Specialist
Specialist
asset
asset
manager
manager
Intermediate Capital Group PLC
ANNUAL REPORT & ACCOUNTS 2016
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CONSISTEnT
CONSISTEnT
growth
growth
ICG AT A GLANCE
2727
year track record
+ Read more on page 7
Operating out of 11 countries
11
+ Read more on page 7
15
investment strategies
+ Read more on page 4
Assets under management
€21.6bn
+ Read more on page 14
AUM
2001
2016
Profit before tax
£158.8m
ordinary Dividend
per share
23.0p
+ Read more on page 6
STRATEGIC OBJECTIVES
We are committed to growing our specialist asset management
activities, capitalising on our global reach and our reputation for
high performance and innovation to deliver increased
shareholder value.
1
2
3
Grow assets
under management
Invest selectively
Manage portfolios to
maximise value
+ Read more on page 10
+ Read more on page 12
+ Read more on page 12
ICG ANNUAL REPORT & ACCOUNTS 2016
IN THIS REPORT
STRATEGIC REPORT
Chairman’s statement
An introduction from the Chief Executive
How we create value
How we allocate our capital
Why we are different
Our markets
How we have performed
Chief Executive Officer’s review
Chief Financial Officer’s review
Managing risk to deliver our strategy
Principal risks and uncertainties
Our resources and relationships
GOVERNANCE REPORT
Letter from the Chairman
Board of Directors
Our corporate governance framework
The Board’s year
Training and induction
Board evaluation
Engagement with stakeholders
Audit Committee report
Risk Committee report
Nominations Committee report
Remuneration Committee report
Compensation summary
Directors’ remuneration policy summary
Annual report on remuneration
Directors’ report
Directors’ responsibilities
1
2
4
6
7
8
10
14
20
28
32
36
40
42
44
46
48
49
50
51
60
66
69
74
78
84
94
101
FINANCIAL STATEMENTS
Auditor’s report
Consolidated income statement
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
Notes to the accounts
OTHER INFORMATION
Glossary
Shareholder and Company information
103
110
111
112
113
114
116
164
166
/ 1
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
CHAIRMAN’S STATEMENT
Another strong year of successful delivery against our
strategic objectives.
JUSTIN DOWLEY
CHAIRMAN
I am pleased to report another strong year
of successful delivery against our strategic
objectives, reinforcing our confidence in the
health of the business and our commitment
to generating long term shareholder value.
The market environment continues to
offer attractive opportunities to grow, and
further expand our range of long term value
creating strategies, in the new financial year
and beyond.
Meeting on 21 July 2016. The ex-dividend,
record and payment dates for the special
dividend and the share consolidation
factor will be set out in the AGM circular
to shareholders.
DELIVERING OUR STRATEGY
We continue to make significant progress
in growing our specialist asset manager
franchise across geographies and
strategies. Highlights of the last financial
year have included:
– Increasing funds under management,
exceeding our fundraising target
– Delivering and growing our
existing strategies
– Investing in new strategies that are
expected to drive future growth
– Increasing fund management profits
– Returning surplus capital to shareholders
One key success has been the continued
expansion of the Secondaries asset class.
Initiated in November 2014 through the hire
of a dedicated team; we have now completed
three transactions and had a successful
first close of our Strategic Secondaries
Fund. Our commitment to this asset class
was augmented in February 2016 with the
acquisition of the management contract of
the listed private equity investment trust,
Graphite Enterprise Trust (since renamed
ICG Enterprise Trust).
The growth in our fund management
franchise has been driven primarily
through supporting existing strategies,
organic expansion into new strategies
and team hires. However, the acquisition
of the ICG Enterprise Trust management
contract is an example of our willingness
to make acquisitions where the right
opportunity exists.
DIVIDEND AND CAPITAL RETURN
The Board is focused on maintaining a
capital structure that is appropriate to
deliver our business strategy. In July 2014,
the Board committed to re-gearing the
balance sheet to between 0.8x and 1.2x by
July 2016 and, with the planned growth of
the fund management business, increasing
return on equity to over 13%. Since May 2014
we have returned £400m to shareholders
through special dividends and share
repurchases, whilst maintaining sufficient
resources to deliver attractive growth in our
fund management business.
The Board recommends a final ordinary
dividend for the year of 15.8p, making a
total for the year of 23.0p (2015: 22.0p), an
increase of 4.5% on prior year. The Board
has decided to maintain the dividend
reinvestment plan (DRIP). If approved by
shareholders, the final dividend will be paid
on 5 August 2016 to shareholders on the
register as at 17 June 2016.
In addition the Board is recommending
a further capital return of £200m to
shareholders by way of special dividend of
63.4p per share. Once this proposed further
capital return has been completed, subject
to shareholder approval, we will have met the
gearing and return on equity targets set out
two years ago. We therefore do not expect
any further special dividends thereafter.
The special dividend, with an associated
share consolidation to maintain, as far as
possible, the share price before and after
the special dividend, will be subject to
shareholder approval at the Annual General
CHANGES TO THE BOARD
As announced in February 2016, I will be
standing down as your Chairman at the
Annual General Meeting. It has been an
honour to have served on your Board for
more than 10 years, the last six as your
Chairman. During my time as Chairman I
am proud to have overseen the Company’s
successful transition from being primarily an
investment company to becoming a leading
specialist asset manager.
I will be succeeded as Chairman by Kevin
Parry, our Senior Independent Director,
subject to shareholder approval. Kevin has
a wealth of relevant industry experience and
deep knowledge of the Company’s sector
and business, which will contribute greatly to
the future success of ICG.
Peter Gibbs will succeed Kevin as Senior
Independent Director and a search
is underway for a new Non Executive
Director who will be the new Chair of the
Audit Committee.
Finally, on a personal note, I would like to
thank my colleagues on the Board and in
management, past and present, for their
support, and wish Kevin and his team every
success as they lead ICG’s continued growth
and development.
This Strategy Report, on pages 1 to 38, has
been approved by the Board of Directors
and is signed on its behalf by:
Justin Dowley
Chairman
23 May 2016
ICG ANNUAL REPORT & ACCOUNTS 2016
BUSINESS
MODEL
MARKETPLACE
& STRATEGY
GROUP
PERFORMANCE
GROUP
RISKS
RESOURCES &
RELATIONSHIPS
AN INTRODUCTION FROM
THE CHIEF EXECUTIVE
1
GROW ASSETS
UNDER
MANAGEMENT
3
Manage
portfolios to
maximise value
2
invest
selectively
CHRISTOPHE EVAIN
CHIEF EXECUTIVE OFFICER
This has been another year of considerable
achievement with total assets under
management exceeding €20bn for the
first time, and record Fund Management
Company (FMC) profits. Although a fair
value loss on derivatives has resulted in
Group profits of £158.8m down from
£178.5m in the prior year.
The Group has made substantial progress
in its transformation into a diversified
alternative asset manager. Our business
model is to continue to increase the scale,
profitability and sustainability of our fund
management business and to optimise the
use of our capital to support that of third
party investors. We are confident that the
success of our business model and the
strategic direction of the Group will be
further demonstrated in the coming year.
STRONG FUNDRAISING YEAR
Fundraising momentum has, as expected,
remained strong throughout the financial
year with €5.2bn of new money raised
in a favourable fundraising environment.
The appeal of alternative asset classes to
investors remains unabated and attracts
a number of new hopeful entrants to the
market. Within this market, a track record built
upon fund and investment performance and
a diverse offering are immense competitive
advantages which appeal to all investors
and allow them to concentrate on a smaller
number of relationships. In this context, our
long established reputation for consistency
and performance has enabled us to raise
a total of €11.6bn of new money in the last
two years.
During the year we had closes for our larger,
well established European funds – European
Mezzanine and Senior Debt Partners
– at their €3.0bn maximum size, raising
€2.7bn in the year. The remaining €2.5bn
of fundraising was across ten strategies,
including final closes for our North
American and Japanese mezzanine funds.
Whilst conditions for fundraising in Asia
Pacific and for CLOs were more challenging,
the 20% increase in total AUM demonstrates
the growing diversity of our offering and
the successful development of our fund
management platform.
We have previously indicated that the
lead time for marketing new strategies is
significantly longer than for established
funds where we have built a long standing
track record. This was demonstrated by the
contrasting experiences we encountered
this year in raising our successful North
American Debt Fund and European
Mezzanine Fund. For our European
Mezzanine Fund, four initial meetings were
sufficient to generate one investor, with
three months separating first and final
closes. In contrast, we held 12 initial meetings
for every investor in our first North American
Fund, resulting in 18 months between first
and final closes. Whilst we are proud of the
result, having raised a first fund ahead of our
initial target, we are even more encouraged
by the prospects for successor funds.
Going forward we would underline that the
current focus of our fundraising is on our
newer strategies and, while we are pleased
with progress to date, we expect that total
new money raised in financial year 2017 will
likely be below the amount raised in each of
the last two years.
NAVIGATING OUR STRATEGIC REPORT
BUSINESS
MODEL
MARKETPLACE
& STRATEGY
GROUP
PERFORMANCE
GROUP
RISKS
RESOURCES &
RELATIONSHIPS
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
2 / 3
A key focus remains developing our
current strategies to profitable maturity;
however, we will continue to seek new
strategies to add to our portfolio. The most
efficient add-ons will be developing
new funds around existing teams but we
will constantly review opportunities to
bring new teams in. New strategies lay
the foundations to increase the diversity
and long term profitability of our fund
management business.
CAPITAL DEPLOYMENT ON TRACK
In this competitive investment market,
we are delighted to have identified
attractive opportunities to sustain an
appropriate investment pace across
all our direct investment funds, whilst
maintaining investment discipline. Of our
funds currently in investment mode, 77%
of AUM charge fees on an invested
capital basis. The successful deployment
of this capital directly contributes to
the growth in profitability of our fund
management business.
ROBUST FINANCIAL DISCIPLINE
Creating value for our shareholders requires
that we continue growing and broadening
the product range of our business. To that
end, we are committed to selectively hiring
new teams, launching new products and
strategies and allocating capital to these new
strategies. To do this we need to maintain
broad access to financing sources and
debt markets, and ensure the Group can
withstand periods of market stress.
In order to have consistent and stable
access to financing, we have diversified our
sources of financing with an appropriate
mix of maturities. We raised £845m during
the year, of which £270m was in US private
placements, £421m extending facilities with
existing relationship banks and £154m in
bank facilities with three new relationship
banks, continuing our approach of
diversifying our funding sources.
OUTLOOK
After two years that have benefitted from
fundraising for our larger European funds,
we are confident momentum will continue
as we target final closes on Longbow
Fund IV, Asia Pacific Fund III and Strategic
Secondaries. In addition, we have a strong
pipeline of new funds to raise. However, as
these funds are smaller and strategies newer
than those of funds raised in the last two
years, we expect the total new money raised
to be lower.
Our fundraising success generates
substantial capital to deploy across our
investment strategies and we continue to
see attractive investment opportunities
across our strategies and regions. We size
our funds to the market opportunity and aim
to deploy the capital in line with the required
investment run rate. We are therefore highly
confident that we will maintain our current
deployment pace and find investment
opportunities with the appropriate risk/
return balance, without compromising
on our investment discipline in this highly
competitive market.
In addition, we do not expect any negative
change in the performance of our assets
and funds. We will continue to manage these
investment portfolios actively, working with
management and sponsors on the delivery
of their business plans. This is critical to
maximising the exit value of our portfolio
assets. We will maximise returns in older
funds by realising assets to crystallise value
for our fund investors and our shareholders.
Whilst the timing is not always in the Group’s
control and therefore remains uncertain, we
foresee the pace of realisations that we have
seen in the last 18 months continuing in the
current year.
Overall, we are very confident in our ability
to deliver on our strategic objectives and to
increase long term shareholder value.
ICG ANNUAL REPORT & ACCOUNTS 2016
BUSINESS
MODEL
MARKETPLACE
& STRATEGY
GROUP
PERFORMANCE
GROUP
RISKS
RESOURCES &
RELATIONSHIPS
HOW WE CREATE VALUE
WE OFFER
ACCESS TO
ALTERNATIVE
SOURCES OF
STABLE YIELD
BUILDING PROFITABLE,
LONG TERM GROWTH
We are a specialist asset manager of €21.6bn
of assets in third party funds and proprietary
capital. Our funds invest across four broad
asset categories, providing finance for
corporate investments, including private
debt and minority equity; capital market
investments of public and private debt;
real assets, principally real estate debt;
and private equity secondaries funds.
We manage these assets using our large,
experienced and specialist investment
teams operating from our strong local
network of offices, supported by our central
infrastructure teams.
GROWTH FACILITATED BY OUR
BUSINESS MODEL
Our business model enables the Group to
deliver its strategic objectives as a third
party asset manager, principally of closed
end funds. Our FMC is the operating
business of the Group, sourcing and
managing investments on behalf of these
third party funds and for the Investment
Company (IC). Managing third party capital
generates long term fee income when it
is either committed or invested. The fee
structure depends on the product and whether
the product is in its investment or realisation
phase. If funds exceed performance targets
additional fees can be earned.
What we do is not unique, but the breadth
and depth of our experience make us a
specialist among asset managers.
The IC uses our balance sheet funding
to support fundraising and generate
investment income.
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
CORPORATE
INVESTMENTS
Senior debt,
mezzanine and
equity investments
Europe, Asia Pacific
and North America
regionally focused
funds
CAPITAL
MARKET
INVESTMENTS
CLO, loan mandate
and other credit funds
Europe and North
America regionally
focused funds
REAL ASSET
INVESTMENT
Real estate investment
in senior debt,
subordinated debt
and equity
UK commercial real
estate investment
SECONDARIES
Investment in
secondaries
PE transactions
European and
North America
investment remit
DISTRIBUTION
ICG’s in house distribution team raises third party capital for new funds
THE INVESTMENT
COMPANY (IC)
The IC is the investment
body of ICG plc
BALANCE SHEET
INVESTMENTS
The IC co-invests
alongside third party
funds at predetermined
ratios, invests in funds
and provides capital
to launch and
develop new funds
INFRASTRUCTURE
Infrastructure teams support all aspects of the business covering operations, finance, HR, legal, compliance, risk and internal audit
The strategic asset classes are reported according to their financial profile as
explained in the Chief Executive Officer’s review on page 14
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
4 / 5
WE ARE EXPERIENCED
INVESTORS, BALANCING
RISK AND RETURN
WE REMAIN FULLY
ENGAGED WITH THE
ASSET UNTIL THE
INVESTMENT IS REALISED
INVESTING SELECTIVELY
Our well established and highly disciplined investment processes, industry
sector specialisations and knowledge of local markets underpin every
investment decision.
The Group’s Executive Committee oversees the investment process, setting
and monitoring the investment parameters for each fund. This ensures a
consistency of approach across the Group. Investment Committee members
are appointed based on their expertise in the product area.
We seek to balance risk and return, using detailed research and credit analysis
to inform our judgement and create well diversified investment portfolios.
We make full use of the specialist industry experience of our credit fund teams
and the insights, knowledge and relationships of our local investment teams
to identify attractive investments.
MANAGING ASSETS TO MAXIMISE VALUE
Our investment teams remain fully engaged with every asset throughout its
life cycle. The level of oversight reflects the risks inherent in the assets being
managed. The monitoring of publicly traded lower risk senior debt positions
is light touch compared to the detailed and regular interactions with the
management and other investors in equity and minority equity positions.
Our mezzanine and private equity secondaries teams have frequent updates
with management and sponsors and receive regular and timely management
information. Where appropriate our teams proactively work to resolve
problems with the aim of preserving the value of our investment.
On at least a quarterly basis, the Investment Committees review the
performance of all investments with the relevant investment team.
WE GENERATE INCOME TO
REINVEST IN THE GROWTH
OF OUR BUSINESS AND
RETURN TO SHAREHOLDERS
USING OUR CAPITAL TO INCREASE SHAREHOLDER VALUE
We provide returns to our fund investors, and generate revenue for the
Group, to reinvest to drive shareholder value.
We aim to maximise returns by proactively realising assets once they
reach maturity within the portfolio. The realisation of an asset crystallises
accumulated interest and capital growth, contributes to generating
performance fees and supports our longstanding investment track record.
You can read more about the principal risks associated with how we create value on
pages 32 to 35
ICG ANNUAL REPORT & ACCOUNTS 2016
BUSINESS
MODEL
MARKETPLACE
& STRATEGY
GROUP
PERFORMANCE
GROUP
RISKS
RESOURCES &
RELATIONSHIPS
HOW WE ALLOCATE
OUR CAPITAL
We are committed to financial
discipline, both in terms of
the quality of investment
and strategic allocation of
resources, as well as ensuring
that an appropriate capital
structure is maintained.
Capital is allocated to strategies
that are expected to create
long term value.
INVESTING IN GROWTH
We allocate capital to grow the business
in two ways. The Group invests with the
higher return funds it manages, generating
attractive long term investment income
streams for the IC. In addition, the Group
acts as an anchor investor, providing capital
to demonstrate new strategies, developing
a track record to support fundraising.
Once these new strategies are established,
the Group’s investment is reduced and the
capital redeployed. The ability to support
the establishment of new strategies is a
competitive advantage. At times, the Group
will invest for growth through acquisition
either through acquiring teams or more
established fund management businesses.
SHAREHOLDER DISTRIBUTIONS
We seek to maximise shareholder value by
utilising our available capital to prioritise
investment in opportunities which over a
number of years will add sustainable income
streams to the business and optimise our
return on equity (ROE).
We understand that, alongside investing
in growth, shareholders place value on
regular and sustainable dividend payments
and we remain committed to a progressive
dividend policy. To the extent that we
believe there is any sustained material excess
capital, we will consider returning capital to
our shareholders.
The aim of the Company’s dividend
policy is to increase, or at least maintain,
the ordinary dividend per share year on
year. The level of growth is dependent on
the cash performance of the underlying
business. Prior to declaring dividend
payments the Board ensures there are
sufficient distributable reserves and funds
available to make the payment and considers
the impact on regulatory capital, debt
covenants and debt ratings. These are not
currently constraints on making ordinary
dividend payments.
In delivering the Group’s strategic
objectives, the size and nature of the
business will evolve which may impact
regulatory capital and debt rating
calculations. Therefore, following the special
dividend announced with these results,
we do not expect there to be additional
material excess capital to be returned to
shareholders in the near future.
ICG OPERATING MODEL
INVESTING
– Fund deployment
– Fund performance and track record
– Impairment target of less than 2.5% of opening book
FUNDRAISING
– Gross fundraising to average €4bn per annum
– Maintain fee level
– Selective product expansion
S
D
N
U
F
W
E
N
N
I
T
N
E
M
T
S
E
V
N
I
IC PROFITABILITY
– IC gross return on assets
– Manage risk across all portfolios
FMC PROFITABILITY
– FMC operating margin
– Manage risk across all portfolios
CAPITAL ALLOCATION
– Return on equity above 13%
– Gearing 0.8 – 1.2x
BUSINESS GROWTH
– Reinvest to drive ROE
SHAREHOLDER RETURNS
– Dividend + Return surplus cash
6 / 7
These relationships have provided a
significant number of both follow-on and
new investment opportunities for our funds.
Close monitoring of investments enables
us to identify risks within the portfolio at an
early stage. Our investment professionals
have experience in default situations and
in the recovery of investments which we
use to maximise our returns from these
investments. Our investment and monitoring
processes have supported our outstanding
track record since inception, with our funds
performing strongly against their peers.
LONG TERM APPROACH
We support our investments over the long
term. The availability of flexible capital,
both from our balance sheet and the funds,
supports sponsors and management in
achieving profit and cash generation which
enables us to achieve outstanding returns
on realisation. This has been the basis of our
long term success and enviable track record.
SPECIALIST MARKET SKILLS
The success of our business model is
dependent on the skills and experience
of our people. As illustrated above, their
market knowledge, long term perspective
and strong relationships enable us to be a
specialist amongst asset managers.
You can read more about the resources and
relationships which support our business model
on pages 36 to 38
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
WHY WE ARE DIFFERENT
We are a specialist amongst
asset managers, enabling us to
grow our business, optimise
our balance sheet and maximise
value for shareholders.
AN OUTSTANDING TRACK RECORD
The combination of our outstanding
investment track record over 27 years,
expanded product range and the
support of a strong balance sheet are our
significant differentiators when raising third
party money.
Our client relationships, enhanced by the
presence of our own distribution team, have
continued to grow in breadth and depth,
with recent fundraisings having a more
geographically and institutionally diverse
investor base. Our dedicated marketing and
distribution team are enabling us to build
stronger and broader relationships which
support our strategic priority of growing
assets under management.
FLEXIBLE INVESTMENT OPTIONS
We design fund investment strategies that
meet the investment opportunities we have
identified in the market. This provides fund
investors with direct access to specific asset
classes and generates returns for the benefit
of our fund investors and shareholders.
We can respond to market opportunities
because our robust decision making process
can be nimble and efficient when required.
The skills, knowledge and market experience
of our people underpins this process.
DISCIPLINED AND ANALYTICAL
APPROACH
Our consistent, efficient and robust
investment culture across our products is
based on disciplined investment processes,
core credit principles and a strong focus on
capital preservation.
Each investment opportunity is assessed
on its own merits and in the context of the
expected risk and return requirements of
the fund. We particularly consider limiting
the downside risk of the investment and
the underlying focus is on generating
cash returns through the life of the asset.
Our investment strategy is underpinned by
rigorous risk analysis.
LOCAL KNOWLEDGE AND
RELATIONSHIPS
We have local teams and sector specialists
who speak the languages and understand
the dynamics of the markets in which they
operate. These investment teams have
established our reputation as a trusted
and experienced partner with innovative
structuring skills. Our investments are
tailored to provide a financing solution that
fits the cash flows of the underlying asset to
maximise value for our investors. Our local
teams have built long standing relationships
with local sponsors, banks, advisers and
management teams, providing deal flow and
early access to investment opportunities.
These are significant differentiators in
our investment markets and contribute to
maintaining and enhancing our outstanding
track record.
ACTIVE INVOLVEMENT
Post investment monitoring is a key focus
of both our investment teams and the
Investment Committees. Our investment
professionals and credit analysts are
responsible for attending management
meetings, reviewing management data and
following industry trends.
We typically seek Board attendance rights
from portfolio companies in our mezzanine
funds, currently attending over 80% of
the Boards of our portfolio companies.
Board representation assists in effective
portfolio management of illiquid assets as it
provides access to management, additional
insight into financial information and gives
the opportunity to build and strengthen
relationships with stakeholders.
ICG ANNUAL REPORT & ACCOUNTS 2016
BUSINESS
MODEL
MARKETPLACE
& STRATEGY
GROUP
PERFORMANCE
GROUP
RISKS
RESOURCES &
RELATIONSHIPS
OUR MARKETS
Alternative asset classes are attractive to institutional investors for
their enhanced returns and diversification opportunities. We are in
a strong position to capitalise on this market opportunity.
We believe the investment environment
for alternative sources of capital is
more attractive in the midmarket
corporate sector, in which we specialise.
Banks remain constrained in their ability
to substantially increase lending due
to increased regulatory controls and
unresolved legacy bad debts from the
global financial crisis, particularly in
Europe. While the largest companies are
able to access debt markets and bank
financing, many midmarket companies
do not have access to traditional
funding markets and are a source of
attractive opportunities.
The sourcing of deals in the midmarket
sector, both corporate and real estate,
relies on strong relationships, local
networks, sector specialists and being
highly selective. These are our core skills
and, along with our ability to make larger
investments than many of the newer
entrants to the market, mean we are able
to continue to source attractive deals in a
competitive market.
Therefore, we are in a strong position
to facilitate both the demand from
institutional investors for higher yielding
investments and the demand from global
midmarket companies for nonbank sources
of capital.
These macroeconomic trends influence
each of our strategic asset classes in
different ways.
MARKET REVIEW
Increasingly, the role of alternative asset
managers such as ICG is to channel
capital from the large pools of savings
managed by institutional investors, be they
pension funds, insurance companies or
sovereign wealth funds, towards higher
return alternative investments that these
investors cannot reach through their
traditional networks. Our success will
therefore equally result from our ability to
access these investors and attract them
into our growing number of strategies,
and our skills at deploying this capital into
attractive, well considered investments
from a risk and return perspective.
Demand is growing in the institutional
market mostly due to institutions finding
it increasingly difficult to achieve their
long term investment objectives through
traditional investment strategies, such
as sovereign bonds and equities, when
alternative assets offer high returns over
the long term. We have seen central banks
continuing with their quantitative easing
policies during the year, keeping sovereign
bond yields near historically low levels.
Furthermore, global growth is expected
to remain subdued as there remain
unresolved structural issues in Europe and
a slower pace of growth in China. With this
backdrop, global bond yields are expected
to remain low and returns from traditional
asset classes lower than those achieved in
the period before the global financial crisis.
We expect the positive trend in favour of
alternative asset classes to persist.
In addition, the growing demand for
higher yielding alternative asset products
is driven by the expected increase in the
absolute size of institutional assets under
management globally. There are two key
trends underpinning this expectation.
First, it is projected that 21 new sovereign
investors will emerge as the wealth of
developing nations increases. These new
investors will require diversification in
asset allocation. Secondly, the trend of
ageing populations in developed nations
requires pension funds to focus on capital
preservation and generation of higher
returns to meet their long term liabilities
in the areas of retirement and healthcare.
In this environment, investor demand for
alternative sources of return is expected to
remain strong.
Our funds offer access to challenging
private and less liquid asset classes as
well as high yielding liquid specialist
markets where our teams have consistently
generated high risk adjusted returns.
The growth and expansion of our business
by investment strategy and geography
provides a diversity of exposure allowing
investors to choose a range of potential
risk-reward and geographic profiles.
The attractiveness of the market is
resulting in increasing competition as
new entrants seek to capitalise on the
growing demand for alternative assets.
From a fundraising perspective, investors’
selection processes are rigorous and
preference is given to established
managers, like ICG, with a strong track
record, credibility and infrastructure.
From an investment perspective, the
inflow of capital into the alternative asset
market means our investment markets
remain competitive.
Strong Growth in Alternative
Asset Classes
$ Trillion
18
16
14
12
10
8
6
4
2
0
04
07
13
20F
(Base case)
20F
(High case)
Private Equity
Real Assets
Hedge Funds
Source: PwC Market Research Centre analysis based on
Preqin, HRH and Lipper data
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
8 / 9
CORPORATE INVESTMENTS
Demand for higher yielding assets has
increased competition for our corporate
investment funds. However, these
investment markets are private and
relationship driven and as a result there
are significant hurdles for new entrants
who may not be able to offer the certainty
of funding or flexibility of approach of
existing players. A consequence of the
capital available for investment in this
area is the increased opportunity for us
to realise assets at attractive returns,
although it does mean that the environment
for investing in new assets is competitive.
Our local knowledge and long standing
relationships are a real advantage in
this market.
Our European funds have seen a good
flow of opportunities, with a particularly
strong conversion rate for our Senior Debt
Partners Fund. In the US, our newly closed
North American Fund has benefitted
from the impact of the macroeconomic
uncertainties on credit markets and has
had a successful investment year. We have
remained highly selective in Asia as we
focus on fundraising Asia Pacific III and
in view of the difficulties encountered by
China and possible knock on effects across
the region.
CAPITAL MARKETS
Leverage loan and high yield markets
in the US and Europe have seen wide
fluctuations since the summer of 2015.
Negative perceptions of China, the
fear of a global economic slowdown, a
collapse in the price of commodities, and
oil in particular, as well as the uncertainty
surrounding Brexit have all had an impact
on capital markets which has been
countered by loose monetary policies.
In the US the low oil price has had a
significant impact as oil and gas companies
are a material part of these markets.
Concerns about credit quality have
reduced capital available for investment
with a consequential increase in the cost of
debt. CLO issuance dramatically reduced
when the yields demanded by new
investors increased and thus remained at
lower levels compared to recent years.
In Europe the continued low interest rate
environment has resulted in a broader
range of companies seeking to capitalise
on the demand for yield. Weaker than
expected economic growth combined
with some stretching financing structures
has resulted in concerns that risk has been
mispriced and has led to an increase in the
returns being demanded by new investors.
Loan and high yield issuance has reduced
compared to prior years as a result.
This has also impacted European CLO
issuance which is significantly lower than in
previous years.
REAL ASSETS
Our real assets focus is currently on the UK
commercial real estate market which bears
many of the characteristics of the wider
European loan market. Substantial capital
is available for investment while banks
continue to reduce their overall exposure
to real estate. As with our other investment
strategies, competition for larger assets
remains high. However, our smaller asset
focus, deep knowledge of the UK market,
strong industry relationships and flexible
approach mean we are able to originate
attractive deals.
The investment market benefits from
strong occupier demand driven largely by
record levels of employment and reduced
levels of new developments. This has led
to low vacancy rates, growing income and
expectations of further growth. The strong
investment market of calendar year 2015
has slowed in Q1 2016 with investors
concerned by economic growth, linked
to Brexit, and overpaying in the current
market. Capital values have grown by
over 8% in 2015 and by over 25% since
April 2013 yet we believe the market as
a whole remains fairly valued with good
investment opportunities.
SECONDARY INVESTMENTS
There are approximately 2,644 private
equity fund managers currently seeking
capital for new funds, targeting new
assets under management of $912bn.
Our Enterprise Trust invests in midmarket
private equity funds, part of this large
sector. Whilst competition for the best
performing funds is high, there are
significant opportunities to deploy capital.
The team has an excellent reputation and
we believe in the potential to develop this
business further.
The value of third party capital committed
to private equity funds, either as undrawn
or invested, is estimated to be $2.6tn.
Of this, a significant proportion of
assets are held in funds past their typical
holding period, with little incentive for the
incumbent manager to sell these assets
in the M&A market. The value added end
of the secondaries market has evolved to
give investors in underperforming funds
the opportunity to exit their commitments
enable new investors to access these
assets thereby increasing the availability
of investment opportunities. Our strategic
secondaries strategy is designed
specifically to address this opportunity
and has developed a niche position in
the highly complex and structured part
of the market where we have abundant
opportunities to invest.
Private Equity Asset
performance
Index
450
Real estate asset
performance
Index
450
ALTERNATIVE ASSET
CLASSES OUTPERFORM
TRADITIONAL ASSET
CLASSES
400
350
300
250
200
150
100
50
0
400
350
300
250
200
150
100
50
0
0
0
c
e
D
1
0
c
e
D
2
0
c
e
D
3
0
c
e
D
4
0
c
e
D
5
0
c
e
D
6
0
c
e
D
7
0
c
e
D
8
0
c
e
D
9
0
c
e
D
0
1
c
e
D
1
1
c
e
D
2
1
c
e
D
3
1
c
e
D
4
1
c
e
D
0
0
c
e
D
1
0
c
e
D
2
0
c
e
D
3
0
c
e
D
4
0
c
e
D
5
0
c
e
D
6
0
c
e
D
7
0
c
e
D
8
0
c
e
D
9
0
c
e
D
0
1
c
e
D
1
1
c
e
D
2
1
c
e
D
3
1
c
e
D
4
1
c
e
D
PrEQIn Buyout Index
S&P 500 TR Index
PrEQIn Real Estate Index
FTSE 350 RE Supersector index
Source: Preqin Quarterly Private Equity Update Q3 2015
ICG ANNUAL REPORT & ACCOUNTS 2016
BUSINESS
MODEL
MARKETPLACE
& STRATEGY
GROUP
PERFORMANCE
GROUP
RISKS
RESOURCES &
RELATIONSHIPS
HOW WE HAVE PERFORMED
AIM
WHAT WE MEASURE
WHY WE MEASURE IT
1 GROW ASSETS
UNDER
MANAGEMENT
We aim to increase our third party
assets under management to
maximise the profitability of the
business by:
– Consolidating and broadening
our existing strategies
– Expanding our client base and
existing products geographically
– Expanding our product range
through selective acquisitions
and team hires
We will capitalise on our strong
track record, in house distribution
team and ability to develop
new investment strategies
through utilising our balance
sheet strength.
TOTAL AUM (€M)
€21.6Bn
Total AUM
New AUM
21,582
18,012
11,408
12,930
12,980
2,260
3,847
681
6,398
5,179
12
13
14
15
16
WEIGHTED AVERAGE FEE RATE (%)
0.88%
1.02
0.80
0.86
0.91
0.88
12
13
14
15
16
FMC OPERATING MARGIN (%)
41.9%
41.3
40.1
40.8
41.9
35.1
12
13
14
15
16
The Group earns fees on AUM once they are
either committed or invested, depending
on the fund. The growth in AUM through
raising new funds (including jointly managed
funds) is a lead indicator of revenue growth
for the business.
The Group has a target of raising an
average of €4bn of new third party funds
(gross inflows) per annum over the
fundraising cycle.
The Group monitors the weighted average
fee rate on fee earning AUM to ensure that
AUM is profitable. Fees reflect the risk/
return profile of the underlying asset and are
typically higher for direct investment funds.
This KPI has been amended in the current
year to measure the fee rate on total fee
earning AUM rather than purely on new
AUM. The Board believes the revised KPI is a
more appropriate measure of profitability as
it enables shareholders to assess the trend in
total fee rate across the Group’s strategies.
The prior year KPI, the weighted average
fee rate of new AUM, would have been
0.94%, reflecting the proportion of higher
fee earning direct investment funds within
new AUM.
The operating margin of the FMC is a
measure of the efficiency and scalability
of the business. The Group has invested
substantially in its growth and the return
on this investment is measured through the
operating margin. The Group is targeting a
margin above 40%.
TOTAL AUM (€M)
WEIGHTED AVERAGE FEE RATE (%)
FMC OPERATING MARGIN (%)
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
10 / 11
HOW WE PERFORMED
2017 PRIORITIES/ASSOCIATED RISKS
Fundraising is expected to be slower than for the last two years which
benefited from raising our larger European funds. Our focus in FY17 is
to complete the fundraising for Asia Pacific Fund III and ICG Longbow
IV, and to raise funds for our newer strategies.
– AUM has increased during the year with another successful
fundraising year outstripping the pace of realisations
from older funds. Going forward, the Group expects that
fundraising will continue to exceed realisations and lead to
further increases in AUM
LINK TO CASH PROFIT (SEE PAGE 78)
– Fees received on AUM, either committed or invested
depending on the fund, contribute to cash profit in the year
they are received
– The weighted average fee rate on fee earning AUM is
marginally lower in the current year reflecting the mix of the
lower fee generating credit and senior debt real estate funds
versus the higher fee earning mezzanine and secondary funds
LINK TO CASH PROFIT (SEE PAGE 78)
– Fees received on AUM, either committed or invested
depending on the fund, contribute to cash profit in the year
they are received
ASSOCIATED PRINCIPAL RISKS
– Loss or missed opportunity as a result of major external change
– Failure to raise third party funds
– Failure to meet financial obligations
– Loss of a ‘key person’ and inability to recruit into key roles
– Negative financial or reputational impact arising from a regulatory or legislative failing
– Technology and information security risks
– Failure of key business processes
– FMC operating margin has increased in the year as funds which
charge fees on invested capital are invested thereby generating
fee income. Our credit and real estate funds have this fee
earning profile
LINK TO CASH PROFIT (SEE PAGE 78)
– Fees received on AUM, either committed or invested
depending on the fund, contribute to cash profit in the year
they are received
– Cash profit is reduced by pre-incentive operating expenses
The definitions for non GAAP
performance measures can be found in
the Glossary on pages 164 and 165
ICG ANNUAL REPORT & ACCOUNTS 2016
BUSINESS
MODEL
MARKETPLACE
& STRATEGY
GROUP
PERFORMANCE
GROUP
RISKS
RESOURCES &
RELATIONSHIPS
HOW WE HAVE PERFORMED
CONTINUED
AIM
WHAT WE MEASURE
WHY WE MEASURE IT
2
INVEST
SELECTIVELY
We aim to invest our assets under
management on a selective basis
to maximise risk adjusted returns.
We will utilise:
– The sector specialisations
of our credit teams
PERFORMANCE OF PORTFOLIO COMPANIES (%)
69.8%
64.6
61.0
66.7
73.4
69.8*
12
13
14
15
16
– Our local network of originators
* Number of portfolio companies performing above their
– A disciplined approach
to considering each
investment opportunity
prior year.
A measure of investing selectively is the
investment performance of our funds.
However, as a specialist asset manager,
reliable comparable data is not readily
available. For our mezzanine direct investment
funds the best indicator of the quality of our
investment decisions is the percentage of
portfolio companies who are increasing their
EBITDA compared to the prior year.
As the diversity of our funds continues to
grow, the Board may consider replacing this
KPI with one that encompasses the wider
fund management business.
3 MANAGE
PORTFOLIOS TO
MAXIMISE VALUE
We aim to manage our portfolio to
maximise returns on invested capital.
By doing so we build on our strong
track record and generate capital to
invest in new products:
– Reviewing the performance of each
investment at least quarterly
– Engaging regularly with
management and sponsors
– Proactively working out problems
where appropriate
* Adjusted for £45m one off release
of previously accrued costs in
relation to the termination of legacy
remuneration schemes.
** Adjusted for £20.3m one off benefit
from the Employee Benefit Trust (EBT)
Settlement and excludes the impact of the
consolidation of credit funds required
under IFRS 10.
*** Adjusted for £2.3m one off benefit from
the EBT Settlement and excludes the
impact of the movement in deferred
consideration payable on the Longbow
acquisition and the consolidation of credit
funds required under IFRS 10.
IMPAIRMENTS (€M)
£39.4M
112.4
70.6
80.0
Impairments are charged when there is a
reduction in the value of an interest bearing
asset. Impairments impact the performance
and returns of a fund. An indicator of fund
performance is the level of impairments
incurred in the IC portfolio which we expect
to be below 2.5% of the opening loan book,
our historical average.
37.6
39.4
12
13
14
15
16
RETURN ON EQUITY (ROE) (%)
12.9%
11.5*
10.2
11.0**
8.9
12.9***
12
13
14
15
16
ORDINARY DIVIDEND PER SHARE (P)
23.0p
19.0
20.0
21.0
22.0
23.0
12
13
14
15
16
Group ROE is a key indicator of our ability
to maximise returns from our business.
However, in any given year, our ROE is
impacted by the timing of realisations
and impairments, which by their nature
are irregular.
The Group has targeted an ROE in excess
of 13% which will be achieved by the growth
of the business and, in the current financial
year, with regearing the balance sheet to
between 0.8x and 1.2x.
The Group’s ability to pay dividends and
return value to shareholders is a measure
of the Group’s ability to generate returns
from our IC portfolio and managing third
party funds.
Further details of the economic model of the business
are provided on page 6.
PERFORMANCE OF PORTFOLIO COMPANIES (%)
IMPAIRMENTS (€M)
RETURN ON EQUITY (ROE) (%)
ORDINARY DIVIDEND PER SHARE (P)
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
12 / 13
HOW WE PERFORMED
2017 PRIORITIES/ASSOCIATED RISKS
– The Group expects at least 60% of the portfolio companies in
its mezzanine direct investment funds to report results above
the prior year. The performance in the current financial year has
been supported by our portfolio companies delivering on their
business plans
LINK TO CASH PROFIT (SEE PAGE 78)
– Income recognised as a result of the performance of
investments is included in cash profit in the year it is received
and not necessarily in the year in which it is recognised through
the income statement
The Group has substantial third party capital to deploy on its investment
strategies. We aim to deploy the capital raised in line with the required
investment run rate, subject to finding investment opportunities with the
appropriate risk/return balance.
The Group will maintain its disciplined approach to investment in a highly
competitive market.
ASSOCIATED PRINCIPAL RISKS
– Loss or missed opportunity as a result of major external change
– Failure to maintain acceptable relative investment performance
– Failure to deploy committed capital in a timely manner
– Loss of a ‘key person’ and inability to recruit into key roles
– Negative financial or reputational impact arising from a regulatory or legislative failing
– Technology and information security risks
– As expected, impairments have stabilised as the Group has
substantially completed working through the weaker assets
within the portfolio affected by the financial crisis. This trend
is expected to continue as the balance sheet now contributes
a lower proportion, compared to third party funds, of
each investment
LINK TO CASH PROFIT (SEE PAGE 78)
– Impairments are deducted from cash profit in the year they
are charged
– ROE has increased in the year due to the return of £300m
to shareholders through a special dividend. The Board has
recommended the return of a further £200m by special
dividend which will increase the Group’s ROE to over 13% on
a proforma basis
LINK TO CASH PROFIT (SEE PAGE 78)
– N/A
– The Group has a dividend policy linked to cash performance
and over the last five years has generated sufficient returns
from the business to grow the ordinary dividend year on year
and return excess capital to shareholders
LINK TO CASH PROFIT (SEE PAGE 78)
– N/A
We will continue to manage our investment portfolios actively, working
with management and sponsors to support the delivery of their business
plans. This is critical to maximising the exit value of a portfolio company.
The Group aims to maximise returns in older funds by realising assets
to crystallise value for our fund investors and for the balance sheet.
The timing of these realisations remains uncertain as it is rarely in the
Group’s control.
ASSOCIATED PRINCIPAL RISKS
– Loss or missed opportunity as a result of major external change
– Failure to maintain acceptable relative investment performance
– Loss as a result of adverse market fluctuations
– Loss as a result of exposure to a failed counterparty
– Loss of a ‘key person’ and inability to recruit into key roles
– Negative financial or reputational impact arising from a regulatory or legislative failing
– Technology and information security risks
– Failure of key business processes
The definitions for non GAAP
performance measures can be found in
the Glossary on pages 164 and 165
ICG ANNUAL REPORT & ACCOUNTS 2016
BUSINESS
MODEL
MARKETPLACE
& STRATEGY
GROUP
PERFORMANCE
GROUP
RISKS
RESOURCES &
RELATIONSHIPS
CHIEF EXECUTIVE
OFFICER’S REVIEW
We continue to make good progress in creating long term
shareholder value by delivering on our three strategic objectives.
We operate in four strategic asset classes,
corporate investments, capital markets, real
assets and secondaries. The funds within
these asset classes are reported based on
their financial profile, consistent with prior
years. The principal difference between
these two classifications is that the Senior
Debt Partners strategy falls within the
corporate investment asset class but, along
with the capital markets funds, are reported
within credit funds below.
1. GROW ASSETS UNDER
MANAGEMENT
A key measure of the success of our strategy
to generate shareholder value from our
fund management business is our ability to
grow assets under management. New AUM
(inflows) is the best indicator to sustainable
future fee streams and therefore increasing
sustainable fund management profits.
We have had another excellent fundraising
year, raising €5.2bn of third party money
spread across each of our strategic asset
classes – corporate investments, capital
markets, real assets and secondaries.
Our strong track record and global investor
demand for our European products enabled
us to raise €2.7bn in the financial year
for ICG Europe Fund VI and Senior Debt
Partners II, allowing our two largest funds
both to close at their maximum €3.0bn size.
Most of our closed end funds have a natural
limit as we size them to the expected
investment opportunity. Therefore our
ability to meaningfully grow assets under
management is dependent on optimising
the size of our existing strategies, raising
significant levels of third party money for our
newer strategies and expanding the range
of strategies on offer. We are therefore
delighted with the progress made during the
year and expect further progress to be made
during FY17 when our focus will initially be
on newer strategies. These typically have
longer fundraising cycles than established
strategies, despite the combined track
record of ICG and the individual fund
managers. We therefore expect, as
previously indicated, that fundraising will
be slower in FY17 but reiterate our target of
raising an average of €4.0bn of new money
per annum over the fundraising cycle.
We also increased assets under management
by £524m (€661m) during the year with the
acquisition of the management contract for
the listed private equity investment trust,
Graphite Enterprise Trust (since renamed
ICG Enterprise Trust).
Realisations, for both our balance sheet
and third party funds, of €2,289m were at
a pace that was broadly in line with that of
the second half of the last financial year.
The income and capital return generated
from these realisations provide cash for the
Group to reinvest in developing its product
range and, in doing so, enhancing the fund
management business.
1
GROW ASSETS
UNDER
MANAGEMENT
3
Manage
portfolios to
maximise value
2
invest
selectively
CHRISTOPHE EVAIN
CHIEF EXECUTIVE OFFICER
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
14 / 15
ICG NOW HAS A MORE
DIVERSIFIED BUSINESS THAN
AT ANY POINT IN OUR HISTORY
AND WE ARE CONFIDENT THAT
WE HAVE INVESTED THE
APPROPRIATE RESOURCES TO
DRIVE FUTURE GROWTH.
CHRISTOPHE EVAIN
CHIEF EXECUTIVE OFFICER
In the 12 month period to 31 March 2016,
AUM increased 20% to €21.6bn as
fundraising inflows more than offset the
outflows from realisations. Third party
funds have increased 23% to €19.3bn, with
the balance sheet portfolio down 3% to
€2.3bn, driven by realisations and foreign
exchange movements.
MEZZANINE FUNDS
Third party mezzanine funds under
management have increased by 14%
to €6.0bn, with new AUM of €1.6bn
outstripping the run off of our older funds.
ICG Europe Fund VI completed its successful
fundraise in the first quarter of the financial
year, only three months after its first close.
The additional €1.2bn raised in the current
year contributed to the fund reaching
its maximum size of €3.0bn, including a
€500m commitment from the balance sheet.
Of the investors committing money to ICG
Europe Fund VI, 41% committed money
to an ICG fund for the first time, with 59%
being existing investors, providing further
evidence that our in house distribution
team are broadening and deepening our
client base.
Elsewhere, both our US Private Debt Fund
and our domestic Japanese Mezzanine
Fund had final closes during the year at or
above target. At $790m (€694m), including
$200m committed from the balance sheet,
our US Private Debt Fund was the largest
first time fund raised of its kind in the US
during 2015.
Fundraising for our third Asia Pacific
fund has, as previously indicated, been
much slower than expected with investors
cautious to make significant asset allocations
to the Asian market. That said we have raised
$484m (€425m) to date, including $200m
from the balance sheet, and anticipate
closing the fund in the first half of the new
financial year.
CREDIT FUNDS
Third party credit funds under management
have increased 20% to €9.1bn, with new
AUM of €2.5bn raised in the period.
Senior Debt Partners, our direct lending
strategy, completed its successful fundraise
during the financial year. The additional
€1.5bn raised in the current year contributed
to the fund reaching its maximum size
of €3.0bn, including a reduced €25m
commitment from the balance sheet.
Senior Debt Partners II demonstrated our
ability to have both an outstanding fundraise
and at the same time be efficient with
our capital allocation. The balance sheet
allocated €50m of capital to Senior Debt
Partners I, which represented 3% of the total
raised, but this was reduced to only 1% in
Senior Debt Partners II.
As detailed in the market review,
macroeconomic conditions have restricted
the number of CLOs we have been able to
issue during the year. We closed two US
CLOs totalling $822m (€755m), including
$45m committed from the balance sheet
during the financial year, further increasing
the operating leverage of our US CLO
business. Since the year end we have priced
a €413m European CLO which is expected to
close in June. Subject to market conditions,
we expect to raise further European and US
CLOs during FY17.
Elsewhere, we raised €319m across our
Alternative Credit and European loans
strategies. In March 2016, we announced
a major investment in the development
of our capital market capabilities with the
appointment of Zac Summerscale from
Babson Capital to head up our Credit Fund
Management business. We anticipate that
this investment will, in due course, lead to an
increase in assets under management in this
asset class.
ICG ANNUAL REPORT & ACCOUNTS 2016
BUSINESS
MODEL
MARKETPLACE
& STRATEGY
GROUP
PERFORMANCE
GROUP
RISKS
RESOURCES &
RELATIONSHIPS
CHIEF EXECUTIVE OFFICER’S REVIEW
CONTINUED
1
GROW ASSETS
UNDER
MANAGEMENT
3
Manage
portfolios to
maximise value
2
invest
selectively
REAL ESTATE FUNDS
Third party real estate funds under
management have increased 22% in the
period to €3.3bn with €897m raised in
the period.
Our largest real estate strategy raised
£356m (€483m) during the year, for its
successor fund, ICG Longbow Fund IV,
taking the total amount raised for the fund
to £720m including £50m committed from
the balance sheet. A final close is expected
in the first half of the new financial year.
Elsewhere, £106m (€144m) was raised in
segregated mandates for the real estate
senior debt strategy. To date we have raised
money for our senior debt strategy through
segregated mandates, but preparatory work
is underway for the launch of a senior debt
fund which would further broaden our UK
commercial real estate offering.
SECONDARY FUNDS
Third party secondary funds under
management have increased by €0.8bn
in the period to €0.9bn. Our Strategic
Secondaries Fund raised $167m (€154m)
during the year, with a further close
expected shortly. The acquisition of the
ICG Enterprise Trust management contract
added a further £524m (€661m) to funds
under management.
2. INVEST SELECTIVELY
Local knowledge, sector specialists and long
standing relationships are our investment
differentiators as a specialist asset manager.
These, combined with the flexibility of the
mandates given to us, have enabled us to
maintain the pace of investment across our
direct investment funds, whilst retaining
a strong investment discipline, in an
increasingly competitive environment.
The total amount of third party capital
deployed on behalf of the direct investment
funds was £2.4bn in the year, a 14% increase
on the last financial year. This increase
reflects recent fundraising achievements
across an increased number of strategies
and the resulting availability of capital
to deploy. In addition, our Investment
Company invested a total of £247m in the
year, compared to £360m in the prior year.
The investment rates for our Senior Debt
Partners strategy, our Real Estate funds
and our US Private Debt Fund have been
particularly strong and have a direct impact
on FMC income as fees are charged on an
invested capital basis. Fee earning AUM has
increased 28% to €15.8bn at the year end.
In addition, we completed one Strategic
Secondaries investment in the year and
another after the year end. This takes the
number of completed investments for that
strategy to three. These assets continue to
perform ahead of expectations.
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
16 / 17
1
GROW ASSETS
UNDER
MANAGEMENT
3
Manage
portfolios to
maximise value
2
invest
selectively
The direct investment funds are investing as follows:
Fund
ICG Europe Fund V
ICG Europe Fund VI
Senior Debt Partners II
Asia Pacific Fund III
North American Private Debt Fund
ICG Longbow Real Estate Fund IV
% invested at
31 March 2016
% invested at
31 March 2015
Assets in fund at
31 March 2016
Deals completed
in year
98%*
10%
31%
29%
46%
59%
88%
n/a
n/a
6%
19%
14%
21
3
14
3
7
17
1
3
14
1
4
15
*ICG Europe Fund V completed its investment period during financial year 2016.
% invested is based on third party funds raised at 31 March 2016 for funds in their
investment period.
3. MANAGE PORTFOLIOS
TO MAXIMISE VALUE
The availability of finance in the market
during the year has resulted in the pace of
realisations being maintained at the level
seen during the second half of the prior
financial year, with further realisations in
the pipeline for the first half of the new
financial year.
The performance of the Investment
Company’s mezzanine portfolio is
robust, with only a small number of assets
underperforming. By number, 69% of our
portfolio companies (77% on a weighted
average value basis) are recording EBITDA
above or at the same level as the previous
year. The valuation of the portfolio as at
31 March 2016 reflects the recovery in
global stock markets in the final quarter of
the financial year to end at similar levels to
the beginning of the year, and the improved
performance of a number of portfolio assets.
Of the unrealised gains recognised in the
year, 41% is in respect of Parkeon which has
have since been exited.
The realisation of Parkeon illustrates the
value that our active approach to monitoring
investments with local teams can create.
Following a sharp decline in EBITDA, our
local team worked with management on a
financial and operational restructuring of
the company which enabled the company
to refocus and grow. Following the
restructuring, the business grew EBITDA an
average of 54% per year. Without our local
team being actively involved in the asset, and
our financial support, it is highly likely that we
would have lost our initial investment rather
than generating a 3.1x return on the original
investment for our Investment Company.
During the year, we took asset specific
impairments against our weaker assets
of £42.8m compared to £53.5m in the
prior financial year. After write backs of
£3.4m during the year, net impairments
were £39.4m compared to £37.6m in the
prior year. Aggregate net impairments are
currently 2.3% of the opening Investment
Company portfolio and this is in line with our
target of less than 2.5%. While impairments
are not predictable, we are actively
monitoring our weaker assets and at this
stage do not expect a significant change to
the level of impairments.
As previously indicated, with the reduction
in the concentration of the Investment
Company portfolio, details of the top 20
assets are now to be found in the data pack
on our website at www.icgam.com.
ICG ANNUAL REPORT & ACCOUNTS 2016
BUSINESS
MODEL
MARKETPLACE
& STRATEGY
GROUP
PERFORMANCE
GROUP
RISKS
RESOURCES &
RELATIONSHIPS
CHIEF EXECUTIVE OFFICER’S REVIEW
CONTINUED
FUNDS OVERVIEW
FUNDRAISING MARKET
INVESTOR DIVERSITY
We seek to establish and build relationships with a broad range
of institutional investors. We have been particularly successful in
engaging with pension funds and insurance companies.
GEOGRAPHIC DIVERSITY
With staff based across Europe, Asia, America and the Middle East,
our distribution team is able to reach more investors across the
globe. The Group is seeking a geographically diverse investor base.
1
7
6
1
7
6
1
4
2012
2
5
4
2016
2012
3
1
2016
4
5
4
3
3
2
1 Pension
2 Fund of Funds
3 Insurance Company
4 Asset Manager
5 Bank
6 Sovereign Wealth Fund
7 Other
26%
19%
18%
10%
10%
6%
11%
1 Pension
2 Insurance Company
3 Bank
4 Fund of Funds
5 Asset Manager
6 Sovereign Wealth Fund
7 Other
36%
22%
12%
8%
7%
3%
12%
2
1 EMEA
2 Americas
3 UK and Ireland
4 Asia Pacific
3
2
51%
20%
16%
13%
1 EMEA
2 Americas
3 UK and Ireland
4 Asia Pacific
37%
19%
23%
21%
CORPORATE INVESTMENT FUNDS
Fund
ICG Mezzanine Fund 2003
ICG Europe Fund IV 2006B
ICG Europe Fund V
ICG Europe Fund VI
ICG Recovery Fund 2008
ICG Minority Partners 2008
Intermediate Capital Asia Pacific 2005
Intermediate Capital Asia Pacific 2008
North American Private Debt Fund
Nomura ICG Fund A**
ICG Strategic Secondaries Carbon Fund
Intermediate Capital Asia Pacific Fund III
ICG Strategic Secondaries Fund II
Third party money
Estimated money multiple
% carry*
€1,420m
€1,024m
€2,006m
€2,500m
€840m
€120m
$300m
$562m
$590m
�13,250m
$149m
$284m
$167m
1.6x
n/a
1.6x
1.6x
1.5x
1.9x
1.6x
1.6x
n/a
1.3x
1.9x
1.7x
1.8x
25% of 20 over 8
20% of 5 over 8
20% of 20 over 8
20% of 20 over 8
20% 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 4
20% of 12.5 over 8
20% of 20 over 7
20% of 12.5 over 8
* Total carry is a fixed percentage of the fund gains. For example, in Mezzanine Fund 2003 the carry is 20% of gains and the Group is entitled to 25% of this.
Carry is triggered when fund returns exceed a hurdle, for Mezzanine Fund 2003 this is 8%.
**ICG’s 50% share of third party funds.
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
18 / 19
FUNDS OVERVIEW
Fund type
Current funds
M
S
C
ICG Mezzanine Fund III 2003
ICG Europe Fund V
ICG Minority Partners Fund 2008
ICG Recovery Fund 2008
ICG Europe Fund IV 2006 B
ICG Europe Fund VI
Intermediate Capital Asia Pacific Mezzanine Fund I 2005
Intermediate Capital Asia Pacific Fund II 2008
Intermediate Capital Asia Pacific Fund III
Nomura ICG Fund A
Japan Mezzanine Segregated Mandate
North American Private Debt Fund
ICG Strategic Secondaries
ICG Enterprise Trust
Alternative Credit Fund I
European loan strategies
Confluent I Ltd
Eos Loan Fund I
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
St Paul’s II (CLO)
St Paul’s III (CLO)
St Paul’s IV (CLO)
St Paul’s V (CLO)
US CLO I
US CLO II
US CLO III
US CLO IV
US CLO V
European Investment Fund I
European Investment Fund II
ICG Senior Debt Partners Fund I
ICG Senior Debt Partners Fund II
FY16
FY15
Status
AUM(€m)
Status
AUM(€m)
Fully invested
31.8
Fully invested
53.1
Fully invested
1,669.2
Investment
2,000.0
–
–
Fully invested
Fully invested
152.2
Fully invested
Fully invested
498.2
Fully invested
20.1
196.5
816.0
Investing
2,500.0
Fundraising
1,308.7
Fully invested
14.1
Fully invested
Fully invested
229.7
Fully invested
Fundraising
249.8
Fundraising
Investing
103.4
Fundraising
Investing
Investing
Fundraising
Open-ended
Fundraising
41.0
518.3
277.8
661.4
72.3
–
Fundraising
Fundraising
–
–
18.4
296.1
67.3
67.9
–
411.3
138.7
–
–
Open ended
465.9
Open ended
340.6
Fully invested
Fully invested
9.3
1.0
Fully invested
Fully invested
Fully invested
17.2
Fully invested
Fully invested
25.4
Fully invested
Fully invested
116.3
Fully invested
Fully invested
119.9
Fully invested
Fully invested
151.6
Fully invested
Fully invested
75.8
Fully invested
Fully invested
202.3
Fully invested
Investing
Investing
Investing
Investing
Investing
Investing
Investing
Investing
Investing
Investing
385.6
524.2
404.1
334.3
286.6
341.6
341.1
338.8
340.0
84.4
Investing
Investing
Investing
Investing
Investing
Investing
Investing
–
–
Investing
–
–
Investing
63.7
1.1
22.7
47.9
183.2
189.8
251.0
130.3
267.5
380.7
520.3
400.7
350.6
298.7
356.4
355.0
–
–
83.0
101.6
Fully invested
1,470.3
Investing
1,905.6
Investing
2,952.4
Fundraising
1,324.5
R
Longbow UK Real Estate Debt Investments II
Fully invested
102.6
Fully invested
ICG Longbow Senior Secured UK Property Debt Investments Limited
Open-ended
123.1
Open-ended
Fully invested
754.2
Fully invested
Fundraising
846.1
Fundraising
Fully invested
505.0
Fully invested
Investing
449.4
Investing
Investing
523.9
Investing
19,311.6
15,671.9
136.2
134.0
820.9
434.0
553.3
345.8
278.7
ICG Longbow UK Real Estate Debt Investments III
ICG Longbow UK Real Estate Debt Investments IV
ICG Longbow Senior Debt Program I
ICG Longbow Senior Debt Program II
ICG Longbow Development Fund
Total
FUND TYPE KEY
M Mezzanine
S Secondaries
C Credit Funds
R Real Estate
ICG ANNUAL REPORT & ACCOUNTS 2016
BUSINESS
MODEL
MARKETPLACE
& STRATEGY
GROUP
PERFORMANCE
GROUP
RISKS
RESOURCES &
RELATIONSHIPS
CHIEF FINANCIAL
OFFICER’S REVIEW
The financial statements include the credit funds and CLOs required to be consolidated under IFRS 10, the increase in deferred
consideration relating to the purchase of ICG Longbow, and the impact of the EBT settlement. Internally reported information excludes
these items as the Board does not believe that these items assist shareholders in assessing the delivery of the Group’s strategy through its
financial performance.
A reconciliation between the internally reported management information and the financial statements is shown below with more detail in
note 7 on page 136.
2016
Internally
reported –
unadjusted
£m
2016
Consolidate
structured
entities and
joint venture
£m
2016
EBT
settlement
£m
2016
Longbow
deferred
consideration
£m
2016
Financial
statements
£m
2015
Internally
reported –
unadjusted
£m
2015
Consolidate
structured
entities and
joint venture
£m
2015
EBT
settlement
£m
2015
Financial
statements
£m
Income statement
Revenue, net of finance costs
Profit before tax
Statement of financial position
340.6
158.3
(13.2)
16.0
Total assets
2,330.2
2,046.0
Total equity and liabilities
2,330.2
2,046.0
–
2.3
–
–
–
(17.8)
327.4
158.8
339.8
177.0
21.3
19.4
–
(17.9)
361.1
178.5
–
–
4,376.2
2,335.1
1,464.1
4,376.2
2,335.1
1,464.1
–
–
3,799.2
3,799.2
In the prior year, the Group settled a claim for taxes in respect of an EBT which resulted in costs of £17.9m and the receipt of a tax credit of
£38.2m. This was recognised in the prior year giving a net increase in profit after tax of £20.3m. In the current year, there was a net release of
over-accrued costs in relation to this claim of £2.3m, resulting in an increase in profit after tax of £2.3m.
The deferred consideration in relation to the purchase of the remaining 49% of our real estate business, ICG Longbow, during the prior year
was determined with reference to the performance of the business as at 31 March 2016. The outstanding success of this business has resulted
in a £17.8m increase, to £41.7m, in the amount that will be paid as deferred consideration. The increase has been recognised through the
income statement in the current year as a one off cost.
The information in this review is presented on an internally reported basis and excludes the impact of these adjustments.
OVERVIEW
The Group’s profit before tax, when excluding the impact of the fair value charge on derivatives, was below last year at £175.6m
(2015: £184.1m). This is driven by lower IC profits as borrowing costs have increased as a result of re-gearing. We continue to make strong
operational progress in developing our fund management franchise, with higher management fee income from new and existing strategies
contributing to record FMC profits in the year.
Fund Management Company
Investment Company
Profit before tax
Tax
Profit after tax
2016
Internally reported
– unadjusted
£m
2016
Fair value charge
on derivatives
£m
2016
Internally reported
– adjusted
£m
2015
Internally reported
– unadjusted
£m
2015
Fair value charge
on derivatives
£m
2015
Internally reported
– adjusted
£m
61.2
97.1
158.3
(16.7)
141.6
–
17.3
17.3
–
17.3
61.2
114.4
175.6
(16.7)
158.9
52.0
125.0
177.0
(26.1)
150.9
–
7.1
7.1
–
7.1
52.0
132.1
184.1
(26.1)
158.0
STATUTORY PROFIT
BEFORE TAX
158.8
£M
ASSETS UNDER
MANAGEMENT
21.6
€M
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
20 / 21
The adjusted profit of the IC and Group in the above table excludes the adverse impact of the
fair value charge on hedging derivatives of £17.3m (2015: £7.1m). Throughout this review all
numbers are presented on an adjusted basis.
The effective tax rate for the period was 11% (2015: 15%). The Group’s effective tax rate
is lower than the current 20% rate of UK corporation tax. This reflects the mix of the Group’s
balance sheet with investment returns weighted towards non UK sourced dividend income
and capital gains rather than interest income. As dividend income is exempt from UK
corporation tax it has the impact of reducing the Group’s effective tax rate.
Based on the adjusted profit above, the Group generated an ROE of 12.9% (2015: 11.0%),
an increase on prior year reflecting lower shareholders’ funds following the £300m special
dividend paid during the year. Adjusted earnings per share for the period were 48.1p
(2015: 42.0p).
The Group had net current assets of £229.8m (2015: £419.4m) at the end of the year.
The decrease in net current assets is principally driven by lower cash due to the special
dividend paid in July 2015.
The Board has recommended a final ordinary dividend of 15.8p per share (2015: 15.1p), taking
the full year ordinary dividend to 23.0p per share (2015: 22.0p). In addition the Board has
recommended a £200m special dividend.
ASSETS UNDER MANAGEMENT
AUM as at 31 March 2016 increased to €21,582m (2015: €18,012m), driven by strong
fundraising across our European funds, the raising of two US CLOs and the acquisition of the
management contract of Graphite Enterprise Trust. AUM by business line is detailed below,
where all figures are quoted in €m.
Mezzanine funds
Credit funds
Real estate funds
Secondaries funds
Total third party AUM
IC investment portfolio
Total AUM
As at
31 March 2016
€m
As at
31 March 2015
€m
6,008
9,060
3,305
939
19,312
2,270
21,582
5,255
7,575
2,703
139
15,672
2,340
18,012
Change
%
14%
20%
22%
576%
23%
(3)%
20%
The increase in AUM during the year is principally the result of another strong period of
fundraising, with the pace of realisations similar to the second half of last year. This is detailed
in the AUM bridge below:
At 1 April 2015
Additions
Realisations
FX and other
Mezzanine
funds
€m
5,255
1,597
(789)
(55)
Credit
funds
€m
7,575
2,531
(836)
(210)
At 31 March 2016
6,008
9,060
PHILIP KELLER
CHIEF FINANCIAL OFFICER
2,703
897
(22)
(273)
3,305
Real estate
funds
€m
Secondaries
funds
€m
Total
Third Party
AUM
€m
15,672
5,832
(1,647)
(545)
139
807
–
(7)
939
19,312
ICG ANNUAL REPORT & ACCOUNTS 2016
BUSINESS
MODEL
MARKETPLACE
& STRATEGY
GROUP
PERFORMANCE
GROUP
RISKS
RESOURCES &
RELATIONSHIPS
CHIEF FINANCIAL OFFICER’S REVIEW
CONTINUED
THIRD PARTY
FEE INCOME
108.9
£M
The €5,832bn of new AUM includes €2,689m in respect of our ICG Europe Fund VI and
Senior Debt Partners II as our two largest funds both closed at their maximum €3.0bn size.
In addition, €1,568m relates to strategies developed in the last two years. The new strategies
have introduced new long term revenue streams to the business. Furthermore, given that a
strategy will typically reach profitable maturity on its third fund, the fee stream growth from
our new strategies will become more visible into the medium term. We also increased AUM by
€661m with the acquisition of the management contract of the listed private equity investment
trust, Graphite Enterprise Trust (since renamed ICG Enterprise Trust).
Fee earning AUM increases as new funds are raised that charge fees on committed capital
and as funds that charge fees on invested capital are invested. This can be seen in the fee
earning AUM bridge below:
At 1 April 2015
Additions
Realisations
FX and other
Mezzanine
funds
€m
4,925
1,625
(858)
(32)
Credit
funds
€m
5,447
2,511
(953)
(137)
At 31 March 2016
5,660
6,868
PROFIT AND LOSS ACCOUNT
FUND MANAGEMENT COMPANY
Real estate
funds
€m
Secondaries
funds
€m
Total
third party fee
earning AUM
€m
1,766
1,014
(30)
(229)
2,521
139
572
–
(3)
12,277
5,722
(1,841)
(401)
708
15,757
FEE INCOME
Third party fee income increased 14% in the year to £108.9m (2015: £95.8m), and total fee
income increased by 11% in the year to £127.3m (2015: £114.5m), driven by the investment
of our credit and real estate funds and the successful fund raise of ICG Europe Fund VI.
This was partially offset by a reduction in performance fees from £26.6m to £14.0m.
Excluding performance fees, third party income increased 37% to £94.9m (2015: £69.2m)
in the year. Details of movements are shown below:
Mezzanine funds
Credit funds
Real estate funds
Secondaries funds
Total third party funds
IC management fee
Total fee income
31 March 2016
£m
31 March 2015
£m
Change
%
57.8
29.9
19.1
2.1
108.9
18.4
127.3
61.8
22.9
10.7
0.4
95.8
18.7
114.5
(6)%
31%
79%
425%
14%
(2)%
11%
FUND MANAGEMENT
COMPANY PROFIT
61.2
£M
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
22 / 23
Mezzanine third party fees include £9.7m (2015: £26.6m) of performance fees earned
as the realisation of assets from older vintages helped trigger the performance hurdles,
primarily in respect of Recovery Fund 2008. The prior year included £21.6m recognised on
European Mezzanine Fund 2006 resulting from the sale of the fund’s remaining assets to
a new secondary fund. Although an integral part of the fee income profile and profitability
stream of the Group, the quantum of performance fees in any particular year is unpredictable.
Excluding performance fees, mezzanine third party fees increased by 37% from £35.2m to
£48.1m, principally due to the raising of ICG Europe Fund VI which charges fees on committed
capital and is €500m larger than its predecessor fund. This is partially offset by reduced
income on ICG Europe Fund V which now charges fees on invested capital from the end of its
investment period in May 2015.
Credit funds third party fee income increased 31% with fees from new funds partially offset
by the decrease in fees on older credit funds that are in their realisation phase. The increase
in fees is principally due to the investment of our Senior Debt Partners strategy plus the
combination of the annualisation of fees earned on US CLOs raised in the prior year and two
new CLOs raised in the current year.
Fees for our Real Estate and Senior Debt Partners funds are typically charged on an invested
basis, although this has little impact for the CLOs which are invested quickly. The 79%
increase in Real Estate third party fee income reflects the investment of money raised for ICG
Longbow Fund III and IV and senior debt mandates.
Secondaries third party fees increased by £1.7m in the year due to a full year of fees on the
Diamond Castle fund and two months of fees from the ICG Enterprise Trust management
contract. Secondaries fees are expected to grow in FY17 following the first close of our
Strategic Secondaries Fund which charges fees on committed capital.
The weighted average fee rate, excluding performance fees, across our fee earning AUM
is 0.88% (2015: 0.91%) as our senior debt funds, which charge lower fees, are invested.
DIVIDEND INCOME
Dividend receipts of £19.3m (2015: £13.2m) are higher than prior year due to the increased
number and improved performance of CLOs.
OPERATING EXPENSES
Operating expenses of the FMC were £85.0m (2015: £75.3m), including salaries and
incentive scheme costs. Salaries were £30.4m (2015: £27.4m) as average FMC headcount
increased from 190 to 215. This increase is directly related to investing in the growth
areas of the business namely Secondaries, Real Estate and our operations infrastructure.
Incentive scheme costs have increased to £24.5m (2015: £19.0m) reflecting higher awards
made in May 2015, which are being expensed to the income statement over their vesting
period. Other administrative costs of £30.1m (2015: £28.9m) were 4% above prior year.
The FMC operating margin was 41.9%, up from 40.8% in the prior year.
ICG ANNUAL REPORT & ACCOUNTS 2016
BUSINESS
MODEL
MARKETPLACE
& STRATEGY
GROUP
PERFORMANCE
GROUP
RISKS
RESOURCES &
RELATIONSHIPS
CHIEF FINANCIAL OFFICER’S REVIEW
CONTINUED
BALANCE SHEET
INVESTMENT PORTFOLIO
1,798
£M
INVESTMENT COMPANY
BALANCE SHEET INVESTMENTS
The balance sheet investment portfolio increased 6% in the period to £1,798.0m at 31 March
2016, as the realisation of older assets was more than offset by new investments and fair value
gains. The impact of this is illustrated in the investment portfolio bridge below:
At 1 April 2015
New and follow on investments
Net transfer from funds for syndication
Accrued interest income
Realisations
Impairments
Fair value gains
FX and other
At 31 March 2016
£m
1,691
247
56
75
(471)
(39)
146
93
1,798
Realisations comprise the return of £312.0m of principal, the crystallisation of £83.3m
of rolled up interest and £76.1m of realised capital gains.
In the period £180.1m was invested alongside our mezzanine funds for new and follow
on investments. In addition, £67.1m was invested across our CLOs and credit funds.
The investment in our credit funds is lower risk as the funds are principally investing in senior
debt assets.
The Sterling value of the portfolio decreased by £102.0m due to foreign exchange
movements. The portfolio is 49% Euro denominated and 26% US dollar denominated.
Sterling denominated assets account only for 14% of the portfolio. The Group minimises
foreign exchange impact of non Sterling assets through non Sterling liabilities and
derivative transactions.
The analysis of the portfolio by instrument is outlined below:
As at
31 March 2016
£m
As at
31 March 2015
£m
% of total
% of total
Senior mezzanine and senior debt
Junior mezzanine
Interest bearing equity
Non interest bearing equity
Co-investment portfolio
Investment in secondaries funds
Investment in credit funds
Investment in CLOs
Investment in real estate funds
386
182
115
531
1,214
104
225
131
124
21%
10%
6%
30%
67%
6%
13%
7%
7%
433
169
164
414
1,180
14
274
134
89
26%
10%
10%
24%
70%
1%
16%
8%
5%
Total balance sheet portfolio
1,798
100%
1,691
100%
TOTAL CASH GENERATED
FROM OPERATING
ACTIVITIES
185.6
£M
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
24 / 25
In addition to the balance sheet portfolio, there were £182.6m (2015: £243.9m) of current
assets being held on the balance sheet at 31 March 2016 that will be transferred to third party
funds once their fundraising is complete. The use of the balance sheet in this way enables
our investment teams to continue to source attractive deals whilst a fund is being raised,
and in turn facilitates fundraising as potential investors can see the types of assets they will
be investing in. This is illustrated by the year end balance which includes £66.7m of assets
held for syndication into Asia Pacific Fund III and £37.6m of assets being warehousing for
future CLOs.
NET INTEREST INCOME
Net interest income of £80.1m (2015: £118.8m) comprised interest income of £126.0m
(2015: £158.6m), less interest expense of £45.9m (2015: £39.8m). Interest income was
below the prior period due to a decrease in the average IC portfolio and a reduction in the
proportion of interest bearing assets from 46% to 37%. Cash interest income represented
30% (2015: 30%) of the total. The Group has increased its borrowings to re-gear the balance
sheet, resulting in an increase in interest expense.
DIVIDEND INCOME
Dividend income of £16.4m (2015: £3.4m) was higher than the prior year due to a distribution
received from the investment in Diamond Castle of £12.8m by the secondaries team.
OPERATING EXPENSES
Operating expenses of the IC amounted to £57.9m (2015: £49.9m), of which incentive scheme
costs of £39.7m (2015: £30.5m) were the largest component. The increase in incentive
scheme costs is in part due to a higher national insurance cost in the current year reflecting
the share price at the date of vesting and higher headcount increasing the cash bonus accrual.
Other staff and administrative costs were £18.2m compared to £19.4m last year, a £1.2m
decrease. Of these costs, £3.0m (2015: £5.2m) related to the cost of business development,
including the establishment of Alternative Credit and Australian Senior Loans teams.
Excluding business development, costs increased £1.0m due to the cost of expanding our
risk and compliance function with the addition of a Chief Risk Officer (CRO) and internal
audit capability.
The management fee on IC investments managed by the FMC reduced to £18.4m
(2015: £18.7m) as a result of the reduction in the average size of the loan book.
CAPITAL GAINS
Net realised capital gains in the year were £75.2m (2015: £46.7m), of which £51.2m
(2015: £21.9m) had previously been recognised as unrealised gains in the P&L with the
remaining £24.0m (2015: £24.8m) recognised in the current year.
Fair valuing the equity and warrants gave rise to a further £144.4m (2015: £84.7m) of
unrealised gains in the current year reflecting the improved performance of our portfolio
companies during the year. Of this, £104.6m (2015: £86.8m) is recognised in the income
statement, including £42.8m on our largest asset Parkeon which was realised in April 2016,
and £39.8m (2015: £(2.1)m) as a movement in reserves.
IMPAIRMENTS
Net impairments for the year were £39.4m compared with £37.6m in the prior year.
Gross impairments amounted to £42.8m (2015: £53.5m) and recoveries were £3.4m
(2015: £15.9m) in the year.
ICG ANNUAL REPORT & ACCOUNTS 2016
BUSINESS
MODEL
MARKETPLACE
& STRATEGY
GROUP
PERFORMANCE
GROUP
RISKS
RESOURCES &
RELATIONSHIPS
CHIEF FINANCIAL OFFICER’S REVIEW
CONTINUED
GROUP CASH FLOW, DEBT AND CAPITAL POSITION
The Group has continued to actively manage its sources of financing, extending debt facilities
and lowering pricing where possible. During the year £845m was raised, of which £270m
was in US private placements, £421m extending facilities with existing relationship banks and
£154m in bank facilities with three new relationship banks. The balance sheet remains strong,
with £781.3m of available cash and debt facilities at 31 March 2016. The movement in the
Group’s unutilised cash and debt facilities during the period is detailed below:
Headroom at 31 March 2015
Increase in drawn bank facilities
Increase in private placements
Secured floating rate notes matured
Private placements repaid
Movement in cash
Movement in drawn debt
Other (including FX)
Headroom at 31 March 2016
£m
758.4
173.2
269.7
(33.9)
(97.8)
(140.4)
(158.9)
11.0
781.3
Total drawn debt at 31 March 2016 was £866m compared to £707m at 31 March 2015, with
unencumbered cash of £112m compared to £253m at 31 March 2015.
CASH FLOW
Operating cash inflow for the year was £185.6m (2015: £150.1m), reflecting that our
operating model is highly cash generative. The increase in the cash inflows is a result of
a reduction in cash outflows relating to assets held for syndication partially offset by an
increase in operating expenses, as analysed below:
Cash in from realisations
Cash in from dividends
Cash in from fees
Cash in from cash interest
Total cash receipts
Cash interest paid
Cash paid to purchase loans and investments
Cash movement in assets held in warehouse or for syndication
Operating expenses paid
Total cash paid
Total cash generated from operating activities
31 March 2016
£m
31 March 2015
£m
394.3
45.7
86.3
124.3
650.6
(47.0)
(247.1)
(35.8)
(135.1)
505.6
35.1
94.4
124.8
759.9
(33.8)
(359.8)
(126.4)
(89.8)
(465.0)
(609.8)
185.6
150.1
Interest paid was 39% higher, in line with higher average borrowings, but a lower average
cost of debt.
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
26 / 27
SPECIAL DIVIDEND
200
£M
CAPITAL POSITION
Shareholders’ funds decreased by 15% to £1,241.2m (2015: £1,456.4m) in the year, principally
due to the £300m of special dividend paid during the year. Total debt to shareholders’ funds
(gearing) as at 31 March 2016 increased to 0.70x from 0.49x. Adjusted return on equity of
12.9% is up 1.9% from 31 March 2015.
ICG’s strong balance sheet positions the Group to generate and realise shareholder value
through co-investing into our existing and new funds and investing in new opportunities,
whilst maintaining the appropriate level of regulatory capital. The Board believes that a
gearing range of 0.8x-1.2x remains appropriate and therefore is recommending that a
further £200m of capital is returned to shareholders by means of a special dividend, with
an associated share consolidation. On a pro-forma basis, assuming the proposed special
dividend had been paid at the beginning of the financial year, gearing would have been 0.93x
at 31 March 2016 and return on equity over 16%.
ICG ANNUAL REPORT & ACCOUNTS 2016
BUSINESS
MODEL
MARKETPLACE
& STRATEGY
GROUP
PERFORMANCE
GROUP
RISKS
RESOURCES &
RELATIONSHIPS
MANAGING RISK TO
DELIVER OUR STRATEGY
Effective risk management provides the framework
within which we can successfully deliver our strategic priorities.
OUR APPROACH
Risk management is the responsibility
of the Board and is integral to the ability
of the Group to deliver on its strategic
priorities. The Board establishes the culture
of effective risk management throughout
the business by identifying and monitoring
the material risks, setting risk appetite and
determining the risk tolerances of the Group.
The Board is responsible for establishing
and maintaining appropriate systems and
controls to manage risk within the Group and
to ensure compliance with regulation.
The Group’s risk management systems are
regularly monitored by the Risk Committee
under delegation from the Board. The Risk
Committee is responsible for overseeing
the effectiveness of the internal control
environment of the Group. Following the
appointment of the CRO during the year,
the Group’s risk management framework,
systems and reporting were reviewed
and, as a result of this review, a number
of enhancements to the Group’s risk
management framework, endorsed by the
Risk Committee, have since been made.
Details of the activities of the Risk Committee
in this financial year can be found in the Risk
Committee report on page 60.
RISK MANAGEMENT FRAMEWORK
icg plc Board
Sets overall risk culture and risk appetite
+ See page 31
BUSINESS
STRATEGY
Purpose and future
direction
ICAAP
Internal assessment
of regulatory
capital requirements
+ See page 64
RISK COMMITTEE
Oversees the Group’s risk
management framework and
system of internal controls
+ See page 60
Executive committee
OPERATIONAL
RISK GROUP
+ See page 49
RISK
REGISTERS
+ See page 29
CULTURE AND CONDUCT
CHIEF RISK OFFICER
Oversight, challenge and support
to embed the Group’s risk
management framework
+ See page 45
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
28 / 29
CHANGES IN THE YEAR
The top down review of risks carried out
during the year resulted in a number of
refinements to the identified principal risks
to the business. Existing principal risks
were clarified, certain principal risks were
consolidated and the overall composition
of the principal risk register was reviewed
to ensure that it adequately reflected
the ongoing changes to the Group as it
continues to pursue its strategic objectives.
The Risk Committee considers that the
potential business impact of risks relating to
information security and oversight of third
party providers has increased in our industry
and therefore these risks have now been
included within the principal risks.
Executive responsibility for each of the
principal risks to the business was reviewed
and agreed by the Risk Committee.
Emerging risks are regularly considered to
assess any potential impacts on the Group
and to determine whether any actions
are required. Emerging risks include the
risks related to regulatory change and
macroeconomic and political change,
including the ongoing discussions regarding
Britain’s membership of the European Union.
The Risk Committee monitors these
processes, reviewing the principal risk
register, material risk events, the activities
of the Operational Risk Group and the
Investment Committees, and reporting
material risks to the Board. The materiality
and severity of each risk is assessed
through a combination of an assessment
of each risk’s likelihood of an adverse
outcome and its impact. In assessing
impact, consideration is given to financial,
reputational and regulatory factors, the
impact on management resources and risk
mitigation plans are established where
appropriate. An updated risk language was
implemented during the year to enhance
consistency of reporting.
The Group considers its principal risks
across three categories:
– STRATEGIC AND BUSINESS RISKS
The risk of failing to deliver on our
strategic objectives resulting in a negative
impact on Group profitability
– MARKET, CREDIT AND
LIQUIDITY RISKS
The risk of an adverse impact on the
Group due to market fluctuations,
counterparty failure or having insufficient
resources to meet financial obligations
– OPERATIONAL RISKS
The risk of loss or missed opportunity,
resulting from a regulatory or legislative
failure or inadequate or failed
internal processes, people or systems
Reputational risk is seen as an outcome
of the principal risks materialising.
The reputation and brand risk is
carefully managed as part of the risk
management framework.
IDENTIFYING PRINCIPAL
AND EMERGING RISKS
Principal risks are identified through a
consideration of the strategy and operating
environment of the Group (top down
review) and a detailed analysis of individual
processes and procedures (bottom
up assessment).
The Risk Committee leads the top down
review of business risks and determines
the principal risks. This review focuses on
those risks that could threaten the business
model, future performance, solvency or
liquidity of the business. In identifying risks,
consideration is given to risks identified
by other asset managers in the sector
and relevant regulatory expectations and
developments. The review also considers
emerging risks.
The Directors confirm that they have
undertaken a robust assessment of principal
risks in line with the requirements of the UK
Corporate Governance Code.
The Board and the Risk Committee consider
their appetite for risk across the business
and establish the level of acceptable risk
for each of the principal risks. The Risk
Committee uses key risk indicators to help
monitor, manage and mitigate these risks on
an ongoing basis.
The bottom up assessment encompasses the
identification, management and monitoring
of risks in each area of the business
through the maintenance of detailed risk
registers which are regularly reviewed,
challenged and updated. This process
ensures risk management responsibilities
are embedded in the business’ first line
operations. During the year the CRO
reviewed and challenged each of the risk
registers maintained by the business and
enhanced internal reporting of these risk
registers. Operational risks are subject
to additional scrutiny by the Operational
Risk Group. In addition, the various
Investment Committees provide oversight
of risks related to the investment and fund
management activities of the Group.
ICG ANNUAL REPORT & ACCOUNTS 2016
BUSINESS
MODEL
MARKETPLACE
& STRATEGY
GROUP
PERFORMANCE
GROUP
RISKS
RESOURCES &
RELATIONSHIPS
MANAGING RISK TO DELIVER OUR STRATEGY
CONTINUED
THE BOARD’S ONGOING
MONITORING OF THE ICAAP
BRINGS TOGETHER THE RISK
MANAGEMENT OF THE
BUSINESS WITH OUR
STRATEGIC OBJECTIVES.
THIS GIVES THE BOARD A
THOROUGH UNDERSTANDING
OF THE GROUP’S RISKS AND
THEIR IMPACT, IN PARTICULAR,
ON THE LEVEL OF CAPITAL
REQUIRED TO SUPPORT THE
BUSINESS.
KATHRYN PURVES
CHAIRMAN OF THE RISK COMMITTEE
RISK GOVERNANCE FRAMEWORK
The Group operates a risk governance framework consistent with the principles of
the ‘three lines of defence’ model. Since its establishment in 2014, the internal audit
function has provided independent assurance that the Group’s risk management,
governance and internal control processes are operating effectively. Further details
of the activities of internal audit can be found in the Audit Committee report.
+ Audit Committee report page 51
1ST
2ND
3RD
Business operations
and support
Executive
committee
Audit
and Risk
committees
The
Board
Control and
oversight functions
Internal independent
assurance
VIABILITY STATEMENT
The Directors confirm that they have a reasonable expectation that the Group will continue to operate
and meet its liabilities, as they fall due, for the next three years. The Directors’ assessment has been made
with reference to the Group’s current position and prospects, the Group’s strategy, the Board’s risk
appetite, the Group’s principal risks and the management of those risks, as detailed in the Strategic report
on pages 1 to 38.
The Directors have assessed ICG’s viability over a three year period to March 2019. The assessment is based on
three years of the strategic plan, being the typical period over which regulatory changes are implemented and
the period over which the forecasting assumptions used are most reliable. The Group’s strategy and principal
risks underpin the three year plan and associated stress and reverse stress testing, which the Directors review at
least annually. The Directors’ review considers profits, cash flows, financing requirements, financial covenants
and regulatory capital headroom.
The strategic plan is built on a fund by fund basis using a bottom up model. The plan makes certain
assumptions about the launch and investment of successor funds and new strategies, the ability to refinance
debt as it falls due and the performance of the underlying portfolio.
The plan is stress tested to assess the potential financial and operational impact of a severe but plausible
downside scenario as part of the Board’s review of the Group’s ICAAP. The downside scenario uses the
2008/09 financial crisis as its basis and reflects the principal risks of the business as set out on pages 32 to 35.
The principal risks impacting the downside scenario are as follows:
1. Failure to raise third party funds with no CLOs raised for 18 months and other funds raising 50% of target.
This results in a lower level of cash fee income
2. Failure to deploy capital for a period of 18 months results in a lower level of cash fee income earned
on those funds that charge fees on invested capital and reducing cash interest income from the balance
sheet portfolio
3. Failure to maintain investment performance increasing impairments to 9% of the opening book, thereby
reducing regulatory capital
The three year plan review is underpinned by regular Board briefings provided by the heads of business units
and infrastructure functions and discussion of any new strategies undertaken by the Board in its normal
course of business (see pages 46 to 47). These reviews consider both the market opportunity and the
associated risks, principally the ability to raise third party funds, invest capital and deliver strong investment
performance. These risks are considered within the Board’s risk appetite framework which is detailed on
page 31.
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
30 / 31
MONITORING THE
EFFECTIVENESS OF CONTROLS
During the year, the Group enhanced its
processes for monitoring the effectiveness
of material controls. Material controls
have been defined as those critical to
the management of the principal risks of
the business. Following identification of
material controls, additional reporting on
those controls was introduced to enable
the Board and Risk Committee to review the
effectiveness of controls in managing the
principal risks in line with the requirements
of the UK Corporate Governance Code.
The Board is provided with a number of
risk reports which it uses to review the
Group’s risk management arrangements
and internal controls. The reports enable
the Board to make a cumulative assessment
of the effectiveness with which internal
controls are being managed or mitigated.
The reports include assurance from the
Executive Committee on the effectiveness
of the Group’s system of internal controls.
As part of its review the Board considered
whether the processes in place were
sufficient to identify all material controls and
confirmed that this was the case. The Board
confirms that the Group’s risk management
and internal control systems are operating
effectively and material controls operated
effectively throughout the year.
SETTING RISK APPETITE AND TOLERANCES
The Board acknowledges and recognises that in the normal course of business the
Group is exposed to risk and that it is willing to accept a level of risk in managing the
business to achieve its strategic priorities. As part of its risk management processes,
the Board considers its risk appetite in terms of the tolerance it is willing to accept in
relation to each principal risk based on key risk indicators.
RELATIVE WILLINGNESS TO TOLERATE RISK (RISK APPETITE)
STRATEGIC & BUSINESS RISK
LOW
HIGH
Loss or missed opportunity as a result of major
external change
Failure to maintain acceptable relative investment
performance
Failure to raise new third party funds
Failure to deploy committed capital
in a timely manner
MARKET, CREDIT & LIQUIDITY RISK
LOW
HIGH
Loss as a result of adverse market fluctuations
Loss as a result of exposure to a failed counterparty
Failure to meet financial obligations
OPERATIONAL RISK
LOW
HIGH
Loss of a ‘key person’ and inability to recruit into
key roles
Negative financial or reputational impact arising
from regulatory or legislative failing
Technology and information security risks
Failure of key business processes
Further details included in the Risk Committee report on pages 60 to 65
ICG ANNUAL REPORT & ACCOUNTS 2016
BUSINESS
MODEL
MARKETPLACE
& STRATEGY
GROUP
PERFORMANCE
GROUP
RISKS
RESOURCES &
RELATIONSHIPS
PRINCIPAL RISKS
AND UNCERTAINTIES
STRATEGIC AND BUSINESS RISKS
PRINCIPAL RISK
IMPACT
Loss or missed opportunity as a result
of major external change (including
macroeconomic, regulatory, political
and/or competitive impact)
impact)
1
2
3
Adverse macroeconomic conditions could reduce the opportunity
to deploy capital and impair the ability of the Group to effectively
manage its portfolios, reducing the value of future management
fees, investment income and performance fees.
Adverse macroeconomic conditions could also reduce demand
from investors for the Group’s funds.
Adverse regulatory change could impact on the ability of the
Group to deploy capital or could reduce the demand from
investors for the Group’s funds.
LINK TO STRATEGY
1
2
3
Grow assets under management
Invest selectively
Manage portfolios to
maximise value
KEY RISK INDICATOR
Deterioration of Group performance
compared to plan.
Impairment rate as a percentage of the
opening loan book.
+ See pages 12 to 13
Failure to maintain acceptable relative
investment performance
impact)
2
3
Failure to maintain acceptable relative performance in the funds
may result in a failure to raise new funds, reducing the Group’s long
term income and ability to invest in future growth. Investors in open
ended funds may reduce or cancel their commitments, reducing
AUM and fund management fees.
Performance of fund portfolio companies.
+ See pages 12 to 13
Performance of certain funds compared to
benchmark.
Failure to raise new third party funds
impact)
1
A failure to raise new funds would reduce the Group’s long term
income and ability to launch new strategies.
Forecast fund inflows.
+ See pages 10 to 11 and page 85
The Group has disciplined investment policies and all investments are
selected and regularly monitored by the Group’s Investment
Committees. Disciplined credit procedures are applied both before and
during the period of investment. The Group limits the extent of credit risk
by diversifying its portfolio assets by sector, size and geography.
Continued focus by senior management and executives ensures
changed.
maximum recovery is achieved.
The Group has built dedicated fundraising and scalable infrastructure
teams to grow and diversify its institutional client base by geography
and type.
The Group has expanded its product portfolio to address a range of
There have been no material changes in the Group’s
investment markets during the year which would
lead the Board to consider that this risk has
Managing conflict of interests
resulting from funds structured
to pay fees on invested capital
investor requirements and continues to build a strong product pipeline.
year the Group has delivered on its targets to raise
investment strategies
new third party funds.
The fundraising market is supportive for the Group’s
strategies, but remains highly competitive. During the
Diversification of risk by
expanding the portfolio of
Failure to deploy committed capital in
a timely manner
Failure to deploy capital reduces the value of future management
fees, investment income and performance fees.
impact)
2
The proportion of a fund’s capital forecast
to be available for investment in the final year
of the investment period.
+ See page 85
The rate of investment is kept under review by the Investment
Committees and senior management to ensure acceptable levels are
maintained in current market conditions.
The investment market is highly competitive with the
appeal of alternative asset classes generating
significant pools of capital to be deployed.
KEY CONTROLS AND MITIGATION
MOVEMENT IN THE YEAR
FOCUS FOR FY17
The Board regularly receives detailed market reports, reviewing the
latest developments in the Group’s key markets.
The impact of macroeconomic
changes on markets
The Investment Committees receive ongoing detailed and specific
market reviews for each investment.
During the year the risk of loss has increased as the
economic indicators in Europe and other key markets
The impact of the UK’s EU
membership referendum
The Board receives regular updates on regulatory developments.
have become significantly more volatile and the
regulatory environment has become more complex.
Managing the volume and
complexity of continued
regulatory change
Maintaining investment
discipline
Maintaining discipline on fees
and terms
Maintaining investment discipline
Investor communication
MARKET, CREDIT AND LIQUIDITY RISKS
PRINCIPAL RISK
IMPACT
Loss as a result of adverse market
fluctuations arising primarily from
exposure to interest rates
and foreign exchange rates
impact)
3
Loss as a result of exposure to a
failed counterparty
impact)
3
Volatility in currency and interest rates leads to changes in the
value of the assets and liabilities of the Group and, to the extent
that these are unhedged, will impact on the financial performance
of the Group.
Volatility in currency and interest rates may impact on fund
performance which may result in a failure to raise new funds,
reducing the Group’s long term income and ability to invest in
future growth.
You can read more about the Group’s strategic objectives on
pages 10 to 13
KEY RISK INDICATOR
Value of net unhedged assets.
Percentage of loan book unhedged.
KEY CONTROLS AND MITIGATION
MOVEMENT IN THE YEAR
FOCUS FOR FY17
The Group has a policy which seeks to ensure that any non Sterling
income, expenditure, assets and liabilities are appropriately hedged and
that the residual exposure to market risk is managed to minimise short
term volatility in the financial results of the Group. This is reviewed
annually. Currency and interest rate exposures are reported monthly and
reviewed by the Group’s Treasury Committee.
During the year the Group has applied its hedging
policy consistently.
The impact of the UK’s EU
membership referendum
The Group uses derivatives to hedge market risk on its balance
sheet. By entering into these derivatives the Group is exposed to
counterparty credit risk.
Counterparty exposure relative
to trading limits.
The Group’s counterparties are national or multinational banks.
Should a financial counterparty of the Group fail the Group would
be exposed to loss.
The Group has a policy which seeks to ensure that any counterparty
exposures are managed within levels agreed with the Board. This is
reviewed annually. Actual counterparty exposures are reported monthly
and reviewed by the Group’s Treasury Committee.
During the year the Group has applied its policy to
manage counterparty credit risk consistently.
Continued monitoring of
counterparty credit risk
management
The impact of the UK’s EU
membership referendum
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
32 / 33
PRINCIPAL RISK
IMPACT
KEY RISK INDICATOR
KEY CONTROLS AND MITIGATION
MOVEMENT IN THE YEAR
FOCUS FOR FY17
The Board regularly receives detailed market reports, reviewing the
latest developments in the Group’s key markets.
The Investment Committees receive ongoing detailed and specific
market reviews for each investment.
The Board receives regular updates on regulatory developments.
During the year the risk of loss has increased as the
economic indicators in Europe and other key markets
have become significantly more volatile and the
regulatory environment has become more complex.
The Group has disciplined investment policies and all investments are
selected and regularly monitored by the Group’s Investment
Committees. Disciplined credit procedures are applied both before and
during the period of investment. The Group limits the extent of credit risk
by diversifying its portfolio assets by sector, size and geography.
Continued focus by senior management and executives ensures
maximum recovery is achieved.
The Group has built dedicated fundraising and scalable infrastructure
teams to grow and diversify its institutional client base by geography
and type.
The Group has expanded its product portfolio to address a range of
investor requirements and continues to build a strong product pipeline.
The rate of investment is kept under review by the Investment
Committees and senior management to ensure acceptable levels are
maintained in current market conditions.
There have been no material changes in the Group’s
investment markets during the year which would
lead the Board to consider that this risk has
changed.
The fundraising market is supportive for the Group’s
strategies, but remains highly competitive. During the
year the Group has delivered on its targets to raise
new third party funds.
Diversification of risk by
expanding the portfolio of
investment strategies
Maintaining investment discipline
Investor communication
The investment market is highly competitive with the
appeal of alternative asset classes generating
significant pools of capital to be deployed.
The impact of macroeconomic
changes on markets
The impact of the UK’s EU
membership referendum
Managing the volume and
complexity of continued
regulatory change
Maintaining investment
discipline
Managing conflict of interests
resulting from funds structured
to pay fees on invested capital
Maintaining discipline on fees
and terms
MARKET, CREDIT AND LIQUIDITY RISKS
PRINCIPAL RISK
IMPACT
KEY RISK INDICATOR
KEY CONTROLS AND MITIGATION
MOVEMENT IN THE YEAR
FOCUS FOR FY17
Loss as a result of adverse market
fluctuations arising primarily from
exposure to interest rates
and foreign exchange rates
Volatility in currency and interest rates leads to changes in the
Value of net unhedged assets.
value of the assets and liabilities of the Group and, to the extent
that these are unhedged, will impact on the financial performance
Percentage of loan book unhedged.
The Group has a policy which seeks to ensure that any non Sterling
income, expenditure, assets and liabilities are appropriately hedged and
that the residual exposure to market risk is managed to minimise short
term volatility in the financial results of the Group. This is reviewed
annually. Currency and interest rate exposures are reported monthly and
reviewed by the Group’s Treasury Committee.
During the year the Group has applied its hedging
policy consistently.
The impact of the UK’s EU
membership referendum
Loss as a result of exposure to a
failed counterparty
The Group uses derivatives to hedge market risk on its balance
Counterparty exposure relative
sheet. By entering into these derivatives the Group is exposed to
to trading limits.
The Group has a policy which seeks to ensure that any counterparty
exposures are managed within levels agreed with the Board. This is
reviewed annually. Actual counterparty exposures are reported monthly
and reviewed by the Group’s Treasury Committee.
During the year the Group has applied its policy to
manage counterparty credit risk consistently.
The impact of the UK’s EU
membership referendum
Continued monitoring of
counterparty credit risk
management
of the Group.
Volatility in currency and interest rates may impact on fund
performance which may result in a failure to raise new funds,
reducing the Group’s long term income and ability to invest in
future growth.
counterparty credit risk.
The Group’s counterparties are national or multinational banks.
Should a financial counterparty of the Group fail the Group would
be exposed to loss.
STRATEGIC AND BUSINESS RISKS
Loss or missed opportunity as a result
of major external change (including
macroeconomic, regulatory, political
and/or competitive impact)
impact)
1
2
3
Adverse macroeconomic conditions could reduce the opportunity
Deterioration of Group performance
to deploy capital and impair the ability of the Group to effectively
compared to plan.
manage its portfolios, reducing the value of future management
fees, investment income and performance fees.
Adverse macroeconomic conditions could also reduce demand
from investors for the Group’s funds.
Adverse regulatory change could impact on the ability of the
Group to deploy capital or could reduce the demand from
investors for the Group’s funds.
Impairment rate as a percentage of the
opening loan book.
+ See pages 12 to 13
Failure to maintain acceptable relative
investment performance
Failure to maintain acceptable relative performance in the funds
Performance of fund portfolio companies.
may result in a failure to raise new funds, reducing the Group’s long
+ See pages 12 to 13
term income and ability to invest in future growth. Investors in open
ended funds may reduce or cancel their commitments, reducing
AUM and fund management fees.
Performance of certain funds compared to
benchmark.
Failure to raise new third party funds
A failure to raise new funds would reduce the Group’s long term
Forecast fund inflows.
income and ability to launch new strategies.
+ See pages 10 to 11 and page 85
Failure to deploy committed capital in
Failure to deploy capital reduces the value of future management
The proportion of a fund’s capital forecast
fees, investment income and performance fees.
to be available for investment in the final year
of the investment period.
+ See page 85
impact)
2
3
impact)
1
a timely manner
impact)
2
impact)
3
impact)
3
ICG ANNUAL REPORT & ACCOUNTS 2016
BUSINESS
MODEL
MARKETPLACE
& STRATEGY
GROUP
PERFORMANCE
GROUP
RISKS
RESOURCES &
RELATIONSHIPS
PRINCIPAL RISKS AND UNCERTAINTIES
CONTINUED
MARKET, CREDIT AND LIQUIDITY RISKS CONTINUED
PRINCIPAL RISK
IMPACT
Failure to meet the Group’s financial
obligations as they fall due
impact)
1
2
An ongoing failure to refinance its liabilities could result in the
Group failing to meet its payment obligations as they fall due.
As a result the Group would not be a going concern.
LINK TO STRATEGY
1
2
3
Grow assets under management
Invest selectively
Manage portfolios to
maximise value
KEY RISK INDICATOR
Forecast breach of financing principles.
OPERATIONAL RISKS
PRINCIPAL RISK
IMPACT
Loss of a ‘key person’ and inability to
recruit into key roles
impact)
1
2
3
Breach of any ‘Key Man’ clause could result in the Group having
to stop making investments for the relevant fund or may impair
the ability of the Group to raise new funds if not resolved in a
timely manner.
Loss of an individual key to the Group’s fund management business
or a critical infrastructure role could impair the Group’s ability to
deliver its strategic objectives as planned if that role is not filled
in a timely manner.
KEY RISK INDICATOR
Loss of a key man on a material fund.
Instances of dissatisfied employees.
Negative financial or reputational impact
arising from regulatory or legislative
failing
The Group’s ability to raise new funds and operate its fund
management business would be impaired as a result of a
regulatory failing.
Any material breach of regulations.
Status of compliance monitoring
programme.
impact)
1
2
3
Technology/Information Security
inadequate or fails to adapt to
changing business requirements
and/or external threats
1
2
3
Loss or missed opportunities arising from
failure of key business processes, including
third party supplier management, valuation
and external reporting
impact)
1
3
The Group’s ability to raise new funds and operate its fund
management business would be impaired as a result of any
reputational damage arising from a security failing.
Any material breach or severe disruption
due to systems failure.
Any material loss or reputational damage
arising from external threats.
The Group’s ability to raise new funds and operate its fund
management business would be impaired as a result of the failure
of key business processes.
Any failure of business process resulting in
significant business disruption, financial or
reputational damage.
You can read more about the Group’s strategic objectives on
pages 10 to 13
KEY CONTROLS AND MITIGATION
MOVEMENT IN THE YEAR
FOCUS FOR FY17
The Group has a policy which seeks to ensure that debt funding is
obtained from diversified sources and that the repayment profile is
managed to minimise material repayment events. The profile of the
debt facilities available to the Group is reviewed frequently by the
Treasury Committee.
Continued focus on liquidity
management and minimum
capital requirements
The Group has continued to renew and increase its
sources of funding when suitable opportunities arise,
maintaining sufficient debt headroom to support its
activities. However, during the year the Group paid a
special dividend of £300m and has proposed a
further special dividend of £200m, which, combined
with the £100m share buy back completed during
FY15, has returned £600m to shareholders,
reducing debt capacity and increasing gearing.
KEY CONTROLS AND MITIGATION
MOVEMENT IN THE YEAR
FOCUS FOR FY17
The Group rewards its investment professionals and other key
employees in line with market practice. Senior investment professionals
typically receive long term incentives are able to participate in carried
interest. The Group periodically engages external consultants to
benchmark the rewards offered by the Group to ensure they remain
attractive and competitive.
The Group has an appraisal and development process for all its
employees to ensure that individuals remain sufficiently motivated and
appropriately competent to ensure the ongoing operation and
development of the business.
The Group has a governance structure in place, supported by a risk
framework that allows for the identification, control and mitigation of
material risks resulting from the geographical and product diversity of
the Group. The adequacy of the systems and controls the Group has in
place to comply with the regulations and to mitigate the risks that these
represent is periodically assessed. This includes a tailored compliance
monitoring programme that specifically addresses regulatory and
reputational risks.
Application of the Group’s information security policies is supported by
a governance structure and a risk framework that allows for the
identification, control and mitigation of technology risks. The adequacy
of the systems and controls the Group has in place to mitigate the
technology risks is continuously monitored and subject to regular
testing. The effectiveness of the framework is periodically assessed.
Control procedures are in place to ensure that key business processes
are identified, documented and monitored. Third party suppliers are
subject to robust selection process and performance is monitored
against agreed service levels with exceptions reported and escalated as
appropriate. Key valuation processes are subject to independent Board
review on a semi-annual basis as detailed in the Audit Committee report
on page 55. The effectiveness of the control framework for key business
processes is reviewed by the Risk Committee (see page 64).
Identification and engagement
with key employees
During the year the Group undertook its latest
Continued succession planning
Employee Engagement Survey details of which can be
for key roles and within key
found on page 37 and from which the Board
concluded that there was no evidence that this risk
teams
had changed.
There was no significant impact in the year as a result
of the loss of any employee.
During the year the continued expansion of the
Group’s product portfolio and increasing product
complexity and geographic span has led to
increased regulatory risk. In addition, continued,
widespread regulatory change brings the risk of
inadvertent breaches.
As the Group expands the potential reputational
damage from an information security breach or
Enhanced prevention
monitoring and reporting
other cyber attack has increased.
systems
Oversight of regulatory and
legislative compliance
Oversight of regulatory and
legislative impact of change
Oversight of governance
of information security
Increased engagement with
and reviews of key services
provided by third parties
As the Group’s fund management business grows
the impact of a failure of a third party supplier on
the Group has increased.
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
34 / 35
MARKET, CREDIT AND LIQUIDITY RISKS CONTINUED
PRINCIPAL RISK
IMPACT
KEY RISK INDICATOR
KEY CONTROLS AND MITIGATION
MOVEMENT IN THE YEAR
FOCUS FOR FY17
Failure to meet the Group’s financial
obligations as they fall due
impact)
1
2
An ongoing failure to refinance its liabilities could result in the
Forecast breach of financing principles.
Group failing to meet its payment obligations as they fall due.
As a result the Group would not be a going concern.
The Group has a policy which seeks to ensure that debt funding is
obtained from diversified sources and that the repayment profile is
managed to minimise material repayment events. The profile of the
debt facilities available to the Group is reviewed frequently by the
Treasury Committee.
Continued focus on liquidity
management and minimum
capital requirements
The Group has continued to renew and increase its
sources of funding when suitable opportunities arise,
maintaining sufficient debt headroom to support its
activities. However, during the year the Group paid a
special dividend of £300m and has proposed a
further special dividend of £200m, which, combined
with the £100m share buy back completed during
FY15, has returned £600m to shareholders,
reducing debt capacity and increasing gearing.
PRINCIPAL RISK
IMPACT
KEY RISK INDICATOR
KEY CONTROLS AND MITIGATION
MOVEMENT IN THE YEAR
FOCUS FOR FY17
The Group rewards its investment professionals and other key
employees in line with market practice. Senior investment professionals
typically receive long term incentives are able to participate in carried
interest. The Group periodically engages external consultants to
benchmark the rewards offered by the Group to ensure they remain
attractive and competitive.
The Group has an appraisal and development process for all its
employees to ensure that individuals remain sufficiently motivated and
appropriately competent to ensure the ongoing operation and
development of the business.
The Group has a governance structure in place, supported by a risk
framework that allows for the identification, control and mitigation of
material risks resulting from the geographical and product diversity of
the Group. The adequacy of the systems and controls the Group has in
place to comply with the regulations and to mitigate the risks that these
represent is periodically assessed. This includes a tailored compliance
monitoring programme that specifically addresses regulatory and
reputational risks.
Application of the Group’s information security policies is supported by
a governance structure and a risk framework that allows for the
identification, control and mitigation of technology risks. The adequacy
of the systems and controls the Group has in place to mitigate the
technology risks is continuously monitored and subject to regular
testing. The effectiveness of the framework is periodically assessed.
Control procedures are in place to ensure that key business processes
are identified, documented and monitored. Third party suppliers are
subject to robust selection process and performance is monitored
against agreed service levels with exceptions reported and escalated as
appropriate. Key valuation processes are subject to independent Board
review on a semi-annual basis as detailed in the Audit Committee report
on page 55. The effectiveness of the control framework for key business
processes is reviewed by the Risk Committee (see page 64).
During the year the Group undertook its latest
Employee Engagement Survey details of which can be
found on page 37 and from which the Board
concluded that there was no evidence that this risk
had changed.
There was no significant impact in the year as a result
of the loss of any employee.
During the year the continued expansion of the
Group’s product portfolio and increasing product
complexity and geographic span has led to
increased regulatory risk. In addition, continued,
widespread regulatory change brings the risk of
inadvertent breaches.
As the Group expands the potential reputational
damage from an information security breach or
other cyber attack has increased.
As the Group’s fund management business grows
the impact of a failure of a third party supplier on
the Group has increased.
Identification and engagement
with key employees
Continued succession planning
for key roles and within key
teams
Oversight of regulatory and
legislative compliance
Oversight of regulatory and
legislative impact of change
Oversight of governance
of information security
Enhanced prevention
monitoring and reporting
systems
Increased engagement with
and reviews of key services
provided by third parties
OPERATIONAL RISKS
recruit into key roles
impact)
1
2
3
Loss of a ‘key person’ and inability to
Breach of any ‘Key Man’ clause could result in the Group having
Loss of a key man on a material fund.
to stop making investments for the relevant fund or may impair
the ability of the Group to raise new funds if not resolved in a
Instances of dissatisfied employees.
timely manner.
Loss of an individual key to the Group’s fund management business
or a critical infrastructure role could impair the Group’s ability to
deliver its strategic objectives as planned if that role is not filled
in a timely manner.
Negative financial or reputational impact
arising from regulatory or legislative
The Group’s ability to raise new funds and operate its fund
Any material breach of regulations.
management business would be impaired as a result of a
regulatory failing.
Status of compliance monitoring
programme.
failing
impact)
1
2
3
Technology/Information Security
inadequate or fails to adapt to
changing business requirements
and/or external threats
1
2
3
Loss or missed opportunities arising from
failure of key business processes, including
third party supplier management, valuation
and external reporting
impact)
1
3
The Group’s ability to raise new funds and operate its fund
management business would be impaired as a result of any
reputational damage arising from a security failing.
Any material breach or severe disruption
due to systems failure.
Any material loss or reputational damage
arising from external threats.
The Group’s ability to raise new funds and operate its fund
Any failure of business process resulting in
management business would be impaired as a result of the failure
significant business disruption, financial or
of key business processes.
reputational damage.
ICG ANNUAL REPORT & ACCOUNTS 2016
BUSINESS
MODEL
MARKETPLACE
& STRATEGY
GROUP
PERFORMANCE
GROUP
RISKS
RESOURCES &
RELATIONSHIPS
OUR RESOURCES
AND RELATIONSHIPS
Delivering our strategic objectives is dependent on key resources and relationships.
OUR RESOURCES AND
RELATIONSHIPS
The Group is a well known and highly
respected specialist asset manager in our
core markets with a strong brand and track
record, supported by 27 years of investment
experience. The performance of our people
has been recognised in seven awards during
the last year.
The contribution of our people to the
value of our business is demonstrated
through our:
– Business development
– Investment management skills
– Distribution capabilities
– Scalable infrastructure
AWARDS
Best Audit and Risk Disclosure
FTSE 250
Lender of the year
in Europe
Lender of the year
Lender of the year
Europe
Europe
Fundraising of the year
Fundraising of the year
Europe
Europe
Junior lender of the year
Junior lender of the year
Europe
Europe
Senior lender of the year
Senior lender of the year
Europe
Europe
BUSINESS DEVELOPMENT
UNDERPINS OUR GROWTH
The Group has selectively expanded its
investment strategies to support its growth.
The Group has leveraged its 27 year track
record and established fund management
infrastructure to support new and existing
teams to develop investment strategies that
meet the needs of third party investors.
In establishing new strategies the Group is
focused on identifying individuals and teams
with a differentiated investment proposition.
Our infrastructure and marketing teams
support innovative investment professionals
to develop investment strategies that deliver
the returns demanded by investors. Our fund
management infrastructure underpins these
new investment strategies as they grow
assets under management.
AN ACTIVELY MANAGED
INVESTMENT PROCESS
The Group has a consistent, efficient
and robust investment culture across
its investment strategies. We deliver a
disciplined investment process, demonstrate
core credit principles and are focused
on capital preservation. Our rigorous
risk analysis and engagement with our
portfolio management processes continue
throughout the life of the investment,
encompassing regular reviews, active
management of the investment and a
proactive approach to realisation.
Our investment professionals are specialists,
with the skills required to understand and
assess the relevant risks and opportunities
for their investment strategies, to originate
investments and then manage those
assets to realise returns for investors.
Successful application of those skills has
supported the development of our long
standing track record.
We value the local knowledge of our
investment professionals. We believe that
this is crucial to maintain a strong flow of
investment opportunities and to effectively
manage our investments. Our teams are
embedded in their markets, speak the
local languages, understand local laws
and customs and have the necessary
depth of relationships required to
operate successfully.
FUND DISTRIBUTION DEPENDS ON
INVESTOR RELATIONSHIPS
Our dedicated distribution team
is embedded within the business.
Our relationships with third party fund
investors have strengthened since the
team was established in 2011. The team
has increased investor awareness of our
funds, expanding our fund investor network
both geographically and by investor
type. This enhanced network promotes
continuous engagement and supports the
development of investment strategies which
provide solutions to investors.
Our distribution team have replicated the
local model established by the investment
business. Their local market knowledge,
supported with an understanding of what
the Group can offer, is giving us access to
new investors.
SCALABLE INFRASTRUCTURE
Our infrastructure teams support the whole
business, ensuring consistency and quality
of service to our counterparties and fund
investors. They have established, manage
and continue to develop systems and
controls to support our investment activities
and effectively report on the performance
and activities of the Group and our funds.
Our employees have the market skills,
knowledge and relationships to support
the business as we progress our strategic
priorities, expanding both our fund range
and our geographical coverage.
MANAGING OUR KEY
RELATIONSHIPS
Building and maintaining our key
relationships is essential to both support
the growth of the business and deliver our
strategic objectives.
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
36 / 37
1
GROW ASSETS
UNDER
MANAGEMENT
The Group is expanding and strengthening its relationships with third
party investors. Our investment strategies offer investors an opportunity
to diversify their portfolio and generate yield. We are continuously
engaged with our investors to understand their current and future
needs and to ensure that we have the investment strategies to meet
these requirements.
The availability of balance sheet capital to co-invest and to support
business development is underpinned by our relationships with our
key finance counterparties. These include banks, bondholders, other
lenders and rating agencies.
The Group has an active compliance team who work with the business and
our regulators to both identify and manage regulatory risk and also to
promote best practice within the marketing, investment and infrastructure
teams. The Group has established a three lines of defence model to
enhance its risk management processes. You can read more about risk
and how it is managed on pages 28 to 35.
2
INVEST
SELECTIVELY
Our investment professionals manage the relationships necessary to
originate and source investment opportunities for our funds. These
relationships include financial advisers, banks and other investment
managers. Our reputation, built up over 27 years, has generated strong,
supportive, asset sourcing networks.
ICG is a signatory to the UN Principles for Responsible Investment.
We acknowledge the relevance to the investor of environmental, social
and governance factors, and of the long term health and stability of
the market as a whole. Our investment committees and investment
professionals take responsibility for applying the principles in practice,
taking a proactive approach to considering environmental, social and
corporate governance factors in all our investment decisions.
3
MANAGE
PORTFOLIOS
TO MAXIMISE
VALUE
We invest money across the capital structure of companies and property
assets. We seek to develop strong relationships both with owners and
the management teams. Our investment teams have local market
knowledge and access to the Group’s extensive sector and market
experience to support those businesses. Attendance at board meetings
of originated corporate investments both increases our knowledge of
the business and allows our investment professionals to develop strong
relationships with management teams.
OUR RESPONSIBILITY TO
OUR PEOPLE
To successfully deliver our strategic priorities
the Group is focused on engaging with and
motivating its employees.
Effective two way communication with our
people is essential to build and maintain
engagement. We have a number of formal
and informal channels to achieve this.
These include quarterly whole business
briefings, an intranet and regular team and
manager meetings.
The Group conducts regular, confidential,
employee surveys to identify the areas of the
business in need of further development,
and those areas that are performing well.
The last survey was conducted in 2015
and demonstrated that the Group was
performing above financial services norms.
It also demonstrated clear progress on
the areas for improvement identified in the
2012 survey.
The Group considers that training and
development are essential to attract and
retain people of the highest calibre and has
always invested significantly in this. We are
committing to enhancing the knowledge and
skills of our people and nurturing their talent.
We run an extensive programme of internal
and external training to develop and enhance
core skills, increase technical competency
and to develop future leaders.
The ongoing development of our people is
supported by our performance management
system. This provides a regular forum
for employees and managers to review
performance against agreed objectives and
to identify areas for further development.
Our people are offered access to a range of
benefits designed to attract, develop and
retain talented employees. We ensure our
levels of overall remuneration are sufficient
to attract and retain talent. Benefits include:
pension contributions, healthcare and
health screening, life assurance, child care
vouchers, travel insurance, share save
scheme, gym membership and cycle to
work schemes.
ICG ANNUAL REPORT & ACCOUNTS 2016
BUSINESS
MODEL
MARKETPLACE
& STRATEGY
GROUP
PERFORMANCE
GROUP
RISKS
RESOURCES &
RELATIONSHIPS
OUR RESOURCES AND RELATIONSHIPS
CONTINUED
The Group supports flexible working,
with 13% of employees benefitting
from these arrangements. The current
engagement of our people is further
demonstrated by staff retention, based on
opening headcount, of 93.25%.
DIVERSITY AND VALUES
The permanent employee population of
268 represents 28 different nationalities.
Of our permanent employees 92 are women
and 176 men. We do not record the religion
or ethnicity of employees. The senior
management team (excluding the Group’s
Board) comprises two women and four men
and ICG’s Board comprises eight people of
which one is a woman.
We are committed to providing a safe and
healthy work environment for our people
where diversity is valued, where everyone is
treated fairly and with dignity and respect,
regardless of age, gender, race, sexual
orientation, disability, religion or beliefs.
We do not tolerate discrimination of any
nature and comply fully with appropriate
human rights legislation. We aim for
employees to have a sense of wellbeing
and we promote a working culture where
employees can freely question practices and
suggest alternatives.
OUR RESPONSIBILITY TO
OUR COMMUNITY
Our social and community policies and
practices are grounded in promoting
opportunities to young people, through
education or work experience.
The Group runs an internship programme
which offers a number of placements
for young graduates who have achieved
academically but are not readily able to
– For more information about Impetus-
PEF please visit:
http://impetus-pef.org.uk
– For more information about
ThinkForward please visit:
http://think-forward.org.uk
– For more information about Tower
Hamlets Pupil Referral Unit please visit:
www.towerhamletspru.org.uk
access opportunities in the financial sector.
The programme is now in its fourth year.
15 people have participated in the scheme
to date, with three currently working within
the Group. Of the 12 intern alumni, over 90%
have secured full time roles within the Group
and or elsewhere.
The Group has made a five year, £500k
commitment to Impetus-PEF’s ThinkForward
programme. ThinkForward was set up by
the Private Equity Foundation (now merged
with Impetus to form Impetus-PEF) in 2010
to dramatically reduce the risk of young
people becoming NEETs (not in education,
employment or training). According to
Impetus-PEF, 15% of young people are
failing to make a successful move from
education into employment. The charity
places dedicated coaches in schools where
there are young people who have been
identified as ‘at risk’ of becoming NEETs.
The coaches work with individuals to help
them achieve their goals, providing support
both at school and at home.
The Group’s commitment has provided
funding to support a full time coach for
the Harpley Tower Hamlets Pupil Referral
Unit. The coach works with young
people to support them to maximise their
opportunities while in full time education
and to improve their chances of a successful
transition into long term employment.
Employees are encouraged to donate time
to activities supporting ThinkForward.
OUR RESPONSIBILITY TO
OUR ENVIRONMENT
ICG recognises that businesses have a
responsibility to protect the environment
and understand the impact their operations
have, and we take appropriate measures to
limit our energy use and carbon output.
The Group is required to state the annual
quantity of emissions in tonnes of carbon
dioxide equivalent from activities for which
the Group is responsible. The Group’s
carbon emissions result predominantly from
business travel.
Our absolute Scope 1 and 2 emissions
have decreased by 17% during the year.
This is principally due to an improvement
in Scope 1 data quality. Accurate data
collection remains a challenge where we
rely on third parties, such as the landlord or
utilities consultants or changes in building
management occur. We are continually
striving to improve the quality of our
greenhouse gas disclosure. Improved access
and availability of consumption data enables
us to report with enhanced accuracy year
on year.
During the most recent reporting year we
complied with Energy Savings Opportunity
Scheme (ESOS) as required by the UK
Environmental Agency. As part of our ESOS
assessment we undertook energy audits of
our significant energy users; construction
sites, transport and our main office at Juxon
House. Opportunities to reduce energy
consumption were identified through
each of these audits, and processes are
underway to implement a number of these
opportunities. As a result Group electricity
consumption has fallen by 3%.
Our Scope 3 emissions have increased
significantly as a result of improved data.
Operational scope
Greenhouse gas emission source
2016
2015
Units
Direct emissions
(Scope 1)
Combustion of fuel and operation
of facilities
49
177
Tonnes CO2e
Indirect emissions
(Scope 2)
Purchased electricity/heat
(location based)
881
915
Tonnes CO2e
Purchased electricity/heat
(market based)
966
n/a
Tonnes CO2e
Business travel: flights and rail
2,550
1,221
Tonnes CO2e
3,480
2,313
Tonnes CO2e
13.7
9.6 Tonnes CO2e per FTE
Indirect emissions
(Scope 3)
Total
Emissions per FTE
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
38 / 39
GOVERNANCE
REPORT
CONTENTS
Letter from the Chairman
Board of Directors
Our corporate governance framework
The Board’s year
Training and induction
Board evaluation
Engagement with stakeholders
Audit Committee report
Risk Committee report
Nominations Committee report
Remuneration Committee report
Compensation summary
Directors’ remuneration policy summary
Annual report on remuneration
Directors’ report
Directors’ responsibilities
40
42
44
46
48
49
50
51
60
66
69
74
78
84
94
101
ICG ANNUAL REPORT & ACCOUNTS 2016
CHAIRMAN’S
LETTER
BOARD OF
DIRECTORS
CORPORATE
GOVERNANCE
COMMITTEE
REPORTS
REMUNERATION
REPORT
DIRECTORS’
REPORT
LETTER FROM THE CHAIRMAN
KEY GOVERNANCE
ACHIEVEMENTS
As Chairman I am delighted to have
overseen significant developments in
corporate governance. In my opinion the
key achievements over the last six years
have been:
– Refreshing the composition of the
Board to include a wider range of skills
and backgrounds and to introduce
appropriate financial services and risk
management experience
– The establishment of a separate
Risk Committee
– Increased Board focus on engagement
with shareholders and the expanded
programme of shareholder and
stakeholder interactions
– The introduction of an induction
process for Non Executive Directors
and an increased focus on ongoing
training and developments
JUSTIN DOWLEY
CHAIRMAN
DEAR SHAREHOLDER
As you will be aware, I will be retiring from
the Board of the Company from the end of
this year’s Annual General Meeting (AGM)
on 21 July. During my time as Chairman, your
Board has been committed to maintaining
high standards in the area of corporate
governance. The volume of applicable law
and regulation in this area has increased
significantly over the past few years but
this has always been an important area of
focus for the Board as we have managed
the Company in the long term interests
of shareholders.
To support its governance objectives, the
Board has established a system of controls
and management processes to ensure
that risks to the Group’s business can be
assessed and managed, and which ensure
that the necessary financial and human
resources are in place for the Company to
meet its objectives and increase shareholder
value. We aim to exercise robust supervision
and leadership of the Group while fostering
a corporate culture that permits growth and
empowers our employees.
During the year we were pleased to receive
external recognition of our work in the
governance area, as we received an award
from the Institute of Chartered Secretaries
and Administrators (ICSA) for Best Audit
and Risk Disclosure in the FTSE250. ICSA is
a well respected authority on UK corporate
governance and compliance, and we were
delighted to receive this award.
Some of our key priorities during the
year were:
– Increasing our focus on risk management.
During the year, our new CRO took up
his role. Working with the Executive
Committee and the Risk Committee,
he has reviewed and enhanced the risk
management and monitoring framework
for our business, and has considerably
enhanced the clarity of reporting to
the Risk Committee and the Board in
this area. Also during the year, Kathryn
Purves became the Chairman of our
Risk Committee. Kathryn has executive
experience as a risk professional and so
has brought her considerable experience
in this area to her new role, greatly aiding
the Committee
Please see pages 60 to 65 for the report of
the Risk Committee
– Enhancing the disclosures in our
Remuneration report. Following a
significant number of votes against the
report in 2015 we have sought feedback
from a number of shareholders and
shareholder advisory groups, and
have worked hard to improve the level
and clarity of our disclosures in the
Remuneration report, particularly in
respect of performance requirements for
Executive Directors
Please see pages 69 to 93 for the report of
the Remuneration Committee
– Increasing engagement with shareholders.
Members of the Board have continued
to meet with shareholders to provide
updates on the Group’s performance
and strategy. A comprehensive Capital
Markets Seminar was held in January
2016 and was attended by a number of
shareholders, as well as analysts, banks
and other stakeholders
Please see page 50 for more details of our
shareholder engagement
– Receiving detailed reports on business
units. The Board is keen to ensure
that it has a detailed understanding of
operational areas, and has received a
number of presentations from business
unit heads about their products, markets
and operations
Please see pages 46 to 47 for more details
– Formally adopting a long term business
plan. Following a specific strategy session
for the whole Board in March 2015, a
detailed business plan was drawn up by
the Executive Committee and debated by
the full Board before being adopted
– Managing the new Chairman appointment
Please see pages 66 to 68 for the report
of the Nominations Committee for more
details of this appointment
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
40 / 41
– Conducting an internal Board evaluation.
An external assessment of the Board was
due in May 2016 but has been postponed
to allow the new Board to be assessed
once the new Chairman and new Non
Executive Director are in place as this is
more likely to provide relevant feedback
for the future
Please see page 49 for more details of
this decision
Governance will continue to be an important
area for the Board following my departure.
My successor as Chairman is proposed to be
Kevin Parry, currently Senior Independent
Director; assuming he is re-elected as
a Director at our AGM. Kevin will be
appointed as Chairman from the end of the
AGM onwards. I have worked with Kevin
for a number of years; he has extensive
experience in meeting the regulatory
requirements of the financial services sector
and brings high personal standards to the
area of governance. I am confident that
he will be able to direct the Board to meet
the ongoing regulatory and governance
requirements of our business.
I would like to thank you all for your support
for the Board during my time as Chairman.
I am very happy to respond to any questions
you may have from now until the end of
the AGM.
Justin Dowley
Chairman
23 May 2016
DEAR SHAREHOLDER
As set out in Justin’s letter, I have been
proposed to succeed Justin as Chairman
of the Company. On behalf of the Board
and our shareholders, I would like to thank
Justin for his hard work as Chairman, and
in particular the enhanced governance
structure which he has overseen for the past
six years. My aim as Chairman will be to hold
the Executive Directors to account to deliver
shareholder value and to meet the high
standards of corporate governance that are
required by the UK Corporate Governance
Code and other applicable regulation. This is
extremely important for the Company as
a listed PLC and as a regulated financial
services company.
If any shareholder has questions on the work
of the Board, I am very happy to respond
to these, at the Company’s AGM or at any
other time.
Kevin Parry
Senior Independent Director
23 May 2016
BOARD OF DIRECTORS
As at 31 March 2016 (and at the date of
publication), the Board comprised a Non
Executive Chairman, four independent
Non Executive Directors and three
Executive Directors. Having duly
considered their independence in
accordance with the Code, the Board
considers each of its Non Executive
Directors to be independent in character
and judgement. They each provide
effective challenge both at and outside
of Board meetings. 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, the National Crime Agency, Novae
Group plc and Scottish Mortgage
Investment Trust PLC during the year.
We do not consider these appointments
to have any adverse impact on his ability
to perform his role as Chairman of the
Board effectively.
Justin Dowley will retire from the Board
of the Company with effect from the end
of the Company’s AGM on 21 July 2016.
Subject to approval of his reappointment
by shareholders, Kevin Parry will
succeed Justin as Chairman of the Board.
Kevin Parry is the Senior Independent
Director of Standard Life plc, a Non
Executive Director of the Nationwide
Building Society and of Daily Mail and
General Trust plc, and is Chairman of the
Homes and Communities Agency. We do
not consider these appointments to
have any adverse impact on his ability to
perform his role effectively as Chairman
of the Board. Please see the report of the
Nominations Committee on page 66 for
further details of this change.
ICG ANNUAL REPORT & ACCOUNTS 2016
CHAIRMAN’S
LETTER
BOARD OF
DIRECTORS
CORPORATE
GOVERNANCE
COMMITTEE
REPORTS
REMUNERATION
REPORT
DIRECTORS’
REPORT
BOARD OF DIRECTORS
JUSTIN DOWLEY
CHRISTOPHE EVAIN
BENOÎT DURTESTE
PHILIP KELLER
CHAIRMAN*
EXECUTIVE DIRECTOR
AND CHIEF EXECUTIVE
OFFICER
EXECUTIVE DIRECTOR
AND HEAD OF EUROPEAN
INVESTMENTS
EXECUTIVE DIRECTOR
AND CHIEF FINANCIAL
OFFICER
N
R RK
E
E
E
*Until 21 July 2016
Justin Dowley brings a wealth
of experience of the financial
services industry to the Board,
having had a 30 year career in
investment banking. He qualified
as a Chartered Accountant at Price
Waterhouse. Between 1981 and
2011, Justin was a Director of
Morgan Grenfell before becoming
Head of Investment Banking at
Merrill Lynch Europe and then
a founder partner of Tricorn
Partners. In addition, having
served on a number of company
boards during his career, Justin
has gained broad corporate
governance and commercial
expertise which he brings to his
role as Chairman of the Group.
Christophe Evain has been CEO
of ICG since 2010, during which
time he has led the strategic
development of the Group to a
fund management model.
Prior to his appointment as CEO,
Christophe had worked at ICG for
17 years and has been a key figure
in the development of the Group’s
business. He has led the expansion
of the Group to new geographies
and new strategies. Before ICG, he
held a number of roles in other
leading financial institutions,
specialising in leverage and
structured finance.
Christophe also serves as Chief
Investment Officer of the Group.
He has a thorough and detailed
knowledge of the Group’s
investment portfolio and maintains
a focus on investment discipline
and quality.
Benoît Durteste is an experienced
investment manager with a strong
understanding of European
private equity markets. He is
the Group’s Head of European
Investments and a Fund Manager
for three of our key mezzanine
investment funds. His executive
role provides the Board with
detailed insight into the markets
in which the Group operates,
and he contributes a thorough
understanding of financial markets
and the Group’s investment
portfolio to Board proceedings.
Benoît 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, he had
roles at BNP Paribas and at GE
Capital, notably as CFO of one
of their portfolio companies.
Philip Keller has responsibility for
finance, operations, human
resources, risk, compliance and
legal. Philip is a Chartered
Accountant and he brings sound
financial management skills to the
Board. He also has a strong focus on
operational matters and stakeholder
communications, and during his
time as an Executive Director has
overseen the significant expansion
of the Group’s platform and
infrastructure. Prior to joining ICG,
he 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. This experience
provides him with a management-
side perspective on buyouts which
is a valuable additional viewpoint
for the Board.
OTHER DIRECTORSHIPS
Melrose Industries PLC, the
National Crime Agency, Novae
Group plc, Scottish Mortgage
Investment Trust PLC and a number
of private companies
OTHER DIRECTORSHIPS
ICG Group entities
OTHER DIRECTORSHIPS
ICG Group entities and current
Chairman of the BVCA Alternative
Lending Committee
OTHER DIRECTORSHIPS
ICG Group entities
JOINED BOARD
2006 and was appointed
Chairman in 2010
JOINED BOARD
2003 and was appointed
CEO in 2010
JOINED BOARD
2012
JOINED BOARD
2006
COMMITTEE KEY
NOMINATIONS
N
RK
RISK
E
EXECUTIVE
R
REMUNERATION
A
AUDIT
COMMITTEE CHAIRMAN
STR ATEGIC
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GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
42 / 43
KEVIN PARRY
NON EXECUTIVE
DIRECTOR AND SENIOR
INDEPENDENT DIRECTOR*
PETER GIBBS
NON EXECUTIVE
DIRECTOR*
KIM WAHL
NON EXECUTIVE
DIRECTOR
KATHRYN PURVES
NON EXECUTIVE
DIRECTOR
A
N
R RK
R
A
N
RK
A
N
R
RK
RK A
N
* until 21 July 2016. Chairman from
21 July 2016 (subject to approval)
* Senior Independent Director from
21 July 2016
During his career, Kevin Parry’s
roles have included being Chief
Financial Officer of Schroders plc
and a managing partner at KPMG,
as well as other positions.
This combination of roles has given
him a thorough understanding of
both the operations of listed
companies and the applicable audit
and accounting frameworks. He is a
Chartered Accountant with
extensive experience of auditing
and advising large international
groups. Kevin’s detailed knowledge
of financial accounting and his
experience on a number of company
boards brings a diverse range
of experience to Board and
Committee proceedings.
Peter Gibbs’s extensive asset
management experience has proved
invaluable to the Board during
the Group’s transition to a fund
management model. His career in the
sector has given him an informed
view of the issues facing the
Group, which allows him to provide
detailed insight into investor and
shareholder concerns. He served as
Chief Investment Officer of Merrill
Lynch’s Investment Management
activities outside the US and prior
to this was Co-Head of Equity
Investments worldwide. He also
served as a Director of UK Financial
Investments, the body established
to hold the UK government’s stake
in financial institutions. His roles
on this and other boards have
given him a detailed understanding
of corporate governance and
company proceedings.
Kim Wahl has a wide and detailed
knowledge of European investment
markets gained from a lengthy
career in the private equity industry;
he is the owner and Chairman of
the investment firm Stromstangen
AS which he established
in 2004, and he also co-founded IK
Investment Partners in 1989.
Kim had previously worked at
Goldman, Sachs & Co. The insight
gained during his career is
particularly useful for the Board
when considering the Group’s
investment portfolio at an oversight
level. He is based in Norway and
assists greatly in providing the
Board with an international view of
the Group’s business and markets.
Kathryn Purves served as Chief
Risk Officer of Partnership
Assurance Group plc, a leading
provider of non-standard
annuities, until June 2015.
Kathryn’s executive experience
in risk management has proved a
valuable resource to the Board as
she is able to enhance oversight in
a key area for the Group. She also
has valuable investment experience
for the Board to draw upon; before
joining Partnership in 2008, she
worked within the private equity
industry for approximately 10
years, most recently at Phoenix
Equity Partners. Prior to that, she
worked as an Investment Manager
for Deutsche Bank in Europe and
UBS Capital in Australia and Asia.
OTHER DIRECTORSHIPS
Standard Life PLC, Daily Mail and
General Trust plc, the Nationwide
Building Society and the Homes
and Communities Agency
OTHER DIRECTORSHIPS
Ashmore Group plc, Aspect
Capital Limited and Bank of America
Merrill Lynch (UK) Pension Plan
Trustees Ltd
OTHER DIRECTORSHIPS
Ceki AS, Stromstangen AS,
UPM Kymmene Oy,
Voxtra Foundation
and DNB Bank ASA
OTHER DIRECTORSHIPS
IFG Group plc
JOINED BOARD
2009
JOINED BOARD
2010
JOINED BOARD
2012
JOINED BOARD
2014
ICG ANNUAL REPORT & ACCOUNTS 2016
CHAIRMAN’S
LETTER
BOARD OF
DIRECTORS
CORPORATE
GOVERNANCE
COMMITTEE
REPORTS
REMUNERATION
REPORT
DIRECTORS’
REPORT
OUR CORPORATE
GOVERNANCE FRAMEWORK
CHIEF RISK OFFICER
INTERNAL AUDIT
OPERATIONAL RISK GROUP
AUDIT COMMITTEE
– Comprised of Non Executive Directors
RISK COMMITTEE
– Comprised of Non Executive Directors
– Oversees matters including
the Group’s financial reporting
and disclosure
– Oversees the Group’s risk
management framework and system of
internal controls
Please see pages 51 to 59 for the report
of the Audit Committee
Please see pages 60 to 65 for the report
of the Risk Committee
REMUNERATION COMMITTEE
– Comprised of Non Executive Directors
– Determines the Group’s
remuneration policy
– Reviews the remuneration of
senior management
Please see pages 69 to 93 for the report
of the Remuneration Committee
BOARD
OF DIRECTORS
– Comprised of the Executive and Non
Executive Directors
– Has the authority to conduct
the business of the Company in
accordance with the Company’s
constitutional documents
– Runs the Company for the long term
benefit of shareholders
NOMINATIONS COMMITTEE
– Comprised of Non Executive Directors
– Evaluates the Board’s composition,
performance and succession planning
– Considers candidates for Board
positions when appropriate
Please see pages 66 to 68 for the report
of the Nominations Committee
HUMAN RESOURCES
HUMAN RESOURCES
COMPANY SECRETARY
EXECUTIVE COMMITTEE
– Comprised of Executive Directors to
which the Board has delegated authority
for the day to day management of the
Group and its business
– Has general responsibility for:
– The Group’s resources
– Executing the agreed strategy
– Financial and operational control
– Managing the business worldwide
Please see page 95 for further details
SENIOR MANAGEMENT TEAM
STR ATEGIC
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REPORT
FINANCIAL
STATEMENTS
44 / 45
KEY BOARD ROLES
WHO MANAGES OUR RISKS?
CHAIRMAN
CHIEF EXECUTIVE OFFICER
CHIEF RISK OFFICER
– Christophe Evain, whose role is to
oversee the Group on a day to day basis
– Accountable to the Board for the
financial and operational performance
of the Group
– Also serves as Chief Investment Officer
EXECUTIVE DIRECTORS
– As well as the CEO, Philip Keller,
the Chief Financial Officer, and
Benoît Durteste, Head of European
Investments, act as Executive Directors
– The three Executive Directors
constitute the Executive Committee
SENIOR INDEPENDENT DIRECTOR
– Currently Kevin Parry. Peter Gibbs will
take up this role from 21 July 2016
– Acts as a sounding board for the
Chairman and, where necessary, acts
as an intermediary for shareholders or
other Non Executives if they feel issues
raised have not been appropriately
dealt with
– Justin Dowley currently serves as
Chairman; he will be succeeded by
Kevin Parry (subject to shareholder
approval of his reappointment) on
21 July 2016.
– Responsible for:
– Organising the business of the Board
– Ensuring its effectiveness and setting
its agenda
– Effective communication with the
Group’s shareholders
Please see page 40 for the Chairman’s
letter to shareholders
NON EXECUTIVE DIRECTORS
– In addition to the Chairman, Kevin Parry,
Peter Gibbs, Kim Wahl and Kathryn
Purves act as Non Executive Directors
of the Company
– Other than the Chairman, all Non
Executive Directors are independent
– Responsible for providing independent
oversight of, and challenge to, the
Company’s executive management
Please see pages 42 to 43 for Directors’
profiles
KEY BOARD SUPPORT ROLES
COMPANY SECRETARY
– Each Committee’s Secretary provides
– Responsible for advising on legal,
governance and listing matters at the
Board and across the Group
– Provides advice and support to the
Board and its Committees
– Manages the Group’s relationships with
shareholder bodies
advice and support within the specialist
remit of that Committee; they are
responsible for ensuring that the
Committee members receive relevant
information and papers and that
appropriate matters are discussed.
Each Secretary serves at the invitation
of the Chairman of that Committee
COMMITTEE SECRETARIES
Committee
– Nominations Committee
– Remuneration Committee
– Audit Committee
– Risk Committee
Secretary
– Company Secretary
– Head of Human Resources
– Head of Finance
– Chief Risk Officer
– During the year our CRO took up his role
– The CRO is responsible for all areas of the
risk function, including:
– Financial, operational, regulatory, IT,
information flow and market risk
– Assessing and monitoring the risks
faced by the Group and advising senior
management and the Board directly
– Advising on setting risk tolerance and
appetites and controlling appropriate
and relevant risk exposures
– Reports to the CFO and also has direct
access to Non Executive Directors
GROUP COMPLIANCE OFFICER
– Primarily responsible for overseeing and
managing regulatory compliance matters
within the Group
– Reports to the CRO, and also has
direct access to Executive and
Non Executive Directors
HEAD OF INTERNAL AUDIT
– An independent function which provides
assurance to the Board on the effectiveness
of internal controls in relation to the key
risks identified and identifies opportunities
to reduce risk
– Internal audits are undertaken in
accordance with an annual risk based
plan approved by the Audit Committee
– Reports to the Chairman of the Audit
Committee and also has direct access to
Executive Directors
OPERATIONAL RISK GROUP
– Meets monthly and is comprised of the
heads of the Group’s control functions.
The CFO attends by invitation
– Remit is to identify potential operational
risks and suggest solutions or
improvements in process
– Chaired by the Group’s CRO and reports its
findings to the Risk Committee
ICG ANNUAL REPORT & ACCOUNTS 2016
CHAIRMAN’S
LETTER
BOARD OF
DIRECTORS
CORPORATE
GOVERNANCE
COMMITTEE
REPORTS
REMUNERATION
REPORT
DIRECTORS’
REPORT
THE BOARD’S YEAR
HOW THE BOARD SPENT ITS TIME
DEVELOPMENT AND
LEADERSHIP
+ including business unit
updates, technical training
and succession planning
STRATEGY, NEW PRODUCTS
AND MARKETS
+ including consideration
of new opportunities and
business planning
GOVERNANCE,
STAKEHOLDERS AND
SHAREHOLDERS
+ including consideration
of feedback from
shareholders, oversight
of governance
framework and
risk management
2016 TIMELINE
FINANCIAL PERFORMANCE,
OUTLOOK AND CAPITAL
+ including financial reporting,
capital structure and
dividend policy
OPERATIONS, RISK MANAGEMENT
AND SYSTEMS
+ including fund performance and
regulatory capital
COMMITTEE MEETINGS KEY
AG
M
Annual General Meeting
A
B
N
R
Audit Committee
Board Committee
Nominations Committee
Remuneration Committee
RK
Risk Committee
MAY
JULY
SEPTEMBER
KEY ISSUES AND HIGHLIGHTS
+ Capital structure and dividend policy
(see page 6)
+ Key business developments and latest
financial reports
+ New business opportunities
+ Corporate financing structure
+ Key business developments and latest
financial reports
+ Five year strategic business plan
+ New business opportunities
+ Key business developments and latest
financial reports
ANNUAL MATTERS
+ Board appraisal (see page 49)
+ Approval of Annual Report and AGM Notice
+ Insurance renewal
+ Review of shareholdings of senior executives
+ Review of feedback from shareholders on the
announcement of results
TRAINING AND TECHNICAL UPDATES
+ Alternative Credit fund strategy training
+ ICG Longbow update with
session with portfolio manager
business unit heads
+ Asia Pacific update with business unit head
+ Risk management update (see case study on
page 48)
OTHER MEETINGS HELD
RA
AG
M
RK
A N
R
RK
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FINANCIAL
STATEMENTS
46 / 47
BOARD AND COMMITTEE MEETING ATTENDANCE
The following table shows the number of Board and Committee meetings held during the year and the attendance record of individual Directors.
Justin Dowley
Christophe Evain
Philip Keller
Benoît Durteste
Kevin Parry
Peter Gibbs
Kathryn Purves
Kim Wahl
Secretary
Board
meetings
Audit
Committee
meetings
Risk
Committee
meetings
Remuneration
Committee
meetings
Nominations
Committee
meetings
7 / 7
7 / 7
7 / 7
7 / 7
7 / 7
7 / 7
7 / 7
6 / 7
7 / 7
2 / 4*
4 / 4*
4 / 4*
3 / 4*
4 / 4
4 / 4
4 / 4
3 / 4
4 / 4
2 / 4
4 / 4*
4 / 4*
4 / 4*
4 / 4
4 / 4
4 / 4
3 / 4
4 / 4
4 / 4
4 / 4*
4 / 4*
n/a
4 / 4
4 / 4
4 / 4*
3 / 4
4 / 4
2 / 2
1 / 2*
1 / 2*
n/a
2 / 2
2 / 2
2 / 2
1 / 2
1 / 2
To the extent Directors were unable to attend meetings, they received and read the papers for consideration at that meeting, relayed
their comments in advance and, where necessary, followed up with the Chairman on the decisions taken. Each meeting of the Board was
attended by the Company Secretary, while each of the Committee meetings was attended by the Secretary to that Committee (other than one
Nomination Committee which the Secretary was unable to attend).
*Attended part or all of these meetings at the invitation of the relevant Chairman but was not a member of the relevant Committee.
NOVEMBER
JANUARY
MARCH
+ Potential acquisition of Enterprise Trust
management contract
+ Key business developments and latest
financial reports
+ Shareholder valuation review
+ Succession planning (see page 68)
+ ICAAP review (see page 64)
+ New business opportunities
+ Key business developments and latest
financial reports
+ New business opportunities
+ Credit fund performance review with business
unit head
+ Key business developments and latest
financial reports
+ Approval of half year reports
+ Half year results feedback
+ Confirmation of outside interests
of Directors
+ Operations and IT target operating model
+ Marketing and Client Relations update with
with business area head
business unit head
+ Review and approval of annual budget
+ Annual compliance reports
+ Approval of Committee Terms
of Reference
+ Board internal evaluation
+ Treasury update with Group Treasurer
+ Update on incoming legislation with
Group Counsel
+ CLO investments and operations with both
portfolio managers and fund structuring team
A RK
N
R
A
R
RK
2016 TIMELINE
OTHER MEETINGS HELD
ICG ANNUAL REPORT & ACCOUNTS 2016
CHAIRMAN’S
LETTER
BOARD OF
DIRECTORS
CORPORATE
GOVERNANCE
COMMITTEE
REPORTS
REMUNERATION
REPORT
DIRECTORS’
REPORT
TRAINING
AND INDUCTION
The Board recognises the importance of the
continued professional development of the
Directors in order to build on their existing
skills and experience. During the year the
Board received detailed presentations about
specific strategies and business units, to
ensure that the Non Executive members
of the Board are fully aware of the detailed
operations of the Group. In addition, a
regular training programme has been
established. Under this programme, the five
Non Executive Directors of the Company
receive detailed presentations from staff
members about specialist areas relating to
the Group’s business in addition to input
from external advisers.
ONGOING TRAINING AND
DEVELOPMENT
The main focus of development for the
Board has been in continuing to improve
their detailed understanding of the Group’s
business. On a regular basis, business
unit heads have presented to the Board in
relation to developments in their business
areas, including risks and opportunities for
growth. Presentations were received by the
Directors during the financial year from the
Heads of Asia Pacific Mezzanine, Marketing
and Client Relations and Real Estate
Lending. Presentations on other subjects
were also given by the Heads of Corporate
Strategy, Operations, Treasury, Finance and
Investor Relations, Legal, Compliance, IT and
Human Resources.
As well as deepening their understanding
of the Group’s business, strategies and
markets, these sessions allow Non Executive
Directors to understand team structures and
assist with succession planning.
In addition, the Board and its various
Committees regularly receive technical or
governance updates from external advisers.
During the year, the Audit Committee
received regular updates from Deloitte as
to market and industry developments, the
Risk Committee was given a presentation by
Deloitte on best practice risk management,
and the Remuneration Committee received
presentations from PwC on trends in
governance practice and other relevant
developments relating to remuneration.
Outside of scheduled meetings, a regular
training programme has been established
to allow a more detailed review of certain
topics. Under this programme, the five
Non Executive Directors of the Company
receive a detailed and more operationally
focused presentation from staff members
about specialist topics relating to the
Company’s business. Sessions held have
included a detailed review of the firm’s
Alternative Credit fund, led by the portfolio
manager and the Head of Operations, and
a session about the Group’s Collateralised
Loan Obligation (CLO) business, led by
two portfolio managers and the Head of
Fund Structuring.
INDUCTION
The goal of the Group’s induction process
for new Directors is to create a programme
of briefings, concentrated in the early
period of a Director’s appointment,
which enable that Director to contribute
to Board proceedings from the time
of joining the Board. The programme
is tailored to the particular skills and
experience of the incoming Director; on
appointment a Director will receive a pack
of relevant documentation and policies
and will subsequently have a detailed
induction to the Group, its business and its
personnel through a series of meetings and
presentations. No new Directors joined
during the year and so no induction process
was carried out.
Any new Directors appointed during the
current financial year will receive a thorough
induction in line with that provided for
previous joiners adjusted for any particular
individual requirements.
CASE STUDY: BEST PRACTICE RISK MANAGEMENT
FRAMEWORK
This training session was delivered by Deloitte in September
2015 and reflected feedback from the Chief Risk Officer (CRO)
on existing business practices. The session was well attended
and included all Non Executive Directors and Philip Keller (CFO),
together with the Group’s CRO, Head of Internal Audit, Group
Compliance Officer and Company Secretary.
The material presented illustrated changes in risk management
market practice across financial services and made
recommendations for changes to be adopted by the Group,
based on what would be proportionate to a business of ICG’s size
and complexity.
I FELT THE SESSION PROVIDED A STRONG
BACKGROUND TO THE SUBSEQUENT REVIEW
OF THE GROUP’S RISK MANAGEMENT
FRAMEWORK WITH THE MARKET CONTEXT
BEING PARTICULARLY INSIGHTFUL.
KIM WAHL
NON EXECUTIVE DIRECTOR
STR ATEGIC
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REPORT
FINANCIAL
STATEMENTS
48 / 49
BOARD EVALUATION
IN MY NEW ROLE AS
CHAIRMAN, AND IN
ANTICIPATION OF THE
APPOINTMENT OF A NEW NON
EXECUTIVE DIRECTOR, THE
BOARD AND I DECIDED TO
DEFER THE FORMAL EXTERNAL
REVIEW OF THE BOARD UNTIL
NOVEMBER. IN ORDER TO
EFFECTIVELY ASSESS THE
PERFORMANCE OF THE BOARD
IN THE CURRENT FINANCIAL
YEAR AN INTERNAL
EVALUATION PROCESS WAS
LED BY THE CURRENT
CHAIRMAN, JUSTIN DOWLEY.
KEVIN PARRY
CHAIRMAN DESIGNATE
BOARD PERFORMANCE
In line with the effective governance
requirements of the Code, the Board
reviews its own performance annually.
The assessment covers the effectiveness
and performance of the Board as a whole,
the functioning of the Executive Committee,
an evaluation of individual Directors and
the effectiveness of the Board Committees.
The Non Executive Directors, led by the
Senior Independent Director, and taking into
account the views of Executive Directors, are
responsible for evaluating the performance
of the Chairman.
In addition, the Code requires that every
three years an external third party performs
an evaluation of the Board. This last took
place in 2013 and was due again in May
2016. However, given the announcement
of the retirement of the Chairman and the
consequent Board changes, the Board
concluded that an external evaluation
would deliver greater insight if it took place
after the change of Chairman. This will
allow the new Chairman’s approach to be
assessed, and will ensure that the views
of any incoming Non Executive Director
are taken into account. Accordingly, the
external evaluation has been postponed
until later in the financial year; however
a detailed internal review was led by the
current Chairman. This approach has been
discussed with a number of stakeholders,
including shareholder advisory groups, who
agreed that an evaluation after the change
of Chairman is likely to deliver greater
insight for the Board’s future operations
and processes.
In order to ensure that Board effectiveness
was considered during the financial year,
the Board conducted an update exercise
to the May 2015 internal review led by
the Chairman.
The interim internal review in March 2016
reviewed the Board’s performance and
concluded that there were no significant
areas for concern in respect of the
performance of the Board, the individual
Directors or the Committees. The Board
reviewed the proposed actions from the
May 2015 internal review and concluded
that good progress had been made in these
areas. The main recommendation of the
interim review was that the proceedings of
the Nominations Committee are enhanced
by increasing the frequency of meetings and
adopting a more detailed rolling agenda, and
this will be implemented during this financial
year. The findings of the formal external
review planned to be in November 2016, and
any related actions, will be fully disclosed in
next year’s Annual Report.
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
AGM following their appointment and that at
each AGM 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
(other than Justin Dowley, who is retiring)
stand for re-election at each year’s AGM.
In relation to the Directors who are standing
for election or re-election, the Chairman
is satisfied that, following the formal
performance evaluation described above,
each of the other Directors continues to be
effective and demonstrates commitment
to their role. In the case of the incoming
Chairman, the Non Executive Directors are
satisfied that he continues to be effective
and demonstrates commitment to his role.
ICG ANNUAL REPORT & ACCOUNTS 2016
CHAIRMAN’S
LETTER
BOARD OF
DIRECTORS
CORPORATE
GOVERNANCE
COMMITTEE
REPORTS
REMUNERATION
REPORT
DIRECTORS’
REPORT
RELATIONSHIPS WITH
SHAREHOLDERS
The Company recognises the importance
of communication with its shareholders.
Accordingly, 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 CFO
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, the Senior
Independent Director and other Non
Executive Directors are happy to attend
meetings with major shareholders.
ENGAGEMENT
WITH STAKEHOLDERS
– Analyst meetings: in addition to
presentations to analysts that coincide
with the announcement of the Group’s
full year and half year financial results,
the Group’s Chief Executive Officer, CFO
and the Head of Investor Relations have
regularly met with analysts to enhance the
financial community’s understanding of
the Group
– Engagement with debt investors: the CFO
and Head of Treasury have held regular
meetings with the Group’s key relationship
banks, and have also actively engaged
with potential lenders. Update meetings
were also held with current and potential
holders of public and private debt
instruments issued by the Group, and
with both Standard & Poor’s and Fitch
rating agencies
– Annual General Meeting: at the AGM held
in July 2015, the Chairman, Chief Executive
Officer and other Directors were available
to shareholders for discussion and to
answer any questions. All shareholders are
welcome to attend the AGM
– Informal feedback: Executive Directors
and the Head of Investor Relations
received feedback from analysts and
investors during the year both directly and
through the Group’s corporate advisers.
The Company Secretary also received
feedback on governance matters from,
and met with, investors and shareholder
bodies. This information was shared with
the Board to help members develop their
understanding of shareholders’ views
and expectations
The Company has a comprehensive
stakeholder engagement programme
which aims to help existing and potential
investors understand and communicate with
the Group. The programme is designed to
ensure regular engagement with institutional
investors, shareholder groups and debt
investors. Regular feedback is provided to
the Board to ensure that they understand the
views of stakeholders. During the year, the
programme included:
– Capital Markets Seminar: in February 2016,
a Capital Markets Seminar was held which
included presentations from the Executive
team, a number of the senior management
team and various portfolio managers
from across our strategic asset classes.
The seminar provided shareholders and
analysts with direct business perspectives
on the markets in which the Group
operates and the context of recent and
future growth opportunities
– Meetings with principal shareholders:
throughout the year, the Chairman, Chair
of the Remuneration Committee, Chief
Executive Officer and Chief Financial
Officer have met with a number of
principal shareholders. These meetings
were largely after the interim and full
year results announcements and in the
lead up to the AGM. The Chairman also
hosted a dinner for a number of principal
shareholders with the Senior Independent
Director and the Executive Directors in
attendance. The full Board has been kept
informed of the issues raised at these
meetings and the views of shareholders
on a regular basis. The Chairman, Chief
Executive Officer and other Directors will
continue to make themselves available
to meet with shareholders as required.
Points raised at these meetings have
been considered and, to the extent felt
appropriate, adopted by the Group
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
50 / 51
AUDIT COMMITTEE
REPORT
WE FOCUS OUR WORK ON THE JUDGEMENTAL AREAS
OF ACCOUNTING AND AUDITING. WE MONITOR NEW
ACCOUNTING AND REGULATORY DEVELOPMENTS, AND
CONSIDER THEIR IMPACT ON THE GROUP. WE PERFORM
THIS WORK AGAINST A BACKDROP OF INCREASING
GEOGRAPHICAL AND PRODUCT DIVERSITY IN LINE
WITH OUR STRATEGIC OBJECTIVES.
KEVIN PARRY
CHAIRMAN OF THE AUDIT COMMITTEE
The following pages set out the Audit Committee report for financial year
2016. The report is structured in five parts:
1. Committee governance: roles and responsibilities, composition
and effectiveness
2. Review of the year: the significant financial reporting and auditing issues
we addressed
3. Internal controls: the assessment of the adequacy of the
control framework
4. External auditor: their appointment, independence, effectiveness
and thoroughness
5. Internal audit: the establishment and commencement of activities
DEAR SHAREHOLDER
I am pleased to report on the work of the
Audit Committee.
A key responsibility of the Committee
is to oversee that financial information
presented by the Group is fair, balanced and
understandable. To do this we focus on the
independence of our external auditors, the
assurance provided by internal audit and
the quality of financial information. We have
overseen investment in this area to reflect
the increasing levels of regulation, combined
with the evolution of best practice and the
expansion of the business.
Our control functions have continued to
develop during the year, benefiting from the
first full year of the Internal Audit function,
the recruitment of a CRO and the expansion
of the financial planning and analysis team.
The Audit Committee continued to work
closely with the Risk Committee and the
Remuneration Committee with the aim of
effectively covering pertinent topics in the
most suitable forum.
The financial statements of the Group are
prepared in accordance with IFRS and include
the consolidation of nine credit funds which
are controlled. The Group’s loss exposure to
these funds is limited to the capital invested
by the Group in each fund. Therefore the
Committee believes the presentation of non
GAAP measures, including the elimination
of the impact of credit fund consolidation,
enhances shareholders’ understanding
of the Group’s performance. This year the
Committee sought specific assurances on the
consistent and accurate calculation of non
GAAP measures.
The investment portfolio remains a
significant component of the Group’s
financial returns and therefore, as in prior
years, the valuation of investments and
associated provisions remains the area of
most judgement in the financial statements.
I consider our oversight of this process to be
a critical responsibility of the Committee.
ICG ANNUAL REPORT & ACCOUNTS 2016
CHAIRMAN’S
LETTER
BOARD OF
DIRECTORS
CORPORATE
GOVERNANCE
COMMITTEE
REPORTS
REMUNERATION
REPORT
DIRECTORS’
REPORT
AUDIT COMMITTEE REPORT
CONTINUED
The Audit and Risk Committees have worked
closely together to enable the Group to issue
its viability statement for the second year (see
page 30) and for the first time to report on
the review of the effectiveness of material
controls (see page 31). The coherence of
our control framework and its importance
to the determination of regulatory capital
requirements has advanced significantly
during the year. Further details can be found in
the Risk Committee report on pages 60 to 65.
The comprehensive reporting of our Audit
Committee’s work is a valuable component
of the Annual Report and should reassure
shareholders of the importance placed
on formal reporting and challenge of
executive management by the Non Executive
Directors. It was therefore pleasing that our
Audit and Risk Committee reporting was
recognised as the best in the FTSE250 by
the ICSA.
I am standing down from the Audit
Committee at this year’s AGM to become
your Chairman. The search is underway for
my successor who will have the opportunity
to bring a fresh approach to the Committee’s
work whilst continuing to ensure quality
financial reporting and auditing.
I would be pleased to discuss the
Committee’s work with any shareholder.
Kevin Parry
Chairman of the Audit Committee
23 May 2016
COMMITTEE GOVERNANCE
On behalf of the Board, the Committee
encourages and seeks to safeguard high
standards of integrity and conduct in
financial reporting and internal control.
ROLE AND RESPONSIBILITIES
The Committee meets regularly, at least four
times a year. The terms of reference which are
set out below are unchanged from last year.
– Selecting and recommending the
appointment and reappointment
(including conducting any tender) of
the external auditor and negotiating and
agreeing their fees and scope of audit
– Reviewing the performance of the external
auditor in respect of scope of work,
quality of opinion and quality of service;
and ensuring the successful rotation of the
lead audit partner
– Reviewing the independence and
remuneration of the external auditor
and the relationship between audit
and non audit work performed by the
external auditor
– Reviewing the annual and interim accounts
before they are presented to the Board,
in particular addressing any significant
issues arising from the audit; accounting
policies and clarity of disclosures;
compliance with applicable accounting
and legal standards; and information
used in making significant judgements,
including provisioning, going concern and
viability, is sufficient and objective
– Monitoring the integrity of the financial
statements of the Group, including
its annual and half yearly reports,
trading updates and any other formal
announcement relating to its financial
performance and advising the Board
whether it considers the Annual Report to
be fair, balanced and understandable
– Approving the appointment or termination
of the Head of Internal Audit, approving
the internal audit charter and monitoring
the effectiveness of the Internal Audit
function in the context of the Group’s
overall risk management framework
– Reviewing and assessing the annual
internal audit plan and resources, receiving
internal audit reports, monitoring
management’s responsiveness to Internal
Audit findings and recommendations
In carrying out its duties, the Committee
is authorised by the Board to obtain any
information it needs from any Director
or employee of the Group. It is also
authorised to seek, at the expense of the
Group, appropriate external professional
advice whenever it considers it necessary.
The Committee did not need to take any
independent advice during the year.
COMPOSITION
The Committee consists of independent
Non Executive Directors only. The current
members are Kevin Parry (Chairman of
the Committee), Peter Gibbs, Kim Wahl
and Kathryn Purves. Kevin Parry will stand
down from the Committee subject to being
appointed Chairman of the Company.
A search is underway for a new Non
Executive Director who will act as Chairman
of the Committee with an appointment to be
announced in due course.
Biographical details can be found on pages
42 and 43.
STR ATEGIC
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GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
52 / 53
The Committee members have a wide
range of business and financial experience,
including risk management, fund management
and investment, regulation and compliance,
M&A, tax and international business
practices. These skills ensure the Committee
has the relevant sector competence to
enable it to fulfil its terms of reference in a
robust and independent manner. Kevin Parry,
a Chartered Accountant, was previously
the Chief Financial Officer at Schroders plc,
a managing partner at KPMG and currently
chairs two other audit committees. The Board
considers that he has competence in
accounting and auditing as well as recent and
relevant financial experience.
The Executive Directors and Chairman
of the Board are not members of the
Committee but regularly attend meetings
at the invitation of the Chairman of the
Committee, together with Deloitte LLP,
the Company’s external auditor, the Group
Financial Controller, the Chief Risk Officer
and the Head of Internal Audit.
The Committee meets separately with the
external auditors and Head of Internal Audit
without management present at least twice
a year to ensure that they are receiving
full cooperation from management,
obtaining all the information they require
and are able to raise matters directly with
the Audit Committee if they consider it is
desirable to do so.
HOW THE COMMITTEE SPENT ITS TIME
FINANCIAL REPORTING
+ Review of Annual and Interim Reports
+ Consideration of critical areas
of judgement
+ Going concern and viability statement
OTHER
+ Committee governance
+ Treasury and capital
+ People changes
+ Accounting developments
and technical updates
EXTERNAL AUDITOR
+ Negotiates and agrees audit scope
and fees
+ Reviews external
audit effectiveness
+ Receives reports from Deloitte
INTERNAL AUDIT
+ Approve Strategy and Plan
+ Review internal audit reports
+ Monitor outstanding actions
EFFECTIVENESS
The Committee reviews its terms of
reference and effectiveness annually.
The terms of reference are summarised
above. Both the 2015 and 2016 effectiveness
reviews were carried out using an internal
self assessment questionnaire.
An external effectiveness review of the Audit
Committee will take place in the current
financial year. The interim internal review
in March 2016 reviewed the Committee’s
performance and concluded that there were
no significant areas for concern in respect of
the performance of the Committee or any of
its members. The Committee reviewed the
proposed actions from the May 2015 internal
review and concluded all required actions
had been completed. The findings of the
formal external review to be held, and any
related actions, will be fully disclosed in next
year’s Annual Report.
The 2015 effectiveness review identified that
Audit Committee members would monitor
closely the development of the Internal Audit
function. The Committee is satisfied with
the progress and believes there should be
a formal external review of Internal Audit’s
performance in the current year.
SUMMARY OF MEETINGS
IN THE YEAR
The Committee held four meetings during
the year in line with the quarterly reporting
dates. The Committee members attending
each of the meetings can be found on page
47. In addition, there was a sub-Committee
meeting to review key aspects of the report
and accounts in both May 2015 and May
2016. The bulk of the Committee’s time
has been spent on financial reporting
and presentation, the valuation of
investments and the external and internal
audit arrangements.
ICG ANNUAL REPORT & ACCOUNTS 2016
CHAIRMAN’S
LETTER
BOARD OF
DIRECTORS
CORPORATE
GOVERNANCE
COMMITTEE
REPORTS
REMUNERATION
REPORT
DIRECTORS’
REPORT
AUDIT COMMITTEE REPORT
CONTINUED
REVIEW OF THE YEAR
The agenda of the Committee comprises recurring business; seasonal business and other business. Over the course of the year,
the Committee considered and discussed the following significant matters:
THE ISSUE AND
ITS SIGNIFICANCE
WORK
UNDERTAKEN
FINANCIAL REPORTING
The content of the annual,
semi-annual and quarterly
financial reporting needs to
be appropriate, complying
with laws and regulation.
(see page 101 and the
Auditor’s report on
pages 103 to 109)
We reviewed all sections of the Annual Report having particular
regard for the Committee’s specific responsibilities for the
financial statements. We reviewed and challenged work
undertaken by management to assess which third party
funds and portfolio companies are either controlled by the
Group or over which the Group exercises significant influence.
We reviewed all accounting policies for continued
appropriateness and consistency.
Taken as a whole, the
Annual Report needs
to be fair, balanced and
understandable so that it
is relevant to readers.
(see page 101 of the
Annual Report)
We held preparatory discussions with management to
determine the format of the Annual Report and reviewed the
assigned responsibilities for its content and overall cohesion
and understandability. Management compared our Annual
Report with that of other alternative asset managers and best
practice more widely. In light of that work we commented on
design and detailed content, ensuring that feedback on the
prior year Annual Report had been addressed and examples
of best practice had been carefully considered in the context
of the Group. A late draft of the Report and Accounts was
reviewed by both the Audit Committee and the Board.
We used the Executive Directors’ and the Committee’s
knowledge to determine the overall fairness, balance and
understandability prior to final approval by the Board. We
considered judgemental matters such as the key risks (see
pages 32 to 35), estimates and the period covered by the
viability statement.
COMMENTS
AND CONCLUSION
We concluded that whilst the Group did not control
any portfolio companies, it exercised significant
influence over eight entities and controlled nine
credit funds during the financial year. Accordingly
the controlled entities have been consolidated into
the Group’s financial statements and the entities
over which the Group exercises significant influence
have been equity accounted. This has had the impact
of grossing up the balance sheet, with total assets
and total liabilities both increasing by £2.0bn (2015:
£1.5bn).
There were no important changes to accounting
policies (see pages 116 to 120) and we concluded
the accounting policies remained appropriate.
Based on our enquiries of management and external
auditors, we concluded they are being properly
applied in areas such as revenue recognition,
valuation of financial assets, impairments and
taxation. We concluded that the areas of judgement
(see pages 120 and 121) are properly explained.
We gained comfort from financial management and
the external auditors that the Group complied with
reporting requirements.
We received confirmation that individuals’
responsibilities had been fulfilled and confirmed that
the overall report was consistent with the Directors’
knowledge. This allowed the Audit Committee and
the Board to be satisfied that the Annual Report taken
as a whole is fair, balanced and understandable.
We were satisfied that the information presented
in the Strategic Report was consistent with the
performance of the business reported in the
financial statements. In particular, we were satisfied
that the estimates and quantified risk disclosures
in the financial statements are consistent with
those identified in the Strategic Report. The
Committee concluded that appropriate judgements
had been applied in determining the estimates
and that sufficient disclosure has been made to
allow readers to understand the uncertainties
surrounding outcomes.
We were satisfied that the viability statement should
consider a three year time horizon reflecting both
our internal planning cycle and the timescale over
which changes to major regulations and the external
landscape affecting our business typically take place.
We will continue to monitor feedback for future
enhancements to the Annual Report.
STR ATEGIC
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GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
54 / 55
THE ISSUE AND
ITS SIGNIFICANCE
WORK
UNDERTAKEN
FINANCIAL REPORTING CONTINUED
COMMENTS
AND CONCLUSION
We reviewed a detailed paper on the valuation process
management have undertaken and the judgements made in
determining the value of the portfolio. In addition to reliance
on executive management procedures and the work of the
auditors, the Committee continued its practice of a member
of the Committee (who is selected in rotation) reviewing a
small judgemental sample of the investments including a file
review and challenge of management. The review focused on
key assumptions, macroeconomic factors and sponsorless
transaction monitoring. The Committee accordingly gained
substantive evidence of the appropriateness of reliance on
compliance with the Group’s valuation procedures.
Based on the work of the Committee, executive
management was asked to look again at the valuation
of a technology investment. Following further
work, management determined that the fair value
of the investment equalled cost and should be
amended and the asset categorised as a Level 2
investment. The auditors subsequently concurred
with the amended valuation. Following the revision
to the valuation, the Committee concurred with the
valuations and determined that no further adjustments
were necessary.
The Group uses the following non GAAP measures:
– Total AUM
– Fee rate on total AUM
– Performance of investments
– ROE
We discussed the use of non GAAP measures and reviewed
their consistency with prior years.
We received comfort from internal audit that the non GAAP
measures had been prepared on a consistent basis with
prior years.
We reviewed the income recognition of management fees,
performance fees and interest income carefully to ensure
that the treatments were consistent with the Group’s
accounting policies.
We were satisfied that non GAAP measures, which
are widely used in the asset management industry,
can provide insight into future performance from
the perspective of both our shareholders and our
customers. We reviewed the non GAAP measures
and were satisfied that they did not detract from
GAAP measures.
We were satisfied that amending the weighted
average fee rate KPI to be based on total fee earning
AUM was appropriate and agreed that this was a
better measure of the long term fee streams of the
fund management business.
We concluded that revenue has been properly
recognised in the financial statements.
Investments represent 85%
of our total assets. 88% are
carried at fair value and 12%
are carried at amortised
cost. As the assets are
mainly unquoted and illiquid,
considerable professional
judgement is required in
determining their valuations
and associated provisions
and impairments.
(see notes 5 and 9 to the
financial statements and the
Auditor’s report on pages
103 to 109)
Non GAAP measures
aid understanding of the
financial statements but
must not detract from GAAP
measures. (see KPIs on
pages 10 to 13)
Revenue recognition and
cash flows are not entirely
aligned which can result in
income being recognised
prematurely or too late.
(see note 3 to the financial
statements and the Auditor’s
report on pages 103 to 109)
ICG ANNUAL REPORT & ACCOUNTS 2016
CHAIRMAN’S
LETTER
BOARD OF
DIRECTORS
CORPORATE
GOVERNANCE
COMMITTEE
REPORTS
REMUNERATION
REPORT
DIRECTORS’
REPORT
AUDIT COMMITTEE REPORT
CONTINUED
THE ISSUE AND
ITS SIGNIFICANCE
WORK
UNDERTAKEN
COMMENTS
AND CONCLUSION
EXTERNAL AUDIT
The auditor needs to
be independent of
management to report on
the truth and fairness of
the Annual Report without
conflicts of interest.
(see the Auditor’s report
on pages 103 to 109)
The audit process
needs to be effective
so that the auditor’s
opinion is robust. (see
the Auditor’s report on
pages 103 to 109)
INTERNAL AUDIT
Oversight of the internal
audit function
We reviewed the standing policies on services that can be
provided by Deloitte (see External auditor on page 57) for their
continued appropriateness as to scope and fees. We received
confirmations from management and Deloitte of adherence
and agreed the fees paid. We also reviewed the audit fees in the
context of the size and complexity of the audit.
The Committee considered the impact of legislation restricting
the use of auditors for non audit services and decided that
Deloitte should be replaced as the Group’s corporate tax
advisers ahead of the 1 April 2017 deadline (see page 57).
We discussed the areas of risks that may result in a material
misstatement of the financial results extensively with Deloitte.
We determined that we had a shared understanding of
these risks.
Whilst planning the audit, Deloitte set out for the Audit
Committee the key tests that they would perform on the higher
risk areas and the Committee was satisfied with the proposed
scope. The Committee requested detailed feedback on findings
and discussed those findings prior to the approval of the
Annual Report.
The Committee ascertained that during the year there had not
been any independent review of the Group’s prior year audit.
The audit partner confirmed that none of his audits had been
subject to an independent review during the year and that one
audit file had been subject to internal review in the prior year and
was found to be compliant.
Further details on the work the Committee undertook to assess
the effectiveness of the audit, including a review of the Audit
Quality Review of Deloitte, an interview with Deloitte about their
approach to the audit of the financial statements and an oral
report from the subsidiary audit partner in Jersey can be found
on pages 57 to 58.
During the year the Committee considered and approved
the updated Internal Audit Strategy and plan for FY16 and
FY17, taking into account the principal risks to the Group, and
approved the Internal Audit Charter.
The Committee reviewed the scopes of the internal audit
reviews performed, the agreed reports produced and
monitored management’s progress in implementing the
actions agreed.
The Committee’s review of the work undertaken by Internal
Audit focused on significant risk issues identified, ensuring that
reports were agreed and issued in a timely manner and that the
timetable for implementation of agreed recommendations was
both realistic and adhered to.
Further details of the work of Internal Audit can be found on
page 59.
We concluded that our conflicts of interest policy
remains appropriate and in line with best practice.
We determined that the Group audit fee of £0.9m
appropriately reflected the scope and complexity of
the work undertaken by Deloitte.
We were satisfied that the audit is effective and the
opinion is robust and based on the representations,
that the approach was directed to provide a reliable
audit opinion with a reasonable expectation of
detecting material errors, irregularities and fraud.
The Committee is satisfied that the Internal Audit
Strategy and Plan will provide appropriate assurance
on the controls in place to manage the principal risks
to the Group.
The Committee is satisfied that reports are issued
in a timely manner following reasonable challenge
of recommendations and deadlines for changes are
being set appropriately.
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
56 / 57
In addition to the significant matters
addressed above, the Committee
maintained a rolling agenda of items for
its review including the capital strategy,
financial and management reporting, risk
and treasury management capabilities,
relevant people changes, the going concern
concept of accounting (see page 96),
the viability statement (see page 30),
the Auditor’s report (see pages 103 to
109), accounting developments and the
auditor’s management letter. No issues of
significance arose.
INTERNAL CONTROLS
Risk management and internal control
matters are the responsibility of the Group’s
Risk Committee. Its report is set out on
pages 60 to 65. The Audit Committee
reviewed the competence and quantity
of the financial management function,
which was enhanced during the year by
the recruitment of a financial planning and
analysis specialist, and was satisfied that
the function was able to fulfil its first line
of defence duties. The Committee noted
that ad hoc projects often benefitted from
specialised external resource.
The Group has an established control
framework as described on page 31.
The framework is designed to manage but
not eliminate risks and is designed to provide
reasonable but not absolute assurance
against material losses or misstatements.
The Group is expanding and this adds to
complexity and risk.
The Board’s responsibilities for the
management of risk are addressed further in
the report of the Risk Committee.
EXTERNAL AUDITOR
AUDIT APPOINTMENT
Following the review of the 2015 audit,
the Audit Committee recommended that
Deloitte LLP should be proposed to
shareholders as the Company’s auditors.
The shareholders voted in favour of
their reappointment. Deloitte has been
the Company’s external auditor since its
commencement of trading. In accordance
with professional and regulatory standards,
the lead audit partner has changed
regularly since that time to safeguard the
independence and objectivity of the audit
process. The most recent audit partner
rotation occurred in the current year when
David Barnes succeeded Calum Thomson
following the 2015 AGM.
The Committee complies with the UK
Corporate Governance Code, the FRC
Guidance on Audit Committee with regard
to the external audit tendering timetable and
the provisions of the EU Regulation on Audit
Reform. In addition, the Committee complies
with all aspects of the Competition and
Markets Authority Statutory Audit Services
Order. Under the transitional arrangements
for the regulations we are required to
change our audit firm for the 2022 year end
audit. Absent any major service or quality
issues, the desirability of a change of auditor
is a delicate balance between a ‘fresh pair of
eyes’ and accumulated knowledge applied
to produce a robust audit. The Committee
is satisfied that David Barnes has the
experience and industry knowledge to be
an effective lead audit partner and do not
propose to undertake an early audit tender
process. David Barnes’ term as lead audit
partner is due to end with the completion
of the 2020 year end audit. The Committee
intends that the audit will be tendered
and rotated to another firm of auditors at
that time. These plans will be kept under
annual review and, if legislation changes,
or there are any concerns as to Deloitte’s
independence or the quality of their audit or
the service levels, the audit tender might be
undertaken sooner.
AUDIT QUALITY AND
EFFECTIVENESS
The Audit Committee places great
importance on the quality and effectiveness
of the external audit. In assessing quality
and effectiveness, the Committee
looks to the audit team’s objectivity,
professional scepticism, continuing
professional education and its relationship
with management.
The Committee’s assessment includes an
annual evaluation of the independence and
objectivity of the external auditor and the
effectiveness of the audit process, taking
into consideration relevant professional and
regulatory requirements. This assessment
is based on the results of questionnaires
completed by the Committee members,
the Executive Directors and other
relevant senior management. The results
of the evaluation were last reported
to the Audit Committee in September
2015. Having completed the review, and
discussed its findings with the auditors, the
Committee remains content with Deloitte’s
work whilst identifying some areas for
service improvement including more
effective communication and interaction
with management. The Audit Committee
discussed the output with Deloitte who
acknowledged that improvements could
be made. Thereafter, Deloitte wrote to the
Committee detailing the actions and timeline
to address the points raised, particularly in
respect of communication and interaction,
to improve their service delivery.
In addition to the annual evaluation,
the Committee undertakes an ongoing
assessment of external audit quality and
effectiveness in the following ways:
– The Committee negotiates and agrees
the scope of the audit prior to its
commencement. The full scope audit
coverage amounted to 93% (2015: 96%)
of the Group’s profit before tax and
98% (2015: 94%) of the Group’s net
assets. Specific review procedures
were performed on another nine non
significant entities
ICG ANNUAL REPORT & ACCOUNTS 2016
CHAIRMAN’S
LETTER
BOARD OF
DIRECTORS
CORPORATE
GOVERNANCE
COMMITTEE
REPORTS
REMUNERATION
REPORT
DIRECTORS’
REPORT
AUDIT COMMITTEE REPORT
CONTINUED
– The Committee reviewed and was
satisfied with the content of Deloitte’s
Audit Transparency Report for the
year ended 31 May 2015 which sets out
Deloitte’s commitment to audit quality
and governance
– The Audit Quality Review team of the
Financial Reporting Council performs
an annual review of Deloitte’s audits.
The Committee requested a letter
from Deloitte on whether any generally
identified failings or failings specific to
individual audits could be relevant to the
audit of the Group. We were satisfied,
insofar as the issues might be applicable,
that Deloitte had proper and adequate
procedures in place for our audit
– The Committee enters into a formal
engagement with the auditor, negotiates
and agrees its audit fee
– The Committee Chairman has at least
bi-monthly meetings with the lead audit
partner to discuss Group developments
– The Committee receives at every
Audit Committee meeting an update
of Deloitte’s work, compliance with
independence and its findings
– There was a detailed interview by the
Audit Committee Chairman, the Chief
Financial Officer and the Group Financial
Controller of the audit partner and
director focusing on the work undertaken
to support their opinion on the financial
statements and the consistency of the
remainder of the report and accounts with
their work. In addition, the Committee
received an oral report from the subsidiary
audit partner in Jersey at the conclusion of
the local audit
– The Committee reviewed and discussed
the audit findings including audit
differences prior to the approval of the
financial statements
We have discussed the accuracy of
financial reporting (known as materiality)
with Deloitte both as regards accounting
errors that will be brought to the Audit
Committee’s attention and as regards
amounts that would need to be adjusted so
that the financial statements give a true and
fair view. Errors can arise for many reasons
ranging from deliberate errors (fraud etc.)
to good estimates that were made at a
point in time that, with the benefit of more
time, could have been more accurately
measured. Overall audit materiality was set
at £12.2m (2015: £14.4m). This equates
to approximately 1% of net assets. A lower
materiality of £3.7m (2015: £4.4m) has been
applied for fund management revenues.
This is within the range that audit opinions
are conventionally thought to be reliable.
The auditors use the overall materiality to
determine which group entities require full
scope audits or specific audit procedures
to be performed in order to confirm
that the financial statements are free of
material misstatement. Further details can
be found in the Auditor’s Report on page
103. To manage the risk that aggregate
uncorrected errors become material, we
agreed that Deloitte would draw to the
Audit Committee’s attention to all identified
uncorrected misstatements greater than
£244,000 (2015: £288,000) and for
fund management revenues £72,000
(2015: £88,000).
The aggregated net difference between
the reported pre-tax profit and the
auditor’s judgement of pre-tax profit was
£0.1m, which was significantly less than
audit materiality. The gross differences
were attributable to various individual
components of the income statement.
No audit difference was qualitatively or
quantitatively material to any line item in
either the income statement or the balance
sheet. Accordingly, the Audit Committee did
not require any adjustment to be made to
the financial statements as result of the audit
differences reported by the auditor.
In accordance with relevant independence
standards, the External Auditors do not
place reliance on the work of Internal Audit.
NON AUDIT SERVICES
The Board has an established policy
setting out what non audit services can
be purchased from the firm appointed as
External Auditors. The Committee regularly
monitors non audit services being provided
to the Group by Deloitte to ensure there
is no impairment to their independence
or objectivity. Stringent procedures are
in place to ensure that all significant non
audit work performed by the auditor in
excess of £50,000 is approved in advance
by the Committee. Engagements are only
approved if they do not and will not 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 is and is not allowed to
provide to the Group, including those which
are pre-approved by the Committee and
those which require specific approval before
they are contracted for, subject to de minimis
levels. A copy of the policy can be found
on the Group’s website www.icgam.com.
The policy prohibits the external auditor
from being a contractor to perform the
following work:
– Book-keeping and other services
related to accounting records and
financial statements
– Internal audit services
– Financial information system design
and implementation
– Actuarial services
– Management functions
– Valuation services
– Legal services
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Legislation will introduce restrictions on the
provision of non audit services plus a 70%
cap on the provision of permissible non audit
services based on the average of the
statutory audit fees for the previous three
years. The restrictions on non audit services
are effective for our financial year beginning
1 April 2017 and we understand that the
70% cap will be implemented prospectively
and will first apply for our financial year
beginning 1 April 2020. Tax advisory
services are prohibited from being
undertaken by the external auditors under
these new rules. As a result the Group will
replace Deloitte as its corporate tax advisers
in the current financial year. This process
is already underway with the appointment
of PricewaterhouseCoopers for some tax
advisory work.
During the year the Group paid £0.4m
(2015: £0.4m) to Deloitte LLP for the
provision of corporate non audit services
which is within the 70% audit fees legal
limit that will apply over a rolling three
year period. Of this, £0.1m is in respect of
services in their capacity as auditor and £0.3m
of fees were incurred for tax compliance and
advisory services not related to the audit
of the financial statements. All non audit
services were approved by the Committee.
Deloitte also provides services to funds that
are managed by the Group but over which
it does not exercise control. Deloitte is a
leading market participant in the non audit
sector, having a reputation for quality, and
having a local presence in the countries
in which the services were performed.
Audit objectivity and independence was
safeguarded by all advice being provided by
partners and staff that have no involvement
in the audit of the financial statements.
Advice was not dependent on a particular
accounting treatment and the outcome or
consequences of the advice did not have
a material effect on the Group’s financial
statements. No services were provided
pursuant to contingent fee arrangements.
A detailed analysis of fees paid to Deloitte
LLP is shown in note 11 on page 143.
AUDITOR REAPPOINTMENT
Deloitte has reviewed its and its relevant
affiliates’ own independence in line with
its internal criteria and ethical standards.
They have confirmed to the Committee
that following the review, they are satisfied
that they have acted in accordance with
relevant regulatory and professional
requirements. Deloitte has also confirmed
to us that the audit complies with their
internal independent review procedures.
Last year’s audit was not subject to
either an independent quality assurance
process undertaken internally by Deloitte
or externally by the FRC. If this year’s
audit is selected by either process, we will
seek assurances that recommendations
for improvements are embraced by the
audit team.
The Committee, having considered
compliance with our policies on
independence and the findings of our
quality review and service enquiries, is
satisfied that Deloitte has demonstrated
the skills and service standards to justify a
recommendation to shareholders for their
reappointment as auditors for the year
ending 31 March 2017. Accordingly a motion
to that effect will be put to the 2016 AGM.
INTERNAL AUDIT
The Group has a Head of Internal Audit who
draws on the services of our outsourced
internal audit providers, KPMG and RSM
to supplement her capacity. The Head
of Internal Audit reports to the Audit
Committee Chairman. The Audit Committee
approves the annual internal audit plan
and the Internal Audit charter. The scope
of internal audit is not restricted and the
plan is developed from a consideration of
the principal risks to the Group and, given
the recent establishment of the function,
the coverage of the Group as a whole.
Its development reflects the priorities of
management, the CRO, our regulators and
the Audit Committee. Internal audit retains
sufficient flexibility to embrace intra-year
changes, such as the establishment of new
investment strategies or changes to the
principal risks of the Group. During the year
13 reviews were completed, responded to
by management and reviewed by the Audit
Committee. The Committee pays particular
attention to remedial actions and timescales
and deadlines that are not achieved.
Throughout the year, the Committee
monitored the development of internal audit
reports, commenting specifically on scopes
of reviews. Reports have been tailored
to the Group’s risks, focusing on areas of
concern and future indicators of risk whilst
at the same time highlighting opportunities
to streamline processes. These reports have
been further enhanced by the development
of a common risk language by the CRO.
The Committee has overseen the
establishment of an effective working
relationship between the Head of Internal
Audit and the CRO. By ensuring that the
roles are coordinated and optimised it
reduces the potential for significant gaps
in oversight and avoids unnecessary
duplication of efforts. The Committee is
satisfied that Internal Audit is independent
of the first and second lines of defence.
During the year the Head of Internal Audit
and the CRO have worked together on
improving reporting on the effectiveness
of internal controls to meet the revised
requirements of the UK Corporate
Governance Code.
INTERNAL AUDIT EFFECTIVENESS
The Committee has assessed the quality
of the Internal Audit function, taking into
consideration that this was the first complete
year of operation. The assessment focused
on ensuring that the internal audit service
provided met the requirements of the
Committee as to scope and objectivity.
The assessment was based on the results
of questionnaires completed by the
Committee members and the Executive
Directors and was supported by feedback
from other relevant senior management.
Having completed the review, and discussed
its findings with the Head of Internal Audit,
the Committee was content with the work
of Internal Audit whilst seeking more
commercially orientated recommendations.
ICG ANNUAL REPORT & ACCOUNTS 2016
CHAIRMAN’S
LETTER
BOARD OF
DIRECTORS
CORPORATE
GOVERNANCE
COMMITTEE
REPORTS
REMUNERATION
REPORT
DIRECTORS’
REPORT
RISK COMMITTEE
REPORT
DEAR SHAREHOLDER
In November 2015 I became Chairman of the
Committee and, as Chairman, I am pleased
to report on the work of the Risk Committee
during the year. I would like to thank Kevin
Parry for his contribution as inaugural
Chairman of the Committee.
I recognise that the management of
risk is a dynamic process. As the Group
continues to develop and its environment
changes, the risks to the business, and
the controls necessary to manage those
risks require regular review. I believe that
a risk management framework provides
structure to this review and enables effective
oversight of risks and controls.
As the Group continues to expand its
geographical and product footprint,
whilst simultaneously absorbing ongoing
regulatory change, the Committee has
focused on systems of control and
monitoring. I consider that the appointment
of the CRO, the ongoing activities of the
Operational Risk Group and the work of
Internal Audit have enhanced the maturity
of the Group’s risk management processes.
Following the arrival of the CRO during the
year, the Group’s three lines of defence
structure for internal control ensures clear
segregation of risk ownership, oversight
and assurance.
The Risk Committee continued to work
closely with the Audit Committee and the
Remuneration Committee throughout the
year with the aim of effectively covering
pertinent topics in the most suitable forum.
During the year the Committee has
considered both the design of the risk
framework and the risk management
processes and methodologies in place
to enable the Group to identify, assess,
monitor and control threats. As a result of
these reviews and, in conjunction with the
CRO, a number of enhancements to the risk
management framework were identified
and implemented.
THE IDENTIFICATION, CONTROL, MITIGATION AND
REPORTING OF RISKS ARE CORE TO THE SUCCESSFUL
DELIVERY OF THE GROUP’S STRATEGIC OBJECTIVES.
OUR WORK FOCUSES ON ENSURING THAT THE GROUP
UNDERSTANDS THE MATERIAL RISKS ARISING FROM
BOTH THE GEOGRAPHIC AND PRODUCT EXPANSION OF
THE GROUP AND FROM NEW EXTERNAL REGULATIONS,
AND MANAGES THOSE RISKS TO WITHIN THE BOARD’S
RISK APPETITE.
KATHRYN PURVES
CHAIRMAN OF THE RISK COMMITTEE
The following pages set out the Risk Committee report for the financial year
2016. The report is structured in two parts:
1. Governance of risk: our scope and terms of reference
2. Review of the year: the significant risk issues we addressed
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60 / 61
THE YEAR AHEAD
The identification, control, mitigation
and reporting of risks are fundamental
aspects of operating in the financial
services sector. As a result the Committee
will continue to monitor the risks faced
by the Group in delivering its strategic
objectives, particularly emerging risks, and
the effectiveness of controls. The Group’s
regulatory capital position will remain a
significant focus as we monitor delivery
of the strategy.
We expect to see the continued
enhancement of the risk management
framework including the establishment
of an executive risk committee.
I would be pleased to discuss the
Committee’s work with any shareholder.
Kathryn Purves
Chairman of the Risk Committee
23 May 2016
Good risk management practice requires a
sound understanding of the Group’s risks,
the appetite for risk taking and mitigations to
limit downside exposure. During the year the
Committee undertook a robust assessment
of the Group’s principal risks, taking into
account changes in the business and those
in the wider environment. The principal
risks faced by the Group and how they are
managed are set out on pages 32 to 35 of
this Annual Report.
The Committee reviewed the improvements
to reporting on the effectiveness of material
controls to meet the revised requirements
of the UK Corporate Governance Code
(see page 31).
I consider that a core component of an
effective risk management framework
for a financial services business is the
ICAAP. The ICAAP is an important tool
in understanding the impact of business
decisions and external events on the Group’s
regulatory capital position. The ICAAP is
utilised on an ongoing basis, in particular to
assess the regulatory capital implications of
business decisions, and is formally reviewed
by the Committee on an annual basis.
During the year, the Committee reviewed
management’s assessment of the regulatory
capital implications of the 2015 special
dividend prior to it being discussed by the
Board. In addition, the CRO undertook a
thorough review of the Group’s ICAAP to
ensure that it reflected current best practice.
The Committee will ensure that future
business decisions continue to consider the
regulatory capital position.
Comprehensive reporting of the work of
the Risk Committee and the risks faced by
the Group is an important component of the
Annual Report. It was therefore pleasing
that the 2015 Annual Report was recognised
as the Best Audit and Risk disclosure in the
FTSE 250 by the ICSA.
GOVERNANCE OF RISK
On behalf of the Board, the Committee
encourages, and seeks to safeguard, high
standards of risk management and effective
internal controls.
ROLES AND RESPONSIBILITIES
The Committee meets regularly, at least
three times a year, and is responsible for:
– Reviewing the Group’s identification, and
management, of current and forward-
looking principal risks
– Reviewing material risk events and
implementation of remedial action
where necessary
– Advising the Board on risk appetite and
tolerance and monitoring the Group’s
position against agreed appetites
– Reviewing the ICAAP when appropriate
and at least annually
– Reviewing the risk management
framework, approving risk policies,
standards and limits within the overall
appetite and tolerance approved by
the Board
– Reviewing reports on the effectiveness of
the Group’s risk management systems and
internal controls
– Reviewing the Group’s procedures for
identifying, assessing, controlling and
mitigating the principal risks faced by
the Group
– Ensuring that procedures allow for
proportionate and independent
investigation of identified issues and
appropriate follow up action
– Advising the Remuneration Committee
on the alignment of remuneration with
risk appetite
– Reviewing and approving the statements
to be included in the Annual Report
concerning risk management
– Annually considering and approving the
remit of the risk management function
ICG ANNUAL REPORT & ACCOUNTS 2016
CHAIRMAN’S
LETTER
BOARD OF
DIRECTORS
CORPORATE
GOVERNANCE
COMMITTEE
REPORTS
REMUNERATION
REPORT
DIRECTORS’
REPORT
RISK COMMITTEE REPORT
CONTINUED
COMPOSITION
The Committee consists of Non Executive
Directors only. The current members
are Kathryn Purves (Chairman of the
Committee), Justin Dowley, Peter Gibbs,
Kevin Parry and Kim Wahl.
+ Biographical details can be found on pages 42
to 43
The Committee members have a wide
range of business and financial experience,
including risk management, fund
management and investment, regulation
and compliance, M&A, tax and international
business practices. In particular, Kathryn
Purves was recently the CRO of Partnership
Assurance Group plc and Kevin Parry is the
former chairman of Schroder plc’s executive
risk committee. These skills enable the
Committee to fulfil its terms of reference in a
robust and independent manner.
The Executive Directors of the Board are
not members of the Committee but attend
meetings at the invitation of the Chairman
of the Committee. The CRO attends all
meetings of the Committee and the Group
Compliance Officer, Head of Internal
Audit and the Company Secretary also
attend meetings.
EFFECTIVENESS
The Committee reviews its terms of
reference and effectiveness annually.
An external effectiveness review of the
Risk Committee will take place later in the
financial year. The interim internal review
in March 2016 reviewed the Committee’s
performance and concluded that there were
no significant areas for concern in respect
of the performance of the Committee or any
of its members. The findings of the formal
external review to be held, and any related
actions, will be fully disclosed in next year’s
Annual Report.
The 2015 effectiveness review was
completed by all Risk Committee members
and regular invited attendees. The review
included best practice questions.
The results confirmed that the breadth of the
Committee’s work has expanded in line with
Group developments and that it operates
effectively, fulfils its terms of reference,
and receives reliable and trustworthy
information from management. At the time of
the review, most respondents were looking
forward to the presence of a CRO which
would allow for the preparation of more
comprehensive papers and improvements
in formal regulatory documents.
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62 / 63
SUMMARY OF MEETINGS
IN THE YEAR
The Committee held four meetings
during the year. In each of its meetings,
it discusses principal and emerging risks
with management, receives a report from
the CRO (incorporating the work of the
Operational Risk Group) and receives
reports on global compliance (including
the monitoring programme) and regulatory
developments, funds, risk management
and operational controls. Other work is
undertaken periodically, either once or twice
a year, including ‘deep dives’ into particular
areas and risks where thought necessary.
Over the course of the year the Committee
considered and discussed the following
significant matters.
HOW THE COMMITTEE SPENT ITS TIME
PRINCIPAL AND EMERGING RISKS
+ Identification and management of principal risks
+ Risk appetite and tolerances
OTHER
+ Committee governance
+ People changes
+ Best practice developments
RISK MANAGEMENT
PROCEDURES AND
CONTROLS
+ Effectiveness of risk
management systems
+ Review of risk events
and remedial actions
RISK MANAGEMENT
FRAMEWORK
+ Review of the updated risk
management framework
+ Oversight of risk policies
REGULATORY RISKS
+ Impact of regulatory change
+ ICAAP
+ Resourcing
ICG ANNUAL REPORT & ACCOUNTS 2016
CHAIRMAN’S
LETTER
BOARD OF
DIRECTORS
CORPORATE
GOVERNANCE
COMMITTEE
REPORTS
REMUNERATION
REPORT
DIRECTORS’
REPORT
RISK COMMITTEE REPORT
CONTINUED
REVIEW OF THE YEAR
THE ISSUE AND
ITS SIGNIFICANCE
WORK
UNDERTAKEN
The Group is exposed to risk
as the regulatory requirements
for its activities change
Review of risk management
framework
ICAAP – the Internal Capital
Adequacy Assessment
Process
The Committee received regular updates setting out the enacted
and expected changes to regulations. The Committee considered
in detail the requirements of MiFID II, focusing on potential
changes to product governance, delivery of best execution
to investors and changes to the structure of remuneration.
The Committee discussed the resourcing and oversight required
to manage the new regulatory requirements.
The Committee was updated on a visit by the Monetary Authority
of Singapore, the Singaporean regulator of the Group’s
Singaporean subsidiary following the granting of its licence.
The CRO was tasked with reviewing the Group’s risk management
framework and proposing any changes thought necessary.
The CRO updated the Committee following his review of the
existing risk management framework. The current approach was
deemed effective, but could be enhanced with improvements
to risk registers and developing and embedding a common risk
language across the Group. The review of the risk management
framework was supported by a non executive training session by
Deloitte on risk management frameworks (see page 48).
COMMENTS AND
CONCLUSION
The regular updates provide sufficient
information to enable the Committee to be
satisfied that the Group manages its compliance
affairs with appropriate diligence.
The Committee requested regular updates on
implementation of MiFID II.
+ Principal risk – see pages 34 to 35
The Committee supports the changes
proposed and is satisfied that the proposed risk
management framework is appropriate for the
risks of the Group.
The impact of the proposed special dividend on the regulatory
capital position of the Group was considered prior to the special
dividend proposal being discussed at the Board.
The Committee undertook a detailed reviewed of the ICAAP,
reviewing the current and future impact of the principal risks
facing the Group on the Group’s regulatory capital position.
The CRO took external advice in the preparation of the ICAAP to
provide a market benchmark.
The Pillar 3 disclosures are available on the Company’s website at
www.icgam.com
The Committee was satisfied that the Group
would have sufficient regulatory capital
resources following the payment of the
proposed special dividend.
The Committee is satisfied that the Group has
and will have adequate regulatory capital in the
event of the crystallisation of principal risks
faced by the Group.
The ICAAP is an important tool and will continue
to be used in decision making processes.
Corporate Governance
Code changes
During the year the Committee considered and approved
the proposals to enhance the processes for monitoring the
effectiveness of material controls and the resulting enhancements
to reporting. The requirement to issue a viability statement had
been early adopted in the 2015 Annual Report.
Other principal risks (see pages
32 to 35) – the Group uses a
risk scorecard as a key part of
its risk management framework.
The scorecard summarises
the principal risks faced by
the Group, the tolerance of
the Group to each respective
principal risk, and key risk
indicators that indicate, for
each principal risk, the extent
to which the tolerance is being
approached or has been
exceeded
The Committee has overseen and challenged the assessment and
management of principal risks faced by the Group by reference
to the risk scorecard which has been presented to the Committee
regularly during the year.
The Committee carefully considered proposed changes to the
principal risks as a result of changes in the business. This review
reaffirmed the relevance of many of the existing principal risks,
recognised the opportunity to consolidate closely associated
risks and highlighted the need to add or remove a small number of
risks. In conjunction with this review, the stated risk tolerance of
the business was challenged.
The Committee is satisfied that the
enhanced process is sufficient to identify all
material controls.
The Committee worked closely with the Audit
Committee to review the effectiveness of
material controls and confirmed that there
were no areas of significant weakness and it
was satisfied that the key controls operated
effectively throughout the year.
The Committee considers that the principal
risks faced by the Group and the tolerances
and key risk indicators for each principal risk are
adequately captured by the processes in place.
The Committee is satisfied that the risk
scorecard is an effective mechanism for
identifying and monitoring the principal risks
to which the Group is exposed.
The Committee expects to see ongoing
improvements to this process with further
key risk indicators identified and monitored,
additional commentary to clarify movements in
key risk indicators and a forward-looking view.
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THE ISSUE AND
ITS SIGNIFICANCE
Specific risk reviews
WORK
UNDERTAKEN
The Committee reviewed employee turnover across the
Group, with particular attention paid to those considered to be
key individuals.
The Committee reviewed key leavers and the reason for
their departure.
The Committee received a detailed briefing on cyber security
which included a review of types of cyber attack and their
possible objectives. The briefing set out the areas to be
considered by the business in establishing an appropriate risk
management policy and detailed the actions completed and the
business’s plan to enhance security and increase the business’s
capability to detect and manage cyber attacks.
The Committee has received regular updates on the activities
of the Treasury Committee in managing the Group’s exposure
to financial risks and, in particular, in ensuring the Group has
sufficient resources and liquidity to meet its requirements.
During the year the Board reviewed and approved
recommendations to amend the counterparty exposure threshold
set out in the Group’s Treasury Policy.
The Committee received a briefing on conduct risk from the
Group Compliance Officer setting out the regulators’
expectations for business conduct. There were no significant
issues identified but areas where the Group should consider
improving its processes were identified and a plan was agreed
to deliver those enhancements.
COMMENTS AND
CONCLUSION
The Committee considers that the controls
in place to manage this risk are operating
effectively and recognises that the residual
risk is increased as a result of current market
conditions. The Group has successfully
recruited for key roles.
+ Principal risk – see pages 34 to 35
The Committee challenged the level of ongoing
training to ensure all staff were vigilant to
threats. The Committee is satisfied that
the plan set out is sufficient to manage this
ongoing threat.
+ Principal risk – see pages 34 to 35
The Committee concluded that the Treasury
Committee was effective in managing these
risks for the Group and will continue to receive
regular reports of their activities.
+ Principal risk – see pages 34 to 35
The Committee supports the implementation
of the proposed enhancements to manage
conduct risk within the Group.
OTHER MATTERS CONSIDERED
In addition to the significant matters addressed above, the Committee maintained a rolling agenda of items for its review including funds risk
management and operational controls, the adequacy of resourcing in the compliance and risk functions, and compliance with internal policies.
INTERNAL AUDIT AND COMPLIANCE MONITORING
The Committee supported the Audit Committee in its oversight of the internal audit programme (see page 59), which is risk based. It is
designed to permit changes to the programme in the light of changed circumstances and has been updated to reflect the changes in the
principal risks recognised by the Group.
Additionally, in March, in conjunction with the Audit Committee, the Committee reviews and approves the programme of compliance
monitoring to be undertaken during the following fiscal year and at each of its subsequent meetings reviews the status and output of
compliance monitoring actually undertaken relative to the planned programme. During the year the Committee ensured that appropriate
monitoring was undertaken in accordance with the approved programme for the year. No significant matters of concern were identified.
ICG ANNUAL REPORT & ACCOUNTS 2016
CHAIRMAN’S
LETTER
BOARD OF
DIRECTORS
CORPORATE
GOVERNANCE
COMMITTEE
REPORTS
REMUNERATION
REPORT
DIRECTORS’
REPORT
NOMINATIONS
COMMITTEE REPORT
DEAR SHAREHOLDER
The focus of the Nominations Committee is
to consider the skills and experience of the
Board, with particular regard to regulation
in the financial services sector. This was
particularly important this year as I, a Non
Executive Director since 2006 and Chairman
since July 2010, informed the Board of my
intention to retire from the Board in light
of my long service. While I was involved
in the process to consider a replacement
Chairman, as a matter of good practice the
Committee was chaired by Peter Gibbs
during its deliberations in respect of the
appointment. The Committee considered a
number of candidates, including Kevin Parry,
the Senior Independent Director. Kevin was
not present at any deliberations relating to
his potential appointment.
When considering Board appointments,
our priority is to identify a person who fits
with the culture and management style
of the Company and ensure that the right
person is appointed to the role regardless
of background, while bearing in mind the
advantages of diversity at the level of the
Board. After considering a number of
potential candidates for appointment as
Chairman, it was proposed that Kevin Parry
be recommended. His existing knowledge
of the Group and its business is invaluable,
and far greater than that of any other
candidate. In addition, Kevin scored very
highly in the benchmarking process due to
his considerable experience in the financial
services sector, his understanding of
applicable regulations, his extensive service
on other PLC boards and his background
as an accountant; the Committee concluded
that he is an excellent candidate to act
as Chairman.
WE FOCUS ON THE COMPOSITION OF THE BOARD AND
THE SKILLS AND EXPERIENCE OF ITS MEMBERS. THIS
ENSURES THAT THE BOARD HAS THE NECESSARY
KNOWLEDGE AND BROAD MARKET AWARENESS TO MEET
THE CHALLENGES FACED BY THE GROUP.
JUSTIN DOWLEY
CHAIRMAN OF THE NOMINATIONS COMMITTEE
The following pages set out the Nominations Committee report for the
financial year 2016. The report is structured in two parts:
1. Committee Governance: roles and responsibilities, composition
and effectiveness
2. Review of the year: the significant issues we addressed
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
66 / 67
Kevin’s nomination as Chairman is subject
to his reappointment as a Director of the
Company at the AGM on 21 July 2016.
If approved, he will take up the role from
the end of that meeting. As the Chairman
of the Company cannot serve on the Audit
Committee, Kevin will step down from
that Committee (of which he is currently
Chairman). His replacement will be
appointed and announced in due course.
Apart from the process of appointing a new
Chairman and a Non Executive Director, the
main focus of the Committee during the year
was on reviewing the size, structure and
composition of the Board and considering
succession planning. The Committee also
reviewed the time commitments of Non
Executive Directors and concluded that each
of them is able to devote sufficient time to
their role.
THE YEAR AHEAD
The Committee’s focus during the year will
be on considering the balance of skills and
experience of Directors, and reviewing the
structure and composition of the Board
in general.
If any shareholder has questions on the
work of the Committee, I am very happy to
respond to these at the Company’s AGM or
at any other time.
Justin Dowley
Chairman of the Nominations Committee
23 May 2016
Appointments of Executive 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.
TERMS OF REFERENCE
The Committee’s terms of reference are
approved and reviewed by the Board on a
regular basis, most recently in January 2016.
The terms of reference are available on the
Company’s website or by contacting the
Company Secretary.
EFFECTIVENESS
An evaluation of the Committee’s
effectiveness was undertaken by the
Committee Chairman in April 2015.
The responses were shared with the
Committee and it was concluded that the
Committee continues to operate effectively.
The review concluded that the current Board
had an appropriate mix of skills, but may be
enhanced by broader geographic and asset
class experience. These factors have been
important considerations for the Committee
in the search for new Directors.
This evaluation was updated by the
Committee Chairman in March 2016 ahead
of the formal external review of the Group’s
Board and Committees to be held later in
this financial year. It was agreed that the
Committee continues to operate effectively;
however, to enhance the proceedings of the
Committee, the number of regular meetings
will be increased and a more formal rolling
agenda will be implemented.
GOVERNANCE OF NOMINATIONS
ROLES AND RESPONSIBILITIES
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
is responsible for:
– Identifying, and nominating for the
Board’s approval, candidates to fill any
Board vacancies
– Succession planning, including the
progressive refreshing of the Board
– Ensuring that all appointments to
the Board are made on objective
criteria and that candidates have
sufficient time to devote to their
prospective responsibilities
– Regularly reviewing the appropriateness
of the size, structure and composition of
the Board
– Considering the composition of the
Board to ensure that the balance of
its membership between Executive
Directors and Non Executive Directors
is appropriate
COMPOSITION
The Nominations Committee consists of five
Non Executive Directors, these being Justin
Dowley (Chairman of the Committee), Kevin
Parry, Peter Gibbs, Kim Wahl and Kathryn
Purves. The Company Secretary acts as
Secretary to the Committee. From the end
of the Company’s AGM on 21 July 2016,
Justin Dowley will retire from the Company
and Kevin Parry will become Chairman of the
Nominations Committee. It is anticipated that
any Non Executives appointed during the
year would join the Committee.
+ Biographical details can be found on pages 42
to 43
ICG ANNUAL REPORT & ACCOUNTS 2016
CHAIRMAN’S
LETTER
BOARD OF
DIRECTORS
CORPORATE
GOVERNANCE
COMMITTEE
REPORTS
REMUNERATION
REPORT
DIRECTORS’
REPORT
NOMINATIONS COMMITTEE REPORT
CONTINUED
REVIEW OF THE YEAR
APPOINTMENT OF A
NEW CHAIRMAN
Once the Chairman indicated his intention to
retire to other members of the Committee,
the Committee met to discuss their initial
approach. At that meeting Kevin Parry
indicated his interest in being considered
as a candidate and therefore suggested
he should not take any further part in the
meeting. From that point forward, all matters
relating to the Chairman search were led
by Peter Gibbs as acting Chairman of the
Committee. Neither Justin Dowley nor Kevin
Parry took part in those deliberations.
The Committee approved a job description
for the Chairman’s role and appointed a
leading recruitment agency to search for
available candidates. The agency conducted
extensive research and provided a number
of CVs for potential appointees. The CVs
provided were reviewed and benchmarked
by the Committee, and compared with the
CV of Kevin Parry. The Head of Human
Resources had conducted a detailed
review of the CVs and competencies of
all candidates, and awarded a score to
each candidate on key criteria (relevant
asset management experience, relevant
experience as a director of other PLC
boards, governance and regulatory
knowledge, and understanding of the
Company). The Committee received this
report and noted that Kevin Parry had
received the highest score in this process;
his prior experience (and in particular his
audit experience) placed him above other
candidates in this exercise.
The Committee then formally considered
Kevin Parry’s suitability for the role.
He has considerable existing knowledge
of the Company and its business; he has
served as a Non Executive Director of the
Company since 2009. He has good relations
with management and is well known to
shareholders, who have always been very
supportive of resolutions to re-elect him.
He also sits on, or has sat on, the boards
of a number of other listed entities and has
a very wide knowledge of UK corporate
governance matters. While there were a
number of other good candidates available,
it was not possible to tell whether they would
be able to match Kevin Parry’s skill set,
especially in terms of his understanding of
the Company; further, even if they were able
to do so over the long term, there was a risk
of disruption to the smooth operation of the
Board if it took time for the appointee to gain
the necessary knowledge of the business.
The Committee therefore concluded that
it should recommend that Kevin Parry be
offered the role of Chairman, subject to
reappointment by shareholders at the AGM
in July 2016.
A number of larger shareholders were
contacted by Peter Gibbs just prior to the
announcement of the proposed change
of Chairman to make them aware of
the decision.
Subsequent to the above recommendation,
the Committee (including Justin Dowley
and Kevin Parry) noted that there would be
a need for different Directors to act in the
roles of Senior Independent Director and
Chairman of the Audit Committee as these
cannot be carried out by the Chairman. It was
recommended that, given his extensive
service on boards of other companies and
his background in the asset management
sector, Peter Gibbs be appointed as Senior
Independent Director. The Company
will seek to appoint a new Non Executive
Director to join the Board during the coming
months; on appointment, this Non Executive
will act as Chairman of the Audit Committee
and so the skill set for that role will be a key
requirement of the search.
SIZE, STRUCTURE AND
COMPOSTION OF THE BOARD
The Committee intends to keep the size,
structure and composition of the Board
under review during the year, particularly
in the light of the appointment of a new
Chairman and Non Executive Director to
act as Chairman of the Audit Committee.
While the new appointments enhance the
ability of the Board to meet regulatory
demands and provide more audit specific
experience, the Committee is keen to ensure
that the overall skill set of the Board is not
detrimentally altered by the retirement of
Justin Dowley. As the outgoing Chairman
has considerable experience both from his
executive career in investment banking and
his numerous roles as a non executive, the
Committee will monitor the balance of the
Board to ensure that this valuable insight and
expertise is still available from the existing
members, and will recommend a further
appointment if necessary.
SUCCESSION PLANNING
During the year, the Committee considered
Non Executive succession as detailed
elsewhere in this report. There was also
an extensive report provided by the Chief
Executive Officer (with input from the
other Executive Directors) on executive
succession, covering several tiers of
management. The report considered
potential successors in key positions, gave
details of the proposed approach for those
persons who do not have possible internal
successors and discussed how talented
individuals can be identified early in their
careers and given an appropriate career
track. Following the presentation of this
report, the Committee agreed that there
are no material concerns in respect of
executive succession.
DIVERSITY
The Committee has a standing policy on
the background and diversity of Board
members. The policy provides that, prior
to any appointment to the Board, the
Nominations Committee considers the
balance of skills, experience, independence
and knowledge appropriate to the role.
In considering candidates, appointments
are made with regard to a number of
different criteria, including diversity of
gender, background and personal attributes,
alongside the appropriate skills, experience
and expertise. The Committee seeks to
ensure that long lists and short lists of
possible appointments to the Board reflect
that position. The Committee will always
seek to appoint the candidate with the most
appropriate skills and experience regardless
of their background, gender, race, marital
status, age, disability, religious belief or
sexual orientation. The Committee and the
Board are committed to diversity both at
Board level and throughout the organisation.
The Committee is supportive of increased
gender diversity at Board level, but
recognises that it may not always be in the
best interest of shareholders to prioritise
this above other factors. The Committee
will consider gender diversity, along with all
other relevant factors, when making future
recommendations to the Board.
STR ATEGIC
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GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
68 / 69
REMUNERATION
COMMITTEE REPORT
OUR OBJECTIVE IS TO ENSURE, ON BEHALF OF THE
SHAREHOLDERS, THAT REMUNERATION IS SUFFICIENT
TO ATTRACT, RETAIN AND MOTIVATE OUR STAFF TO
DELIVER THE GROUP’S STRATEGY. WE SEEK TO ALIGN
SHAREHOLDERS AND EMPLOYEES AND FOCUS ON RISK
MANAGEMENT AND APPROPRIATE OVERSIGHT.
PETER GIBBS
CHAIRMAN OF THE REMUNERATION COMMITTEE
The following pages set out the Remuneration Committee reports and
associated disclosures for financial year 2016. The reports are structured
into five parts:
1. Governance of remuneration: Our scope and terms of reference
2. Review of the year: The significant topics we addressed
3. Compensation summary: An overview of the remuneration
arrangements in place
4. Directors’ Remuneration Policy Summary
5. Annual Report on Remuneration
DEAR SHAREHOLDER
I am pleased to present the Directors’
Remuneration Report for the financial
year ended 31 March 2016, which explains
the remuneration decisions made by the
Remuneration Committee in respect of the
Executive Directors and the amounts paid
and awarded to them in respect of the year.
We are not seeking shareholder approval for
a revised Directors’ Remuneration Policy at
the 2016 AGM and shall continue to operate
within the policy approved at the 2014 AGM
for another year. Over the course of the next
few months, we shall be reviewing our policy,
as it reaches the end of its three year life,
with a view to presenting an updated policy
for shareholder approval at the 2017 AGM.
There have been no changes over the
course of the year in the way that we reward
the Executive Directors and our other
staff members.
VOTING OUTCOME AT 2015 AGM
The Committee was disappointed with the
outcome of the shareholder vote on the
Remuneration Report at the 2015 AGM
as we had discussed the report with our
major investors in advance of the meeting
and had the support of 16 of our 20 largest
shareholders. We were also aware that the
Investment Association’s Institutional Voting
Information Service (IVIS) had not raised any
concerns over our report. We understand
that Institutional Shareholder Services (ISS)
issued a recommendation to vote against the
report on the grounds that our disclosure
of incentive outcomes did not adequately
explain the linkage to performance.
We have attempted to address that concern
in this report by disclosing additional
information in respect of the KPIs and other
factors taken into account in determining
individual awards to be made to Executive
Directors in respect of FY16 (see page
85). I also explain below the rationale
behind the incentive arrangements we have
implemented, which are unusual for a FTSE
250 company.
ICG ANNUAL REPORT & ACCOUNTS 2016
CHAIRMAN’S
LETTER
BOARD OF
DIRECTORS
CORPORATE
GOVERNANCE
COMMITTEE
REPORTS
REMUNERATION
REPORT
DIRECTORS’
REPORT
REMUNERATION COMMITTEE REPORT
CONTINUED
ANNUAL AWARD POOL (AAP)
In order to be able to retain and attract
employees of high calibre, we recognise that
we need to offer remuneration that is similar
in quantum and structure to that provided
by the firms with which we compete for
talent, particularly private equity firms and
investment banks (see page 87 for details
of benchmarking).
Five years ago, we introduced the Annual
Award Pool (AAP) to link all of our variable
incentives to realised cash profit and to
provide an overall cap on variable pay
awarded by the Company. The value of
all incentives (other than third party carry
and similar arrangements) awarded over a
rolling five year period cannot exceed 30%
of realised cash profit over that period.
The 30% limit on the AAP provides an overall
cap on variable pay whereas the rolling five
year period allows for the fact that cash
profit at ICG is inherently an unpredictable
measure. FY16 marks the end of the first
five year period and the cumulative cost of
incentives has remained well within the 30%
limit for the five year period as can be seen
from the table below.
FY
ending
31 March
Realised
cash
profit
(£m)
Available
Award
Pool
(£m)
Actual
spend on
incentives
(£m)
Cumulative
% of
cash profit
2012
2013
2014
2015
2016
164.9
49.5
(10.7)
(3.2)
339.1
101.7
182.6
184.2
54.8
55.3
29.5
22.1
50.2
17.9%
33.5%
20.6%
48.6
22.3%
51.5
23.5%
The majority of remuneration provided
from the AAP (58% for FY 16) is deferred,
of which 71% is delivered in shares.
Balance Sheet Carry awards are made in
respect of the financial year (or vintage) in
which investments are made and typically do
not generate a cash payment for participants
for five to seven years.
The Committee remains of the view that
realised cash profit is the most relevant
performance metric to drive incentives in
ICG’s business and that the limit of 30% of
cash profit continues to be appropriate.
Furthermore, given the nature of our
business, it is important to have the flexibility
of the rolling 30% cap. The Committee
will review the balance of awards made
under the AAP over the next year to ensure
that this continues to reflect and support
the business.
EXECUTIVE DIRECTOR
ALLOCATIONS FROM THE AAP
Each year, the Committee reviews ICG’s
performance against a range of KPIs to
determine the core level of awards to be
made to the three Executive Directors from
the AAP. We then consider the personal
performance of each of the Executive
Directors to determine whether there should
be an increase or decrease to the core
awards. This year we have again increased
the level of transparency of this process
in the Annual Report on Remuneration to
provide shareholders with a clearer insight
into the factors taken into account in making
those decisions. (See page 85).
In deciding on the remuneration of our
Executive Directors, the Committee has
firstly considered the overall performance
of the firm which reflects positively on the
management group, operating as a team.
This has been an excellent year overall with
a strong level of funds raised, and highly
satisfactory deployment of our funds.
Cash profits are in line with last year and
we are seeing good growth in our fund
management profits. We have also taken
some major steps to make our balance sheet
more efficient, resulting in further capital
distributions to our shareholders.
However, when making individual decisions
for the year, we noted that the level of capital
raised, whilst extremely high compared
to our long term objective, was below the
target set for the year and this has been
reflected in the awards to Christophe Evain
and Benoît Durteste.
The prior year saw an outstanding success
in the sale of the assets of our European
Mezzanine Fund 2006. This was reflected in
an exceptional award to Benoît Durteste in
that year only.
During the year we have made strong
progress in developing our infrastructure
teams including our risk and control
functions. This has been reflected in the
awards to Philip Keller which were reduced
in the prior year following a technical
regulatory breach disclosed in last year’s
Audit Committee report.
Of the variable awards to be made in respect
of FY16 to Executive Directors, 91% will
be deferred and each element (including
the cash bonus) is subject to malus and/or
clawback over a period of at least two years
after it was earned (see page 77).
STR ATEGIC
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GOVERNANCE
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FINANCIAL
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70 / 71
More information on the allocation of awards
from the AAP to Executive Directors is set
out on pages 76 to 77.
I shall be happy to respond to any questions
you may have before or at the AGM and look
forward to your support.
Peter Gibbs
Chairman of the Remuneration Committee
23 May 2016
REMUNERATION PRINCIPLES
Five guiding principles are
reflected in the design of the staff
compensation arrangements.
– ALIGNMENT BETWEEN STAFF
AND SHAREHOLDERS
AAP – 30% of cash profit cap on
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.
– PROMOTE STAFF EQUITY
OWNERSHIP
The majority of executive remuneration
is in the form of equity; and shareholding
guidelines have been introduced.
– TRANSPARENT
All aspects of remuneration are clear to
employees and openly communicated to
employees and shareholders.
– REWARD ON CASH
The reward on cash principle ensures
that employees are only rewarded for
realised gains.
ICG ANNUAL REPORT & ACCOUNTS 2016
CHAIRMAN’S
LETTER
BOARD OF
DIRECTORS
CORPORATE
GOVERNANCE
COMMITTEE
REPORTS
REMUNERATION
REPORT
DIRECTORS’
REPORT
REMUNERATION COMMITTEE REPORT
CONTINUED
PART 1:
GOVERNANCE OF
REMUNERATION
The Committee is authorised
by the Board to determine and
agree the framework for the
remuneration of the Chairman
of the Company, the Executive
Directors and such other
members of the executive
management as it is instructed
by the Board to consider
REMIT AND RESPONSIBILITIES
The Committee is responsible for:
– Determining the total individual
remuneration package of each Executive
Director, having given due regard to
the contents of the Code, as well as the
Listing Rules
– Determining targets for any performance
related pay schemes operated by the
Company as well as the policy for pension
arrangements for each Executive Director
– The overall remuneration policy for all
the Group’s staff and takes into account
the requirement that the remuneration
arrangements should:
– Be consistent with and promote sound
and effective risk management, and not
encourage excessive risk taking
– Be in line with the strategic priorities,
objectives, values and long term
interests of the Group
– Include measures to avoid conflict
of interest
– Take into account the long term
interests of shareholders, investors and
other stakeholders
– Be formulated on the basis of
advice from the Group’s compliance
function, particularly in relation to
performance measurement
COMPOSITION
The Committee consists of Non Executive
Directors only. The current members are
Peter Gibbs (Chairman of the Committee),
Justin Dowley, Kevin Parry and Kim Wahl.
Justin Dowley will leave the Committee in
July due to his retirement from the Board.
Kathryn Purves has attended meetings of the
Committee at the invitation of the Chairman to
ensure that risk matters are taken into account
in determining the remuneration of Directors.
+ Biographical details can be found on pages 42
to 43.
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.
Executive Directors and Kathryn Purves attend
the meetings by invitation and the Committee
consults the Executive Directors about its
proposals and has access to professional
advice from outside the Company. The Head
of Human Resources also attends the meetings
as secretary. 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.
+ Committee meetings attendance table page 47
EFFECTIVENESS
An external effectiveness review of the
Remuneration Committee will take place
later in the financial year. The interim
internal review in March 2016 reviewed the
Committee’s performance and concluded
that there were no significant areas for
concern in respect of the performance
of the Committee or any of its members.
The Committee reviewed the proposed
actions from the May 2015 internal
review, which included making available
to the Committee an appropriate range
of benchmarking data for comparator
companies, and concluded all required
actions had been completed. The findings
of the formal external review to be held, and
any related actions, will be fully disclosed in
next year’s Annual Report.
ADVISERS TO THE COMMITTEE
PwC has been appointed by the Committee
and advises management on remuneration
issues. PwC also provides advice to the
Committee on other HR issues on request.
Advisers are selected on the basis of their
expertise in the area and with a view to
ensuring independence from other advisers
to the Group. The Committee is therefore
confident that independent and objective
advice is received from their advisers.
Mayer Brown have been available to advise
the Committee during the year to 31 March
2016. These advisers were appointed by the
Company. The fees charged for advice to the
Committee were £121,655 (PwC). Fees are
charged on the basis of time spent.
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
72 / 73
MEETINGS
May
PART 2:
REVIEW OF THE YEAR
The Committee held four
meetings during the year.
In each of its meetings it
discusses people risk, reviews
leavers and receives reports on
staff. Other work is undertaken
periodically. Over the course
of the year the Committee
considered and discussed
the following matters:
TOPICS ADDRESSED
Review of the calculation of adjusted pre-incentive
cash profit
Review of market compensation benchmark data
Review of third party FMC valuation
Review and approval of compensation recommendations
for FY15, taking into account advice from the
Group’s compliance function in relation to
performance measurement
NED fee review
2015 Remuneration Committee report
Review and approval of allocation of entitlement to Third
Party Carry (TPC)
Remuneration Committee terms of reference
september
AGM and shareholder feedback
Remuneration policy review
Review of bonus commitments
UK pension scheme update
January
Review of emerging trends within remuneration regulation
and governance
2016 Remuneration Committee report
Update on remuneration policy review
Review of bonus commitments
Review and approval of allocation of entitlement to TPC
Remuneration Committee annual timetable review
Remuneration policy annual review
March
2016 compensation review
Employee engagement survey
Update on remuneration policy review
Executive Director’s compensation benchmark review
2016 Remuneration Committee report
UK pension policy
ICG ANNUAL REPORT & ACCOUNTS 2016
CHAIRMAN’S
LETTER
BOARD OF
DIRECTORS
CORPORATE
GOVERNANCE
COMMITTEE
REPORTS
REMUNERATION
REPORT
DIRECTORS’
REPORT
REMUNERATION COMMITTEE REPORT
CONTINUED
PART 3:
COMPENSATION SUMMARY
An overview of our
remuneration arrangements
including details of FY16
awards to Executive Directors
and other staff
LONG TERM NATURE OF CASH PROFIT
Key drivers of cash profit are the realisation of investments in our IC and increasingly the
receipt of management fees by our FMC. Our IC typically has a holding period of 4–5
years, and as can be seen in the chart below cash profit will be generated from successful
investments from a number of vintages. This approach not only ensures we only reward
our team when investments have been successfully realised, but also illustrates the inbuilt
deferred nature of our AAP.
The following chart shows the origination by year of cash profit generated in FY16:
F
5
1
Y
2 %
M A N A G E M ENT
F E E S / O T H ER
I N C O M E
F Y 1 6
5 %
OLDER FY06
5%
3%
FY12 FY13
1% 2%
1
1
Y
F
%
5
1
%
E -I N C E N TIVE CASH P
F Y 1 4
6
ICG P R
£184.2M
F
I
R
O
T
100%
INVE
S
T
M
E
N
T
S
:
O
V
E
R
5
Y
R
S
2
8
%
F
Y
0
7
%
0
1
4
Y
F
84%
OF PRE-INCENTIVE CASH
PROFIT IS LONG TERM IN
NATURE
%
9
0
Y
6
F
23%
FY08
ALIGNED TO OUR STRATEGIC OBJECTIVES
Our strategy to maximise shareholder returns by growing our Fund Management business
and optimising the use of our balance sheet is fully aligned with our remuneration principles.
Returns to shareholders and variable remuneration are both paid out of cash profits,
thereby directly linking the motivations of our staff and our shareholders.
+ Our strategy page 1
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
74 / 75
ANNUAL AWARD POOL (AAP)
In each year 30% of pre-incentive cash profit is added to the AAP, and over a five year rolling
period sets the maximum that can be paid in variable remuneration. (See page 78 for details of
how our pre-incentive cash profit is calculated.) The five year rolling period reflects the cash
flow profile of the business which can be unpredictable in any given year and allows us to take
a longer term view. We exercise discretion over the amount awarded in variable compensation
each year, based on an assessment of market levels of pay and individual performance. This is
subject to the overall cap on the AAP.
ADJUSTED CASH PROFIT FY16
£184.2M
ANNUAL AWARD POOL
£55.3m
30%
AVAILABLE TO SHAREHOLDERS
£128.9m
70%
ACTUAL VARIABLE COMPENSATION
SPEND
FY16
RETAINED PROFIT
£56.4m
43.8%
£51.5m
28.0%
*Excluding the proposed £200m special dividend.
DISTRIBUTED
TO
SHAREHOLDERS
£72.5m*
56.2%
AVERAGE AAP SPEND OVER FIVE YEARS
The graph below shows the rolling average spend from the AAP made in FY16 and
the preceding four years compared to the 30% maximum. This shows the ability for the
Committee to adjust awards year by year having regard to both single year cash profit and the
longer term performance of the business.
AVERAGE AAP SPEND
£ Million
60
50
40
30
20
10
0
17.9%
29.5
33.5%
22.1
spend on incentives
cumulative spend as a percentage of profit
50.2
20.6%
48.6
22.3%
51.5
23.5%
%
35
30
25
20
15
10
5
0
12
13
14
15
16
ICG ANNUAL REPORT & ACCOUNTS 2016
CHAIRMAN’S
LETTER
BOARD OF
DIRECTORS
CORPORATE
GOVERNANCE
COMMITTEE
REPORTS
REMUNERATION
REPORT
DIRECTORS’
REPORT
REMUNERATION COMMITTEE REPORT
CONTINUED
PART 3:
COMPENSATION SUMMARY
CONTINUED
ALLOCATION OF THE AWARD POOL
Of the total amount of variable awards made in FY2016, 16.3% were made to Executive
Directors, of which 91% was deferred in nature. Please see page 85 for more details of how
Executive Director compensation is linked to their performance.
TOTAL AWARDS FY16
£51.5M
VARIABLE AWARDS TO
EXECUTIVE DIRECTORS
£8.4m
16.3%
VARIABLE AWARDS TO
OTHER STAFF
£43.1m
83.7%
The remuneration policy for Directors is set out on pages 78 to 83. The variable
compensation mix for all employees is allocated according to the framework below.
+ See pages 79 to 80 for details of the different types of award made
Employee
Executive Director
Investment Executives
Business Infrastructure
Partner or Director
Other staff
Annual
Bonus/DSA
PLC Equity
Award
FMC Equity
Award
Balance Sheet
Carry
Performance
Fees
•
•
•
•
•
•
•
•
•
•
STR ATEGIC
REPORT
GOVERNANCE
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FINANCIAL
STATEMENTS
76 / 77
EXECUTIVE DIRECTOR AWARD
All variable awards made to the Executive Directors are subject to malus and
clawback provisions.
TOTAL VARIABLE AWARDS TO
EXECUTIVE DIRECTORS
£8.4m
100%
OF VARIABLE AWARDS
TO EXECUTIVE DIRECTORS IN
RESPECT OF FY16 ARE AT RISK
PENSION
£0.2m
SALARY
£1.1m
VARIABLE
AWARDS
AT RISK
£8.4m
PERIOD OF DEFERRAL AND RISK
ANNUAL CASH BONUS
9%
PAID AT AWARD
SUBJECT TO CLAWBACK
SUBJECT TO MALUS
PERIOD OF DEFERRAL
1/3
1/3
1/3
VESTING SCHEDULE
DEFERRED SHARE AWARD
6%
PLC EQUITY AWARD
74%
BALANCE SHEET CARRY
11%
1/3
1/3
1/3
VESTING SCHEDULE
TIMING AND PAYMENT UNKNOWN – SUBJECT TO HURDLE
Executive Directors also have the opportunity to participate in carried interest schemes directly with third party funds (see page 89) by
purchasing the interest at market value. The Company also operates a shadow carry scheme, which is designed to mirror the value of third
party carry in certain circumstances. No awards of shadow carry were made to Executive Directors during the current year.
Calendar year
2017
2018
2019
2020
2021
2022
2023 or beyond
ICG ANNUAL REPORT & ACCOUNTS 2016
CHAIRMAN’S
LETTER
BOARD OF
DIRECTORS
CORPORATE
GOVERNANCE
COMMITTEE
REPORTS
REMUNERATION
REPORT
DIRECTORS’
REPORT
REMUNERATION COMMITTEE REPORT
CONTINUED
PART 4:
DIRECTORS’ REMUNERATION
POLICY SUMMARY
This section describes the
remuneration policy for
Executive Directors that has
been in operation since 2010
and which was approved at,
and applies from, the AGM held
on 23 July 2014
A full copy of the Policy approved by
shareholders at the 2014 AGM is available
on the ICG website under the Shareholders
Governance section. Minor amendments
have been made to this policy summary to
reflect changes in Board Membership, dates
of re-election and the extension of existing
SAYE plans.
Directors’ remuneration policy www.icgam.com
ANNUAL AWARD POOL (AAP)
The central feature of ICG’s remuneration
policy is the AAP. All incentives awarded
across the Group under:
– The Omnibus Plan (outlined below)
– The Balance Sheet Carry Plan
– Any performance fees paid to the FMC
that are distributed to employees
are governed by an overall limit that is
currently 30% of cash profit over a rolling
five year period. This percentage may
be exceeded in any year but must not be
exceeded on an aggregate average basis
over five years.
Cash profit, as internally reported, is defined
as profit before tax and incentive schemes,
adjusted so that:
– Interest income and capital gains are only
recognised on a cash basis
– Net impairments are only recognised
to the extent they are against
principal investment
– Fair value movement of derivatives
is excluded
A further adjustment is made to cash profit
to reflect the remuneration cost of our in
house distribution team. The variable pay
of all employees (including the distribution
team) is awarded out of the expanded AAP.
The current AAP limit has been reviewed
during the financial year (see page 73)
and is considered by the Committee to
be appropriate for our existing business
model. As the Group’s business develops
and expands into new markets and
strategies, the Committee will assess the
ongoing appropriateness of the 30% limit.
Should it be determined that the limit should
be amended, the Committee will engage
with shareholders.
AWARDS FALLING WITHIN THE AAP
The Omnibus Plan provides for three
different award types to be made over
ICG shares: Deferred Share Award, PLC
Equity Awards and FMC Equity Awards.
FMC Equity Awards are not made to
Executive Directors. Any cash awards are
distributed from the AAP.
Performance fees (funded by third party
investors) and other fund performance
incentives funded by ICG are distributed
under the umbrella of the AAP. Only Third
Party Carry (TPC) and similar arrangements
in respect of ICG direct investment funds or
business acquisitions that do not give rise to
a cost or liability to the Company are outside
of the AAP.
STR ATEGIC
REPORT
GOVERNANCE
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FINANCIAL
STATEMENTS
78 / 79
FUTURE POLICY TABLE
The table below outlines each element of the remuneration policy for the Directors of the Company.
PURPOSE AND LINK TO STRATEGY OPERATION
OPPORTUNITY
PERFORMANCE CONDITIONS
SALARY
+ Adequate to recruit and
– Paid monthly
– Normally reviewed annually
– None
– In considering base salary
increases, the Committee
considers the range of salary
increases applying across the
Group and local market levels
– Increases do not normally
exceed the average staff
increase, except in the
case of a change of role
or responsibility
– Benefits currently receivable by Executive
– Provision and level of
– None
Directors include life assurance, private medical
insurance and income protection
benefits are competitive and
appropriate in the context of
the local market
– All Executive Directors are entitled to a pension
allowance payable each month with salaries
– The pension allowance
available to Executive
Directors is 15% of
basic salary
– None
ANNUAL BONUS AND DEFERRED SHARE AWARDS
+ Rewards employees for
delivering cash profits,
managing the cost base,
employing sound risk and
business management
– Awards are made after the end of the
– An Executive Director’s
– An Executive Director’s
financial year
– The annual bonus is awarded as cash and
deferred shares
– Executive Directors will receive 50% of bonuses
over £100,000 as Deferred Share Awards
– Shares normally vest one third in each of the
first, second and third years following the
year of grant subject to continuing service.
Dividend equivalents accrue to participants
during the vesting period and are paid at the
vesting date
annual bonus and Deferred
Share Award are drawn from
the AAP which is capped as
described on page 78
– Awards are made based on
performance as described on
page 85
annual bonus entitlement is
also based on performance
against objectives, which
are derived from the Group’s
key performance indicators
– No further performance
conditions apply to Deferred
Share Awards
retain Executive Directors
who will drive the
business forward
+ Designed to be sufficient
to ensure that employees
do not become dependent
on their bonuses
+ Reflects local competitive
market levels
BENEFITS
+ Appropriate to recruit and retain
Executive Directors who will
drive the business forward
+ Reflects local competitive
market levels
PENSION
+ Adequate to recruit and retain
Executive Directors who will
drive the business forward
+ Helps Executive Directors to
provide for their retirement
ICG ANNUAL REPORT & ACCOUNTS 2016
CHAIRMAN’S
LETTER
BOARD OF
DIRECTORS
CORPORATE
GOVERNANCE
COMMITTEE
REPORTS
REMUNERATION
REPORT
DIRECTORS’
REPORT
REMUNERATION COMMITTEE REPORT
CONTINUED
PART 4
DIRECTORS’ REMUNERATION POLICY SUMMARY CONTINUED
PURPOSE AND LINK TO STRATEGY OPERATION
OPPORTUNITY
PERFORMANCE CONDITIONS
PLC EQUITY AWARD
+ Rewards senior employees
for increasing long term
shareholder value
+ Aligns the interests of
senior employees with those
of shareholders
FMC EQUITY AWARD
+ Incentivises those employees
charged with accelerating the
expansion of the Company’s
fund management business
– Awards are made after the end of the financial year
– Shares normally vest one third in each of the third,
fourth and fifth years following the year of grant
unless the Executive leaves for cause or to join
a competitor
– Dividend equivalents accrue to participants during
the vesting period and are paid at the vesting date
– An Executive Director’s PLC
Equity Award is drawn from
the AAP which is capped as
described on page 78
– Awards are made based on
performance as described on
page 85
– Awards are made after the end of the financial year
– It is not intended that any
FMC Equity Awards will be
made to Executive Directors
in the future
– The awards are over shares in FMC
– Shares normally vest one third in each of the first,
second and third years following the year of grant
subject to continuing service
– A holding period applies until the third year
following the year of grant, at which time all vested
FMC shares are automatically ‘exchanged’ for
Company shares of an equivalent value
– The value of a share is determined by an
independent valuation every year
– An Executive Director’s
PLC Equity Award is also
based on performance
against objectives, which are
derived from the Group’s key
performance indicators
– No further performance
conditions apply to the PLC
Equity Awards
– Awards are based on
performance against
objectives, which are
derived from the Group’s key
performance indicators
– No further performance
conditions apply to FMC
Equity Awards
BALANCE SHEET CARRY PLAN
– An Executive Director’s
Balance Sheet Carry
allocation is drawn from the
AAP which is capped as
described on page 78
– Awards are made on the basis
of grade and performance as
described on page 85
– The hurdle rate is fixed
by the Committee, at its
discretion, prior to making
the first awards in each
vintage. The Committee has
not fixed a hurdle rate lower
than 5% per annum
+ Encourages investment
executives to optimise returns
on investment, whilst minimising
defaults and losses
– Takes the form of an ‘in house’ carry arrangement
(i.e. on the returns from investments made by the
Group on its balance sheet)
– Awards will pay out by reference to the overall
outcome for 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 subject to continuing service
– Payment is made on the realisation of investments,
once a hurdle rate of return has been achieved on
these investments
– After repayment of capital and the payment of
the related hurdle rate of return to the Group,
participants become entitled to receive catch up
payments 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 that vintage
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
80 / 81
PURPOSE AND LINK TO STRATEGY OPERATION
OPPORTUNITY
PERFORMANCE CONDITIONS
CARRIED INTEREST OVER THIRD PARTY FUNDS (THIRD PARTY CARRY OR TPC)
– Awards of TPC and Shadow
Carry are made to Executive
Directors to reflect their
seniority and involvement
in the management of the
relevant funds
– No performance conditions
are considered to attach
to TPC
– Because participants in
Shadow Carry have not
made an investment in
the carry partnership,
the hurdle is considered
to be a performance condition
+ Offers the types of incentive
arrangements that are
expected by fund investors
and are offered by the Group’s
competitors for talent
+ Aligns the interests of the
fund management teams with
those of the fund investors,
encouraging the best returns to
be obtained, whilst minimising
defaults and losses
+ Shadow Carry facilitates the
participation by Executive
Directors and other employees
in TPC after the inception of the
fund and after investments have
been made
– Certain employees who are involved in the
management of a fund are invited to invest in the
fund by acquiring interests in a carry partnership
at the fair market value of the interests at the time
of acquisition. The investment is made through an
external structure established at the inception of
the fund such that no liability arises to the Group
– TPC participants receive a share of the profits
arising on the realisation of investments
made in that fund. No payments are made to
TPC participants until the external investors
have received an internal rate of return (IRR)
(the hurdle) on the fund
– Shadow Carry is the notional allocation of TPC
interests that have not otherwise been acquired
by employees. Payments are made to participants
in respect of Shadow Carry when the hurdle has
been met, through payroll, but are designed to
mirror TPC payments in all other respects
– TPC, Shadow Carry and similar arrangements that
do not give rise to a cost or liability to the Company
are outside the AAP
THE INTERMEDIATE CAPITAL GROUP PLC SAYE PLAN 2004
+ Provides an opportunity for all
employees to participate in the
success of the Group
– All 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 legislation)
– Employees may save the
maximum permitted by
legislation each month with
this scheme
– The Plan is not subject to any
performance conditions, as
per HMRC legislation
– At maturity, employees can exercise their option
to acquire and purchase shares in ICG at the
discounted price set at the award date or receive
the accumulated cash
FEES PAID TO NON EXECUTIVE DIRECTORS
+ To facilitate the recruitment of
Non Executive Directors who
will oversee the development
of strategy and monitor
the Executive Directors’
stewardship of the business
– Fees are payable to Non Executive Directors for
their services in positions upon the Board and
various Committees
– Fees for the Chairman are determined and
reviewed annually by the Committee and fees
for Non Executive Directors are determined by
the Board
– The Committee relies upon objective research
on up to date relevant information for
similar companies
– Non Executive Directors
cannot participate in any
of the Company’s share
schemes and are not eligible
to join the designated Group
pension plan
– Fees are set and reviewed
in line with market rates.
Aggregate annual fees do not
exceed the limit set out in the
Articles of Association
– None of the Non
Executive Directors’
remuneration is subject to
performance conditions
ICG ANNUAL REPORT & ACCOUNTS 2016
CHAIRMAN’S
LETTER
BOARD OF
DIRECTORS
CORPORATE
GOVERNANCE
COMMITTEE
REPORTS
REMUNERATION
REPORT
DIRECTORS’
REPORT
REMUNERATION COMMITTEE REPORT
CONTINUED
PART 4
DIRECTORS’ REMUNERATION
POLICY SUMMARY CONTINUED
NOTES TO THE POLICY TABLE
PERFORMANCE MEASURES
AND TARGETS
The AAP is determined through an
assessment of the Group’s financial
performance by the Executive Committee
and Remuneration Committee. Cash profit
provides a link between income generation
for shareholders and employee
compensation (see page 84).
Once the AAP has been determined, it is
then allocated based on an individual’s
contribution and performance as determined
by the annual appraisal process.
Executive Directors have performance
objective set and KPIs are monitored by the
Remuneration Committee. Details of these
KPIs are set out on page 85.
Further management information is
provided to the Remuneration Committee
and Executive Committee on performance
to ensure that financial results are put into
the context of wider performance and
risk appetite.
SHAREHOLDING REQUIREMENTS
To align the interests of the Company’s
Executive Directors with those of
shareholders, Executive Directors are
required to acquire ownership of a number
of ordinary shares in the Company with a
market value equal to a multiple of two times
the Director’s annual base salary.
LEGACY REMUNERATION SCHEMES
The Key Employee Retention Share Plan
(KERSP) was adopted on 23 May 2005 and
formed part of the Company’s remuneration
policy in previous years. No awards have
been made under this plan since June 2008
and the plan was phased out following a
review of remuneration in 2010. Some
awards granted under the plan are still held
by Executive Directors; these will lapse in
June 2016. The performance conditions for
the options granted under the KERSP will
not be met and so all awards will lapse
without payment, and no benefit will accrue
to Executive Directors under this scheme.
DIFFERENCE IN REMUNERATION
POLICY FOR ALL EMPLOYEES
All employees of ICG are entitled to base
salary, benefits and, in most locations,
pension. The variable compensation mix for
all employees is drawn from the AAP and is
allocated by reference to role, responsibility
and performance. Awards to individuals may
be made up of different types of award as
appropriate to incentivise them depending
on their role within the business.
The quantum of each of these awards
is determined by the size of the AAP, an
individual’s seniority, contribution and their
individual performance as determined by
the annual appraisal process. In addition,
all UK employees are eligible to join the
Intermediate Capital Group plc SAYE
Plan 2014.
STR ATEGIC
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GOVERNANCE
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FINANCIAL
STATEMENTS
82 / 83
SERVICE CONTRACTS
EXECUTIVE DIRECTORS
The Company’s policy is for Executive Directors to have one year rolling contracts which are deemed appropriate for the nature of the
Company’s business. Service contracts are held, and are available for inspection, at the Company’s registered office. The details of the
service contracts for Executive Directors serving during the year are shown below.
Executive Director
Date of service
contract
Last
re-elected
Re-election
frequency
Notice
period
Non-compete
provisions
Compensation on termination by the
Company without notice or cause
Christophe Evain
30 May 2006
Philip Keller
12 October 2006
15 July 2015
Annual
12 months
Benoît Durteste
21 May 2012
Restraint
period of
12 months
The salary for any unexpired period
of notice plus the cost to the Company
(excluding NI contributions) of providing
insurance benefits for the same period
The Committee reserves discretion to make an annual bonus award to an Executive Director in respect of the final full year of service, taking
into account the circumstances of the individual’s termination of office and performance for the financial year concerned.
NON EXECUTIVE DIRECTORS
Non Executive Directors do not have contracts of service and are not eligible to join the designated Group pension plan or receive payment
for loss of office. All Non Executive Directors have three months’ notice period, are re-elected annually and were last re-elected in July 2015.
Details of Non Executive Directors’ appointment dates are as shown below. Justin Dowley is not seeking reappointment at the Company’s
AGM in July 2016 and is retiring from the Board.
Non Executive Director
Justin Dowley
Peter Gibbs
Kevin Parry
Kathryn Purves
Kim Wahl
Date appointed
February 2006
March 2010
June 2009
October 2014
July 2012
ICG ANNUAL REPORT & ACCOUNTS 2016
CHAIRMAN’S
LETTER
BOARD OF
DIRECTORS
CORPORATE
GOVERNANCE
COMMITTEE
REPORTS
REMUNERATION
REPORT
DIRECTORS’
REPORT
ANNUAL REPORT ON REMUNERATION
PART 5:
ANNUAL REPORT
ON REMUNERATION
This section reports on
remuneration paid during
the financial year
DETERMINATION OF THE ANNUAL AWARD POOL (AUDITED)
The central feature of the Remuneration Policy is the AAP. All incentives are governed by an
overall limit expressed in terms of cash profit. The table below includes the cost of incentives
drawn from the AAP for the financial year under review and the four previous years.
£m
Cash profit
FY12
FY13
FY14
FY15
FY16 Cumulative
164.9 (10.7) 339.1
182.6 184.2
860.1
AAP, being 30% of cash profit
49.5
(3.2)
101.7
54.8
55.3
258.1
Spend on incentives
29.5
22.1
50.2
48.6
51.5
201.9
Cumulative percentage of cash profit spent
17.9% 33.5% 20.6% 22.3% 23.5%
23.5%
The AAP is limited to 30% of cash profit over a rolling five year period. This percentage
may be exceeded in any year but must not be exceeded on an aggregate average basis over
five years. Managing the AAP by reference to a five year rolling average is a shareholder
protection to ensure that variable awards to employees are made in a considered long term
way rather than as a sharp reaction to a single year’s performance. Realised cash profits are
significantly driven by the realisation of investments, which is unpredictable and often beyond
the Company’s direct control. In a strong profit year (such as FY14), the Committee may
choose not to distribute the full AAP, but can instead choose to retain some of it for use in
future years, while in a lower profit year the Committee may choose to distribute some of the
retained AAP.
This approach allows the Committee to plan over multiple years and smooth fluctuations in
realisations. In strong profit years the Committee is not compelled to make awards which
may be excessive, while in years with a lower cash profit and/or no investment realisations,
staff can still be appropriately incentivised to protect the long term interests of the business
and mitigate the risk of undesirable loss of talent. In both cases due regard is given to
projected results of future periods and to ongoing management and retention of employees.
The amounts awarded therefore may not fully correlate to annual variations in cash profit, but
this reflects the multi-year approach taken by the Committee. The Committee is mindful each
year of the appropriate level of compensation to ensure the retention of staff at all levels, and
seeks to ensure that staff are rewarded against appropriate benchmarks.
Due to the protection of the AAP being set at a 30% rolling average with regard to
performance over a multi-year period, the Remuneration Committee does not feel that formal
upper limits on remuneration payable to Executive Directors are required. Within the AAP
limit, the Remuneration Committee must appropriately reward all staff, and has regard to the
balance between Executive Directors and other employees. The need to remunerate all staff
from this pool in a way that will attract and retain talent acts as a natural and inbuilt ceiling on
how much the Executive Directors may be awarded; however, as the AAP itself varies each
year in an unpredictable manner depending on performance, it is not appropriate to set limits
on awards to Executive Directors before the results of their performance are known.
EXECUTIVE DIRECTORS – KEY PERFORMANCE INDICATORS
An Executive Director’s annual incentive award is governed by the size of the AAP and their
individual performance as determined by the annual appraisal process. At the beginning of
the financial year under review, the Company assigned the Executive Directors a number
of Key Performance Indicators (KPIs) broadly in the areas of fundraising and growth,
investment portfolio performance, operational and risk management measures, performance
management and financial performance.
STR ATEGIC
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GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
84 / 85
LINK TO STRATEGY
1
2
3
Grow assets under management
Invest selectively
Manage portfolios to maximise value
EXECUTIVE DIRECTORS – PERFORMANCE IN THE YEAR
A summary of the KPIs, and the Executive Directors’ performance against these objectives is set out below:
KPI
Long Term Fundraising
Objective (third party
capital committed)
Short Term Fundraising
Objective (third party
capital committed)
% of full realisations above
fund hurdle rate
Fund deployment in line
with expectations
Impairments
FMC profit margin
Gearing
Target adjusted ROE
Link to
Strategic
Objectives Weighting
Performance
Target
Underperforming Performing
Outperforming
Narrative
1
1
3
2
3
1
3
3
15%
€4bn p.a.
15%
€5.8bn
12.5%
80%
10%
27%
12.5%
<2.5%
10%
>40%
10%
10%
0.8–1.2x by July
2016 following
any return
of capital
>13% following
any return
of capital
In FY16 the Group raised €5.2bn of gross
inflows exceeding its long term target.
The FY16 target set by the Board was €5.8bn.
This was not met due to closure of the CLO
market in the second half of the year.
During FY16 there were a number of
successful realisations including a number
of older assets.
Fund deployment remains strong in competitive
markets. In FY16 we deployed 29% (on a
weighted average basis) of our largest closed
end funds against a target of 27%.
Impairments were below our long term target
at 2.3% of the opening loan book.
At 41.9% we exceeded our target FMC
profit margin whilst maintaining operational
investment in business development activities.
At 31 March 2016 gearing was 0.70x and will
increase to middle of the target range with the
payment of the proposed special dividend of
£200m in July 2016.
Adjusted ROE of 12.9% exceeded the target
of 11.7%, will increase materially following the
proposed capital return in July and exceed the
13% target.
In addition to the above KPIs, each Executive Director is also measured against the effective application of commercially appropriate risk management practices, metrics and
controls. In some years, some strategic initiatives may be too sensitive to be disclosed as KPIs. It is the intention of the Committee that these will be retrospectively disclosed in future
years once they are less sensitive. There were no such KPIs in this year.
Performance against KPIs is first assessed for the Executive Directors as a group, to recognise the collaborative leadership structure and joint decision making of the Executive
Committee. This ensures that all Executive Directors are aligned with, and jointly responsible for, the Group’s strategic direction and key decision making. This year, the Committee
was of the view that there has been strong performance against a number of the KPIs, with fundraising above long term target levels and highly satisfactory deployment of our
funds. Cash profits are in line with last year and we are seeing good growth in fund management profits. We have also taken some major steps to improve balance sheet efficiency,
leading to further capital distributions to shareholders. The Committee also noted the short term fundraising target was not met. All of these factors were considered in setting
the core amount of the awards to all Executive Directors. Once Group performance has been assessed against the KPIs and a base level for awards (adjusted according to the
individual’s role within the organisation) is established, the Remuneration Committee may make individual adjustments upwards or downwards to reflect an individual Executive
Director’s performance during the year. The Remuneration Committee considered carefully whether any individual adjustments were required.
The Committee noted that the level of capital raised was above the long term objective but fell slightly below the short term target set for FY16; this has been reflected in the
awards made to Christophe Evain and Benoît Durteste. The good performance in terms of fund deployment was also reflected in these awards.
Benoît Durteste’s remuneration in the current financial year is materially lower than the prior year when he led an area of work which had a significant impact on the financial
performance of the Group: the sale of the assets of European Fund IV 2006.
The FY16 award to Philip Keller has increased compared to the prior financial year when a downward adjustment was made in the light of a technical breach in our regulatory
disclosures as identified in last year’s Audit Committee report. This has been satisfactorily addressed and there has also been strong progress in our infrastructure functions and
improvements in the efficiency of our financial structure. During the year, the Group has enhanced its resources and procedures in the areas of compliance and risk management,
embedding risk management and control further into our day to day activities. This has been shown by the recruitment of a CRO and his enhancement of our risk processes (see
pages 28 to 29); and by the appointment of two new professionals for the Compliance function.
The Executive Directors’ KPIs for FY17 have been set in the same categories as those disclosed above. The specific targets are not disclosed due to commercial sensitivity but will
be disclosed in next year’s Annual Report.
You can read more about the Group’s strategic objectives on pages 10 to 13
ICG ANNUAL REPORT & ACCOUNTS 2016
CHAIRMAN’S
LETTER
BOARD OF
DIRECTORS
CORPORATE
GOVERNANCE
COMMITTEE
REPORTS
REMUNERATION
REPORT
DIRECTORS’
REPORT
ANNUAL REPORT ON REMUNERATION
CONTINUED
SINGLE TOTAL FIGURE OF REMUNERATION TABLE (AUDITED)
The following table shows a single total figure of remuneration in respect of qualifying services for the financial year ended 31 March 2016 for
each Executive Director, together with comparative figures for the previous financial year:
Salaries
and fees
£000
Benefits1
£000
Pension
allowance
£000
369.0
360.0
369.0
360.0
369.0
360.0
11.1
11.2
10.1
10.3
7.9
7.7
55.4
54.0
55.4
54.0
55.4
54.0
Short term
incentives,
available
as cash2
£000
300.0
469.4
250.0
569.4
216.7
245.9
Executive Directors
Christophe Evain
2016
2015
Benoît Durteste
2016
2015
Philip Keller
2016
2015
Total
emoluments
£000
Short term
incentives,
deferred3
£000
Long term
incentives4
£000
Other
remuneration5
£000
Single total
figure of
remuneration
£000
735.5
894.6
684.5
993.7
649.0
667.6
2,851.7
708.3
2,869.4
1,334.7
–
4.5
4,295.5
5,103.2
2,271.4
2,532.5
3,219.4
2,156.8
1,550.4
1,145.9
450.4
883.2
–
–
–
5,488.4
6,369.9
2,649.8
2.3
2,699.0
Total emoluments paid to all Directors were £2,591,000 (2015: £3,060,000). See page 90 for details of payments to Non Executive Directors.
Further information on the performance of Executive Directors is set out on page 85.
Notes
1
Each Executive Director receives medical insurance (taxable), life assurance (not taxable) and income protection (not taxable).
2 This figure represents the cash element of the annual bonus that is not deferred.
3 This figure represents the sum of the face values of each of the following awards made for the year:
– Deferred Share Award (50% of annual bonus in excess of £100,000)
– PLC Equity Award
4
The long term incentive amounts are payments received through ICG payroll in respect of the year from BSC and shadow carry. In FY16, 86% of the long term incentives
payments received related to awards made to Executive Directors more than three years ago (with 22% of the long term incentive payments received related to awards
made more than five years ago).
In the case of BenoÎt Durteste, 86.2% of the long term incentives payments received in the period relate to awards made in his role as an Investment Executive prior to his
appointment as an Executive Director.
5
Individuals are invited to participate in Third Party Carry and must pay the fair market value for their partnership share in the Third Party Carry partnership, and therefore
there is no remuneration value. The percentage of the total distributable Third Party Carry by fund awarded to the Executive Directors is shown on page 90. Additionally,
this figure represents the value of SAYE grants made during this financial year.
ADDITIONAL INFORMATION IN RESPECT OF THE SINGLE TOTAL FIGURE
In the financial year under review, in line with the Directors’ remuneration policy, the base salary payable to each Executive Director has
been increased to £369,000 per annum from £360,000 per annum, a 2.5% increase. The percentage increase received is in line with
other employees.
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
86 / 87
HOW DO WE BENCHMARK OUR COMPENSATION?
Remuneration awards are benchmarked against the following peers in the major jurisdictions where the Group operates:
– Listed financial service companies
– Listed Private Equity firms
– Investment banks
– Listed asset managers
– Unlisted asset managers
– Unlisted Private Equity firms
– Other organisations as appropriate
for the individual role
The Group’s Human Resources team carries out an extensive annual exercise to benchmark proposed salaries and deferred awards for all
employees. This exercise covers employees at all levels and in all geographies and provides an assessment which shows how a particular
employee is remunerated compared to the market in their particular field. Executive Director compensation is heavily benchmarked
against a range of peers and the available data set has been discussed regularly by the Remuneration Committee (see page 73).
The benchmarking exercise draws on a wide variety of sources including information from recognised independent market data
providers, our own insight from dealing with recruitment consultants and other advisers, experience from our own recruitment and staff
turnover and our understanding of market competitors.
Due to the unique nature of the Group’s business as a listed entity which competes for talent against other asset managers and listed and
unlisted private equity employers as well as investment banks, it is necessary to obtain a wide range of comparison sets. Hence, while we
do consider other listed financial service companies in our benchmarking, they are not the only relevant comparator.
SCHEME INTERESTS AWARDED DURING THE FINANCIAL YEAR (AUDITED)
Executive Directors were awarded the following share scheme interests during the financial year.
Scheme
interest awarded
Basis on which
award was made
Percentage of award for
minimum performance
Deferred
Share Award
50% of any annual
bonus in excess of
£100,000 is awarded
in deferred shares
100
PLC Equity Award Result of Director’s
100
annual appraisal
End of period over which
performance measures and
targets must be achieved
Vest one third at the end
of the first, second and
third years following
the year of grant.
There are no further
performance conditions.
Vest one third at the
end of the third, fourth
and fifth years following
the year of grant.
There are no further
performance conditions.
Christophe Evain
£
Philip Keller
£
Benoît Durteste
£
369,416
145,869
469,416
2,500,000
1,000,000
2,750,000
The share price on the date of award of PLC Equity and Deferred Share Awards was £5.471. This was the middle market quotation for the five
dealing days prior to 20 May 2015.
TOTAL PENSION ENTITLEMENTS (AUDITED)
No Executive Directors had a prospective entitlement to a defined benefit pension by reason of qualifying services.
ICG ANNUAL REPORT & ACCOUNTS 2016
CHAIRMAN’S
LETTER
BOARD OF
DIRECTORS
CORPORATE
GOVERNANCE
COMMITTEE
REPORTS
REMUNERATION
REPORT
DIRECTORS’
REPORT
ANNUAL REPORT ON REMUNERATION
CONTINUED
BALANCE SHEET CARRY AWARDS
It is not possible to accurately value Balance Sheet Carry which is awarded to individuals, as the value of awards will depend on performance
over a multi-year period and, if a hurdle is not met, awards may never have any value. Amounts actually received under Balance Sheet Carry
awards are disclosed in the single figure table (under ‘Long Term Incentives’) in the year in which they arise (see page 86).
However, to allow budgeting and management of allocations from the AAP, an internal assumption is made as to the potential investment
performance of balance sheet investments at a money multiple of 1.5 times. Despite the uncertainty of both the value and timing of this return,
no risk weighted discount is applied. While the actual outcome will inevitably be different, the below table shows the notional value of Balance
Sheet Carry that were allocated from the AAP for awards made to Executive Directors during the financial year. This is not included within the
Single Figure Table.
Christophe Evain
Benoît Durteste
Philip Keller
Notional value as a charge to AAP
£
461,169
461,169
308,262
Executive Directors’ allocation of Balance Sheet Carry represents 5.03% of the total available for allocation to employees in FY16.
DIRECTORS’ INTERESTS IN SHARES (AUDITED)
At 31 March 2016, Directors held the following interests in shares of the Company:
Executive Directors
Christophe Evain
Philip Keller
Benoît Durteste
Shares held outright
DSA and PLC
Equity Award
interests
SAYE options
subject
to service
condition
Share options
subject to
performance1
Share options
vested but
unexercised1
Shareholding
requirement
met?
1,432,048
2,452,080
624,686
1,480,022
226,139
1,647,909
5027
5,106
2,593
23,771
10,808
13,831
–
181,439
–
P
P
P
1 Share options awarded under prior policy, the current Directors’ Remuneration Policy does not award share options.
The Executive Directors are required to hold 119,225 shares, being 200% of their annual salary at the share price prevailing on 31 March 2016.
There are no shareholding requirements for Non Executive Directors. At 31 March 2016 Justin Dowley held 102,547 shares outright and Kevin
Parry held 16,788 shares outright.
Subsequently, DSA and PLC Equity Awards were made to Executive Directors in respect of their prior year performance. A total of 435,248
interests over shares were awarded to Christophe Evain, a total of 346,671 interests over shares were awarded to Benoît Durteste and a
total of 236,634 interests over shares were awarded to Philip Keller. Other than these awards, there were no changes to the shareholdings
between the year end and the date of this report.
Changes in interests in shares during the year to 31 March 2016 were as follows:
– In May 2015 Benoît Durteste sold 171,154 shares and Philip Keller sold 150,000 shares. Christophe Evain sold 25,000 shares in June 2015
– DSA and PLC Equity Award interests awarded in prior years vested on 1 and 2 June 2015. The shares held outright by Executive Directors increased as
follows: Christophe Evain – 583,817; Philip Keller – 350,936; Benoît Durteste – 70,785
– In June 2015 Benoît Durteste exercised 67,840 options over shares awarded under a prior policy. The option price paid was £5.05 per share and the
market price at exercise was £5.59. The shares have been retained and form a part of the shareholding disclosed above
– In July 2015 Christophe Evain exercised 4,945 options over shares under a Save As You Earn scheme. The option price paid was £1.82 per share and the
market price at exercise was £5.89. The shares have been retained and form a part of the shareholding disclosed above
– The share consolidation which took place in July 2015 in association with the payment of a special dividend reduced the shares held outright by Directors
as follows: Christophe Evain – 237,393; Philip Keller – 104,116; Benoît Durteste – 37,691; Justin Dowley – 17,092
– In March 2016 Christophe Evain exercised 99,090 options over shares awarded under a prior policy. The option price paid was £4.84 per share and the
market price at exercise was £5.74. At the time of exercise 91,388 shares were sold to meet the option price and tax. 7,702 shares were retained and form
a part of the shareholding disclosed
– In March 2016 Kevin Parry purchased 16,788 shares in the market at a price of £5.93 per share
The share price at 31 March 2016 was £6.19. The average option exercise price of vested but unexercised options held by Executive Directors
is £6.01.
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
88 / 89
SHAREHOLDER IMPACT OF AWARDS
For all awards made during the 2010/11 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.
The Company has established the ICG EBT 2015 which may be used to hold shares and cash in conjunction with employee incentive schemes
established by the Company from time to time.
EXECUTIVE DIRECTORS’ CO-INVESTMENT IN THIRD PARTY FUNDS
Increasingly, fund investors expect Executive Directors to co-invest in funds. The following amounts have been invested by current Executive
Directors from their own resources into third party funds operated by ICG:
Executive
Director
Christophe Evain
Benoît Durteste
Philip Keller
EOS
€000
250
400
100
ICG
Longbow
III
£000
Total
Credit
€000
Europe
Fund IV
06 B
€000
ICAP 08
$000
IMP 08
€000
RF 08
€000
Europe
Fund V
€000
–
–
–
–
150
100
775
617
428
250
375
150
2,100
–
–
12
–
–
2,250
150
500
Strategic
Secondaries
I
$000
Europe
Fund VI
€000
Strategic
Secondaries
II
$000
ICAP III
$000
375
2,000
375
750
500
2,000
500
1,000
375
750
375
400
SDP I
€000
250
250
–
CARRIED INTEREST ON THIRD PARTY FUNDS
The Company has established for its executives (including Executive 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. Those executives to whom allocations are made pay full market value for the interests at the time of acquisition hence no
remuneration arises. The allocation of carried interest entitlements as at 31 March 2016 was as follows:
Executive Directors
Former Executive Directors
Other executives
ICG
Total
Executive Directors
Other executives
ICG
Total
Intermediate
Capital
Asia Pacific
Mezzanine
Fund 2005
Intermediate
Capital
Asia
Pacific
Fund 2008
ICG
Mezzanine
Fund 2003
ICG
Minority
Partners
Fund 2008
ICG
Recovery
Fund 2008
12.4%
25.1%
37.5%
9.5%
21.6%
21.3%
4.3%
43.9%
54.4%
21.1%
22.0%
21.0%
37.9%
7.0%
51.0%
25.0%
25.0%
20.0%
20.0%
20.0%
100.0%
100.0%
100.0%
100.0%
100.0%
ICG
Europe
Fund V
EF06 B
Fund
ICG
Europe
Fund VI
ICG Senior
Debt
Partners I
ICG Senior
Debt
Partners II
ICG Strategic
Secondaries
Carbon
Fund
Intermediate
Capital Asia
Pacific III
23.9%
30.3%
22.8%
20.0%
20.0%
18.0%
20.0%
56.1%
49.7%
57.2%
60.0%
60.0%
62.0%
60.0%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
These carry holdings include third party carry and shadow carry.
Further details of each of these funds can be found on pages 18 to 19.
ICG ANNUAL REPORT & ACCOUNTS 2016
CHAIRMAN’S
LETTER
BOARD OF
DIRECTORS
CORPORATE
GOVERNANCE
COMMITTEE
REPORTS
REMUNERATION
REPORT
DIRECTORS’
REPORT
ANNUAL REPORT ON REMUNERATION
CONTINUED
THIRD PARTY CARRY PURCHASES
The following allocation of TPC was made in respect of the financial year.
Christophe Evain
Benoît Durteste
Philip Keller
% of ICG Europe
Fund V points
% of ICG Senior
Debt Partners I
points
% of Senior Debt
Partners II points
% of ICG Europe
Fund VI points
% of ICG Strategic
Secondaries
Carbon Fund
points
% of Intermediate
Capital Asia
Pacific III points
0.98%
0.98%
0.33%
8.11%
6.48%
5.41%
9.33%
9.33%
1.34%
9.75%
9.75%
3.25%
7.33%
7.33%
3.34%
8.19%
8.19%
3.62%
The percentages represent the individuals’ share of the carry points available. Further details of these funds are available on pages 18 to 19.
FEES PAID TO NON EXECUTIVE DIRECTORS (AUDITED)
In the financial year under review, Non Executive Directors’ fees were as follows:
Committee membership
Non Executive Directors
Justin Dowley (Chairman)
Kevin Parry
Peter Gibbs
Kathryn Purves
Kim Wahl
Board
membership
fees
£000
Board and
Committee
Chairman fees
£000
Senior
Independent
Director fee
£000
Audit
£000
Remuneration
£000
Risk
£000
Total for year
ending 2016
£000
Total for year
ending 2015
£000
–
58.0
58.0
58.0
58.0
185.0
24.1
20.0
5.9
–
–
5.0
–
–
–
–
–
5 .0
5.0
5.0
5.0
5.0
–
–
5.0
5.0
2.0
5.0
3.0
5.0
195.0
190.0
94.1
88.0
71.9
73.0
86.5
86.5
66.5
71.5
PAYMENTS FOR LOSS OF OFFICE (AUDITED)
No payments were made for loss of office in the financial year under review.
PAYMENTS MADE TO PAST DIRECTORS (AUDITED)
In the financial year ended 31 March 2016, the following payments were made to former Directors in respect of shadow carry and the vesting
of PLC Equity awarded while they were Executive Directors.
Employee
Tom Attwood
Francois de Mitry
Andrew Phillips
Paul Piper
PLC Equity
Vesting
£
Balance Sheet
Carry
£
Shadow Carry
Payments
£
Total
£
1,404,853
121,160
35,270
1,561,283
3,273,347
307,410
23,529
3,604,286
–
–
–
–
228,991
228,991
15,672
15,672
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
90 / 91
PERFORMANCE GRAPH OF TOTAL SHAREHOLDER RETURN (10 YEARS)
The graph below shows a comparison between the Company’s total shareholder return performance and the total shareholder return
for all the financial services companies in the FTSE All Share index. The graph compares the value, at 31 March 2006, of £100 invested
in Intermediate Capital Group plc to the FTSE All Share Financial Index over the subsequent ten 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.
200
180
160
140
120
100
80
60
40
20
0
Mar 06
Mar 07
Mar 08
Mar 09
Mar 10
Mar 11
Mar 12
Mar 13
Mar 14
Mar 15
Mar 16
Intermediate Capital Group
FTSE All-Shares Financials
THREE YEAR TOTAL SHAREHOLDER RETURN
The graph below shows a comparison between the Company’s total shareholder return performance and the total shareholder return for all
the financial services companies in the FTSE All Share index over the last three years. Three years reflects the period over which we have
returned excess capital to shareholders and seen the delivery of the fund management strategy.
180
170
160
150
140
130
120
110
100
90
80
Mar 13
Jun 13
Sep 13
Dec 13
Mar 14
Jun 14
Sep 14
Dec 14
Mar 15
Jun 15
Sep 15
Dec 15
Mar 16
Intermediate Capital Group
FTSE All-Shares Financials
ICG ANNUAL REPORT & ACCOUNTS 2016
CHAIRMAN’S
LETTER
BOARD OF
DIRECTORS
CORPORATE
GOVERNANCE
COMMITTEE
REPORTS
REMUNERATION
REPORT
DIRECTORS’
REPORT
ANNUAL REPORT ON REMUNERATION
CONTINUED
TOTAL REMUNERATION OF THE CHIEF EXECUTIVE OFFICER
The table below details the total remuneration of the Director holding the position of Chief Executive Officer of Intermediate Capital Group
plc from 1 April 2009.
Christophe Evain
Tom Attwood
2016
2015
2014
2013
2012
2011
2010
Total
remuneration
£000
Percentage of maximum
opportunity of short term
incentives awarded
Percentage of maximum
opportunity of long term
incentives awarded
4,295
5,103
4,797
1,492
2,973
5,941
4,631
76%
80%
97%
24%
0%
29%
44%
98%
98%
20%
1%
100%
97%
100%
The long term incentive figures above for Tom Attwood include payments made under the Medium Term Incentive Scheme (MTIS), a
compensation arrangement which has now closed.
PERCENTAGE CHANGE IN REMUNERATION OF DIRECTOR UNDERTAKING THE ROLE OF CHIEF EXECUTIVE
The table below details how changes to the CEO’s pay compare with the change in the average pay across all employees of the Group.
Each figure is a percentage change of the values between the previous financial year and the financial year under review. The total permanent
workforce has been selected as the comparator for salaries and fees and short term incentives. The comparison of the increase in taxable
benefits has been made for UK permanent employees only as their remuneration packages are most similar to that of the Chief Executive.
Chief Executive Officer
All employees
Salaries and fees
Taxable benefits
Short term incentives
1.63%
3.68%
-8.94%
-0.96%
-5.6%
4.5%
RELATIVE IMPORTANCE OF SPEND ON PAY
The graph below illustrates the relative importance of spend on pay compared with other disbursements from profit (namely distributions
to shareholders) for the financial year under review and the previous financial year. The current year shareholder distributions include a
proposed special dividend of £200m which the Group announced with its 2016 results. A special dividend of £300m was paid in July 2015
and consequently shareholder distributions in the current financial year have fallen. The movement in staff costs reflects the increased
headcount supporting the growth of the Group.
Shareholder distributions (£m)
Staff costs (£m)
£380.4
£272.5
£103.4
£86.2
-28.0% CHANGE
20.0% CHANGE
15
16
15
16
FY15
Special dividend: £300m
Ordinary dividend: £80.4m
FY16
Special dividend: £200m
Ordinary dividend: £72.5m
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
92 / 93
STATEMENT OF IMPLEMENTATION OF REMUNERATION POLICY IN FOLLOWING FINANCIAL YEAR
The proposed salaries for the Executive Directors and fees for the Non Executive Directors for the FY17 financial year are set out below,
together with the increase from the previous financial year.
Role
Executive Director
Chairman
Non Executive Director (other than Chairman)
Senior Independent Director
Remuneration Committee Chairman
Audit Committee Chairman
Risk Committee Chairman
Member of the Audit Committee, Risk Committee or Remuneration Committee
Y/E 31 March 2017
Y/E 31 March 2016
% change
Annual salaries and fees £000
375.0
215.0
60.0
10.0
20.0
15.0
15.0
9.0
369.0
185.0
58.0
5.0
20.0
15.0
15.0
5.0
1.6%
16.2%
3.4%
100.0%
0.0%
0.0%
0.0%
80.0%
The fees to Non Executives have been increased to adequately reward the volume of work required and to reflect the important role they
have in overseeing the business with long term shareholder interests in mind. In particular, the fee to the Chairman was below the benchmark
for companies of our size and sector and so this has been increased. The fee to the Chairman now includes membership of the Risk and
Remuneration Committees; in prior years, there have been separate fees payable for these memberships.
The fees payable for Committee memberships and to the Senior Independent Director have not been increased since 2011 despite significant
increases in the workload of the Committees and the corporate governance role of the SID. An increase has therefore been made for these
roles. No fee is paid for membership of the Nominations Committee or to the Chairman of that Committee.
The members of the Remuneration Committee are Peter Gibbs (Chairman), Justin Dowley, Kevin Parry and Kim Wahl. During the year, the
Committee was advised by PwC. Committee composition is set out on pages 42 to 43 and in the relevant Committee reports on pages 51
to 93.
For FY17, the AAP will be calculated as a percentage of cash profits which, over a period of five years, will not exceed 30% on average.
The AAP will be calculated as described in the Directors’ remuneration policy. All incentives (excluding Third Party Carry and similar
arrangements in respect of business acquisitions or ICG direct investment funds that do not give rise to a cost or liability to the Group)
payable to employees of the Group will be funded out of the AAP.
The Executive Directors’ annual bonus and other incentives will be dependent on them achieving specific objectives as set out on page 85.
STATEMENT OF VOTING AT GENERAL MEETING
At the last AGM, votes on the remuneration report were cast as follows:
Directors’ Remuneration Report
66.07%
33.93%
9,906,298 As disclosed in the Engagement with stakeholders section of the
Votes For
Votes Against Abstentions
Reasons for Votes Against, if known and actions taken by the Committee
Governance report on page 50, Directors of the Company have
met with a number of shareholders in the period subsequent to this
vote to understand their concerns. A number of the points raised by
shareholders have been addressed during the year; in particular, the
Company has enhanced disclosure of KPIs for Executive Directors
(see page 85).
At the Annual General Meeting in July 2014, votes on the remuneration policy were cast as follows
Votes For
Votes Against Abstentions
Reasons for Votes Against, if known and actions taken by the Committee
Remuneration Policy
79.85%
20.15%
18,112,805 Directors of the Company met with a number of shareholders in the
period subsequent to this vote; however no material concerns in respect
of the Policy were raised.
ICG ANNUAL REPORT & ACCOUNTS 2016
CHAIRMAN’S
LETTER
BOARD OF
DIRECTORS
CORPORATE
GOVERNANCE
COMMITTEE
REPORTS
REMUNERATION
REPORT
DIRECTORS’
REPORT
DIRECTORS’ REPORT
The Directors present their Annual Report and the audited financial statements for the
12 months ended 31 March 2016. The risks to which the Group is subject and the policies in
respect of such risks are set out on pages 28 to 35 and are incorporated into this report by
reference. The corporate governance section of this Annual Report set out on pages 40
to 101, is incorporated into this report by reference.
Throughout the year to 31 March 2016 the Group was in compliance with the provision of the
UK Corporate Governance Code issued by the Financial Reporting Council, other than the
requirement to conduct an external Board effectiveness review (see page 49). A copy of the
Code is available on the Financial Reporting Council’s website www.frc.org.uk
SIGNIFICANT SHAREHOLDINGS
As at 23 May 2016 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
Schroders Plc
BlackRock Inc
Aviva Investors
Ameriprise Financial Inc
Baillie Gifford & Co Ltd
Employee Share Scheme Trustees
J.P.Morgan Asset Management
Norges Bank Investment Management
Number of
shares
Percentage of
voting rights
23,492,144
21,841,713
17,118,364
16,967,442
11,608,940
11,437,648
10,184,776
9,801,293
7.21
6.70
5.25
5.20
3.56
3.51
3.12
3.01
DIRECTORS
The Directors who are currently serving are each shown with a profile on pages 42 and 43;
those details are incorporated into this report by reference. Justin Dowley will retire at the
AGM of the Company on 21 July 2016.
The composition of each of the Committees of the Board and the Chairman of each
Committee are detailed in the report of each Committee, found on pages 51 to 93.
DIRECTORS’ INTERESTS
The interests of Directors who held office at
31 March 2016 and their connected persons,
as defined by the Companies Act, are
disclosed in the report of the Remuneration
Committee on page 88.
Details of Directors’ share options are
provided in the report of the Remuneration
Committee on pages 69 to 93. During the
financial year ending 31 March 2016, the
Directors had no options over or other
interests in the shares of any subsidiary
company. No options over Company
shares were issued to Directors under the
Executive Share Option Schemes during
the year.
THE ROLES OF THE CHAIRMAN
AND CHIEF EXECUTIVE
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.
The current Chairman, Justin Dowley, was
considered independent at the date of
his appointment as Chairman. Subject to
reappointment at the Company’s AGM, he
will be succeeded by Kevin Parry on 21 July
2016; Kevin Parry is considered independent
at the current date.
STR ATEGIC
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GOVERNANCE
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FINANCIAL
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94 / 95
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
– Developing and implementing risk
management systems
DISCLOSURE DOCUMENTS
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.
COMMITTEE PROCEEDINGS
Each Committee has access to such external
advice as it may consider appropriate.
The Terms of Reference of each Committee
are considered regularly by the respective
Committee and referred to the Board
for approval.
EXECUTIVE COMMITTEE
The Executive Committee consists of
the three Executive Directors, 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 oversees
the Group’s Investment Committees in his
role as the Chief Investment Officer. He is
also responsible for the Group’s credit
funds business. Philip Keller is CFO and is
responsible for finance and infrastructure.
Benoît Durteste is Head of European
Investments and Fund Manager.
No one Executive Director is able to
significantly affect the running of the
Company without consulting his colleagues.
BOARD PROCESS
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, consider
appropriate. A similar process is followed for
each Committee.
ADVICE FOR DIRECTORS
All Directors have access to the advice and
services of the Company Secretary and the
Secretaries to each of the Committees on
which they serve, and may take independent
professional advice at the Company’s
expense in the furtherance of their duties.
The appointment or removal of the Company
Secretary would be a matter for the Board.
MEETINGS WITH CHAIRMAN
The Non Executive Directors regularly hold
meetings in the absence of the Executive
Directors (usually before or after each Board
meeting) and, separately, in the absence of
the Chairman.
SENIOR INDEPENDENT DIRECTOR
Kevin Parry currently holds the position
of Senior Independent Director of the
Company. Subject to reappointment at
the Company’s AGM, he will become
Chairman of the Company from 21 July
2016, from which time Peter Gibbs will
become the SID. In accordance with the
Code, any shareholder concerns not
resolved through the usual mechanisms for
investor communication can be conveyed
to the SID. The SID has met with a number
of shareholders during the year and his
successor intends to do the same.
The SID acts as a sounding board for the
Chairman and a focus for any concerns or
issues that other Directors or shareholders
may have that are not being resolved. He also
leads the annual appraisal of the Chairman.
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.
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. No material conflicts
of interest exist.
ICG ANNUAL REPORT & ACCOUNTS 2016
CHAIRMAN’S
LETTER
BOARD OF
DIRECTORS
CORPORATE
GOVERNANCE
COMMITTEE
REPORTS
REMUNERATION
REPORT
DIRECTORS’
REPORT
DIRECTORS’ REPORT
CONTINUED
INTERNAL CONTROL
The Board has overall responsibility for
the Company’s internal control system
and monitoring risk management and
internal controls for which we review their
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.
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 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. For further details of
the risks relating to the Group, please see
pages 28 to 35 and the report of the Risk
Committee on pages 60 to 65.
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.
The Directors have made this assessment
in light of the £781m cash and unutilised
committed debt facilities as at the end of
FY16, that only 25% of committed facilities
are due to mature within two years, and after
reviewing the Group’s latest forecasts for a
period of three years from year end.
The Group’s business activities, together
with the factors likely to affect its future
development, performance and position
are set out in the Strategic Report on
pages 1 to 38. The financial position of the
Group, its cash flows, liquidity position
and borrowing facilities are described in
the Financial Review on pages 20 to 27.
In addition, note 5 to the financial statements
includes 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 in the current
economic environment.
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 a total of £240m of drawn
debt facilities due to mature within the next
12 months. The Directors are satisfied that
this is not material in the overall context of
the Group’s debt profile.
FORWARD-LOOKING STATEMENTS
This Annual Report includes statements
that are, or may be deemed to be, ‘forward-
looking statements’. These forward-
looking statements can be identified by
the use of forward-looking expressions,
including the terms ‘believes’, ‘estimates’,
‘anticipates’, ‘expects’, ‘intends’, ‘may’,
‘will’, or ‘should’ or, in each case, their
negative or other variations or similar
expressions, or by discussions of strategy,
plans, objectives, goals, future events
or intentions. These forward-looking
statements include all matters that are not
historical facts. They appear in a number of
places throughout this Annual Report and
include, but are not limited to, the following:
statements regarding the intentions, beliefs
or current expectations of the Directors,
the Company and the Group concerning,
amongst other things, the Group’s results
of operations, financial condition, liquidity,
prospects, growth, strategies and the
industries in which the Group operates.
STR ATEGIC
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GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
96 / 97
By their nature, forward-looking statements
involve risk and uncertainty because they
relate to future events and circumstances.
Forward-looking statements are not
guarantees of future performance and the
actual results of the Group’s operations,
financial condition and liquidity, and the
development of the countries and the
industries in which the Group operates
may differ materially from those described
in, or suggested by, the forward-looking
statements contained in this Annual Report.
In addition, even if the results of operations,
financial condition and liquidity, and the
development of the countries and the
industries in which the Group operates,
are consistent with the forward-looking
statements contained in this Annual Report,
those results or developments may not be
indicative of results or developments in
subsequent periods. Many of these factors
are beyond the control of the Directors,
the Company and the Group. Should one
or more of these risks or uncertainties
materialise, or should underlying
assumptions on which the forward-looking
statements are based prove incorrect,
actual results may vary materially from those
described in this Annual Report. Except to
the extent required by laws and regulations,
the Directors, the Company and the Group
do not intend, and do not assume any
obligation, to update any forward-looking
statements set out in this Annual Report.
CHANGE OF CONTROL AGREEMENTS
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, other than:
1. The Private Placement arrangement
totalling £81m equivalent dated
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
2. The Private Placement arrangement
totalling £35m equivalent dated
26 June 2008, the Private Placement
arrangement totalling $150m dated
8 May 2013 and the Private Placement
arrangement totalling £258m
equivalent dated 11 May 2015 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
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
sub-investment grade, or a downgrade
of one or more notches if already
sub-investment grade
5. The employee share schemes, details
of which can be found in the Report of
the Remuneration Committee on pages
69 to 93, 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
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 (1) those
described at 5 above and (2) the usual
payment in lieu of notice.
3. Nine bilateral committed loan facility
agreements totalling £645m, €68m
and A$50m entered into where a
change of control gives lenders the
right, but not the obligation, to cancel
their commitments to the respective
facility and declare the loans repayable
on demand
4. The terms and conditions of (a) the
£35m retail bond issue which took
place in December 2011 (b) the £80m
retail bond issue which took place
in September 2012 (c) the €50m
wholesale bond issue which took
place in March 2014 (d) the €25m
wholesale bond issue which took place
in June 2014 and (e) the £160m bond
issue which took place in March 2015
each of which set out that following
a change of control event, investors
ICG ANNUAL REPORT & ACCOUNTS 2016
CHAIRMAN’S
LETTER
BOARD OF
DIRECTORS
CORPORATE
GOVERNANCE
COMMITTEE
REPORTS
REMUNERATION
REPORT
DIRECTORS’
REPORT
DIRECTORS’ REPORT
CONTINUED
DIVIDEND
The Directors recommend a final net
ordinary dividend payment in respect of
the ordinary shares of the Company at a
rate of 15.8p per share (2015: 15.1p), which
when added to the interim net dividend of
7.2p per share (2014: 6.9p), gives a total
net dividend for the year of 23.0p per share
(2015: 22.0p). In addition, a £200m special
dividend is recommended (at the rate of
63.4p per share). All recommendations are
subject to the approval of shareholders at
the Company’s AGM on 21 July 2016.
The amount of ordinary dividend paid
in the year was £78.2m (2014: £81.0m).
In addition, a £300m special dividend
payable at a rate of 82.6p per share was
paid during the year and an associated share
consolidation occurred.
DISCLOSURES REQUIRED UNDER
UK LISTING RULE 9.8.4
Dividend waivers have been issued in
respect of shares which are (a) held by the
Group’s EBT, or (b) held as Treasury Shares;
other than this, there are no disclosures
required to be made under UK Listing
Rule 9.8.4.
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 11
to the accounts.
DISCLOSURE OF INFORMATION TO
THE AUDITOR
Each of the persons who is a Director at the
date of approval of this report confirms that:
(a) So far as the Director is aware, there is
no relevant audit information of which
the Company’s auditor is unaware
(b) The Director has taken all reasonable
steps that they ought to have taken as
a Director in order to make themselves
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.
POST BALANCE SHEET EVENTS
Material events since the balance sheet date
are described in note 35 and form part of the
Directors’ report disclosures.
POLITICAL CONTRIBUTIONS
No contributions were made during the
current and prior year for political purposes.
GREENHOUSE GAS EMISSIONS
All disclosures concerning the Group’s
greenhouse gas emissions are detailed on
page 38, which forms part of the Directors’
report disclosures.
ACQUISITION OF SHARES BY
EMPLOYEE BENEFIT TRUST
Acquisitions of shares by the Intermediate
Capital Group EBT 2015 purchased during
the year are as described in note 22 to the
financial statements.
SHARE CAPITAL AND
RIGHTS ATTACHING TO
THE COMPANY’S SHARES
As at 31 March 2016 the issued share capital
of the Company was 330,310,239 ordinary
shares of 23₁/₃p each (including 4,200,00
shares held in treasury). 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 23₁/₃p 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 EBT
2015 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:
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
98 / 99
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 2015 AGM 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 £26,860,000 and, in the case of a fully
pre-emptive rights issue only, up to a total
amount of £53,772,000.
A resolution will be proposed to renew
the Company’s authority to allot further
new shares at the forthcoming AGM.
In accordance with applicable institutional
guidelines, 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 31 May 2016 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 31 May
2016. 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 Directors’ authority to effect
purchases of the Company’s shares on the
Company’s behalf is conferred by resolution
of shareholders. At the 2015 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 4 June
2015. During the year no shares were bought
back. 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.
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,
CFO and the Chairmen of the Board and
each of its Committees will be available
to answer shareholders’ questions at the
AGM. The number of proxy votes lodged
in connection with the Company’s AGM are
announced following the conclusion of the
relevant meeting.
– They 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)
– They 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
– 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)
– 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
ICG ANNUAL REPORT & ACCOUNTS 2016
CHAIRMAN’S
LETTER
BOARD OF
DIRECTORS
CORPORATE
GOVERNANCE
COMMITTEE
REPORTS
REMUNERATION
REPORT
DIRECTORS’
REPORT
DIRECTORS’ REPORT
CONTINUED
RESULTS OF RESOLUTIONS PROPOSED AT 2015 ANNUAL GENERAL MEETING
Resolution
Votes for
Votes against
Votes withheld
To receive the financial statements and reports of the Directors and auditors
for the financial year ended 31 March 2015.
To approve the Directors’ remuneration report for the financial year ended
31 March 2015.
To declare a final dividend of 15.1p per ordinary share for the financial year
ended 31 March 2015.
To reappoint Deloitte LLP as auditors of the Company to hold office as the
Company's auditors until the conclusion of the Company's AGM in 2016.
To authorise the Directors to set the remuneration of the auditors.
To reappoint Justin Dowley as a Director.
To reappoint Kevin Parry as a Director.
To reappoint Peter Gibbs as a Director.
To reappoint Kim Wahl as a Director.
To reappoint Kathryn Purves as a Director.
To reappoint Christophe Evain as a Director.
To reappoint Philip Keller as a Director.
To reappoint Benoît Durteste as a Director.
To grant the Directors authority to allot shares pursuant to section 551 of the
Companies Act 2006.
Subject to the passing of resolution 14, to authorise the Directors to allot equity
securities and to sell ordinary shares pursuant to sections 570 (1) and 573 of
the Companies Act 2006.
To authorise the Company to make market purchases of its ordinary shares
pursuant to section 701 of the Companies Act 2006.
To approve that a general meeting of the Company (other than the AGM) may
be called on less than 14 clear days’ notice.
To declare a special dividend of 81.6 pence per ordinary share payable to
holders of ordinary shares as at 5.00pm on 22 July 2015.
Subject to the passing of resolution 18, that every 7 existing ordinary shares be
consolidated into 6 new ordinary shares of 23 1/3 pence each in the capital of
the Company.
To reduce the amount standing to the credit of the Company's share
premium account.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
288,168,200
166,000
151,983
184,067,056
94,512,829
9,906,298
288,323,175
162,083
925
278,857,712
9,625,266
3,205
285,882,773
2,600,964
2,446
281,247,224
1,292,186
5,946,773
286,353,488
2,130,570
280,501,194
280,682,021
286,728,657
2,313,861
2,133,034
1,755,401
285,711,193
2,354,076
286,130,293
286,125,173
2,353,765
2,355,952
273,925,539
14,558,219
2,125
5,671,128
5,671,128
2,125
420,914
2,125
5,058
2,425
276,821,785
364,577
11,299,821
288,477,588
5,670
2,925
266,402,243
21,817,507
266,433
288,463,043
20,215
288,446,984
36,073
2,925
3,126
20
288,482,354
2,904
925
The issued share capital of the Company at the date of the AGM was 385,182,720 ordinary shares of 20p each.
2016 ANNUAL GENERAL MEETING
The AGM of the Company will take place at the London office of the Company on 21 July 2016 at 2.00pm. Details of the resolutions to be
proposed at the AGM along with explanatory notes are set out in the circular to be posted to shareholders in June 2016 convening the
meeting. In line with market practice, if votes of more than 20% of those voting are cast against a resolution, the Company will make a statement
when announcing the results of the vote to explain any actions it intends to take to understand the reasons behind the vote result.
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
100 / 101
DIRECTORS’ RESPONSIBILITIES
CHRISTOPHE EVAIN
CHIEF EXECUTIVE OFFICER
PHILIP KELLER
CHIEF FINANCIAL OFFICER
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 (IFRS) 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 IFRS 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, IAS 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
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.
RESPONSIBILITY STATEMENT
We confirm that to the best of
our knowledge:
– The financial statements, prepared in
accordance with IFRS 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
– 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
– Provide additional disclosures when
compliance with the specific requirements
of IFRS 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
– The Directors consider that this Annual
Report and Accounts, taken as a whole,
is fair, balanced and understandable and
provides the information necessary for
shareholders to assess the Company’s and
the Group’s performance, business model
and strategy
– 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.
By order of the Board
Christophe Evain
Chief Executive Officer
23 May 2016
Philip Keller
Chief Financial Officer
23 May 2016
ICG ANNUAL REPORT & ACCOUNTS 2016
FINANCIAL
STATEMENTS
CONTENTS
Auditor’s report
Consolidated income statement
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
Notes to the accounts
103
110
111
112
113
114
116
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102 / 103
AUDITOR’S REPORT
INDEPENDENT AUDITOR’S
REPORT TO THE MEMBERS
OF INTERMEDIATE CAPITAL
GROUP PLC
OPINION ON THE PARENT
COMPANY FINANCIAL
STATEMENTS AND THE GROUP
FINANCIAL STATEMENTS
(“THE FINANCIAL STATEMENTS”)
OF INTERMEDIATE CAPITAL
GROUP PLC (“ICG”)
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
2016 and of the group’s profit for the year
then ended;
– the group financial statements have
been properly prepared in accordance
with International Financial Reporting
Standards (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.
The financial statements 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 and the
Consolidated and Parent Company
Statements of Changes in Equity and the
related notes 1 to 35. The financial reporting
framework that has been applied in their
preparation is applicable law and 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.
GOING CONCERN AND THE
DIRECTORS’ ASSESSMENT OF THE
PRINCIPAL RISKS THAT WOULD
THREATEN THE SOLVENCY OR
LIQUIDITY OF THE GROUP
As required by the Listing Rules we have
reviewed the directors’ statement regarding
the appropriateness of the going concern
basis of accounting contained within note 3
of the financial statements and the directors’
statement on the longer-term viability of
the Group contained within the corporate
governance statement on page 30.
We have nothing material to add or draw
attention to in relation to:
– the directors’ confirmation on page
29 that they have carried out a robust
assessment of the principal risks facing
the Group, including those that would
threaten its business model, future
performance, solvency or liquidity;
– the disclosures on pages 32–35 that
describe those risks and explain how they
are being managed or mitigated;
– the directors’ statement in note 3 to the
financial statements about whether they
considered it appropriate to adopt the
going concern basis of accounting in
preparing them and their identification of
any material uncertainties to the Group’s
ability to continue to do so over a period
of at least twelve months from the date of
approval of the financial statements;
– the director’s explanation on page 30 as
to how they have assessed the prospects
of the Group, over what period they have
done so and why they consider that period
to be appropriate, and their statement
as to whether they have a reasonable
expectation that the Group will be able
to continue in operation and meet its
liabilities as they fall due over the period
of their assessment, including any related
disclosures drawing attention to any
necessary qualifications or assumptions.
We agreed with the directors’ adoption
of the going concern basis of accounting
and we did not identify any such material
uncertainties. However, because not
all future events or conditions can be
predicted, this statement is not a guarantee
as to the group’s ability to continue as a
going concern.
INDEPENDENCE
We are required to comply with the Financial
Reporting Council’s Ethical Standards
for Auditors and we confirm that we are
independent of the Group and we have
fulfilled our other ethical responsibilities in
accordance with those standards. We also
confirm we have not provided any of the
prohibited non-audit services referred to in
those standards.
KEY FEATURES OF OUR AUDIT
The key risks we identified are:
1 Valuation of unquoted equities,
Collateralised Loan Obligation Loan notes
(‘CLO Loan notes’) and warrants
2 Impairment of loans and investments
3 Revenue recognition
4 IFRS 10 Consolidated Financial Statements
(‘IFRS 10’) application and interpretation
We determined materiality for the Group to
be £12.2million.
A lower materiality of £3.7million has
been applied for the fund management
revenue stream.
We reported all audit differences in excess
of £244,000 to the Audit Committee.
In addition we also report audit differences
in excess of £72,000 relating to the fund
management revenue stream.
We performed a full scope audit on
components representing 93% of the
Group’s profit before tax and 98% of the
Group’s net assets.
OUR ASSESSMENT OF RISKS OF
MATERIAL MISSTATEMENT
The assessed risks of material misstatement
described below are those that had the
greatest effect on our audit strategy,
the allocation of resources in the
audit and directing the efforts of the
engagement team.
The Audit Committee has requested that
while not required under International
Standards on Auditing (UK and Ireland),
we include in our report any significant
findings in respect of these assessed risks of
material misstatement.
ICG ANNUAL REPORT & ACCOUNTS 2016
AUDITOR’S REPORT
CONTINUED
The description of risks below should be
read in conjunction with the significant
issues considered by the Audit Committee
discussed on pages 54 to 56.
These matters were addressed in the context
of our audit of the financial statements as a
whole, and in forming our opinion thereon,
and we do not provide a separate opinion on
these matters.
See the tables on below for more detail.
RISK DESCRIPTION
HOW THE SCOPE OF OUR AUDIT
RESPONDED TO THE RISK
FINDINGS
1. VALUATION OF UNQUOTED EQUITIES, CLO LOAN NOTES AND WARRANTS
Unquoted equities, CLO Loan notes
and warrants represented £504million
(11.5% of Group total assets) at
31 March 2016.
Valuing unquoted equities, CLOs and
warrants requires management to make
a number of judgements, including
valuation methodology and the discount
or premium applied to unquoted equities
and the prepayment rate or default
rates applied to CLOs. As valuations are
sensitive to these judgments, there is a
risk that small changes in key assumptions
can have a significant impact on fair value
and therefore reported results.
The valuation techniques and inputs,
as well as the significant unobservable
inputs are disclosed in note 5 to the
financial statements. The key sources
of estimation uncertainty in relation to
valuations are disclosed in note 4 to the
financial statements.
We assessed the Group’s valuation methodology
and engaged with our internal fair value specialists to
understand the valuation methodology and challenge
its appropriateness. We tested the design and
implementation of related controls to determine that
appropriate oversight from senior investment executives
had been exercised within the valuations process. We also
tested the operating effectiveness of controls around
unquoted equity valuations.
We tested a sample of unquoted equities and warrants
by challenging the appropriateness of the underlying
assumptions, specifically including discount rates and
comparable companies. We verified the inputs to the
valuations (specifically management information and
earnings multiples) by agreeing these to underlying
supporting documentation and testing their arithmetical
accuracy. We assessed the reasonableness of
management estimates in previous valuations by
performing a retrospective review of valuations based on
recent exits.
For a sample of CLOs, we recalculated the fair value with
reference to an independent third party cash flow model.
The significant assumptions around the generation
of cash flows from the underlying loan portfolio were
challenged; specifically: the CPR (Constant or Conditional
Prepayment Rate), the CDR (Conditional Default Rate),
the severity on defaulted loans and the interest margin on
reinvestment amounts. These assumptions were obtained
from an independent source.
We determined the valuation methodology
for the unquoted equity valuations, CLO
loan notes and warrants to be appropriate,
and are satisfied that the assumptions that
management have made are appropriate and
that the valuation at year end is acceptable.
Unquoted equity and warrants
We are satisfied that the key controls around
the unquoted equity and warrant valuation
process are adequately designed and have
been operating as intended during the year.
The sample tested included the use of a
range of premiums and discounts, which
we considered appropriate in the context
of the fair value of the individual investment
being assessed. We are satisfied that the
unquoted equities and warrants are not
materially misstated.
CLO loan notes
We tested a sample of CLO loan notes with
a total value of £218million comprising
different tranches of debt in CLO vehicles
by performing our own pricing estimation.
Where our base price was within a 5%
threshold of the Groups we considered
these valuations to be acceptable. We found
that the Group’s price of three loan notes
with a total value of £3million was outside
of our 5% threshold. Following further
consideration of the valuation assumptions
for these investments we concluded that
the Group’s price fell within an acceptable
range. We are satisfied that the CLO loan
notes are not materially misstated.
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FINANCIAL
STATEMENTS
104 / 105
RISK DESCRIPTION
HOW THE SCOPE OF OUR AUDIT
RESPONDED TO THE RISK
FINDINGS
2. IMPAIRMENT OF LOANS AND INVESTMENTS
The Group’s impairment charge
represented £8.9million for the year
ending 31 March 2016. See note 10 to the
financial statements.
The identification of impairment events
and the determination of the impairment
charge require the application of
significant judgment by management,
in particular the timing and quantum of
future cash flows. There is a risk that
management fail to identify an impairment
event and the impairment charge
reported is incomplete or incorrectly
calculated.
The Group’s impairment policy is
disclosed in note 3 to the financial
statements. The key sources of estimation
uncertainty in relation to impairment
are disclosed in note 4 to the financial
statements.
We tested the design and implementation of key controls
around impairments. We assessed the completeness
of impairments for loans we deemed at high risk of
impairment by reviewing independent information, such
as publicly available information and investee financial
reports for potential impairment triggers. Where changes
to repayment dates negatively impacted the carrying value
of assets, we challenged management as to whether this
indicated an impairment had occurred.
For a sample of impairments that occurred during the
year, we challenged management assumptions relating to
the timing and recognition of the impairment events and
charges and corroborated them to underlying data; such
as restructured loan agreements. We reviewed the nature
and timing of the sample and assessed the rationale for
the quantum of the impairment charge and recalculated
the impairment charge.
We also assessed whether any assets classified as
Available for Sale were impaired and that any losses
should have been recycled through the Consolidated
Income Statement.
We are satisfied that the impairment events
occurred in the current financial year and
with management’s decision to impair these
assets. We have found the judgements
management have made in determining the
quantum of the cash flows, which impact the
impairment charge, to be appropriate.
In testing the completeness of impairments
we identified one equity investment that is
classified as Available for Sale which was
being measured at a fair value that differed
from the cost of the investment. We and the
Audit Committee challenged management
as to whether the decline in the fair value
below cost could be considered objective
evidence of impairment.
Upon further investigation it became
apparent that the Group was valuing
the asset based on a listed share price
that did not fully reflect the ownership
structure of ICG’s asset nor the underlying
performance of the business. As a result
management reconsidered their estimate
of fair value and the categorisation of the
asset resulting in a £29million uplift with
the unrealised gain recognised in Other
Comprehensive Income. As a result of this
matter we extended our audit procedures
and did not identify any matters requiring
further investigation.
We are satisfied that there is no material
impairment event which occurred during
the year that has not been identified
by management.
ICG ANNUAL REPORT & ACCOUNTS 2016
AUDITOR’S REPORT
CONTINUED
RISK DESCRIPTION
3. REVENUE RECOGNITION
Management fees and interest income
on loans not held in CLOs represented
£95.5million (21% of the Group’s revenue)
and £100.7million (22% of the Group’s
revenue).
There is a risk that there are errors in
the amounts of the management fees
reported due to the complexity of some of
the calculations and the extent of manual
input into the process. Also, significant
management judgements relating to
the quantum and timing of cash flows
in measuring the loan value may not be
consistent with recently available data
and as a result interest income may be
calculated incorrectly.
The Group’s revenue accounting policy
is disclosed in note 3 to the financial
statements.
HOW THE SCOPE OF OUR AUDIT
RESPONDED TO THE RISK
FINDINGS
We tested the design and implementation of key controls
around the revenue cycle. For a sample of funds we tested
management fees by recalculating the fees recorded with
reference to the contractual arrangements e.g. fee rates
by assets under management, net asset value or capital
commitments. We obtained the assets under management,
net asset value or capital commitments from third party
administrator reports and assessed the reliability of the
third party administrator by gaining an understanding of
its control environment. We also agreed the receipt of a
sample of management fees to bank statements.
For interest income, we tested the integrity of the
calculations by re-performing a sample of interest income
calculations and comparing these to management’s
records. We agreed the receipt of a sample of interest
income throughout the year to bank statements. We
also performed analytical procedures to assess the
completeness of interest income. We challenged
management’s estimates regarding changes in instrument
repayment dates and amounts through our testing
of loans.
Management fees
Our test of management fees covered fees
earned from the mezzanine, credit and real
estate products. We are satisfied with the
inputs into the management fees calculation
and that they have been calculated
in accordance with their contractual
arrangements. We also assessed a number
of third party administrators of ICG
managed funds and determined they were
a reliable source of data for our testing. We
are satisfied that management fees are not
materially misstated.
Interest income
We noted that in prior periods interest
accrued on assets held for sale was not
recognised as there was no material
difference from its recognition on a cash
basis. Given the increase in the number
and size of assets held for sale and that
these assets are now held for longer, it was
determined by management to change this
from July 2015 so that the interest on these
assets was always recognised on an accruals
basis. We are satisfied with management’s
approach and that any interest income
relating to the prior period was immaterial.
We are satisfied that interest income is not
materially misstated.
STR ATEGIC
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FINANCIAL
STATEMENTS
106 / 107
RISK DESCRIPTION
HOW THE SCOPE OF OUR AUDIT
RESPONDED TO THE RISK
FINDINGS
4. IFRS 10 APPLICATION AND INTERPRETATION
There is a risk that management do not
consolidate an entity that they control
as a result of a restructure or new fund
launch, an increase in equity holdings or a
change in legal agreements. There is also
a risk that IFRS 10 has been incorrectly
interpreted and as a result applied
incorrectly. An error in judgement can
have significant consequences on the
Consolidated Statement of Financial
Position and the disclosures within the
financial statements.
The critical judgments in the application
of the Group’s accounting policy in
relation to the control and consolidation
are disclosed in note 4 to the financial
statements. Further disclosures of
significant judgements made in relation
to subsidiaries and associates and joint
ventures are notes 31 and 32 to the
financial statements.
We tested the design and implementation of key controls
around the application of IFRS 10 and we challenged the
significant judgements that management have exercised
in determining whether the Group controls portfolio
companies, funds, CLOs and other entities. We reviewed
management’s analysis of the impact of IFRS 10 on
portfolio company interests, funds and CLOs and we
performed a detailed analysis of any equity interests
in CLOs, funds and portfolio companies greater than
15%. We reviewed legal documents to support any
key judgments management have made in determining
whether they control or have significant influence over an
investee e.g. power over relevant activities.
We have tested the consolidation process to assess
whether the conclusions reached have been appropriately
applied in the preparation of the consolidated financial
statements and we have assessed the adequacy of the
disclosures in notes 31 and 32 to the financial statements.
The Group invests in certain funds alongside
other third party investors, typically in
the ratio of 20%:80%. We challenged
management as to whether the key decisions
being made while ICG is investment manager
of these co-invest funds are being made
for ICG’s own benefit or for the benefit of
the investors (“principal versus agent”).
If ICG are found to be acting principal of
a fund, they would control the fund and it
would require consolidation into the Group
financial statements. One of our key areas of
challenge was the ability of others to make
significant decisions and whether there
were appropriate checks in place so that
ICG would be accountable to investors while
still making significant decisions that could
affect both theirs and the investor’s return.
We agree with management’s conclusions
regarding control and note that the
significant judgements have been
appropriately disclosed in note 31 and 32 to
the financial statements.
ICG ANNUAL REPORT & ACCOUNTS 2016
AUDITOR’S REPORT
CONTINUED
OUR APPLICATION OF
MATERIALITY
We define materiality as the magnitude of
misstatement in the financial statements
that makes it probable that the economic
decisions of a reasonably knowledgeable
person would be changed or influenced.
We use materiality both in planning the
scope of our audit work and in evaluating the
results of our work.
We determined materiality for the group to
be £12.2million (2015: £14.4million), which
is approximately 1% of Net Assets (2015: 1%
Net assets).
A lower materiality threshold of £3.7million
(2015: £4.4million) has been applied
to the Fund Management Company
(“FMC”) management fee income and
FMC administrative expense account
balances, transactions and disclosures.
Lower materiality has been based on 5%
of normalised profit before tax. We used
normalised profit before tax to determine
materiality to exclude the volatility arising
from impairments and capital gains, which
cause significant year on year fluctuations.
We considered these measures to be
suitable having compared to other
industry benchmarks.
Group materiality is used for setting audit
scope and the assessment of uncorrected
misstatements. Component materialities,
which are lower than group materiality, are
set for work on significant components −
audit testing for the significant components,
was performed at component materiality
ranging from £1.85million – £6.1 million.
(2015: £2.2 million – £13.4million).
We agreed with the Audit Committee that
we would report to the Committee all
audit differences in excess of £244,000
(2015: £288,000) for all items except
for the FMC management revenue
streams. For these balances we report
all misstatements above £72,000
(2015: £88,000). We also report differences
below these thresholds that, in our
view warranted reporting on qualitative
grounds. In addition, we report to the
Audit Committee on disclosure matters that
we identified when assessing the overall
presentation of the financial statements.
At the parent entity level we tested the
consolidation process and carried out
analytical procedures to confirm our
conclusion that there were no significant
risks of material misstatement of the
aggregated financial information of the
remaining components not subject to audit
or audit of specified account balances.
The group engagement team is responsible
for auditing the significant components.
The local teams are briefed as part of
the group audit team briefings, and the
documentation and findings is reviewed by
the group engagement team.
OPINION ON OTHER MATTERS
PRESCRIBED BY THE COMPANIES
ACT 2006
In our opinion:
– the part of the Directors’ Remuneration
Report to be audited has been properly
prepared in accordance with the
Companies Act 2006; and
– the information given in the Strategic
Report and the Directors’ Report for
the financial year for which the financial
statements are prepared is consistent with
the financial statements.
AN OVERVIEW OF THE SCOPE OF
OUR AUDIT
Our group audit was scoped by obtaining
an understanding of the group and its
environment, including group-wide
controls, and assessing the risks of material
misstatement at the group level. Based on
that assessment, we focused our group
audit scope on the audit work associated
with eight significant components subject
to full scope audits for the year ended
31 March 2016.
SIGNIFICANT COMPONENTS
Intermediate Capital Group PLC
Intermediate Capital Investments Ltd
ICG FMC Ltd
Intermediate Capital Managers Ltd
ICG Carbon Funding Limited
ICG Alternative Investment Limited
Intermediate Finance II PLC
ICG Global Investments Jersey Limited
We also performed full scope audits on
an additional four components that were
considered non-significant from a Group
perspective as we perform our audit work
on these entities at the same time as the
Group audit in order to gain efficiencies.
Specified audit procedures were performed
on another nine non-significant components
where the extent of our testing was based
on our assessment of the risks of material
misstatement and of the materiality of the
group’s operations within the components.
The full scope components represent
the most significant subsidiaries of the
group, and account for approximately 98%
(2015: 94%) of the group’s net assets and
93% (2015: 96%) of the group’s profit
before tax. They were also selected to
provide an appropriate basis for undertaking
audit work to address the risks of material
misstatement identified above.
STR ATEGIC
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FINANCIAL
STATEMENTS
108 / 109
MATTERS ON WHICH WE ARE
REQUIRED TO REPORT BY
EXCEPTION
Adequacy of explanations received and
accounting records
Under the Companies Act 2006 we are
required to report to you if, in our opinion:
– we have not received all the information
and explanations we require for our audit;
or
– 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
are not in agreement with the accounting
records and returns.
We have nothing to report in respect of
these matters.
Directors’ remuneration
Under the Companies Act 2006 we are also
required to report if in our opinion certain
disclosures of directors’ remuneration have
not been made or the part of the Directors’
Remuneration Report to be audited is not in
agreement with the accounting records and
returns. We have nothing to report arising
from these matters.
Corporate Governance Statement
Under the Listing Rules we are also required
to review part of the Corporate Governance
Statement relating to the company’s
compliance with certain provisions of the
UK Corporate Governance Code. We have
nothing to report arising from our review.
Our duty to read other information in the
Annual Report
Under International Standards on Auditing
(UK and Ireland), we are required to report
to you if, in our opinion, information in the
annual report is:
– materially inconsistent with the information
in the audited financial statements; or
– apparently materially incorrect based
on, or materially inconsistent with, our
knowledge of the group acquired in the
course of performing our audit; or
– otherwise misleading.
In particular, we are required to
consider whether we have identified any
inconsistencies between our knowledge
acquired during the audit and the
directors’ statement that they consider
the annual report is fair, balanced and
understandable and whether the annual
report appropriately discloses those
matters that we communicated to the audit
committee which we consider should have
been disclosed. We confirm that we have
not identified any such inconsistencies or
misleading statements.
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). We also comply with International
Standard on Quality Control 1 (UK and
Ireland). Our audit methodology and
tools aim to ensure that our quality control
procedures are effective, understood
and applied. Our quality controls and
systems include our dedicated professional
standards review team and independent
partner reviews.
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.
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 and to identify any information
that is apparently materially incorrect based
on, or materially inconsistent with, the
knowledge acquired by us in the course of
performing the audit. If we become aware
of any apparent material misstatements or
inconsistencies we consider the implications
for our report.
David Barnes
(Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory
Auditor
London, United Kingdom
23 May 2016
ICG ANNUAL REPORT & ACCOUNTS 2016
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 MARCH 2016
Finance and dividend income
Gains on investments
Fee and other operating income
Total revenue
Finance costs
Impairments
Administrative expenses
Change in deferred consideration estimate
Share of results of joint ventures accounted for using equity method
Profit before tax
Tax (charge)/credit
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
8
9
8
10
11
7
32
13
18
15
15
2016
£m
207.3
137.7
104.3
449.3
(121.9)
(8.9)
(141.9)
(17.8)
–
158.8
(20.2)
138.6
138.6
–
138.6
2015
£m
193.3
137.9
95.0
426.2
(65.1)
(37.6)
(144.5)
–
(0.5)
178.5
12.1
190.6
189.3
1.3
190.6
41.9p
50.3p
41.9p
50.3p
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
CONSOLIDATED AND PARENT COMPANY
STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MARCH 2016
Group
Profit for the year
Available for sale financial assets:
Gains/(losses) arising in the year which may be reclassified to profit or loss in future periods
Reclassification adjustment for gains recycled to profit
Exchange differences on translation of foreign operations
Tax (charge)/credit on items taken directly to or transferred from equity
Other comprehensive income/(expense) for the year
Total comprehensive income for the year
Attributable to:
Equity holders of the parent
Non controlling interests
Company
Profit for the year
Available for sale financial assets:
Notes
9
9
26
Notes
6
Gains arising in the year which may be reclassified to profit or loss in future periods
Reclassification adjustment for gains recycled to profit
Tax credit/(charge) on items taken directly to or transferred from equity
26
Other comprehensive income for the year
Total comprehensive income for the year
110 / 111
2015
£m
190.6
(7.3)
(16.1)
(3.7)
(27.1)
4.9
(22.2)
168.4
170.4
(2.0)
168.4
2015
£m
200.7
4.9
(2.1)
2.8
(0.5)
2.3
2016
£m
138.6
42.6
(18.0)
9.5
34.1
(2.4)
31.7
170.3
170.3
–
170.3
2016
£m
127.7
6.9
(6.1)
0.8
2.8
3.6
131.3
203.0
The Group’s other comprehensive income for the year of £31.7m (2015: expense of £22.2m) and the Company’s other comprehensive income
for the year of £3.6m (2015: £2.3m) may be reclassified to profit or loss in future periods.
The accompanying notes are an integral part of these financial statements.
ICG ANNUAL REPORT & ACCOUNTS 2016
CONSOLIDATED AND PARENT COMPANY
STATEMENTS OF FINANCIAL POSITION
AS AT 31 MARCH 2016
NON CURRENT ASSETS
Intangible assets
Property, plant and equipment
Financial assets: loans, investments and warrants
Derivative financial assets
Deferred tax asset
CURRENT ASSETS
Trade and other receivables
Financial assets: loans and investments
Derivative financial assets
Current tax debtor
Cash and cash equivalents
Total assets
EQUITY AND RESERVES
Called up 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
Current tax creditor
Derivative financial liabilities
Total liabilities
Total equity and liabilities
Notes
16
17
19
19
26
20
21
21
22
22
18
23
24
26
23
25
24
2016
Group
£m
23.6
8.1
2015
Group
£m
6.8
6.6
2016
Company
£m
2015
Company
£m
19.1
6.4
1.4
5.3
3,715.9
2,981.4
1,412.4
1,389.1
3.3
0.4
15.6
–
2.0
–
15.3
–
3,751.3
3,010.4
1,439.9
1,411.1
216.4
182.6
28.3
15.1
182.5
624.9
127.8
243.9
11.3
13.9
391.9
788.8
4,376.2
3,799.2
77.0
177.6
5.0
(77.0)
95.5
963.1
1,241.2
0.9
1,242.1
80.6
674.3
1.4
(162.0)
78.3
783.8
1,456.4
2.2
630.0
182.6
28.3
16.9
48.0
905.7
2,345.6
77.0
177.6
5.0
(21.3)
53.3
824.9
1,116.5
–
503.7
169.4
10.7
30.2
206.8
920.8
2,331.9
80.6
674.3
1.4
(97.6)
54.8
654.7
1,368.2
–
1,458.6
1,116.5
1,368.2
2.0
2.6
2,674.2
2,038.8
31.6
51.0
0.7
33.9
2.0
761.2
31.6
9.8
2,758.8
2,076.0
804.6
0.7
233.4
106.6
5.1
29.5
375.3
3,134.1
4,376.2
0.6
208.8
40.9
1.6
12.7
264.6
2,340.6
3,799.2
0.7
289.5
106.6
–
27.7
424.5
1,229.1
2,345.6
2.6
631.5
0.7
10.8
645.6
0.6
289.7
15.1
–
12.7
318.1
963.7
2,331.9
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 23 May 2016 and were signed on its behalf by:
JUSTIN DOWLEY
Director
PHILIP KELLER
Director
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
112 / 113
CONSOLIDATED AND PARENT COMPANY
STATEMENTS OF CASH FLOW
FOR THE YEAR ENDED 31 MARCH 2016
2015
Group
£m
2016
Company
£m
2015
Company
£m
Operating activities
Interest received
Fees received
Dividends received
Interest paid
Payments to suppliers and employees
Net (purchase)/proceeds from sale of current financial assets
Purchase of loans and investments
Recoveries on previously impaired assets
Proceeds from sale of loans and investments – principal
Proceeds from sale of loans and investments – gains on investments
Cash (used in)/generated from operating activities
Taxes (paid)/received
Net cash (used in)/generated from operating activities
Investing activities
Cash flow on behalf of subsidiary undertakings
Purchase of property, plant and equipment
Purchase of intangible assets
Purchase of remaining 49% of Longbow Real Estate Capital LLP
Loss of control of subsidiary
Net cash used in investing activities
Financing activities
Dividends paid
Increase in long term borrowings
Repayment of long term borrowings
Net cash (outflow)/inflow from derivative contracts
Purchase of own shares
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:
Notes
2016
Group
£m
206.3
77.9
28.4
(95.3)
(141.2)
(35.8)
183.4
90.3
25.0
(67.3)
(97.8)
(126.4)
(1,378.3)
(1,684.0)
1.7
0.7
1,034.1
1,245.3
66.6
42.3
(235.6)
(388.5)
(3.9)
(5.2)
(239.5)
(393.7)
17
16
7
–
(4.2)
(18.3)
–
(9.1)
(31.6)
–
(3.8)
(2.1)
(14.0)
–
83.4
8.2
27.8
(46.1)
(110.3)
7.8
(85.1)
–
186.5
34.1
106.3
(0.8)
105.5
2.2
(3.3)
(18.3)
–
–
93.7
31.6
60.4
(31.4)
(65.3)
(55.4)
(94.6)
0.4
279.3
7.2
225.9
8.9
234.8
(225.2)
(3.6)
(1.6)
–
–
(19.9)
(19.4)
(230.4)
14
(378.2)
(81.0)
(378.2)
679.1
(183.1)
(40.5)
(27.4)
3.4
53.3
(217.8)
391.9
8.4
182.5
677.5
(84.9)
152.9
(124.0)
1.0
541.5
127.9
273.5
(9.5)
391.9
309.2
(121.6)
(52.5)
(5.5)
3.4
(245.2)
(159.1)
206.8
0.3
48.0
(81.0)
178.2
(5.6)
135.4
(95.0)
1.0
133.0
137.4
70.5
(1.1)
206.8
Cash and cash equivalents
182.5
391.9
48.0
206.8
The accompanying notes are an integral part of these financial statements.
ICG ANNUAL REPORT & ACCOUNTS 2016
CONSOLIDATED AND PARENT COMPANY
STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2016
Group
Share
capital
£m
Share
premium
£m
Capital
redemption
reserve
£m
Share based
payments
reserve
£m
Available
for sale
reserve
£m
Own
shares
£m
Retained
earnings
£m
Non
controlling
interest
£m
Total
£m
Total
equity
£m
Balance at 1 April 2015
80.6
674.3
1.4
45.8
32.5
(162.0)
783.8
1,456.4
2.2
1,458.6
Profit for the year
Available for sale financial assets (note 9)
Exchange differences on translation
of foreign operations
Tax on items taken directly to
or transferred from equity
Total comprehensive income for the year
Loss of control of subsidiary
Movement in control of subsidiary
Own shares acquired in the year
Options/awards exercised
Credit for equity settled share schemes
Reduction in share premium
Cancellation of shares
Dividends paid
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3.3
–
(500.0)
(3.6)
–
–
–
Balance at 31 March 2016
77.0
177.6
–
–
–
–
–
–
–
–
–
–
–
3.6
–
5.0
–
–
–
2.8
2.8
–
–
–
(22.3)
17.3
–
–
–
–
24.6
–
(5.2)
19.4
–
–
–
–
–
–
–
–
138.6
138.6
–
24.6
9.5
9.5
–
(2.4)
148.1
170.3
–
–
–
–
–
138.6
24.6
9.5
(2.4)
170.3
(13.4)
(13.4)
(1.3)
(14.7)
–
–
–
–
–
–
–
10.2
10.2
(24.7)
–
(24.7)
30.4
(8.1)
–
–
–
500.0
79.3
(79.3)
3.3
17.3
–
–
–
(378.2)
(378.2)
–
–
–
–
–
–
–
10.2
(24.7)
3.3
17.3
–
–
(378.2)
43.6
51.9
(77.0)
963.1
1,241.2
0.9
1,242.1
Company
Balance at 1 April 2015
Profit for the year
Available for sale financial assets
Tax on items taken directly to or transferred from equity
Total comprehensive income for the year
Own shares acquired in the year
Options/awards exercised
Credit for equity settled share schemes
Reduction in share premium
Cancellation of shares
Dividends paid
Balance at 31 March 2016
Share
capital
£m
Share
premium
£m
Capital
redemption
reserve
£m
Share based
payments
reserve
£m
Available
for sale
reserve
£m
Own shares
£m
Retained
earnings
£m
Total
equity
£m
80.6
674.3
1.4
43.7
–
–
–
–
–
–
–
–
–
–
–
–
–
3.3
–
(500.0)
(3.6)
–
–
–
77.0
177.6
–
–
–
–
–
–
–
–
3.6
–
5.0
–
–
2.8
2.8
–
(21.4)
16.3
–
–
–
11.1
–
0.8
–
0.8
–
–
–
–
–
–
(97.6)
654.7
1,368.2
–
–
–
–
127.7
127.7
–
–
0.8
2.8
127.7
131.3
(3.0)
–
–
–
–
–
–
500.0
79.3
(79.3)
(3.0)
(18.1)
16.3
–
–
–
(378.2)
(378.2)
41.4
11.9
(21.3)
824.9
1,116.5
The adjustment of £13.4m to retained earnings on loss of control of the subsidiary ICG European Loan Fund relates to the reclassification
of liabilities of a consolidated structured entity which had been incorrectly recorded in reserves. The correction of this item has no impact
on the income statement in either the current or prior period, or the internally reported numbers in either year.
In December 2015, the High Court granted a £500m reduction in the Company’s share premium account. This has resulted in £500m being
transferred to retained earnings and has increased the distributable reserves of the Company at 31 March 2016 by £500m.
The accompanying notes are an integral part of these financial statements.
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
114 / 115
CONSOLIDATED AND PARENT COMPANY
STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2016 CONTINUED
Group
Share
capital
£m
Share
premium
£m
Capital
redemption
reserve
£m
Share based
payments
reserve
£m
Available
for sale
reserve
£m
Own
shares
£m
Retained
earnings
£m
Non
controlling
interest
£m
Total
£m
Total
equity
£m
Balance at 1 April 2014
80.4
672.4
1.4
53.3
51.0
(62.4)
713.3
1,509.4
Profit for the year
Change in ownership
of non controlling interest
Available for sale financial assets
Exchange differences on translation of
foreign operations
Tax on items taken directly to or
transferred from equity
Total comprehensive income for the year
Own shares acquired in the year
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Options/awards exercised
0.2
1.9
Credit for equity settled share schemes
Acquisition of remaining 49% of
Longbow Real Estate Capital LLP
Dividends paid
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(26.1)
18.6
–
–
–
–
(23.4)
–
4.9
(18.5)
–
–
–
–
–
–
–
–
–
–
–
(126.0)
26.4
–
–
–
189.3
189.3
4.7
1.3
1,514.1
190.6
3.3
(3.3)
–
3.3
–
(23.4)
(3.7)
(3.7)
–
4.9
–
–
–
(23.4)
(3.7)
4.9
188.9
170.4
(2.0)
168.4
–
–
–
(126.0)
2.4
18.6
–
–
–
(126.0)
2.4
18.6
(37.4)
(37.4)
(0.5)
(37.9)
(81.0)
(81.0)
–
(81.0)
Balance at 31 March 2015
80.6
674.3
1.4
45.8
32.5
(162.0)
783.8
1,456.4
2.2
1,458.6
Company
Balance at 1 April 2014
Profit for the year
Available for sale financial assets
Tax on items taken directly to or transferred from equity
Total comprehensive income for the year
Own shares acquired in the year
Options/awards exercised
Credit for equity settled share schemes
Dividends paid
Balance at 31 March 2015
Share
capital
£m
Share
premium
£m
Capital
redemption
reserve
£m
Share based
payments
reserve
£m
Available
for sale
reserve
£m
Own
shares
£m
Retained
earnings
£m
Total
equity
£m
80.4
672.4
1.4
51.2
–
–
–
–
–
0.2
–
–
–
–
–
–
–
1.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(26.1)
18.6
–
8.8
–
2.8
(0.5)
2.3
–
–
–
–
–
–
–
–
–
(97.6)
–
–
–
535.0
1,349.2
200.7
200.7
–
–
2.8
(0.5)
200.7
203.0
–
–
–
(97.6)
(24.0)
18.6
(81.0)
(81.0)
80.6
674.3
1.4
43.7
11.1
(97.6)
654.7
1,368.2
The accompanying notes are an integral part of these financial statements.
ICG ANNUAL REPORT & ACCOUNTS 2016
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 MARCH 2016
1. GENERAL INFORMATION
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.
2. ADOPTION OF NEW AND REVISED STANDARDS
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 9
IFRS 14
IFRS 15
IFRS 16
Financial Instruments
Regulatory Deferral Accounts
Accounting periods commencing on or after
Subject to EU endorsement
EU effective date to be confirmed
Revenue from Contracts with Customers
EU effective date to be confirmed
Leases
Subject to EU endorsement
Improvements 2014
Annual Improvements to IFRSs: 2012-2014 Cycle
Amendments to IFRS 11
Accounting for Acquisitions of Interests in Joint Operations
Amendments to IAS 16 and IAS 38
Clarification of Acceptable Methods of Depreciation
and Amortisation
Amendments to IAS 16 and IAS 41
Agriculture: Bearer Plants
Amendments to IAS 27
Equity Method in Separate Financial Statements
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
Amendments to IFRS 10/IAS 28
Sale or Contribution of Assets between an Investor
and its Associate or Joint Venture
Effective date deferred indefinitely
Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities: Applying the Consolidation Exception
Amendments to IAS 1
Amendments to IAS 7
Disclosure Initiative
Disclosure Initiative
1 January 2016
1 January 2016
Subject to EU endorsement
Amendments to IAS 12
Recognition of Deferred Tax Assets for Unrealised Losses
Subject to EU endorsement
3. SIGNIFICANT ACCOUNTING POLICIES
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 Group and 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 statements.
The Directors have made this assessment in light of the £781.3m cash and unutilised debt facilities following a period of high realisations,
no significant bank facilities maturing until May 2018, and after reviewing the Group’s latest forecasts for a period of three years from the
reporting date.
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
116 / 117
The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the
Strategic Report on pages 1 to 38. This includes on pages 20 to 27 the Chief Financial Officer’s Review detailing the financial position of the
Group, its cash flows, liquidity position and borrowing facilities. In addition, note 5 to the financial statements includes 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 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 no significant facilities due to mature within the next 12 months.
BASIS OF CONSOLIDATION
The Group’s financial statements consolidate the results of Intermediate Capital Group plc and entities controlled by the Company for the
period to 31 March each year.
Subsidiaries are all entities over which the Company has control. The Company controls an investee when it has power over the relevant
activities, exposure to variable returns from the investee, and the ability to affect those returns through its power over the investee.
The assessment of control is based on all relevant facts and circumstances and the Company re-assesses its conclusion if there is an indication
that there are changes in facts and circumstances. Subsidiaries are included in the consolidated financial statements from the date that control
commences until the date that control ceases.
Each component of other comprehensive income and profit or loss is attributed to the owners of the Company and to the non controlling interests.
Adjustments are made to the financial statements of subsidiaries for consistency with the accounting policies of the Group. All intra-group
transactions, balances, unrealised income and expenses are eliminated on consolidation.
BUSINESS COMBINATIONS
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. Contingent consideration is measured at fair value
on the date of acquisition. Subsequent changes in contingent consideration resulting from events after the date of acquisition is recognised
through the income statement.
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. When the Group acquires additional shares in an entity
it already controls, any excess of the fair value of consideration over the non controlling interest acquired is immediately deducted from equity
and attributed to the owners of the Company.
INVESTMENT IN SUBSIDIARIES
Investments in subsidiaries in the Parent Company Statement of Financial Position are recorded at cost less provision for impairments or at fair
value through profit or loss.
INVESTMENT IN ASSOCIATES
An associate is an entity over which the Group has significant influence, but no control, over the financial and operating policy decisions of the
entity. As the investments in associates are held for venture capital purposes they are designated at fair value through profit or loss.
INVESTMENT IN JOINT VENTURES
A joint venture is a joint arrangement whereby the parties that have joint control over the arrangement have rights to the net assets of the
arrangements. The results and assets and liabilities of joint ventures are incorporated in these financial statements using the equity method
of accounting from the date on which the investee becomes a joint venture except when the investment is held for venture capital purposes
in which case they are designated as fair value through profit and loss. Under the equity method, an investment in a joint venture is initially
recognised in the consolidated statement of financial position at cost, and adjusted thereafter to recognise the Group’s share of the joint
venture’s profit or loss.
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, or repurchased directly by
the Company, 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.
ICG ANNUAL REPORT & ACCOUNTS 2016
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 MARCH 2016 CONTINUED
3. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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.
Dividend income is recognised in the income statement when the Group’s right to receive income is established.
Gains on investments comprise gains on disposal of available for sale financial assets and fair value gains and losses on both financial assets
and financial liabilities at fair value through profit or loss. Movements are recognised as incurred.
Fund Management fees and commissions are recognised in the income statement when the related service has been performed.
The Group receives carried interest from the third party funds it manages once those funds exceed a performance target. Carried interest
income is recognised only when all performance conditions have been met.
FINANCE COSTS
Finance costs comprise interest expense on financial liabilities, fair value 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. The expected life of the
liability is based upon the maturity date.
Interest expense on financial liabilities held at fair value through profit or loss are recognised when the obligation to pay interest is established.
Changes in the fair value of derivatives are recognised in the income statement as incurred.
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 reporting 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.
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 reporting date.
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.
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 the 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 reporting 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
reporting date, monetary assets and liabilities denominated in a foreign currency are retranslated at the rates prevailing at the reporting 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 reporting date.
Income and expense items are translated using the average exchange rates during the year. Exchange differences arising from the translation
of foreign operations are taken directly to the translation reserve.
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
118 / 119
FINANCIAL ASSETS
Financial assets are classified into the following categories, financial assets ‘at fair value through profit or loss’ (FVTPL), ‘available-for-sale’
(AFS) financial assets and ‘loans and receivables’. The classification depends on the nature and purpose of the financial assets.
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. A financial asset is classified as at FVTPL if:
– it is a derivative that is not designated and effective as a hedging instrument, or
– the designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise, or
– if the financial asset is managed, evaluated and reported internally on a fair value basis, in accordance with the Group’s documented risk
management or investment strategy.
Financial assets at fair value through profit or loss are initially recognised and subsequently measured at fair value on a recurring basis with
gains or losses arising from changes in fair value recognised through gains in investments in the income statement. Dividends or interest
earned on the financial asset are excluded from the gains on investments and recognised separately within finance income.
Loans and receivables
Loans and receivables are held at amortised cost, less any impairment. 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.
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. The carrying value of loans and receivables is considered a reasonable
approximation of fair value. Any premium or discount on disposal of a loan or receivable to a third party is recognised through gains
on investments.
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 on a recurring basis 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 through gains in investments in the income statement. Dividend income earned on
the financial asset is excluded from the gains on investments and recognised separately within finance income.
DERECOGNITION OF FINANCIAL ASSETS
The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or when substantially all the risks
and rewards of ownership of the asset are transferred to another party. On derecognition of a financial asset in its entirety, the difference
between the asset’s carrying value amount and the sum of the consideration received and receivable, and the cumulative gain or loss
previously recognised in other comprehensive income and accumulated in equity, is recognised in profit or loss.
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.
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 reporting date such as a covenant breach or restructuring. A financial asset is impaired when
objective evidence indicates that a loss event has occurred after the initial recognition of the asset and that the 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 on financial assets measured at amortised cost, 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 other
comprehensive income 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.
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.
ICG ANNUAL REPORT & ACCOUNTS 2016
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 MARCH 2016 CONTINUED
3. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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. This condition is
regarded as met only when the asset is available for immediate sale, the Directors are committed to the sale, and the sale is expected to be
completed within one year from date of classification.
Non current assets held for sale are initially recognised at cost, and subsequently measured at the lower of their carrying amount and fair
value less costs to sell.
FINANCIAL LIABILITIES
Financial liabilities which include borrowings, with the exception of financial liabilities designated as fair value through profit or loss, are initially
recognised at fair value net of transaction costs and subsequently measured at amortised cost using the effective interest rate method, with
interest expense recognised on an effective yield basis.
Financial liabilities at fair value through profit or loss (FVTPL) include derivative liabilities and other financial liabilities designated as fair value
through profit or loss. A financial instrument is classified as at FVTPL if it is a derivative that is not designated and effective as a hedging
instrument, or the designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise.
Financial liabilities at fair value through profit or loss are initially recognised and subsequently measured at fair value on a recurring basis with
gains or losses arising from changes in fair value recognised through gains in investments in the income statement. Interest paid on the
financial instruments is excluded from the gains on investments and recognised separately within Finance costs.
The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or expire.
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 determined
using independent third party valuations or quoted market prices on a recurring basis. Changes in fair values of derivatives are recognised
immediately in the income statement.
A derivative with a positive fair value is recognised as a financial asset whilst a derivative with a negative fair value is recognised as a financial
liability. A derivative is presented as a non current asset or non current liability if the remaining maturity of the instrument is more than
12 months, otherwise a derivative will be presented as a current asset or current liability.
INTANGIBLE ASSETS
Goodwill
Goodwill is initially recognised and measured as set out in the Business Combinations accounting policy 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
Intangible assets with finite useful lives that are acquired separately, including investment management contracts and contact databases,
are carried at cost less accumulated depreciation and impairment losses. These are measured at cost and are being amortised on a straight
line basis over the expected life of the contract, currently three to ten 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.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash and short term bank deposits with an original maturity of three months or less.
4. CRITICAL JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
In the application of the Group’s accounting policies, which are described in note 3, the Directors are required to make judgements, estimates
and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and
associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from
these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period
in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects
both current and future periods.
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
120 / 121
CONTROL AND SIGNIFICANT INFLUENCE
When assessing whether ICG controls any entities it is necessary to determine whether ICG acts in the capacity of principal or agent for the
third party investor. An agent is a party primarily engaged to act on behalf and for the benefit of another party or parties, whereas a principal
is primarily engaged to act for its own benefit. This is an area of significant judgement and is determined with reference to decision making
authority, rights held by other parties, remuneration and exposure to returns.
A significant judgement when determining that ICG acts in the capacity of principal or agent is the kick out rights of the third party
shareholders. For three funds, the right to remove the investment manager is limited until the fund completes its fundraising. We have
considered the key decisions that are made in these funds, both during and after fundraising, and determined that significant decisions are
made by ICG once fundraising is completed that can substantially affect the variable returns of the investors. We therefore consider ICG to be
acting in the capacity of agent to these funds thus not requiring consolidation into the Group. However, we consider ICG to have significant
influence over these funds and have therefore recognised them as associates.
Further details of this analysis are outlined in notes 31 and 32.
KEY SOURCES OF ESTIMATION UNCERTAINTY
The key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting period, that may have a significant
risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.
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 arm’s 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 using an earnings based valuation technique.
The valuation techniques applied follow the International Private Equity and Venture Capital valuation guidelines (December 2015) 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.
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. 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 5.
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.
IMPAIRMENT
On a quarterly basis the Investment Committee reviews each asset in the Group’s portfolio. Assets which are underperforming or which the
Committee wishes to receive regular updates on are added to the watch list. During the quarterly review the Committee will identify any
impairment events and subsequently determine the level of impairment required. Typical impairment events include, but are not limited to,
non payment of cash interest, covenant breach, deterioration in trading or a restructuring.
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 initially recognised in the financial statements.
ICG ANNUAL REPORT & ACCOUNTS 2016
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 MARCH 2016 CONTINUED
5. 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.
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 rate 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.
Sensitivity to interest rate risk
Financial assets
Financial liabilities
Floating
£m
Fixed
£m
2016
Total
£m
Floating
£m
Fixed
£m
2015
Total
£m
2,581.4
1,716.0
4,297.4
2,216.5
1,528.5
3,745.0
(1,968.1)
(1,048.8)
(3,016.9)
(1,638.3)
(653.4)
(2,291.7)
613.3
667.2
1,280.5
578.2
875.1
1,453.3
The sensitivity of floating rate financial assets to the 100 basis points interest rate increase is £25.8m (2015: £22.2m) and the sensitivity
of financial liabilities to the same interest rate increase is £19.7m (2015: £16.4m). 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 liabilities 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.
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
122 / 123
The effect of fluctuations in other currencies is considered by the Directors to be insignificant in the current and prior year. 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
Sterling
Euro
US dollar
Other currencies
Net statement
of financial
position exposure
£m
Forward
exchange
contracts
£m
(147.6)
1,079.1
960.4
205.7
262.0
(700.9)
(214.9)
(192.8)
2016
Net exposure
£m
Sensitivity to
strengthening
%
Increase
in net assets
£m
931.5
259.5
(9.2)
69.2
–
15%
20%
10-25%
1,280.5
(29.5)
1,251.0
–
–
38.9
(1.8)
–
37.1
2015
Net statement
of financial
position exposure
£m
Forward
exchange
contracts
£m
Net exposure
£m
Sensitivity to
strengthening
%
Increase
in net assets
£m
8.4
1,192.6
1,201.0
1,006.5
(809.4)
187.6
250.8
(171.7)
(198.0)
197.1
15.9
52.8
–
15%
20%
10–25%
1,453.3
13.5
1,466.8
–
–
29.6
3.2
–
32.8
The weakening of the above currencies would have resulted in an equal but opposite impact, being a decrease in net assets.
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
2016. It is assumed that Group borrowings under its senior debt facilities remain at the same level as at 31 March 2016 until contractual
maturity. Included in financial liabilities maturing in less than one year are contractual interest payments.
Liquidity profile
As at 31 March 2016
Non derivative financial liabilities
Private placements
Listed notes and bonds
Unsecured bank debt
Structured entities controlled by the Group
Derivative financial instruments
Derivative financial instruments
Contractual maturity analysis
Less than
one year
£m
One to
two years
£m
Two to
five years
£m
More than
five years
£m
Total
£m
591.3
426.6
58.4
107.1
18.0
25.0
47.4
9.0
206.5
19.5
18.0
0.8
47.4
(5.5)
80.2
273.0
214.6
32.6
191.7
176.0
–
142.2
2,364.8
2,601.8
(8.6)
10.0
4.9
653.8
2,742.5
3,683.0
As at 31 March 2016, the Group has unutilised debt facilities of £781.3m (2015: £758.4m) which consists of undrawn debt of £669.0m
(2015: £505.7m) and £112.3m (2015: £252.7m) of unencumbered cash. Unencumbered cash excludes £70.2m (2015: £139.2m) of restricted
cash held principally by structured entities controlled by the Group.
ICG ANNUAL REPORT & ACCOUNTS 2016
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 MARCH 2016 CONTINUED
5. FINANCIAL RISK MANAGEMENT CONTINUED
LIQUIDITY RISK CONTINUED
As at 31 March 2015
Non derivative financial liabilities
Private placements
Listed notes and bonds
Unsecured bank debt
Floating rate secured notes
Secured bank debt
Structured entities controlled by the Group
Derivative financial instruments
Derivative financial instruments
Contractual maturity analysis
Less than
one year
£m
One to
two years
£m
Two to
five years
£m
More than
five years
£m
Total
£m
415.3
439.8
20.8
39.7
26.7
34.2
17.8
0.7
0.6
26.7
48.6
123.9
17.8
20.1
0.6
–
183.8
137.7
–
1.9
–
73.4
266.5
–
36.6
–
48.6
145.7
1,873.8
2,116.7
(1.9)
126.7
(10.4)
200.6
(1.1)
–
(13.4)
468.0
2,250.3
3,045.6
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, three public bonds and by issuing
floating and fixed rate notes. Work to maintain this diversity continued throughout the year, raising £845m, of which £270m was in US private
placements, £421m extending facilities with existing relationship banks and £154m in bank facilities with three new relationship banks.
CREDIT RISK
Credit risk is the risk of financial loss to the Group as a result of a counterparty failing to meet its 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
Senior mezzanine and senior debt
Junior mezzanine
Interest bearing equity
Non interest bearing equity
Co-investment portfolio
Investment in equity funds
Investment in credit funds
Investment in CLOs
Investment in real estate funds
Investments within structured entities controlled by the Group
Non current financial assets
2016
£m
386.2
181.6
115.4
530.6
2015
£m
432.8
168.9
163.5
413.3
1,213.8
1,178.5
103.7
224.9
131.3
124.3
1,917.9
3,715.9
14.0
274.1
133.8
89.2
1,291.8
2,981.4
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
124 / 125
Included within the co investment portfolio is £508.3m (2015: £355.5m) of assets invested through ICG Europe Fund V Limited, ICG Europe
Fund VI Limited, ICG North America Private Debt Fund and ICG Asia Pacific Fund III which are accounted for as associates designated as
FVTPL. 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. The Directors consider the credit risk of the investments within the structured entities controlled by the
Group to be low. The investments principally comprise senior loans, and the recourse is limited to within the structured entities that the
Group controls.
IMPAIRMENT LOSSES
Impairment
Balance at 1 April
Charged to income statement
Recovery of previously impaired assets
Assets written off in year
Foreign exchange
Balance at 31 March
2016
£m
306.0
12.3
(3.4)
(138.8)
20.8
196.9
Group
2015
£m
341.7
53.5
(15.9)
(43.9)
(29.4)
306.0
2016
£m
193.5
1.7
–
(90.1)
13.2
118.3
Company
2015
£m
203.2
41.8
(8.4)
(23.6)
(19.5)
193.5
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 of 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 2016 was £110.1m to Parkeon
(2015: £64.0m to Gerflor), which was sold following the balance sheet date.
FAIR VALUE MEASUREMENTS RECOGNISED IN THE STATEMENT OF FINANCIAL POSITION
The information set out below provides information about how the Group determines fair values of various financial assets and
financial liabilities.
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 (i.e. unobservable inputs)
ICG ANNUAL REPORT & ACCOUNTS 2016
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 MARCH 2016 CONTINUED
5. FINANCIAL RISK MANAGEMENT CONTINUED
This is followed by a more detailed analysis of the financial instruments which are based on unobservable inputs (Level 3 assets).
The subsequent tables provide reconciliations of movement in their fair value during the year split by asset category and by geography.
The Group is required to provide disclosures at a more detailed level than by asset category, segregating each asset category by sector
or geography. The Group has chosen to present financial instruments by geography as the diverse nature of the Group’s assets makes any
disclosure of assets by industry less meaningful to the Group’s risk profile than geographical factors.
Fair value
as at
31 March
2016
£m
Fair value
as at
31 March
2015
£m
62.1
136.8
64.2
58.6
33.1
–
2,048.7
1,349.1
Fair value
hierarchy
Valuation techniques
and inputs
Significant
unobservable inputs
Relationship
of unobservable
inputs to fair value
1
1
2
2
A small number of assets have been
listed on various stock exchanges around
the world, providing an external basis for
valuing the Group’s holdings
n/a
Quoted bid prices in an active market
n/a
Internally modelled valuation based
on combination of market prices and
observable inputs
The fair value has been determined using
independent broker quotes based on
observable inputs
n/a
n/a
n/a
n/a
n/a
n/a
Financial
assets/
financial
liabilities
Listed
portfolio
investments
Listed
credit fund
investments
Listed
portfolio
investments
Level 2
assets within
structured
entities
controlled by
the Group
Level 3
investments
308.7
270.2
3
Earnings based technique. The earnings
multiple is derived from a set of
comparable listed companies or relevant
market transaction multiples. 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. Earnings multiples are
applied to the maintainable earnings 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. To determine the value of
warrants, the exercise price is deducted
from the equity value
Where there are no recent transactions,
fair value may be determined from the
last market price adjusted for all changes
in risks and information since that
date. Where a close proxy instrument
is quoted in an active market, then fair
value is determined by adjusting the
proxy value for differences in the risk
profile of the instruments
The higher the
adjusted multiple, the
higher the valuation
The discount applied is
generally in a range of 10%
to 35% and exceptionally as
high as 65%. A premium has
been applied to six assets in
the range of 3% to 49%. The
earnings multiple is generally
in the range of 8 to 13, and
exceptionally as high as 22
and as low as 4
A premium/discount is
applied taking into account
market comparisons, seniority
of debt, credit rating, current
debt, interest coupon,
maturity of the loan and
jurisdiction of the loan
The higher the
premium, the higher
the valuation.
The higher the
discount, the lower
the valuation
40.9
55.0
3
Illiquid debt
investments
within
structured
entities
controlled by
the Group
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
126 / 127
Fair value
as at
31 March
2016
£m
Fair value
as at
31 March
2015
£m
Fair value
hierarchy
Valuation techniques
and inputs
Significant
unobservable inputs
Relationship
of unobservable
inputs to fair value
678.3
452.4
3
33.4
33.1
3
(1,913.0)
(1,373.4)
2
Financial
assets/
financial
liabilities
Investments
in unlisted
funds
Investments
in unlisted
CLOs
Level 2
liabilities
within
structured
entities
controlled by
the Group
Derivatives
(29.5)
13.5
2
Total
1,326.9
995.3
The NAV of the underlying
fund, typically calculated
under IFRS
The higher the
NAV, the higher
the fair value
Discounted cash flows
The higher the cash
flows the higher the
fair value. The higher
the discount, the
lower the fair value
n/a
n/a
n/a
n/a
The Net Asset Value (NAV) of the fund
is based on the underlying investments
which are held either as FVTPL
assets or as loans and receivables
initially recognised at fair value and
subsequently valued at amortised
cost. The carrying value of loans and
receivables held at amortised cost are
considered a reasonable approximation
of fair value. We have reviewed the
underlying valuation techniques of the
funds and consider them to be in line
with those of the Group
Discounted cash flow at a discount rate
of 11%. The following assumptions are
applied to each investment’s cash flows:
3% annual default rate, 20% annual
prepayment rate, 70% recovery rate
The fair value of debt securities issued
at fair value through profit and loss
is dependent upon the fair value of
investment securities and derivative
financial instruments. Any changes in the
valuation have a direct impact to the fair
value of debt securities issued
The Group uses widely recognised
valuation models for determining the fair
values of over the counter interest rate
swaps and forward foreign exchange
contracts. The most frequently applied
valuation techniques include forward
pricing and swap models, using present
value calculations. The valuations are
market observable, internally calculated
and verified to externally sourced data
and are therefore included within level 2
ICG ANNUAL REPORT & ACCOUNTS 2016
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 MARCH 2016 CONTINUED
5. FINANCIAL RISK MANAGEMENT CONTINUED
Financial assets at FVTPL
Designated as FVTPL
– US
– UK
– France
– Germany
– Netherlands
– Other
Derivative financial instruments – warrants
– France
– Germany
AFS financial assets held at fair value
– Australia
– France
– US
– UK
– Other
Other derivative financial instruments
Financial liabilities at FVTPL
– Structured entities controlled by the Group
Other derivative financial instruments
Level 1
£m
Level 2
£m
Level 3
£m
–
67.3
–
–
–
11.9
79.2
–
–
–
40.7
–
–
–
6.4
47.1
–
1,368.9
98.2
137.0
119.2
95.3
230.1
2,048.7
–
–
–
–
–
33.1
–
–
33.1
31.6
147.7
592.6
168.3
3.3
2.1
48.3
962.3
12.3
7.5
19.8
4.5
42.3
14.1
18.1
0.2
79.2
–
2016
Total
£m
1,516.6
758.1
305.3
122.5
97.4
290.3
3,090.2
12.3
7.5
19.8
45.2
42.3
47.2
18.1
6.6
159.4
31.6
126.3
2,113.4
1,061.3
3,301.0
–
–
–
1,913.0
61.1
1,974.1
–
–
–
1,913.0
61.1
1,974.1
During the year, one of the Group’s level 3 assets was listed on the Australian Securities Exchange resulting in £56.8m being transferred to
level 1. In addition, £113.2m of assets have been transferred from level 1 to level 2 following a reassessment of valuation techniques.
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
Level 1
£m
Level 2
£m
Level 3
£m
–
85.9
33.5
5.8
7.1
21.9
154.2
–
–
–
–
9.2
–
21.4
1.3
9.3
41.2
–
814.4
101.5
91.0
98.1
87.4
156.7
1,349.1
–
–
–
–
–
–
–
–
–
–
26.9
37.9
464.3
120.2
6.7
7.4
43.3
679.8
5.4
4.8
3.6
13.8
37.8
38.9
12.5
25.9
2.0
117.1
–
128 / 129
2015
Total
£m
852.3
651.7
244.7
110.6
101.9
221.9
2,183.1
5.4
4.8
3.6
13.8
47.0
38.9
33.9
27.2
11.3
158.3
26.9
195.4
1,376.0
810.7
2,382.1
–
–
–
1,373.4
13.4
1,386.8
–
–
–
1,373.4
13.4
1,386.8
Financial assets at FVTPL
Designated as FVTPL
– US
– UK
– France
– Germany
– Netherlands
– Other
Derivative financial instruments – warrants
– France
– UK
– Germany
AFS financial assets held at fair value
– France
– Australia
– US
– UK
– Other
Other derivative financial instruments
Financial liabilities at FVTPL
– Structured entities controlled by the Group
Other derivative financial instruments
ICG ANNUAL REPORT & ACCOUNTS 2016
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 MARCH 2016 CONTINUED
5. 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
The tables detail the movements in financial assets valued using the Level 3 basis of measurement in aggregate.
Within the income statement, realised gains and fair value movements are included within gains on investments, and foreign exchange is
included within finance costs. Within other comprehensive income, fair value movements and foreign exchange are included within fair
value movements.
At 1 April 2015
Total gains or losses in the income statement
– Realised gains
– Fair value gains
– Foreign exchange
Total gains or losses in other comprehensive income
– Unrealised gains
Purchases
Realisations
Transfer between assets
Transfers between levels
At 31 March 2016
At 1 April 2014
Total gains or losses in the income statement
– Realised gains
– Fair value gains
– Foreign exchange
Total gains or losses in other comprehensive income
– Unrealised gains
Purchases
Realisations
Transfer between assets
Transfers between levels
At 31 March 2015
Financial
assets at
FVTPL
£m
679.8
Derivative
financial
instruments
– warrants
£m
13.8
AFS
assets
£m
117.1
(22.4)
(10.0)
(0.9)
Total
£m
810.7
(33.3)
104.6
52.1
23.8
192.7
(88.8)
61.8
(62.3)
1,061.3
Total
£m
748.4
(39.2)
107.9
(62.2)
1.0
258.6
–
1.9
23.8
0.4
(19.3)
–
(43.8)
79.2
AFS
assets
£m
176.4
(14.0)
–
(10.2)
1.0
2.0
(16.5)
(146.2)
–
(21.6)
117.1
3.5
(61.1)
810.7
89.6
49.2
–
192.3
(69.5)
61.8
(18.5)
962.3
Financial
assets at
FVTPL
£m
553.5
(24.2)
109.9
(50.3)
–
256.6
(129.7)
3.5
(39.5)
679.8
15.0
1.0
–
–
–
–
–
19.8
Derivative
financial
instruments
– warrants
£m
18.5
(1.0)
(2.0)
(1.7)
–
–
–
–
–
13.8
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
130 / 131
The level 3 fair value movements by geography are as follows:
Financial assets at FVTPL
At 1 April 2015
Total gains or losses
in the income statement
– Realised gains
– Fair value gains
– Foreign exchange
Purchases
Realisations
Transfer between assets
Transfer between levels
At 31 March 2016
US
£m
37.9
–
18.5
1.4
30.6
(9.6)
70.7
(1.8)
147.7
UK
£m
464.3
(15.7)
36.6
34.0
132.3
(44.3)
(14.6)
–
592.6
France
£m
120.2
–
29.8
13.6
11.3
(2.9)
–
(3.7)
168.3
Derivative financial instruments – warrants
At 1 April 2015
Total gains or losses in the income statement
– Realised gains
– Fair value gains
– Foreign exchange
At 31 March 2016
AFS assets
At 1 April 2015
Total gains or losses in the income statement
– Realised gains
– Foreign exchange
Total gains or losses in other comprehensive income
– Unrealised gains/(losses)
Purchases
Realisations
Transfer between levels
At 31 March 2016
France
£m
37.8
Australia
£m
38.9
(0.9)
3.3
10.0
–
(7.9)
–
42.3
–
(3.5)
12.9
–
–
(43.8)
4.5
Singapore
£m
2.4
–
1.6
0.1
6.4
–
–
–
10.5
France
£m
5.4
–
6.4
0.5
12.3
US
£m
12.5
–
0.5
1.1
–
–
–
14.1
Australia
£m
24.2
Other
£m
30.8
Total
£m
679.8
–
2.3
(0.7)
–
–
–
(13.0)
12.8
UK
£m
4.8
(10.0)
5.2
–
–
UK
£m
25.9
–
1.5
1.7
0.4
(11.4)
–
18.1
(6.7)
(22.4)
0.8
0.8
11.7
(12.7)
5.7
–
30.4
Germany
£m
3.6
–
3.4
0.5
7.5
Other
£m
2.0
–
0.1
(1.9)
–
–
–
0.2
89.6
49.2
192.3
(69.5)
61.8
(18.5)
962.3
Total
£m
13.8
(10.0)
15.0
1.0
19.8
Total
£m
117.1
(0.9)
1.9
23.8
0.4
(19.3)
(43.8)
79.2
ICG ANNUAL REPORT & ACCOUNTS 2016
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 MARCH 2016 CONTINUED
5. FINANCIAL RISK MANAGEMENT CONTINUED
FAIR VALUE MEASUREMENTS RECOGNISED IN THE STATEMENT OF FINANCIAL POSITION CONTINUED
Germany
£m
Netherlands
£m
41.8
12.6
Financial assets at FVTPL
At 1 April 2014
Total gains or losses in the
income statement
– Realised gains
– Fair value gains
– Foreign exchange
Purchases
Realisations
Transfer between assets
Transfer between levels
At 31 March 2015
US
£m
23.6
0.5
2.4
3.9
27.2
(7.8)
–
(11.9)
37.9
UK
£m
316.9
(5.5)
49.2
(35.4)
201.9
(55.5)
(3.1)
(4.2)
France
£m
112.7
(9.3)
48.0
(12.5)
1.8
(28.3)
6.3
1.5
464.3
120.2
Derivative financial instruments – warrants
At 1 April 2014
Total gains or losses in the income statement
– Realised gains
– Fair value gains
– Foreign exchange
At 31 March 2015
AFS assets
At 1 April 2014
Total gains or losses in the income statement
– Realised gains
– Foreign exchange
Total gains or losses in other
comprehensive income
– Unrealised gains
Purchases
Realisations
Transfer between levels
At 31 March 2015
France
£m
8.7
(0.3)
(2.1)
(0.9)
5.4
Australia
£m
34.0
(3.4)
(2.0)
18.1
–
(7.8)
–
38.9
France
£m
63.7
1.2
(5.7)
(7.3)
0.1
(2.9)
(11.3)
37.8
Other
£m
45.9
(9.9)
11.5
(4.5)
14.3
(11.6)
0.3
(2.7)
43.3
–
(0.7)
–
5.1
(9.6)
–
–
7.4
Germany
£m
3.8
Denmark
£m
3.8
(0.2)
0.6
(0.6)
3.6
UK
£m
25.2
(2.0)
(2.4)
5.7
2.0
(2.2)
(0.4)
25.9
–
(3.6)
(0.2)
–
Other
£m
39.0
(9.8)
(1.7)
(11.9)
(0.1)
(3.6)
(9.9)
2.0
Total
£m
553.5
(24.2)
109.9
(50.3)
256.6
(129.7)
3.5
(39.5)
679.8
Total
£m
18.5
(1.0)
(2.0)
(1.7)
13.8
Total
£m
176.4
(14.0)
(10.2)
1.0
2.0
(16.5)
(21.6)
117.1
–
(0.5)
(1.8)
6.3
(16.9)
–
(22.2)
6.7
UK
£m
2.2
(0.5)
3.1
–
4.8
US
£m
14.5
–
1.6
(3.6)
–
–
–
12.5
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
RECONCILIATION OF LEVEL 3 FAIR VALUE MEASUREMENTS OF FINANCIAL LIABILITIES
This table details the movements in financial liabilities valued using the Level 3 basis of measurement in aggregate.
Financial liabilities at FVTPL – Structured entities controlled by the Group
At 1 April
Transferred to level 2
At 31 March
132 / 133
2016
£m
–
–
–
2015
£m
189.6
(189.6)
–
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
2016
Financial assets designated as FVTPL
Derivative financial instruments held at fair value – warrants
AFS financial assets held at fair value
2015
Financial assets designated as FVTPL
Derivative financial instruments held at fair value – warrants
AFS financial assets held at fair value
Sensitivity of financial asset to
adjusted earnings multiple
Value in accounts
£m
+10%
£m
–10%
£m
962.3
1,071.5
19.8
79.2
25.2
86.3
820.3
14.3
72.2
1,061.3
1,183.0
906.8
679.8
13.8
117.1
810.7
785.5
18.7
137.0
941.2
546.1
8.9
92.8
647.8
ICG ANNUAL REPORT & ACCOUNTS 2016
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 MARCH 2016 CONTINUED
5. FINANCIAL RISK MANAGEMENT CONTINUED
DERIVATIVES
The Group utilises the following derivative instruments for economic hedging purposes:
Foreign exchange derivatives
Forward foreign exchange contracts
Cross currency swaps
Interest rate swaps
Total
Contract or
underlying
principal
amount
£m
1,172.8
456.5
20.0
1,649.3
Group 2016
Fair values
Asset
£m
Liability
£m
Contract or
underlying
principal
amount
£m
5.6
23.8
2.2
31.6
(24.6)
(36.5)
–
1,408.9
74.6
34.8
(61.1)
1,518.3
Group 2015
Fair values
Asset
£m
Liability
£m
10.4
13.3
3.2
26.9
(12.7)
(0.7)
–
(13.4)
Included in derivative financial instruments is accrued interest on swaps of £1.9m (2015: £0.7m).
Foreign exchange derivatives
Forward foreign exchange contracts
Cross currency swaps
Interest rate swaps
Total
Contract or
underlying
principal
amount
£m
1,077.1
456.5
20.0
1,553.6
Company 2016
Fair values
Asset
£m
Liability
£m
Contract or
underlying
principal
amount
£m
Company 2015
Fair values
Asset
£m
Liability
£m
4.3
23.8
2.2
30.3
(22.8)
(36.5)
–
1,336.7
74.6
34.8
(59.3)
1,446.1
9.5
13.3
3.2
26.0
(12.7)
(0.7)
–
(13.4)
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 ended 31 March 2015.
The capital structure comprises debts, which includes the borrowings disclosed in note 24, 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.icgam.com.
6. 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 £127.7m (2015: £200.7m).
7. BUSINESS AND GEOGRAPHICAL SEGMENTS
For management purposes, the Group is currently organised into the Fund Management Company (FMC) and the Investment Company (IC).
Segment information about these businesses is presented below and is reviewed by the Executive Committee.
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 average 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 remuneration of the Executive Directors is allocated equally to the FMC and the IC.
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
ANALYSIS OF INCOME AND PROFIT BEFORE TAX
Mezzanine
£m
Credit Funds
£m
Real Estate
£m
Secondaries
£m
57.8
12.7
70.5
29.9
2.8
32.7
19.1
1.7
20.8
2.1
1.2
3.3
Mezzanine
£m
Credit Funds
£m
Real Estate
£m
Secondaries
£m
61.8
14.0
75.8
22.9
3.3
26.2
10.7
1.0
11.7
0.4
0.4
0.8
Year ended 31 March 2016
External fee income
Inter-segmental fee
Fund management fee income
Other operating income
Gains on investments
Net interest income
Dividend income
Net fair value loss on derivatives
Impairment
Staff costs
Incentive scheme costs
Other administrative expenses
Profit before tax
Year ended 31 March 2015
External fee income
Inter-segmental fee
Fund management fee income
Other operating income
Gains on investments
Net interest income
Dividend income
Net fair value loss on derivatives
Impairment
Staff costs
Incentive scheme costs
Other administrative expenses
Profit before tax
134 / 135
Total
£m
108.9
–
108.9
5.0
128.6
79.7
35.7
(17.3)
340.6
(39.4)
(39.2)
(64.2)
(39.5)
158.3
Total
£m
95.8
–
95.8
4.5
111.6
118.4
16.6
(7.1)
339.8
(37.6)
(36.7)
(49.5)
(39.0)
177.0
Total
FMC
£m
108.9
18.4
127.3
–
–
(0.4)
19.3
–
146.2
–
(30.4)
(24.5)
(30.1)
61.2
Total
FMC
£m
95.8
18.7
114.5
–
–
(0.4)
13.2
–
127.3
–
(27.4)
(19.0)
(28.9)
52.0
IC
£m
–
(18.4)
(18.4)
5.0
128.6
80.1
16.4
(17.3)
194.4
(39.4)
(8.8)
(39.7)
(9.4)
97.1
IC
£m
–
(18.7)
(18.7)
4.5
111.6
118.8
3.4
(7.1)
212.5
(37.6)
(9.3)
(30.5)
(10.1)
125.0
ICG ANNUAL REPORT & ACCOUNTS 2016
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 MARCH 2016 CONTINUED
7. BUSINESS AND GEOGRAPHICAL SEGMENTS CONTINUED
RECONCILIATION OF FINANCIAL STATEMENTS REPORTED TO THE EXECUTIVE COMMITTEE TO THE POSITION
REPORTED UNDER IFRS
Included in the table below are statutory adjustments made for the co-investment in funds, the structured entities controlled by the Group,
the joint venture investment in Nomura ICG KK, the change in the Longbow deferred consideration estimate and the Employee Benefit Trust
(EBT) settlement.
For internal reporting purposes the interest earned and impairments taken on assets where we co-invest in funds (ICG Europe Fund V, ICG
Europe Fund VI, ICG Asia Pacific Fund III and ICG North America Private Debt Fund) is presented within interest income and impairments
whereas under IFRS it is included within the value of the investment. The structured entities controlled by the Group are presented as fair
value investments for internal reporting purposes, whereas the statutory financial statements present these entities on a fully consolidated
basis. The joint venture investment in Nomura ICG KK is presented internally on a proportional consolidation basis, whereas it is equity
accounted under IFRS. The one off impacts of the change to the Longbow deferred consideration estimate and EBT settlement were
excluded for internal reporting purposes.
CONSOLIDATED INCOME STATEMENT
Year ended 31 March 2016
Fund management fee income
Other operating income
Gains on investments
Net interest income
Dividend income
Net fair value loss on derivatives
Impairment
Staff costs
Incentive scheme costs
Other administrative expenses
Change in deferred consideration
estimate
Profit before tax
Internally
reported
£m
Reclass of
interest
to gains
£m
Consolidated
structured
entities
£m
Japan joint
venture
£m
Longbow
deferred
consideration
£m
EBT
settlement
£m
Total
adjustments
£m
Financial
statements
£m
108.9
5.0
128.6
79.7
35.7
(17.3)
340.6
(39.4)
(39.2)
(64.2)
(39.5)
–
158.3
–
–
(6.0)
(24.5)
–
–
(30.5)
30.5
–
–
–
–
–
(9.9)
1.0
15.5
30.1
(17.3)
(1.0)
18.4
–
–
–
(2.2)
–
16.2
(0.7)
–
(0.4)
–
–
–
(1.1)
–
0.4
–
0.5
–
(0.2)
–
–
–
–
–
–
–
–
–
–
–
(17.8)
(17.8)
–
–
–
–
–
–
–
–
–
–
2.3
–
2.3
(10.6)
1.0
9.1
5.6
(17.3)
(1.0)
(13.2)
30.5
0.4
–
0.6
(17.8)
0.5
98.3
6.0
137.7
85.3
18.4
(18.3)
327.4
(8.9)
(38.8)
(64.2)
(38.9)
(17.8)
158.8
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
136 / 137
Year ended 31 March 2015
Fund management fee income
Other operating income
Gains on investments
Net interest income
Dividend income
Net fair value (loss)/gain on derivatives
Share of results of joint ventures
accounted for using equity method
Impairment
Staff costs
Incentive scheme costs
Other administrative expenses
Profit before tax
Internally
reported
£m
Reclass of
interest
to gains
£m
Consolidated
structured
entities
£m
Japan joint
venture
£m
EBT
settlement
£m
Total
adjustments
£m
Financial
statements
£m
95.8
4.5
111.6
118.4
16.6
(7.1)
339.8
–
(37.6)
(36.7)
(49.5)
(39.0)
177.0
–
–
14.5
(14.5)
–
–
–
–
–
–
–
–
–
(6.9)
1.8
12.0
15.2
(10.2)
9.8
21.7
–
–
–
–
(2.6)
19.1
(0.2)
–
(0.2)
–
–
–
(0.4)
(0.5)
–
0.3
–
0.9
0.3
–
–
–
–
–
–
–
–
–
(17.6)
–
(0.3)
(17.9)
(7.1)
1.8
26.3
0.7
(10.2)
9.8
21.3
(0.5)
–
(17.3)
–
(2.0)
1.5
88.7
6.3
137.9
119.1
6.4
2.7
361.1
(0.5)
(37.6)
(54.0)
(49.5)
(41.0)
178.5
EMPLOYEE BENEFIT TRUST
In the prior year the Group settled a claim for taxes in respect of the Employee Benefit Trust (EBT). Under the terms of the settlement the
participating employees met the income tax and employees’ national insurance (NI) payable on contributions to the EBT which were allocated
into dependent funds for their benefit. The Group settled the employer NI due together with other costs of the settlement including interest
on late paid tax, totalling £25.9m, with a further £3.6m accrual held on the balance sheet as at 31 March 2015. In the current year, £1.3m of this
accrual was utilised with the remaining £2.3m released to the income statement.
LONGBOW DEFERRED CONSIDERATION
On 1 October 2014, the Group acquired the remaining 49% of Longbow Real Estate Capital LLP, thereby giving it 100% of the equity of the
UK real estate debt specialist. Cash consideration of £14.0m was paid on acquisition with a further £23.9m recognised as the fair value of
contingent consideration. The contingent consideration arrangement is based on a multiple of adjusted net income as at 31 March 2016,
less the £14.0m paid to acquire the 49% equity holding.
The final deferred consideration amount has been calculated at £41.7m following the outstanding success of this business, thereby resulting
in a £17.8m increase to the original estimate. This has been recognised through the income statement.
ICG ANNUAL REPORT & ACCOUNTS 2016
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 MARCH 2016 CONTINUED
7. BUSINESS AND GEOGRAPHICAL SEGMENTS CONTINUED
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Internally
reported
£m
Reclass of
interest
to gains
£m
Consolidated
structured
entities
£m
Japan joint
venture
£m
Longbow
deferred
consideration
£m
EBT
settlement
£m
Total
adjustments
£m
Financial
statements
£m
2016
Non current financial assets
1,798.0
(2.9)
1,919.7
Other non current assets
Cash
Current financial assets
Other current assets
34.1
112.7
182.6
202.8
–
–
–
2.9
1.3
72.2
–
55.1
Total assets
2,330.2
–
2,048.3
Non current financial liabilities
Other non current liabilities
Current financial liabilities
Other current liabilities
Total liabilities
Equity
Total equity and liabilities
761.2
84.6
106.6
161.7
1,114.1
1,216.1
2,330.2
–
–
–
–
–
–
–
1,913.0
–
–
93.8
2,006.8
41.5
2,048.3
1.1
–
(2.4)
–
(1.0)
(2.3)
–
–
–
(2.3)
(2.3)
–
(2.3)
–
–
–
–
–
–
–
–
–
17.8
17.8
–
–
–
–
–
–
–
–
–
1,917.9
3,715.9
1.3
69.8
–
57.0
35.4
182.5
182.6
259.8
2,046.0
4,376.2
1,913.0
2,674.2
–
–
84.6
106.6
268.7
(2.3)
107.0
(2.3)
2,020.0
3,134.1
(17.8)
2.3
26.0
1,242.1
–
–
2,046.0
4,376.2
Non current financial assets
Other non current assets
Cash
Current financial assets
Other current assets
Total assets
Non current financial liabilities
Other non current liabilities
Current financial liabilities
Other current liabilities
Total liabilities
Equity
Total equity and liabilities
Internally
reported
£m
1,690.7
28.7
278.5
243.9
93.3
2,335.1
665.4
37.7
40.9
155.4
899.4
1,435.7
2,335.1
Reclass of
interest
to gains
£m
Consolidated
structured
entities
£m
(2.2)
1,291.8
−
−
−
2.2
−
−
−
−
−
−
−
−
0.3
115.3
−
58.8
1,466.2
1,373.4
(0.8)
−
70.8
1,443.4
22.8
1,466.2
2015
Japan joint
venture
£m
Total
adjustments
£m
Financial
statements
£m
1.1
−
(1.9)
−
(1.3)
(2.1)
−
0.3
−
(2.5)
(2.2)
0.1
(2.1)
1,290.7
2,981.4
0.3
113.4
−
59.7
29.0
391.9
243.9
153.0
1,464.1
3,799.2
1,373.4
2,038.8
(0.5)
−
68.3
37.2
40.9
223.7
1,441.2
2,340.6
22.9
1,464.1
1,458.6
3,799.2
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS
Interest, fees and dividends received
Interest paid
Net purchase of current financial assets
Purchase of loans and investments
Cash in from realisations
Other operating expenses
Net cash generated from/(used in) operating activities
Internally
reported
£m
256.3
(47.0)
(35.8)
Consolidated
structured
entities
£m
58.8
(48.3)
–
(247.1)
(1,131.2)
394.3
(144.2)
708.1
(2.3)
176.5
(414.9)
Net cash used in investing activities
(22.5)
(9.1)
Dividends paid
Net increase in long term borrowings
Net cash flow from derivatives
Purchase of own shares
Proceeds on issue of shares
Net cash from financing activities
(378.2)
131.1
(52.5)
(27.4)
3.4
–
364.9
12.0
–
–
(323.6)
376.9
138 / 139
2016
Financial
statements
£m
312.6
(95.3)
(35.8)
(1,378.3)
1,102.4
(145.1)
(239.5)
(31.6)
(378.2)
496.0
(40.5)
(27.4)
3.4
53.3
Japan joint
venture
£m
(2.5)
–
–
–
–
1.4
(1.1)
–
–
–
–
–
–
–
Net increase/(decrease) in cash
(169.6)
(47.1)
(1.1)
(217.8)
Cash and cash equivalent at beginning of period
FX impact on cash
Cash and cash equivalent at end of period
278.5
3.8
112.7
115.3
4.0
72.2
(1.9)
0.6
(2.4)
391.9
8.4
182.5
ICG ANNUAL REPORT & ACCOUNTS 2016
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 MARCH 2016 CONTINUED
7. BUSINESS AND GEOGRAPHICAL SEGMENTS CONTINUED
Interest, fees and dividends received
Interest paid
Net purchase of current financial assets
Purchase of loans and investments
Cash in from realisations
Other operating expenses
Net cash generated from/(used in) operating activities
Net cash used in investing activities
Dividends paid
Net increase in long term borrowings
Net cash flow from derivatives
Purchase of own shares
Proceeds on issue of shares
Net cash from financing activities
Internally
reported
£m
254.4
(33.8)
(126.4)
Consolidated
structured
entities
£m
45.7
(33.5)
−
(359.8)
(1,324.2)
505.6
(95.0)
145.0
(19.9)
(81.0)
110.8
135.4
(124.0)
1.0
42.2
782.7
(7.6)
(536.9)
−
−
481.8
17.5
−
−
499.3
Japan joint
venture
£m
(1.4)
−
−
−
−
(0.4)
(1.8)
−
−
−
−
−
−
−
2015
Financial
statements
£m
298.7
(67.3)
(126.4)
(1,684.0)
1,288.3
(103.0)
(393.7)
(19.9)
(81.0)
592.6
152.9
(124.0)
1.0
541.5
Net increase/(decrease) in cash
167.3
(37.6)
(1.8)
127.9
Cash and cash equivalent at beginning of period
FX impact on cash
Cash and cash equivalent at end of period
114.9
(3.7)
278.5
158.6
(5.7)
115.3
ANALYSIS OF NON CURRENT FINANCIAL ASSETS BY GEOGRAPHICAL SEGMENT
Europe
Asia Pacific
North America
−
(0.1)
(1.9)
2016
£m
273.5
(9.5)
391.9
2015
£m
1,897.6
1,868.8
177.2
1,641.1
3,715.9
166.4
946.2
2,981.4
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
GROUP REVENUE BY GEOGRAPHICAL SEGMENT
Europe
Asia Pacific
North America
8. FINANCE AND DIVIDEND INCOME AND FINANCE COSTS
GROUP FINANCE AND DIVIDEND INCOME
Interest income recognised under the amortised cost method
Interest income recognised under the FVTPL method in structured entities controlled by the Group
Dividend income from equity investments
Interest on bank deposits
Net fair value movements on derivatives
140 / 141
2015
£m
387.4
22.0
16.8
426.2
2015
£m
143.7
40.4
6.4
0.1
2.7
2016
£m
304.0
47.5
97.8
449.3
2016
£m
100.7
87.2
18.4
1.0
–
Interest income recognised under the amortised cost method includes £0.9m (2015: £1.0m) accrued on impaired loans.
207.3
193.3
GROUP FINANCE COSTS
Interest expense recognised under the amortised cost method
Interest expense recognised under FVTPL method in structured entities controlled by the Group
Net fair value movements on derivatives
Arrangement and commitment fees
2016
£m
34.6
57.7
18.3
11.3
121.9
9. GAINS AND LOSSES ARISING ON INVESTMENTS
GAINS AND LOSSES ARISING ON AFS FINANCIAL ASSETS RECOGNISED IN OTHER COMPREHENSIVE INCOME
Realised gains on ordinary shares recycled to profit
Impairments of AFS financial assets recycled to profit
Net gains recycled to profit
Gains and losses arising on AFS financial assets
– Fair value movement on equity instruments
– Fair value movement on other assets
Foreign exchange
Gains/(losses) arising in the AFS reserve in the year
Net movement in the AFS reserve in the year
2016
£m
(19.8)
1.8
(18.0)
38.4
1.4
2.8
42.6
24.6
2015
£m
29.3
25.2
–
10.6
65.1
2015
£m
(18.0)
1.9
(16.1)
(4.3)
1.5
(4.5)
(7.3)
(23.4)
ICG ANNUAL REPORT & ACCOUNTS 2016
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 MARCH 2016 CONTINUED
9. GAINS AND LOSSES ARISING ON INVESTMENTS CONTINUED
GAINS AND LOSSES ARISING ON INVESTMENTS RECOGNISED IN THE INCOME STATEMENT
Realised gains on warrants
Realised (losses)/gains on assets designated as FVTPL
Realised gains in structured entities controlled by the Group
Realised gains of AFS financial assets recycled from AFS reserves
Realised gains on other assets
Unrealised gains and losses on assets designated as FVTPL
– On equity instruments excluding those held within structured entities controlled by the Group
– On warrants
– In structured entities controlled by the Group
– On other assets
Unrealised gains and losses on liabilities designated as FVTPL
– In structured entities controlled by the Group
Realised gains and losses on liabilities designated as FVTPL
– In structured entities controlled by the Group
Fair value movements on FVTPL financial assets
Realised losses on amortised cost assets
Gains on investments
2016
£m
0.3
(1.0)
5.7
19.8
2.1
26.9
95.9
17.1
(81.8)
–
31.2
2015
£m
0.1
6.6
11.2
18.0
0.3
36.2
117.9
(1.9)
(1.7)
(0.9)
113.4
70.9
(7.4)
8.8
(4.0)
137.8
(0 1)
137.7
138.2
(0.3)
137.9
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
10. IMPAIRMENT OF ASSETS
IMPAIRMENT ON LOANS AND RECEIVABLES
New and increased
Write offs
Recoveries
Net impairment on loans and receivables
11. ADMINISTRATIVE EXPENSES
Administrative expenses include:
Staff costs
Amortisation and depreciation
Operating lease expenses
Auditor’s remuneration
142 / 143
2015
£m
51.1
2.4
(15.9)
37.6
2015
£m
103.5
3.1
4.4
1.3
2016
£m
10.3
2.0
(3.4)
8.9
2016
£m
103.0
4.3
4.9
1.3
Staff costs in the prior year include £17.6m of costs associated with the Employee Benefit Trust (EBT) settlement (see note 7).
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
Other non audit services not covered above
Total other non audit fees
Total auditor’s remuneration
2016
£m
2015
£m
0.5
0.4
0.9
0.1
0.1
0.2
–
0.3
1.3
0.5
0.4
0.9
0.1
0.1
0.1
0.1
0.3
1.3
Details of the Company’s policy on the use of auditors for non audit services, the reasons the auditor was used rather than another supplier
and how the auditor’s independence and objectivity was safeguarded are set out in the Audit Committee Report on page 51. No services were
provided pursuant to contingent fee arrangements.
ICG ANNUAL REPORT & ACCOUNTS 2016
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 MARCH 2016 CONTINUED
12. 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
2016
£m
2.6
95.1
5.1
2.8
103.0
2016
£m
130
118
3
251
2015
£m
3.1
78.1
23.4
2.0
103.5
2015
£m
120
103
3
226
The performance related element included in wages and salaries is £64.2m (2015: £49.5m) which is derived as a result of the annual bonus
scheme, Omnibus Scheme and the Balance Sheet Carry Scheme.
Social security costs in the prior year include £17.6m associated with the Employee Benefit Trust (EBT) settlement (see note 7).
13. TAX EXPENSE
Analysis of tax on ordinary activities
Current tax
Current year
Prior year adjustment to current tax – EBT settlement
Prior year adjustment to current tax – other
Deferred taxation
Current year
Prior year adjustment
Tax charge /(credit) on profit on ordinary activities
2016
£m
2015
£m
3.1
–
2.8
5.9
16.4
(2.1)
14.3
20.2
23.0
(38.2)
(14.7)
(29.9)
16.5
1.3
17.8
(12.1)
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
Profit on ordinary activities before tax
Profit before tax multiplied by the rate of corporation tax in the UK of 20% (2015: 21%)
Effects of:
Non deductible expenditure
Non taxable income
Overseas tax suffered
Current year risk provision charge/(credit) – current tax
Prior year adjustment to risk provision – deferred tax
Prior year adjustment to deferred tax
Changes in statutory tax rates
Overseas tax rates
Prior year adjustment to current tax – EBT settlement
Prior year adjustment to current tax – other
Current tax charge/(credit) for the year
144 / 145
2015
£m
178.5
37.5
9.9
(5.0)
–
2.9
(3.0)
4.3
(1.1)
(4.7)
(38.2)
(14.7)
(12.1)
2016
£m
158.8
31.8
4.7
(3.4)
0.6
–
–
(2.1)
(0.8)
(13.4)
–
2.8
20.2
The Group’s effective tax rate is lower than the standard rate of UK corporation tax of 20%. This reflects the mix of the Group’s balance sheet
investment returns in the year being weighted towards non UK sourced dividend income and capital gains rather than interest income.
As dividend income is exempt from UK corporation tax it has the impact of reducing the Group’s effective tax rate.
14. DIVIDENDS
Ordinary dividends paid
Final
Interim
Per share
pence
15.1
7.2
22.3
2016
£m
55.5
22.7
78.2
Per share
pence
14.4
6.9
21.3
2015
£m
55.5
25.5
81.0
The proposed final ordinary dividend for the year ended 31 March 2016 is 15.8 pence per share (2015: 15.1 pence per share), which will
amount to £49.8m (2015: £54.9m). In addition to the final ordinary dividend, the Directors recommend a special dividend of £200m, which will
amount to 63.4 pence per share.
Of the £78.2m (2015: £81.0m) of ordinary dividends paid during the year, £1.1m were reinvested under the dividend reinvestment plan that
was offered to shareholders (2015: £0.4m). In addition, a special dividend of £300m was paid in July 2015, which amounted to 82.6 pence
per share.
ICG ANNUAL REPORT & ACCOUNTS 2016
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 MARCH 2016 CONTINUED
15. 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
2016
£m
2015
£m
138.6
189.3
2016
2015
Weighted average number of ordinary shares for the purposes of basic earnings per share
330,685,568
376,175,974
Effect of dilutive potential ordinary shares share options
42,077
37,402
Weighted average number of ordinary shares for the purposes of diluted earnings per share
330,727,645
376,213,376
Earnings per share (EPS)
Diluted earnings per share
16. INTANGIBLE ASSETS
Group
Cost
At 1 April
Additions
At 31 March
Amortisation and impairment losses
At 1 April
Charge for the year
At 31 March
41.9p
41.9p
50.3p
50.3p
2016
£m
4.3
–
4.3
–
–
–
Goodwill
2015
£m
4.3
–
4.3
–
–
–
Investment
Management
Contract
2015
£m
5.1
2.1
7.2
3.7
1.0
4.7
2016
£m
7.2
18.3
25.5
4.7
1.5
6.2
2016
£m
11.5
18.3
29.8
4.7
1.5
6.2
Total
2015
£m
9.4
2.1
11.5
3.7
1.0
4.7
6.8
Net book value at 31 March
4.3
4.3
19.3
2.5
23.6
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
Company
Cost
At 1 April
Additions
At 31 March
Amortisation and impairment losses
At 1 April
Charge for the year
At 31 March
Net book value at 31 March
146 / 147
Investment
Management
Contract
2015
£m
–
1.6
1.6
–
0.2
0.2
1.4
2016
£m
1.6
18.3
19.9
0.2
0.6
0.8
19.1
In December 2010, the Group acquired a 51% equity interest in Longbow Real Estate Capital LLP for a consideration of £4.3m. There were
no identifiable assets or liabilities acquired, resulting in goodwill of £4.3m. This is assessed annually for impairment. Also in December 2010,
Intermediate Capital Managers Limited, a subsidiary company, paid €5.9m (£5.1m) to acquire an investment management contract from
Resource Europe which is now fully amortised.
In May 2014, Intermediate Capital Managers Limited paid £0.6m to acquire an investment management contract from Credos Capital
Management LLP to support its Alternative Credit strategy. This was followed, in December 2014 by Intermediate Capital Group plc paying
$2.5m (£1.6m) to acquire an investment management contract from Newglobe Capital Partners LLP to support its PE Secondaries strategy.
In February 2016, the Group purchased an investment management contract from Graphite Capital Management LLP for a consideration of
£18.3m. The management contract relates to the Graphite Enterprise Trust, now renamed the ICG Enterprise Trust which has been listed on
the LSE since 1981 and has been managed by Graphite for this entire period. The entire investment team and two further finance professionals
have joined ICG in addition to the management contract. The Directors have assessed the useful economic life as eight years.
Amortisation is charged to the Statement of Comprehensive Income, included in administrative expenses, on a straight-line basis over the
estimated useful life of the fund management contract, typically three to eight years.
ICG ANNUAL REPORT & ACCOUNTS 2016
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 MARCH 2016 CONTINUED
17. 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
2016
£m
18.3
4.0
–
22.3
12.7
2.5
–
15.2
7.1
5.6
0.3
5.9
4.6
0.3
4.9
1.0
8.1
Group
2015
£m
14.7
3.7
(0.1)
18.3
11.1
1.7
(0.1)
12.7
5.6
5.5
0.1
5.6
4.2
0.4
4.6
1.0
6.6
2016
£m
16.3
3.3
–
19.6
11.4
2.0
–
13.4
6.2
4.3
–
4.3
3.9
0.2
4.1
0.2
6.4
Company
2015
£m
12.8
3.5
–
16.3
9.8
1.6
–
11.4
4.9
4.2
0.1
4.3
3.5
0.4
3.9
0.4
5.3
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
18. NON CONTROLLING INTERESTS
The Group has consolidated the following companies which have non controlling interests:
LREC Partners Investments No.2 Ltd
US CLO 2014-2
US CLO 2014-3
US CLO 2015-1
US CLO 2015-2
St Paul's CLO II
St Paul's CLO III
ICG European Loan Fund
ICG High Yield Bond Fund
At 31 March
Profit retained for the year
Non controlling interests recycled to retained earnings
19. 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
Associates designated as FVTPL
Investments in equity accounted joint ventures
Derivative financial instruments held at fair value – warrants
%
41%
44%
49%
50%
43%
66%
51%
–
14%
2016
£m
0.3
–
–
–
–
–
–
–
0.6
0.9
2016
£m
445.4
–
159.4
2,457.2
633.0
1.1
19.8
Group
2015
£m
625.1
–
158.3
1,715.6
467.5
1.1
13.8
%
41%
44%
49%
–
–
66%
51%
10%
13%
2016
£m
–
(1.3)
(1.3)
2016
£m
304.5
721.0
27.8
351.7
–
–
7.4
148 / 149
2015
£m
0.3
–
–
–
–
1.3
0.6
2.2
2015
£m
1.3
(0.5)
0.8
Company
2015
£m
404.0
612.6
50.6
313.5
–
–
8.4
Other derivative financial instruments held at fair value
3.3
15.6
2.0
15.3
3,719.2
2,997.0
1,414.4
1,404.4
Included within associates designated as FVTPL are £508.3m (2015: £355.5m) relating to the Group’s 20% investment in ICG Europe Fund V
Limited, ICG North America Private Debt Fund and ICG Asia Pacific Fund III, and 16.67% investment in ICG Europe Fund VI Limited.
Included within financial assets designated as FVTPL is £94.6m (2015: £57.4m) related to the Group’s joint venture investments in Parkeon
and Via Location and £2,092.7m (2015: £1,499.1m) relating to the structured entities controlled by the Group.
3,715.9
2,981.4
1,412.4
1,389.1
ICG ANNUAL REPORT & ACCOUNTS 2016
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 MARCH 2016 CONTINUED
19. FINANCIAL ASSETS – NON CURRENT CONTINUED
The movement in AFS financial assets during the year is set out below:
AFS financial assets
Balance at 1 April
Realised gains recycled to the income statement
Unrealised (losses)/gains
Purchases
Realisations
Impairments
Foreign exchange
Balance at 31 March
20. TRADE AND OTHER RECEIVABLES
Other receivables
Amount owed by Group companies
Prepayments
21. FINANCIAL ASSETS – CURRENT
Loans and investments held for sale
Other derivative financial instruments held at fair value
2016
£m
158.3
(19.8)
40.5
0.4
(25.5)
(1.8)
7.3
159.4
2016
£m
196.9
–
19.5
216.4
2016
£m
182.6
28.3
210.9
Group
2015
£m
208.0
(18.0)
(3.0)
2.0
(19.6)
(1.9)
(9.2)
158.3
Group
2015
£m
108.5
–
19.3
127.8
Group
2015
£m
243.9
11.3
255.2
2016
£m
50.6
(6.1)
5.8
0.2
(24.1)
–
1.4
27.8
2016
£m
48.3
575.0
6.7
630.0
2016
£m
182.6
28.3
210.9
Company
2015
£m
51.4
(2.1)
6.2
2.0
(0.7)
–
(6.2)
50.6
Company
2015
£m
28.3
469.5
5.9
503.7
Company
2015
£m
169.4
10.7
180.1
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
22. CALLED UP SHARE CAPITAL AND OWN SHARES RESERVE
Group and Company
Allotted, called up and fully paid
150 / 151
2016
£m
2015
£m
330,310,239 ordinary shares of 23⅓p (2015: 402,804,840 ordinary shares of 20p)
77.0
80.6
The own share reserve represents the cost of shares in ICG plc purchased in the market and held by the EBT to hedge future liabilities arising
under long term incentive plans and includes 4,200,000 shares purchased by ICG plc through share buy backs. The movement in the year is
as follows:
Group
At 1 April
Purchased
Options/awards exercised
Cancellation of treasury shares
Share consolidation
As at 31 March
2016
£m
162.0
24.7
(30.4)
(79.3)
–
77.0
2015
£m
2016
Number
2015
Number
62.4
39,586,992
17,455,342
126.0
4,209,858
29,402,938
(26.4)
(8,033,081)
(7,271,288)
–
–
(18,241,423)
(2,511,618)
–
–
162.0
15,010,728
39,586,992
The number of shares held by the Group at the balance sheet date represented 4.5% (2015: 9.8%) of the parent company’s allotted, called up
and fully paid share capital.
Reconciliation of total number of shares allotted, called up and in issue
As at 1 April 2015
Purchased
Options/awards exercised
Cancellation of treasury shares
Options/awards exercised
Share consolidation
Options/awards exercised
As at 31 March 2016
Total number of
shares allotted,
called up and in
issue
Number of
shares in
own share
reserve
402,804,840
39,586,992
–
4,209,858
619,303
(7,974,109)
403,424,143
35,822,741
(18,241,423)
(18,241,423)
385,182,720
17,581,318
53,767
–
385,236,487
17,581,318
(55,033,784)
(2,511,618)
330,202,703
15,069,700
107,536
(58,972)
330,310,239
15,010,728
On 23 July 2015, the Company undertook a share consolidation issuing six new ordinary shares at 23⅓ pence each for each holding of seven
existing ordinary shares of 20 pence each, reducing shares in issue to 330,202,703.
ICG ANNUAL REPORT & ACCOUNTS 2016
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 MARCH 2016 CONTINUED
23. PROVISIONS
Group and Company
At 1 April 2015
Utilisation of provision
Unwinding of discount
As at 31 March 2016
The provisions are expected to mature in the following time periods:
Group and Company
Less than one year
One to five years
As at 31 March
Onerous
lease
£m
3.2
(0.6)
0.1
2.7
2015
£m
0.6
2.6
3.2
2016
£m
0.7
2.0
2.7
The Group holds onerous lease provisions of £2.7m (2015: £3.2m) 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.
24. FINANCIAL LIABILITIES
Group
Liabilities held at amortised cost:
– Private placements
– Listed notes and bonds
– Unsecured bank debt
– Secured bank debt
– Floating rate secured notes
Liabilities held at FVTPL:
– Structured entities controlled by the Group
2016
2015
Current
£m
Non current
£m
Current
£m
Non current
£m
82.6
–
24.0
–
–
–
106.6
398.7
330.5
32.0
–
–
1,913.0
2,674.2
15.1
–
–
25.8
–
–
40.9
286.5
325.1
19.9
–
33.9
1,373.4
2,038.8
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
152 / 153
2016
2015
Current
£m
Non current
£m
Current
£m
Non current
£m
Company
Liabilities held at amortised cost:
– Private placements
– Listed notes and bonds
– Unsecured bank debt
25. TRADE AND OTHER PAYABLES
Trade payables
Accruals
Amounts owed to Group companies
Social security tax
82.6
–
24.0
106.6
2016
£m
1.0
398.7
330.5
32.0
761.2
Group
2015
£m
3.3
231.3
198.5
–
1.1
–
7.0
233.4
208.8
15.1
–
–
15.1
2016
£m
2.1
78.5
208.0
0.9
289.5
Included within accruals are £91.8m (2015: £71.1m) relating to structured entities controlled by the Group and £41.7m (2015: £23.9m)
deferred consideration recognised on the acquisition of the remaining 49% interest in Longbow Real Estate Capital.
26. DEFERRED TAX
Group
At 31 March 2014
Prior year adjustment
Prior year adjustment – rate change
Credit to equity
(Credit)/charge to income
At 31 March 2015
Prior year adjustment
Prior year adjustment – rate change
Credit to equity
(Credit)/charge to income
At 31 March 2016
Other
derivatives
£m
Warrants and
investments
£m
9.8
–
(0.5)
–
(1.0)
8.3
–
(0.3)
–
(3.0)
5.0
20.3
(3.0)
(0.7)
(4.9)
11.2
22.9
(0.9)
(0.7)
5.2
8.6
35.1
Remuneration
deductible
as paid
£m
(18.7)
5.7
0.9
–
0.1
(12.0)
(0.3)
0.5
(2.8)
5.6
(9.0)
Other
temporary
differences
£m
9.6
(0.2)
(0.9)
–
6.2
14.7
0.1
(0.5)
–
5.2
19.5
286.5
325.1
19.9
631.5
Company
2015
£m
2.6
83.4
196.9
6.8
289.7
Total
£m
21.0
2.5
(1.2)
(4.9)
16.5
33.9
(1.1)
(1.0)
2.4
16.4
50.6
ICG ANNUAL REPORT & ACCOUNTS 2016
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 MARCH 2016 CONTINUED
26. DEFERRED TAX CONTINUED
Company
At 31 March 2014
Prior year adjustment
Prior year adjustment – rate change
Credit to equity
(Credit)/charge to income
At 31 March 2015
Prior year adjustment
Prior year adjustment – rate change
Credit to equity
(Credit)/charge to income
At 31 March 2016
Other
derivatives
£m
Warrants and
investments
£m
9.8
–
(0.5)
–
(1.0)
8.3
–
(0.3)
–
(3.0)
5.0
1.0
(3.0)
(0.1)
0.5
8.0
6.4
(0.1)
(0.3)
–
2.4
8.4
Remuneration
deductible
as paid
£m
(10.2)
2.9
0.5
–
0.3
(6.5)
(0.3)
0.3
(2.8)
4.4
(4.9)
Other
temporary
differences
£m
2.6
(0.1)
–
–
0.1
2.6
–
–
–
(1.3)
1.3
Total
£m
3.2
(0.2)
(0.1)
0.5
7.4
10.8
(0.4)
(0.3)
(2.8)
2.5
9.8
Deferred tax has been accounted for at the substantively enacted corporation tax rate of 19% (2015: 20%).
As at 31 March 2015 the value of losses unrecognised for deferred tax is nil.
27. SHARE BASED PAYMENTS
All share based payment transactions are equity settled. The total charge to the income statement for the year was £17.3m (2015: £16.3m) and
this was credited to the share based payments reserve in equity.
INTERMEDIATE CAPITAL GROUP PLC 2001 APPROVED AND UNAPPROVED EXECUTIVE SHARE OPTION SCHEME
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
Of which are currently exercisable
The weighted average remaining contractual life is 1.00 years (2015: 1.68 years).
2016
Number
2015
1,161,722
2,003,945
(88,471)
(344,156)
(750,187)
(498,067)
323,064
1,161,722
323,064
843,521
Weighted average
exercise price (£)
2016
4.57
4.10
4.38
5.15
5.15
2015
4.44
4.71
3.97
4.57
4.18
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
154 / 155
2016
Number
30,173
25,601
2015
Number
169,291
25,601
181,439
181,439
16,929
68,922
560,158
136,762
–
88,471
323,064
1,161,722
Exercise price
£2.230
£2.947
£6.008
£4.844
£5.048
£4.101
INTERMEDIATE CAPITAL GROUP PLC OMNIBUS PLAN
Details of all the different types of awards under the Omnibus Plan are provided in the Remuneration Committee report on pages 69 to 93.
Share awards outstanding under the Omnibus Plan were as follows:
Deferred Share Awards
Outstanding at 1 April
Granted
Vested
Forfeited
Share consolidation reduction
Outstanding at 31 March
PLC Equity Awards
Outstanding at 1 April
Granted
Vested
Share consolidation reduction
Outstanding at 31 March
FMC Equity Awards
Outstanding at 1 April
Granted
Vesting
Forfeited
Outstanding at 31 March
2016
Number
2015
1,057,780
736,279
734,024
830,887
(456,020)
(393,491)
(4,908)
(115,895)
(190,827)
–
1,140,049
1,057,780
2016
Number
2015
6,672,897
6,463,717
1,335,214
1,890,661
(2,272,098)
(1,681,481)
(819,433)
–
4,916,580
6,672,897
Weighted average
fair value (£)
2015
3.56
4.38
3.26
3.74
–
4.20
Weighted average
fair value (£)
2015
2.92
4.38
2.90
–
3.34
2016
4.20
5.47
3.92
5.35
4.99
4.99
2016
3.34
5.47
2.74
4.07
4.07
2016
83,989
26,996
Number
2015
98,337
33,745
(38,627)
(35,277)
(3,276)
(12,816)
69,082
83,989
Weighted average
fair value (£)
2016
2015
284.00
425.00
246.00
313.00
360.00
279.00
325.00
245.00
292.00
284.00
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.
ICG ANNUAL REPORT & ACCOUNTS 2016
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 MARCH 2016 CONTINUED
28. FINANCIAL COMMITMENTS
At the balance sheet date, the Company had outstanding commitments which can be called on over the next five years, as follows:
ICG Senior Debt Partners
ICG Europe Fund V
ICG Europe Fund VI
ICG North American Private Debt Fund
ICG Asia Pacific Fund III
Nomura ICG Investment Business Limited Partnership A
ICG Senior Debt Partners II
ICG Carbon Funding Limited (PE Secondaries)
ICG-Longbow UK Real Estate Debt Investments IV
Longbow Development Fund
29. OPERATING LEASES
2016
£m
10.3
48.7
356.4
92.9
99.2
50.7
16.7
152.9
17.0
6.5
851.3
2015
£m
13.1
63.3
360.2
103.9
103.8
33.1
18.0
15.7
48.6
12.5
772.2
At the balance sheet date, the Group and Parent Company had outstanding commitments for future minimum lease payments under non
cancellable operating leases, falling due as follows:
Within one year
Two to five years
After five years
30. RELATED PARTY TRANSACTIONS
2016
£m
5.2
18.1
3.3
Group
2015
£m
4.5
13.9
4.0
2016
£m
2.4
9.7
0.6
Company
2015
£m
2.2
8.9
2.2
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 18, 20 and 25.
Aggregated significant transactions with subsidiary undertakings related to dividends received of £192.9m (2015: £51.3m).
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 Directors’ remuneration report.
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
156 / 157
31. SUBSIDIARIES
The Group consists of a parent company, ICG plc, incorporated in the UK and a number of subsidiaries held directly or indirectly by ICG plc,
which operate and are incorporated around the world. The subsidiary undertakings of the Group are shown below.
All are wholly owned, except where stated.
Name
Country of incorporation
Principal activity
Intermediate Capital Investments Limited
Intermediate Capital Managers Limited
Intermediate Finance II PLC
JOG Partners Limited*
Intermediate Investments LLP
Intermediate Investments Jersey Limited
Intermediate Capital Asia Pacific Limited
Intermediate Capital Group SAS
Intermediate Capital Group Espana SL
Intermediate Capital Nordic AB
Intermediate Capital Group Beratungsgesellschaft GmbH
Intermediate Capital Group Benelux B.V.
Intermediate Capital Australia Pty Limited
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Jersey
Hong Kong
France
Spain
Sweden
Germany
Netherlands
Australia
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
Intermediate Capital Group Inc
United States of America
Advisory company
Intermediate Capital Group (Singapore) Pte. Limited
Singapore
ICG FMC Limited
England and Wales
Advisory company
Holding company for
funds management
Longbow Real Estate Capital LLP
ICG Global Investment Jersey Limited
ICG Fund Advisors LLC
ICG Debt Advisors LLC
England and Wales
Advisory company
Jersey
Investment company
United States of America
Advisory company
United States of America
Advisory company
ICG Alternative Investment Limited
England and Wales
Advisory company
Intermediate Capital Group Dienstleistungsgesellschaft mbH
Germany
Service company
Intermediate Capital Limited
United Kingdom
Intermediate Capital GP 2003 Limited
Intermediate Capital GP 2003 No.1 Limited
Intermediate Capital Asia Pacific Mezzanine 2005 GP Limited
Jersey
Jersey
Jersey
Intermediate Capital Asia Pacific Mezzanine Opportunities 2005 GP Limited Jersey
ICG European Fund 2006 GP Limited
Intermediate Capital Asia Pacific 2008 GP Limited
ICG Recovery Fund 2008 GP Limited
ICG Minority Partners Fund 2008 GP Limited
LREC Partners Investments No.2 Limited
ICG Global Investment UK Limited
ICG Europe Fund V GP Limited
Intermediate Capital Managers (Australia) Pty Limited
Jersey
Jersey
Jersey
Jersey
United Kingdom
United Kingdom
Jersey
Australia
General partner
General partner
General partner
General partner
General partner
General partner
General partner
General partner
General partner
Real estate investment company
Holding company
General partner
Advisory company
ICG North America Associates LLC
United States of America
General partner
ICG ANNUAL REPORT & ACCOUNTS 2016
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 MARCH 2016 CONTINUED
31. SUBSIDIARIES CONTINUED
Name
ICG Japan KK
Intermediate Capital Group Korea Limited
ICG ASFL Limited
ICG Senior Debt Partners UK GP Limited
ICG Carbon Funding Limited
ICG Longbow Development (Brighton) Limited
ICG Japan (Funding) Limited
ICG Asia Pacific Fund III GP Limited
ICG Alternative Credit (Luxembourg) GP Sarl
Country of incorporation
Principal activity
Japan
Republic of Korea
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Jersey
Luxembourg
Advisory company
Advisory company
Advisory company
General partner
Investment company
Holding company
Holding company
General partner
General partner
ICG Alternative Credit LLC
United States of America
Advisory company
ICG Alternative Credit (Cayman) GP Limited
ICG Senior Debt Partners Sarl
ICG Japan (Funding 2) Limited
Nomura ICG KK
ICG-Longbow Investment 3 LLP
Cayman Islands
Luxembourg
United Kingdom
Japan
General partner
General partner
Holding company
Joint venture
United Kingdom
Limited liability partnership
ICG Strategic Secondaries Advisors LLC
United States of America
Advisory company
ICG Strategic Secondaries Carbon Associates LLC
United States of America
General partner
ICG European Fund 2006 B GP Limited
Jersey
General partner
ICG Debt Administration LLC
ICG – Longbow B Investments LP
Intermediate Investments Guarantee Limited
ICG Japan (Funding 3) Limited
ICG Re Holding (Germany) GmbH
ICG Longbow IV GP Sarl
ICG Europe Fund VI GP Limited
United States of America
Service company
United Kingdom
United Kingdom
Limited partner
Holding company for loans
and investments
United Kingdom
Special purpose vehicle
Germany
United Kingdom
Jersey
Special purpose vehicle
General partner
General partner
ICG Strategic Secondaries Associates LLC
United States of America
General partner
ICG Total Credit (Global) GP Sarl
ICG Longbow Development GP LLP
ICG Nominees 2015 Limited
ICG Financing (Luxembourg) Sarl
ICG Financing (Ireland) Limited
ICG Enterprise Co-Investment GP Limited
Intermediate Capital Nominees Limited
Intermediate Capital Hong Kong Limited
ICG Alternative Investment (Netherlands) B.V.
ICG Europe Fund VI Lux GP Sarl
Luxembourg
United Kingdom
United Kingdom
Luxembourg
Ireland
United Kingdom
United Kingdom
Hong Kong
Netherlands
Luxembourg
General partner
General partner
Nominee company
Special purpose vehicle
Special purpose vehicle
General partner
Nominee company
Advisory company/provider
of mezzanine capital
Advisory company
General partner
ICG Velocity Co-Investor Associates LLC
United States of America
General partner
ICG NA Debt Co-Invest Limited
United Kingdom
Investment company
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
158 / 159
Name
Country of incorporation
Principal activity
ICG Asia Pacific III Scotland GP Limited
ICG Asia Pacific III Scotland General Partner LLP
ICG EFV MLP Limited
ICG EFV MLP GP Limited
ICG Senior Debt Partners Performance GP Limited
ICG EF 2006 EGP Limited
ICG EF 2006 EGP 2 Limited
ICG RF 2008 EGP Limited
ICG MF 2003 No. 1 EGP 1 Limited
ICG MF 2003 No. 1 EGP 2 Limited
ICG MF 2003 No. 3 EGP 1 Limited
ICG MF 2003 No. 3 EGP 2 Limited
United Kingdom
United Kingdom
Jersey
United Kingdom
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
General partner
General partner
General partner
General partner
General partner
General partner
General partner
General partner
General partner
General partner
General partner
General partner
ICG Strategic Secondaries Associates II LLC
United States of America
General partner
Intermediate Capital Inc
Intermediate Finance Inc
Intermediate Finance Limited
Mezzanine Finance (Guernsey) Limited
ICG America Capital Limited
Intermediate Finance Guarantee Limited
ICG Mezzanine 2003 No 1 Nominee Limited
ICG Mezzanine 2003 No 3 Nominee Limited
ICG Minority Partners Limited
United States of America
Dormant company
United States of America
Dormant company
United Kingdom
Guernsey
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
All companies listed above have a reporting date of 31 March, with the exception of the entities incorporated in the United States of America which have a 31 December
reporting date.
* JOG Partners Limited is a member of Intermediate Investments LLP
When assessing whether ICG controls any structured entities (funds) it is necessary to determine whether ICG acts in the capacity of principal
or agent for the third party investor. An agent is a party primarily engaged to act on behalf and for the benefit of another party or parties,
whereas a principal is primarily engaged to act for its own benefit. This is determined with reference to decision making authority, rights held
by other parties, remuneration and exposure to returns.
ICG ANNUAL REPORT & ACCOUNTS 2016
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 MARCH 2016 CONTINUED
31. SUBSIDIARIES CONTINUED
The table below shows details of structured entities that the Group is deemed to control:
Name of subsidiary
US CLO 2014-1
US CLO 2014-2
US CLO 2014-3
US CLO 2015-1
US CLO 2015-2
St Paul’s CLO II (i)
St Paul’s CLO III (ii)
ICG High Yield Bond Fund
ICG Global Total Credit Fund
Country of incorporation
United States of America
United States of America
United States of America
United States of America
United States of America
Ireland
Ireland
Ireland
Ireland
% of ownership interests
and voting rights
2016
100.00%
56.00%
51.30%
50.30%
57.50%
33.90%
49.40%
85.82%
100.00%
(i)/(ii) The Capital Requirements Directive requires the originator of any securitisation transaction to hold a minimum 5% of the net economic
exposure of the transaction. ICG holds (i) 33.9% of St Paul’s CLO II and (ii) 49.4% of St Paul’s CLO III and is the largest individual shareholder
of both CLOs. The kick out rights of third party shareholders are protective in nature as they result from a breach of contract, and therefore
not indicative of an agent relationship. ICG is also the collateral manager and as a result management has concluded that as ICG acting
as principal.
The Group redeemed its investment in the ICG European Loan Fund during the year and thereby no longer controls this entity.
There are no significant restrictions on the ability of the group to access or use assets and settle liabilities of its subsidiary holdings, with the
exception of the structured entities controlled by the Group.
ICG has not provided contractual or non-contractual financial or other support to a consolidated structured entity during the period.
It is not the current intention to provide such support, including the intention to assist the structured entity in obtaining financial support.
32. ASSOCIATES AND JOINT VENTURES
ICG’s investment strategy is to invest across a range of funds and investments. In assessing whether ICG controls any individual fund it is
necessary to determine whether ICG acts in the capacity of principal or agent for the third party investors. An agent is a party primarily
engaged to act on behalf and for the benefit of another party or parties, whereas a principal is primarily engaged to act for its own benefit.
This is determined with reference to decision making authority, rights held by other parties, remuneration and exposure to returns.
As such, depending on the fundraising or investment in a company’s capital structure, ICG could end up with significant influence and such
entities would be considered either associates or joint ventures.
The nature of some of the activities of ICG plc’s associates and joint ventures are investment related which are seen as complementing the
Group’s operations and contributing to achieving the Group’s overall strategy. The remaining associates and joint ventures are portfolio
companies not involved in investment activities.
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
DETAILS OF ASSOCIATES AND JOINT VENTURES
Details of each of the Group’s associates at the end of the reporting period are as follows:
Name of Associate
Principal activity
Country of incorporation
Longbow UK Real Estate Debt Investment II
Real estate fund
England and Wales
Gerflor Group (i)
Interbest Holding BV
Manufacturer of PVC flooring
France
Roadside advertising masts
Netherlands
ICG Total Credit Fund (ii)
Credit fund
ICG Europe Fund V Jersey Limited (iii)
Investment company
ICG Europe Fund VI Jersey Limited (iv)
Investment company
Ireland
Jersey
Jersey
ICG North American Private Debt Fund (v)
Investment company
United States of America
ICG Asia Pacific Fund III Singapore Pte. Limited (vi)
Investment company
Singapore
160 / 161
Proportion of ownership
interest/voting rights
held by the Group
2016
20.00%
11.76%
31.26%
39.67%
20.00%
16.67%
20.00%
20.00%
All associates are accounted for at fair value in accordance with the Group’s accounting policy as outlined in note 3 to the financial statements.
Notes
(i)
11.76% represents ICG’s holding in ordinary shares in Gerflor Group. One ICG employee is appointed to the four member supervisory
board of Gerflor on behalf of the Group and third party funds and therefore ICG has the power to participate in the financial and
operating decisions of the Company.
(ii) The fund manager can be removed without cause by only three investors who together hold more than 55% of the issued units.
Although this would indicate an agent relationship, as ICG has a 39.7% interest in this entity it has been considered an associate.
(iii) Through a co-investment structure ICG has a 20% shareholding in ICG Europe Fund V Jersey Limited. ICG appoints the General Partner
(GP) to the fund however the investors have substantive rights to remove the General Partner without cause by Special Investor Consent,
which would only require 24% of investors. The Fund also has an Advisory Council, nominated by the investors, whose function is to
ensure that the General Partner is acting in the interest of investors. The Advisory Council could influence investors to invoke Special
Investor Consent and remove the GP, and as such ICG acts in the capacity of agent. However as ICG has a 20% holding and therefore
significant influence in this entity it has been considered an associate.
(iv) Through a co-investment structure ICG has a 16.67% shareholding in ICG Europe Fund VI Jersey Limited. ICG appoints the General
Partner (GP) to the fund however the investors have rights to remove the General Partner without cause by Special Investor Consent,
which would only require 34% of investors once the fund completes its fundraising. The Fund also has an Advisory Council, nominated by
the investors, whose function is to ensure that the General Partner is acting in the interest of investors. The Advisory Council could
influence investors to invoke Special Investor Consent and remove the GP, and as such ICG acts in the capacity of agent. However as ICG
has a 16.67% holding and therefore significant influence in this entity it has been considered an associate.
(v) Through a co-investment structure ICG has a 20% shareholding in ICG North American Private Debt Fund. ICG appoints the General
Partner (GP) to the fund however the investors have rights to remove the General Partner without cause by 80% Combined Limited
Partner Consent, which would only require 34% of investors once the fund completes its fundraising. The Fund also has an Advisory
Council, nominated by the investors, whose function is to ensure that the General Partner is acting in the interest of investors.
The Advisory Council could influence investors to invoke Combined Limited Partner Consent and remove the GP, and as such ICG acts in
the capacity of agent. However as ICG has a 20% holding and therefore significant influence in this entity it has been considered
an associate.
(vi) Through a co-investment structure ICG has a 20% shareholding in ICG Asia Pacific Fund III Singapore Pte. Limited. ICG appoints the
General Partner (GP) to the fund however the investors have rights to remove the General Partner without cause by Special Investor
Consent, which would only require four investors once the fund completes its fundraising. The Fund also has an Advisory Council,
nominated by the investors, whose function is to ensure that the General Partner is acting in the interest of investors. The Advisory
Council could influence investors to invoke Special Investor Consent and remove the GP, and as such ICG acts in the capacity of agent.
However as ICG has a 20% holding and therefore significant influence in this entity it has been considered an associate.
During the year ICG Group received income distributions of £10.0m (2015: £18.6m) via the four co-investment structures above.
ICG ANNUAL REPORT & ACCOUNTS 2016
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 MARCH 2016 CONTINUED
32. ASSOCIATES AND JOINT VENTURES CONTINUED
The Group’s investment in Gaucho has been sold during the year. There were no other changes in the Group’s ownership interests in
an associate.
Details of each of the Group’s joint ventures at the end of the reporting period are as follows:
Name of Joint Venture
Principal activity
Country of incorporation
Nomura ICG KK
Parkeon (vii)
Via Location (viii)
Viadom
Advisory company
Japan
Parking and transport ticketing solutions
France
Truck rental company
Home services
France
France
Proportion of ownership
interest/voting rights
held by the Group
2016
50.00%
52.60%
58.40%
50.00%
Nomura ICG KK is equity accounted as a joint venture in accordance with IFRS 11. Parkeon, Via Location and Viadom are accounted for at fair
value in accordance with the Group’s accounting policy in note 3 to the financial statements. ICG’s policy is to fair value investments in a
portfolio company on a consistent basis with all other portfolio assets regardless of their classification in the financial statements. Nomura ICG
KK is not a portfolio company and was established to operate the Group’s core business of fund management activities in Japan.
Management therefore consider it more appropriate to equity account for this entity in the financial statements.
(vii) Although ICG holds 52.60% of the ordinary shares it does not solely control Parkeon. The management company of the group is jointly
controlled by one of the ICG mezzanine funds, which ICG does not control, and therefore ICG is unable to execute any decision without
the consent of this entity. ICG sold its entire holding in Parkeon following the balance sheet date.
(viii) Although ICG holds 58.40% of the ordinary shares it does not solely control Via Location as control of the company is via the Supervisory
Board and this control is jointly held with one of the ICG mezzanine funds, which ICG does not control.
SIGNIFICANT RESTRICTION
There are no significant restrictions on the ability of associates and joint ventures to transfer funds to the Group other than having sufficient
distributable reserves.
SUMMARISED FINANCIAL INFORMATION FOR ASSOCIATES MATERIAL TO THE REPORTING ENTITY
The Group’s only material associate or joint venture is ICG Europe Fund V Jersey Limited, which is an associate. The information below is
derived from the IFRS financial statements of the entity. Materiality has been determined by the carrying value of the associate or joint venture
as a percentage of total Group assets.
ICG Fund V Jersey Limited
Current assets
Non current assets
Current liabilities
Non current liabilities
Revenue
Profit from continuing operations
Total comprehensive income
2016
£m
0.2
2015
£m
0.2
2,083.0
1,714.6
–
–
(0.1)
–
2,083.2
1,714.7
90.9
90.6
90.6
309.1
308.8
308.8
SUMMARISED FINANCIAL INFORMATION FOR EQUITY ACCOUNTED JOINT VENTURES
Nomura ICG KK’s made neither a profit nor a loss from continuing operations and total comprehensive expense for the year ending
31 March 2016.
STR ATEGIC
REPORT
GOVERNANCE
REPORT
FINANCIAL
STATEMENTS
162 / 163
33. UNCONSOLIDATED STRUCTURED ENTITIES
A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls
the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual
arrangements. ICG has determined that where ICG holds an investment, loan, fee receivable, guarantee or commitment with an investment
fund, CLO or CDO, that this represents an interest in a structured entity. ICG does not have any exposure to loans, guarantees or commitments.
Where ICG does not hold an investment in the structured entity, management has determined that the characteristics of control are not met.
ICG acts in accordance within pre-defined parameters set out in various agreements and the decision making authority is well defined,
including third party rights in respect of the investment manager. These agreements include management fees that are commensurate with the
services provided and performance fee arrangements that are industry standard. As such ICG is acting as agent on behalf of these investors
and therefore these entities are not consolidated into ICG’s results. Consolidated structured entities are detailed in note 31.
ICG’s interest in and exposure to unconsolidated structured entities is detailed in the table below, and recognised within financial assets:
loans, investments and warrants in the statement of financial position:
Funds
CLOs
Credit Funds
Mezzanine &
Equity Funds
Real Estate Funds
Total
Investment
in Fund
£m
Management
fees
receivable
£m
Management
fees
%
Performance
fees
receivable
£m
37.8
86.7
4.6
110.1
239.2
2.2
0.35% to 0.60%
4.7
0.50% to 0.75%
15.5
0.75% to 2.0%
3.4
1.22% to 1.33%
25.8
–
2.6
11.6
1.7
15.9
Performance
fees
%
0.05% to 0.20%
N/A
20%–25% of total performance fee of
20% of profit over the threshold
20% of returns in excess of 9% IRR
Maximum
exposure
to loss
£m
40.0
94.0
31.7
115.2
280.9
Management fees are charged on third party money managed by ICG on either a committed or invested basis dependent on the fund.
The accounting policy for the recognition of performance fees is included in note 3.
ICG’s maximum exposure to loss is equal to the value of any investments held and unpaid management fees and performance fees.
ICG has not provided non contractual financial or other support to the unconsolidated structured entities during the year. It is not the current
intention to provide such support, including the intention to assist the structured entity in obtaining financial support.
34. 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.
35. POST BALANCE SHEET EVENTS
There have been no material events since the balance sheet date.
ICG ANNUAL REPORT & ACCOUNTS 2016
GLOSSARY
TERM
SHORT FORM
DEFINITION
Adjusted earnings per share
Adjusted EPS
Adjusted profit after tax
Adjusted profit after tax divided by the weighted average number of ordinary
shares
Profit after tax (annualised when reporting a six month period’s results), adjusted
for fair value movements on derivatives, changes to the estimate of Longbow
deferred consideration and the impact of the settlement of the employee benefit
trust
Adjusted return on equity
Adjusted ROE
Adjusted profit after tax divided by average shareholders’ funds for the period
AIFMD
The EU Alternative Investment Fund Managers Directive
Assets under management
AUM
Cash core income
CCI
Catch up fees
Closed end fund
Co-investment
Value of all funds and assets managed by the FMC. During the investment period
third party (external) AUM is measured on the basis of committed capital. Once
outside the investment period third party AUM is measured on the basis of cost of
investment. AUM is presented in Euros, with non Euro denominated at the period
end closing rate
Profit before tax excluding fair value movement on derivatives, capital gains,
impairments and unrealised rolled up interest
Fees not previously recognised as either the fund commitment had not been
contractually agreed or the income was otherwise uncertain
A fund where the amount of investable capital is fixed
Co-invest
A direct investment made alongside a fund taking a pro rata share of all instruments
Collateralised Debt Obligation
CDO
Investment grade security backed by pool of non mortgage based bonds,
loans and other assets
Collateralised Loan Obligation
CLO
CLO is a type of CDO, which is backed by a portfolio of loans
Close
Direct investment funds
A stage in fundraising whereby a fund is able to release or draw down the capital
contractually committed at that date
Funds which invest in self-originated transactions for which there is a low volume,
inactive secondary market
EBITDA
Earnings before interest, tax, depreciation and amortisation
Employee Benefit Trust
EBT
Financial Conduct Authority
FCA
Financial Reporting Council
FRC
Fund Management Company
FMC
Gearing
HMRC
IAS
IFRS
Illiquid assets
Special purpose vehicle used to purchase ICG plc shares which are used to satisfy
share options and awards granted under the Group’s employee share schemes
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
The Group’s fund management business, which sources and manages
investments on behalf of the IC and third party funds
Gross borrowings divided by shareholders’ funds
HM Revenue & Customs, the UK tax authority
International Accounting Standards
International Financial Reporting Standards as adopted by the European Union
Asset classes which are not actively traded
164 / 165
TERM
SHORT FORM
DEFINITION
Internal Capital Adequacy
Assessment Process
Investment Company
Internal Rate of Return
ICAAP
IC
IRR
Key Man
Key performance indicator
Key risk indicator
Liquid assets
Open ended fund
Operating margin
Payment in kind
Performance fees
Realisation
Profit margin
Proforma return on equity
Return on assets
Return on equity
Securitisation
Senior debt
Total AUM
KPI
KRI
PIK
ROA
ROE
UK Corporate Governance Code
The Code
UNPRI
Weighted average
The ICAAP allows companies to assess the level of capital that adequately
supports all relevant current and future risks in their business
The investment unit of ICG plc. It co-invests alongside third party funds
The annualised return received by an investor in a fund. It is calculated from
cash drawn from and returned to the investor together with the residual value
of the asset
Certain funds have designated Key Men. The departure of a Key Man without
adequate replacement triggers a contractual right for investors to cancel
their commitments
A business metric used to evaluate factors that are crucial to the success of an
organisation
A measure used to indicate how risky an activity is. It is an indicator of the
possibility of future adverse impact
Asset classes with an active, established market in which assets may be readily
bought and sold
A fund which remains open to new commitments and where an investor’s
commitment may be redeemed with appropriate notice
Total fee income less operating expenses divided by total fee income
Also known as rolled up interest. PIK is the interest accruing on a loan until
maturity or refinancing, without any cash flows until that time
Share of profits that the fund manager is due once it has returned the cost of
investment and agreed preferred return to investors
The return of invested capital in the form of principal, rolled up interest and/or
capital gain
Profit divided by total income
Profit after tax (adjusted as for adjusted ROE) divided by average shareholders’
funds for the period, assuming any special dividends were paid at the beginning
of the reporting period
Returns divided by the average IC investment portfolio. Returns comprise interest
and dividend income, plus net gains on investments, less impairments
Profit after tax (annualised when reporting a six month period’s results) divided
by average shareholders’ funds for the period
A form of financial structuring whereby a pool of assets is used as security
(collateral) for the issue of financial instruments
Senior debt ranks above mezzanine and equity
The aggregate of the third party external AUM and the Investment Company’s
balance sheet
Sets out standards of good practice in relation to board leadership and
effectiveness, remuneration, accountability and relations with shareholders
UN Principles for Responsible Investing
An average in which each quantity to be averaged is assigned a weight. These
weightings determine the relative importance of each quantity on the average
ICG ANNUAL REPORT & ACCOUNTS 2016
SHAREHOLDER AND
COMPANY INFORMATION
TIMETABLE
EVENT
Ex dividend date
Record date for financial year 2016 final ordinary dividend
Last date for dividend reinvestment election
AGM
Record date for special dividend and share consolidation
Date of the share consolidation
Payment of ordinary and special dividend
DATE
16 June 2016
17 June 2016
15 July 2016
21 July 2016
29 July 2016
1 August 2016
5 August 2016
Half year results announcement for the six months to 30 September 2016
15 November 2016
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
WEBSITE
The Company’s website address is www.icgam.com
Copies of the Annual and Interim Reports and other information about the Company are available on this site.
DE SIGNED A ND PRODUCED
BY R A DLE Y Y ELDA R
www.ry.com
www.icgam.com
AU T HOR ISED A N D R EGU L AT ED BY
T HE FIN A NCI A L CON DUC T AU T HOR IT Y
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