than the 5.8 times
of late 2008. Furthermore, businesses and sponsors
have had to focus on profitability and cash generation
in recent years thereby improving the underlying
resilience of these businesses. Our 20 largest assets
which account for 50% of our portfolio by value are
performing well, as are our new investments.
Repayments over the year were at a low level
given the slowness of the European buyout market.
We realised £128.8m of principal repayments and
£28.7m of PIK for the Investment Company during
the year. Since the year end £73.6m of principal and
£46.6m of PIK has been realised.
In recent months, private equity sponsors are
increasingly looking to exit or refinance a number
of their investments, with a number of processes
having already begun. Visibility on timing remains
unclear as sales transactions continue to be delayed
due to a valuation gap between buyers and sellers.
However, we do expect the number of realisations to
increase during the next 12 months with businesses
taking advantage of cheaper refinancing options
or current sponsors having to return cash to their
investors and therefore realise assets, even at lower
valuations than they expected.
Key priorities for the current year
Our key priorities include a focus on targeting new
third party money with our broad range of products
across geographies. In particular, our enlarged
distribution team will be aiming to significantly
increase the size of our Senior Debt Partners fund
and to make further progress with our Total Credit
fund during the course of the year.
Elsewhere, preparations for the launch of a
dedicated uS product are nearing completion and
early planning is underway for a successor fund to
ICAP 08. We will aim to advance both opportunities
during the next 12 months.
Our recent fundraising achievements mean that we
have a lot of capital available to deploy. We therefore
expect to maintain our current investment rate
subject to finding investment opportunities with
the appropriate risk/return balance. We will maintain
our historical investment discipline.
The recent increase in liquidity in the market
could result in a significant increase in realisations
during the year. These realisations will come from
either portfolio companies refinancing their existing
debt or sponsors exiting their investments.
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112Our business2 – 17
26
Business review:
Financial review
This review provides an overview of the Group’s
financial performance, position and cash flow for
the year and as at the year to 31 march 2013.
Overview
The Group’s profit before tax for the year was
£142.6m (2012: £243.8m). This comprises profit
before tax of the FmC of £40.4m (2012: £37.7m)
and profit before tax of the IC of £102.2m (2012:
£206.1m). Included in the profit of the IC and Group
are the impact of the fair value movements on
hedging derivatives of £5.7m (2012: £nil) in the
current year and in Fy12 a £45.0m one off release
of previously accrued costs in relation to the legacy
medium Term Incentive Scheme (mTIS). Excluding
these items the Group profit before tax for the
year was £148.3m (2012: £198.8m) and the profit
before tax of the IC was £107.9m (2012: £161.1m).
Throughout this review all numbers are
presented excluding these adjusting items, unless
otherwise stated.
The decrease in Group and IC profit before
tax for the year can be attributed to lower capital
gains as a result of lower exits during the year and
a reduction in net interest income, principally due
to a lower average IC loan book.
Taxation charge for the year was £18.8m (2012:
£56.2m). This includes a prior year one off tax credit
of £9.0m relating to the final payments made under
the mTIS. Excluding the effect of this the effective tax
rate is 20% (2012: 20%).
The Group generated a ROE of 8.9% (2012:
11.5%), which has been impacted by a low level of
realisations in the current year. The Group continues
to aim to deliver mid teens ROE over the financing
cycle. Earnings per share for the period were 33.6p
(2012: 39.2p). Cash core income for year was £39.9m
(2012: £113.5m) due to a lower level of realisations.
Aum as at 31 march 2013 increased to
€12,930m (£10,911m) from €11,408m (£9,507m)
as at 31 march 2012.
As at 31 march 2013, the balance sheet has
unutilised debt facilities of £355m. During the year
the balance sheet was refinanced through the
extension of £640m of bank facilities for a further
three years. In addition, the Group raised £80m with
its second retail bond. This second retail bond has
a maturity of eight years and bears interest at 6.25%.
Since the year end the momentum in continuing
to refinance our balance sheet and diversify our
sources of financing has continued. We have raised
a further $150m from private placements and signed
£100m of new facilities to 2016, which includes a
£67m rollover of an existing facility and a new
relationship bank.
£40.4m
FuND mANAGEmENT
COmPANy PROFIT
BEFORE TAx
Philip Keller
Chief Financial Officer
27
Our
people
Kevin Cooper
ICG longbow
Board member
Jointly founded ICG
longbow in 2006. Prior
to this he was a founding
member of GmAC’s uK
Commercial mortgage
business established
in 2002. Kevin, who
is a qualified banker
(ACIB), has over 25 years’
experience in various
credit and lending
businesses specialising
in structured property
finance.
The Group had net current liabilities of £409.4m at
the end of the year (2012: net current asset £6.9m).
The increase is attributable to £462.5m of existing
debt facilities expiring in the new financial year.
As outlined above, these have already been replaced
with new facilities which have a start date that
coincides with the roll off of the current facilities.
The Board has recommended a final dividend
of 13.7p per share (2012: 13.0p), which will result
in a full year dividend of 20.0p per share
(2012: 19.0p per share).
Profit and loss account
Fund management Company
Assets under management
Aum as at 31 march 2013 increased by 13% to
€12,930m (£10,911m) (2012: €11,408m (£9,507m)).
The movement in exchange rates has positively
impacted Aum denominated in GBP by 2%
compared to 31 march 2012.
Third party Aum increased by 14% to €9,900m
(2012: €8,679m). This increase comprised €2,260m
of new funds raised, offset by €1,057m of realisations
and a €18m positive impact of foreign exchange on
the value of the Group’s non Euro denominated funds.
Third party Aum includes €4,928m (2012: €3,714m)
in relation to mezzanine funds Aum, including ICG
longbow of €533.1m (2012: €254.3m), and €4,972m
(2012: €4,965m) in relation to Credit funds Aum.
mezzanine funds Aum has increased 33%
primarily due to additional funds raised on ICG
Europe Fund V of €1,418m. ICG Europe Fund V
closed in December 2012 at its hard cap of €2.5bn,
including €0.5bn investment commitment from the
IC. The increase in Aum as a result of ICG Europe
Fund V offset the expiration of the Recovery Fund 08
investment period during the year.
ICG longbow raised an additional £320m of funds
through ICG longbow Fund III which raised £215m
at its first close in December 2012, including a
£50m IC commitment, and a listed senior debt
fund which raised £105m in January 2013.
Credit funds Aum are flat on 2012 as realisations
on the older ClO funds of €510m have been offset
by new funds raised in the period of €516m.
The IC investment portfolio is £2,696m (2012:
£2,352m), this includes £183.0m (2012: £77.8m)
of seed equity and debt in ICG’s Credit Funds.
The increase in seed capital is principally due to
investment in ICG’s Total Credit Fund and Senior
Debt Partners.
Fee income
Fee income increased by 10% in the year to £100.7m
(2012: £91.2m). This comprises fee income from third
parties of £77.4m (2012: £66.7m), up 16%, and the IC
management fee of £23.3m (2012: £24.5m).
mezzanine and equity funds third party fee
income totalled £58.2m (2012: £43.5m). The increase
in third party fee income is attributable to the £26.2m
of fees earned from ICG Europe Fund V in the year,
a £22.5m increase on the prior year. This includes
catch up fees paid in respect of the prior year of
£7.0m. There was £0.3m of carried interest in the
current year as compared to £7.0m in 2012.
Credit funds third party fee income was
£19.2m (2012: £23.2m). Fee income in the prior
year included a catch up on deferred fees from
subordinated products from previous financial
years of £1.7m and £1.6m of performance fees.
Fee income on the older credit funds continues
to decrease as they are in realisation.
Other income
Other income of £1.9m (2012: £3.3m) includes
interest and dividends on CDO assets.
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112Our business2 – 17
28
Business review:
Financial review continued
£102.2m
INVESTmENT
COmPANy
PROFIT BEFORE TAx
Operating expenses
Operating expenses of the FmC were £61.8m (2012:
£56.4m), including salaries and incentive scheme
costs. Salaries were £20.9m (2012: £19.1m) following
the investment in the distribution team and uS
business. Other administrative costs of £26.3m
(2012: £23.8m) have increased 10.5% year on year
as the placement fees incurred on raising ICG
Europe Fund V have begun amortising. The cash
cost of placement fees will reduce for future
fundraisings as our in house distribution team
undertakes more of these activities.
Investment Company
Profit before tax for the IC was £107.9m (2012:
£161.1m).
Balance sheet investments
The balance sheet investment portfolio at 31 march
2013 of £2,696m is 15% up on last year’s £2,352m.
This includes £183.0m (2012: £77.8m) of seed capital
in ICG’s Credit Funds.
During the year the balance sheet made net
investments of £133.1m, which included £261.9m
new and follow on investments and total repayments
of £128.8m. Investments of £78.7m are held by ICG
Europe Fund V Jersey limited, the coinvest entity.
New investments in the period include Symington’s
and Esmalglass in Europe, SCF in Asia Pacific and
Convergint in the uS.
Proceeds on full exits in the year totalled £56.5m,
arising from the repayments of Dako, mayborn, meyn
and Team Systems. Total rolled up interest received
on all repayments (full and partial) was £28.7m.
In addition, the Sterling value of the portfolio
increased by £60.1m due to the appreciation of
Sterling. The portfolio is 63% Euro denominated and
13% uS dollar denominated. Sterling denominated
assets only account for 12% of the portfolio.
The investment portfolio comprises £1,246m
(46%) of senior mezzanine and senior debt, £427m
of junior mezzanine investments (16%) and £840m
of equity investments (31%). It excludes amounts
invested in ICG’s credit funds mentioned above.
The equity comprises £504m of non-interest bearing
equity and £336m of interest bearing equity.
Net interest income
Net interest income of £159.7m (2012: £183.9m)
comprises interest income of £214.3m (2012: £242.3m),
cost of funding from the FmC of £0.4m (2012: £0.4m)
less interest expense of £55.0m (2012: £58.8m). The
timing of investments and exits in the current and
prior year resulted in a decrease in the average IC
portfolio during the year. This contributed £20.0m of
the decrease in net interest income. Interest income
includes cash interest income of £72.4m (2012:
£84.8m) and rolled up interest income of £141.9m
(2012: £157.5m).
Our people
Simon Peatfield
Portfolio manager
Joined ICG in 2008 from Prudential m&G where he
spent five years in the Structured Credit Products
team managing cash CDOs invested in High yield
Bonds, leveraged loans, ABS and Private
Placements. Over 13 years’ industry experience,
Simon is an Investment management Certificate holder.
29
Our
people
Other income
Other income, principally waiver and prepayment
fees, amounted to £1.4m (2012: £1.5m).
Group cash flow, debt and
capital position
Salvatore Gentile
Head of North
America
Joined ICG in 2012
to head up ICG’s North
American operations.
Salvatore was previously
a Senior managing
Director and partner at
the Blackstone Group
where he was a co-founder
of the Blackstone
Corporate Debt Group.
Over 24 years of
investment experience.
Operating expenses
Excluding a cost of £25.7m in the prior year relating
to the final year of the mTIS scheme, operating
expenses amount to £25.3m (2012: £27.2m), of
which incentive scheme costs of £18.1m (2012:
£18.5m) are the largest components. Other staff
and administrative costs were £7.2m compared
to £8.7m last year.
The management fee on IC investments
managed by the FmC reduced to £23.3m (2012:
£24.5m) as a result of the reduction in the average
size of the loan book.
Capital gains
Capital gains in the year totalled £73.0m (2012:
£118.0m) of which £14.1m were realised (2012:
£73.8m) and £58.9m unrealised (2012: £44.2m).
The Group added £118.6m to the value of the
equity portfolio, of which an estimated two thirds
is driven by the recent strength of the equity market.
Of this, £58.9m is recognised as an income
statement movement and £59.7m as a movement
in reserves.
Impairments
Net impairments for the period were £80.0m
(2012: £70.6m). Gross impairments amounted
to £141.1m (2012: £83.5m), of which £86.2m is in
relation to two assets impaired in the first half.
Recoveries of £61.1m (2012: £12.9m) have been
taken on a number of assets which saw a strong
operational recovery during the period, one of
which underwent a successful restructuring post
the balance sheet date.
Cash flow
Operating cash out flow (excluding taxes paid) for
the year was £84.4m (2012: £426.6m net inflows).
The decrease in the net cash flows is largely
as a result of lower exits and increased investments
undertaken as compared to the prior year. Included
in the operating cash flow are the final mTIS
payments and capital gains on sales of investments.
Interest income received during the year was
£92.0m (2012: £198.1m). During the year, realisation
of rolled up interest decreased to £28.7m (2012:
£113.3m) due to the lower level of realisations.
Interest expense paid was £59.0m (2012: £50.4m),
including £18.6m (2012: £5.6m) of fees paid on
arranging and maintaining bank facilities. Dividend
income was £4.3m (2012: £9.0m).
Third party fee income received amounted to
£77.9m (2012: £70.9m). Operating expenses were
£101.6m (2012: £126.4m), including final payments
in respect of the mTIS of £39.0m (2012: £54.1m).
Tax expense paid was £45.4m (2012: £66.6m).
Repayments, syndication proceeds and recoveries
totalled £112.3m (2012: £246.7m). The decrease
is largely as a result of lower levels of exits during
the year.
During the year the Group invested £261.9m,
compared to £121.9m in the prior year, funded by
the drawdown of bank facilities. This further contributed
to the decrease in cash flow during the year.
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112Our business2 – 17
30
Business review:
Financial review continued
For the IC, whilst we do not expect that aggregate
net provisions will exceed our long term average
in the foreseeable future, single name events do
periodically occur and it is increasingly difficult to
forecast the outcome of restructuring negotiations.
We expect net interest income to continue to track
in line with the movement in the average loan book.
The current economic environment has created
an opportunity for sponsors to exit their assets.
As long as this continues the Group is expecting
to see an increased number of realisations. This will
place downward pressure on the loan book which
we expect to be partially offset by the investment
pipeline and the investment in seed capital that
will fuel the growth of the FmC.
Capital and debt position
Shareholders’ funds increased by 8% to £1,562.9m
(2012: £1,450.7m). This includes an uplift to reserves
of £59.7m from fair valuing investments in unlisted
shares and dividend distributions of £74.9m.
Total debt was £1,155m (2012: £979m). Net debt
to shareholders’ funds as at 31 march 2013 increased
to 74% from 66% in the prior year, which is attributable
to an increase in net investments during the year.
Financial outlook
For the FmC, continued fundraising activity across
a number of products is expected to increase
underlying fee income further. The current year
fee income includes one off catch up fees on ICG
Europe Fund V. Whilst these will not reoccur in the
new financial year there is the increased potential for
performance fees as older funds realise their assets.
The investment in the Group’s infrastructure and
global distribution team is now substantially complete
and contributing to the fundraising momentum.
The Fy14 results will reflect the annualisation of the
operating investment made during the previous
12 months and further growth in the uS.
Our people
Dagmar Kent Kershaw
Head of Credit Fund management
Joined ICG in 2008, following 10 years at Prudential
m&G as founder and Head of Structured Credit
Products, and previously Head of Debt Private
Placements. Over 20 years’ experience in credit and
structured finance markets, including previous roles
in credit markets at Scotiabank and NatWest Bank.
Principal risks and uncertainties
Risk management is the responsibility of the ICG Board, which
has put in place the following risk management structures:
31
Executive Committees and
management Boards
The Executive Committee
Comprises the managing Directors of ICG, who
each have a specific area of responsibility.
The Executive Committee has general responsibility for
ICG’s resources, implementation of strategy agreed
by the Board of Directors, financial and operational
control and managing the business worldwide.
The mezzanine and minority Equity
Investment Committee
Is chaired by Christophe Evain, CEO and Chief
Investment Officer (CIO). The Chairman selects up
to seven members among two pre-defined lists of
senior investment professionals including managing
Directors and senior members of the mezzanine
and equity business. One of these members will
be nominated as a sponsor member, to reflect the
specificities of the investment (geography, size,
nature of the transaction). The Committee members
are responsible for reviewing and approving all
investment proposals presented by investment
executives in accordance with the Investment Policy
set by the Board. The approval of the Board is
required for large investments according to pre set
thresholds. The mezzanine and minority Equity
Investment Committee also reviews and manages
potential and actual conflicts of interest, reviews
quarterly performance reports of our portfolio
companies, and coordinates management plans
for individual assets as necessary.
The Credit Funds Investment Committee
Is chaired by Christophe Evain, CEO and CIO. The
Chairman selects up to five members among two
pre-defined lists of senior investment professionals
including managing Directors and senior members
of the Credit Funds management team. One of these
members will be nominated as sponsor member,
depending on the specificities of the investment
(geography, size, nature of the transaction). The
Committee members are responsible for reviewing
and approving all investment proposals presented by
credit executives in accordance with the Investment
Policy. The Credit Funds Investment Committee also
reviews and manages potential and actual conflicts
of interest, reviews the quarterly performance
reports of our credit funds’ portfolio companies,
and coordinates management plans for individual
assets as necessary.
By chairing both Investment Committees,
the CIO ensures the Company’s Global Investment
Strategy is applied consistently across the firm.
The ICG longbow management Board
Is chaired by David Hunter, an independent
appointment of ICG. ICG and ICG longbow’s
management each appoint three representative
members, currently Christophe Evain, Philip Keller
and mark Crowther for ICG and martin Wheeler,
Kevin Cooper and Graeme Troll for ICG longbow.
The management Board oversees the activities
of ICG longbow.
The ICG longbow Investment
Committee
Is chaired by Graeme Troll and is comprised of
members representing the senior investment
professionals and credit and risk functions of
ICG longbow. The Committee is responsible for
reviewing and approving all investment proposals
relating to ICG longbow’s commercial real estate
debt funds. The Committee also reviews and
manages potential conflicts of interest, reviews the
quarterly performance reports of investments, and
coordinates management plans for individual assets
as necessary.
The Treasury Committee
Comprises four members including the CFO, Financial
Controller, and Group Treasurer and is responsible for
ensuring compliance with the Group’s Treasury Policy,
reporting any breach of policy to the Risk Committee,
monitoring external bank debt and bank covenants,
approving and monitoring hedging transactions and
approving the Group’s list of relationship banks.
Non Executive Committees
There are four Non Executive Committees in place to
support the Board’s functions: the Audit Committee,
the Risk Committee, the Remuneration Committee
and the Nomination Committee. Their membership
and roles are described in the Corporate Governance
section of this Annual Report.
Our key risks, and the ways in which we mitigate
them, are outlined on the following pages.
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112Our business2 – 17
32
Business review:
Principal risks and uncertainties continued
Business risks
Business risk is defined as the risk of loss resulting from the failure to meet strategic objectives.
Risk
Credit risk
The performance of the
Group’s funds and investment
portfolio is affected by
a number of factors. The
Group may experience poor
investment performance
(both in absolute terms and
relative to the performance
of portfolios managed by
competitors and relative
to other asset classes) due
to the failure of strategies
implemented in managing
the portfolio assets.
Fundraising risk
The Group may be unable
to raise future investment
funds from third parties.
Impact
Mitigation
ICG has a disciplined investment policy and
all investments are selected and regularly
monitored by the Group’s Investment
Committees. ICG limits the extent of credit
risk by diversifying its portfolio assets by
sector, size and geography.
ICG has a long track record in developing
credit related investment products for
institutional investors. The Group has
built a dedicated fundraising team to grow
and diversify its institutional client base
by geography and type.
The amount of assets under management and the
performance of the investment portfolio may also be affected
by matters beyond the Group’s control, including conditions
in the domestic and global financial markets and the wider
economy, such as the level and volatility of bond prices,
interest rates, exchange rates, liquidity in markets, credit
spreads, margin requirements, the availability and cost of
credit and the responses of governments and regulators to
these economic and market conditions. Adverse movements
in any of the global conditions described above could result
in losses on investments from the Group’s own balance sheet
in the investment portfolio and reduced performance fees
received on third party funds, all of which, individually or taken
together, could have a material adverse effect on the business,
financial condition, results of operations and/or prospects
of the Group.
The majority of third party funds currently managed by
the Group are not marked to market and, therefore, market
valuations have limited immediate impact on the amount of
assets under management.
This could limit the Group’s capacity to grow Aum and could
decrease the Group’s income from management, advisory
and performance fees and carried interest. The Group’s ability
to raise investment funds from third parties depends on a
number of factors, including the appetite of investors, the
general availability of funds in the market and competitor
fundraising activity. Certain factors, such as the performance
of financial markets or the asset allocation rules or regulations
to which such third parties are subject, could inhibit or restrict
the ability of certain third parties to provide the Group with
investment funds to manage or invest in the asset classes
in which the Group invests. Furthermore, loss of investor
confidence in the Group or in the alternative investment
sector generally, whether because of changes in investor
risk appetite, investor liquidity requirements, regulatory and
fiscal changes, poor relative or absolute performance of the
Group’s investment or alternative investment funds generally,
or for any other reason, could lead to an adverse impact on
the Group’s performance or financial position.
33
Business risks continued
Risk
Impact
Mitigation
liquidity and
funding risk
Liquidity and funding risk
is the risk that ICG will be
unable to meet its financial
obligations as they fall due
because assets held cannot
be realised.
The level of repayments on the Group’s loan portfolio and
consequently on the realisation of rolled up interest as well
as delays in realising minority interests could have a negative
impact on the Group’s investment capacity. In addition, there
can be no assurance that the Group will be able to secure
borrowings or other forms of liquidity in the longer term on
commercially acceptable terms or at all. Failure to secure
borrowings or other forms of liquidity on commercially
acceptable terms may adversely affect the Group’s business
and returns. The Group’s ability to borrow funds or access
debt capital markets in the longer term is dependent on
a number of factors including credit market conditions.
Adverse credit market conditions may make it difficult for
the Group to refinance existing credit facilities as and when
they mature or to obtain debt financing for new investments.
In addition, the cost and terms of any new or replacement
facilities may be less favourable and may include more
onerous financial covenants.
The Group maintains a portfolio of
investments that has both a diversified range
of maturities and a suitable mix of cash
paying and non cash paying investments in
order to minimise the risk that a significant
proportion of its assets would face concurrent
adverse conditions for repayments and
realisations. In addition the Group maintains a
prudent funding strategy. It is our policy to
maintain diverse sources of medium term
finance
and to ensure that we always have sufficient
committed but unutilised debt facilities.
market risks
Risks relating to the Group and its business.
Risk
Impact
Mitigation
General market
conditions
The Group’s strategy and business model are based
on an analysis of assumptions regarding its operating
environment. This includes market evaluations and the
identification and assessment of external and internal risk
factors. Significant unexpected changes or outcomes,
beyond those factored into the Group’s strategy and
business model may occur which could have an adverse
impact on the Group’s performance or financial position.
The Executive Committee regularly reviews
the likely impact of potential changes in the
operating environment and seeks, when
appropriate, advice from external experts
to support their review.
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112Our business2 – 17
34
Business review:
Principal risks and uncertainties continued
market risks continued
Risk
Impact
Interest rate risk
The Group and some of the
Group’s portfolio companies
are exposed to fluctuations
in interest rates which
could adversely affect the
Group’s returns.
The Group has a mixture of fixed and floating rate assets,
which are funded with a mixture of equity and borrowings.
A failure to match borrowings by type or maturity or the failure
or inappropriate use of derivative financial instruments for the
purpose of hedging could have an adverse impact on the
Group’s returns and financial condition. In addition, many of
the Group’s portfolio companies rely on leverage to finance
their business operations and increase the rate of return
on their equity. Investments in highly leveraged entities are
inherently more sensitive to interest rate movements.
Therefore, a significant increase in interest rates could
adversely affect the returns and financial condition of the
Group’s portfolio companies and may even lead to some
of the Group’s portfolio companies breaching financial or
operating covenants in their credit agreements or default
on their debt.
Mitigation
The Group seeks to minimise interest rate
exposure by matching the type, maturity and
currency of its borrowings to those of a group
of assets with a similar anticipated holding
period. The Group’s Investment Committees
take into account the ability of each portfolio
company to successfully operate under a
different interest rate environment both before
validating the investment and during the life
of the investment.
Foreign exchange risk
The Group is exposed to
fluctuations in exchange
rates which could adversely
affect the Group’s returns
and financial condition.
Concentration risk
The Group is exposed
to concentration risk
if its investment portfolio
is exposed to undue
geographical or sector
specific concentration.
Further, the Group is
exposed to concentration
risk when it is reliant
on a small number of
banks to provide balance
sheet funding.
The Group reports in Sterling and pays dividends from
Sterling profits. The underlying assets in the Group’s portfolio
are principally denominated in Euros, and to a lesser degree
in uS dollars and other currencies. Changes in the rates of
exchange of these currencies may have an adverse effect on
the value of the Group’s investments and any undrawn
amount of the Group’s debt facilities. Although the Group has
in place measures to mitigate the foreign exchange risk on its
assets and liabilities, to the extent that any structural currency
exposures are unhedged or unmatched, such exposure
could adversely affect the Group’s returns and financial
condition. Failure by a counterparty to make payments due
under derivative financial investments may reduce the
Group’s returns.
The Group seeks to reduce structural currency
exposures by matching loans and investment
assets denominated in foreign currency with
borrowings or synthetic borrowings in the
same currency. In addition, the Group has
used and continues to use derivative financial
instruments and other instruments on a limited
basis, as part of its foreign exchange risk
management, to hedge a proportion of
unrealised income recognised on a fair value
basis. The Group spreads its derivative
contracts across a number of counterparties
and regularly evaluates the counterparty risk.
The Group seeks to transact only with sound
financial institutions.
The Group invests only in certain geographies, industries
and sectors. If investment in any one geography, industry
or sector becomes unduly concentrated the Group could
suffer increased impairment to its investment performance
or increased financial loss as a consequence of adverse
market, economic or environmental conditions impacting that
particular geography, industry or sector. In addition, the Group
sources a significant proportion of its balance sheet funding
from a small number of banks. The Group could suffer
impairment to its ability to make investments or financial loss
in the event of failure of one, or more, of the relationship banks.
The Group has in place an investment policy
and robust investment process designed to
maintain appropriate diversification of the
investments made.
In addition, the Group seeks to increase
the proportion of its balance sheet funding
from non bank sources such as private
placements and the issuance of bonds.
Further, the Group’s Treasury Policy and
procedures are designed to diversify
bank-sourced balance sheet funding in
terms of quantum and maturity.
35
Operational risk
Operational risk is the risk arising from the people, systems and processes through which the Group operates.
Risk
Impact
Mitigation
loss of staff
If the Group cannot retain
and motivate its senior
investment professionals
and other key employees,
the Group’s business
could be adversely affected.
Regulatory risk
Exposure to new regulatory
regimes or changes to
existing regulatory regimes
under which the Group
operates or a breach of
applicable regulation to
which the Group is subject
could damage the Group’s
reputation and affect
the Group’s compliance
costs, returns and financial
condition.
The Group’s continued success is highly dependent upon the
efforts of the Group’s investment professionals and other key
employees. The Group’s future success and growth depends
to a substantial degree on the Group’s ability to retain and motivate
key employees, the market for whom is very competitive.
The Group may be unable to retain such key employees or
to continue to motivate them.
The Group’s investment professionals possess substantial
experience and expertise in investing and are responsible for
locating, executing and monitoring the Group’s investments.
The loss of even a small number of the Group’s investment
professionals could jeopardise the Group’s ability to source,
execute and manage investments as well as affect recoveries
on troubled assets, which could have a material adverse effect
on the Group’s business.
The Group operates in a number of jurisdictions and its business,
particularly the fund management part of the business, is subject
predominantly to the regulatory regimes of the united Kingdom
and Hong Kong from where core regulated activities are currently
undertaken. The Group’s strategy anticipates that it will undertake
regulated fund management activities in other jurisdictions as it
grows and, as a result, will over time become exposed to an
increased number of other regulatory regimes. The FCA is the
Group’s lead regulator. This will remain the case as long as the
Group is headquartered in the united Kingdom. The FCA and
other regulatory authorities, have broad regulatory powers dealing
with all aspects of financial services, including the authority to
grant, and in specific circumstances to vary or cancel permissions
and to regulate marketing and sales practices, advertising and
the maintenance of adequate financial resources. If the Group
were to breach any such laws or regulations, including those to
which it had not previously been subject, it would be exposed to
the risk of investigations, fines, temporary or permanent prohibition
from engaging in certain activities, suspensions of personnel or
revocation of their licenses and suspension or termination of
regulatory permissions to operate. While the Group currently
operates within the relevant regulatory framework, either its
expansion to new jurisdictions or changes in that existing
framework will increase costs and time spent on this area, and
increases the risk of failing to identify applicable requirements or
the risk of a breach due to the enhanced volume of requirements.
The Group attempts to reward its
investment professionals and other key
employees in line with market practice.
In 2009 the Group’s Remuneration
Committee commissioned
PricewaterhouseCoopers to review the
compensation structure of ICG and to
advise upon appropriate benchmarking
against which remuneration could be set.
Following this review, new remunerations
schemes were approved by shareholders
at the 2010 AGm. These schemes are
aligned with the Group’s strategy and in
line with the appropriate benchmark and
comply with the uK Financial Conduct
Authority (FCA) remuneration code.
The Group has in place a team of
dedicated compliance professionals
that supports the Board in meeting its
regulatory responsibilities which includes,
but is not limited to, identifying the laws
and regulations to which the Group’s
activities are exposed and establishing
policies and procedures to ensure
compliance with those regulations.
To assist in this the Compliance team will
draw on the expertise of local law firms
and compliance consultants in order to
identify applicable regulations as well as
assist in the formulation of appropriate
policies and procedures. In addition, the
Group has in place a governance
structure supported by a risk framework
that seeks to identify, control and mitigate
material risks faced by the Group, which
includes regulatory risks. The adequacy
of controls in place is periodically
assessed by a variety of methods
including tailored risk-based monitoring
programmes designed to specifically
address regulatory and reputational
exposure for each of the regulatory
regimes to which the Group is exposed.
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112Our business2 – 17
36
Business review:
Corporate social responsibility
£500k
5 yEAR COmmITmENT
FROm ICG TO
ImPETuS – PRIVATE
EquITy FOuNDATION
THINKFORWARD
PROGRAmmE
Overview
Principles of corporate social responsibility (CSR)
are fully incorporated into ICG’s business practices.
Both in terms of providing a framework for ICG
to operate in a responsible way, and as an investor.
This section provides some insights in how we
deploy CSR in practice across the business.
ICG is committed to conducting its business
and tax affairs in an open and transparent way.
We comply with our tax obligations globally and
in 2013, ICG paid corporate income taxes of
£45.4m. Further information on tax can be found
in our financial statements on page 100.
Responsible investing
ICG believes that Environmental, Social and
Governance (ESG) criteria can positively impact
investment performance as well as wider society.
ESG policies are incorporated into our investment
philosophy and process. This includes discussions
with the businesses that we invest in, about how
they deploy ESG practices and policies. All ESG
activities across ICG are supervised by ICG’s
ESG Committee. In addition ICG is a signatory of
the united Nations Principles for Responsible
Investment (uNPRI).
The aim of the uNPRI is to ensure that ESG
issues are considered during the investment process
and in subsequent monitoring. ICG acknowledges that
ESG issues can affect the performance of investment
portfolios. Investing practices which incorporate ESG
issues can be both financially profitable and profitable
for society as a whole. ICG incorporates ESG policies
where appropriate in the investment process.
This includes discussions with the businesses that
we invest in, about how they deploy ESG practices
and policies, and understanding the ESG impacts
of our entire portfolio.
For more information on uNPRI please visit
www.unpri.org.
> Think Forward
students are introduced to
different roles within ICG
> CFO Philip Keller
discusses the office
environment and his
experience at the July 2012
Think Forward Workshop.
37
Environment
ICG recognises that all businesses have a
responsibility to protect the environment and
understand the impact their operations have on
the environment. ICG will be participating in the
Carbon Disclosure Project, which operates under
the Climate Disclosure Standards Board (CDSB)
as the recognised authority for measuring the
impact businesses have on the environment.
The CDSB links financial and climate change
related reporting, helping companies evaluate the
risk and opportunities that climate change
represents to their strategy, and ultimately providing
information that helps filter out what is of most value
to investors in understanding how climate change
affects a company’s financial performance and
condition. For more information on the Carbon
Disclosure Project please visit www.cdproject.net
Social and community
ICG’s corporate social and community policy is
founded in a belief that ICG’s business operations
should positively impact society. Either through
responsible investment practices which incorporate
ESG factors or through our contribution to the
communities in which we operate around the world,
our social and community programme is grounded
in promoting opportunities to young people, through
education or work experience. In practice this
means making a contribution to education, creating
work experience opportunities and encouraging
employees to participate in these programmes.
ICG runs an internship programme which offers
four places each year. young graduates who have
achieved academically but do not come from
corporate backgrounds are encouraged to apply
for the positions. The internship offers the opportunity
to rotate through ICG’s key business areas,
providing that difficult first step on the career ladder.
In addition ICG has made a five year commitment
to be a corporate sponsor of the Private Equity
Foundation’s Think Forward programme. Think
Forward places coaches in schools where there are
young people who have been identified as “at risk”
of dropping out of education or training and
becoming “Neets” (not in education, employment or
training). The coaches work with the young people
to prevent disengagement and work with each
individual to help achieve their goals, providing
support both at school and at home.
For more information about Think Forward
please visit http://www.privateequityfoundation.org/
our-work/think-forward/
ICG facilitates an environment where employees
can participate in activities which contribute towards
a social purpose. In practice, this is through charitable
giving, active participation and through the application
of their knowledge, skills and resources to support
local good causes. ICG matches monies raised by
employees through fundraising activities.
< ICG CSR team
host Think Forward
students in ICG offices
and local business area.
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112Our business2 – 17
38
Office location: Singapore
Funds and portfolio
Contents
Our investment culture
Funds overview
Investment company portfolio
39
42
44
Funds and portfolio:
Our investment culture
39
Our people
Chris Heine
Head of Asia
Chris joined ICG in 2006
from CVC Asia Pacific
where he spent seven
years since its inception.
He manages ICG’s
Asia Pacific mezzanine
business. Chris has over
20 years’ experience with
a number of financial
institutions in Asia.
Our investment culture
mezzanine investment philosophy
ICG is a leading specialist asset manager providing
private debt, mezzanine finance, leveraged credit
and minority equity. With 24 years of mezzanine
investing experience we are one of the leading
independent mezzanine providers in the world.
Furthermore we are one of the largest managers
of European senior loans and high yield bonds with
14 years of investing experience in this field.
We structure and provide mezzanine finance,
leveraged credit and minority equity deploying
capital from the ICG plc balance sheet and on behalf
of our third party fund investors. ICG manages third
party funds in mezzanine, senior debt, real estate,
high yield bonds and related assets. Common to
all of these asset classes is our ability to originate,
assess and price risk across the capital structure
of sub investment grade companies.
We invest across a company’s capital structure
depending on where we identify the potential value
and subsequent returns for our investors. We do
not apply a fixed investment structure, instead
we configure a capital solution to fit the cash flow
generation of the underlying business in order to
maximise value for our investors.
ICG’s network of 63 investment executives
based in 10 countries provides us with a powerful
advantage based on local insights, knowledge and
relationships. Our local network enables us to:
– successfully source, select, structure and execute
investment opportunities through established
local relationships and so deliver superior returns
– conduct in-depth, experienced investment
selection and pricing of risk via rigorous credit
analysis. Fundamental analysis and corporate
information is the key to unlocking market
inefficiencies, mispricings and superior returns
– carry out effective portfolio management with
local investment executives who know their local
markets, cultures and jurisdictions and can handle
challenging situations
– deploy robust recovery strategies for
underperforming investments, through
active involvement with portfolio companies’
management teams and significant stakeholders
We invest alongside financial sponsors and
management teams with a focus on midmarket
companies in Europe, Asia Pacific and the uS.
We seek a prudent balance of risk and return for
our investors and this balance determines which
part of the capital structure we invest in. Returns
are generated through debt coupon – cash,
payment in kind, pay-if-you-can or pay-if-you-want
– and through equity, either through equity warrants
associated with mezzanine or standalone equity.
A key strength is our ability to adapt our
financing approach to each investment opportunity.
ICG has led the market through a very reactive
and flexible approach, structuring ad hoc solutions
and products and introducing innovative instrument
features.
By controlling each instrument in which we
invest, we provide certainty and stability in a capital
structure. If syndication is required this is typically
to one of our limited partners or financing partners
but ICG is always the primary contact point for
management and shareholders.
We are “take and hold” investors with the
intention to hold our investments to maturity,
investing in the business and its management
team for the medium to long term. By investing for
longer periods and by having board representation,
either as an observer or director, a deeper mutual
understanding is generated between ICG,
management and shareholders. We are often a
repeat investor in a business as businesses are
sold in secondary transactions. We represent
continuity and stability to those management
teams and businesses.
We believe in a local approach to investment.
Our local executives originate and execute
transactions and retain a monitoring responsibility
throughout the life of the investment. This ensures
continuity and better communication between ICG,
management and shareholders.
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
Our business2 – 17Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112
40
Funds and portfolio:
Our investment culture continued
mezzanine investment strategy
ICG longbow real estate philosophy
We believe that, given its position in the capital
structure, mezzanine as an asset class has a
number of key attributes that make it an attractive
investment opportunity:
– the cash yield on mezzanine loans can provide
an annual cash distribution to investors
– creditor protections on mezzanine loans provide
significant security and stability of returns to
mezzanine investors
– attractive upside returns are available from the
equity participation available to mezzanine investors
We focus on midmarket companies with enterprise
values between €150m and €1bn with leading market
positions, led by strong management teams. As a
mezzanine investor with a strong focus on protecting
its invested principal and minimising defaults across
its portfolio, ICG looks to create a well-diversified
portfolio by investment instrument, industry sector,
geography and investment size, with the aim of
delivering an attractive balance of risk and returns.
When reviewing investments we utilise not
only the market intelligence and company-specific
information provided by our large network of
investment executives and the current investment
portfolio, but also our 24 years’ accumulated direct
investment experience.
We aim to apply our core credit principles and
strong focus on recovery of our invested principal
consistently across investments and we strive for
a consistent approach in relation to deal execution
when partnering with private equity sponsors,
management teams, banks and advisors across
Europe, Asia Pacific and the uS.
ICG longbow’s investment philosophy centres
on four principles.
Firstly, we seek to preserve capital investments
by achieving diversity in our portfolio at the loans
level, avoiding specific risk assets and targeting
assets where value creation at the property level
will de-risk the loan over time.
Secondly, we employ an income-focused
approach to investing, so as to take most of the
return on our loans during the loan lifetime via coupon.
Thirdly, we align our philosophy with the borrower’s
situation by investing on a “participate in value creation”
basis via profit share agreements.
And finally we invest on the basis of property
fundamentals, applying a “stock picking” approach
based on sustainable cash flow, revenue per square
foot analysis and underlying liquidity in properties.
ICG longbow real estate strategy
ICG longbow seeks to capitalise on the market
opportunities in the uK commercial real estate debt
market focusing on:
– providing mezzanine finance to leading uK
property companies with a proven track record
– value creation
– providing senior finance to support acquisition of
under-managed properties, often from distressed
or motivated vendors
– opportunistically acquiring high quality loans
from the secondary market at discounted prices
In putting this strategy into place, ICG longbow
leverages its extensive network of relationships
with uK property companies, advisors and lenders.
Coupled with its localised market knowledge,
41
rigorous structuring, underwriting process and
“stock picking” approach, ICG longbow generates
a defensive portfolio in all of its funds.
ICG longbow believes that significant opportunities
to originate real estate senior and mezzanine debt
will be available as a long term trend, as traditional
lenders continue to exit or reduce exposure to the
market. In light of the current conditions of the debt
market and building on its proven approach, ICG
longbow believes that attractive returns can be
achieved by providing financing to uK real estate
companies with a strong track record in value
creation and market timing.
CFm investment philosophy
We believe that risk in the European leveraged
finance market is persistently mispriced due to
three structural inefficiencies:
– Rating changes – New issue pricing is based on
ratings at the “prevailing market rate” rather than
the underlying risk over a bond’s life. up to 80%
of high yield bonds undergo a rating change,
demonstrating that the pricing based on the initial
rating risk can change
– Transparency – leveraged finance is a specialist
market requiring complex investment decisions
but it has less published information than more
widely researched public markets. This creates
market inefficiencies
– Risk appetite – Non-credit related factors such
as risk appetite, strategic asset allocation and the
overall liquidity of financial markets influence the
credit markets. These changes in supply and
demand impact leveraged finance for non-credit
related reasons
We seek to exploit these inefficiencies to create
returns above the expected market returns.
Our rigorous bottom-up research provides a real
information advantage that drives our investment
selection, significantly lowers our default rates and
enables better management of recoveries.
market cyclicality offers opportunities for longer
term investors with the experience and conviction
to invest when prices are overcompensating for
risk. We believe that these pricing anomalies take
time to resolve themselves and therefore a medium
to long term investment horizon is essential for
capturing returns in excess of market expectations.
CFm investment strategy
We believe in fundamental analysis and in depth
information. This is the key to unlocking the
inefficiencies caused by lack of transparency and
persistent mispricings. We have the largest team
of dedicated leveraged finance professionals in
Europe providing fundamental analysis; six local
European offices accessing local intelligence; and
24 years of relationships with financial partners
providing extensive access to management teams
and company information.
Our people
Andreas Mondovits
Head of marketing and Client relations
Joined ICG in 2012 from uBS Global Asset
management, where he spent over 10 years in
senior distribution and marketing roles, latterly as
Global Head of Business Development for Global
Real Estate. Over 20 years’ experience in senior sales
and marketing roles in financial institutions and the
FmCG industry.
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
Our business2 – 17Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112
42
Funds and portfolio:
Funds overview
Fundraising
Investor
diversity
ICG’s investment in our distribution team over the last two years has resulted in greater
institutional diversification. Targeted marketing has resulted in less reliability on short term
investors such as banks and greater investment from longer term investors such as
sovereign wealth funds and pension funds. This is a trend we expect to continue
for future fundraising.
Funds raised in FY13
1 Asset Manager
2 Bank
3 Fund of Funds
4 Insurance companies
5 Pension
6 Sovereign Wealth Funds
7 Other
%
12%
18%
8%
2%
33%
21%
6%
6
7
1
Across all funds
1 Asset Manager
2
2 Bank
3 Fund of Funds
4 Insurance Companies
3
5 Pension
5 4
6 Sovereign Wealth Funds
7 Other
%
11%
26%
14%
11%
14%
18%
6%
7
1
6
5
4
2
3
Geographic
diversity
With staff based across Europe, Asia, the middle East and America, our distribution team is
able to reach more investors across the globe. As a result, the funds raised in Fy13 are more
balanced across North America, Asia Pacific and EmEA than ever before. With dedicated
resources around the world, we have the ability to build and sustain long term relationships
resulting in a better ability to meet the specific needs of each investor.
Funds raised in FY13
1 Europe/Middle East
2 Asia Pacific
3 North America
%
44%
29%
27%
3
Note: In relation to tradeable funds,
analysis is based on original investor.
Mezzanine funds
1
2
Across all funds
1 Europe/Middle East
2 Asia Pacific
3 North America
%
59%
27%
14%
1
3
2
Fund
Third party
money
Estimated money
multiple
Mezzanine Fund
2003
European Fund
2006
Europe
Fund V
Recovery Fund
2008
Minority
Partners 2008
ICAP
2005
ICAP
2008
€1,420m
€1,750m
€2,000m
€840m
€120m
$300m
$600m
1.4 x
1.4 x
1.6 x
1.4 x
2.1 x
1.7 x
1.3 x
% Carry*
28% of 20
over 8
20% of 20
over 8
20% of 20
over 8
20% of 20
over 8
20% of 20
over 8
25% of 20
over 8
20% of 20
over 8
* Total carry is 20% of the fund gains. Of this, the Group is entitled to a percentage, for example in mezzanine Fund 2003 this is 28%.
There is a threshold of a rate of return of 8% which triggers carry.
Funds summary
Fund Type Name
ICG mezzanine Fund III 2003
ICG Europe Fund IV 2006
ICG Europe Fund V
ICG minority Partners Fund 2008
ICG Recovery Fund 2008
Fund type key
M
mezzanine
C
Credit Funds
L
longbow
43
FY13
Status
FY12
AUM(€)
Status
AUM(€)
Realisation
216.6
Realisation
288.6
Realisation
1,145.3
Realisation
1,246.9
Investment
2,000.0
Fundraising
584.7
Realisation
20.1
Realisation
20.1
Realisation
439.8
Investment
763.0
Intermediate Capital Asia Pacific Fund II 2008
Investment
466.9
Investment
449.6
Intermediate Capital Asia Pacific mezzanine Fund I 2005
Realisation
106.4
Realisation
106.7
Confluent I ltd
European Investment Fund I
European Investment Fund II
Eos loan Fund I
Eurocredit CDO I B.V. 1999
Eurocredit CDO II B.V. 2000
Eurocredit CDO III 2003
Eurocredit CDO IV 2004
Eurocredit CDO V PlC 2006
Eurocredit CDO VI PlC 2006
Eurocredit CDO VII 2007
Eurocredit CDO VIII PlC 2007
St Paul’s ClO I B.V. 2010
Investment
387.7
Investment
428.9
Investment
Investment
71.8
97.8
Investment
Investment
57.7
94.7
Realisation
838.0
Investment
952.8
Redeemed
–
Realisation
Realisation
11.3
Realisation
Realisation
165.3
Realisation
Realisation
165.3
Realisation
Realisation
467.2
Investment
Realisation
444.5
Investment
Investment
455.2
Investment
Realisation
401.0
Realisation
4.4
74.9
232.6
202.4
527.0
451.1
462.7
478.2
Investment
287.0
Investment
286.0
Eurocredit Opportunities Fund I PlC 2005
Realisation
132.4
Realisation
Eurocredit Opportunities Parallel Funding I
Realisation
375.8
Realisation
ICG European High yield Bond Fund I
ICG European loan Fund
Segregated mandates
ICG Senior Debt Partners Fund I
ICG Total Credit Fund
Investment
Realisation
49.3
73.4
Investment
Investment
Investment
364.2
Investment
Fundraising
Fundraising
92.0
92.0
–
–
152.6
427.0
46.6
71.9
13.0
–
–
longbow uK Real Estate Debt Investments II
Realisation
228.4
Investment
230.9
longbow uK Real Estate Debt Investments I
Rockpoint Fund III JV
Redeemed
Redeemed
–
–
Realisation
Realisation
ICG longbow Senior Secured uK Property Debt Investments limited Investment
109.2
ICG longbow uK Real Estate Debt Investments III
Fundraising
195.5
–
–
5.4
18.0
–
–
Total
9,899.4
8,678.4
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
M
M
M
M
M
M
M
C
C
C
C
C
C
C
C
C
C
C
C
C
C
C
C
C
C
C
C
L
L
L
L
L
Our business2 – 17Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112
44
Funds and portfolio:
Investment company portfolio
32.6%
FRANCE
26.6%
uK
5.4%
NORDIC
3.7%
BENElux
4.9%
NORTH
AmERICA
4.9%
SPAIN
7.1%
GERmANy
4.0%
ITAly
Portfolio by geography
During the year ICG made nine investments globally
and completed four full and one partial exits.
The portfolio is invested across a diversified range of
industries with a wide geographical spread.
Our investment teams are based in 10 countries
across the world giving them access to local
opportunities upon which we are able to react quickly.
0.1%
OTHER
EuROPE
9.1%
AuSTRAlIA
Portfolio by sector
Business services
Financial services
Healthcare
Telecoms, media and technology
Construction materials
Entertainment and leisure
Shipping and transport
Retail
Food and consumer products
Utilities and waste management
Pharmaceuticals and chemicals
Manufacturing and engineering
Pubilshing and advertising
Packaging
Automotive
7.1%
6.8%
6.5%
5.4%
4.6%
3.6%
3.3%
2.9%
2.5%
2.2%
2.0%
2.0%
Portfolio investment
1.1%
1.2%
ASIA
0.4%
NEW
zEAlAND
%
20.8%
17.3%
11.9%
45
Top 20 assets
Company
Sector
1 médi Partenaires
Healthcare
2 Allflex
3 Applus+
4 AAS link
5
Elis
6 Attendo
7 materis
8 Gerflor
9 minimax
10 BAA
11 Ethypharm
12 SAG
Business services
Business services
Financial services
Business services
Healthcare
Construction materials
Construction materials
Electronics
Shipping and transport
Pharmaceuticals
utilities
13 Eos loan Fund I
Portfolio investment
14 Westbury Baxter
Food and consumer products
15 Hoyts
16 Feu Vert
17 lowenplay
18 Fort Dearborn
19 Nocibe
Entertainment and leisure
Automotive
leisure
Packaging
Retail
20 Team Systems
Business services
* Carrying value on ICG balance sheet at 31 march 2013. Includes equity stake listed below where relevant.
Year
2007
1998
2007
2007
2007
2007
2006
2011
2006
2006
2007
2008
2010
2011
2007
2007
2008
2010
2006
2010
Country
France
uK
Spain
Australia
France
Sweden
France
France
Germany
uK
France
Germany
uK
uK
Australia
France
Germany
uS
France
Italy
Top 10 equity assets
Top 10 PIK assets
Company
Sector
£m*
Company
Sector
1 Allflex
Business services
106.7
1 médi Partenaires
Healthcare
2 AAS link
Financial services
3 Gerflor
Construction materials
4
5
Eos loan Fund I Portfolio investment
Intelsat
Telecoms, media and
technology
6 Applus+
Business services
7 Riverland Jersey Portfolio investment
8 AVR
Waste management
9
Team Systems
Business services
10 mennisez
Food and consumer products
* Carrying value on ICG balance sheet at 31 march 2013.
62.2
56.1
45.2
38.0
34.4
30.7
24.9
23.2
21.6
2 Veda Advantage
Financial services
3 Hoyts
4 AAS link
Entertainment and leisure
Financial services
5 Sicurglobal
Business services
6 AST
Financial services
7 Westbury Baxter
Food and consumer products
8 Attendo
9 Gaucho
Healthcare
Entertainment and leisure
10 Ethypharm
Pharmaceuticals
£m*
120.1
106.7
102.5
97.4
97.0
87.7
77.9
75.7
63.4
58.9
48.7
47.7
45.2
44.5
43.7
42.5
41.6
40.8
40.4
40.2
£m*
70.4
36.1
35.7
35.2
33.4
30.0
23.3
19.5
19.3
16.5
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
Our business2 – 17Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112
46
Office location: Paris
Governance
Contents
Chairman’s introduction
47
Directors’ report
Board of Directors
Corporate governance
Report of the Remuneration
Committee
48
50
56
Directors’ responsibilities
Independent auditor’s report
68
74
75
Governance:
Chairman’s introduction
47
Justin Dowley
Chairman
uK Corporate Governance Code
The Group recognises, and is committed to, the
highest standards of corporate governance. Other
than on one occasion, throughout the year ended
31 march 2013, the Group has been in compliance
with the provisions of the uK Corporate Governance
Code (the “Code”) issued by the Financial Reporting
Council. The event of non-compliance with the Code
occurred at a meeting of the Audit and Risk Committee
in may 2012, when due to the unavoidable absence
of one of the members of that Committee, a meeting
was held with only two members of the Committee in
attendance rather than three. The two Non Executive
Directors subsequently appointed during the year
have been made members of that Committee such
that it has a membership of four, and at all future
meetings at least three of the members will be
in attendance.
Details on how we have applied the Principles
of the Code can be found in this Corporate
Governance section and also in the Remuneration
report on pages 56 to 67. A copy of the Code
is publicly available on the Financial Reporting
Council’s website (www.frc.org.uk).
The Board’s responsibilities
and processes
The Board is responsible to the shareholders for the
overall management of the Group. The Board’s main
roles are to provide leadership of the Group within
a framework of prudent and effective controls which
enable risk to be assessed and managed and to
ensure that the necessary financial and human
resources are in place for the Company to meet
its objectives and thus increase shareholder value.
There is a formal schedule of matters reserved
for Board approval, which include:
– approval of the Group’s overall business strategy,
planning and annual budget;
– assessment of internal controls and
risk management;
– approval of the Group’s half year and annual
financial statements and dividend policy;
– presenting a balanced and understandable
assessment of the Company’s position and
prospects to the shareholders through the
Chairman’s and Chief Executive’s statement,
the Business review, the Financial review and
the financial statements;
– appointments to the Board and Executive
Committee;
– capital expenditure decisions; and
– changes in employee incentive schemes.
At each Board meeting there is a full financial and
business review which includes the comparison of
performance to date against the Board’s previously
approved annual budget.
Each Board member receives a comprehensive
Board pack at least five days prior to each meeting
which incorporates a formal agenda together with
supporting papers for items to be discussed at
the meeting. Further information is obtained by
the Board from the managing Directors and other
relevant members of senior management, as the
Board, particularly its Non Executive Directors,
considers appropriate.
All Directors have access to the advice and
services of the Company Secretary and may take
independent professional advice at the Company’s
expense in the furtherance of their duties.
The appointment/removal of the Company Secretary
would be a matter for the Board.
The Board appreciates the importance of the
continued professional development of the Directors.
Those Non Executive Directors who have joined
during the year have taken part in an induction
process to gain an understanding on the Group’s
business, including briefings, training sessions and
one-on-one meetings with the Executive Directors
and a number of other senior employees.
The Non Executive Directors, at least annually,
hold meetings in the absence of the managing
Directors and, separately, in the absence of the
Chairman. Each Non Executive Director has an
appointment letter with the Company and their
appointments are reviewed periodically.
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
Our business2 – 17Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112
48
Governance:
Board of Directors
Justin Dowley
Chairman
Justin Dowley qualified as a chartered accountant with
PriceWaterhouse in 1980. From 1981 until 2011 his
career was in investment banking: he was a founder
partner of Tricorn Partners, Head of Investment Banking
at merrill lynch Europe and a Director of morgan
Grenfell. He is a Non Executive Director of melrose
Industries PlC and is also a Director of a number
of private companies including Ascot Authority
(Holdings) limited.
Christophe Evain
Managing Director and CEO
Christophe has been CEO of ICG since 2010; he
had worked at ICG for 16 years prior to this and
was responsible for opening ICG’s offices in Paris,
Hong Kong and New york. Before ICG, Christophe
held a number of roles in leading financial institutions
including Banque de Gestion Privée, National
Westminster Bank and Crédit lyonnais’ specialising
in leverage and structured finance. Graduate of
Dauphine university, Paris.
Chairs ICG’s Nominations Committee and is a member
of the Remuneration Committee.
Chairman of the Investment Committee and the
Executive Committee.
Joined: 2006
Joined: 1994
Benoît Durteste
Managing Director
Benoît Durteste is Head of European mezzanine and
a Fund manager for ICG Recovery Fund 2008 and ICG
Europe Fund V. He joined ICG in September 2002 from
Swiss Re where he worked as a managing Director in
the Structured Finance division in london. Prior to
Swiss Re, Benoît worked in the leveraged Finance
division of BNP Paribas for six years and for GE Capital,
notably as CFO of one of their portfolio companies.
Benoît is a graduate of the Ecole Supérieure de
Commerce de Paris.
member of the Investment Committee and the Executive
Committee. Responsible for European mezzanine.
Joined: 2002
Philip Keller
Managing Director and CFO
Philip has been CFO of ICG for seven years. Prior to
ICG, Philip was Finance Director of ERm, a global
environmental consultancy, where he was part of a
management team that led two leveraged buyouts
in 2001 and 2005. He previously held a number of
financial directorships at GlaxoSmithKline and Johnson
& Johnson. Chartered Accountant and graduate of
Durham university.
member of the Investment Committee and The Executive
Committee. Responsible for finance, human resources
and operations.
Joined: 2006
49
Peter Gibbs
Non Executive Director
Previously Chief Investment Officer of merrill lynch’s
Investment management activities outside the uS and
prior to this Co-Head of Equity Investments worldwide.
He has wide experience in the asset management and
investment management sectors and currently serves
as a Non Executive Director of Friends life Group plc,
Impax Asset management Group plc, and Aspect
Capital limited, Director of merrill lynch (uK) Pension
Plan Trustees ltd and as a Director of uKFI.
Chairs ICG’s Remuneration Committee and is a member
of the Audit Committee, the Risk Committee and the
Nominations Committee.
Joined: 2010
lindsey mcmurray
Non Executive Director
lindsey has been a private equity investor for more
than 15 years with a particular focus on the Financial
Services sector. For seven years, she has been Head
of Equity Finance at RBS’s Special Opportunities Fund,
a £1.1bn private equity fund which has maintained top
quartile performance. Prior to RBS, lindsey was a
Partner at Cabot Square Capital, ltd., a london-based
private equity firm, for six years. There she focused on
operating investments in real estate and other asset
backed investments, together with investments in the
financial services sector.
member of the Remuneration Committee, the Audit Committee,
Risk Committee, and the Nominations Committee.
Joined: 2012
Kevin Parry
Non Executive Director
Chief Financial Officer at Schroders plc, the FTSE 100
asset management and private banking group, from
January 2009 until may 2013 and Chairman of their
Audit Committee from 2003 to 2008. Previously Chief
Executive at management Consulting Group plc and
a managing partner at KPmG. Kevin is a Chartered
Accountant with extensive experience of auditing and
advising large international groups.
Chairs ICG’s Audit Committee and the Risk Committee,
member of the Remuneration Committee and the Nominations
Committee and Senior Independent Director.
Joined: 2009
Kim Wahl
Non Executive Director
Owner and Chairman of the investment firm
Stromstangen AS since 2004. Kim was Deputy
Chairman and co-founder of the European private
equity firm IK Investment Partners from 1989 to 2009,
and previously was a Corporate Finance Associate
with Goldman, Sachs & Co. Board member of
uPm-Kymmene Oy, the Aspelin-Ramm Group AS,
Kavli Holding AS and Trient Asset management AS.
member of the Industrial Advisory Board of IK
Investment Partners. Co-Founder and Chairman
of the Voxtra Foundation.
member of the Remuneration Committee, the Audit Committee,
the Risk Committee and the Nominations Committee.
Joined: 2012
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
Our business2 – 17Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112
50 Corporate governance
The roles of the Chairman and Chief Executive
Board of Directors
The Chairman of the Board, Justin Dowley, leads the Board in
the determination of its strategy and in achieving its objectives.
The Chairman is responsible for organising the business of
the Board, ensuring its effectiveness and setting its agenda.
The Chairman has no involvement in the day to day business
of the Group. The Chairman facilitates the effective contribution
of Non Executive Directors and ensures that there is effective
communication with the Group’s shareholders.
The Chairman was considered independent at the date of
his appointment as Chairman and continues to be so.
The Chief Executive Officer, Christophe Evain, has direct
charge of the Group on a day to day basis and is accountable
to the Board for the financial and operational performance of
the Group. The Chief Executive is supported in his role by the
Executive Committee, which supports him in carrying out the
responsibilities delegated to him by the Board.
The Executive Committee comprises the Managing Directors
and meets on a regular basis to consider operational matters and
the implementation of the Group’s strategy. No one Managing
Director is able to significantly affect the running of the Company
without consulting his colleagues.
In accordance with the Code, the Board has adopted a formal
division of responsibilities between the Chairman and the CEO,
with the intention to establish a clear division of responsibilities
between the running of the Board and the executive responsibility
for the running of the Company’s business.
Senior Independent Director
Kevin Parry holds the position of Senior Independent Director
of the Company. In accordance with the Code, any shareholder
concerns not resolved through the usual mechanisms for
investor communication can be conveyed to the Senior
Independent Director.
As at 31 March 2013, the Board comprised three Managing
Directors, an independent Non Executive Chairman and four
independent Non Executive Directors. Following a rigorous review
in accordance with the Code, the Board considers all five of its
Non Executive Directors to be independent in character and
judgement and that they each provide effective challenge both
within and outside Board meetings. The Non Executive Directors
are as follows:
– Justin Dowley was appointed as a Non Executive Director in
February 2006 and as Non Executive Chairman in July 2010.
– Kevin Parry was appointed as a Non Executive Director in
June 2009.
– Peter Gibbs was appointed as a Non Executive Director
in March 2010.
– Kim Wahl was appointed as a Non Executive Director
in July 2012.
– Lindsey McMurray was appointed as a Non Executive Director
in September 2012.
The Non Executive Directors are considered to be of the
appropriate calibre and experience to bring significant influence
to bear on the Board’s decision making process.
The Chairman has acted as a Non Executive Director of
Melrose Industries PLC during the year. We do not consider this
appointment to have any adverse impact on his ability to perform
his role effectively as Chairman of the Board.
The Board meets at least six times a year, with additional
meetings being held as required.
The following table shows the number of Board and
Committee meetings held during the year and the attendance
record of individual Directors. Jean-Daniel Camus and James
Nelson left the Board during the year, while Benoît Durteste, Kim
Wahl and Lindsey McMurray have attended meetings since their
respective appointments.
Board and Committee meetings
Audit
and Risk
Committee
Board
Remuneration
Committee
Nominations
Committee
Number of
meetings held
Justin Dowley
Christophe Evain
Philip Keller
Benoît Durteste
Peter Gibbs
Kevin Parry
Kim Wahl
Lindsey McMurray
Jean-Daniel Camus
James Nelson
9
9
9
9
7
8
7
6
5
2
2
4
4*
4*
4*
3*
3
4
3*
3
0
1
5
5
5*
5*
4*
5
4
3
3
1
2
1
1
1*
1*
0
1
0
0
0
1
1
* Attended these meetings at the invitation of the relevant Chairman but was not
a member of the relevant Committee.
The principal matters considered by the Board during the year
included:
– the Group strategic plan, budget and financial resources;
– review of the compliance policies;
– regular review of the investment portfolio and any areas
of concern;
– communication of our financial results for the interim and
year end;
– review of current compensation structures;
– independence of Non Executive Directors;
– succession planning for roles within the Group, both at Board
level and in respect of other senior managers; and
– corporate responsibility initiatives and performance.
Board performance
In line with the effective governance requirements of the Code,
the Board reviews its own performance annually. The assessment
covers the functioning of the Board as a whole, the functioning
of the Executive Committee, the evaluation of individual Directors
and includes a review of the effectiveness of the Board
Committees. The Non Executive Directors, led by the Senior
Independent Director, and taking into accounts the views of
Executive Directors, are responsible for evaluating the
performance of the Chairman. The Board considers the results
of the performance evaluation when making its recommendations
regarding the re-election of Directors.
51
The Board also employs the services of an external independent
third party for these purposes. The most recent independent
Board evaluation undertaken in April 2013 considered the
effectiveness and performance of the Board in relation to:
Board composition, expertise and dynamics; time management
and Board support; strategic oversight; risk management and
internal control; and succession planning and human resource
management. The independent Board evaluation concluded
that the Board was effective in all areas.
Election and re-election of Directors
The Company’s current Articles of Association provide that
a Director appointed by the Board shall retire at the Annual
General Meeting following his appointment and that at each
Annual General Meeting of the Company one third of the Directors
must retire by rotation. The Board has decided that in accordance
with the Code, each of the Directors will retire and offer theirself
for re-election at each year’s Annual General Meeting.
In relation to the Directors who are standing for re-election,
the Chairman is satisfied that, following formal performance
evaluation, each Director continues to be effective and
demonstrates commitment to their role.
Conflicts of interest
Directors have a statutory duty to avoid conflicts of interest with
the Company. The Company’s Articles of Association allow the
Directors to authorise conflicts of interest and the Board has
adopted a policy and effective procedures for managing and,
where appropriate, approving potential conflicts of interest.
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
Our business2 – 17Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112
52 Corporate governance continued
and those which require specific approval before they are
contracted for, subject to de minimis levels. The Audit
Committee also undertakes an annual evaluation to assess
the independence and objectivity of the external auditor and
the effectiveness of the audit process, taking into consideration
relevant professional and regulatory requirements. The results
of the evaluation were last reported to the Board in
September 2012;
– reviewing the annual and interim accounts before they are
presented to the Board, in particular any significant issues
arising from the audit; accounting policies and clarity of
disclosures; compliance with applicable accounting and
legal standards; and issues regarding a significant element
of judgement;
– reviewing the provisioning policy for the investment portfolio
on a six monthly basis; and
– monitoring the integrity of the financial statements of the
Company, including its annual and half yearly reports, interim
management statements and any other formal announcement
relating to its financial performance, reviewing significant
financial reporting issues and judgements which they contain.
During the year the Audit Committee fulfilled the duties of an
Audit and Risk Committee. Set out below are the main matters
discussed during the course of the year. Some of these
discussions will, in future, be held in the Risk Committee.
Financial reporting
– Reviewed and discussed with the executive management
and the external auditors the interim statement and annual
report and accounts, with a particular focus on accounting
policies, disclosures and consistency with the non financial
reports included in those reports
– Received presentations from leading analysts as to the
effectiveness of communication of the report and accounts,
and ensured that opportunities for improvement were reflected
in this report and accounts
– Reviewed the methodology for assessing provisions against
investments and concurred with a sample of the provisions
that had been determined by the Investment Committees
– Reviewed the level of pre and post tax provisions against
investments and other past events, assessing their adequacy
in the light of the disclosed risks and uncertainties
Board Committees
The Board is supported in its decisions by five principal
Committees, which are described below. The Terms of Reference
of each of the Board Committees, together with the Directors’
service agreements, the terms and conditions of appointment of
Non Executive Directors and Directors’ deeds of indemnity, are
available for inspection at the Company’s registered office during
normal business hours. Each Committee has access to such
external advice as it may consider appropriate. The Company
Secretary acts as Secretary of the Nominations Committee; the
Group’s Head of Human Resources acts as Secretary to the
Remuneration Committee at the invitation of the Chairman of
that Committee; and the Group’s Financial Controller acts as
Secretary to the Audit Committee at the invitation of the Chairman
of that Committee.
The Risk Committee has been recently constituted in order
to allow greater oversight of the internal controls of risks by the
Company. This role was carried out in previous years by the Audit
and Risk Committee (now known as the Audit Committee), but
the functions and focuses of these committees have been split
as from March 2013 to allow enhanced oversight and control.
The Terms of Reference of each committee are considered
regularly by the respective committee before being referred to
the Board for approval.
Audit Committee
The Audit Committee consists of four independent Non Executive
Directors, these being Kevin Parry (Chairman of the Committee),
Peter Gibbs, Lindsey McMurray and Kim Wahl. The Managing
Directors and Chairman of the Board are not members of the
Audit Committee but are normally invited to attend. Deloitte LLP,
the Company’s auditor, is also invited to attend and has direct
access to Committee members. The Board is satisfied that the
Chairman of the Committee has recent and relevant financial
experience, as do other members of the Committee. The
Committee meets regularly, at least four times a year, and is
responsible for:
– selecting and recommending the appointment and
re-appointment of the external auditor to the Board, approving
their terms of reference and fees;
– reviewing the performance of the external auditor and ensuring
appropriate rotation of audit partner;
– reviewing the independence of the external auditor and the
relationship between audit and non audit work performed by
the external auditor. Procedures are in place to ensure that all
significant non audit work performed by the auditor in excess
of £50k is approved in advance by the Committee and they
assess whether such appointments impair, or appear to impair,
the auditor’s judgement or independence. The procedures set
out the categories of non audit services which the external
auditor will and will not be allowed to provide to the Group,
including those which are pre-approved by the Committee
53
Auditing
– Evaluated the independence and objectivity of the external
auditor and the effectiveness of the audit process. The auditor
provided non-audit services in the form of tax advisory and
other assurance services not related to the audit of the financial
statements. The external auditor was used to provide these
services since they are widely recognised as a market leader in
these areas, have a reputation for quality, and have a local
presence in the countries in which the services were performed.
Audit objectivity and independence was safeguarded in these
instances through the advice being provided by partners and
staff who have no involvement in the audit of the financial
statements plus an independent audit partner reviewing any
audit work in these areas. No services were provided pursuant
to contingent fee arrangements. An analysis of fees paid to
Deloitte LLP is shown in note 9 on page 99.
– Reviewed and discussed the scope of the external audit plan
taking account of professional obligations, guidance and Group
specific issues
– Reviewed the level of auditing materiality with the auditors
– Discussed the recommendations for control enhancements
made by the external auditors and received implementation
plans from executive management
– Discussed the audit findings with the auditors and executive
management in the context of the audit materiality that had
been agreed at the planning stage of the audit
– Met with the auditors in the absence of executive management
to ensure they had received all the information they required
and to permit them to draw any matters to the attention of the
Audit Committee that they had not addressed in the presence
of management
– Assessed the quality of the external auditors
– Considered the potential timing of any audit tender
Risk
– Regularly reviewed the risks faced by the Group and changes
to those risks and the relative importance of the risks.
In particular, the Committee discussed the risks associated
with the instabilities in the Eurozone and the impact on ICG’s
extensive exposure to the Euro
– Reviewed the anti-money laundering, anti-bribery and
corruption and whistleblowing procedures of the Group
– Reviewed the risk management of and operational control
over the funds under management
– Reviewed the effectiveness of the internal control environment
of the Group
– Reviewed the anti-conflict of interest procedures as between
FMC and IC
– Liaised with the Remuneration Committee particularly in respect
of provisioning and the transitional arrangements associated
with the remuneration schemes
– Reviewed the need for an internal audit function and given
the internal control processes and procedures that are currently
in place, and the relative size and geographical spread of the
business, it remains appropriate and proportionate for the
Company not to have an internal audit function.
– Reviewed the resource commitment and output of the
compliance and risk functions
– Reviewed the Treasury Committee activity and policy limits
– Reviewed regulatory developments and the changes in
applicable regulation associated with the expansion of activities.
The Committee
– Reviewed the quality of the Audit Committee’s work
– Reviewed whether the Committee should be split so that risk
comprised a separate Committee
– Reviewed the terms of reference of the Committee
– Reviewed the Committee’s rolling agenda
The reviews were generally based on a written paper allowing
the Committee members to challenge and debate the reports.
All reviews were completed to the Committee’s satisfaction.
In light of the quality of audit work and service received from
Deloitte, the Committee decided that an audit tender is not
currently appropriate and that the matter of whether to hold an
audit tender should be reconsidered in line with the timing of the
rotation of the audit partner.
The Committee has asked management to diligently monitor
the level of compliance resource in the light of the expansion of
the business and for a similar reason anticipates out-sourcing
internal audit work in 2013/14.
The Committee recommended the formation of a separate
Risk Committee.
Risk Committee
The Risk Committee, created in March 2013, consists of five
Non Executive Directors, these being Kevin Parry (Chairman
of the Committee), Peter Gibbs, Justin Dowley, Kim Wahl and
Lindsey McMurray. Managing Directors are not members of the
Risk Committee but are normally invited to attend to the extent
appropriate. The Committee is responsible for reviewing the
effectiveness of the Company’s internal controls and risk
management systems, and considering annually whether there
is a need to establish an internal audit function; reviewing and
approving the statements to be included in the annual report
concerning internal controls and risk management; reviewing
internal reports on the effectiveness of systems for internal
financial control, financial reporting and risk management; and
reviewing the Company’s procedures for detecting fraud and for
handling, in confidence, allegations from whistleblowers and
ensuring these procedures allow proportionate and independent
investigation of such matters and appropriate follow up action.
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
Our business2 – 17Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112
54 Corporate governance continued
Remuneration Committee
The Remuneration Committee consists of five Non Executive
Directors, these being Peter Gibbs (Chairman of the Committee),
Kevin Parry, Justin Dowley, Kim Wahl and Lindsey McMurray.
Managing Directors are not members of the Remuneration
Committee but are normally invited to attend to the extent
appropriate. The Committee supports the Board in determining
the level of remuneration of the Chairman of the Board (in his
absence) and reviews the remuneration policy applicable to senior
management. Further details regarding remuneration policy and
payments made can be found in the Report of the Remuneration
Committee on pages 56 to 67.
The Board has delegated the following responsibilities to the
Executive Committee:
– the development and recommendation of strategic plans
for consideration by the Board that reflect the longer term;
– objectives and priorities established by the Board;
– implementation of the strategies and policies of the Group
as determined by the Board;
– monitoring of operating and financial results against plans
and budgets;
– monitoring the quality of the investment process; and
– developing and implementing risk management systems.
Nominations Committee
The Nominations Committee consists of five Non Executive
Directors, these being Justin Dowley (Chairman of the Committee),
Kevin Parry, Peter Gibbs, Kim Wahl and Lindsey McMurray.
The Committee is responsible for considering the composition
of the Board to ensure that the balance of its membership
between Managing Directors and Non Executive Directors is
appropriate. Appointments of Managing Directors and Non
Executive Directors are made as necessary as a result of
discussions by the Committee and are subject to full Board
approval and election or re-election at a general meeting of the
shareholders.
Prior to any appointment to the Board, the Nominations
Committee considers the balance of skills, experience,
independence and knowledge appropriate to determine the
requirements and necessary capabilities of the role. In addition,
any new Director normally meets all existing Directors prior
to appointment.
The Committee does not have a formal policy on background
or diversity of Board members. In considering candidates for the
Board, it will always seek to appoint the candidate with the most
appropriate skills and experience regardless of their background
or gender.
Executive Committee
The Executive Committee consists of the three Managing
Directors of ICG, each of whom has a specific area of responsibility.
The Executive Committee has general responsibility for ICG’s
resources, determining strategy, financial and operational control
and managing the business worldwide. Christophe Evain is Chief
Executive Officer and in addition to his strategic and operational
remit he chairs the Company’s Investment Committees in his role
as the Chief Investment Officer. He is also responsible for the
Company’s credit funds business. Philip Keller is Chief Financial
Officer and is responsible for finance and infrastructure. Benoît
Durteste, appointed to the Board on 21 May 2012, took over
responsibility for the mezzanine and minority equity business
from that date.
Relationships with shareholders
The Company recognises the importance of communication with
its shareholders, particularly through interim and annual reports
and the AGM. The Chief Executive, Chief Financial Officer and the
Chairmen of the Board and each of its Committees will be available
to answer shareholders’ questions at the AGM. The numbers of
proxy votes lodged in connection with the Company’s AGM are
announced following the conclusion of the relevant meeting.
The Board is happy to enter into a dialogue with institutional
shareholders based on a mutual understanding of objectives,
subject to its duties regarding equal treatment of shareholders
and the dissemination of inside information. The Chief Executive
Officer and the Chief Financial Officer meet institutional
shareholders on a regular basis, and the Chairman periodically
contacts the Company’s major shareholders and offers to meet
with them. The Board as a whole is kept fully informed of the
views and concerns of the major shareholders. When requested
to do so, Non Executive Directors will attend meetings with
major shareholders.
Internal control
The Board has overall responsibility for the Company’s internal
control system and reviews its effectiveness at least annually. Such
a system of control is in place to give reasonable, but not absolute,
assurance that assets are safeguarded, transactions are authorised
and recorded properly and that material errors and irregularities are
prevented or detected within a timely period.
Through the regular meetings of the Board and the schedule of
matters reserved to the Board or its duly authorised Committees,
the Board aims to maintain full and effective control over
appropriate strategic, financial, operational and compliance issues.
The Board has put in place an organisational structure with clearly
defined lines of responsibility and delegation of authority.
The Board annually considers and approves a strategic plan and
budget. In addition there are established procedures and processes
in place for the making and monitoring of investments and the
planning and controlling of expenditure. The Board also receives
regular reports from the Executive Committee on the Company’s
operational and financial performance, measured against the annual
budget as well as regulatory and compliance matters.
55
The Company has in place arrangements whereby employees
may raise matters of concern in confidence about possible
improprieties in matters of financial reporting or other matters.
The Board has considered the need for an internal audit
– regular treasury reports are made to the Board which analyse
the funding requirements of the Company, track liquidity and
monitor the Company’s compliance with its interest and
exchange rate policies;
– a compliance and legal function whose role is to monitor and
report to the Board on the Company’s regulatory compliance;
– a well defined procedure governing the approval, monitoring
and sale of investments incorporating appropriate levels of
authority and post investment reviews; and
– regular reports are made on the Company’s fund management
activities including new fundraising, conflicts of interest and
portfolio performance.
Going concern statement
The Directors have at the time of approving the financial
statements, a reasonable expectation that the Company and
the Group have adequate resources to continue in operational
existence for the foreseeable future. Therefore they continue to
adopt the going concern basis of preparing the financial accounts.
In making this assessment, the Directors have considered a
wide range of information relating to present and future conditions
including future projections of profitability, cash flows and capital
resources.
The Group’s business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Operating Review on pages 21 to 25. The
financial position of the Group, its cash flows, liquidity position
and borrowing facilities are described in the Finance Review on
pages 26 to 30. In addition, note 3 to the financial statements
include the Group’s objectives, policies and processes for
managing its capital; its financial risk management objectives;
details of its financial instruments and hedging activities; and its
exposures to credit risk and liquidity risk.
The Directors believe that the Group and Company are well
placed to manage its business risks successfully despite the
current uncertain economic outlook.
The Directors continually monitor the debt profile of the
Group and Company, and seek to refinance senior facilities
a substantial period before they mature. The Group and
Company have £462.5m of facilities due to mature within
the next 12 months. Facilities have already been established
to cover these maturities as well as cater for the ongoing
funding requirements of the business.
function, but has decided that because of the nature of the current
internal control system and size of the Company it cannot be
justified at present. The Board will review this decision next year.
In addition to the regular risk reports discussed at the Risk
Committee’s meetings, the Board undertakes a formal periodic
assessment of the risk management and control arrangements in
order to form a view on the overall effectiveness of the system of
internal control. The Board has authorised the Executive Committee
to undertake external reviews of the emerging risks, where required,
with a view to assisting the growth of the Company’s business.
The rationale for the system of internal control is to maximise
effectiveness for the commercial management of the business
and to provide the Board with regular and effective reporting
on the identified significant risk factors. The Board is responsible
for determining strategies and policies for risk control, and
management is responsible for implementing such strategies
and policies.
The Board confirms that an ongoing process for identifying,
evaluating and managing the Group’s significant risks has operated
throughout the year and that, up to the date of the approval of the
Directors’ report and financial statements, the Board continues to
apply the procedures necessary to comply with the requirements
of the Turnbull Committee guidelines “Internal Control – Guidance
for Directors on the Combined Code”.
The key elements of this process are:
– core values, Company standards and controls which together
comprise the Company’s high level principles and controls,
with which all staff are expected to comply;
– manuals of procedures, compliance and policies applicable
to all business units;
– the identification of the major business risks facing the
Company and the development of appropriate policies for
the management of those risks. The Board recognises that
the internal control system is designed to manage rather than
eliminate the risk of failure to achieve business objectives;
– the employment of experienced and professional staff of the
highest calibre both by recruitment and promotion to fulfil
allotted responsibilities;
– strategic risks are considered by both the Board and the
Executive Committee in the context of an agreed strategic
framework. A strategy paper and plan are produced annually
to address the strategic challenges of the Group and these are
approved by the Board;
– a detailed financial plan is developed for the year ahead and
comprehensive monthly reports covering actual and planned
performance are provided to the Board by the Group’s finance
function;
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
Our business2 – 17Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112
56 Report of the Remuneration Committee
Remuneration Committee Chairman’s Letter
Dear Shareholder
It has been a year where the Group has made significant progress
towards the delivery of its long term strategy albeit it has also
been a year where as a result of a low level of realisations
in the portfolio the cash core income has been depressed.
In determining the appropriate level of remuneration for Managing
Directors, the Remuneration Committee has given careful
consideration to their performance, in particular in relation to
the achievement of corporate and financial objectives for FY13,
which support the longer term strategy of ICG including:
respect of FY13. This is a 25% reduction in the level of incentive
awards for FY13 (compared with FY12) despite the 10% increase
in the number of employees in our schemes over the year (from
141 to 155). Over the two years (FY12 and FY13) the Annual
Award Pool is around 33% of cash profits. The Remuneration
Committee confirms that it will remain within the overall 30% of
cash profits over the rolling five year period. More details of the
rolling average incentive pay outs as a percentage of cash profit
is set out on page 60.
As disclosed in last year’s Remuneration Report the Medium
Term Incentive Scheme (“MTIS”) was closed and the final
payment from the Scheme was made in June 2012.
– The successful close of ICG Europe Fund V at the hard cap
During the course of the year, the Committee has undertaken
of €2.5bn
– The successful launch of the ICG Longbow real estate funds
– Low levels of realisations in the portfolio depressing cash core
income to £39.9m
– Robust performance of the portfolio against a difficult
economic environment
– Further development of the Sales and Marketing infrastructure
across the Group
– Significant development of the US investment resource
– Record levels of AUM up 13% to €12.9bn
In summary, whilst important fundraising targets were met and a
number of initiatives were progressed which will be essential for
future growth, profits and, most importantly, cash profit were both
lower than last year.
The Committee is very much aware of the constraints in the
wider pay market, the keen focus of shareholders and the public
on executive reward as well as the competitive environment for
specialist investment talent. We place equal importance on
internal equity as on external comparison when determining
appropriate compensation levels.
In previous Remuneration Reports we have described a period
of transition since 2010 as we have implemented our revised
incentive schemes. We have now moved out of the transition
period so that all variable pay for FY13 falls under the umbrella
of the Annual Award Pool.
In July 2010, shareholders approved the Annual Award Pool,
being 30% of cash profits. This cap on incentive awards operates
on a rolling average basis so that it can be exceeded in some years
provided that, over a five year period, the aggregate value of
incentive awards is no more than 30% of the aggregate cash profit.
In FY12 the Committee determined that the Annual Award
Pool should be 18% (£29.5m), some £20.0m below the 30% of
cash profits cap.
During FY13, the opportunities for realisations have been
limited and consequently our cash profit (on which the Annual
Award Pool is based) was substantially lower. However, it has
been a successful year in other respects and it is important to
maintain the level of investment in our people. Accordingly, the
Committee has agreed that an aggregate value of £22.1m
(FY12 £29.5m) may be delivered to employees in incentives in
a review of the remuneration of the Managing Directors,
comparing their overall remuneration with that of individuals
holding similar posts in other private equity and financial
services organisations. The Committee is comfortable that the
remuneration policy provides remuneration that is consistent
with that of the Managing Directors’ peers.
We do not anticipate any major changes to our remuneration
policy in the near future as the Annual Award Pool arrangement
is beginning to get established.
I would like to thank shareholders for their support over
the past 12 months and I look forward to further opportunities
for dialogue over the course of the coming year.
Peter Gibbs
Chairman of the Remuneration Committee
Contents of the FY13 Remuneration Report
We have structured the remuneration report in five parts:
1 Remuneration policy for FY13 and FY14
– Overview of the policy for FY13 and FY14
2 Remuneration for FY13 explained
Comprehensive disclosure of
remuneration paid in respect of FY13
3 Remuneration in detail for FY13
4 Service contracts and letters
of appointment
5 Remuneration Committee
Details of the composition, remit and
operation of the Committee.
6 Performance graph and other
regulatory information
pages 57,
58, 59
page 60
pages 61
to 64
pages 65
and 66
page 66
page 67
57
1 Remuneration policy for FY13 and FY14
This section explains the Remuneration policy that is in operation
in the Financial Year under review, FY13, and the current Financial
Year, FY14. This policy is in line with that approved by
shareholders in July 2010.
The annual bonus, all awards under the Intermediate Capital
Group plc Omnibus Plan (“Omnibus Plan”) and the Balance Sheet
Carry Plan must fall within the Annual Award Pool (details of which
are set out on page 60). Carried Interest on third party funds is
not regarded as part of the variable compensation costs of ICG
and does not form part of the Annual Award Pool.
Remuneration principles
Five guiding principles are reflected in the design
of the executive compensation arrangements
1
2
Alignment
between staff
and shareholders
Annual Award Pool (30% of cash profit)
for expected value of awards ensures
long term affordability
Support the
long term
corporate
strategy
Balance Sheet Carry awards reflect
the long term corporate strategy
to invest successfully and maximise
returns. Key staff remunerated
to grow value in the FMC
3
Promote staff
equity ownership
4
Transparent
5 “Cash on cash”
The majority of executive remuneration
is in the form of equity and shareholding
guidelines have been introduced
All aspects of remuneration are clear to
employees and openly communicated
to employees and shareholders
The “cash on cash” principle ensures
that employees are only rewarded for
realised gains
Basic salary in FY14
The Managing Directors received salary increases of 2.94% with
effect from 1 April 2013. In determining the base salary increases
the Committee considered the range of salary increases applying
across the Group. The average basic salary for all other staff has
increased by an average of 3.32% from FY13 levels, depending
on their role.
Pensions and benefits
All UK employees are entitled to a pension allowance which is
generally paid into ICG’s stakeholder pension plan. The pension
allowance available to Managing Directors is 15% of basic salary.
Other benefits receivable by the MDs were life assurance, private
medical insurance and income protection.
Annual Award Pool
The central feature of the remuneration policy is the Annual Award
Pool. All incentives are governed by an overall limit expressed in
terms of cash profit.
The Annual Award Pool is up to 30% of cash profits over a
rolling five year period and is a cap on the aggregate value of
variable compensation that can be provided. The percentage
may be exceeded in any year but must not be exceeded on
an aggregate average basis over five years.
Annual Award Pool
(30% of Cash Profit)
PLC
Equity
Balance
Sheet
Carry
FMC
Equity
Annual
Bonus
(including Deferred
Share Awards)
Cash profit is defined as pre-incentive operating profit (including
net provisions) adjusted for unrealised gains, rolled up interest and
fair value movement on derivatives.
At the end of each performance year the Committee is asked
to approve the final Annual Award Pool as well as the final awards
and payments for Managing Directors and other members of
executive management within their remit.
Annual Bonus
This scheme is designed to reward employees for increasing the
Company profits, managing the cost base, employing sound risk
and business management.
Annual bonus awards are allocated on the basis of individual
performance with mandatory deferral into Deferred Share Awards
of 50% of bonuses over £100,000 for Executive Directors.
Deferred Share Awards are made under the Omnibus Plan the
details of which are set out below.
Omnibus Plan and Balance Sheet Carry
The Omnibus Plan provides for three different award types to be
made over Company shares: Deferred Share Awards, PLC Equity
awards and FMC Equity awards. Awards under the Omnibus
Plan are subject to the overall “cash on cash” limit when they are
granted so a further performance condition is not necessary.
Deferred Share Awards
This plan provides a vehicle for any deferred element of the
Annual Bonus. The award is over shares in the Company which
vest after one, two and three years. Dividend Equivalents accrue
to participants during the vesting period.
Good Leaver treatment (automatic vesting) applies in
circumstances of death, disability and ill health. The treatment
of other leavers will be subject to Committee discretion.
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
Our business2 – 17Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112
58 Report of the Remuneration Committee continued
1 Remuneration policy for FY13 and FY14
continued
Omnibus Plan and Balance Sheet Carry continued
PLC Equity Awards
These awards are designed to reward senior employees for
increasing long term shareholder value and will align their interests
with shareholders. The award is over shares in the Company.
This scheme forms the largest proportion of the remuneration
of Managing Directors, but other senior staff are also eligible to
participate.
Awards are made at the end of the performance year on a
discretionary basis, based on performance as determined by the
annual appraisal process.
Dividend Equivalents accrue to participants during the
vesting period.
These awards vest one third on 1 June following each of the
third, fourth and fifth anniversaries of grant. Good Leaver treatment
applies in circumstances of death, disability and ill health (where
vesting will be automatic) and redundancy (where vesting will
occur at the normal vesting date). The treatment of other leavers
is subject to Committee discretion.
FMC Equity Awards
These awards are designed to incentivise those employees
charged with accelerating the expansion of our alternative
fund management business. The award is over shares in FMC.
The value of a share is determined by an independent valuation.
The shares vest one third on 1 June following each of the first,
second and third anniversaries of grant. A holding period applies
until the third anniversary of grant.
On the third anniversary, all vested shares are automatically
“exchanged” for Company shares of an equivalent value.
No further restrictions apply.
Good Leaver treatment (automatic vesting) applies to both
unvested awards and (prior to the end of the holding period)
vested awards in circumstances of death, disability and ill health,
and, in respect of vested awards only, redundancy. The treatment
of other leavers is subject to Committee discretion.
Balance Sheet Carry Plan
This arrangement encourages investment executives to seek
the required returns on investments, whilst minimising defaults
and losses.
It takes the form of an “in house” carry arrangement
(i.e. on the returns from investments made by the Company on
its balance sheet) and awards will pay out by reference to a year
of investment (“vintage”) and therefore take losses into account.
Awards vest one third on 1 June following each of the first,
second and third anniversaries of the start of the vintage year and
payment is made on the realisation of investments, once a hurdle
rate of return has been achieved on these investments. The hurdle
rate is fixed by the Committee prior to making the first awards
in each vintage, calculated as the base rate plus 4% per annum,
with a floor of 5% per annum.
After repayment of capital and the payment of the related
hurdle rate of return to the Company, participants become entitled
to catch up until they have received up to 20% of the aggregate
returns on investments in that vintage. Thereafter, participants
are entitled to receive up to 20% of any further returns on those
investments.
Leaver provisions are consistent with Private Equity industry
standards. In summary, Good Leaver treatment (accelerated
vesting) applies to both vested and unvested awards in
circumstances of death, disability and ill health, and in respect
of vested awards only, redundancy. The treatment of other
leavers will be subject to Committee discretion.
The Intermediate Capital Group plc
SAYE Plan 2004
UK employees are offered the opportunity to save a regular
amount each month over 36 months and receive a bonus at
the end of the saving contract (subject to HMRC guidelines).
At maturity, employees can exercise their option and purchase
shares in ICG at the discounted price set at the launch of the plan
or receive the accumulated cash.
Carried interest over third party funds
Because of the nature of the business undertaken by the
Company, investors into its funds expect that the Company
offers the types of incentive arrangements that are offered
by its competitors for talent. Accordingly, there are a number
of carried interest schemes operated by the Company.
Carried interest is a share of the profits of a successful fund
that is paid to the Company as a manager of the fund and certain
employees who are involved in the management of the fund.
Although carried interest is a cost to external investors, they value
the fact that it aligns the interests of the fund management team
with their own, encouraging the best returns to be obtained.
The Company currently operates carried interest on the
following funds:
– ICG Mezzanine Fund 1998;
– ICG Mezzanine Fund 2000;
– ICG Mezzanine Fund 2003;
– Intermediate Capital Asia Pacific Mezzanine Fund 2005;
– ICG European Fund 2006;
– Intermediate Capital Asia Pacific Fund 2008;
– ICG Minority Partners Fund 2008;
– ICG Recovery Fund 2008; and
– ICG Europe Fund V.
These funds are managed by the Company for external investors,
and no payments are made to carried interest holders until these
investors have been returned their initial capital contribution and
an internal rate of return (IRR) of 8% (the “Hurdle”) on the whole of
the fund.
Once the returns exceed the Hurdle, a high proportion of
these cash flows (80%) are allocated to carried interest holders,
until they have received 20% of all aggregate cash flows from the
fund (known as “catch up”). Carried interest holders then receive
20% of any further returns.
59
How do the elements of remuneration for FY13 and
FY14 align with ICG’s remuneration principles?
Element of remuneration
Alignment
Salary
–
Support the long term
corporate strategy
Promote staff share
ownership
Transparent
Cash on cash
Principle
Sufficient to ensure
that variable pay can
be reduced to zero
–
Annual Bonus
(including Deferred
Share Awards)
Portion awarded as
Deferred Share Awards
aligns with overall
shareholders interests
Rewards contribution
to achievement of
ICG strategy
Deferred Share
Awards deliver
ICG shares
PLC Equity
Rewards creation of
overall shareholder
value
Rewards creation of
overall shareholder
value
Delivers
ICG shares
FMC Equity
Rewards creation
of shareholder value
in FMC
Rewards creation
of shareholder value
in FMC
Delivers
ICG shares
Balance Sheet
Carry
Ensures management
is exposed to outcome
of investment decisions
Encourages staff to
invest successfully
and maximise returns
and recoveries
Carried Interest on
third party funds
Rewards creation of
value for third party
investors
Encourages staff to
invest successfully
and maximise returns
and recoveries
–
–
All aspects of
remuneration
are clear and
openly
communicated
to employees
and
shareholders
Aggregate
expected value
of awards is
subject to
Annual Award
Pool driven
by cash profit
Subject to
Annual Award
Pool and
payments only
made in respect
of realised gains
Payments only
made in respect
of realised gains
–
–
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
Our business2 – 17Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112
60 Report of the Remuneration Committee continued
2 Remuneration for FY13 explained
Basic salary in FY13
The Managing Directors were awarded a 3.66% increase in their
basic salaries for FY13 from the FY12 level. Mr Durteste’s salary
upon joining the Board was brought in line with other Managing
Directors. The average basic salary increase for other staff was
3.77% from FY12 levels, depending upon their roles.
market and that the consequent increase in cash profit in FY14
will generate a larger Annual Award Pool in respect of the year
ending 31 March 2014 which will bring the cumulative average
back below the 30% threshold. The Committee reconfirms that
it will maintain an overall 30% average over five years measured
from 1 April 2011.
The split between elements of variable remuneration for
Managing Directors for FY13 is estimated as:
Executive Directors
Christophe Evain
Philip Keller
Benoît Durteste
FY12 Salary
(£000’s)
FY 13 Salary
(£000’s)
% Increase
328
328
–
340
340
340
3.66%
3.66%
–
Pensions and benefits
Each Managing Director is paid an additional gross annual
amount to be paid into any one or more pension plans of his
choice up to a maximum annual amount equal to 15% of
basic annual salary. There have been no changes in the terms
of Managing Directors’ pension entitlement during the year.
In respect of all other employees either: (a) an additional gross
annual amount is paid to them which they use to contribute
to any one or more pension plans of their choice; or (b) the
Company makes contributions into a designated pension plan.
Other benefits provided to Managing Directors include medical
insurance, permanent health insurance and disability insurance.
Awards made from the Annual Award Pool
The Remuneration Committee has approved the calculation of
the Annual Award Pool and the methodology and assumptions
used to determine the value of awards for FY13.
The Pre-Incentive Cash Profit for the year was £10,130,000.
This is lower than in previous years due to the low level of
realisations during the year.
The Annual Award Pool is calculated as a cumulative
average of 30% of Pre Incentive Cash Profit from the year ending
31 March 2012 until the year ending 31 March 2016 after which
it is calculated as a five year rolling average. The 30% cap may
be exceeded in certain years as long as, over a five year period,
on average the Annual Award Pool does not exceed 30% of
Pre-Incentive Cash Profit. The value of aggregate variable
compensation agreed by the Remuneration Committee for
FY13 is £22.1m (FY12 £29.5m). This represents 33% of the
cumulative average percentage of Pre-Incentive Cash Profit
over the last two years.
The Company continues to grow new products and
capabilities in a number of new markets and the Remuneration
Committee feel it is essential that we are able to retain and
attract the best talent. The management team is confident that
realisations will increase with greater levels of liquidity in the
1 PLC Equity
PLC Equity maintains alignment between Managing
Directors and overall shareholder value and comprises
the majority of Managing Directors’ remuneration
2 Balance Sheet Carry
Balance Sheet Carry links remuneration to the
performance of ICG’s balance sheet investments based
upon an estimated value of award at time of grant
3 Annual Bonus
The allocation of annual bonus includes the element
that will be delivered in Deferred Share Awards
68%
16%
16%
Old Remuneration Schemes Share options in FY13
There are a number of share option schemes currently in
existence at the Company. No new awards have been made
under these schemes in the last three years but the awards
made in previous years are still in existence until they either lapse
or are exercised.
The schemes are:
– The ICG 2001 Approved Executive Share Option Scheme
(Approved ESOS); and
– The ICG 2001 Unapproved Executive Share Option Scheme
Market value options may only normally be exercised between
three and ten years after the date of grant if performance targets
are met.
– The Key Executive Retention Share Plan (KERSP).
Nil cost options could be granted to key executives under the
KERSP up to an amount equal to 15% of the value of the MTIS
pool. The options were subject to achievement of a performance
condition measured from the date of grant to the vesting date.
The performance conditions for the Approved ESOS and the
KERSP were growth in core income per share and growth in
earnings per share respectively. The Committee considers that
performance conditions attaching to the options granted were
appropriate. No value is delivered to participants if performance
is below threshold performance.
61
3 Remuneration in detail for FY13
Directors’ remuneration – audited
Details of Managing Directors’ remuneration for the year are as follows:
Executive Directors
Christophe Evain
Philip Keller
Benoît Durteste2
Former Executive Directors3
Total emoluments of Executive Directors
Basic salaries
£000
Cash bonus1
£000
Pension
scheme
allowances
£000
Benefits in
kind
£000
Total for
year ending
31 March
2013
£000
Total for
year ending
31 March
2012
£000
340.0
340.0
285.9
147.5
115.0
128.0
51.0
51.0
42.9
7.6
6.0
6.6
546.1
512.0
463.4
1,521.5
2,433
1,749
n/a
5,012
9,194
1 In addition the following amounts will be awarded in May 2013 as Deferred Share Awards: Christophe Evain £47,500, Philip Keller £15,000,
Benoît Durteste £28,000
2 Benoît Durteste was appointed on 21 May 2012. His total emoluments reflect the period of employment as a Director.
3 The emoluments paid to former Managing Directors in relation to the closure of MTIS for FY12 amounted to £4.4m as follows: Paul Piper £1,708,466 (2012:
£1,015,260), Andrew Phillips £1,591,527 (2012: £945,925), Tom Bartlam £452,594 (2012: £120,344), Andrew Jackson £368,166 (2012: £832) and Jean Loup de
Gersigny £368,166 (2012: £120,344).
Fees paid to Non Executive Directors were:
Non Executive Directors
Justin Dowley (Chairman)
Jean-Daniel Camus1
Peter Gibbs
James Nelson1
Kevin Parry
Kim Wahl2
Lindsey McMurray3
Board
membership
fees
£000
Non Executive
Committee
Chairman fees
£000
Senior
Independent
Director fee
£000
Audit
£000
Remuneration
£000
Total for year
ending 2013
£000
Total for year
ending 2012
£000
Committee Chairman/Membership
–
13.8
50.0
13.8
50.0
36.4
26.4
150.0
–
20.0
–
10.0
–
–
–
–
–
–
5.0
–
–
–
1.4
5.0
1.4
–
–
2.6
5.0
1.4
–
1.4
5.0
3.6
2.6
155.0
16.6
75.0
16.6
70.0
40.0
31.6
404.8
155.0
60.0
70.4
65.1
70.0
–
–
420.5
1 Jean-Daniel Camus and James Nelson retired on 10 July 2012.
2 Kim Wahl joined on 10 July 2012.
3 Lindsey McMurray joined on 20 September 2012.
Share option scheme – audited
For options granted to Directors in 2009/10, the performance condition was:
Average growth in adjusted Pre-tax Cash Profit
<3% per annum above RPI
3% per annum above RPI
4% per annum above RPI
5% per annum above RPI or more
And on a straight line basis in between
Proportion
of option
exercisable
Nil
1/3
2/3
All
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
Our business2 – 17Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112
62 Report of the Remuneration Committee continued
3 Remuneration in detail for FY13 continued
At 31 March 2013, the following Managing Directors had share options in the Company, which had not been exercised.
The number of shares over which options are held is:
Managing Directors
Christophe Evain
Philip Keller
Benoît Durteste
As at 31 March
2012
Exercised during
the year
Granted during
the year
Lapsed during
the year
At 31 March
2013 Exercise price
From
To
Exercise periods
73,699
76,766
73,982
111,997
99,090
282,472
4,992
176,447
282,472
67,840
–
76,766
–
–
–
282,472
–
–
282,472
–
–
–
–
–
–
–
–
–
–
–
73,699
–
£3.256
–
–
–
–
–
–
–
–
–
–
73,982
111,997
99,090
–
4,992
176,447
–
67,840
£3.322
£4.731
£4.286
£4.844
£2.23
£6.008
£6.008
£2.230
£5.05
Apr-05
Jun-06
Jun-07
Jun-08
Jun-09
Jun-12
Dec-09
Dec-09
Jun-12
Jun-09
Apr-12
Apr-13
Apr-14
Apr-15
Jun-16
Jun-19
Dec-16
Dec-16
Jun-19
Jun-16
Christophe Evain exercised his options on the 8 March 2013. The market price on the date of exercise was £4.03835, and the total gain
on exercise was £565,799.
Philip Keller exercised his options on 7 March 2013. The market price on the date of exercise was £4.01361, and the gain on
exercise was £503,820.
KERSP option scheme – audited
At 31 March 2013, the following Managing Directors had nil cost options in the Company under the KERSP scheme, which had not
been exercised. The number of shares over which options are held is:
Managing Directors
Christophe Evain
Philip Keller
Benoît Durteste
At 31 March 2012
(or later date
of appointment)
Exercised during
the year
Lapsed during
the year
At 31 March
2013 Exercise price
From
To
Exercise periods
32,142
53,243
118,855
25,484
54,024
20,576
84,092
69,151
–
–
–
–
–
–
–
–
10,714
13,310
23,771
6,371
10,804
6,858
21,022
13,830
21,428
39,933
95,084
19,113
43,220
13,718
63,070
55,321
Nil May-10
Jun-11
Nil
Jun-12
Nil
Jun-11
Nil
Nil
Jun-12
Nil May-10
Jun-11
Nil
Jun-12
Nil
May-18
Jun-19
Jun-20
Jun-19
Jun-20
May-18
Jun-19
Jun-20
20% of the options granted vest each successive year starting four years from the date granted. Amounts brought forward in respect
of the 2006 options (exercisable from May 2011 onwards) have been amended to reflect the five year vesting period over which the
options will lapse. Options may be exercised only if the Company achieves a growth in EPS of 5% per annum from the date granted to
the applicable vesting date.
Directors’ share options – audited
The market price of each share on the nearest working day to each of 1 April 2012 and 31 March 2013 was £2.895 per share and
£4.231 per share respectively. The highest and lowest share prices during the year were £4.266 and £2.273 respectively.
63
3 Remuneration in detail for FY13 continued
Omnibus Plan – audited
At 31 March 2013, the following Managing Directors held PLC Equity Awards over ICG plc shares under the Omnibus Plan, which was
approved by shareholders in July 2010:
Managing Directors
Christophe Evain
Philip Keller
Benoît Durteste
As at 31 March 2012
–
–
–
181,917
181,917
181,918
235,153
253,153
253,154
–
–
–
121,278
121,278
121,279
156,769
156,769
156,769
–
–
–
Granted in
June 2012
257,422
257,422
257,423
–
–
–
–
–
–
171,614
171,614
171,615
–
–
–
–
–
–
85,807
85,807
85,808
At 31 March
2013 Vesting date
Award price
257,422
257,422
257,423
181,917
181,917
181,918
235,153
235,153
235,154
171,614
171,614
171,615
121,278
121,278
121,279
156,769
156,769
156,769
85,807
85,807
85,808
1/6/15
1/6/16
1/6/17
1/6/14
1/6/15
1/6/16
2/6/13
2/6/14
2/6/15
1/6/15
1/6/16
1/6/17
1/6/14
1/6/15
1/6/16
2/6/13
2/6/14
2/6/15
1/6/15
1/6/16
1/6/17
£2.330
£2.330
£2.330
£3.335
£3.335
£3.335
£2.580
£2.580
£2.580
£2.330
£2.330
£2.330
£3.335
£3.335
£3.335
£2.580
£2.580
£2.580
£2.330
£2.330
£2.330
These shares vest in three equal tranches at the end of each of the third, fourth and fifth anniversaries of the date of grant.
Dividend equivalents accrue to participants during the vesting period.
At 31 March 2013, the following Managing Director held Deferred Share Awards over ICG plc shares under the Omnibus Plan
Managing Director
Philip Keller
As at 31
March 2012
Granted in
June 2012
Vested
during year1
At 31 March
2013 Vesting date Vesting Price
Award price
33,351
33,351
–
–
33,351
–
–
33,351
2/6/12
2/6/13
£2.41
–
£2.58
£2.58
1 In addition to the shares vested above, a further 4,464 dividend equivalent shares also vested.
These shares vest in three equal tranches at the end of each of the first, second and third anniversaries of the date of grant. Dividend
equivalents accrue to participants during the vesting period.
As 31 March 2013, the following Managing Director held FMC Equity Awards over FMC shares under the Omnibus Plan, which was
approved by shareholders in July 2010:
Managing Director
Benoît Durteste
As at 31
March 2012
Granted in
June 2012
At 31 March
2013 Release date
Award price
3,158
2,857
–
–
3,158
2,857
June 2013
June 2014
£190.0
£245.0
These shares vest in three equal tranches at the end of each of the first, second and third anniversaries of the date of grant, but do not
release until the third anniversary of grant.
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
Our business2 – 17Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112
64 Report of the Remuneration Committee continued
3 Remuneration in detail for FY13 continued
Balance Sheet Carry Plan – audited
At 31 March 2013, the following Managing Directors held Balance Sheet Carry points under the Balance Sheet Carry Plan
which was approved by shareholders in July 2010:
Managing Directors
Christophe Evain
Benoît Durteste
Philip Keller
As at
31 March 2012
Points granted in
June 2012
Points held at
31 March 2013
948.0
2,418.0
633.0
436.0
4,076.0
291.0
1,384.0
6,494.0
924.0
No value has been attributed to these awards at the year end as the value will fluctuate in line with the underlying performance
of the investment.
Shareholder dilution
For all awards made during the FY11 financial year and subsequent financial years, the Company has and intends in the future
to use market purchased shares to satisfy any equity settled incentive awards.
The Committee has set a dilution limit for FMC Equity Awards (the “FMC Equity Pool”) of 20% of the issued share capital
of the FMC that may be made the subject of FMC Equity Awards.
Employee Benefit Trust
The Company established the Intermediate Capital Group plc 2002 Employee Benefit Trust which may be used to hold shares
and cash in conjunction with employee incentive schemes established by the Company from time to time.
Carried interest on third party funds
The Company has established for its executives, including the Managing Directors, carried interest arrangements under which between
60% and 80% of the carried interest negotiated by the Company in respect of managed funds raised since 21 January 1998 is available
for allocation to its executives. Although these arrangements are not a long term incentive scheme (as the costs of these arrangements
are borne by the investors in such funds) the Company sought, and obtained, approval from its shareholders for such arrangements at
an Extraordinary General Meeting on 21 January 1998. Reconfirmation of the approval of the carried interest arrangements was
obtained from shareholders at the Annual General Meeting held on 27 May 2003.
It is not possible to put a monetary value on these interests, as they are dependent upon the performance of the relevant funds in the
future. No amounts will be payable until the third party investors in the funds have had all their capital returned, plus a minimum return.
The allocation of carried interest entitlements as at 31 March 2013 was as follows:
Managing Directors
Former Managing Directors
Other executives
ICG
ICG
Mezzanine
Fund
1998
ICG
Mezzanine
Fund
2000
ICG
Mezzanine
Fund
2003
13.4%
27.5%
20.6%
38.5%
12.9%
16.0%
27.9%
43.2%
12.4%
25.1%
37.5%
25.0%
Intermediate
Capital Asia
Pacific
Mezzanine
Fund 2005
9.5%
21.6%
43.9%
25.0%
ICG
European
Fund
2006
Intermediate
Capital Asia
Pacific Fund
2008
16.9%
14.5%
48.6%
20.0%
17.4%
4.3%
58.3%
20.0%
ICG
Minority
Partners
Fund
2008
21.1%
21.0%
37.9%
20.0%
ICG
Recovery
Fund
2008
18.1%
7.0%
54.9%
20.0%
ICG Europe
Fund V
16.3%
0.0%
63.7%
20.0%
Total
100.0%
100.0% 100.0% 100.0% 100.0% 100.0%
100.0%
100.0% 100.0%
Further details on each of these funds can be found on page 42.
65
4 Directors’ terms of appointment
Managing Directors’ contracts
Managing Directors have one year “rolling” contracts which are deemed appropriate for the nature of the Company’s business.
The Company is obliged to pay damages for wrongful termination. No other payments are made for compensation for loss of office.
The Company will continue to provide all Managing Directors, along with all other employees, with healthcare and prolonged disability
and life assurance cover.
The details of the service contracts for Managing Directors serving during the year are shown below.
Managing Directors
Date of agreement
Notice periods
Christophe Evain 30 May 2006
12 months
Philip Keller
12 October 2006 12 months
Benoît Durteste
21 May 2012
12 months
Non compete
provisions
Restraint period
of 12 months
Restraint period
of 12 months
Restraint period
of 12 months
Compensation on termination by the Company without notice or cause
The salary for any unexpired period of notice. The cost to the
Company (ignoring NI contributions) of providing insurance
benefits for the same period.
The salary for any unexpired period of notice. The cost to the
Company (ignoring NI contributions) of providing insurance
benefits for the same period.
The salary for any unexpired period of notice. The cost to the
Company (ignoring NI contributions) of providing insurance
benefits for the same period.
Shareholding requirements
In addition to the alignment between the Managing Directors
and Senior employees and shareholders provided by the Balance
Sheet Carry awards, PLC Equity Awards, FMC Equity Awards
and Deferred Share Awards, further alignment will be provided
by a minimum shareholding policy of two times salary for
Managing Directors and one times salary for other senior
employees. A period of up to three years from 1 April 2012
has been permitted to build up to the required shareholding.
Compliance with these shareholding guidelines will be
assessed by the Committee and may have an impact on the
future remuneration of Managing Directors and partners.
Following the end of the period for Managing Directors to
build up their shareholding, the extent to which the shareholding
guidelines have been satisfied by each Managing Director will
be set out in the remuneration reports for subsequent years.
Non Executive Directors
The remuneration of the Non Executive Directors is determined
by the Board within the limits set out in the Articles of
Association, which currently limits the total amount paid to
Non Executive Directors to £600,000. In arriving at these levels
of fees, the Committee relies upon objective research from
PricewaterhouseCoopers LLP (“PwC”) and Deloitte LLP which
contains up to date relevant information for similar companies.
The fees payable in FY13 are shown below:
Role
Chairman
Non Executive Director
Audit Committee (Chair)
Remuneration Committee (Chair)
Nominations Committee (Chair)
Audit/Remuneration Committee (Member)
Nominations Committee (Member)
Senior Independent Director
Fee (p.a)
£150,000
£50,000
£10,000
£20,000
£0
£5,000
£0
£5,000
Fees are reviewed annually and the fee rates applicable for FY13
were unchanged from 1 April 2011.
Non Executive Directors cannot participate in any of the
Company’s share schemes.
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
Our business2 – 17Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112
66 Report of the Remuneration Committee continued
4 Directors’ terms of appointment continued
Non Executive Directors do not have contracts of service and are
not eligible to join the designated Group pension plan. Details of
Non Executive Directors’ letters of appointment are as follows:
Non Executive Directors
Justin Dowley
Peter Gibbs
Lindsey McMurray
Kevin Parry
Kim Wahl
Date appointed
Last re-elected
February 2006
March 2010
September 2012
June 2009
July 2012
July 2012
July 2012
n/a
July 2012
n/a
Jean-Daniel Camus and James Nelson retired on 10 July 2012.
5 Remuneration Committee
Composition, remit and operation
The Committee is authorised by the Board to determine and
agree the framework for the remuneration of the Chairman of
the Company, the Managing Directors and such other members
of the executive management as it is instructed by the Board
to consider and is also responsible for determining the total
individual remuneration package of each Managing Director,
having given due regard to the contents of the Code, as well as
the Listing Rules. The Committee is responsible for determining
targets for any performance related pay schemes operated by
the Company as well as the policy for pension arrangements for
each Managing Director. The Committee is responsible for the
overall remuneration policy for all the Company’s staff and takes
into account the requirement that the Remuneration
arrangements should:
– be consistent with and promote sound and effective risk
management, and did not encourage excessive risk taking;
– be in line with business strategy, objectives, values and long
term interests of the Company;
– include measures to avoid conflict of interest;
– take into account the long term interests of shareholders,
investors and other stakeholders; and
– be formulated on the basis of advice from ICG Group’s
compliance function, particularly in relation to performance
measurement.
The Committee comprises five independent Non Executive
Directors:
– Peter Gibbs (Chairman)
– Justin Dowley
– Lindsey McMurray
– Kevin Parry
– Kim Wahl
None of the Committee members have any personal financial
interests (other than as shareholders or investors in ICG funds),
conflicts of interest arising from cross directorships or day to day
involvement in running the business.
The Company therefore considers that it complies with the Code
recommendations regarding the composition of the Committee.
The Committee meets at least three times a year and more
frequently if necessary. Managing Directors attend the meetings
by invitation and the Committee consults the Managing Directors
about its proposals and has access to professional advice from
outside the Company. The Head of Human Resources also
attends the meetings by invitation. No Director is involved in any
decisions as to their own remuneration.
A table showing the number of Committee meetings held
during the year and the attendance record of individual Directors
can be found in the Corporate Governance section on page 51.
Advisers to the Committee
PwC has been appointed by the Committee and advises the
management of ICG on remuneration issues. PwC also provides
advice to the Committee on other HR issues on request.
Mayer Brown and Ashurst advised the Committee on a broad
range of legal issues for the Group during the year to 31 March
2013. These advisors were appointed by the Company.
The following topics were discussed and addressed as required:
Meetings
Topics addressed
May
Review and approval of compensation
recommendations for FY12 and awards for FY13
taking into account advice from the Group’s
compliance function in relation to performance
measurement
Review of FMC valuation
MTIS closure discussions
Fund V carried interest allocations
July
November Review of KPIs
Review of bonus commitments
Review of EBT arrangements
January Review of emerging trends within remuneration
March
regulation and governance
Review of EBT arrangements
Approval of Remuneration Committee annual timetable
ICG Remuneration Policy annual review
Review and approval of off cycle awards for FY13
Review of Annual Award Pool
Review of the asset allocation for Balance Sheet Carry
Disclosure requirements discussion
Amendments to Omnibus and Balance Sheet Carry
Rules
Review of EBT arrangements
Review of MD’s KPIs and appraisal process
67
6 Performance graph and other regulatory information
The graph below shows a comparison between the Company’s total shareholder return performance and the financial services
companies in the FTSE All Share index. The graph compares the value, at 31 March 2013, of £100 invested in Intermediate Capital
Group plc on 1 February 2002 with the value of £100 invested in the FTSE All Share Financials Index over the subsequent 10 years.
This index has been chosen to give a comparison with the average returns that shareholders could have received by investing
in a range of other major financial services companies.
Performance graph
300 –
250 –
200 –
150 –
100 –
50 –
0 –
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Intermediate Capital Group
FTSE All Share Financials
Source: Thomson Reuters Datastream
Audited information
The sections relating to Directors’ remuneration, Omnibus Plan, the BSC Plan, Share Option Scheme and KERSP Scheme
are required to be, and have been, audited by the Company’s auditor, Deloitte LLP.
The Chairman of the Committee will be available to answer questions on any aspect of the remuneration policy at the
Annual General Meeting.
This report was approved by the Board of Directors on 22 May 2013.
Signed on behalf of the Board of Directors by:
Peter Gibbs
Chairman of the Remuneration Committee
22 May 2013
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
Our business2 – 17Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112
68 Directors’ report
The Directors present their annual report and the audited financial
statements for the 12 months ended 31 March 2013.
Principal activities and business review
The principal activities of the Group are those of providing
mezzanine and equity finance to companies throughout Europe,
Asia Pacific and North America along with the management of
third party funds.
The Group’s profit before taxation was £142.6m (2012:
£243.8m). The Directors consider the state of the Company’s
affairs to be satisfactory.
The review of the Group’s business (as required by section
417 of the Companies Act 2006) including its likely future
development is contained in “Our business”, the “Business
review” and on pages 39 to 45, which are incorporated into this
report by reference, together with this report itself. The Corporate
Governance Statement, set out on pages 50 to 55, forms part of
this report. The Pillar 3 disclosure is available on the shareholder’s
section of the Company’s website www.icgplc.com.
Investment process
The Group has a defined and disciplined investment process for
all mezzanine and equity investments. Investments are sourced by
ICG’s network of investment professionals in Europe, Asia Pacific
and the US from financial partners (including private equity
sponsors, banks and professional advisors) and/or directly with
the management teams of companies. Investment teams assess
all investment opportunities against ICG’s investment criteria and
present potential investments to the Investment Committee with
details of pricing, leverage, capital structure and a full commercial
background of the company. The Investment Committee is
responsible for approving the Group’s investments in
opportunities and will guide the investment teams on due
diligence and set financial parameters. Extensive due diligence is
then undertaken by advisors, retained by the equity sponsor or
appointed directly by ICG, covering the management team, the
market, financial and legal review, sustainability and corporate
social responsibility issues. The due diligence focuses on the
protection of principal and interest and assessing the future value
of the equity. Once completed, a further Investment Committee
meeting is held to review all available information and reach a
consensus – unanimous approval is required before an investment
can be made.
A similar process is followed for all credit fund investments,
with a two-step Investment Committee process approving trading
limits for all new investments. The process works on a shorter
time frame with the team usually benefiting from pre-agreed
documentation and a prepared due diligence set of information.
In order to effectively manage potential conflicts of interests
between both ICG’s businesses, namely mezzanine investment
and credit fund management, two separate and independent
Investment Committees have been set up: the consideration of
new mezzanine loans or equity investments for approval and
monitoring of performance of existing mezzanine loans and equity
investments has been delegated to the Mezzanine and Minority
Equity Investment Committee. The Committee is chaired by
Christophe Evain, CEO and CIO. The consideration of new
senior debt, second lien debt and high yield investments has
been delegated to the Credit Funds Investment Committee.
This Committee is chaired by Christophe Evain, CEO and CIO.
All investments are reviewed by the corresponding Investment
Committee. The approving Committees, comprise up to seven
additional members for mezzanine investment and five additional
members for credit fund management. The CIO selects the
members among two predefined lists of people including
Managing Directors and senior investment executives. One of
these members will be nominated as Sponsor member,
depending on the specificities of the investment (geography,
size, nature of the transaction). By chairing both Investment
Committees, the CIO ensures consistency in the Global
Investment Strategy of the firm.
Key performance indicators (“KPIs”)
Details of the KPIs are shown in the Business review on pages
12 to 15.
Post balance sheet events
Material events since the balance sheet date are described in note 31.
Directors
The Directors who served during the year were as follows:
– Justin Dowley
– Christophe Evain
– Philip Keller
– Benoît Durteste
– Kevin Parry
(Non Executive Chairman)
(Chief Executive Officer)
(Managing Director)
(Managing Director)
(Senior Independent
Non Executive Director)
(Non Executive Director)
(Non Executive Director)
– Peter Gibbs
– Kim Wahl
– Lindsey McMurray
– Jean-Daniel Camus
– James Nelson
Jean-Daniel Camus and James Nelson retired from the Board
on 10 July 2012.
(Non Executive Director)
(Non Executive Director)
(Non Executive Director)
The Company’s Articles of Association contain provisions for
the periodic retirement of Directors. However, in accordance with
the provisions of the UK Corporate Governance Code the Board
has decided it would be appropriate for all Directors to submit to
reappointment every year.
69
Accordingly Justin Dowley, Christophe Evain, Philip Keller, Kevin
Parry and Peter Gibbs retire by rotation at the next Annual General
Meeting and, being eligible, offer themselves for re-election.
During the year, Benoît Durteste was appointed to the Board
as a Managing Director on 21 May 2012 and was re-elected at
the Annual General Meeting of the Company held on 10 July
2012. Accordingly Benoît Durteste retires by rotation at the next
Annual General Meeting and, being eligible, offers himself for
re-election. Also during the year, Kim Wahl was appointed to the
Board as a Non Executive Director on 10 July 2012 and Lindsey
McMurray was appointed to the Board as a Non Executive
Director on 20 September 2012.
The Company’s Articles of Association provide that any
Director appointed by the Board shall retire at the next Annual
General Meeting of the Company following such appointment.
Accordingly, Kim Wahl and Lindsey McMurray will each retire
at the next Annual General Meeting and, being eligible, offer
themselves for re-election.
The composition of each of the Committees of the Board
and the Chairperson of each Committee are detailed on pages
48 and 49.
Directors’ interests
The Directors who held office at 31 March 2013 and their
connected persons, as defined by the Companies Act, had the
following interests in the ordinary shares of the Company:
Justin Dowley (Chairman)
Christophe Evain (CEO)
Philip Keller
Benoît Durteste
Peter Gibbs
Kevin Parry
Kim Wahl
Lindsey McMurray
31 March 2013
Number of 20p
ordinary shares
31 March 2012
Number of 20p
ordinary shares
119,639
671,383
234,776
54,400
–
–
–
–
119,639
781,627
152,158
49,068
–
–
–
–
There have been no changes to the Directors’ interests in shares
at 31 March 2013 as set out above as at 22 May 2013.
Directors’ share options
Details of Directors’ share options are provided in the Report of
the Remuneration Committee on pages 62 and 63. Other than
the interests of Benoît Durteste in shares of ICG FMC Limited
disclosed on page 63, during the financial year ending 31 March
2013, the Directors had no interests in the shares of any
subsidiary company. No Company shares were issued under
the Executive Share Option Schemes during the year.
Significant shareholdings
As at 22 May 2013 the Company had been notified or otherwise
become aware of the following interests pursuant to the
Disclosure Rules and the Transparency Rules representing 3%
or more of the issued share capital of the Company:
Institution
Aviva Investors
F&C Asset Management plc
Newton Investment Management
Baillie Gifford & Co Ltd
Cazenove Capital Management
LSV Asset Management
Legal & General Investment
Management
BlackRock Investment
Management
Dividend
Number
of shares
Percentage of
voting rights
28,491,692
22,668,174
19,280,769
17,162,132
16,390,741
15,445,358
14,427,778
12,965,560
7.1
5.6
4.8
4.3
4.1
3.8
3.6
3.2
The Directors recommend a final net dividend payment in respect
of the ordinary shares of the Company at a rate of 13.7p per
share (2012: 13p), which when added to the interim net dividend
of 6.3p per share (2012: 6p), gives a total net dividend for the year
of 20p per share (2012: 19p). The amount of dividend paid in the
year was £74.9m (2012: £70.1m).
Trade creditors and suppliers
It is Group policy to agree and clearly communicate terms of
payment as part of the commercial arrangements negotiated with
suppliers and then to pay according to those terms, based upon
the timely receipt of an accurate invoice. The Group does not
follow any code regarding terms of payment. During the financial
year our trade creditor days, based upon the ratio of amounts
that were owed to trade creditors at the year end to the aggregate
amounts invoiced by trade creditors during the year, were
13 days (2012: 21 days).
Auditor
A resolution for the reappointment of the current auditor,
Deloitte LLP, will be proposed at the forthcoming AGM. Details
of auditor’s remuneration for audit and non audit work are
disclosed in note 9 to the accounts.
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
Our business2 – 17Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112
70 Directors’ report continued
Disclosure of information to the auditor
Each of the persons who is a Director at the date of approval
of this report confirms that:
– so far as the Director is aware, there is no relevant audit
information of which the Company’s auditor is unaware; and
– the Director has taken all reasonable steps that he ought to
have taken as a Director in order to make himself aware of any
relevant audit information and to ensure that the Company’s
auditor is aware of that information.
This confirmation is given and should be interpreted in
accordance with the provisions of section 418 of the Companies
Act 2006.
Charitable and political contributions
During the year the Group made charitable donations of
£21,203 (2012: £38,000) principally to local charities serving the
communities in which the Group operates. During 2013, we ran
three workshops as part of our commitment to the Private Equity
Foundation’s (PEF) ThinkForward programme. The PEF is a
foundation backed by private equity firms and their advisors.
Their mission is to empower young people, by investing both
money and expertise from the private equity community, to help
charities achieve a significant change in their impact. £19,000 was
donated in 2012.
The Group also allows employees to take two days paid leave
a year to devote to charitable causes supported by the Group
under its Corporate Social Responsibility programme, further
details of which are given on pages 36 and 37. No contributions
were made during the current and prior year for political purposes.
Directors’ indemnity
The Company has entered into contractual indemnities with each
of the Directors pursuant to the amendment to the Company’s
Articles of Association authorised at the 2010 AGM and these
remain in force. The Company also provides Directors’ and
Officers’ insurance for the Directors.
Acquisition of shares by Employee Benefit Trust
During the year the Intermediate Capital Group Employee Benefit
Trust 2002, purchased 3,984,457 (2012: 4,813,531) ordinary
shares in the Company (having an aggregate nominal value of
£796,891.40 (2012: £962,706.2)) for a consideration of £13.3m
(2012: £12.9m), which was funded by the Company. The shares
were purchased in order to hedge the Company’s future liabilities
in relation to the vesting of awards under the Company’s long
term incentive plans.
This represented 1.0% (2012: 1.2%) of the Group’s share
capital at 31 March 2013.
Share capital and rights attaching
to the Company’s shares
As at 31 March 2013 the issued share capital of the Company
was 402,056,200 ordinary shares of 20p each. Certain key
matters regarding the Company’s share capital are noted below:
– Under the Company’s Articles of Association, any share in
the Company may be issued with such rights or restrictions,
whether in regard to dividend, voting, transfer, return of capital
or otherwise as the Company may from time to time by ordinary
resolution determine or, in the absence of any such
determination, as the Board may determine. All shares currently
in issue are ordinary shares of 20p each carrying equal rights.
– At a general meeting of the Company every member present
in person or by a duly appointed proxy has one vote on a show
of hands and on a poll one vote for each share held.
– The Intermediate Capital Group Employee Benefit Trust 2002
holds shares which may be used to satisfy options and awards
granted under the Company’s employee share schemes
including its long term incentive plans. The voting rights of
these shares are exercisable by the Trustees in accordance
with their fiduciary duties.
– The notice of any general meeting specifies deadlines for
exercising voting rights either by proxy or present in person
in relation to resolutions to be passed at a general meeting.
– No shareholder is, unless the Board decides otherwise,
entitled to attend or vote either personally or by proxy at a
general meeting or to exercise any other right conferred by
being a shareholder if:
(A) he or any person with an interest in shares has been sent
a notice under section 793 of the Companies Act 2006 (which
confers upon public companies the power to require
information with respect to interests in their voting shares); and
(B) he or any interested person has failed to supply the
Company with the information requested within 14 days where
the shares subject to the notice (the “default shares”) represent
at least 0.25% of their class or in any other case 28 days after
delivery of the notice. Where the default shares represent
0.25% of their class, unless the Board decides otherwise,
no dividend is payable in respect of those default shares and
no transfer of any default shares shall be registered. These
restrictions end seven days after receipt by the Company
of a notice of an approved transfer of the shares or all the
information required by the relevant section 793 notice,
whichever is the earlier.
71
– The Directors may refuse to register any transfer of any share
which is not a fully paid share, although such discretion may
not be exercised in a way which the Financial Conduct Authority
regards as preventing dealings in the shares of the relevant
class or classes from taking place on an open and proper basis.
The Directors may likewise refuse to register any transfer of a
share in favour of more than four persons jointly.
The Company is not aware of any other restrictions on the transfer
of ordinary shares in the Company other than:
– certain restrictions that may from time to time be imposed by
laws and regulations (for example, insider trading laws or the
UK Takeover Code); and
– pursuant to the Listing Rules of the Financial Conduct
Authority whereby certain employees of the Company require
approval of the Company to deal in the Company’s shares.
The Company is not aware of any agreements between
shareholders that may result in restrictions on the transfer of
securities or voting rights.
At the 2012 Annual General Meeting the Directors were given
the power to allot shares and grant rights to subscribe for, or
convert any security into, shares: up to an aggregate nominal
amount of £26,679,347 and, in the case of a fully pre-emptive
rights issue only, up to a total amount of £53,358,694.
A resolution will be proposed to renew the Company’s
authority to allot further new shares at the forthcoming AGM.
In accordance with the institutional guidelines issued by the
Association of British Insurers (ABI), the proposed new authority
will allow the Directors to allot ordinary shares equal to an amount
of up to one third of the Company’s issued ordinary share capital
as at 21 May 2013 plus, in the case of a fully pre-emptive rights
issue only, a further amount of up to an additional one third of the
Company’s issued share capital as at 21 May 2013. The authority
for Directors to allot shares in the Company’s shares is renewed
annually and approval will be sought at the forthcoming AGM for
its renewal.
The Director’s authority to effect purchases of the Company’s
shares on the Company’s behalf is conferred by resolution of
shareholders. At the 2012 AGM the Company was granted
authority to purchase its own shares up to an aggregate value
of approximately 10% of the issued ordinary share capital of the
Company as at 22 May 2013. The authority to effect purchases
of the Company’s shares is renewed annually and approval
will be sought at the forthcoming AGM for its renewal.
Powers of Directors
Subject to its Articles of Association and relevant statutory law
and to such direction as may be given by the Company by special
resolution, the business of the Company is managed by the
Board, who may exercise all powers of the Company whether
relating to the management of the business or not.
The Company’s Articles of Association give power to the
Board to appoint Directors. The Articles also require any Directors
appointed by the Board to submit themselves for election at the
first AGM following their appointment and for one third of the
Company’s Directors to retire by rotation at each AGM. Directors
may resign or be removed by an ordinary resolution of
shareholders. Notwithstanding the above, the Company has
elected, in accordance with the UK Corporate Governance Code
to have all Directors reappointed on an annual basis.
Change of control agreements
There are no agreements between the Group and its Directors
or employees providing for compensation for loss of office or
employment that occurs because of a takeover bid apart from the
usual payment in lieu of notice.
There are no significant agreements to which the Group is a party
that take effect, alter or terminate upon a change of control of the
Group following a takeover bid, other than:
1) The multicurrency forward start revolving loan facility
agreement of £250m dated 1 July 2009 where a change of
control is an event of default and gives lenders the right, but
not the obligation, to cancel their commitments to the facility
and declare the loans repayable on demand.
2) The two Private Placement arrangements totalling £222m
dated between 28 June 2004 and 28 February 2007 where
a change of control gives rise to a downgrade in the credit
rating and the loans are thereafter repayable on demand.
3) The Private Placement arrangement totalling £34m dated
26 June 2008 and the Private Placement arrangement
totalling $150m dated 8 May 2013 where a change of control
in the Company gives rise to an event of default under the
agreements. The loans are thereafter repayable on demand.
4) The loan facility agreement of £250m dated 1 June 2009 and
amended and restated 1 July 2009 where a change of control
gives lenders the right, but not the obligation, to cancel their
commitments to the facility and declare the loans repayable
on demand.
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
Our business2 – 17Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112
72 Directors’ report continued
Change of control agreements continued
Resolutions
5) The employee share schemes, details of which can be found
in the Report of the Remuneration Committee on pages 56
to 67, Awards and options under the 2001 Approved and
Unapproved Executive Share Option Schemes and SAYE
Plan 2004 become exercisable for a limited period following
a change of control whereas awards under the KERSP will
only become exercisable if the Remuneration Committee so
decides. Awards and options under the Omnibus Plan and
the BSC Plan vest immediately on a change of control.
6) Three bilateral loan facility agreements totalling £640m agreed
in May and June 2012 and two further bilateral loan facility
agreements totalling £100m agreed in May 2013 where a
change of control gives lenders the right, but not the
obligation, to cancel their commitments to the facility
and declare the loans repayable on demand.
7) £75m private placement arrangements signed on 9 November
2011 under which a change of control triggers an immediate
prepayment obligation of all outstanding principal, accrued
interest and all other amounts due under the agreement,
and a further private placement agreement for €11m agreed
in November 2012 on the same terms.
8) The terms and conditions of the £35m retail bond issue which
took place in December 2011 sets out that following a change
of control event, investors have the right but not the obligation
to sell their notes to ICG if the change of control results in
either a credit ratings downgrade from investment grade
to non-investment grade, or a downgrade of one or more
notches if already non-investment grade, no credit ratings
being in existence.
9) The terms and conditions of the £80m retail bond issue
which took place in September 2012 sets out that following a
change of control event, investors have the right but not the
obligation to sell their notes to ICG if the change of control
results in either a credit ratings downgrade from investment
grade to non-investment grade, or a downgrade of one or
more notches if already non-investment grade, no credit
ratings being in existence.
Annual General Meeting
A number of resolutions will be proposed at the Annual General
Meeting (“AGM”) as ordinary and special business as follows:
Resolutions 15 to 17 will be proposed as special resolutions.
All other resolutions will be proposed as ordinary resolutions.
To pass special resolutions 75% or more of the votes cast must
be in favour. Voting on all resolutions will be by way of poll.
Financial Statements and Reports – Resolution 1
The Directors are required to present to shareholders at the
AGM the financial statements and reports for the year ended
31 March 2013.
Directors’ Remuneration Report – Resolution 2
The Directors are required to seek approval of the shareholders
for the Directors’ Remuneration Report for the year ended 31
March 2013. The resolution is an advisory vote, as permitted by
law, and no entitlement to remuneration is made conditional on
the resolution being passed. The Report of the Remuneration
Committee is on pages 56 to 67.
Dividend – Resolution 3
The Directors recommend a dividend of 13.7p per share.
The final dividend cannot exceed the amount recommended by
the Directors. If approved by shareholders, the final dividend will
be paid on 24 July 2013 to those shareholders on the register as
at 14 June 2013.
The Auditor – Resolutions 4 and 5
The shareholders are asked every year to approve the
reappointment of the auditor, Deloitte LLP, as auditor of the
Company and agree that the Directors may approve their
remuneration. The Board believes that the quality of audit service
provided by Deloitte LLP is appropriate and that they demonstrate
independence and objectivity. Therefore they recommend
shareholders vote in favour of reappointment.
Re-election of Directors – Resolutions 6, 7, 8, 9,
10, 11, 12 and 13
In accordance with the provisions of the UK Corporate
Governance Code relating to the re-election of Directors, Justin
Dowley, Christophe Evain, Philip Keller, Benoît Durteste, Peter
Gibbs, Kevin Parry, Kim Wahl and Lindsey McMurray are retiring
and will be standing for re-election at the AGM. The Chairman is
satisfied that, following formal performance evaluation, each
Director continues to be effective and demonstrates commitment
to their role. The other Directors are satisfied that, following formal
performance evaluation, the Chairman continues to be effective
and demonstrates commitment to his role. The Board considers
that each of the Directors brings experience and skills valuable to
the Board’s effective performance and that their reappointment is
in the best interest of the Company. Biographies of all the
Directors appear on pages 48 and 49.
73
General Meetings – Resolution 17
Resolution 17 is required to meet the requirements of the
Shareholder Rights Directive, which would otherwise require the
notice period for General Meetings of the Company to be not less
than 14 days.
The Shareholder Rights Directive provides that the Company
must have shareholder approval to allow the Company to call
General Meetings (other than an AGM) on 14 clear days’ notice.
The approval given at the 2012 AGM is due to expire at this year’s
AGM. If granted, the 2013 AGM approval will be effective until the
2014 AGM or 30 September 2014, whichever is the earlier.
The Company will also need to meet the requirements for
electronic voting under the Directive before it can call a General
Meeting on 14 days’ notice.
It is not intended that the shorter notice period would be used
as a matter of routine, but only where the flexibility is merited by
the business of the meeting and is thought to be to the advantage
of shareholders as a whole.
Andrew Lewis
Company secretary
22 May 2013
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
Authority to allot shares – Resolution 14
The Directors may allot relevant securities only if authorised
to do so by shareholders. The authority granted at the 2012 AGM
is due to expire at this year’s AGM. Resolution 14 seeks to renew
this authority for a period until 30 September 2014, or the date
of the 2014 AGM, whichever is the earlier.
Paragraph (a) of Resolution 14 will allow the Directors
to allot ordinary shares up to a maximum nominal amount
of £26,800,000 representing approximately one third of the
Company’s existing issued share capital and calculated as at
21 May 2013 (being the latest practicable date prior to publication
of the Notice of AGM). In accordance with the latest institutional
guidelines issued by the ABI, paragraph (b) of Resolution 14 will
also allow Directors to allot, including the ordinary shares referred
to in paragraph (a) of Resolution 14, further ordinary shares in
connection with a pre-emptive offer by way of a rights issue to
ordinary shareholders up to a maximum nominal amount of
£53,600,000, representing approximately two thirds of the
Company’s existing issued share capital calculated as at 21 May
2013. The Directors have no present intention of exercising this
authority. However, if they do exercise the authority, the Directors
intend to follow emerging best practice as regards its use
(including, where appropriate, the Directors standing for
re-election) as recommended by the ABI.
Issue of Shares – Resolution 15
If the Directors wish to allot equity securities or sell treasury shares
for cash, the Companies Act 2006 requires that these shares are
offered first to existing shareholders in proportion to their existing
holdings. These requirements are known as shareholders’
pre-emption rights. There may be occasions, however, when,
in order to act in the best interests of the Company, the Directors
need flexibility to finance business opportunities as they arise
without offering securities on a pre-emptive basis. Resolution 15
asks shareholders to renew the Directors’ authority to allot equity
securities for cash up to an aggregate nominal value of
£4,020,562 (being equivalent to approximately 5% of the ordinary
issued share capital as at 21 May 2013) without the shares being
offered first to existing shareholders. If given, this power will expire
on 30 September 2014 or at the conclusion of the 2014 AGM,
whichever is the earlier.
Repurchase of own Shares – Resolution 16
The Company may buy its own shares with the authority of
shareholders. Resolution 16 seeks to renew the current authority
given at the 2012 AGM. The resolution specifies the maximum
number of shares that may be purchased in the markets up to
a limit of 10% of the Company’s issued ordinary share capital as
at 21 May 2013 and the highest and lowest prices at which they
may be bought. In the event that shares are purchased, they
would be either cancelled (and the number of shares in issue
would be reduced accordingly) or, in accordance with the
Companies Act 2006, be retained as treasury shares for resale
or transfer for use with the Company’s employee share plans.
Our business2 – 17Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112
74 Directors’ responsibilities
Directors’ responsibilities statement
Responsibility statement
We confirm that to the best of our knowledge:
– the financial statements, prepared in accordance with IFRSs
as adopted by the European Union, give a true and fair view of
the assets, liabilities, financial position and profit or loss of the
Company and the undertakings included in the consolidation
taken as a whole; and
– the 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 Company
and the undertakings included in the consolidation taken as a
whole, together with a description of the principal risks and
uncertainties that they face.
By order of the Board
Christophe Evain
Chief Executive Officer
Philip Keller
Chief Financial Officer
22 May 2013
22 May 2013
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law
and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
are required to prepare the group financial statements in
accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union (EU) and Article 4 of
the IAS Regulation and have also chosen to prepare the parent
company financial statements under IFRSs as adopted by the EU.
Under company law the Directors must not approve the accounts
unless they are satisfied that they give a true and fair view of the
state of affairs of the Company and of the profit or loss of the
company for that period. In preparing these financial statements,
International Accounting Standard 1 requires that Directors:
– properly select and apply accounting policies;
– present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable
information;
– provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable users
to understand the impact of particular transactions, other
events and conditions or the entity’s financial position and
financial performance; and
– make an assessment of the company’s ability to continue
as a going concern.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and explain the
company’s transactions and disclose with reasonable accuracy
at any time the financial position of the Company and enable
them to ensure that the financial statements comply with the
Companies Act 2006. They are also responsible for safeguarding
the assets of the company and hence for taking reasonable steps
for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and
integrity of the corporate and financial information included on the
Company’s website. Legislation in the United Kingdom governing
the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
Independent auditor’s report
To the members of Intermediate Capital Group plc
75
Opinion on financial statements
In our opinion:
– the financial statements give a true and fair view of the state
of the Group’s and of the Parent Company’s affairs as at
31 March 2013 and of the Group’s profit for the year then
ended;
– the Group financial statements have been properly prepared
in accordance with IFRSs as adopted by the European Union;
– the Parent Company financial statements have been properly
prepared in accordance with IFRSs as adopted by the
European Union and as applied in accordance with the
provisions of the Companies Act 2006; and
– the financial statements have been prepared in accordance with
the requirements of the Companies Act 2006 and, as regards
the Group financial statements, Article 4 of the IAS Regulation.
Separate opinion in relation to IFRSs as
issued by the IASB
As explained in note 2 to the Group financial statements, the
Group in addition to complying with its legal obligation to apply
IFRSs as adopted by the European Union, has also applied IFRSs
as issued by the International Accounting Standards Board (IASB).
In our opinion the Group financial statements comply with
IFRSs as issued by the IASB.
Opinion on other matters prescribed by
the Companies Act 2006
In our opinion:
– the part of the Report of the Remuneration Committee to be
audited has been properly prepared in accordance with the
Companies Act 2006; and
– the information given in the Directors’ report for the financial
year for which the financial statements are prepared is
consistent with the financial statements.
We have audited the financial statements of Intermediate Capital
Group plc for the year ended 31 March 2013 which comprise
the Consolidated Income Statement, the Consolidated and
Parent Company Statements of Comprehensive Income, the
Consolidated and Parent Company Statements of Financial
Position, the Consolidated and Parent Company Statements
of Cash Flow, the Consolidated and Parent Company Statements
of Changes in Equity and the related notes 1 to 31. The financial
reporting framework that has been applied in their preparation
is applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union and as regards the
Parent Company financial statements, as applied in accordance
with the provisions of the Companies Act 2006.
This report is made solely to the Company’s members, as a
body, in accordance with Chapter 3 of Part 16 of the Companies
Act 2006. Our audit work has been undertaken so that we might
state to the Company’s members those matters we are required
to state to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company and
the Company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities
Statement, the Directors are responsible for the preparation of
the financial statements and for being satisfied that they give a
true and fair view. Our responsibility is to audit and express an
opinion on the financial statements in accordance with applicable
law and International Standards on Auditing (UK and Ireland).
Those standards require us to comply with the Auditing
Practices Board’s (APB’s) Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material
misstatement, whether caused by fraud or error. This includes
an assessment of: whether the accounting policies are appropriate
to the Group’s and the Parent Company’s circumstances and
have been consistently applied and adequately disclosed; the
reasonableness of significant accounting estimates made by the
Directors; and the overall presentation of the financial statements.
In addition, we read all the financial and non financial information
in the annual report to identify material inconsistencies with the
audited financial statements. If we become aware of any apparent
material misstatements or inconsistencies we consider the
implications for our report.
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
Our business2 – 17Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112
76
Independent auditor’s report
To the members of Intermediate Capital Group plc continued
Matters on which we are required to report
by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you
if, in our opinion:
– adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been
received from branches not visited by us; or
– the Parent Company financial statements and the part of the
Report of the Remuneration Committee to be audited are not
in agreement with the accounting records and returns; or
– certain disclosures of Directors’ remuneration specified by law
are not made; or
– we have not received all the information and explanations
we require for our audit
Under the Listing Rules we are required to review:
– the Directors’ statement contained within the Corporate
Governance Statement in relation to going concern; and
– the part of the Corporate Governance statement relating to
the Company’s compliance with the nine provisions of the
UK Corporate Governance Code specified for our review; and
– certain elements of the report to shareholders by the Board
on Directors’ remuneration.
Calum Thomson
Senior Statutory Auditor for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London, United Kingdom
22 May 2013
Office location: Sydney
77
2
–
1
2
O
u
r
b
u
s
n
e
s
s
i
1
8
–
3
7
3
8
–
4
5
i
B
u
s
n
e
s
s
r
e
v
e
w
i
F
u
n
d
s
a
n
d
p
o
r
t
f
o
l
i
o
4
6
–
7
6
G
o
v
e
r
n
a
n
c
e
Financial statements
Contents
Consolidated income statement 78
Consolidated and Parent
Company statements
of comprehensive income
Consolidated and Parent
Company statements
of financial position
Consolidated and Parent
Company statements
of cash flow
Consolidated and Parent
Company statements
of changes in equity
79
Notes to the accounts
Glossary
Shareholder information
Company information
80
81
82
84
110
112
112
7
7
–
1
1
2
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
i
F
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
78 Consolidated income statement
For the year ended 31 March 2013
Finance income
Fair value movements on financial assets
Fee and other operating income
Total revenue
Finance costs
Impairments
Administrative expenses
Profit before tax
Tax expense
Profit for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
Earnings per share
Diluted earnings per share
All activities represent continuing operations.
The accompanying notes are an integral part of these financial statements.
Notes
6
7
6
8
9
11
16
13
13
2013
£m
218.6
73.0
78.8
370.4
(60.7)
(80.0)
(87.1)
142.6
(18.8)
123.8
124.4
(0.6)
123.8
2012
£m
251.3
118.0
68.2
437.5
(58.8)
(70.6)
(64.3)
243.8
(56.2)
187.6
188.3
(0.7)
187.6
32.1p
47.7p
32.1p
47.6p
Consolidated and Parent Company
statements of comprehensive income
For the year ended 31 March 2013
79
Group
Profit for the year
AFS financial assets:
Fair value movements
Less: Reclassification adjustment of gains recycled to profit
Exchange differences on translation of foreign operations
Tax on items taken directly to or transferred from equity
Other comprehensive income for the year
Total comprehensive income for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
Company
Items to be recycled to the income statement
Profit for the year
AFS financial assets:
Fair value movements
Less: Reclassification adjustment of gains recycled to profit
Tax on items taken directly to or transferred from equity
Other comprehensive income/(expense) for the year
Total comprehensive income for the year
The accompanying notes are an integral part of these financial statements.
Notes
7
24
2013
£m
123.8
67.1
(7.5)
1.2
60.8
(11.0)
49.8
173.6
174.2
(0.6)
173.6
2012
£m
187.6
148.9
(48.3)
(0.2)
100.4
(23.1)
77.3
264.9
265.6
(0.7)
264.9
2013
£m
2012
£m
97.8
225.8
4.9
–
4.9
(1.1)
3.8
101.6
(4.5)
0.3
(4.2)
1.2
(3.0)
222.8
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
Our business2 – 17Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112
80 Consolidated and Parent Company
statements of financial position
As at 31 March 2013
Non-current assets
Intangible assets
Property, plant and equipment
Financial assets: loans, investments and warrants
Derivative financial assets
Current assets
Trade and other receivables
Financial assets: loans and investments
Debtor for current tax
Derivative financial assets
Cash and cash equivalents
Total assets
Equity and reserves
Share capital
Share premium account
Capital redemption reserve
Own shares reserve
Other reserves
Retained earnings
Equity attributable to owners of the Company
Non-controlling interest
Total equity
Non-current liabilities
Provisions
Financial liabilities
Derivative financial liabilities
Deferred tax liabilities
Current liabilities
Provisions
Trade and other payables
Financial liabilities
Liabilities for current tax
Derivative financial liabilities
Total liabilities
Total equity and liabilities
Notes
2013
Group
£m
2012
Group
£m
2013
Company
£m
2012
Company
£m
14
15
17
17
18
19
19
20
16
21
22
24
21
23
22
6.6
4.6
2,695.8
14.7
2,721.7
53.9
30.4
0.7
40.2
52.5
177.7
2,899.4
80.4
671.7
1.4
(45.7)
196.4
659.0
1,563.2
(0.3)
1,562.9
3.6
688.9
3.8
53.1
749.4
0.4
79.0
472.4
28.4
6.9
587.1
1,336.5
2,899.4
7.8
5.6
2,352.2
21.6
2,387.2
47.1
49.7
–
12.8
159.3
268.9
2,656.1
80.0
668.0
1.4
(33.0)
125.9
608.3
1,450.6
0.1
1,450.7
3.9
892.5
3.7
43.3
943.4
0.5
124.1
83.6
52.6
1.2
262.0
1,205.4
2,656.1
–
3.9
1,942.9
14.7
1,961.5
453.6
30.4
0.5
40.2
17.0
541.7
2,503.2
80.4
671.7
1.4
–
52.4
468.0
1,273.9
–
1,273.9
3.6
416.2
3.8
8.3
431.9
0.4
317.7
472.4
–
6.9
797.4
1,229.3
2,503.2
–
5.2
1,666.7
21.6
1,693.5
452.2
33.6
–
12.8
13.2
511.8
2,205.3
80.0
668.0
1.4
–
27.7
445.1
1,222.2
–
1,222.2
3.9
493.9
3.7
14.5
516.0
0.5
362.0
83.6
19.8
1.2
467.1
983.1
2,205.3
Company Registration Number: 02234775. The accompanying notes are an integral part of these financial statements.
These financial statements were approved and authorised for issue by the Board of Directors on 22 May 2013 and were signed
on its behalf by:
Justin Dowley
Director
Philip Keller
Director
Consolidated and Parent Company
statements of cash flow
For the year ended 31 March 2013
81
Operating activities
Interest receipts
Fee receipts
Dividends received
Interest payments
Cash payments to suppliers and employees
Realisation/(purchase) of current financial assets
Purchase of loans and investments
Recoveries on previously impaired assets
Proceeds from sale of loans and investments
Cash (used in)/generated from operations
Taxes paid
Net cash (used in)/generated from operating activities
Investing activities
Proceeds (to)/from subsidiary undertakings
Purchase of property, plant and equipment
Net cash (used in)/generated from investing activities
Financing activities
Dividends paid
Increase/(decrease) in long term borrowings
Cash outflow from derivative contracts
Purchase of own shares
Capital contributions from non-controlling interests
Proceeds on issue of shares
Net cash generated from/(used in) financing activities
Net (decrease)/increase in cash
Cash and cash equivalents at beginning of year
Effect of foreign exchange rate changes
Net cash and cash equivalents at end of year
Presented on the statements of financial position as:
Cash and cash equivalents
Bank overdraft
Net cash and cash equivalents
Notes
15
12
22
2013
Group
£m
92.0
77.9
4.3
(59.0)
(101.6)
18.7
(260.6)
0.8
143.1
(84.4)
(45.4)
(129.8)
–
(1.3)
(1.3)
(74.9)
163.9
(53.8)
(13.3)
0.1
2.3
24.3
(106.8)
149.8
(1.2)
41.8
52.5
(10.7)
41.8
2012
Group
£m
2013
Company
£m
2012
Company
£m
198.1
70.9
9.0
(50.4)
(126.4)
(16.0)
(121.9)
4.6
458.7
426.6
(66.6)
360.0
–
(1.4)
(1.4)
(68.9)
(249.7)
(8.9)
(16.8)
0.2
1.3
(342.8)
15.8
140.9
(6.9)
149.8
159.3
(9.5)
149.8
70.2
8.9
85.6
(51.5)
(85.7)
(28.4)
(161.2)
0.8
110.2
(51.1)
(43.3)
(94.4)
(66.9)
(0.8)
(67.7)
(74.9)
291.2
(53.8)
–
–
2.3
164.8
2.7
3.7
(0.1)
6.3
17.0
(10.7)
6.3
163.8
14.9
134.1
(41.7)
(112.0)
1.5
(94.5)
3.6
262.2
331.9
(64.9)
267.0
70.3
(1.3)
69.0
(68.9)
(249.7)
(8.9)
–
–
1.3
(326.2)
9.8
(6.4)
0.3
3.7
13.2
(9.5)
3.7
The accompanying notes are an integral part of these financial statements.
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
Our business2 – 17Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112
82 Consolidated and Parent Company
statements of changes in equity
For the year ended 31 March 2013
Share
capital
£m
Share
premium
£m
80.0
–
–
668.0
–
–
Capital
redemption
reserve
fund
£m
Reserve
for share-
based
payments
£m
1.4
–
–
24.7
–
–
Available
for sale
reserve
£m
101.2
–
59.6
Own
shares
£m
(33.0)
–
–
Retained
earnings
£m
Non-
controlling
interest
£m
Total
£m
Total
equity
£m
608.3 1,450.6
124.4
124.4
59.6
–
0.1
(0.6)
–
1,450.7
123.8
59.6
Group
Balance at 31 March 2012
Profit for the year
AFS financial assets
Exchange differences on
translation of foreign
operations
Tax relating to components of
other comprehensive income
Total comprehensive income
for the year
Own shares acquired in
the year
Options/awards exercised
Capital contribution
Credit for equity settled
share schemes
Dividends paid
Balance at 31 March 2013
–
–
–
–
0.4
–
–
–
–
–
3.7
–
–
–
–
–
–
–
–
–
80.4
–
–
671.7
–
–
1.4
Company
Balance at 31 March 2012
Profit for the year
AFS financial assets
Tax relating to components of other comprehensive income
Total comprehensive income for the year
Options/awards exercised
Credit for equity settled share schemes
Dividends paid
Balance at 31 March 2013
The accompanying notes are an integral part of these financial statements.
–
–
–
–
(0.9)
–
22.8
–
46.6
Share
capital
£m
80.0
–
–
–
–
0.4
–
–
80.4
–
(11.0)
48.6
–
–
–
–
–
149.8
Share
premium
£m
668.0
–
–
–
–
3.7
–
–
671.7
–
–
–
(13.3)
0.6
–
–
–
(45.7)
1.2
1.2
–
(11.0)
–
–
1.2
(11.0)
125.6
174.2
(0.6)
173.6
–
–
–
(13.3)
3.8
–
–
–
0.2
(13.3)
3.8
0.2
22.8
–
(74.9)
(74.9)
659.0 1,563.2
–
–
22.8
(74.9)
(0.3) 1,562.9
Capital
redemption
reserve
fund
£m
Reserve
for share-
based
payments
£m
Available
for sale
reserve
£m
1.4
–
–
–
–
–
–
–
1.4
23.5
–
–
–
–
(0.9)
21.8
–
44.4
4.2
–
4.9
(1.1)
3.8
–
–
–
8.0
Retained
earnings
£m
Total
equity
£m
1,222.2
445.1
97.8
97.8
4.9
–
(1.1)
–
101.6
97.8
3.2
–
21.8
–
(74.9)
(74.9)
468.0 1,273.9
83
Group
Balance at 31 March 2011
Profit for the year
AFS financial assets
Exchange differences on
translation of foreign
operations
Tax relating to components of
other comprehensive income
Total comprehensive income
for the year
Own shares acquired in
the year
Scrip dividend
Options/awards exercised
Net loss on consideration paid
in the form of shares
Capital contribution
Credit for equity settled
share schemes
Dividends paid
Balance at 31 March 2012
Share
capital
£m
Share
premium
£m
Capital
redemption
reserve
fund
£m
Reserve
for share-
based
payments
£m
79.8
665.7
1.4
13.1
–
–
–
–
–
–
0.1
0.1
–
–
–
–
–
–
–
–
1.1
1.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
80.0
–
–
668.0
–
–
1.4
–
–
–
–
–
–
–
–
(1.5)
–
13.1
–
24.7
Available
for sale
reserve
£m
23.7
–
100.6
–
(23.1)
77.5
Own
shares
£m
Retained
earnings
£m
Non-
controlling
interest
£m
Total
£m
Total
equity
£m
(23.8)
490.3 1,250.2
0.2
1,250.4
–
–
–
–
–
188.3
–
188.3
100.6
(0.7)
–
187.6
100.6
(0.2)
(0.2)
–
(23.1)
–
–
(0.2)
(23.1)
188.1
265.6
(0.7)
264.9
–
–
–
–
–
(12.8)
–
3.6
–
–
–
–
–
–
–
(12.8)
1.2
4.9
(1.5)
–
–
–
–
–
0.6
(12.8)
1.2
4.9
(1.5)
0.6
–
–
101.2
–
–
(33.0)
13.1
–
(70.1)
(70.1)
608.3 1,450.6
–
–
13.1
(70.1)
0.1 1,450.7
Company
Balance at 31 March 2011
Profit for the year
AFS financial assets
Tax relating to components of other comprehensive income
Total comprehensive income for the year
Scrip dividend
Options/awards exercised
Net loss on consideration paid in the form of shares
Credit for equity settled share schemes
Dividends paid
Balance at 31 March 2012
Share
capital
£m
Share
premium
£m
Capital
redemption
reserve
fund
£m
Reserve
for share-
based
payments
£m
Available
for sale
reserve
£m
79.8
–
–
–
–
0.1
0.1
–
–
–
80.0
665.7
–
–
–
–
1.1
1.2
–
–
–
668.0
1.4
–
–
–
–
–
–
–
–
–
1.4
12.3
–
–
–
–
–
–
(1.5)
12.7
–
23.5
7.2
–
(4.2)
1.2
(3.0)
–
–
–
–
–
4.2
Retained
earnings
£m
Total
equity
£m
1,055.8
289.4
225.8
225.8
(4.2)
–
1.2
–
222.8
225.8
1.2
–
1.3
–
(1.5)
–
12.7
–
(70.1)
(70.1)
445.1 1,222.2
The accompanying notes are an integral part of these financial statements.
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
Our business2 – 17Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112
84 Notes to the accounts
For the year ended 31 March 2013
1. General information
2. Significant accounting policies
Intermediate Capital Group plc is incorporated in the United
Kingdom with Company registration number 02234775.
The registered office is Juxon House, 100 St Paul’s Churchyard,
London EC4M 8BU.
The nature of the Group’s operations and its principal
activities are detailed in the Directors’ report.
At the date of signing of these financial statements, certain
new standards and interpretations have been issued but are
not yet effective and have not been early adopted by the Group.
The Directors are in the process of assessing the impact of the
forthcoming standards on the operations of the Group.
International Financial Reporting
Standards (IAS/IFRS)
IFRS 11
IFRS 13
IAS 28
Joint Arrangements
Fair Value Measurement
Investments in (Amendment)
Associate and Joint Ventures
Consolidated Financial
Statements
Disclosure of
Interests in other Entities
Separate financial
(Amendment) statements
Financial Instruments:
Classification and measurement
and additions to financial
liability accounting
IFRS 10
IFRS 12
IAS 27
IFRS 9
Accounting periods
commencing on or after
1 January 2013
1 January 2013
1 January 2013
1 January 2014
1 January 2014
1 January 2014
1 January 2015
The Group did not adopt any new standards during the year.
Basis of preparation
The financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted for
use in the European Union and in compliance with Article 4 of the
EU IAS Regulation.
The financial statements have been prepared under the
historical cost convention, except for derivative financial
instruments and non derivative financial instruments valued at fair
value through profit or loss and available for sale financial assets,
valued at fair value through equity.
The functional and presentational currency of the Company
is Sterling.
The accounting policies set out below have been applied
consistently to all periods presented in these consolidated
financial statements.
Going concern
The Directors have, at the time of approving the financial
statements, a reasonable expectation that the Company and
the Group have adequate resources to continue in operational
existence for the foreseeable future. Therefore they continue to
adopt the going concern basis of preparing the financial accounts.
In making this assessment, the Directors have considered
a wide range of information relating to present and future
conditions including future projections of profitability, cash flows
and capital resources.
The Group's business activities, together with the factors likely
to affect its future development, performance and position are set
out in the Operating Review on pages 21 to 25. The financial
position of the Group, its cash flows, liquidity position and
borrowing facilities are described in the Finance Review on pages
26 to 30. In addition, note 3 to the financial statements include
the Group's objectives, policies and processes for managing its
capital; its financial risk management objectives; details of its
financial instruments and hedging activities; and its exposures
to credit risk and liquidity risk.
The Directors believe that the Group and Company are well
placed to manage its business risks successfully despite the
current uncertain economic outlook.
The Directors continually monitor the debt profile of the
Group and Company, and seek to refinance senior facilities
a substantial period before they mature. The Group and
Company have £462.5m of facilities due to mature within
the next 12 months. Facilities have already been established
to cover these maturities as well as cater for the ongoing
funding requirements of the business.
85
2. Significant accounting policies continued
Basis of consolidation
The Group financial statements consolidate the results of
Intermediate Capital Group plc and entities controlled by
the Company.
Subsidiaries are all entities over which the Company has the
power to control the financial and operating policies. Subsidiaries
are included in the consolidated financial statements from the
date that control commences until the date that control ceases.
Business combinations are accounted for using the acquisition
method. The acquisition method involves the recognition of all
assets, liabilities and contingent liabilities of the acquired business
at their fair value at the acquisition date.
Adjustments are made to the financial statements of
subsidiaries to ensure consistency with the accounting policies
of the Group. All intra-group transactions, balances, unrealised
income and expenses are eliminated.
An associate is an entity over which the Group has significant
influence, but not control, over the financial and operating policy
decisions of the entity. The results, assets and liabilities of
associates are incorporated in the consolidated financial
statements using the equity method of accounting.
As a venture capital organisation, certain investments where
the Group has a holding of greater than 20% are designated
upon initial recognition as fair value through profit or loss and
subsequently measured at fair value.
Employee benefit trust
The Employee Benefit Trust (EBT) acts as a special purpose
vehicle, with the purpose of purchasing and holding shares of
the Company for the hedging of future liabilities arising as a result
of the employee share based compensation scheme. The EBT
is consolidated into the Group’s financial statements.
Own shares held
Shares of the Company acquired by the EBT for the purpose of
hedging share based payment transactions are recognised and
held at cost in the reserve for own shares. No gain or loss is
recognised on the purchase, sale, issue or cancellation of the
Company’s own shares.
Dividend income is recognised in the income statement when
the Group’s right to receive income is established.
Fair value movements on financial assets comprises gains on
disposal of available for sale financial assets and fair value gains
on financial assets at fair value through profit or loss. Both are
recognised as incurred.
Fund management fees and commissions are recognised
in the income statement when the related service has been
performed.
Finance costs
Finance costs comprise interest expense on financial liabilities,
fair values losses on derivatives and net foreign exchange losses.
Interest expense on financial liabilities held at amortised cost
is measured using the effective interest rate method, as outlined
on page 88. The expected life of the liability is based upon the
maturity date.
Operating leases
Operating lease payments, net of lease incentives, are recognised
as an expense in the income statement on a straight line basis
over the lease term.
Employees benefits
Contributions to the Group’s defined contribution pension
schemes are charged to the income statement as incurred.
The Group issues compensation to its employees under
equity settled share based payment plans. Equity settled share
based payments are measured at the fair value of the awards
at grant date. The fair value includes the effect of non-market
based vesting conditions. The fair value determined at the date
of grant is expensed on a straight line basis over the vesting
period. At each balance sheet date, the Group revises its
estimate of the number of equity instruments expected to vest
as a result of non-market based vesting conditions. The impact
of the revision of the original estimates, if any, is recognised in
the income statement with a corresponding adjustment to equity.
Taxation
Tax expense comprises current and deferred tax.
Investment in subsidiaries
Investments in subsidiaries in the Parent Company Statement
of Financial Position are recorded at cost less provision for
impairments.
Current tax
Current tax assets and liabilities comprise those obligations to,
or claims from, fiscal authorities relating to the current or prior
reporting period, that are unpaid at the balance sheet date.
Income recognition
Finance income includes interest income and dividend income.
Interest income on financial assets held at amortised cost is
measured using the effective interest rate method.
Deferred tax
Deferred tax is provided in respect of temporary differences
between the carrying amounts of assets and liabilities and their
tax bases. Deferred tax liabilities are recognised for all taxable
temporary differences. Deferred tax assets are recognised to the
extent that it is probable that future taxable profits will be available
against which the deferred tax assets can be utilised.
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
Our business2 – 17Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112
86 Notes to the accounts
For the year ended 31 March 2013 continued
2. Significant accounting policies continued
Taxation continued
Deferred tax is not recognised if the temporary difference
arises from the initial recognition of goodwill or from the initial
recognition of other assets and liabilities in a transaction, other
than a business combination, that affects neither the tax nor
accounting profit.
Deferred tax assets and liabilities are calculated at the tax
rates that are expected to be applied to their respective period
of realisation, provided they are enacted or substantially enacted
at the balance sheet date.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right of set off, when they relate to income
taxes levied by the same taxation authority and the Group intends
to settle on a net basis.
Changes in deferred tax assets or liabilities are recognised
as a component of tax expense in the income statement, except
where they relate to items that are charged or credited directly
to equity in which case the related deferred tax is also charged
or credited directly to equity.
Foreign currencies
Transactions denominated in foreign currencies are translated
using the exchange rates prevailing at the date of the
transactions. At each balance sheet date, monetary assets and
liabilities denominated in a foreign currency are retranslated at the
rates prevailing at the balance sheet date. Non-monetary assets
and liabilities denominated in foreign currencies that are measured
at fair value are translated at the rate prevailing at the date the fair
value was determined. Non-monetary items that are measured at
historical cost are translated using rates prevailing at the date of
the transaction.
The assets and liabilities of the Group’s foreign operations
are translated using the exchange rates prevailing at the balance
sheet date. Income and expense items are translated using
the exchange rates at the date of the transactions. Exchange
differences arising from the translation of foreign operations are
taken directly to the translation reserve.
Financial assets
Financial assets are classified into the following categories,
as determined on initial recognition:
Financial assets at fair value through profit or loss (FVTPL)
Financial assets at fair value through profit or loss include held
for trading derivative financial instruments and debt and equity
instruments designated as fair value through profit or loss.
Financial assets at fair value through profit or loss are initially
recognised and subsequently measured at fair value with gains
or losses arising from changes in fair value recognised in the
income statement.
Loans and receivables
Loans and receivables are held at amortised cost. They are non-
derivative financial assets with fixed or determinable payments
that are not quoted in an active market. They include loans made
as part of the Group’s operating activities as well as trade and
other receivables and cash and cash equivalents.
Loans and receivables are initially recognised at fair value
including direct and incremental transaction costs and
subsequently valued at amortised cost using the effective interest
rate method.
Cash and cash equivalents comprise cash and short term
bank deposits with an original maturity of three months or less.
Available-for-sale (AFS)
AFS financial assets are financial assets not classified elsewhere
and include listed bonds and listed and unlisted equity
instruments.
AFS financial assets are initially recognised at fair value.
They are subsequently measured at fair value with gains and
losses arising from changes in fair value included as a separate
component of equity until its sale or impairment, at which time
the cumulative gain or loss previously recognised in equity is
recognised in the income statement.
Impairment of financial assets
With the exception of financial assets classified as fair value
through profit or loss, the Group assesses whether there is
objective evidence that financial assets may be impaired at each
balance sheet date. A financial asset is impaired when objective
evidence indicates that a loss event has occurred after the initial
recognition of the asset and that loss event has an impact on the
estimated future flows.
For an investment in an equity instrument held as an AFS
financial asset, a significant or prolonged decline in its fair value
below cost is considered objective evidence of impairment.
If an impairment event has occurred, the amount of the loss is
measured as the difference between the asset’s carrying amount
and the present value of estimated future cash flows, discounted
at the original effective interest rate.
Impairment losses are recognised in the income statement.
If the impairment relates to AFS financial assets, the loss is
recycled from equity to the income statement.
With the exception of AFS assets if, in a subsequent period,
the amount of impairment loss decreases and the decrease can
be related objectively to an event occurring after the impairment
was recognised, the previously recognised impairment loss is
reversed through the income statement to the extent that the
carrying value of the investment at the date the impairment is
reversed does not exceed what the amortised cost would have
been had the impairment not been recognised.
87
2. Significant accounting policies continued
Impairment of financial assets continued
In respect of AFS financial assets, impairment losses previously
recognised in the income statement are not reversed through
the income statement. Any increase in value, subsequent to an
impairment loss is recognised in other comprehensive income.
Offsetting of financial assets
Financial assets and liabilities are offset and the net amount
presented in the statement of financial position when the Group
has a legal right to offset the amounts and intends to either settle
on a net basis, or to realise the asset and settle the liability
simultaneously.
Financial assets held for sale
The Group classifies non-current financial assets that are
expected to be recovered primarily from sale as held for sale.
Non-current assets held for sale are initially recognised at cost,
and subsequently measured at lower of its carrying amount and
fair value less costs to sell.
Financial liabilities
All financial liabilities, with the exception of derivatives, are initially
recognised at fair value net of transaction costs and subsequently
measured at amortised cost using the effective interest rate
method. Derivative liabilities are categorised as fair value through
profit or loss.
Derivative financial instruments for
hedge accounting
The Group holds derivative financial instruments to hedge foreign
currency and interest rate exposures. Derivatives, including
embedded derivatives which are not considered to be closely
related to the host contract, are recognised at fair value using
independent third party valuations or quoted market prices.
Changes in fair values of derivatives are recognised immediately
in the income statement.
Intangible assets
Goodwill
The excess of the fair value at the date of acquisition of the cost
of investments in subsidiaries over the fair value of the net assets
acquired which is not allocated to individual assets and liabilities
is determined to be goodwill. Goodwill is initially measured at cost
and is reviewed at least annually for impairment. Any impairment
is recognised immediately in the Group’s income statements
and is not subsequently reversed.
Other intangible assets
Investment management contracts have been identified as
separately identifiable intangible assets. These are measured
at cost and are being amortised on a straight line basis over
the expected life of the contract, currently four years.
Dividends paid
Dividends paid to the Company’s shareholders are recognised
in the period in which the dividends are declared. In the case
of final dividends this is when they are approved by the
Company’s shareholders at the AGM. Dividends paid are
recognised as a deduction from equity.
Significant estimates and uncertainties
The significant accounting estimates used in preparing the
financial statements are considered to relate to the determination
of fair values and impairment of financial instruments. The
estimates and associated assumptions are based on historical
experience and other relevant factors, and are reviewed on an
ongoing basis. Actual results may differ from these estimates.
Determination of fair values
Fair value is the amount for which an asset could be exchanged,
or liability settled, between knowledgeable, willing parties in an
arms-length transaction at measurement date.
The following methods and assumptions are used to estimate
the fair values:
AFS financial assets and financial assets at FVTPL
The fair value of equity investments and warrants are based on
quoted prices, where available. Where quoted prices are not
available, the fair value is based on recent significant transactions
on an earnings based valuation technique.
The valuation techniques applied follow the International
Private Equity and Venture Capital valuation guidelines (December
2012) and include some assumptions which are not supportable
by observable market prices or rates. The majority of the portfolio
of unquoted shares and warrants is valued using an earnings
based technique.
Earnings multiples are applied to the maintainable earnings
of the private company being valued to determine the enterprise
value. From this, the value attributable to the Group is calculated
based on its holding in the company after making deductions for
higher ranking instruments in the capital structure.
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
Our business2 – 17Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112
88 Notes to the accounts
For the year ended 31 March 2013 continued
Provisions and contingent liabilities
Provisions are recognised when it is probable that an outflow of
economic resources will be required to settle a current legal or
constructive obligation, which has arisen as a result of a past
event, and for which a reliable estimate can be made of the
amount of the obligation.
The Group’s onerous contract provision is measured at the
present value of the lower of the ongoing cost of the contract
and its expected termination cost.
The Group’s contingent liabilities include potential amounts,
if any, for legal claims arising in the course of business.
Contingent liabilities are possible obligations that arise from past
events whose existence will be confirmed by the occurrence or
non-occurrence of one or more uncertain events not wholly within
the control of the Group.
Contingent liabilities are not recognised in the financial
statements but are disclosed unless the probability of settlement
is remote.
3. Financial risk management
The Board of Directors have overall responsibility for the
establishment and oversight of the Group’s risk management
framework. There are systems of controls in place to create an
acceptable balance between the potential costs, should such a
risk occur, and the cost of managing those risks. Risk
management policies and systems are reviewed regularly to
reflect changes in the market conditions and the Group’s
activities.
The Group has exposure to the following risks arising from
financial instruments:
– market risk
– liquidity risk
– credit risk
This section provides details of the Group’s approach to financial
risks and describes the methods used by the Board to mitigate
and control such risk.
Market risk
Market risk includes exposure to interest rates and foreign
currency.
2. Significant accounting policies continued
Significant estimates and uncertainties continued
AFS financial assets and financial assets at FVTPL continued
The Group’s policy is to use reported earnings based on the latest
management accounts available from the company, adjusted for
non-recurring items. For each company being valued, the
earnings multiple is derived from a set of comparable listed
companies or relevant market transaction multiples that have
been approved by the Investment Committee. A premium or
discount is applied to the earnings multiple to adjust for points of
difference relating to risk and earnings growth prospects between
the comparable company set and the private company being
valued. Across the portfolio being valued, the discount applied is
generally in a range of 5% to 30% and exceptionally as high as
50%. The adjusted multiple is the key valuation input which could
change fair values significantly if a reasonably possible alternative
assumption was made. The sensitivity analysis of this input is
disclosed in note 3.
Other derivatives
The fair value of the derivatives used for hedging purposes is
derived from pricing models which take account of the contract
terms, as well as quoted market parameters such as interest rates
and volatilities. The Group has loans and receivables with a
conversion option embedded. Given the low probability of
conversion by the Group, the value attributed to these embedded
derivatives is nil.
Other financial assets and liabilities
Due to their short term nature, the Directors consider the carrying
value to be a good approximation of fair value.
Impairment
Impairment losses are recognised as the difference between
the carrying value of the investment and the discounted value
of management’s best estimates of future cash flow. These
estimates take into account the level and quality of the investee’s
earnings, the amount and sources of cash flows, the industry in
which the investee operates and the likelihood of cash recovery.
Estimating the quantum and timing of these future proceeds
involves significant judgement. The actual amount of future cash
flows and the date that they are received may differ from these
estimates and consequently actual losses incurred may differ from
those recognised in the financial statements.
Effective interest rate
The effective interest rate is the rate that exactly discounts
estimated future cash flows, including agency and arranging fees,
over the expected life of the financial instrument. The expected
life of an asset is estimated by the relevant Investment Executive
using knowledge gained from close monitoring of the investment
and their presence on the Board.
89
3. Financial risk management continued
Interest rate risk
The Group’s assets include both fixed and floating rate loans and non-interest bearing equity investments. The Group’s operations
are financed with a combination of its shareholders’ funds, bank borrowings, private placement notes, public bonds, and fixed and
floating rate notes. The Group manages its exposure to market interest rate movements by matching, to the extent possible, the
interest profiles of assets and liabilities and by using derivative financial instruments. As a result, the Group does not have material
financial exposure to interest rate movements. The sensitivity of assets and liabilities to interest rate risk is disclosed below. The Group’s
sensitivity to movements is assumed by applying 100 basis points sensitivity to interest rates to the Group’s forecast model, which is
a change in methodology compared to the prior year.
Sensitivity to interest rate risk
Financial assets
Financial liabilities
Floating
£m
1,376.6
(1,030.8)
Fixed
£m
1,616.0
(404.2)
2013
Total
£m
2,992.6
(1,435.0)
Floating
£m
1,393.3
(607.6)
Fixed
£m
1,215.0
(497.0)
2012
Total
£m
2,608.3
(1,104.6)
The sensitivity of floating rate financial assets to the 100 basis points interest rate increase is £13.0m (2012: £13.9m) and the sensitivity
of financial liabilities to the same interest rate increase is £7.7m (2012: £6.1m). There is no interest rate risk exposure on fixed rate
financial assets or liabilities.
Foreign exchange risk
The Group is exposed to currency risk in relation to the translation of net assets, currency transactions and the translation of net
assets, and income statement of foreign subsidiaries. The Group’s most significant exposures are to the Euro and the US dollar.
Exposure to market currency risk is managed by matching assets with debt to the extent possible and through the use of derivative
instruments.
The Group regards its interest in overseas subsidiaries as long term investments. Consequently it does not normally hedge the
translation effect of exchange rate movements on the financial statements of these businesses.
The Group is also exposed to currency risk arising on the translation of fund management fee income receipts, which are primarily
denominated in Euro and US dollar. Fund management fee income is hedged to provide more certainty over the value of future cash
inflows.
The sensitivity to movements in exchange rates is assumed by applying a percentage measure, based on the volatility of the
applicable currency, as defined in the Group’s Treasury Policy, to the net currency asset or liability at the balance sheet date.
The effect of fluctuations in other currencies is considered by the Directors to be insignificant in the current and prior year.
The methodology for calculating sensitivity was revised in the current year, however this is still in line with the Group’s Treasury Policy.
The prior year sensitivity has been prepared on this revised model. The net assets/(liabilities) by currency and the sensitivity of the
balances to foreign exchange rates are shown below:
Sterling
Euro
US dollar
Other currencies
Net statement of
financial position
exposure
£m
(208.4)
1,340.6
136.8
319.2
1,588.2
Forward
exchange
contracts
£m
1,668.7
(1,240.4)
(92.7)
(292.4)
43.2
Net exposure
£m
Sensitivity to
strengthening
%
1,460.3
100.2
44.1
26.8
1,631.4
–
15%
20%
–
2013
Impact
£m
–
15.0
8.8
–
23.8
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
Our business2 – 17Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112
90 Notes to the accounts
For the year ended 31 March 2013 continued
3. Financial risk management continued
Foreign exchange risk continued
Sterling
Euro
US dollar
Other currencies
Net statement of
financial position
exposure
£m
(74.5)
1,246.3
75.9
256.0
1,503.7
Forward
exchange
contracts
£m
1,446.8
(1,141.9)
(60.3)
(215.9)
28.7
Net exposure
£m
Sensitivity to
strengthening
%
1,372.3
104.4
15.6
40.1
1,532.4
–
15%
20%
–
2012
Impact
£m
–
15.7
–
3.1
18.8
The weakening of the above currencies would have resulted in an equal but opposite impact.
Liquidity risk
The Group manages its liquidity risk by maintaining headroom on its financing facilities, particularly its bank facilities.
The table below shows the liquidity profile of the Group’s financial liabilities, based on contractual repayment dates of principal and
interest payments. Future interest and principal cash flows have been calculated based on exchange rates and floating rate interest
rates as at 31 March 2013. It is assumed that Group borrowings under its senior debt facilities remain at the level as at 31 March 2013
until contractual maturity.
Liquidity profile
As at 31 March 2013 (£m)
Non-derivative financial liabilities
Private placements
Retail bond
Senior debt
Secured notes
Derivative financial instruments
Derivative financial instruments
Less than
one year
One to
two years
Two to
five years
More than
five years
Contractual maturity analysis
160.5
7.5
326.1
3.7
(39.6)
458.2
12.8
7.5
75.1
3.7
(7.7)
91.4
182.7
22.4
33.3
11.0
67.8
127.5
–
303.1
Total
423.8
164.9
434.5
321.5
(5.6)
243.8
(0.4)
(53.3)
498.0
1,291.4
Since the year end the Group has raised a further $150.0m from private placements and signed £100.0m of new facilities to 2016,
which includes a £67.0m roll over of an existing facility and a new banking relationship.
As at 31 March 2013 the Group has unutilised debt facilities of £355.0m which consists of undrawn debt of £333.0m (2012:
£827.0m) and £22.0m of unencumbered cash. This unencumbered cash is exclusive of £18.8m (2012: £28.0m) of restricted cash
held by Intermediate Finance II plc.
91
Total
405.4
52.3
223.9
511.8
Less than
one year
One to
two years
Two to
five years
More than
five years
Contractual maturity analysis
20.8
2.5
5.1
9.5
(12.6)
25.3
157.0
2.5
218.8
9.5
(10.6)
377.2
151.1
7.4
–
28.5
(7.3)
179.7
76.5
39.9
–
464.3
(2.0)
578.7
(32.5)
1,160.9
3. Financial risk management continued
Liquidity risk continued
Liquidity profile continued
As at 31 March 2012 (£m)
Non-derivative financial liabilities
Private placements
Retail bond
Senior debt
Secured notes
Derivative financial instruments
Derivative financial instruments
The Company’s profile has not been included as it materially matches that of the Group.
The Group’s policy is to maintain continuity of funding. Due to the long term nature of the Group’s assets, the Group seeks to
ensure that the maturity of its debt instruments is matched to the expected maturity of its assets. This has been achieved by the
ongoing private placement programme with notes maturing between one and five years, short term borrowings under bank facilities,
two public bonds and by issuing floating and fixed rate notes.
Credit risk
Credit risk is the risk of financial loss to the Group as a result of a counterparty failing to meet is contractual obligations. This risk is
principally in connection with the Group’s loans and receivables due from portfolio companies.
This risk is mitigated by the disciplined credit procedures that the Investment Committee have in place prior to making an
investment and the ongoing monitoring of that investment throughout its lifespan. In addition, the risk of significant credit loss is further
mitigated by Group’s policy to diversify its investment portfolio in terms of geography and industry sector and to limit the amount
invested in any single company.
Exposure to credit risk
Non-current financial assets
Trade and other receivables
Loans and investments – held for sale
Cash and cash equivalents
Net derivative instruments
2013
£m
2,695.8
53.9
30.4
52.5
44.2
2,876.8
2012
£m
2,352.2
47.1
49.7
159.3
29.5
2,637.8
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
Our business2 – 17Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112
92 Notes to the accounts
For the year ended 31 March 2013 continued
3. Financial risk management continued
Credit risk continued
The Group minimises its surplus operational cash balance by the regular forecasting of cash flow requirements, debt management and
cash pooling arrangements. Credit risk exposure on cash and derivative instruments is managed in accordance with the Group’s
treasury policy which provides limits on exposures with any single financial institution.
The Directors consider the Group’s credit exposure to trade and other receivables and current assets held for sale to be low and as
such no further analysis has been presented.
Maximum exposure to credit risk by geography
UK
Europe
US
Asia Pacific
2013
£m
718.1
1,558.9
132.7
286.1
2,695.8
2012
£m
476.6
1,555.0
112.9
207.7
2,352.2
The Group’s exposure to the Euro is mitigated by the use of foreign exchange derivatives contracts, see page 89. This exposure is
derived from the Group’s investment portfolio being weighted towards Europe and in particular France. This is reflective of the historical
focus of the business, however the more recent investment pattern has been more geographically diverse. The investment portfolio is
not exposed to any single industry with investments diversified across sectors.
Impairment losses
Impairment
Balance at 1 April
Charged to income statement
Recovery of previously impaired assets
Assets written off in year
Impairments recovered on extinguishment of assets
Impairments arising through restructuring of assets
Foreign exchange
Balance at 31 March
2013
£m
517.0
141.1
(61.1)
(56.7)
–
–
8.9
549.2
Group
2012
£m
581.1
83.5
(12.9)
(114.1)
(19.0)
20.5
(22.1)
517.0
2013
£m
353.1
96.3
(40.1)
–
–
–
5.6
414.9
Company
2012
£m
384.3
54.6
(11.8)
(63.9)
(19.0)
20.5
(11.6)
353.1
The carrying amount of financial assets represents the Directors’ assessment of the maximum credit risk exposure of the Group and
Company at the balance sheet date. Impairment losses taken during the year reflect the decline in recoverability on individual assets,
either as a result of company specific or general macroeconomic conditions.
The Directors believe that credit risk as a result of the concentration of significant counterparties is low as there is no individual
counterparty comprising more than 10% of the Group’s total exposure. The Group’s largest individual exposure at 31 March 2013
was £120.0m (2012: £109.7m) to Médi Partenaires, which has been repaid in full since the year end.
93
3. Financial risk management continued
Fair value measurements recognised in the statement of financial position
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value,
grouped into Levels 1 to 3 based on the degree to which the fair value is observable.
– Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities
– Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable
for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)
– Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are
not based on observable market data (ie. unobservable inputs)
Financial assets at FVTPL
Designated as FVTPL
Derivative financial instruments – warrants
Other derivative financial instruments
AFS financial assets held at fair value
Financial liabilities at FVTPL
Derivative financial liabilities
Financial assets at FVTPL
Designated as FVTPL
Derivative financial instruments – warrants
Other derivative financial instruments
AFS financial assets held at fair value
Financial liabilities at FVTPL
Derivative financial liabilities
Level 1
£m
Level 2
£m
Level 3
£m
103.7
–
–
–
103.7
–
–
54.9
–
54.9
190.0
40.2
–
350.5
580.7
2013
Total
£m
293.7
40.2
54.9
350.5
739.3
–
10.7
–
10.7
Level 1
£m
Level 2
£m
Level 3
£m
40.3
–
–
–
40.3
–
–
34.4
–
34.4
57.4
32.6
–
283.4
373.4
2012
Total
£m
97.7
32.6
34.4
283.4
448.1
–
4.9
–
4.9
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
Our business2 – 17Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112
94 Notes to the accounts
For the year ended 31 March 2013 continued
3. Financial risk management continued
Fair value measurements recognised in the statement of financial position continued
Reconciliation of Level 3 fair value measurements of financial assets:
At 1 April 2012
Total gains or losses in the income statement
– Impairments
– Fair value gains
– Foreign exchange
Total gains or losses in other comprehensive income
– Unrealised gains
– Realised gains
– Foreign exchange
Purchases
Realisations
Transfer between assets
Exercise of options
At 31 March 2013
At 1 April 2011
Total gains or losses in the income statement
– Capital gains
– Impairments
– Realised gains
– Fair value gains
– Foreign exchange
Total gains or losses in other comprehensive income
– Unrealised gains
– Realised gains
– Foreign exchange
Purchases
Realisations
Transfers from current financial assets
At 31 March 2012
Financial
assets at
FVTPL
£m
57.4
Derivative
financial
instruments
£m
AFS assets
£m
32.6
283.4
–
40.8
2.9
–
–
–
93.2
(3.5)
(0.1)
–
190.7
–
9.9
0.9
–
–
–
–
(0.6)
–
(2.6)
40.2
2.4
–
–
50.9
11.5
10.7
2.3
(13.5)
0.2
2.6
350.5
Financial
assets at
FVTPL
£m
23.8
Derivative
financial
instruments
£m
AFS assets
£m
0.8
198.0
–
–
–
9.8
(0.7)
–
–
–
27.8
(4.2)
0.9
57.4
–
–
23.9
31.9
(0.1)
–
–
–
–
(23.9)
–
32.6
(0.4)
(1.6)
(5.3)
–
–
103.2
49.9
(2.6)
8.7
(66.5)
–
283.4
Total
£m
373.4
2.4
50.7
3.8
50.9
11.5
10.7
95.5
(17.6)
0.1
–
581.4
Total
£m
222.6
(0.4)
(1.6)
18.6
41.7
(0.8)
103.2
49.9
(2.6)
36.5
(94.6)
0.9
373.4
There were no financial liabilities subsequently measured at fair value on Level 3 fair value measurement bases. All gains and losses
included in other comprehensive income relate to unquoted equities held at the balance sheet date and are reported as changes
in the AFS reserve in the Consolidated statement of changes in equity.
95
3. Financial risk management continued
Fair value
The following table shows the sensitivity of fair values grouped in Level 3 to adjusted earnings multiples in the valuation models,
for a selection of the largest financial assets. It is assumed that the multiple was changed by 10% while all the other variables
were held constant.
Financial assets at fair value
2013
AFS financial assets held at fair value
Financial assets designated as FVTPL
Derivative financial instruments held at fair value – warrants
2012
AFS financial assets held at fair value
Financial assets designated as FVTPL
Derivative financial instruments held at fair value – warrants
Value in accounts
£m
350.5
190.7
40.2
581.4
283.4
57.4
32.6
373.4
Sensitivity of financial asset to
adjusted earnings multiple
+10%
£m
380.1
207.7
47.5
635.3
336.9
66.6
34.7
438.2
–10%
£m
320.9
173.7
32.8
527.4
229.9
48.2
30.6
308.7
Derivatives
The Group utilises the following derivative instruments for economic hedging purposes:
Foreign exchange derivatives
Forward foreign exchange contracts
Cross currency swaps
Interest rate derivatives
Interest rate swaps
Total
Contract or
underlying
principal
amount
£m
1,588.3
139.1
134.7
1,862.1
Group and Company 2013
Group and Company 2012
Fair Values
Asset
£m
Liability
£m
33.6
11.6
9.7
54.9
(6.8)
(3.8)
(0.1)
(10.7)
Contract or
underlying
principal
amount
£m
1,461.1
137.4
171.4
1,769.9
Fair values
Asset
£m
Liability
£m
12.0
10.1
12.3
34.4
(1.2)
(3.4)
(0.3)
(4.9)
Included in derivative financial instruments is accrued interest on swaps of £1.1m (2012: £0.9m).
Capital management
The primary objectives of the Group’s capital management are to ensure that the Group complies with externally imposed capital
requirements by the Financial Conduct Authority (FCA) and ensure that the Group maximises the return to shareholders through the
optimisation of the debt and equity balance. The Group’s strategy has remained unchanged from the year ending 31 March 2012.
The capital structure comprises debts, which includes the borrowings disclosed in note 22, cash and cash equivalents, and capital
and reserves of the Parent Company, comprising called-up share capital, reserves and retained earnings as disclosed in the
Consolidated statement of changes in equity.
The Group has complied with the imposed minimum capital throughout the year. The full Pillar 3 disclosures are available on the
Company’s website www.icgplc.com.
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
Our business2 – 17Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112
96 Notes to the accounts
For the year ended 31 March 2013 continued
4. Profit of Parent Company
As permitted by section 408 of the Companies Act 2006, the income statement of the Parent Company is not presented as
part of these financial statements. The Parent Company’s profit for the year amounted to £97.8m (2012: £225.8m).
5. Business and geographical segments
For management purposes, the Group is currently organised into two distinct business groups, the Fund Management Company (FMC)
and the Investment Company (IC). Segment information about these businesses is presented below. This is as reviewed by the
Executive Committee, with the exception of £3.4m relating to gains on the investment in ICG Europe Fund V, which is presented below
in fair value movements on financial assets. This is included within Net interest income for internal reporting purposes.
The Group reports the profit of the FMC separately from the profits generated by the IC. The FMC is defined as the operating unit
and as such incurs the majority of the Group’s costs, including the cost of the investment network, i.e. the Investment Executives and
the local offices, as well as the cost of most support functions, primarily information technology, human resources and marketing.
The IC is charged a management fee of 1% of the carrying value of the investment portfolio by the FMC and this is shown below as Fee
income. The costs of finance, treasury, and portfolio administration teams and the costs related to being a listed entity are allocated to
the IC. The cost of the Medium Term Incentive Scheme (MTIS) was charged to the IC in 2012; the scheme is no longer operational.
The remuneration of the Managing Directors is allocated equally to the FMC and the IC.
Analysis of income and profit before tax
Year ended 31 March 2013 (£m)
External fee income
Inter-segmental fee
Fund management fee income
Other operating income
Fair value movements on
financial assets
Net interest income
Dividend income
Net fair value loss on derivatives
Impairment
Staff costs
Incentive scheme costs
Other administrative expenses
Profit before tax
Mezzanine Fund Management
Europe
51.4
19.3
70.7
Asia
6.8
2.6
9.4
US
–
0.9
0.9
Credit Fund
Management
Total FMC
19.2
0.5
19.7
77.4
23.3
100.7
–
–
(0.4)
1.9
–
102.2
–
(20.9)
(14.6)
(26.3)
40.4
IC
–
(23.3)
(23.3)
1.4
73.0
159.7
2.4
(5.7)
207.5
(80.0)
(3.0)
(18.1)
(4.2)
102.2
Total
77.4
–
77.4
1.4
73.0
159.3
4.3
(5.7)
309.7
(80.0)
(23.9)
(32.7)
(30.5)
142.6
97
5. Business and geographical segments continued
Year ended 31 March 2012 (£m)
External fee income
Inter-segmental fee
Fund management fee income
Other operating income
Fair value movements on
financial assets
Net interest income
Dividend income
Net fair value gain on derivatives
Impairment
Staff costs
Incentive scheme costs
Medium Term Incentive Scheme
Other administrative expenses
Profit before tax
Mezzanine Fund Management
Europe
36.7
20.6
57.3
Asia
6.8
2.0
8.8
US
–
0.9
0.9
Credit Fund
Management
Total FMC
23.2
1.0
24.2
66.7
24.5
91.2
–
–
(0.4)
3.3
–
94.1
–
(19.1)
(13.5)
–
(23.8)
37.7
Analysis of financial assets by geographical segment
Europe
Asia
US
Credit Fund Management
Group revenue by geographical segment
Europe
Asia
US
IC
–
(24.5)
(24.5)
1.5
118.0
183.9
5.7
–
284.6
(70.6)
(6.3)
(18.5)
19.3
(2.4)
206.1
2013
£m
2,099.5
286.1
132.7
176.8
2,695.1
2013
£m
313.4
50.2
6.8
370.4
Total
66.7
–
66.7
1.5
118.0
183.5
9.0
–
378.7
(70.6)
(25.4)
(32.0)
19.3
(26.2)
243.8
2012
£m
1,953.9
207.7
112.9
77.7
2,352.2
2012
£m
387.8
40.0
9.7
437.5
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
Our business2 – 17Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112
98 Notes to the accounts
For the year ended 31 March 2013 continued
6. Finance income and finance costs
Group Finance income
Interest income recognised under the amortised cost method
Dividend income from equity investments
Interest on bank deposits
2013
£m
214.2
4.3
0.1
218.6
Interest income on interest bearing loans and investments includes £17.2m (2012: £13.6m) accrued on impaired loans.
Group Finance costs
Interest expense recognised under the amortised cost method
Fair value movements on derivatives
Net foreign exchange gains and losses
7. Fair value movement on financial assets
Fair value movement of AFS financial assets
The movements recognised in other comprehensive income:
Realised gains on ordinary shares recycled to income statement
Impairments of AFS financial assets recycled to the income statement
Unrealised gains on AFS financial assets
– Fair value movement on equity instruments
– Fair value movement on other assets
Foreign exchange
Gains arising in the AFS reserve in the year
Fair value movements of FVTPL assets
The movements through the income statement are as follows:
Realised gains on warrants
Realised gains on assets designated as FVTPL
Realised gains of AFS financial assets recycled from AFS reserves
Unrealised gains on assets designated as FVTPL
– Fair value movement on equity instruments
– Fair value movement on warrants
– Fair value movement on other assets
Gains arising in the income statement in the year
2013
£m
39.6
5.7
15.4
60.7
2013
£m
11.5
(4.0)
7.5
51.3
1.7
6.6
67.1
2013
£m
0.8
1.8
11.5
14.1
39.3
9.5
10.1
58.9
73.0
2012
£m
241.4
9.0
0.9
251.3
2012
£m
44.8
–
14.0
58.8
2012
£m
49.9
(1.6)
48.3
106.9
(3.7)
(2.6)
148.9
2012
£m
23.9
–
49.9
73.8
9.8
31.9
2.5
44.2
118.0
8. Impairment of assets
Impairment on loans and receivables
New and increased
Write-off
Recoveries
Total net impairment on loans and receivables
Impairment on AFS financial assets
New and increased
Write-off
Recoveries
Total net impairment on AFS financial assets
9. Administrative expenses
Administrative expenses include:
Staff costs
MTIS release during the year
Amortisation and depreciation
Operating lease expenses
Auditor’s remuneration
99
2013
£m
50.6
86.4
(58.7)
78.3
2.0
2.1
(2.4)
1.7
80.0
2013
£m
56.6
–
3.5
3.6
1.1
2012
£m
69.6
12.3
(11.4)
70.5
1.6
–
(1.5)
0.1
70.6
2012
£m
83.1
(45.0)
4.1
3.2
0.8
Auditor remuneration includes fees for audit and non audit services payable to the Company’s auditor, Deloitte LLP and are analysed
as follows:
Audit fees
Group audit of the annual accounts
The audit of subsidiaries annual accounts
Total audit fees
Non audit fees in capacity as auditors
Other non audit fees
Taxation compliance services
Other taxation advisory services
Corporation finance transactions
Total other non audit fees
Total auditor’s remuneration
2013
£m
2012
£m
0.2
0.3
0.5
0.1
0.1
0.2
0.2
0.5
1.1
0.2
0.3
0.5
0.1
0.1
0.1
–
0.2
0.8
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
Our business2 – 17Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112
100 Notes to the accounts
For the year ended 31 March 2013 continued
10. Employees and Directors
Directors’ emoluments
Employee costs during the year including Directors:
Wages and salaries
Social security costs
Pension costs
The average number of employees (including Directors) was:
Investment Executives
Infrastructure
Directors
ICG Longbow
2013
£m
1.9
53.1
2.1
1.4
56.6
2013
No.
72
74
3
12
161
2012
£m
9.6
34.6
2.2
1.3
38.1
2012
No.
71
61
3
8
143
The performance related element included in wages and salaries is £32.2m (2012: £57.2m). This is derived from the annual bonus
scheme, the Omnibus Scheme, the Balance Sheet Carry Scheme and in 2012 the MTIS.
11. Tax expense
Analysis of tax on ordinary activities
Current tax
Current period
Prior year adjustment
Deferred taxation
Current period
Prior year adjustment
Tax on profit on ordinary activities
Profit on ordinary activities before tax
Profit before tax multiplied by the rate of corporation tax in the UK of 24% (2012: 26%)
Effects of:
Non-deductible expenditure
Current year risk provision
Tax losses not recognised
Prior year adjustment to deferred tax
Changes in statutory tax rates
Overseas tax credit
Prior year adjustment to current tax
Current tax charge for the year
2013
£m
30.9
(10.9)
2.6
(3.8)
18.8
2013
£m
142.6
34.2
(0.1)
0.8
1.8
(3.8)
(0.5)
(2.7)
(10.9)
18.8
2012
£m
58.9
(10.2)
7.5
–
56.2
2012
£m
243.8
63.4
6.1
3.8
0.4
2.9
0.2
(10.4)
(10.2)
56.2
The current year tax charge is lower than the standard rate of corporation tax of 24%. This is principally due to prior year adjustments
of £9.0m credit relating to termination payments made under the Medium Term Incentive Scheme (MTIS).
101
11. Tax expense continued
Throughout the duration of the MTIS scheme, a partial deferred tax asset was recognised based on estimations of future tax relief
on cash flows under the scheme. During the current period, the final cash payments were made in respect of the termination of the
scheme, enabling the final tax position to be calculated. This gave rise to a one off £9.0m credit to the tax charge.
12. Dividends
Ordinary dividends paid
Final
Interim
Per share
pence
13.0
6.3
19.3
2013
£m
50.5
24.4
74.9
Per share
pence
12.0
6.0
18.0
The proposed final dividend for the year ended 31 March 2013 is 13.7p per share (2012: 13.0p per share) which will amount
to £55.1m (2012: £50.5m). Of the £74.9m (2012: £70.1m) of dividends paid, no scrip dividends were taken (2012: £1.2m).
13. Earnings per share
Earnings
Earnings for the purposes of basic and diluted earnings per share being net profit attributable
to equity holders of the parent
Number of shares
2013
£m
124.4
2013
2012
£m
46.8
23.3
70.1
2012
£m
188.3
2012
Weighted average number of ordinary shares for the purposes of basic earnings per share
Effect of dilutive potential ordinary shares share options
Weighted average number of ordinary shares for the purposes of diluted earnings per share
387,528,665
46,245
387,574,910
395,135,061
422,943
395,558,004
Earnings per share (EPS)
Diluted earnings per share
14. Intangible assets
Group
Cost
At 1 April
Additions
At 31 March
Amortisation and impairment losses
At 1 April
Amortisation during the year
At 31 March
Net book value at 31 March
4.3
4.3
Goodwill
Investment Management Contract
2013
£m
4.3
–
4.3
–
–
–
2012
£m
4.3
–
4.3
–
–
–
2013
£m
5.1
–
5.1
1.6
1.2
2.8
2.3
2012
£m
5.1
–
5.1
0.3
1.3
1.6
3.5
32.1p
32.1p
47.7p
47.6p
2013
£m
9.4
–
9.4
1.6
1.2
2.8
6.6
Total
2012
£m
9.4
–
9.4
0.3
1.3
1.6
7.8
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
Our business2 – 17Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112
102 Notes to the accounts
For the year ended 31 March 2013 continued
14. Intangible assets continued
Intermediate Capital Managers Limited, a subsidiary company, purchased an investment management contract from Resource Europe
in December 2010 for €5.9m (£5.1m). The contract is expected to generate junior, senior and incentive fees over a four year term and
was therefore capitalised, and is amortised over the contract term on a straight line basis. Amortisation of investment management
contracts is recognised in the income statement as an administrative expense. Goodwill arose from the 51% equity share acquisition
of Longbow Real Estate Capital in December 2010. Total consideration of £4.3m was paid for £nil net assets and liabilities.
15. Property, plant and equipment
Furniture and equipment
Cost
At 1 April
Additions
Disposals
At 31 March
Depreciation
At 1 April
Charge for the year
Depreciation on disposals
At 31 March
Net book value
Short leasehold premises
Cost
At 1 April
Additions
At 31 March
Depreciation
At 1 April
Charge for the year
At 31 March
Net book value
Total net book value
2013
£m
11.5
0.5
–
12.0
7.6
1.5
–
9.1
2.9
4.7
0.8
5.5
3.0
0.8
3.8
1.7
4.6
Group
2012
£m
10.5
1.2
(0.2)
11.5
5.5
2.3
(0.2)
7.6
3.9
4.5
0.2
4.7
2.5
0.5
3.0
1.7
5.6
2013
£m
10.0
0.6
–
10.6
5.9
1.9
–
7.8
2.8
4.0
0.2
4.2
2.9
0.2
3.1
1.1
3.9
Company
2012
£m
8.8
1.2
–
10.0
4.1
1.8
–
5.9
4.1
3.9
0.1
4.0
2.2
0.7
2.9
1.1
5.2
103
16. Non controlling interests
The Group has consolidated the following companies which have non controlling interests:
Longbow Real Estate Capital LLP
LREC Partners Investments No.2 Ltd
As at 31 March
Loss retained for the year
17. Financial assets – non-current
Loans and receivables held at amortised cost
Investment in subsidiaries
AFS financial assets held at fair value
Financial assets designated as FVTPL
Derivative financial instruments held at fair value – warrants
Other derivative financial instruments held at fair value
% Non-
controlling
interest
49%
41%
2013
£m
(0.3)
–
(0.3)
2013
£m
2,010.7
–
350.5
294.4
40.2
2,695.8
14.7
2,710.5
Group
2012
£m
1,938.5
–
283.4
97.7
32.6
2,352.2
21.6
2,373.8
% Non-
controlling
interest
49%
41%
2013
£m
(0.6)
2013
£m
1,479.0
270.9
45.0
136.3
11.7
1,942.9
14.7
1,957.6
2012
£m
0.1
–
0.1
2012
£m
(0.7)
Company
2012
£m
1,426.7
133.4
39.8
58.5
8.3
1,666.7
21.6
1,688.3
The financial assets designated as FVTPL include an investment in associate of £85.0m (2012: £nil), ICG Europe Fund V Jersey, which
is an investment fund incorporated in Jersey. The Group holds a 20% investment as at 31 March 2013.
The movement in AFS financial assets during the year is set out below:
AFS financial assets
Balance at 1 April
Additions
Fair value movement
Realisations
Foreign exchange
Balance at 31 March
2013
£m
283.4
2.3
65.0
(10.9)
10.7
350.5
Group
2012
£m
198.0
8.7
151.1
(66.5)
(7.9)
283.4
2013
£m
39.8
0.8
4.9
(1.2)
0.7
45.0
Company
2012
£m
46.1
0.8
(4.2)
(0.4)
(2.5)
39.8
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
Our business2 – 17Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112
104 Notes to the accounts
For the year ended 31 March 2013 continued
18. Trade and other receivables
Other receivables
Amount owed by Group companies
Prepayments
19. Financial assets – current
Loans and investments – held for sale
Other derivative financial instruments held at fair value
20. Called up share capital and own shares reserve
Group and Company
Authorised
450,000,000 (2012: 450,000,000) ordinary shares of 20p
Allotted, called up and fully paid
402,056,200 (2012: 400,190,206) ordinary shares of 20p
2013
£m
29.7
–
24.2
53.9
2013
£m
30.4
40.2
70.6
Group
2012
£m
35.5
–
11.6
47.1
Group
2012
£m
49.7
12.8
62.5
2013
£m
10.0
432.3
11.3
453.6
2013
£m
30.4
40.2
70.6
2013
£m
90.0
80.4
Company
2012
£m
19.6
429.7
2.9
452.2
Company
2012
£m
33.6
12.8
46.4
2012
£m
90.0
80.0
The own shares reserve represents the cost of shares in ICG purchased in the market and held by the EBT. The EBT purchased
an amount of 3,984,457 (2012: 4,813,531) shares of 20p each, for consideration of £13.3m (2012: £12.9m), to hedge future
liabilities arising under long term incentive plans. This represented 0.99% (2012: 1.20%) of the Parent Company’s share capital
at 31 March 2013. 230,759 shares (2012:1,358,929) were distributed to employees on exercise for a total exercise price of £637,351
(2012: £3,837,526).
21. Provisions
Group and Company
At 1 April 2012
Utilisation of provision
Unwinding of discount
As at 31 March 2013
The provisions are expected to mature in the following time periods:
Group and Company
Less than one year
One to five years
Greater than five years
Total greater than one year
As at 31 March
Onerous
Lease
£m
4.4
(0.6)
0.2
4.0
2012
£m
0.5
2.0
1.9
3.9
4.4
2013
£m
0.4
2.3
1.3
3.6
4.0
The Group holds onerous lease provisions of £4.0m (2012: £4.4m) against certain leaseholds in connection with surplus space.
The provision for these onerous lease contracts has been made taking into account residual lease commitments, other outgoings
and sub-letting arrangements. It is envisaged that the provisions will be utilised on an even basis until 2021.
22. Financial liabilities
Group
Liabilities held at amortised cost:
– Private placement
– Retail bond
– Revolving credit facility
– Bilateral facilities
– Syndicated bank facilities
– Floating rate secured notes
Bank overdraft
105
2013
2012
Current
£m
Non-current
£m
Current
£m
Non-current
£m
142.9
–
44.8
–
274.0
–
10.7
472.4
198.3
113.5
–
104.4
–
272.7
–
688.9
–
–
74.1
–
–
–
9.5
83.6
322.0
34.6
–
–
137.3
398.6
–
892.5
The floating rate notes are secured on the debt portfolio of a subsidiary company, Intermediate Finance II plc. The carrying value
of the portfolio is £426.3m (2012: £427.0m).
Since the year end we have raised a further $150.0m from private placements and signed £100.0m of new facilities to 2016,
which includes a £67.0m roll over of an existing facility and a new banking relationship.
Company
Liabilities held at amortised cost:
– Private placement
– Retail bond
– Revolving credit facility
– Bilateral facilities
– Syndicated bank facilities
Bank overdraft
23. Trade and other payables
Trade payables
Accruals
Amounts owed to Group companies
Social security tax
2013
2012
Current
£m
Non-current
£m
Current
£m
Non-current
£m
142.9
–
44.8
–
274.0
10.7
472.4
2013
£m
1.9
75.7
–
1.4
79.0
198.3
113.5
–
104.4
–
–
416.2
Group
2012
£m
14.5
109.0
–
0.6
124.1
–
–
74.1
–
–
9.5
83.6
2013
£m
0.9
59.5
255.9
1.4
317.7
322.0
34.6
–
–
137.3
–
493.9
Company
2012
£m
3.9
106.1
251.5
0.5
362.0
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
Our business2 – 17Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112
106 Notes to the accounts
For the year ended 31 March 2013 continued
24. Deferred tax
Group
At 31 March 2011
Charge to equity
Charge to income
At 31 March 2012
Prior year adjustment
Charge to equity
(Credit)/Charge to income
At 31 March 2013
Company
At 31 March 2011
Charge to equity
Charge to income
At 31 March 2012
Prior year adjustment
Charge to equity
(Credit)/Charge to income
At 31 March 2013
Other
derivatives
£m
Warrants and
investments
£m
Remuneration
deductible as
paid
£m
Other
temporary
differences
£m
16.5
–
0.7
17.2
(1.8)
–
(1.7)
13.7
8.2
23.1
–
31.3
2.1
11.0
8.8
53.2
(11.8)
–
6.7
(5.1)
(3.9)
–
(4.5)
(13.5)
(0.2)
–
0.1
(0.1)
(0.2)
–
–
(0.3)
Other
derivatives
£m
Warrants and
investments
£m
Remuneration
deductible as
paid
£m
Other
temporary
differences
£m
16.5
–
0.7
17.2
(1.8)
–
(1.7)
13.1
2.5
(1.2)
–
1.3
–
1.1
0.7
3.1
(11.7)
–
7.7
(4.0)
(1.2)
–
(2.5)
(7.7)
0.1
–
(0.1)
–
(0.8)
–
–
(0.8)
Total
£m
12.7
23.1
7.5
43.3
(3.8)
11.0
2.6
53.1
Total
£m
7.4
(1.2)
8.3
14.5
(3.8)
1.1
(3.5)
8.3
Deferred tax has been accounted for at the substantively enacted corporation tax rate of 23% (2012: 24%). Further reductions to the
main rate have been proposed to reduce the rate to 21% from 1 April 2014 and 20% from 1 April 2015. These further reductions in
the tax rate had not been substantively enacted at the balance sheet date and therefore are not reflected in these financial statements.
As at 31 March 2013 the Group has tax losses carried forward of £18.6m (2012: £11.8m). It is not probable that these will be
utilised and therefore no deferred tax asset has been recognised.
25. Share based payments
All share based payment transactions are equity-settled. The total charge to the income statement for the year was £13.6m
(2012: £13.1m) and this was credited to the reserve in equity for share based payments.
Intermediate Capital Group plc 2001 Approved and Unapproved Executive Share Option Scheme
The Company had a number of share option schemes for certain employees of the Group. All options under the Intermediate Capital
Group plc 2001 scheme have vested, no new options will be awarded as the scheme is now closed. Analysis of movements in the
number and weighted average exercise price of options is set out below:
Outstanding at 1 April
Forfeited
Exercised
Outstanding at 31 March
2013
5,353,766
(1,104,558)
(1,642,669)
2,606,539
Number
2012
6,435,473
(565,353)
(516,354)
5,353,766
Of which are currently exercisable
427,198
3,161,926
The weighted average remaining contractual life is 2.96 years (2012: 4.7 years).
Weighted average
exercise price (£)
2013
3.59
3.31
3.48
4.51
2.73
2012
3.57
4.34
2.52
3.59
4.54
107
25. Share based payments continued
Intermediate Capital Group plc 2001 Approved and Unapproved Executive Share Option Scheme continued
Exercise price
£2.230
£2.947
£6.008
£4.844
£5.048
£4.286
£4.101
£4.731
£4.729
£3.322
£3.256
2013
Number
2012
Number
284,876
25,601
314,604
790,073
136,762
592,830
88,471
321,821
23,251
28,250
–
2,166,239
25,601
314,604
901,551
136,762
718,829
88,471
428,566
23,251
305,962
243,930
Intermediate Capital Group plc Omnibus Plan
Details of all the different types of awards under the Omnibus Plan are provided in the Report of the Remuneration Committee
on pages 57 and 58.
Share awards outstanding under the Omnibus Plan were as follows:
Deferred Share Awards
Outstanding at 1 April
Granted
Vested
Forfeited
Outstanding at 31 March
PLC Equity Awards
Outstanding at 1 April
Granted
Outstanding at 31 March
FMC Equity Awards
Outstanding at 1 April
Granted
Outstanding at 31 March
2013
843,382
434,342
(329,550)
(84,950)
863,224
2013
4,937,534
1,932,804
6,870,338
2013
81,603
44,568
126,171
Number
2012
546,267
503,705
(182,082)
(24,508)
843,382
Number
2012
2,854,134
2,083,400
4,937,534
Number
2012
40,938
40,665
81,603
Weighted average
fair value (£)
2012
2.58
3.34
2.58
3.16
3.02
Weighted average
fair value (£)
2012
2.58
3.34
2.90
2013
3.02
2.33
2.96
2.58
2.74
2013
2.90
2.33
2.74
Weighted average
fair value (£)
2013
217.00
245.00
2.27
2012
190.00
245.00
217.00
The fair values of awards granted under the ICG plc Omnibus Plan are determined by the average share price for the five business
days prior to grant except for the FMC equity awards which are determined by an independent third party valuation.
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
Our business2 – 17Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112
108 Notes to the accounts
For the year ended 31 March 2013 continued
26. Financial commitments
The Company’s outstanding commitments at 31 March 2013 were £524.7m (2012: £462.1m) and these can be called on within the
next five years. This balance is largely due to the Company’s commitments to ICG Europe Fund V.
27. Operating leases
At the balance sheet date, the Group and Parent Company had outstanding commitments for future minimum lease payments under
non cancellable operating leases, which fall due as follows:
Within one year
Two to five years
After five years
28. Related party transactions
2013
£m
3.8
13.3
7.9
Group
2012
£m
3.0
8.5
10.8
2013
£m
2.2
8.9
6.1
Company
2012
£m
2.0
6.0
8.2
All transactions between the Parent Company and its subsidiary undertakings are classified as related party transactions. All significant
Company balances with subsidiary undertakings are disclosed in notes 16, 18 and 23. Aggregated significant transactions with
subsidiary undertakings are as follows:
Service charges paid
Dividends received
2013
£m
–
77.5
2012
£m
11.5
121.4
Management consider key management personnel to be the Executive Committee who are also members of the Board of Directors,
and all related party transactions are disclosed in the Remuneration report.
109
29. Principal Group companies
The principal subsidiary undertaking of the Group are shown below. All are wholly owned, except where stated.
Name
Country of incorporation
Principal activity
Intermediate Capital Investments Ltd
Intermediate Capital Managers Ltd*
Intermediate Finance II PLC
JOG Partners Limited**
Intermediate Investments LLP
Intermediate Investments Jersey Ltd
Intermediate Capital Asia Pacific Ltd*
Intermediate Capital Group SAS*
Intermediate Capital Group Espana SL*
Intermediate Capital Nordic AB*
Intermediate Capital Group Beratungsgesellschaft*
Intermediate Capital Group Benelux B.V.*
Intermediate Capital Australia Pty Ltd*
Intermediate Capital Group Inc*
Intermediate Capital Group (Singapore) Pte. Limited*
ICG FMC Limited
Longbow Real Estate Capital LLP (51% owned)
ICG EF V Jersey Ltd
ICG Europe Fund V Jersey (20% owned)
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Jersey
Hong Kong
France
Spain
Sweden
Germany
Netherlands
Australia
United States of America
Singapore
England and Wales
England and Wales
Jersey
Jersey
Investment company
Advisory company
Provider of mezzanine
Investment company
Holding company for loans and investments
Investment company
Advisory company
Advisory company
Advisory company
Advisory company
Advisory company
Advisory company
Advisory company
Advisory company
Advisory company
Holding company for funds management
Advisory company
General Partner
Investment company
All companies listed above have a reporting date of 31 March.
* Subsidiary of ICG FMC Limited
** JOG Partners Limited is a member of Intermediate Investments LLP.
30. Contingent liabilities
The Company and its subsidiaries may be party to legal claims arising in the course of business. The Directors do not anticipate
that the outcome of any such potential proceedings and claims will have a material adverse effect on the Group’s financial position
and at present there are no such claims where their financial impact can be reasonably estimated. The Company and its subsidiaries
may be able to recover any monies paid out in settlement of claims from third parties.
31. Post balance sheet events
Post balance sheet date of 31 March 2013 the Group realised £73.6m of principal and £46.6m of PIK interest and agreed, subject
to completion, to dispose of an asset which will generate a realised capital gain of £106.0m in the new financial year.
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
Our business2 – 17Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112
110 Glossary
Term
Assets under
management
Short form
AUM
Carried Interest
Carry
Definition
Value of all funds and assets managed by the FMC.
Share of profits that the fund manager is due once it has returned cost of
investment and agreed preferred return to investors.
Cash core income
CCI
Profit before tax excluding fair value movement on derivatives, unrealised capital
gains, impairments and unrealised rolled up interest.
Catch up fees
Fees not previously accrued on basis of income being uncertain or fees payable
by mezzanine fund investors for periods prior to current close.
Collateralised
Debt Obligation
CDO
Investment grade security backed by pool of non mortgage based bonds, loans
and other assets. CDO values and payment are derived from a portfolio of fixed
income underlying assets.
Collateralised
Loan Obligation
Close
CLO
CLO is a type of CDO, which is backed by a portfolio of loans.
A stage in fundraising whereby fund is able to release or draw down the money
raised to that date, to enable it to begin investing.
Employee Benefit Trust
EBT
Special purpose vehicle used to purchase ICG plc shares which is used to satisfy
share options and awards granted under the Group’s employee share schemes.
Financial Conduct
Authority
Financial Reporting
Council
Fund Management
Company
High Yield
FCA
FRC
FMC
Successor to the FSA which regulates conduct by both retail and wholesale
financial service firms in provision of services to consumers.
UK’s independent regulator responsible for promoting high quality corporate
governance and reporting to foster investment.
Group’s operating vehicle, which sources and manages investments on behalf
of the IC and third party funds.
Sub investment grade bond that have higher risk of default but pays higher yields.
Investment Company
IC
The investment unit of ICG plc. It co-invests alongside third party funds.
Leveraged Buy Out
LBO
Acquisition which is financed by a significant amount of borrowed money.
Assets of the acquired company will usually be used as collateral for loans.
111
Term
Medium Term Incentive
Scheme
Short form
MTIS
Mezzanine
Definition
Old incentive scheme closed in FY12.
Mezzanine refers to a subordinated debt or preferred equity instrument that
represents a claim on a company’s assets which is senior only to equity.
Payment in Kind
PIK
Also known as rolled up interest. PIK is to be interpreted as interest accruing
until maturity or refinancing, without any cash flows until that time.
Performance fees
Incentive fees based on the performance of CDO assets and carried interest
income based on the performance on mezzanine funds.
Pre-incentive cash profit
PICP
Profit before tax adjusted for non cash items, fair value movement of derivatives,
unrealised capital gains and unrealised rolled up interest.
Return on equity
ROE
Profit after tax divided by average shareholders’ funds for the period.
Seed equity
Turnbull Committee
guidance
Initial funding into the fund usually prior to third party commitments.
Guidance published by the FRC setting out best practice on internal control
for UK listed companies.
UK Corporate Governance
Code
The Code
Sets out standards of good practice in relation to board leadership and
effectiveness, remuneration, accountability and relations with shareholders.
I
i
n
t
e
r
m
e
d
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
c
l
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
Our business2 – 17Business review18 – 37Funds and portfolio38 – 45Governance46 – 76Financial statements77 – 112
112
Shareholder information
Timetable
Ex dividend date
Record date for financial year 2013
final dividend
AGM and Interim Management Statement
Payment of final dividend
Half year results announcement for the
6 months to 30 September 2013
12 June 2013
14 June 2013
17 July 2013
24 July 2013
21 November 2013
Website
The Company’s website address is www.icgplc.com
Copies of the Annual and Interim Reports and other
information about the Company are available on this site.
Company information
Stockbrokers
JPMorgan Cazenove
25 Bank Street
Canary Wharf
London
E14 5JP
Jefferies Hoare Govett Limited
Vintners Place
68 Upper Thames Street
London
EC4V 3BJ
Bankers
Lloyds TSB plc
25 Gresham Street
London
EC2V 7HN
The Royal Bank of Scotland plc
135 Bishopsgate
London
EC2M 3UR
Auditor
Deloitte LLP
Chartered Accountants and
Statutory Auditor
2 New Street Square
London
EC4A 3BZ
Registrars
Computershare Investor Services PLC
PO Box 92
The Pavilions
Bridgwater Road
Bristol
BS99 7NH
Registered office
Juxon House
100 St Paul’s Churchyard
London
EC4M 8BU
Company Registration Number
02234775
Designed and produced by Radley Yeldar
www.ry.com
www.icgplc.com
Authorised and regulated by the Financial Conduct Authority
I
n
t
e
r
m
e
d
i
a
t
e
C
a
p
i
t
a
l
G
r
o
u
p
p
l
c
A
n
n
u
a
l
R
e
p
o
r
t
&
A
c
c
o
u
n
t
s
2
0
1
3