A DISCIPLINED IN V E STMENT
culture
DELIV ER ING STRONG PER FOR M A NCE
Intermediate Capital Group PLC
ANNUAL REPORT & ACCOUNTS 2017
A BA L A NCED
approach
At ICG we balance a
disciplined approach
to investment with an
entrepreneurial spirit to
identify opportunities that
will generate ongoing growth
for our investors. Our expert
teams use their skills and
local market knowledge to
design investment strategies
which provide investors with
direct access to alternative
asset classes.
I C G AT A
G L A N C E
+
Read more on
pages 6 and 7
H O W W E
C R E AT E
V A L U E
+
Read more on
pages 8 and 9
W H AT
M A K E S U S
D I F F E R E N T
+
Read more on
page 11
Our proven track record
over 28 years demonstrates
our ability to respond to, and
capitalise on, challenging
markets and convert
uncertainty into long term
opportunity. The balance
sheet is critical to our
growth. It is used to align
our shareholders’ and fund
investors’ interests and to
act as an anchor investor
in new and developing
fund strategies.
ICG ANNUAL REPORT & ACCOUNTS 2017 IN THIS
REPORT
STR ATEGIC REPORT
An introduction from the Chairman
Business review
ICG at a glance
How we create value
How we allocate our capital
What makes us different
Our markets
How we have performed
Our funds
Finance and operating review
Managing risk to deliver our strategy
Managing our principal risks
Our resources and relationships
GOVERNANCE REPORT
FINANCIAL STATEMENTS
2
4
6
8
10
11
12
14
18
20
27
30
35
Letter from the Chairman
Board of Directors
Our corporate governance framework
The Board’s year
Induction and training
Board evaluation
Engagement with stakeholders
Audit Committee report
Risk Committee report
Nominations Committee report
Remuneration Committee report
Compensation summary
Directors’ remuneration policy
Annual report on remuneration
Directors’ report
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
40
42
44
46
48
49
50
51
60
65
69
74
78
87
99
Directors’ responsibilities
106
11
108
114
115
116
117
118
120
163
168
Assets under management
€23.8bn
2016: €21.6bn
+ Read more on page 22
Profit before tax
£252.4m
2016: £158.8m
+ Read more on page 20
Ordinary dividend per share
27.0p
2016: 23.0p
+ Read more on page 3
STRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017FINANCIAL STATEMENTSGOVERNANCE REPORT 2
A NOTHER STRONG Y E A R OF
Growth
A N I N T R O D U C T I O N F R O M T H E C H A I R M A N
DEAR SHAREHOLDER
I would like to start my first letter as your
Chairman by thanking my predecessor,
Justin Dowley for his substantial
contribution to the development of your
Company over the last 10 years. This has
been another year of strategic delivery
and the Board agenda has included a
wide range of business and governance
matters contextualised by internal and
external developments.
Business developments
Since 2010 we have transformed ICG
into a leading alternative asset manager,
primarily of closed end funds. We have
successfully expanded our range of
strategies from four to 16, established
our own distribution team and invested in a
scalable infrastructure platform. An enabler
of this success is our balance sheet which
has allowed us to pioneer new investment
strategies and invest alongside our clients
in existing strategies.
The asset management industry is becoming
increasingly split between active and
indexed management. Both styles have their
parts to play in wealth generation, but as a
private markets operator we are dedicated
to active management. Another industry
trend is consolidation, creating firms of
significant size with a major public market
franchise complemented by independent,
smaller specialist firms. In this market we
are a specialist active manager, managing
primarily closed end funds in private
markets. We believe this positions us
well for growth.
A disciplined investment culture is at the
heart of our business model. We seek
to meet or exceed clients’ expectations
commensurate with their risk appetites
in each of our strategies. We therefore
continue to hire and retain top quality
investment professionals so that clients
prefer to invest in ICG funds. During the
year we added key investment professionals
to our liquids, Strategic Secondaries and
US strategies. We also seek to ensure our
infrastructure platforms continue to meet
the needs of all our principal stakeholders –
shareholders, clients, regulators, suppliers
and staff – in a secure, efficient and
scalable manner.
The financial highlights of the year have
included fundraising (inflows) of €4bn with
money raised for newer strategies including
Strategic Secondaries and Australian Senior
Loans. The weighted average fee rate of
0.91% is up from 0.88%. Capital deployment
has remained on track in a highly competitive
investment market and our funds are
performing robustly, with a strong level
of realisations and capital gains.
The UK’s decision to leave the European
Union caused us to reassess how we
structure our operations in Europe. Since
the referendum vote we have evaluated
our structural requirements and expanded
our Luxembourg operations to maintain
access to our European client base. We
remain committed to our European heritage
whilst at the same time expanding our North
American and Asian operations. We do not
anticipate the need for any other significant
organisational change and have no intention
of moving our UK or head office operations
from London.
The success of ICG depends on expertise
across the investment, distribution and
infrastructure teams, and I would like to
thank all of our staff for their contribution
to our business over the course of the year.
Governance
High quality corporate governance
helps to deliver stakeholder returns.
During the year, the Board and its
committees invested significant time on
succession planning, including that of the
Chief Executive Officer (CEO), recruitment
of Non Executive Directors, and dividend
and remuneration policies.
Chief Executive
At this year’s AGM our long standing
Chief Executive and Chief Investment
Officer retires from executive life.
Christophe Evain has been with ICG since
1994 and has been the CEO since 2010.
At the start of his tenure, ICG was just
beginning to emerge from the financial crisis
of 2009. He led the transformation of the
Group to the alternative asset manager it is
today. The total shareholder return over his
tenure to 31 March 2017 was 326%, which
compares to 102% for the FTSE 350 over
the same period. Third party assets under
management have increased 163% from
€8.3bn to €21.8bn. This success is reflective
of Christophe’s management and leadership
of the business.
Christophe’s successor is Benoît Durteste
who joined the Board as an Executive
Director in 2012. He has been with ICG
since 2002 and played key roles in the
development of the asset management
business as our leading investor in European
corporates; a client relationship manager;
and in the diversification of asset classes.
The Board having considered all options
and building on our detailed succession
planning chose Benoît as Chief Executive
and Chief Investment Officer because
of his demonstrated leadership, strong
track record, in-depth knowledge of
ICG’s business and his wide respect in
the industry. This choice will also support
continuity of strategy.
ICG ANNUAL REPORT & ACCOUNTS 2017MARKETPLACE& STRATEGYGROUP RISKSRESOURCES &RELATIONSHIPSGROUPPERFORMANCEBUSINESS MODEL 3
KEVIN PARRY
Chairman
Staff compensation
The Remuneration Committee has
developed a new remuneration policy, which
does not increase the proportion of profit
paid as bonuses to staff but simplifies a
number of aspects of the relevant schemes.
Further details are in the Remuneration
Committee report on page 69.
Outlook
ICG’s strategy and operational focus will
continue to increase diversification by asset
class and geography. Our track record and a
commitment to strong risk-aware investment
performance gives our institutional clients
confidence to place more money with ICG,
providing a strong foundation for continued
growth in assets under management and fee
based revenue.
In a world of heightened geo-political
uncertainty, our balance sheet is exposed
to volatility of valuations but it is prudently
financed by equity and debt. The long term
nature of our fund management business
provides stability of income and visibility
of growing contractual income streams.
The strategic report, on pages 2 to 38, has
been approved by the Board of Directors
and is signed on its behalf by:
KEVIN PARRY
Chairman
24 May 2017
The Board’s new policy is to recommend
a dividend pay-out of 80-100% of the
post-tax profit of the Fund Management
Company (FMC). The annual quantum will
be judged in the light of contemporary
trading, regulatory capital and debt rating
considerations. In accordance with current
practice, the interim dividend will equate
to a third of the prior year total dividend.
The dividend policy is also progressive,
meaning that absent major adverse
circumstances, the dividend will at least
be maintained and more normally increased
year on year. We anticipate the FMC profits
will grow as a proportion of the total
profits but in the next few years, until FMC
profits can cover our pay-out policy, we will
continue to draw on Investment Company
(IC) profits to comply with our progressive
dividend policy. We currently anticipate
recommending growing the dividend
per share by 6-8% per annum.
It is against the backdrop of continued
delivery against our strategic objectives
and strong cash generation that the Board
recommends substantially increasing the
final ordinary dividend for the year to 19.5
pence per share. This makes a total for the
year of 27.0p (2016: 23.0p), an increase of
17% on the prior year. The proposed full year
dividend is covered 2.9 times based on total
profit and equates to 128% of post-tax FMC
profits. We continue to make available the
dividend reinvestment plan.
The Board believes these capital and
dividend policies reflect shareholders’
desire for transparency, sustainability
and regular real growth in cash returns.
Non Executive Directors
We recruited two Non Executive Directors
in the year. Rusty Nelligan, formerly a
senior PwC audit partner, joined the
Board in September 2016 and succeeded
me as Chairman of the Audit Committee.
In March 2017, we also welcomed Virginia
Holmes to the Board, who has a wealth
of asset management industry experience
as both an Executive and Non Executive
Director. Virginia has joined the
Remuneration Committee.
Following this year’s AGM, the Board will
comprise two Executive Directors and six
Non Executive Directors, of which 25% of
all Directors are female. We are committed
to increasing gender balance and diversity
throughout the Group, not just at Board
level, but have more to do over a sustained
period of time to make further progress.
Profit distribution
The Board spent time considering
the returns to shareholders and staff
compensation during the year.
Dividend
Over the last three years, the Board reduced
the equity in use and has returned over
£0.8bn of capital to shareholders. The Board
will continue to focus on the efficient use
of capital and will maintain its focus on
achieving return on equity in excess of 13%
over an investment cycle. We recognise
that buoyant or stressed market conditions
will impact the capital requirements of
the Group and are therefore committed
to a capital management approach which
ensures sufficient capital through all points
in the cycle.
The Board has determined that its existing
dividend policy should be updated to
distribute a higher proportion of profits to
shareholders in line with the transformation
to a business model which is more stable and
predictable than in the past.
STRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017FINANCIAL STATEMENTSGOVERNANCE REPORT 4
DELI V ERY AG A INST STR ATEGIC
Objectives
B U S I N E S S R E V I E W
thereby impacting the returns of traditional
asset classes. Current macroeconomic
uncertainty, including but not limited to the
UK’s decision to leave the European Union,
may prolong and enhance the positive
trend in favour of alternative asset classes.
Alternative asset classes are therefore
attractive to institutional investors, providing
diversification and targeting returns in
excess of those achievable in public markets.
The current fundraising environment
is attracting new entrants into the
alternative asset management market.
However, our established investment
led approach of focussing on capital
preservation and yield across mid market
transactions in four strategic asset classes,
and identifying market opportunities to
develop differentiated strategies, remains
a competitive advantage. We are of a size
and scale that enables investors efficiently
to access our range of strategies through
mandates tailored to their individual
requirements. Furthermore, our long
standing investment culture means we
only fundraise to the extent that there
is the market opportunity to invest the
capital raised.
Fundraising across all our strategic
asset classes
Fundraising in the financial year at €4bn
was in line with our long term target but,
as expected, lower than in recent years
as our larger strategies had remaining
investment capacity. Consequently we
concentrated on the more challenging task
of fundraising for our smaller and newer
strategies which diversify our business
and provide future growth opportunities.
The breadth of strategies for which we
raised money during the year, 11 in total,
underlines the increased diversification
of our fund management franchise.
In 2014 we recruited a team specialising
in Strategic Secondaries. The team have
a direct approach to secondaries by leading
restructuring and investment in mature
private equity funds. We have made excellent
progress in raising our first Strategic
Secondaries fund which is dedicated to the
highly complex and structured part of the
secondaries market. To date, we have raised
$981m, including a $200m investment from
our balance sheet, of which $614m was raised
during the 2017 financial year. As one of our
newer strategies, with fees charged on
committed capital, the success of this fund
is a positive contribution to our weighted
average fee rate and our growing fund
management profits. We expect to close
this fund above its $1bn target in the new
financial year.
Another area of success was our Australian
Senior Loans strategy. Fundraising was
initially difficult, but our perseverance and
commitment to this attractive strategy has
resulted in AUD$396m being raised in the
financial year.
Additionally, we closed successor funds
for our real estate mezzanine and Asia
Pacific mezzanine strategies, and raised new
segregated mandates for our Senior Debt
Partners and capital markets strategies,
which included raising four new CLOs
during the year.
We took an opportunity to sell the entire
Recovery Fund 2008, one of our older
European mezzanine funds. Its disposal
to a secondary fund provided an exit to
our investors whilst enabling us to retain
the investment management contract for
the new fund thereby extending the duration
of the fee stream.
Grow assets
under management
Manage portfolios
to maximise value
Invest
selectively
We have continued to deliver against our
strategic objectives and grow our specialist
asset manager franchise.
ICG is now a more diversified business
than at any point in its history. Our ability to
utilise the Group’s capital to seed new funds
has supported this success. For example,
our expansion into the Secondaries asset
class would not have been as rapid nor
as successful, had we not been able to
underwrite the team’s early transactions
in the first fund.
The market environment continues to offer
attractive opportunities to grow and further
expand our range of strategies. As a result,
the profits of the Fund Management
Company, with its predictable, sustainable
fee streams, will grow relative to those
of the Investment Company.
Alternative asset market
growing strongly
The increasing wealth of developing nations,
combined with ageing populations, supports
the trend of increasing the absolute size
of institutional assets under management.
At the same time, bond yields remain low,
ICG ANNUAL REPORT & ACCOUNTS 2017MARKETPLACE& STRATEGYGROUP RISKSRESOURCES &RELATIONSHIPSGROUPPERFORMANCEBUSINESS MODEL 5
CHRISTOPHE EVAIN
Chief Executive Officer – outgoing
BENOÎT DURTESTE
Chief Executive Officer – incoming
During the financial year, we extended
our office network into Luxembourg and
have applied for a regulatory licence in that
jurisdiction. This will enable us to retain
access to our European clients following
the UK’s departure from the European
Union. We do not anticipate the need for any
other significant organisational change and
have no intention of moving our UK or head
office operations from London.
Capital deployment on track in a
competitive investment market
Our increasing number of strategies means
that we operate in a diversified investment
market. Across all of our strategies we
have seen the investment market remain
competitive as institutions seek to deploy
the increasing amounts of capital raised so
as to access the attractive returns available
in private markets.
In this environment, the competitive
advantage gained from our local teams,
sector specialisms and ability to deploy
capital flexibly comes to the fore and has
helped us to source attractive deals whilst
maintaining our disciplined investment
culture. We are pleased to have maintained
the pace of investment across our direct
investment funds during the financial year
which, combined with a solid pipeline
of investment opportunities, means we
are confident that each of our funds will
deploy their available capital within their
investment periods.
It is an honour to have been asked to
succeed Christophe as CEO and Chief
Investment Officer of the Company.
Since joining ICG, I have found Christophe’s
experience and advice, coupled with
his commitment to the success of the
business, invaluable.
The year ahead
We have a €4bn per annum rolling
fundraising target. With a healthy pipeline
of new funds and with a number of our
larger strategies expected to be raising
successor funds during the new financial
year, we anticipate that financial year 2018
will meet or exceed the long term fundraising
target. Fundraising for our Senior Debt
Partners strategy has already commenced,
and is expected to exceed the €3bn size of
its predecessor fund. The US private debt
strategy and UK real estate strategy are
expected to begin raising successor funds
within the next 12 months.
We are working to convert investor interest
in our liquid strategies into investor
commitments during the new financial year.
We continue to size our funds to the market
opportunity and aim to deploy capital
in line with the required investment run
rate. We therefore anticipate maintaining
our current deployment pace on the back
of attractive investment opportunities.
We remain committed to not compromising
our disciplined investment culture in this
highly competitive market.
Investment Company portfolio
performing robustly
Liquidity in the market contributed to a
period of strong realisations. Capital gains
were particularly strong in the financial year
which, as previously indicated, was due in
part to the benefit from the one off recycling
from reserves of a previously recognised
unrealised gain, and in part to unrealised
gains arising from the year end mark to
market review. Whilst we expect the pace
of realisations to remain healthy into the new
financial year, the overall level of capital gains
recognised in the income statement is likely
to be lower.
The performance of our portfolios
remains robust, with only a small number
of assets underperforming.
Well financed balance sheet
We continued to actively manage the
Group’s sources of financing, extending
debt facilities and lowering pricing where
possible. During the financial year, $292m
and €74m of US private placements were
raised with five, eight and 10 year maturities,
enabling the repayment of maturing
private placements and a reduction in
existing bank facilities. Following this debt
raising, the weighted average life of total
debt at 31 March 2017 was 3.8 years with
a weighted average cost of 3.9%, in line
with 31 March 2016.
On a personal note, after 23 years at ICG,
my decision to retire has not been an easy
one. I am proud of what we have achieved
to date at ICG and I would like to thank
my colleagues, our fund investors and
shareholders for their continued support
and commitment. I leave the Company in
capable hands with Benoît and wish the
whole ICG team every success in the future.
STRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017FINANCIAL STATEMENTSGOVERNANCE REPORT 6
7
ICG AT A
GL ANCE
Who we are
ICG is a specialist asset manager with over 28 years’ history
in private debt, credit and equity. We manage €23.8bn
of assets in third party funds and proprietary capital,
principally in closed end funds.
Our strategy is to grow our specialist asset management
activities to deliver increased shareholder value. Our goal
is to generate income and consistently high returns whilst
protecting against investment downside for our fund
investors. We seek to achieve this through our expertise
in investing across the capital structure. We combine
flexible capital solutions, local access and insight with an
entrepreneurial approach to give us a competitive edge
in our markets.
We operate across four asset classes – corporate, capital
market, real asset and secondary investments. In addition
to growing existing strategies, we are committed to innovation
and pioneering new strategies across these asset classes
where the market opportunity exists to deliver value to our
fund investors and increase shareholder value.
Value and growth facilitated by
our business model
Our business model enables the Group to deliver its strategic
objectives as a third party asset manager.
Our FMC is the operating business of the Group, sourcing
and managing investments on behalf of third party funds and
our balance sheet. Managing third party capital generates
long term fee income when it is either committed or invested.
The fee structure depends on the investment strategy and
whether the fund is in its investment or realisation phase.
If funds exceed performance targets, additional fees can
be earned.
Our IC invests the Group’s capital in support of third party
fundraising and funds the development of new strategies.
The IC generates a return on its investment in addition to
supporting the growth of the FMC.
A common infrastructure platform covering operations, IT,
finance, human resources, legal, compliance, risk and internal
audit supports both FMC and IC operations.
THE FUND MANAGEMENT COMPANY
CORPORATE
INVESTMENTS
CAPITAL MARKET
INVESTMENTS
REAL ASSET
INVESTMENTS
SECONDARY
INVESTMENTS
Providing debt and equity
capital to midmarket
private companies across
Europe, Asia Pacific and
North America
Investing in debt instruments
issued on capital (public)
markets in Europe and
North America
Providing debt and equity
financing for real asset
investments in the UK
commercial property
market and the Asia Pacific
energy market
Investing in private equity
funds and their assets
through a secondary
market transaction
THE INVESTMENT COMPANY
COMMON INFRASTRUCTURE PLATFORM AND IN HOUSE DISTRIBUTION TEAM
Our investment track
record supports
the delivery of our
strategic objectives
28
year investment
track record
+ Read more on page 11
281
employees
+ Read more on page 36
Grow assets
under management
+ Read more on page 4
Invest
selectively
+ Read more on page 5
Manage portfolios
to maximise value
+ Read more on page 5
Assets under management
€23.8bn
2016: €21.6BN
+ Read more on page 22
Profit before tax
£252.4m
2016: £158.8m
+ Read more on page 20
Ordinary dividend per share
27.0p
2016: 23.0p
+ Read more on page 3
We aim to maximise
shareholder value by
profitably growing
our specialist asset
management franchise
with the support of our
balance sheet capital.
KEVIN PARRY
Chairman
16
investment strategies
13
countries of operation
STRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017ICG ANNUAL REPORT & ACCOUNTS 2017MARKETPLACE& STRATEGYGROUP RISKSRESOURCES &RELATIONSHIPSGROUPPERFORMANCEBUSINESS MODELFINANCIAL STATEMENTSGOVERNANCE REPORT 8
9
HOW W E CR E ATE
VALUE
BUSINESS
ACTIVITY
R A I S I N G
T H I R D P A R T Y
F U N D S
I N V E S T I N G
C A P I TA L
M O N I T O R I N G
I N V E S T M E N T S
R E A L I S I N G
I N V E S T M E N T S
WHY DO
WE DO IT?
We generate fee income from our
managed funds
Investing the capital raised generates
investment returns for our fund investors
and shareholders
Closely monitoring our investments supports the
preservation of capital, a key component of our
investment culture
Realising our investments locks in our investment
returns, releases capital for new investment and
generates performance fees
HOW DO
WE DO IT?
• We size our fundraising requirements by the market
• Our specialist and experienced investment
opportunity to invest the capital, developing
investment strategies that meet the requirements
of institutional fund investors
• We use our global in house distribution team who
are embedded in the business to identify suitable
investors for our funds
professionals identify opportunities to invest capital
using long standing networks and relationships
• We provide borrowers and investee companies with
flexible capital to meet their needs; this is supported
by our nimble operating model with its efficient
decision making processes
HOW DO
WE MEASURE
PERFORMANCE?
+ Read more about how
we performed on pages
14 to 17
• We have a target of raising an average of �4bn of
new third party funds (gross inflows) per annum
over the fundraising cycle
• We monitor the weighted average fee rate on fee
earning assets under management (AUM) to ensure
that AUM is profitable. Weighted average fee rate
is an alternative performance measure as defined
on page 14
• For closed end funds it is important for the capital to
be deployed over the investment period. We monitor
this against a straight line deployment basis
throughout the investment period
• For open ended funds we ensure investors’ capital
is being deployed in an appropriate manner
• Our investment professionals actively monitor investments
throughout their life, including attending Board meetings
for our largest exposures
• Our access to senior management and information about our
investments allows us to take timely and appropriate steps
to preserve capital and maximise returns
• Our experience and market access allows us to identify a range
of possible exit routes
• We seek to optimise the value of our investments by realising
them at the right moment, which may be well ahead of their
contractual maturity
• Where we are not in control of the realisation process we use
• Investment Committees review the monitoring activities and
our relationships to influence our counterparties
oversee performance
• The success of our monitoring is reflected in the performance
of our funds against the funds’ investment objectives, investor
expectations and, for our open ended funds, designated
market benchmarks
• Realising investments locks in fund performance which we
benchmark against the funds’ investment objectives, investor
expectations and, for our open ended funds, designated
market benchmarks
• For our IC portfolio we measure performance by reviewing
• Delivering strong fund performance supports future fundraising
the return on assets, which includes realisations of investments
and impairments recognised in the year. Return on assets is
an alternative performance measure as defined on page 14
HOW DOES IT
CONTRIBUTE
TO PROFIT?
• We earn management fees on AUM once they are
committed or invested depending on the fund.
Raising new AUM generates future income streams
• We earn management fees on invested capital until
the underlying investment is realised. In addition,
the IC earns a return on its investment in funds
• Fees contribute to profit in the year in which they
• IC investment gains contribute to profit when the
• Delivering returns in excess of the fund’s investment objectives
earns performance fees. Monitoring our investments, and
therefore reducing the risk of loss, maximises the value of
these fees
• Changes in the value of our IC portfolio are reflected through the
income statement throughout their holding period, rather than
in the year of realisation. Realisations unlock cash from previously
recognised and current year value changes
are earned
underlying investment increases in value or interest
is received
• For our IC portfolio, changes in the value of our investment
• Only gains realised in cash qualify as profit for
are reflected in the income statement
remuneration purposes
OPERATING
MODEL
COMPONENT
S
D
N
U
F
W
E
N
N
I
T
N
E
M
T
S
E
V
N
I
INVESTING
FUNDRAISING
IC PROFITABILITY
FMC PROFITABILITY
CAPITAL ALLOCATION
BUSINESS GROWTH
SHAREHOLDER
RETURNS
S
D
N
U
F
W
E
N
N
I
T
N
E
M
T
S
E
V
N
I
INVESTING
FUNDRAISING
IC PROFITABILITY
FMC PROFITABILITY
CAPITAL ALLOCATION
BUSINESS GROWTH
SHAREHOLDER
RETURNS
S
D
N
U
F
W
E
N
N
I
T
N
E
M
T
S
E
V
N
I
INVESTING
FUNDRAISING
IC PROFITABILITY
FMC PROFITABILITY
CAPITAL ALLOCATION
BUSINESS GROWTH
SHAREHOLDER
RETURNS
S
D
N
U
F
W
E
N
N
I
T
N
E
M
T
S
E
V
N
I
INVESTING
FUNDRAISING
IC PROFITABILITY
FMC PROFITABILITY
CAPITAL ALLOCATION
BUSINESS GROWTH
SHAREHOLDER
RETURNS
STRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017ICG ANNUAL REPORT & ACCOUNTS 2017MARKETPLACE& STRATEGYGROUP RISKSRESOURCES &RELATIONSHIPSGROUPPERFORMANCEBUSINESS MODELFINANCIAL STATEMENTSGOVERNANCE REPORT
10
HOW W E A LLOC ATE 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 Group-wide
capital structure is maintained. Capital is
allocated to strategies that are expected
to create long term shareholder value.
Investing in growth
We allocate capital to grow the business
in a number of ways. The Group:
• invests with the funds it manages,
generating attractive long term investment
income streams for the IC
• acts as an anchor investor, providing capital
for new investment strategies, developing
a track record to support fundraising
• supports new strategies through
underwriting additional operating costs
until the strategy generates third party
fee income
• will invest for growth through acquisition
of teams or more established fund
management businesses
Once 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.
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.
We understand that, alongside investing
in growth, shareholders place value
on regular and sustainable dividends.
We have established a new progressive
dividend policy.
Following our review, we reaffirm the
progressive nature of our dividend policy,
meaning that unless there are significant
adverse circumstances the ordinary
dividend per share will increase, or
at least be maintained, year on year.
To increase the transparency of our
progressive dividend policy and to closer
reflect the growth of the Fund Management
Company (FMC), we intend to recommend
a dividend which represents a pay-out of
80-100% of the post-tax profits of the FMC.
We anticipate the FMC profits will grow as
a proportion of the total profits but in the
next few years, until FMC profits can cover
our pay-out policy, we will continue to draw
on IC profits to comply with our progressive
dividend policy. We currently anticipate
recommending growing the dividend
per share by 6-8% per annum. See the
Chairman’s statement on page 3.
Prior to declaring dividend payments
the Board ensures there are sufficient
distributable reserves and funds available
to make the payments and considers
the impact on regulatory capital, debt
covenants and debt ratings. These are not
currently constraints on making ordinary
dividend payments.
The distributable reserves of the Parent
Company at 31 March 2017 were £407m.
ICG Operating Model
INVESTING
• Fund deployment
• Fund performance and track record
• Impairment target of less than 2.5% of opening book
FUNDR AISING
• 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 PROFITABILIT Y
• IC gross return on assets
• Manage risk across all portfolios
FMC PROFITABILIT Y
• FMC operating margin
• Manage risk across all portfolios
CAPITAL ALLOCATION
• Return on equity above 13%
• Gearing 0.8 – 1.2x
BUSINESS GROW TH
• Reinvest to drive ROE
• Optimise co-investment ratio for each strategy
SHAREHOLDER RETURNS
• Dividend + Return surplus cash
ICG ANNUAL REPORT & ACCOUNTS 2017MARKETPLACE& STRATEGYGROUP RISKSRESOURCES &RELATIONSHIPSGROUPPERFORMANCEBUSINESS MODEL
11
W H AT M A K E S US
different
1
I N V E S T O R I N S I G H T
2
S K I L L S A N D
E X P E R T I S E
Our dedicated global marketing and
distribution team gives us insight which
enables us to be nimble and efficient in
designing new strategies to respond to
market developments, investor demand
and investment opportunities.
Our local teams and sector specialists
speak the languages, have long
standing relationships and understand
the markets in which they operate,
providing deal flow and early access
to investment opportunities.
3
D I S C I P L I N E D
A N D A N A LY T I C A L
A P P R O A C H
Our consistent, efficient and robust
investment culture, based on core
credit principles and a strong
focus on capital preservation
underpinned by rigorous risk analysis,
is applied consistently across
investment strategies.
4
A N O U T S TA N D I N G
T R A C K R E C O R D
Our business model is built on providing fund investors with direct access to specific asset
classes, a disciplined investment approach and a focus on post investment monitoring.
We are a specialist amongst asset managers.
You can read more about the resources
and relationships which support our
business model on pages 35 to 38
Our successful approach has enabled us to generate returns for our fund investors
consistently at, or above, target across investment strategies. This track record makes
us different.
STRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017FINANCIAL STATEMENTSGOVERNANCE REPORT 12
OUR
Markets
Our ability to deliver our strategic objectives is framed by the markets in which we operate,
whether to raise new funds, invest the capital raised or to maximise value from existing investments.
As a specialist alternative asset manager operating across four strategic asset classes we operate
in local, specialist markets, although all exhibit some common characteristics.
GROW ASSETS UNDER
MANAGEMENT
INVEST
SELECTIVELY
Our success in growing assets under management is
dependent on our ability to attract institutional investors such
as pension funds, insurance companies or sovereign wealth
funds into the higher return alternative investment strategies
that we offer.
We believe the investment environment for alternative sources
of capital is most attractive in the midmarket corporate sector
where higher risk-adjusted returns can be achieved. It is this
investment market in which we specialise.
The global demand for alternative investment strategies
is projected to increase as:
1. Institutional investors find it difficult to achieve their long term
investment objectives through traditional investment strategies,
such as sovereign bonds and equities
2. The absolute size of global assets under management is set
to increase as the wealth of populations in developing nations
grows and the trend of ageing populations in developed
nations continues
The attractiveness of our market is resulting in increasing
competition as new entrants seek to capitalise on the growing
demand for alternative assets. However, from a fundraising
perspective, investors’ selection processes are rigorous and
preference is given to established managers with a strong track
record, credibility and infrastructure.
We are well positioned to take advantage of these market trends as
an established manager focused on the specialist end of alternative
asset management. Our strategies offer institutional investors access
to a range of risk/reward and geographical profiles investing in
private, and therefore the less liquid, asset classes and high yielding
liquid specialist markets.
CORPORATE INVESTMENTS
Our corporate investment strategies selectively invest
in midmarket private companies.
As these companies are unable or unwilling to access public debt
markets or bank financing they rely on non-bank providers of
capital to finance corporate transactions. These transactions may
be acquisitions, refinancing or growth capital. The volume of these
transactions define the size of our investment opportunity.
We compete with other providers of finance in this market. However,
in private markets local knowledge, long standing relationships,
certainty of funding and flexibility of approach are real advantages
to accessing deals and a significant hurdle for new entrants.
We are well positioned to take advantage of these market trends.
As an established manager with a local network of investment
professionals, we are able to offer a range of financing options
as our experience enables us to adapt our investment structures
to meet the requirements of corporates.
REAL ASSET INVESTMENTS
Our real asset investment strategies are currently focused on
selectively providing finance to private midmarket assets in the
UK commercial real estate market. As banks reduce their overall
exposure to real estate, midmarket assets are reliant on non-bank
providers of capital to finance transactions, be they acquisitions,
refurbishment or expansion. It is transaction volumes in the UK
property and property finance markets that frame the size of our
investment opportunity.
We compete with other providers of finance in this market. However,
our smaller asset focus, deep knowledge of the UK commercial real
estate market, strong industry relationships and flexible approach
mean we are able to originate attractive deals.
ICG ANNUAL REPORT & ACCOUNTS 2017MARKETPLACE& STRATEGYGROUP RISKSRESOURCES &RELATIONSHIPSGROUPPERFORMANCEBUSINESS MODEL We believe the investment environment for alternative sources
of capital is most attractive in the midmarket corporate sector
where higher risk-adjusted returns can be achieved. It is this
investment market in which we specialise.
13
MANAGE PORTFOLIOS
TO MAXIMISE VALUE
Our ability to maximise value from our investments is in the
context of the wider macroeconomic environment.
Our investment preference is for non-cyclical, low capex, high cash
generative businesses. We seek to position portfolios so they are
resilient to typical economic cycles and that realisations are not
dependent on market conditions.
Public company valuations impact the value of our equity investments
as our portfolio is marked to market. However, our fund performance
is measured on realised returns.
The current attractiveness of alternative asset classes to
investors has increased demand for our assets and prices are
increasing. These market conditions support the realisation
of our mature investments.
We expect the current
market trend towards
investing in alternative
assets to continue. This will
support our fundraising and
investment activities.
BENOÎT DURTESTE
Executive Director
and incoming
Chief Executive
Officer
CAPITAL MARKET INVESTMENTS
Our capital market investment strategies are focused on
selectively investing in traded, largely liquid loans, bonds
and structured instruments.
Companies raise debt to deliver better terms, facilitate growth
and to enhance the returns. The secondary market of this debt is
driven by portfolio managers seeking to maximise their income or
returns. The investment market is therefore driven by the number of
companies raising debt or secondary flows of previously raised debt.
We compete with other providers of finance in this market.
However, our access to financial intermediaries across local markets,
our information database, our sector specialists and long term
relationships mean we are able to source quality investments.
SECONDARY INVESTMENTS
Our secondary investment strategies are focused on selectively
investing in private equity funds operated by established managers.
Our Strategic Secondaries strategy provides a direct approach
to secondaries by leading the restructuring of and investment
into older, underperforming private equity funds. Investments into
these funds provide attractively priced access to mature underlying
portfolios of assets with good visibility on performance and exit
potential. Our structuring skills, private equity investment experience
and strong industry relationships have allowed us to develop a leading
position in the highly complex and structured part of the market.
The ICG Enterprise Trust invests in primary and secondary private
equity funds, and selective direct co-investments. Competition
for the best performing funds can be high, but the strong industry
relationships of the team, with access to ICG’s market knowledge
and industry exposure, are significant advantages in this activity.
STRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017FINANCIAL STATEMENTSGOVERNANCE REPORT 14
MARKETPLACE
& STRATEGY
GROUP
PERFORMANCE
HOW W E H AV E
Performed
Alternative performance measures
As is common within the asset management industry, we use
alternative performance measures. Our Key Performance Indicators
(KPIs) include alternative performance measures where they
provide additional insight into performance from the perspective
of shareholders and other stakeholders.
When we use alternative performance measures we determine the
outcome of the measure in a manner which is not compliant with
IFRS GAAP, instead using the Board’s approach. For each of these
measures we disclose the IFRS GAAP outcome for the current year.
The Glossary on pages 163 to 167 includes the definitions of these
alternative performance measures and reconciliation to the relevant
IFRS GAAP measures.
Our KPIs are disclosed on this page and pages 15 to 17.
The following KPIs are alternative performance measures:
• Return on equity
• Weighted average fee rate
• FMC operating margin
• Impairments
Details of our Executive Director KPIs are on pages 88 to 89.
Group performance measures
RETURN ON EQUITY (ROE) (%)
18.2%
8.9
10.2
11.0*
18.2
12.9**
The Group has targeted an ROE in excess of 13% which will be achieved by the
growth of the business and maintaining an efficient balance sheet measured by
a target gearing of between 0.8x and 1.2x.
ROE has increased in the year due to an increase in profitability and the enhanced
efficiency of our capital base following the return of £200m to shareholders
as a special dividend in August 2016.
* 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.
13
14
15
16
17
** Adjusted for £2.3m one-off benefit from the EBT Settlement and excludes the impact of the
IFRS GAAP 2017 19.5%
movement in deferred consideration payable on the Longbow acquisition and the consolidation
of credit funds under IFRS 10.
ORDINARY DIVIDEND PER SHARE (P)
27.0P
20.0
21.0
22.0
23.0
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.
27.0
The Group has generated sufficient returns from the business to grow the ordinary
dividend year on year.
13
14
15
16
17
ICG ANNUAL REPORT & ACCOUNTS 2017GROUP RISKSRESOURCES &RELATIONSHIPSBUSINESS MODEL 15
STRATEGIC OBJECTIVE
WHAT WE MEASURE
WHY WE MEASURE IT AND
HOW WE PERFORMED
TOTAL AUM (£M)
€23.8BN
Total AUM
New AUM
1. GROW ASSETS
UNDER MANAGEMENT
12,930
12,980
21,582
23,825
18,012
We aim to increase our third
party AUM to maximise the
profitability of the business and
increase shareholder value 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.
2,260
3,847
6,398
5,179
4,012
13
14
15
16
17
WEIGHTED AVERAGE FEE RATE (%)
0.91%
1.02
0.86
0.91
0.88
0.91
13
14
15
16
17
IFRS GAAP 2017 0.98%
FMC OPERATING MARGIN (%)
41.2%
40.1
35.1
40.8
41.9
41.2
13
14
15
16
17
IFRS GAAP 2017 41.2%
2018 PRIORITIES
Raising and managing third party funds is
the lead indicator of the Group’s profitability.
We target raising an average of €4bn of new
third party funds (gross inflows) per annum
over the fundraising cycle.
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.
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 corporate investment
and secondary investment funds.
The weighted average fee rate on fee earning
AUM of 0.91%, up from 0.88% due to the
improved mix of investment strategies.
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%.
FMC operating margin is marginally below the
prior year as the Group continues to invest.
In the current year this investment has included
our capital market strategies, ICG Enterprise
Trust and our operations infrastructure.
Fundraising is expected to be higher than for the last financial year. Our focus in FY18 is to raise
our successor Senior Debt Partners Fund and raise further monies for our capital market strategies.
We also expect to launch successor funds for North America Private Debt and UK Real Estate.
All of these strategies generate fees on invested capital and therefore will contribute to profit
as they are invested.
+ You can read more about the associated principal risks on pages 30 to 33
STRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017FINANCIAL STATEMENTSGOVERNANCE REPORT 16
MARKETPLACE
& STRATEGY
GROUP
PERFORMANCE
HOW W E H AV E
PERFORMED
CONTINUED
STRATEGIC OBJECTIVE
WHAT WE MEASURE
WHY WE MEASURE IT AND
HOW WE PERFORMED
DEPLOYMENT OF DIRECT INVESTMENT FUNDS (%)
Fund invested at 31 March 2017
%
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
n t p a c e
e
ICG Longbow IV
e a r in v e st m
North America
Japan
SDP II
Lin
Europe Fund VI
Asia Pac III
Strategic Secondaries II
0%
20%
40%
60%
80%
100%
Investment period
2. INVEST
SELECTIVELY
We aim to invest our AUM on
a selective basis to deliver
returns for our fund investors
and shareholders.
We will utilise:
• Our local teams and
sector specialists
• A disciplined approach
to considering each
investment opportunity
This is a new KPI replacing the number of
portfolio companies performing above their
prior year. In the 2016 Annual Report it was
highlighted that the existing KPI did not reflect
the diversity of funds that were now being
managed. In addition, it was inconsistent with
the Executive Director KPIs for remuneration
purposes. Following review, this KPI has been
replaced by one that encompasses the wider
fund management business and is aligned
to the Executive Director KPIs.
Closed end funds have a finite life and
represent 96% of our AUM. For closed
end funds it is important for the capital to
be deployed over the investment period.
We monitor this against a straight line
deployment basis throughout the investment
period. Deployment of capital materially ahead
of the expected rate may indicate that we
are not being sufficiently selective or robust
in our investment decision making.
Our teams have identified sufficient suitable
investment opportunities to allow us to
maintain the investment pace for our closed
end funds during the year.
2018 PRIORITIES
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.
+ You can read more about the associated principal risks on pages 30 to 33
ICG ANNUAL REPORT & ACCOUNTS 2017GROUP RISKSRESOURCES &RELATIONSHIPSBUSINESS MODEL 17
STRATEGIC OBJECTIVE
WHAT WE MEASURE
WHY WE MEASURE IT AND
HOW WE PERFORMED
PERCENTAGE OF REALISED ASSETS EXCEEDING PERFORMANCE HURDLE (%)
3. MANAGE
PORTFOLIOS TO
MAXIMISE VALUE
We aim to manage our portfolios
to deliver returns on invested
capital for our fund investors
and shareholders. By doing so
we build on our strong track
record and generate capital to
invest in new products. We do
this by:
• Engaging regularly with
management and sponsors
• Attending and participating
in portfolio company
Board meetings for
our larger investments
• Reviewing the performance
of each investment
at least quarterly
• Proactively working out
problems where appropriate
92%
100
90
80
70
60
50
40
30
20
10
0
l
e
d
r
u
h
e
v
o
b
a
d
e
s
i
l
a
e
r
%
50%
4
13
Percentage realised above hurdle
Number of realisations
98%
53
80%
70%
23
10
16
14
15
92%
38
17
IMPAIRMENTS (£M)
£48.0M
112.4
80.0
37.6
39.4
48.0
13
14
15
16
17
IFRS GAAP 2017 £25.3m
This is a new KPI in the year and aligns to
an existing Executive Director KPI on page
88. A key indicator of our ability to manage
portfolios to maximise value is the number of
fully realised assets where the return is above
the fund performance hurdle rate. This is the
minimum return level fund investors expect
and the point at which the Group earns
performance fees. Details of the hurdle rate
per fund can be found on page 18.
r
a
e
y
n
i
d
e
s
i
l
a
e
r
s
t
e
s
s
a
f
o
r
e
b
m
u
N
60
50
40
30
20
10
0
At 92%, the number of assets realised above the
fund hurdle rate was higher than the prior year
when a small number of older assets were
realised below target. In FY13 and FY14 the
absolute number of assets realised was lower
than in recent years with a small number of the
older assets being realised at below the hurdle
impacting the overall percentage. However, the
Group has exceeded the performance hurdle for
each of the funds to which these assets relate.
IC impairments are asset specific and are
charged when there is an event which
results in a reduction in the value of an
interest bearing instrument or an available
for sale financial 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.
Our historic average is 2.5% of the opening
IC portfolio which we have identified as an
ongoing benchmark of performance.
Impairments in the year were marginally higher
than the prior two years and as a percentage
of the opening IC portfolio slightly above the
historic average.
As the diversity of our strategies continues
to grow, the Board may consider removing
this KPI.
2018 PRIORITIES
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.
+ You can read more about the associated principal risks on pages 30 to 33
STRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017FINANCIAL STATEMENTSGOVERNANCE REPORT
18
OUR
funds
Investor analysis by number of investors
By type
1 Pension schemes
2 Insurance companies
3 Banks
4 Asset managers
5 Fund of funds
6 Family offices
7 Endowments/Foundations
8 Other
1 EMEA (excluding UK and Ireland)
2 UK and Ireland
3 Americas
4 Asia Pacific
33%
21%
12%
8%
6%
6%
5%
9%
38%
20%
21%
21%
We seek to establish and build relationships with a broad
range of institutional investors. We have been particularly
successful in engaging with pension schemes and
insurance companies.
With staff based across Europe, Asia, America and
the Middle East, our in house distribution team is able
to reach more investors across the globe. The Group
is seeking a geographically diverse investor base.
By geography
CARRY EARNING FUNDS
FUND
ICG Mezzanine Fund 2003
ICG Europe Fund IV 2006B
ICG Europe Fund V
ICG Europe Fund VI
ICG Recovery Fund 2008B
Intermediate Capital Asia Pacific 2005
Intermediate Capital Asia Pacific 2008
Intermediate Capital Asia Pacific Fund III
North American Private Debt Fund
Nomura ICG Fund A
ICG Senior Debt Partners Fund I
ICG Senior Debt Partners Fund II
ICG Strategic Secondaries Carbon Fund
ICG Strategic Secondaries Fund II
THIRD PARTY MONEY
TARGET MONEY MULTIPLE
% CARRY*
€1,420m
€1,024m
€2,006m
€2,500m
€638m
$300m
$562m
$491m
$590m
¥17,351m
€1,726m
€3,153m
$153m
$781m
1.6x
n/a
1.6x
1.6x
n/a
1.6x
1.6x
1.7x
n/a
1.3x
n/a
n/a
1.9x
1.75x
25% of 20 over 8
20% of 5 over 8
20% of 20 over 8
20% of 20 over 8
20% of 12.5 over 8 up to
20% of 15 over 20
25% of 20 over 8
20% of 20 over 8
20% of 20 over 7
20% of 20 over 8
25% of 20 over 4
20% of 15 over 6
20% of 15 over 4 up to
20% of 20 over 7
20% of 12.5 over 8
20% of 12.5 over 8
*
Total carry is a fixed percentage of the fund gains. For example in ICG 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 ICG Mezzanine Fund 2003 this is 8%.
12345678201712342017ICG ANNUAL REPORT & ACCOUNTS 2017MARKETPLACE& STRATEGYGROUP RISKSRESOURCES &RELATIONSHIPSGROUPPERFORMANCEBUSINESS MODEL THIRD PARTY AUM BY FUND
STATUS
FY17 AUM (€M)
FY16 AUM (€M)
19
CORPORATE INVESTMENTS FUNDS
ICG Mezzanine Fund III 2003
ICG Europe Fund V
ICG Recovery Fund 2008
ICG Recovery Fund 2008B
ICG Europe Fund IV 2006B
ICG Europe Fund VI
Fully invested
Fully invested
–
Fully invested
Fully invested
Investing
Intermediate Capital Asia Pacific Mezzanine Fund I 2005
Fully invested
Intermediate Capital Asia Pacific Fund II 2008
Fully invested
Intermediate Capital Asia Pacific Fund III
Nomura ICG Fund
North American Private Debt Fund
ICG Senior Debt Partners Fund I
ICG Senior Debt Partners Fund II
ICG ASFL Ltd
CORPORATE INVESTMENT FUNDS TOTAL
CAPITAL MARKET INVESTMENTS FUNDS
Alternative Credit Fund I
European loan strategies
Eurocredit CLOs
St Paul’s CLOs
St Paul’s CLOs
US CLOs
European Investment Fund I
CAPITAL MARKET INVESTMENTS FUNDS TOTAL
REAL ASSET INVESTMENTS FUNDS
Longbow UK Real Estate Debt Investments II
ICG Longbow Senior Secured UK Property Debt
Investments Limited
Investing
Investing
Investing
Fully invested
Investing
Fundraising
Fundraising
Open ended
Fully invested
Fully invested
Investing
Investing
Investing
Fully invested
Open ended
ICG Longbow UK Real Estate Debt Investments III
Fully invested
ICG Longbow UK Real Estate Debt Investments IV
Investing
ICG Longbow Senior Debt Program I
ICG Longbow Senior Debt Program II
ICG Longbow Development Fund
REAL ASSETS FUNDS TOTAL
SECONDARY INVESTMENTS FUNDS
ICG Strategic Secondaries
ICG Enterprise Trust
SECONDARY INVESTMENTS FUNDS TOTAL
TOTAL THIRD PARTY ASSETS UNDER MANAGEMENT
Fully invested
Fully invested
Investing
Fundraising
Open ended
19.6
1,310.4
–
638.0
316.9
2,500.0
7.4
188.0
459.6
145.8
552.3
1,220.6
3,163.7
283.1
10,805.4
141.3
548.6
332.3
149.1
2,433.4
2,468.7
97.9
6,171.3
31.6
118.3
658.1
1,108.2
469.2
417.6
486.8
3,289.8
872.6
678.3
1,550.9
21,817.4
31.8
1,669.2
152.2
–
498.2
2,500.0
14.1
229.7
249.8
144.4
518.3
1,470.3
2,952.4
–
10,430.4
72.3
476.2
506.2
202.3
1,648.2
1,648.1
84.4
4,637.7
102.6
123.1
754.2
846.1
505.0
449.4
523.9
3,304.3
277.8
661.4
939.2
19,311.6
STRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017FINANCIAL STATEMENTSGOVERNANCE REPORT
20
FIN A NCE A ND OPER ATING
review
Financial information enables management to monitor the performance of the business and inform decision making in support of delivering the
Group’s strategic objectives. The financial information prepared for, and reviewed by, management and the Board is on a non IFRS basis and
therefore differs from the IFRS financial statements on pages 114 to 162.
The Group’s profit before tax on an IFRS basis was above last year at £252.4m (2016: £158.8m), driven by a high level of capital gains
increasing IC profits.
Income statement
Revenue
Finance and dividend income
Gains on investments
Fee and other operating revenue
Total revenue
Finance costs
Impairments
Administrative expenses
Other
Profit before tax
IFRS as
reported
£m
Adjustments
£m
204.2
286.8
134.1
625.1
(153.4)
(25.3)
(194.3)
0.3
252.4
(29.8)
(85.4)
12.5
(102.7)
99.5
(22.7)
11.3
(0.3)
(14.9)
2017
Internally
reported
adjusted
£m
174.4
201.4
146.6
522.4
(53.9)
(48.0)
(183.0)
–
237.5
IFRS as
reported
£m
Adjustments
£m
207.3
137.7
104.3
449.3
(121.9)
(8.9)
(141.9)
(17.8)
158.8
(46.0)
(9.1)
9.6
(45.5)
76.0
(30.5)
(1.0)
17.8
16.8
2016
Internally
reported
adjusted
£m
161.3
128.6
113.9
403.8
(45.9)
(39.4)
(142.9)
–
175.6
A full reconciliation between the internally reported financial information and the IFRS consolidated income statement, consolidated
statement of financial position and consolidated statement of cash flows is provided in note 7 to the financial statements. The adjustments
can be summarised as follows:
CONSOLIDATED STRUCTURED ENTITIES
IFRS deems the Group to control funds where it can make significant decisions that can substantially affect the variable returns of investors.
There are 12 credit funds and CLOs required to be consolidated under this definition of control. This has the impact of including the assets
and liabilities of these funds in the consolidated statement of financial position and to recognise interest income and gains or losses on
investments in the consolidated income statement.
The Group is not exposed to the liabilities and cannot access the assets of these entities except for the investment made by the Group into
these structured funds. Financial information prepared for internal reporting purposes includes the fair value of the balance sheet investment
in the statement of financial position, and includes the management fee and dividend income received from these entities in the income
statement. This is consistent with the treatment of the CLOs for regulatory reporting purposes.
OTHER ENTITIES
There are two entities, Nomura ICG KK and Questus Energy Pty Limited, where the presentation in the IFRS financial statements is different
to the internal reporting. The Group’s 50% share of the revenue and costs from Nomura ICG KK are included on a line by line basis in the
income statement for internal reporting purposes. These items are collapsed into a single line in the IFRS financial statements to reflect its
status as a jointly controlled entity. For Questus Energy Pty Limited, the costs are included on a line by line basis in the income statement for
internal reporting purposes whereas in the IFRS financial statements these are collapsed into a single line, administrative expenses, to reflect
its status as a non-controlled entity.
ICG ANNUAL REPORT & ACCOUNTS 2017MARKETPLACE& STRATEGYGROUP RISKSRESOURCES &RELATIONSHIPSGROUPPERFORMANCEBUSINESS MODEL 21
RECLASSIFICATION OF INCOME
The Group invests in its European mezzanine, Asia Pacific mezzanine and North American Private Debt strategies either through a fund
structure or directly into the underlying assets, depending on the fund. This impacts the presentation of the income statement for investments
in debt instruments under IFRS. For those investments made directly, the Group generates interest income and is subject to impairment risk,
whereas for the investments made through a fund structure the income is recognised as a net gain on investment.
Regardless of the investment mechanics the performance of the investment is reviewed and managed at an asset level. As such internal
financial information is presented on an asset by asset basis for all European mezzanine, Asia Pacific mezzanine and North American Private
Debt strategies. This is presentational only and has no impact on the profit of the Group.
OTHER
The Group excludes the fair value movement on derivatives from its internally reported numbers until such time as the derivative settles and is
matched in the income statement against the item that was hedged.
In the prior year, the increase in deferred consideration relating to the purchase of ICG Longbow and the impact of the Employee Benefit Trust
(EBT) were excluded for internal reporting purposes.
The Board believes that presenting the financial information in this review on a non GAAP basis assists shareholders in assessing the delivery
of the Group’s strategy through its financial performance, consistent with the approach taken by management and the Board.
Non GAAP measures are denoted by ¹ throughout this review. The definition, and where appropriate, reconciliation to a GAAP measure
is included in the Glossary on page 163.
OVERVIEW
The Group’s adjusted profit before tax¹, when excluding the impact of the fair value charge on derivatives, was above last year at £237.5m
(2016: £175.6m). This was driven by a high level of capital gains increasing IC profits. 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 higher
FMC profits in the year.
Income statement
Fund Management Company
Investment Company
Profit before tax
Tax
Profit after tax
Internally
reported
unadjusted
£m
Fair value
charge on
derivatives
£m
74.0
162.2
236.2
(34.9)
201.3
–
1.3
1.3
–
1.3
2017
Internally
reported
adjusted
£m
74.0
163.5
237.5
(34.9)
202.6
Internally
reported
unadjusted
£m
Fair value
charge on
derivatives
£m
61.2
97.1
158.3
(16.7)
141.6
–
17.3
17.3
–
17.3
2016
Internally
reported
adjusted
£m
61.2
114.4
175.6
(16.7)
158.9
The adjusted profit of the IC and Group in the above table excludes the impact of the fair value charge on hedging derivatives of £1.3m
(2016: £17.3m). Throughout this review all numbers are presented excluding this adjusting item, unless otherwise stated. The effective
tax rate for the period at 15% (2016: 11%) is higher than the prior year due principally to the mix of jurisdictions in which capital gains were
generated. The tax rate is lower than the standard corporation tax rate of 20%. This is principally due to the impact of differences in overseas
tax rates where we invest directly into funds which are based offshore.
Based on the adjusted profit above, the Group generated an ROE¹ of 18.2% (2016: 12.9%), an increase on prior year reflecting lower shareholder
funds following the £200m special dividend paid in August and strong capital gains. Capital gains of £201.4m (2016: £128.6m) have, as
expected, benefited from the one-off recycling of previously unrealised gains of £54.4m from reserves, primarily on the disposal of the
remainder of AAS Link, and a robust level of unrealised capital gains arising from the year end mark to market review. The recycling of realised
gains from reserves is an accounting requirement for pre 2011 equity assets. Excluding the recycled capital gains, the ROE for the financial
year was 13.3% which is more indicative of the performance for the new financial year and longer term trend. Adjusted earnings per share¹
for the period were 69.3p (2016: 48.1p).
The Group had net current assets¹ of £594.1m (2016: £229.8m) at the end of the year. The increase in net current assets is principally driven
by the realisation of balance sheet assets increasing the year end cash balance.
Fund Management Company
In this review we have aligned the presentation of financial information with the four strategic asset classes in which we operate – corporate
investments, capital market investments, real asset investments and secondary investments – to simplify and enhance the understanding
of our financial performance. The principal difference between this classification and that previously adopted is that the Senior Debt Partners
strategy falls within the corporate investments asset class whereas all other funds previously reported as credit funds fall within the capital
market investments asset class.
STRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017FINANCIAL STATEMENTSGOVERNANCE REPORT 22
FIN A NCE A ND OPER ATING
REVIEW
CONTINUED
Assets under management
A key measure of the success of our strategy to generate value from our fund management business is our ability to grow assets under
management. New AUM (inflows) is our best lead indicator to sustainable future fee streams and therefore increasing sustainable profits.
In the year to 31 March 2017, the net impact of fundraising and realisations saw third party AUM increased 13% to €21.8bn. AUM by strategic
asset class is detailed below, where all figures are quoted in €m.
Third party AUM by strategic asset class
Corporate
Investments
€m
Capital Market
Investments
€m
Real Asset
Investments
€m
Secondary
Investments
€m
Total
third party AUM
€m
At 1 April 2016
Additions
Realisations
FX and other
At 31 March 2017
Change %
10,431
1,461
(1,330)
243
10,805
4%
4,637
1,635
(249)
148
6,171
33%
3,305
345
(132)
(228)
3,290
0%
939
571
–
41
1,551
65%
19,312
4,012
(1,711)
204
21,817
13%
Corporate Investments
Corporate Investments third party funds under management have increased 4% to €10.8bn in the year as new AUM of €1,461m outstripped
the realisations in our older funds. In the year we closed our third Asia Pacific fund at €614m, including a $200m commitment from the balance
sheet and €189m of third party money raised during the financial year. This was below its target size as the slowdown in growth in China had
an impact on the region. During the year Recovery Fund 2008 sold its remaining assets to a new secondary fund which is managed by the
Group. The new fund raised commitments totalling €638m in the year. Additionally, we raised €351m from segregated mandates into our
Senior Debt Partners strategy and €283m for our Australian Senior Loans Fund, the first third party money raised for this strategy.
Capital Market Investments
Capital Market Investments third party funds under management have increased 33% to €6.2bn, with new third party AUM of €1,635m raised
in the year, primarily from our CLO programme. During the year we completed four CLOs, two in Europe and two in the US, raising a total
€1,567m, including €85m committed from the balance sheet to meet regulatory requirements, thereby further increasing the operating
leverage of this strategy. We raised €153m across our other capital market investments strategies, including alternative credit and total credit.
Real Asset Investments
Real Asset Investments third party funds under management have remained at €3.3bn, with new AUM of €345m raised in the year for our UK
real estate fund, ICG Longbow Fund IV. The additional money raised in the current year has contributed to the fund reaching its maximum size
of £1.0bn, including a £50m co-investment from the IC, and making it our second successive UK real estate fund to reach that milestone.
Secondary Investments
Secondary Investments third party funds under management have increased 65% to €1.6bn, with new AUM of €571m raised in the period
for our Strategic Secondaries strategy. A final close is expected shortly which would take the fund above its target size of $1bn, including
a $200m commitment from the balance sheet.
Fee earning AUM
The investment rate for our Senior Debt Partners strategy, Real Estate funds and North American Private Debt Fund has a direct impact
on FMC income as fees are charged on an invested capital basis. The total amount of third party capital deployed on behalf of the direct
investment funds was £3.1bn in the year compared to £2.4bn in the last financial year. The direct investment funds are investing as follows,
based on third party funds raised at 31 March 2017:
ICG ANNUAL REPORT & ACCOUNTS 2017MARKETPLACE& STRATEGYGROUP RISKSRESOURCES &RELATIONSHIPSGROUPPERFORMANCEBUSINESS MODEL 23
Strategic asset class
Fund
Corporate Investments
ICG Europe Fund VI
Corporate Investments
North American Private Debt Fund
Corporate Investments
Senior Debt Partners II
Corporate Investments
Asia Pacific Fund III
Real Asset Investments
ICG Longbow Real Estate Fund IV
Secondary Investments
Strategic Secondaries
% invested at
31 March 2017
% invested at
31 March 2016
Assets in fund at
31 March 2017
Deals completed
in year
40%
64%
64%
44%
71%
26%
10%
46%
31%
27%
42%
20%
8
12
23
4
23
3
5
5
9
1
6
1
The investment pace of our direct investment funds has resulted in fee earning AUM increasing 19% to €18.7bn since 1 April 2016 as
detailed below.
Third party fee earning AUM bridge
At 1 April 2016
Additions
Realisations
FX and other
At 31 March 2017
Change %
Corporate
Investments
€m
Capital Market
Investments
€m
Real Asset
Investments
€m
Secondary
Investments
€m
7,891
2,311
(1,721)
35
8,516
8%
4,637
1,635
(249)
148
6,171
33%
2,521
564
(242)
(176)
2,667
6%
708
571
–
109
1,388
96%
Total
third party fee
earning AUM
€m
15,757
5,081
(2,212)
116
18,742
19%
Fee income
Third party fee income¹ of £138.6m was 27% higher than the prior year driven by the investment of those funds that charge fees on invested
capital, fees from our recently established secondaries strategy and the CLO issuance programme. Details of movements are shown below:
Fee income
Corporate Investments
Capital Market Investments
Real Asset Investments
Secondary Investments
Total third party funds
IC management fee
Total
31 March 2017
£m
31 March 2016
£m
Change
%
78.2
23.7
21.9
14.8
138.6
18.1
156.7
70.0
17.7
19.1
2.1
108.9
18.4
127.3
12%
34%
15%
n/a
27%
(2%)
23%
Third party fees include £9.8m of performance fees (2016: £14.0m), of which £8.5m (2016: £12.3m) related to Corporate Investments,
as the realisation of assets from older vintages helped trigger performance hurdles. Performance fees are an integral recurring part of the
fee income profile and profitability stream of the Group.
Third party fees are 78% denominated in Euros or US dollars. The Group’s policy is to hedge non Sterling fee income, to the extent that it
is not matched by costs and is predictable. Therefore the impact of the devaluation of Sterling will be partially felt in both the 2017 and 2018
financial years. Total fee income included an £8.1m FX benefit in the year.
The weighted average fee rate¹, excluding performance fees, across our fee earning AUM is 0.91% (2016: 0.88%). This slight increase is due
to fund mix and reflects the impact of raising the higher fee earning Asia Pacific mezzanine and Strategic Secondaries funds during the year.
Dividend income
Dividend receipts of £23.2m (2016: £19.3m) are higher than prior year due to the increased number and improved performance of CLOs.
Operating expenses
Operating expenses of the FMC¹ were £105.7m (2016: £85.0m), including salaries and incentive scheme costs. The devaluation of Sterling
has had a more immediate impact on the cost base where 15% of costs are Euro denominated and 16% US dollar denominated. Costs are
£4.7m higher in the year due to FX.
Salaries were £39.0m (2016: £30.4m) as average headcount increased 11% from 215 to 238. This increase is directly related to investing in
our capital market investments strategies, the ICG Enterprise Trust team and our operations infrastructure. Incentive scheme costs of £33.8m
(2016: £24.5m) are higher as a consequence of strong performance. Other administrative costs have increased to £32.9m (2016: £30.1m)
as a result of increased occupancy and IT costs in the current year and the full year impact of ICG Enterprise Trust’s administrator costs.
STRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017FINANCIAL STATEMENTSGOVERNANCE REPORT 24
FIN A NCE A ND OPER ATING
REVIEW
CONTINUED
The FMC operating margin¹ was 41.2%, down from 41.9% in the prior year, reflecting the increased operating costs detailed above.
INVESTMENT COMPANY
Balance sheet investments
The balance sheet investment portfolio¹ decreased 5% in the year to £1,711.6m at 31 March 2017, as illustrated in the investment portfolio
bridge below:
At 1 April 2016
New and follow on investments
Net transfer from current assets
Accrued interest income
Realisations
Impairments
Fair value gains
FX and other
At 31 March 2017
£m
1,798.0
366.0
36.8
94.7
(803.7)
(48.0)
117.1
150.7
1,711.6
Realisations comprise the return of £501.6m of principal, the crystallisation of £85.8m of rolled up interest and £216.3m of realised
capital gains.
In the period £276.0m was invested alongside our corporate investments strategies for new and follow on investments. Of the remaining
£90.0m, £67.9m was invested in CLOs in accordance with regulatory requirements and £20.6m in our Strategic Secondaries strategy.
The Sterling value of the portfolio increased by £146.4m due to FX movements. The portfolio is 43% Euro denominated and 32% US dollar
denominated. Sterling denominated assets account only for 15% of the portfolio. The Group minimises the FX impact of non-Sterling assets
through asset/liability management and derivative transactions.
The balance sheet investment portfolio is weighted towards the higher returning asset classes as detailed below:
Corporate Investments
Capital Market Investments
Real Asset Investments
Secondary Investments
Total balance sheet portfolio
Return profile
As at
31 March 2017
£m
15-20%
5-10%
c10%
15-20%
1,120
333
107
152
1,712
As at
31 March 2016
£m
1,305
264
125
104
1,798
% of total
66%
19%
6%
9%
100%
% of total
72%
15%
7%
6%
100%
In addition, £89.7m (2016: £182.6m) of current assets are held on the balance sheet with the intention of being 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 the fundraising as potential investors can see the types of assets they will be investing in.
At 31 March 2017, 86% of these assets related to our real estate and alternative credit strategies.
ICG ANNUAL REPORT & ACCOUNTS 2017MARKETPLACE& STRATEGYGROUP RISKSRESOURCES &RELATIONSHIPSGROUPPERFORMANCEBUSINESS MODEL 25
Investment income
Investment income¹ of £360.8m represents the total income earned from the balance sheet portfolio in the year, analysed as follows:
Investment income
Interest income
Dividend and other income
Capital gains
31 March 2017
£m
31 March 2016
£m
144.7
14.7
201.4
360.8
126.0
21.4
128.6
276.0
Change
%
15%
(31%)
57%
31%
Interest income¹ was above the prior period due to an increase in interest bearing assets in our corporate investments and capital market
investments strategies. Cash interest income has increased to 38% (2016: 30%) of the total as the growing US mezzanine and real estate
portfolios are weighted towards cash pay interest.
Dividend income¹ was received from our real estate and senior debt funds. The prior year included a dividend from our secondaries
investment in the Diamond Castle Partner 2014 LP fund.
Capital gains¹ were, as expected, particularly strong in the financial year as the income statement benefited from the delayed income statement
recognition of £54.4m of capital gains recycled from reserves on realisation of the underlying assets. In addition, the valuation of the portfolio
as at 31 March 2017 benefited from the strength in global stock markets and the improved performance across a large number of portfolio
assets over the last 12 months.
Net realised capital gains¹ in the period were £235.3m (2016: £75.2m), of which £150.9m (2016: £51.2m) had been recognised previously as
unrealised gains in the income statement with the remaining £84.4m (2016: £24.0m) recognised in the current year, including the recycling from
reserves. Fair valuing the equity and warrants gave rise to a further £112.5m (2016: £144.4m) of unrealised gains in the current period. Of this,
£117.0m (2016: £104.6m) is recognised in the income statement and a £4.5m unrealised loss in reserves (2016: £39.8m unrealised gain).
Interest expense
Interest expense¹ of £53.9m was £8.0m higher than the prior period (2016: £45.9m), due to the increase in private placement debt and the FX
impact of interest paid on non-Sterling borrowings.
Operating expenses¹
Operating expenses of the IC¹ amounted to £77.3m (2016: £57.9m), of which incentive scheme costs of £54.2m (2016: £39.7m) were the largest
component. The £14.5m increase is due to the cost of balance sheet carry, the Group’s IC carry arrangements, increasing and a higher cash
bonus accrued as a direct consequence of the high level of realisations in the year. Other staff and administrative costs were £23.1m compared
to £18.2m last year, a £4.9m increase. This increase is due to an increase in business development costs, of which the largest component is
related to the Australian Senior Loans strategy, and the amortisation on the ICG Enterprise Trust management contract.
Impairments
During the period we took asset specific impairments¹ of £57.6m compared to £42.8m in the last financial year, with write backs of £9.6m
(2016: £3.4m) resulting in net impairments of £48.0m (2016: £39.4m). This is broadly in line with our historic average of 2.5% of the opening
IC portfolio.
GROUP CASH FLOW AND DEBT
The balance sheet remains strong, with £970.8m of available cash and debt facilities at 31 March 2017. The movement in the Group’s unutilised
cash and debt facilities during the period is detailed as follows:
Headroom at 31 March 2016
New bank facilities
Bank facilities matured
Reduction in bank facilities
Increase in private placements
Private placements matured
Movement in cash
Movement in drawn debt
Other (including FX)
Headroom at 31 March 2017
Total drawn debt at 31 March 2017 was £1,119m compared to £866m at 31 March 2016, with unencumbered cash of £490m compared
to £112m at 31 March 2016.
£m
781.3
91.0
(150.0)
(142.9)
296.1
(82.2)
377.6
(253.0)
52.9
970.8
STRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017FINANCIAL STATEMENTSGOVERNANCE REPORT 26
FIN A NCE A ND OPER ATING
REVIEW
CONTINUED
Cashflow
Operating cash inflow¹ for the year was £657.3m (2016: £185.6m), reflecting that our operating model is highly cash generative, as
analysed below:
Cash in from realisations
Cash in from dividends
Cash in from fees
Cash in from cash interest
Cash movement in current assets held in warehouse or for syndication
Total cash receipts
Cash interest paid
Cash paid to purchase loans and investments
Cash movement in current assets held in warehouse or for syndication
Operating expenses paid
Total cash paid
Total cash generated from operating activities
31 March 2017
£m
31 March 2016
£m
716.5
29.9
148.9
142.3
153.7
1,191.3
(53.0)
(366.0)
–
(115.0)
(534.0)
657.3
394.3
45.7
86.3
124.3
–
650.6
(47.0)
(247.1)
(35.8)
(135.1)
(465.0)
185.6
This has been a particularly strong year for cash generation as the FMC has benefited from increased fees, and a strong period of realisations
from our balance sheet portfolio. Fundraising activities have also enabled current assets held on the balance sheet to be transferred to third
party funds.
Capital position
Shareholders’ funds decreased by 6% to £1,172.6m (2016: £1,241.2m) in the year, principally due to the £200m special dividend paid during
the year. Total debt to shareholders’ funds (gearing¹) as at 31 March 2017 increased to 0.95x from 0.70x. Adjusted return on equity¹ of 18.2%
is up 5.3% points.
ICG ANNUAL REPORT & ACCOUNTS 2017MARKETPLACE& STRATEGYGROUP RISKSRESOURCES &RELATIONSHIPSGROUPPERFORMANCEBUSINESS MODEL 27
M A N AGING R ISK TO DELI V ER OUR
STR ATEGY
Effective risk management
provides the framework within
which we can successfully
deliver our strategic priorities.
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 is responsible for setting the
risk culture of the Group and establishing
and maintaining appropriate systems
and controls to manage risk. A robust
risk management framework has been
implemented to support this.
The Group’s risk management framework
is overseen by the Risk Committee under
delegation from the Board. The Risk
Committee also considers the effectiveness
of the internal control environment. Details
of the activities of the Risk Committee in
this financial year can be found in the Risk
Committee report on pages 60 to 64.
IDENTIFYING PRINCIPAL AND
EMERGING RISKS
The Risk Committee determines the principal
risks 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 review). The principal risks to
the Group are identified and recommended
to the Board by the Risk Committee.
The top down review focuses on identifying
those risks that could threaten the business
model, future performance, capital 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
external developments. The review also
considers emerging risks.
The bottom up assessment encompasses
the identification, management and
monitoring of risks in each area of the
business. The infrastructure and in house
OUR RISK MANAGEMENT FRAMEWORK
ICG PLC BOARD
Sets overall risk culture and risk appetite
+ See page 29
BUSINESS
STRATEGY
Purpose and future
direction
ICAAP
Internal assessment
of regulatory
capital requirements
+ See page 63
RISK COMMITTEE
Oversees the Group’s risk
management framework and
system of internal controls
+ See page 60
EXECUTIVE COMMITTEE
OPERATIONAL
RISK GROUP
+ See page 45
RISK
REGISTERS
+ See page 27
CULTURE AND CONDUCT
CHIEF RISK OFFICER
Oversight, challenge and support
to embed the Group’s risk
management framework
+ See page 45
The Directors confirm that they have
undertaken a robust assessment of principal
risks in line with the requirements of the UK
Corporate Governance Code. There were
no changes to the list of principal risks of the
Group in the year.
Emerging risks are regularly considered to
assess any potential impacts on the Group
and to determine whether any actions
are required. Emerging risks include
those related to regulatory change and
macroeconomic and political change, which
in the current year have included the UK’s
decision to leave the European Union.
distribution teams maintain detailed risk
registers which are regularly reviewed,
challenged and updated by the Chief
Risk Officer (CRO) and the Operational
Risk Group (ORG). This review process
ensures risk management responsibilities
are embedded in the business’ first line
operations. In addition, the Group’s
Investment Committees provide oversight
of risks related to the investment and fund
management activities of the Group.
Executive responsibility for each principal
risk is reviewed and agreed. 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. Key risk indicators are set and
these are monitored by the Risk Committee.
The Risk Committee also considers any risk
mitigation plans.
STRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017FINANCIAL STATEMENTSGOVERNANCE REPORT 28
M A N AGING R ISK TO DELI V ER OUR
STR ATEGY
CONTINUED
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 investment performance and
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. Reputation and
brand risk is carefully managed as part
of the risk management framework.
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 and business risk
LOWER
HIGHER
1
2
Loss or missed opportunity as a result
of major external change
Failure to maintain acceptable relative
investment performance
3
Failure to raise new third party funds
4
Failure to deploy committed capital
in a timely manner
Market, credit and liquidity risk
LOWER
5
Loss as a result of adverse market fluctuations
6
Loss as a result of exposure
to a failed counterparty
7
Failure to meet financial obligations
HIGHER
Operational risk
LOWER
HIGHER
8
9
Loss of a ‘key person’ and inability to recruit
into key roles
Negative financial or reputational impact
arising from regulatory or legislative failing
10 Technology and information security risks
11
Failure of key business processes
ICG ANNUAL REPORT & ACCOUNTS 2017MARKETPLACE& STRATEGYGROUP RISKSRESOURCES &RELATIONSHIPSGROUPPERFORMANCEBUSINESS MODEL 29
RISK GOVERNANCE FRAMEWORK
The Group operates a risk governance framework consistent with the principles of the
‘three lines of defence’ model.
1st
2nd
INVESTMENT, INFRASTRUCTURE
AND DISTRIBUTION
CONTROL AND
OVERSIGHT FUNCTIONS
3rd
INTERNAL INDEPENDENT
ASSURANCE
Business operations and support owns and
is responsible and accountable for directly
assessing, controlling and mitigating risks.
The control and oversight functions monitor the
activities of the first line and support the business
in identifying and managing risks.
Internal audit provides independent assurance
to the Audit Committee that the Group’s risk
management, governance and internal control
processes are operating effectively.
EXECUTIVE COMMITTEE, AUDIT AND RISK COMMITTEES, THE BOARD
Monitoring the effectiveness
of controls
During the year, the Group further
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. Additional reporting
on the effectiveness of material controls is
provided to the Board and Risk Committee
to support the review of the effectiveness
of controls in managing the principal risks.
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. 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.
Management’s continuous
monitoring of the
effectiveness of material
controls ensures the
principal risks are managed
and supports the delivery
of our strategic objectives.
PHILIP KELLER
Executive Director
STRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017FINANCIAL STATEMENTSGOVERNANCE REPORT 30
31
M A N AGING OUR
principal risks
LINK TO STRATEGY
Grow assets under management
Invest selectively
Manage portfolios to maximise value
PRINCIPAL RISK
IMPACT
KEY RISK INDICATOR
KEY CONTROLS AND MITIGATION
MOVEMENT IN THE YEAR
FOCUS FOR FY18
Deterioration of Group performance
compared to plan.
Impairment rate as a percentage
of the opening loan book.
+ See pages 17 and 88
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.
STRATEGIC AND BUSINESS RISKS
1
Loss or missed opportunity as a result
of major external change (including
macroeconomic, regulatory, political
and/or competitive impact)
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.
2
Failure to maintain acceptable relative
investment performance
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.
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.
In the short term, fund underperformance may result in lower
performance fees in the FMC. For the IC this may result in a lower
return on assets as the IC is exposed to credit risk through its
co-investments with, and its investments in, funds.
Performance of fund portfolio companies.
Performance of certain funds compared
to benchmark.
Impairment rate as a percentage
of the opening loan book.
+ See pages 17 and 88
3
Failure to raise new third party funds
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 15 and 88
4
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.
The proportion of a fund’s capital forecast
to be available for investment in the final
year of the investment period.
+ See pages 16 and 88
MARKET, CREDIT AND LIQUIDITY RISKS
5
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 the assets and liabilities of the Group and, to the extent
that these are unhedged, will impact on the financial performance
of the Group.
Value of net unhedged assets.
Percentage of loan book unhedged.
6
Loss as a result of exposure
to a failed counterparty
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.
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.
The Group’s counterparties are national or multinational banks.
Should a financial counterparty of the Group fail, the Group
would be exposed to loss.
During the year this risk has
remained elevated due to ongoing
political uncertainty.
To mitigate the risk associated with the
UK’s decision to leave the European Union
the Board approved the establishment
of a Luxembourg licensed entity to ensure
the Group maintains access to European
Union investors.
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.
Investor sentiment remains supportive of
the Group’s strategies but the fundraising
environment is highly competitive.
During the year the Group has delivered
on its target for raising third party funds.
Competition for new investment
opportunities is high and this, together
with sustained high asset prices, puts
the deployment of funds in line with
expectations at risk.
During the year the Group has applied
its hedging policy consistently.
Political uncertainty in
Europe as a result of the
negotiations over the
UK’s departure from
the European Union
Maintaining
investment discipline
Managing conflict of
interests resulting from
funds structured to pay
fees on invested capital
Maintaining discipline
on fees and terms
Diversification of risk
by selectively expanding
the portfolio of
investment strategies
Maintaining
investment discipline
Market volatility as a result
of political uncertainties,
including the impact of
the negotiations over the
UK’s departure from the
European Union
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.
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.
Counterparty exposure relative
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.
Ongoing monitoring of
counterparty exposures
STRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017ICG ANNUAL REPORT & ACCOUNTS 2017MARKETPLACE& STRATEGYGROUP RISKSRESOURCES &RELATIONSHIPSGROUPPERFORMANCEBUSINESS MODELFINANCIAL STATEMENTSGOVERNANCE REPORT
32
33
M A N AGING OUR
PRINCIPAL RISKS
CONTINUED
LINK TO STRATEGY
Grow assets under management
Invest selectively
Manage portfolios to maximise value
PRINCIPAL RISK
IMPACT
KEY RISK INDICATOR
KEY CONTROLS AND MITIGATION
MOVEMENT IN THE YEAR
FOCUS FOR FY18
MARKET, CREDIT AND LIQUIDITY RISKS CONTINUED
7
Failure to meet the Group’s financial
obligations as they fall due
An ongoing failure to refinance its liabilities could result in the
Group failing to meet its payment obligations as they fall due.
Forecast breach of financing principles.
As a result the Group would not be a going concern.
OPERATIONAL RISKS
8
Loss of a ‘key person’ and inability
to recruit into key roles
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 a key employee 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.
Loss of a Key Man on a material fund.
9
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 or legislative failing.
Any material breach of regulations.
Other legislative failure.
10 Technology/information security
inadequate or fails to adapt to changing
business requirements and/or
external threats
The Group’s ability to deliver on its strategic objectives
relies on technology and information security which adapts
to changing business demands and external threats. Failure
to deliver an appropriate technology platform may impact
the Group’s reputation, and its ability to raise new funds and
operate its fund management business.
Any material breach or severe disruption
due to systems failure.
Any material loss or reputational damage
arising from external threats.
11 Loss or missed opportunities
arising from failure of key business
processes, including third party
supplier management, valuation
and external reporting
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.
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.
The Group rewards its investment professionals and other key
employees in line with market practice. Senior investment professionals
typically receive long term incentives and 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 succession plans in place for key employees. These are
reviewed by the Board.
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. The effectiveness of the control framework for key
business processes is reviewed by the Risk Committee (see pages
60 to 64).
During the year the Group issued new
debt into the US private placement market,
extending the weighted average life of its
debt facilities.
Balance sheet efficiency
Regulatory
capital requirements
Following the payment of the £200m special
dividend the Group’s gearing has remained
within its target range.
There was no significant impact in the year
as a result of the loss of any employee.
The decision of the Chief Executive to stand
down from his executive responsibilities at
the AGM will not result in the breach of a Key
Man clause. However, the risk of a breach is
temporarily increased until additional Key
Man nominations are approved by investors.
Managing the impact
of the UK’s departure
from the European Union
on our workforce
Continued focus on
succession planning
During the year the Group has continued
to enhance its processes and controls
in order to remain compliant with current
and expected legislation. There are no
regulatory or business developments
which have resulted in an increased risk
to the Group.
Senior Managers and
Certification Regime
for Asset Managers
MiFID II
General Data
Protection Regulation
The ongoing evolution of external threats
has resulted in an increase in risk to
the Group. In response, the Group has
continued to improve its systems and
controls to identify and manage technology
and information security risks.
Enhancement of business
continuity planning and
disaster recovery
Continued focus on
cybersecurity threats
There were no significant business
process failures during the year.
Oversight of third party
service providers
STRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017ICG ANNUAL REPORT & ACCOUNTS 2017MARKETPLACE& STRATEGYGROUP RISKSRESOURCES &RELATIONSHIPSGROUPPERFORMANCEBUSINESS MODELFINANCIAL STATEMENTSGOVERNANCE REPORT
34
M A N AGING OUR
PRINCIPAL RISKS
VIABILITY STATEMENT
The Directors have
undertaken a robust
assessment of the Group’s
longer term viability and have
a reasonable expectation of
the Group’s viability over the
next three years.
KATHRYN PURVES
Chairman of the Risk Committee
In accordance with the provisions of the UK
Corporate Governance Code, 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 2 to 38.
The Directors have assessed the Group’s
longer term viability over a period of three
years to March 2020. They are satisfied
that a forward-looking assessment of
the Group for this period is sufficient to
enable a reasonable statement of viability.
This is the period covered by the Group’s
strategic plan, the typical period over which
regulatory changes are implemented and the
period over which forecasting assumptions
are most reliable.
The Group’s strategy and principal risks
underpin the three year strategic plan
and associated stress and reverse stress
testing, which the Directors review at least
annually. In making their assessment, the
Directors consider a wide range of detailed
information including projections for
profitability, cash flows, debt and capital
requirements, financial covenants and
regulatory capital headroom.
The strategic plan is built on a fund by
fund basis using a bottom up model.
For each fund assumptions are made on the
deployment of existing capital, the raising
of successor funds, and the performance
of the underlying portfolio. In addition, the
strategic plan includes assumptions about
the launch of new strategies, the ability
to refinance debt as it falls due and the
development of the regulatory environment.
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
Internal Capital Adequacy Assessment
Process (ICAAP). The stress test scenario
uses the 2008/09 financial crisis as its basis
and reflects a number of the principal risks
of the business through reducing new funds
raised, lowering the deployment of capital,
and increasing impairment.
As part of the ICAAP process, a reverse
stress test exercise is also undertaken
to identify the circumstance under
which the business model becomes
unviable. This indicates that only under
major unprecedented macroeconomic
conditions does the Group’s viability come
into question. As part of this exercise it
is assumed that the Group is subjected
to controlled run-off, allowing the Group
to meet contractual maturities as they fall
due with significant headroom.
The review of the three year strategic plan
is underpinned by regular briefings to the
Board 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 and 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 28.
The Directors also considered it appropriate
to prepare the financial statements on the
going concern basis as set out on page 101.
ICG ANNUAL REPORT & ACCOUNTS 2017MARKETPLACE& STRATEGYGROUP RISKSRESOURCES &RELATIONSHIPSGROUPPERFORMANCEBUSINESS MODEL 35
OUR R E SOURCE S A ND
REL ATIONSHIPS
Our business model supports the delivery of our strategic objectives
and is reliant upon our key resources and relationships. Elsewhere in this
Strategic Report we have identified the importance of our local teams,
sector specialists, dedicated distribution team and infrastructure platform.
In addition, building and maintaining our key external relationships is
essential to delivering our strategy.
MANAGING OUR KEY RELATIONSHIPS
GROW ASSETS
UNDER
MANAGEMENT
The Group continues to expand and strengthen 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, outside advisers and our regulators
to both identify and manage regulatory risk and also to promote best practice within the marketing, investment
and infrastructure teams.
INVEST
SELECTIVELY
Our investment professionals manage the relationships necessary to originate and source investment
opportunities for our funds. These relationships include financial and investment advisers, banks and
other investment managers. Our reputation, built up over 28 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 governance factors in all our investment decisions.
MANAGE
PORTFOLIOS
TO MAXIMISE
VALUE
We invest 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.
The Group relies on a number of key suppliers, including fund administrators, third party legal and
accounting advisors and landlords, to deliver its strategic objectives. The Group has established a system
of oversight controls to ensure that services are delivered in accordance with contractual agreements and
to an appropriate quality.
STRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017FINANCIAL STATEMENTSGOVERNANCE REPORT 36
OUR R E SOURCE S A ND
REL ATIONSHIPS
CONTINUED
OUR RESPONSIBILITY
TO OUR PEOPLE
To successfully deliver our strategic
priorities the Group needs engaged and
motivated 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 the norm for financial
services companies.
The Group considers that training and
development are essential to attract and
retain people of the highest calibre and
invests significantly in this area. We are
committed 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.
The Group supports flexible working,
with 8.2% of employees benefiting
from these arrangements. The current
engagement of our people is further
demonstrated by staff retention, based
on opening headcount, of 88.1%.
DIVERSITY AND VALUES
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.
As at 31 March 2017 of our permanent
employee population of 281, 89 are women
and 192 men. While we do not record
the religion or ethnicity of employees we
benefit from our employees representing
31 different nationalities.
The senior management team (excluding
the Group’s Board) comprises of one
woman and seven men. ICG’s Board of nine
comprises three Executive Directors, and
six Non Executive Directors of which two
are women.
+ Biographies on pages 42 and 43
MODERN SLAVERY
ICG abhors slavery and human trafficking.
We will seek to ensure there are no such
practices in our business and supply
chain. During the year we have carried
out staff training and awareness raising
and incorporated slavery considerations
into supplier selection and due diligence.
We have also conducted a review of our
own business, our investee companies that
are covered by our statement, and material
suppliers. No concerns were raised in any
of our due diligence.
The Group’s full policy on Modern Slavery
can be found at www.icgam.com
ICG ANNUAL REPORT & ACCOUNTS 2017MARKETPLACE& STRATEGYGROUP RISKSRESOURCES &RELATIONSHIPSGROUPPERFORMANCEBUSINESS MODEL 37
SUPPORTING LEVEL20
Level20 is a not-for-profit organisation set
up to attract, nurture, and promote women
in private equity, to achieve greater gender
diversity both for the benefit of the industry
at large as well as for the good that gender
diversity brings to the community. One of
our fund managers, Emma Osborne, was
one of the founders and remains heavily
involved with the organisation. ICG supports
the objectives of Level20, making a £15,000
contribution this year.
• 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
• For more information about Level20
please visit: www.level20.org
The business mentoring
programme has developed
into one of the most
important interventions
on the ThinkForward
programme at the PRU.
Young people who engage
regularly, clearly develop
their confidence and
communication skills. It also
has a positive impact on
their drive and aspiration to
succeed in life, making the
world of work and business
seem more attainable
– something they can
aspire towards.
SEAN PORTER
ThinkForward Coach
OUR RESPONSIBILITY
TO OUR COMMUNITY
Our corporate social responsibility policies
and practises are grounded in promoting
opportunities to young people, through
education or work experience.
SUPPORTING THINKFORWARD
We have supported ThinkForward, a
charity working to reduce the risk of young
people becoming NEET (not in education,
employment or training) since its inception.
We have extended our partnership with
a further five year, £500,000 commitment
in the current year.
ICG’s investment has enabled a full time
coach to be placed into the Harpley Centre
at Tower Hamlets Pupil Referral Unit (PRU)
to work with those young people most at
risk of becoming NEET. The coach supports
them to maximise their opportunities whilst
in full time education, to develop their skills
and work readiness so that they are more
likely to transition into long term employment
or further education.
ICG also provides regular business
mentoring opportunities to young people
from the PRU, working on different topics
including CV writing, interview preparation
and team work skills. To date, ICG has
worked with over 40 young people and
this year was shortlisted for the prestigious
Lord Mayor of London’s Dragon Award
in recognition of this work.
STRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017FINANCIAL STATEMENTSGOVERNANCE REPORT 38
OUR R E SOURCE S A ND
REL ATIONSHIPS
CONTINUED
PROVIDING A ROUTE INTO
FINANCIAL SERVICES
ICG has just recruited its 5th cohort of
interns. We target bright and capable
graduates with strong academic track
records but prioritise those who have little
or no previous Financial Services experience.
To date we have recruited 21 graduates.
Interns are assigned a manager, mentor
and buddy and provided with 12 months’
competitively paid work experience and
training to help them gain that all-important
first foothold in the industry. Our unique
approach is intended to break down some
of the barriers to entry into the financial
services industry and we are very proud
that over 85% of our alumni have gone on
to secure full time roles within their career
of choice.
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.
We quantify and report our organisational
greenhouse gas emissions in alignment with
the World Resources Institute’s Greenhouse
Gas (GHG) Protocol Corporate Accounting
and Reporting Standard and in alignment
with the Scope 2 Guidance update to the
Corporate Standard.
We quantify and report Scope 2 emissions
according to two different methodologies:
the location based method, using average
emissions factors for the country in which the
reported operations take place; and the market
based method, which uses the actual emissions
factors of the energy procured.
We voluntarily report our Scope 3 indirect
emissions from business travel and water
consumption using the GHG Protocol
Corporate Value Chain (Scope 3) Standard.
Our absolute Scope 1 emissions have increased
due to the increased scope of emissions
included. There has been an increase of 11.7% in
our electricity use; however our overall Scope 2
emissions have decreased as certain emission
factors for the grid electricity have reduced.
Our Scope 3 emissions have increased slightly
due to improved data accuracy. Accurate data
collection continues to be a challenge where
we rely on third parties, such as the landlord
or utilities consultants, or if changes in building
management occur. We are continually
improving the quality of our GHG disclosure.
The number of people employed has increased
over the past year but our GHG emissions per
full time employee (FTE) have decreased.
We will continue to look for opportunities
to improve performance in this area.
Operational scope
Greenhouse gas emission source
Direct emissions
(Scope 1)
Combustion of fuel and
operation of facilities
Indirect emissions
(Scope 2)
Purchased electricity/heat
(location based)
2017
74
2016
49
Units
Tonnes CO2e
852
881
Tonnes CO2e
Purchased electricity/heat
(market based)
849
966
Tonnes CO2e
Indirect emissions
(Scope 3)
Business travel:
flights and rail
Total
Emissions per FTE
2,888
2,550
Tonnes CO2e
3,814
3,480
Tonnes CO2e
11.7
13.7 Tonnes CO2e per FTE
ICG ANNUAL REPORT & ACCOUNTS 2017MARKETPLACE& STRATEGYGROUP RISKSRESOURCES &RELATIONSHIPSGROUPPERFORMANCEBUSINESS MODEL 39
GOVERNANCE
R EPORT
CONTENTS
Letter from the Chairman
Board of Directors
Our corporate governance framework
The Board’s year
Induction and training
Board evaluation
Engagement with stakeholders
Audit Committee report
Risk Committee report
Nominations Committee report
Remuneration Committee report
Compensation summary
Directors’ remuneration policy
Annual report on remuneration
Directors’ report
Directors’ responsibilities
40
42
44
46
48
49
50
51
60
65
69
74
78
87
99
106
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 40
A LE T TER FROM THE
CHAIRMAN
KEVIN PARRY
Chairman
Key governance achievements
• Appointment of Benoît Durteste as
our new CEO following a detailed and
thorough succession process overseen
by the Nomination Committee
• Continuation of the process of
refreshing the composition of the
Board to include a wider range of
skills and backgrounds, including
the appointment of a new Chairman
of the Audit Committee and the
recent addition of a further Non
Executive with extensive experience
in investment management
• Proposal of a new, simplified
remuneration policy
• Continued focus on engagement with
shareholders and other stakeholders
• External Board evaluation concluding
that the Board continues to operate
in an effective manner
DEAR SHAREHOLDER
I became Chairman of the Board of the
Company from the end of last year’s Annual
General Meeting (AGM). The subsequent
period has been a busy one in terms of
Corporate Governance, not least due to the
nomination process for a new CEO and the
consideration of the Group’s management
framework. The last year has also seen
two new Non Executive Directors join the
Board. We continue to consider whether our
Board can be further enhanced by additional
high‑calibre appointments.
Your Board will continue to manage the
Company in the long term interests of
shareholders. We remain committed to
maintaining high standards in the area
of corporate governance and have been
in compliance with the requirements of
the UK Combined Code on Corporate
Governance throughout the year.
The volume of applicable law and regulation
in this area continues to increase and will
remain an important focus area for the
Board. In particular, in the year ahead
we will give attention to considering,
and preparing for, the potential future
requirements of the FCA’s Senior Manager
and Certification Regime in the Group’s
management structure.
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. We also consider
whether 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.
Some of our key priorities during the
year were:
• Managing the appointment of a new Chief
Executive During the year, the Nomination
Committee was made aware that
Christophe Evain was considering retiring.
The Committee reviewed the succession
plans and put processes in place to ensure
that an appropriate candidate for the role
could be appointed. After considering
carefully the merits of 16 individuals, the
exercise concluded that Benoît Durteste
was the strongest candidate to succeed to
this role and meet the strategy and growth
targets set by the Board. Once Christophe
confirmed his intention to resign, the
Board was able to move quickly and
seamlessly to appoint Benoît.
• Continuing to refresh the composition
of the Board We considered over 40
candidates for non executive directorships
resulting in two new Non Executive
Directors being appointed. Rusty Nelligan,
an experienced audit partner, joined
the Board in September 2016 and has
become Chairman of our Audit Committee.
Virginia Holmes, who has a background
in investment management and has acted
as a director of a number of significant
companies, joined the Board and
Remuneration Committee in March 2017.
+ Please see pages 65 to 68 for the report of the
Nominations Committee
• Reviewing our Remuneration Policy
The Remuneration Committee has
undertaken an extensive exercise during
the year to benchmark our Remuneration
Policy and has proposed a new policy
containing a number of enhancements
which respond to shareholder feedback.
A particular priority has been the
simplification of complex policies, and this
is a key driver underlying the new policy.
+ Please see pages 69 to 98 for the report of the
Remuneration Committee
• Conducting an external Board evaluation
An external assessment of the Board
was carried out during the year.
The evaluation concluded that the Board
and its Committees continue to operate
cohesively and effectively with some minor
enhancements suggested.
+ Please see page 49 for more details
of this evaluation
• Increasing engagement with shareholders
Members of the Board have continued
ICG ANNUAL REPORT & ACCOUNTS 2017BOARD OF DIRECTORSCOMMITTEE REPORTSREMUNERATIONREPORTDIRECTORS’ REPORTCORPORATE GOVERNANCECHAIRMAN’S LETTER 41
Board of Directors
As at 31 March 2017 (and at the date of publication), the Board comprised a Non Executive
Chairman, five 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 acted as a Non Executive Director of Standard Life PLC, Daily Mail and
General Trust plc and the Nationwide Building Society 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.
to meet with shareholders to provide
updates on the Group’s performance
and strategy and receive their
feedback (including on our proposed
remuneration policy).
+ Please see page 50 for more details of our
stakeholder engagement
• Continuing our focus on risk management
During the year, our Risk Committee,
with considerable support from
Executive Directors and the CRO, has
continued to review and enhance the risk
management and monitoring framework
for our business.
+ Please see pages 60 to 64 for the report of the
Risk Committee
• Continuing to oversee the Group’s
strategic direction During the year, the
Board received a number of presentations
from Executive Directors and other senior
personnel about the Group’s strategy and
direction. Time has also been spent on
succession planning for a number of key
roles other than Executive Directors and
BOARD AND COMMITTEE MEETING ATTENDANCE
on considering the Group’s management
structure. The Board is also 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 and 47 for more details
In the year ahead, governance will continue
to be an important area for the Board as
certain refinements to our management
structures may be needed as we widen our
management team following the change of
Chief Executive. We will also be focusing on
business culture and how this supports the
Board’s objectives.
I am very happy to respond to any
questions you may have, either at the AGM
or otherwise.
KEVIN PARRY
Chairman
24 May 2017
Director
Kevin Parry(a)
Peter Gibbs
Kim Wahl
Kathryn Purves(a)
Rusty Nelligan(b)
Christophe Evain
Philip Keller
Benoît Durteste
Justin Dowley(c)
Virginia Holmes(d)
Secretary
Board
6/6
6/6
6/6
6/6
4/4
6/6
6/6
6/6
2/2
N/A
6/6
Audit
4/4(e)
3/4
4/4
4/4
3/3
4/4(e)
4/4(e)
4/4(e)
1/1(e)
N/A
4/4
Risk
Nominations
Remuneration
4/4
3/4
4/4
4/4
3/3
4/4(e)
4/4(e)
4/4(e)
1/1
N/A
4/4
6/6
6/6
6/6
6/6
4/4
6/6(e)
5/6(e)
5/6(e)
2/2
N/A
6/6
5/5
5/5
5/5
5/5(e)
4/4(e)
5/5(e)
5/5(e)
4/5(e)
3/5
N/A
5/5
(a) Kevin Parry and Kathryn Purves also attended a sub‑committee meeting of each of the Board and the Nomination Committee to confirm the appointment of the new CEO.
(b) Joined the Board 15 September 2016.
(c) Retired from the Board 21 July 2016.
(d) Joined the Board 31 March 2017.
(e) Not a member of this Committee but attended part of some meetings at the invitation of the Committee Chairman.
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 42
KEVIN PARRY
CHAIRMAN
BOARD OF DIRECTORS
Kevin Parry has extensive experience as an executive and a non executive
Director of financial institutions, professional services, media and
information companies.
His experience is international and ranges from small cap companies to
FTSE 100 companies and similar sized non‑listed entities.
He is a chartered accountant with significant auditing and transaction
experience. His responsibilities as a Director of other companies include
acting as a senior independent director, audit committee and risk
committee chairman and serving on other board committees.
OTHER DIRECTORSHIPS
Standard Life PLC, Daily Mail
and General Trust plc and the
Nationwide Building Society
JOINED BOARD
N
R RK
He was an independent Director prior to his appointment as Chairman.
2009 (Chairman since 2016)
CHRISTOPHE EVAIN1
EXECUTIVE DIRECTOR AND
CHIEF EXECUTIVE OFFICER
E
BENOÎT DURTESTE2
EXECUTIVE DIRECTOR
AND HEAD OF EUROPEAN
INVESTMENTS
E
PHILIP KELLER
EXECUTIVE DIRECTOR
AND CHIEF FINANCE AND
OPERATING OFFICER
E
Christophe Evain has been CEO of ICG since 2010 and will step down at the
2017 AGM. 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 was a key figure in the development of the
Group’s business. He 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.
He stands down as a Director and CEO at this year’s AGM.
Benoît Durteste will become ICG’s CEO and Chief Investment Officer from
the 2017 AGM. He is an experienced investor with a strong understanding
of the markets in which the Group operates. During his time on the Board
he has been a strong contributor to the Group’s strategic development,
including leading our expansion into the Secondaries market. Benoît is the
Group’s Head of European Investments overseeing a number of our key
strategies, and he is the Fund Manager for three of our European
investment funds. He contributes a thorough understanding of financial
markets and the Group’s investment portfolio to Board proceedings.
Benoît joined ICG’s Paris office in September 2002 from Swiss Re and
moved to ICG’s London office in 2007.
Philip Keller has responsibility for finance, operations, IT, 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
ICG Group entities
JOINED BOARD
2003 (CEO since 2010)
OTHER DIRECTORSHIPS
ICG Group entities, ICG investee
entities and current Chairman
of the BVCA Alternative
Lending Committee
JOINED BOARD
2012
OTHER DIRECTORSHIPS
ICG Group entities
JOINED BOARD
2006
COMMITTEE KEY
EXPLANATORY NOTES
COMMITTEE CHAIRMAN
1. Until 25 July 2017.
2. Until 25 July 2017. CEO and Chief Investment Officer from that date.
A AUDIT
E EXECUTIVE
N NOMINATIONS
R REMUNERATION
RK RISK
ICG ANNUAL REPORT & ACCOUNTS 2017BOARD OF DIRECTORSCOMMITTEE REPORTSREMUNERATIONREPORTDIRECTORS’ REPORTCORPORATE GOVERNANCECHAIRMAN’S LETTER
43
PETER GIBBS
NON EXECUTIVE
DIRECTOR AND SENIOR
INDEPENDENT DIRECTOR
R
A N RK
VIRGINIA HOLMES
NON EXECUTIVE DIRECTOR
Peter Gibbs has extensive asset management experience. 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.
OTHER DIRECTORSHIPS
Ashmore Group plc, Aspect Capital
Limited and Bank of America
Merrill Lynch (UK) Pension Plan
Trustees Ltd
JOINED BOARD
2010
Virginia Holmes brings to the Board an extensive knowledge of the financial
services industry, including both investment management and banking.
Her executive experience includes serving as Chief Executive of AXA
Investment Managers in the UK and more than a decade with the Barclays
Bank Group. She is an experienced Board director of a number of UK PLCs
who enhances the corporate governance understanding of our Board and
aids the Board in considering our relationships with stakeholders.
OTHER DIRECTORSHIPS
British Airways Pension Trustees
Ltd, Post Office Limited, USS
Investment Management Limited
and Investor Forum CIC
R
MICHAEL ‘RUSTY’ NELLIGAN
NON EXECUTIVE DIRECTOR
A
N
RK
KATHRYN PURVES
NON EXECUTIVE DIRECTOR
RK
A N
KIM WAHL
NON EXECUTIVE DIRECTOR
A
N
R RK
Until 2016, Rusty Nelligan was a partner with PwC, working for over 20
years as lead client partner for European‑headquartered global companies
in financial services and pharmaceutical life sciences, including US‑listed
foreign private issuers. In this role he was responsible for direction,
development and delivery of services for independent audits, assurance
and advisory projects relating to areas such as corporate governance,
internal controls, risk management, regulatory compliance, acquisitions and
financial reporting. Rusty was employed by PwC LLP in the US from 1974
and seconded to Europe in 1994. He is a US Certified Public Accountant.
Kathryn Purves previously served as CRO of Partnership Assurance Group
plc, a leading provider of non‑standard annuities. 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.
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.
JOINED BOARD
2017
OTHER DIRECTORSHIPS
None
JOINED BOARD
2016
OTHER DIRECTORSHIPS
IFG Group plc, including three
regulated subsidiaries
JOINED BOARD
2014
OTHER DIRECTORSHIPS
Ceki AS, Stromstangen AS, UPM‑
Kymmene Oy, Voxtra Foundation
and DNB Bank ASA
JOINED BOARD
2012
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 44
OUR COR POR ATE GOV ER N A NCE
fr amework
HEAD OF FINANCE
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
+ Please see pages 60 to 64 for the report
Audit Committee
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 98 for the report
of the Remuneration Committee
HUMAN RESOURCES
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
+ Please see pages 65 to 68 for the report
of the Nominations Committee
HUMAN RESOURCES
COMPANY SECRETARY
EXECUTIVE DIRECTORS
• The Board has delegated authority
for the day to day management of
the Group and its business to the
Executive Directors
• Have general responsibility for:
• The Group’s resources
• Executing the agreed strategy
• Financial and operational control
• Managing the business worldwide
+ Please see page 100 for further details
SENIOR MANAGEMENT TEAM
ICG ANNUAL REPORT & ACCOUNTS 2017BOARD OF DIRECTORSCOMMITTEE REPORTSREMUNERATIONREPORTDIRECTORS’ REPORTCORPORATE GOVERNANCECHAIRMAN’S LETTER 45
BOARD ROLES
CHAIRMAN
• Kevin Parry, who is responsible for:
• Organising the business of the Board
• Ensuring its effectiveness and setting
its agenda
• Effective communication with the
Group’s shareholders
CHIEF EXECUTIVE 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
+ Please see page 40 for the Chairman’s letter
• Christophe Evain will step down on
to shareholders
NON EXECUTIVE DIRECTORS
• In addition to the Chairman, Peter
Gibbs, Virginia Holmes, Rusty
Nelligan, Kathryn Purves and Kim Wahl
act as Non Executive Directors
of the Company
• All Non Executive Directors
are independent
• Responsible for providing independent
oversight of, and challenge to, the
Company’s executive management
+ Please see pages 42 and 43 for
Directors’ profiles
25 July 2017, and Benoît Durteste will
assume these roles.
EXECUTIVE DIRECTORS
• As well as the CEO, Philip Keller, the
Chief Finance and Operating Officer
(CFOO), and Benoît Durteste, Head
of European Investments, act as
Executive Directors
SENIOR INDEPENDENT DIRECTOR
• Peter Gibbs, who 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
KEY BOARD SUPPORT ROLES
COMPANY SECRETARY
• 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
• Each Committee’s Secretary provides
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
• Nominations Committee – Company Secretary
• Remuneration Committee – Head of Human Resources
• Audit Committee – Head of Finance
• Risk Committee – Chief Risk Officer
WHO MANAGES OUR RISKS?
CHIEF RISK OFFICER
• 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 CFOO and also has direct
access to Non Executive Directors
GROUP COMPLIANCE OFFICER
• 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
• Responsible for providing independent
assurance on the effectiveness of the
risk management processes, governance
and internal controls
• 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
• Remit is to identify and manage potential
operational risks and suggest solutions
or improvements in process
• Meets monthly and is comprised of the
heads of the Group’s control functions
and the CFOO
• Chaired by the Group’s CRO and reports
its findings to the Risk Committee
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 46
47
THE BOA R D’S
YEAR
AREAS OF BOARD FOCUS
COMMITTEE MEETINGS KEY
AG
M Annual General Meeting
A Audit Committee
R Remuneration Committee
RK Risk Committee
N Nominations Committee
DEVELOPMENT AND LEADERSHIP
+ Board composition and skills
+ CEO succession planning
+ Business unit updates with relevant
senior managers
STRATEGY, NEW PRODUCTS
AND MARKETS
+ Macroeconomic updates, including specific
consideration of ongoing geopolitical risks
GOVERNANCE, STAKEHOLDERS
AND SHAREHOLDERS
+ Reviewed feedback from shareholders
+ Oversight of governance framework and
+ Review of strategic objectives and
risk management
FINANCIAL PERFORMANCE,
OUTLOOK AND CAPITAL
+ Review of financial reporting
+ Review and amendment of capital
allocation and dividend policy
OPERATIONS, RISK MANAGEMENT
AND SYSTEMS
+ Review of fund performance
+ Review of regulatory capital position
+ Enhanced reporting on effectiveness
+ Technical training including regulatory matters
key deliverables
+ Engagement with shareholders in respect
+ Review of treasury policies
of control framework
CULTURE AND VALUES
+ Review of succession planning at senior
management levels including consideration
of cultural fit and capability
+ Review of supplier processes and adoption
of Modern Slavery Act statements
and other developments
+ Consideration of new opportunities and
of remuneration policy
business planning
TIMELINE
MAY 2016
JULY 2016
SEPTEMBER 2016
NOVEMBER 2016
JANUARY 2017
MARCH 2017
KEY ISSUES AND HIGHLIGHTS
+ Capital structure and dividend (see page 10)
+ Key business developments and latest
+ Response to Brexit
+ Key business developments and latest
financial reports
financial reports
+ Process for strategy refresh
+ Update on Brexit response
+ New broker introduction
+ New business opportunities
+ Hedging review
+ Key business developments and latest
financial reports
+ Dividend strategy
+ Growth opportunities
+ Review of survey of marketing function
+ Key business developments and latest
financial reports
+ Dividend strategy
+ Succession planning (see page 68)
+ Review of balance sheet liquidity
+ Analysis of seed capital for funds
+ Key business developments and latest
financial reports
+ Dividend strategy
+ Succession planning (see page 68)
+ Board evaluation
+ Key business developments and latest
financial reports
+ Identification of focus areas for FY18 including
culture and diversity
ANNUAL MATTERS
+ Approval of Annual Report and AGM Notice
+ Insurance renewal
+ Review of shareholdings of senior executives
+ Adoption of Modern Slavery statements
TRAINING AND TECHNICAL UPDATES
+ Review of feedback from shareholders
on the year end results announcement
+ Matters arising from AGM and
shareholder feedback
+ Approval of half year reports
+ Half year results feedback
+ Confirmation of outside interests of Directors
+ Budget
+ Annual compliance reports
+ Committee terms of reference
+ Private Equity Fund Investments training session
+ Senior Debt update with business unit head
+ US update with business unit head
+ Credit Fund Management update with business
+ European Investments update with business
area head
+ US Regulatory Requirements
unit head
+ Real estate update with business unit head
+ Macroeconomic overview
with portfolio manager
OTHER MEETINGS HELD
A
R
N
AG
M RK N
A
N
R
RK
A
N
R
RK
N
R
A
N
R
RK
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017ICG ANNUAL REPORT & ACCOUNTS 2017BOARD OF DIRECTORSCOMMITTEE REPORTSREMUNERATIONREPORTDIRECTORS’ REPORTCORPORATE GOVERNANCECHAIRMAN’S LETTERGOVERNANCE REPORT
48
INDUC TION A ND
tr aining
I found the induction
programme to be well
structured, comprehensive
and thoughtfully designed.
It provided sound
information and insight to
enable me to undertake
my role as Audit Chairman
effectively. It also greatly
facilitated the development
of a foundation to learn and
contribute to the Board and
its Committees.
RUSTY NELLIGAN
Audit Committee Chairman
on capital return restrictions under the
Alternative Investment Fund Managers
Directive. Each also receives formal and ad
hoc updates on statutory and regulatory
developments. For example, Philip Keller
received training from Deloitte on
accounting developments and from Allen
and Overy on the Senior Managers and
Certification Regime.
The Executive Directors jointly led a training
day for all staff on the Group’s strategy and
markets. Philip Keller and the heads of the
Group’s infrastructure functions attended
a development and strategy workshop.
Induction
The objective of the induction process
for new Directors is to enable that Director
to contribute to Board proceedings from
appointment. Each programme is tailored
to the incoming Director and includes
a series of meetings and presentations
supported by relevant documentation
and policies.
Rusty Nelligan was inducted during the
year. This included detailed briefings from
the Chairman and the Executive Directors
in respect of the Group’s business; and
from the Company Secretary with regards
to legal obligations, directors’ duties
and identifying any potential conflicts of
interests. He had over 15 further meetings
providing full coverage of the Group’s
strategy and operations including NEDs,
business unit heads, and heads of control
and oversight functions.
A similar programme is currently being
carried out for Virginia Holmes. Any new
Director appointed will receive a thorough
induction in line with that provided for
previous joiners, adjusted for any particular
individual requirements.
ONGOING TRAINING
AND DEVELOPMENT
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
main focus of development for the Board has
been in continuing to improve their detailed
understanding of the Group’s business and
the market environment.
Business unit heads present developments in
their areas, including risks and opportunities
for growth to the Board on a regular basis.
Business areas reviewed during the year
included European and US corporate
investments, capital market investments
and private equity fund investment, part
of secondary investments. These sessions
give Non Executive Directors (NEDs)
a deeper understanding of the Group’s
business, strategies and markets, and an
understanding of team structures to assist
with succession planning. The heads of the
Group’s control and oversight functions
and corporate strategy also presented.
The Board and its Committees also receive
technical updates from external advisers.
A regular training programme has been
established. Under this programme,
the NEDs receive detailed and more
operationally focused presentation from
staff members about specialist topics
relating to the Company’s business.
Sessions held have included a review of the
Group’s US regulatory obligations led by our
New York based compliance specialist and
a macroeconomic overview session led by
the Group’s Chief Economist. In addition the
Group monitors other training undertaken
by the Non Executive Directors.
The Executive Directors attend Board
training and have also undertaken courses
on anti‑money laundering, anti‑bribery
and corruption, information security
and career development for employees.
Christophe Evain and Benoît Durteste
received training on responsible investment
and Benoît Durteste also received training
ICG ANNUAL REPORT & ACCOUNTS 2017BOARD OF DIRECTORSCOMMITTEE REPORTSREMUNERATIONREPORTDIRECTORS’ REPORTCORPORATE GOVERNANCECHAIRMAN’S LETTER 49
BOA R D
evaluation
Directors are generally
very engaged and there is
a clear message that they
want to do the ‘right thing’.
Although the Board is quite
small – which is viewed as
an advantage as it allows
everyone to contribute –
there is a good mix of people
round the board table and
a culture of openness and
mutual respect.
INDEPENDENT AUDIT
Board Evaluation Report
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 (NEDs), 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 exercise
was carried out by Independent Audit
from November 2016 to January 2017,
with the Board receiving a formal report
and presentation to the Board meeting
in March 2017.
During their review, Independent Audit
received full access to the Board and
employees of the Group, and carried out
over 15 interviews with Board members,
Committee secretaries and a number
of other senior employees. They also
conducted an extensive on site review of
all Board and Committee papers and minutes
for the preceding year and attended a Board
meeting and several Committee meetings
as observers. Finally, they provided detailed
follow up questions to the Chairman and
the Company Secretary.
The final report concluded that there were
no significant areas for concern in respect of
the performance of the Board, the individual
Directors or the Committees. It contained a
number of positive findings about the Board
and the Committees, including:
• Directors are engaged and want to do the
right thing
• there is a culture of openness and
mutual respect
• the new Chairman has improved
Board processes
• executive management is respected by the
Board for their knowledge and willingness
to listen and debate
• all Board participants, especially NEDs,
added value to the debate around
dividend policy
• NEDs have a good range of skills
and backgrounds
• Board support is professional
The report also highlighted some areas
where Board performance, processes or
operations could be improved. The points
identified were:
• management information should be
reviewed to ensure that it relates to the
measures that the Board will find most
useful in assessing progress against the
Group’s strategy and principal risks
• the Group’s management systems should
be reviewed to ensure that they remain
proportionate to the needs of the business
while ensuring adequate oversight for
the Board
• the role of the Audit Committee Secretary
should be reviewed
• the Audit Committee’s meeting agenda
should ensure that appropriate time
is given to all matters
• the Risk Committee should use
its consideration of the Group’s
ICAAP as an opportunity for wider
business discussions
• the Remuneration Committee should
consider how its Chairman can be best
supported by other members and advisors
• the Nomination Committee should
prioritise succession planning for
the Senior Independent Director/
Remuneration Committee Chairman
A number of the suggested actions are
already taking place and the others will
be addressed during the year.
The findings of the formal external review
will be kept under review by the Board
and an update will be provided in the next
annual report.
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 50
ENG AGEMENT W ITH
stakeholders
STAKEHOLDER ENGAGEMENT
PROGRAMME
The Company has a comprehensive
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:
• Meetings with principal shareholders:
Throughout the year, the Chairman,
Senior Independent Director (who is also
Chairman of the Remuneration Committee),
CEO and CFOO 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 has been
proactive in meeting a number of large
shareholders throughout the year and also
hosted a dinner for a number of principal
shareholders with the Senior Independent
Director and 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.
• Senior Independent Director feedback:
The Senior Independent Director has
met with principal shareholders and also
with shareholder bodies including the
Investment Association, Institutional
Shareholder Services and Glass Lewis.
He is available to meet shareholders as
required, in particular in respect of any
matter that has been previously raised
with the Chairman, but not resolved.
• 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 CEO, CFOO and the Head
of Investor Relations have regularly met
with analysts to enhance the financial
community’s understanding of the Group.
The Executive Directors also hosted a
dinner for a number of analysts providing
an opportunity for informal discussions
and queries.
• Engagement with debt investors:
The CFOO 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 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.
• Engagement with fund investors:
The Executive Directors and the Group’s
portfolio managers maintain engagement
with fund investors through regular
reporting, investor days and other
update meetings.
• Engagement with staff: See page 36.
• Annual General Meeting: At the AGM
held in July 2016, the Chairman, CEO
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.
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 CEO and the CFOO meet institutional
shareholders on a regular basis, and the
Chairman and the Senior Independent
Director periodically contact the Company’s
major shareholders and offer to meet with
them. When requested to do so, the Senior
Independent Director and other Non
Executive Directors are happy to attend
meetings with major shareholders.
ICG ANNUAL REPORT & ACCOUNTS 2017BOARD OF DIRECTORSCOMMITTEE REPORTSREMUNERATIONREPORTDIRECTORS’ REPORTCORPORATE GOVERNANCECHAIRMAN’S LETTER AUDIT COMMIT TEE
REPORT
We oversee the Group’s financial
reporting and related elements of
its accounting, internal controls and
regulatory compliance, in addition
to the corresponding internal and
external auditing processes.
Our work focuses on the evaluation of
significant estimates and judgements
underlying the financial statements
and the overall fairness and clarity
of reported financial information.
RUSTY NELLIGAN
Chairman of the Audit Committee
The following pages set out the Audit Committee
(Committee) report for financial year 2017. The report
is structured in five parts:
1. Committee governance: roles and responsibilities,
composition and effectiveness (page 52)
2. Review of the year: significant financial reporting
and auditing issues we addressed (page 54)
3. Internal controls: assessment of the adequacy
of the control framework (page 57)
4. External auditor: appointment, independence
and effectiveness (page 57)
5. Internal audit: performance and effectiveness
(page 59)
51
DEAR SHAREHOLDER
In September 2016 I joined the Committee
as Chairman, and it is in that capacity that
I am pleased to report on the work of the
Audit Committee during the year. I would
like to start by thanking Kevin Parry for his
contribution to, and stewardship of, the
Committee prior to standing down upon his
appointment as Chairman of the Company.
A key responsibility of the Committee
is to oversee that financial information
presented by the Group is fair, balanced
and understandable.
The financial statements of the Group
are prepared in accordance with IFRS
and include the consolidation of 12 credit
funds which are determined by IFRS to
be controlled by the Group, although the
Group’s loss exposure to these funds is
limited to the capital invested by the Group
in each fund. The Committee therefore
believes that the presentation of alternative
performance measures, including the
elimination of the impact of the consolidation
of credit funds, enhances shareholders’
understanding of the Group’s performance.
During the year, the Committee has
considered the Group’s use of alternative
performance measures, in part due to the
guidance issued by the European Securities
and Markets Authority and the increased
attention on this area by the Financial
Reporting Council. The Committee’s focus
has been to ensure that where alternative
performance measures are used, they do not
detract from IFRS GAAP measures and they
are appropriately presented, defined and,
where possible, reconciled to relevant IFRS
GAAP measures (see page 163).
The investment portfolio remains a
significant component of the Group’s
financial statements and, therefore, as in
prior years, the valuation of investments
and associated provisions remains an area
of significant judgement. In addition to
other review work, this year the Committee
obtained specific, satisfactory assurance
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 52
from internal audit on the quality and
effectiveness of the processes underpinning
investment valuation.
More broadly, the Committee evaluates
the independence and effectiveness of our
external auditors, the direction and nature
of assurance provided by internal audit,
and the quality and reliability of financial
management. We have overseen investment
in these areas to reflect the increasing levels
of regulation, combined with the evolution
of best practice and the expansion of the
business. I consider our oversight of these
processes to be a critical responsibility
of the Committee.
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 Audit and Risk
Committees have worked closely together
to enable the Group to prepare its financial
accounts on a going concern basis and to
issue its viability statement (see page 34),
taking into account the Group’s ICAAP.
The Audit Committee supported the Risk
Committee’s review of the effectiveness of
material controls (see page 29), including
material controls over financial reporting.
Further details can be found in the Risk
Committee report on pages 60 to 64.
I believe 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. I would therefore
be pleased to discuss the Committee’s work
with any shareholder.
RUSTY NELLIGAN
Chairman of the Audit Committee
24 May 2017
AUDIT COMMIT TEE
REPORT
CONTINUED
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
• Monitoring the integrity of the financial
statements of the Group, including
its annual and half yearly reports,
trading updates and any other formal
announcements 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, and 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 Rusty Nelligan (Chairman of
the Committee), Peter Gibbs, Kim Wahl and
Kathryn Purves. Kevin Parry was a member
and Chairman of the Committee prior to
being appointed Chairman of the Company
in July 2016.
Biographical details can be found on
pages 42 and 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. 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. Rusty Nelligan, a US Certified
Public Accountant, was previously a partner
at PwC working for over 20 years as lead
client partner for European‑headquartered
global companies in financial services and
pharmaceutical life sciences. The Board
considers that he has competence in
accounting and auditing as well as recent
and relevant financial experience.
ICG ANNUAL REPORT & ACCOUNTS 2017BOARD OF DIRECTORSCOMMITTEE REPORTSREMUNERATIONREPORTDIRECTORS’ REPORTCORPORATE GOVERNANCECHAIRMAN’S LETTER 53
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 Head of Internal Audit,
the Head of Finance and the CRO.
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.
Effectiveness
The Committee reviews its terms
of reference and effectiveness
annually. The terms of reference are
summarised above.
During the year the Committee engaged a
third party, Independent Audit, to conduct
an effectiveness review. Independent Audit
noted that while the new Chairman had
yet to fully embed his own style onto the
operation of the Committee, the Committee
operates effectively.
The effectiveness review proposed that the
Committee’s meeting agenda should include
a guideline time allocation for each item to
improve the balance and focus of discussion.
In addition, the role of the Committee
Secretary should be reviewed with the aim
of removing some of the more administrative
tasks. The Committee has already actioned
these items and will further review them
during the new financial year.
AREAS OF COMMITTEE FOCUS
FAIRNESS AND CLARITY OF REPORTED
FINANCIAL INFORMATION
+ Content of annual and other periodic
financial reporting
+ Annual Report: fair, balanced and understandable
GOVERNANCE
+ Committee governance
+ Best practice developments
+ People and business changes
ACCOUNTING AND
FINANCIAL REPORTING
+ Evaluation of significant
estimates and judgements
+ Assessment of going
concern and the viability
statement (including
consideration of ICAAP)
INTERNAL CONTROLS
AND INTERNAL AUDIT
+ Oversight of internal
audit function
+ Evaluation of
financial operations
+ Assessment of effectiveness
of internal controls over
financial reporting
EXTERNAL AUDIT
+ Appointment and remuneration of auditors
+ Oversight of auditor independence
+ Evaluation of audit scope, quality
and effectiveness
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 41. In addition, there were
two sub‑Committee meetings to review
key aspects of the report and accounts
in April 2017. 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.
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 54
AUDIT COMMIT TEE
REPORT
CONTINUED
REVIEW OF THE YEAR
The agenda of the Committee comprises recurring, seasonal 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
COMMENTS
AND CONCLUSION
FINANCIAL REPORTING
Alternative performance
measures (non GAAP) aid
understanding of the financial
statements but must not detract
from GAAP measures. (see
KPIs on pages 15 to 17 and the
Finance and operating review
on pages 20 to 26)
The Group uses a number of alternative performance measures,
including but not limited to:
• Weighted average fee rate
• Operating margin
• Investment portfolio
• Cash generated from operating activities
• Impairments
• Cash and debt position
• Gearing
• Return on equity
A full list can be found in the glossary on page 163.
We discussed the use of alternative performance measures and
reviewed their consistency with prior years.
We received comfort from internal audit that the alternative
performance measures had been prepared on a consistent basis with
prior years.
The content of the annual,
semi-annual and quarterly
financial reporting needs to be
appropriate, complying with
laws and regulation. (see page
106 and the Auditor’s Report
on pages 108 to 113)
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 the information analysed
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.
We also reviewed the appropriateness and effectiveness of the
financial control environment, including the controls over financial
reporting and the preparation of financial information included in
the Annual Report. Our assessment of these controls was taken into
account by the Board when undertaking its review of the effectiveness
of material controls (see page 29).
We were satisfied that alternative performance
measures, which are widely used in the asset
management industry, can provide insight
into performance from the perspective of our
shareholders and other stakeholders. We reviewed
the alternative performance measures and were
satisfied that they did not detract from IFRS GAAP
measures, were sufficiently defined, consistently
applied, and, where possible, reconciled to
relevant IFRS GAAP measures.
We concluded that, whilst the Group did not
control any portfolio companies, it exercised
significant influence over eight entities and
controlled 12 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 £3.6bn (2016: £2.0bn).
There were no significant changes to accounting
policies (see pages 120 to 125) and we concluded
the accounting policies remained appropriate.
Based on our enquiries of management and
external auditors, we concluded policies are being
properly applied in areas such as assessing control
and significant influence, revenue recognition,
valuation of financial assets, impairments and
taxation provisions.
We concluded that the areas of judgement
(see pages 125 and 126) are properly explained.
We gained comfort from financial management
and the external auditors that the Group complied
with reporting requirements.
ICG ANNUAL REPORT & ACCOUNTS 2017BOARD OF DIRECTORSCOMMITTEE REPORTSREMUNERATIONREPORTDIRECTORS’ REPORTCORPORATE GOVERNANCECHAIRMAN’S LETTER 55
COMMENTS
AND CONCLUSION
We received confirmation that individuals’
responsibilities had been fulfilled and confirmed
that the overall report was consistent with the
Directors’ knowledge. This supported the
Committee’s, and the Board’s, assessment 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.
The Committee concurred with the valuations and
determined that no adjustments were necessary.
THE ISSUE AND
ITS SIGNIFICANCE
WORK
UNDERTAKEN
FINANCIAL REPORTING CONTINUED
Taken as a whole, the Annual
Report needs to be fair,
balanced and understandable
so that it is relevant to
readers (see page 106
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 30 to 33), estimates and the period covered
by the viability statement.
We reviewed a detailed report on the valuation process management
have undertaken and the judgements made in determining the value
of the portfolio. We enquired into the realised gains in the income
statement as an indicator of the valuation process. In addition to
reliance on executive management procedures and the work of
the external auditors, internal audit reviews the valuation process
and provides the appropriate assurance to the Committee of
management’s compliance with the Group’s valuation procedures.
Investments represent 80% of
our total assets. 96% are carried
at fair value and 4% 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
108 to 113)
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 108 to 113)
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 concluded that revenue has been properly
recognised in the financial statements.
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 56
AUDIT COMMIT TEE
REPORT
CONTINUED
THE ISSUE AND
ITS SIGNIFICANCE
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 108
to 113)
The audit process needs to be
effective so that the auditor’s
opinion is robust. (see the
Auditor’s report on pages 108
to 113)
INTERNAL AUDIT
Oversight of the internal
audit function
WORK
UNDERTAKEN
COMMENTS
AND CONCLUSION
We reviewed the standing policies on services that can be provided
by Deloitte (see External auditor on page 57) for their continued
appropriateness. We received confirmations from management and
Deloitte of adherence to this policy and agreed the fees paid. We also
reviewed the audit fees in the context of the size and complexity of
the audit.
We concluded that our conflicts of interest policy
remains appropriate and in line with current
guidance. We determined that the Group audit fee
of £0.9m (2016: £0.9m) appropriately reflected
the scope and complexity of the work undertaken
by Deloitte.
The Committee approved a revised policy for non audit services
that may be performed by the external auditors with effect from
9 November 2016. The revised policy reflects recent legislative
changes which prohibit the auditors from performing certain tax
services. Consequently, Deloitte have been replaced as the Group’s
corporate tax advisers (see page 58).
We discussed the areas of risks that may result in a material
misstatement of the financial statements 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 also discussed the findings of the Financial Reporting
Council’s Audit Quality Review team’s independent review of the
Group’s prior year audit.
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 funds’
audit partner in Jersey can be found on pages 57 and 58.
During the year the Committee considered and approved the updated
Internal Audit Strategy including the risk‑based plan for FY17 and FY18
and other internal audit activities.
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.
The Committee determined that any non audit
services performed by Deloitte during the period
were in compliance with the Group’s non audit
services policy and applicable regulation, and
were not deemed to impair their independence.
A detailed analysis of fees paid to Deloitte LLP
is shown in note 11 on page 144.
We were satisfied that the audit is effective
and the opinion is robust and based on the
representations, and 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 that deadlines for
changes are being set appropriately.
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 101), the viability statement (see page 34), the Auditor’s report (see pages 108 to 113), accounting
developments and the auditor’s management letter. No issues of significance arose.
ICG ANNUAL REPORT & ACCOUNTS 2017BOARD OF DIRECTORSCOMMITTEE REPORTSREMUNERATIONREPORTDIRECTORS’ REPORTCORPORATE GOVERNANCECHAIRMAN’S LETTER 57
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 64.
The Committee reviewed the operation
of the finance function to ensure it was
sufficiently resourced and had the
appropriate processes and controls over
financial reporting to fulfil its first line
of defence duties. The Committee was
satisfied that the function was able to meet
its relevant responsibilities and noted that
the control environment had been enhanced
during the year with the implementation
of a new general ledger and consolidation
system. The Committee also noted that ad
hoc projects, such as the implementation
of the new finance system, often benefited
from specialised external resource.
The Group has an established control
framework as described on page 29.
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 2016 audit,
the Audit Committee recommended that
Deloitte LLP should be proposed to
shareholders as the Company’s auditors.
The shareholders voted in favour of this
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 following the conclusion
of the 2015 audit.
The Committee complies with the UK
Corporate Governance Code, the Financial
Reporting Council (FRC) Guidance on Audit
Committees and the EU Regulation on Audit
Reform. In addition, the Committee complies
with all aspects of the Competition and
Markets Authority Statutory Audit Services
Order. Accordingly, 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.
The Committee intend to tender the audit
during 2018 with the successful firm
succeeding Deloitte when David Barnes’
term as lead audit partner comes to an end
with the completion of the 2020 year end
audit. The selection of new auditors will
need to be completed by 31 March 2019 so
that the successful firm can ensure they are
independent for the 12 months preceding
formal appointment, in line with regulations.
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 in part on the results of observation,
inquiry and 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 2016.
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 strengthening their
on‑site team and increasing the level of
pre year end work. The Audit Committee
discussed the output with Deloitte who
acknowledged that changes could be made
to improve their service delivery, and have
responded accordingly.
In addition to the annual evaluation,
the Committee undertakes an ongoing
assessment of external audit quality and
effectiveness in the following ways:
• The Committee discusses and agrees
the scope of the audit prior to its
commencement. The full scope audit
coverage amounted to 96% (2016: 93%)
of the Group’s profit before tax and
99% (2016: 98%) of the Group’s net
assets. Specific review procedures
were performed on another 13 non‑
significant entities
• The Committee reviewed, and was
satisfied with, the content of Deloitte’s
Audit Transparency Report for the
year ended 31 May 2016 which sets out
Deloitte’s commitment to audit quality
and governance
• The Audit Quality Review team (AQRt)
of the FRC performed a review of
Deloitte’s audit of the Group’s 2016
financial statements as part of their 2016
inspection of audit firms. The focus of
the review and their reporting was on
identifying areas where improvements
were required, rather than highlighting
areas performed to, or above, the
expected level. The Chairman of the
Audit Committee received a full copy
of the findings of the AQRt and has
discussed these with both Deloitte and
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 58
AUDIT COMMIT TEE
REPORT
CONTINUED
the Committee. The Committee confirms
that there were no significant areas for
improvement identified within the report
and that they are satisfied that there is
nothing within the report which might have
a bearing on the audit appointment:
• 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 CFOO
and the Head of Finance 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 funds 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
In accordance with relevant independence
standards, the external auditors do not place
direct reliance on the work of internal audit.
Audit materiality
We have discussed the accuracy of financial
reporting (known as materiality) with
Deloitte both as regards accounting errors
that will be brought to the 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 estimates that were made at a
point in time that did not consider all
available information.
Overall audit materiality was set at
£11.9m (2016: £12.2m). This equates to
approximately 1% of net assets. A lower
materiality of £3.7m (2016: £3.7m) 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 combined with their knowledge
of the Group, controls environment and
assessment of significant risks, 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 108.
To manage the risk that aggregate
uncorrected errors become material,
we agreed that Deloitte would draw to
the Committee’s attention all identified
uncorrected misstatements greater than
£215,000 (2016: £244,000) and for
fund management revenues £72,000
(2016: £72,000).
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 Committee did not
require any adjustment to be made to the
financial statements as result of the audit
differences reported by the auditor.
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. Procedures are in place to
determine 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
contracted 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
In accordance with recent legislative
changes, from 1 April 2017 the policy has
prohibited the external auditor from being
contracted to perform certain tax services.
This has resulted in Deloitte being replaced
as the Group’s corporate tax advisers.
The prohibited tax services are as follows:
• Preparation of tax filings and other
services related to tax filings
• Provision of tax advice
In addition, the level of permissible non audit
services must not exceed 70% of the average
of the statutory audit fees for the previous
three years. The cap applies prospectively
from 1 April 2017 and will therefore first
apply for our financial year beginning
1 April 2020.
ICG ANNUAL REPORT & ACCOUNTS 2017BOARD OF DIRECTORSCOMMITTEE REPORTSREMUNERATIONREPORTDIRECTORS’ REPORTCORPORATE GOVERNANCECHAIRMAN’S LETTER 59
During the year the Group paid £0.3m
(2016: £0.4m) to Deloitte LLP for the
provision of corporate non audit services
which is within the 70% audit fees 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 £0.2m 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 to
ICG Group entities pursuant to contingent
fee arrangements.
A detailed analysis of fees paid to Deloitte
LLP is shown in note 11 on page 144.
Auditor reappointment
Deloitte has reviewed its own and its
relevant affiliates’ 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.
As previously noted, last year’s audit was
subject to an independent quality assurance
process undertaken externally by the AQRt.
The Committee, having considered
compliance with our policies on
independence, the findings of our quality
review and service enquiries, and the results
of the AQRt review, 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 2018.
Accordingly, a motion to that effect will be
put to the 2017 AGM.
INTERNAL AUDIT
The Group has a Head of Internal Audit who
draws on the services of our outsourced
internal audit providers, RSM and KPMG
to supplement her capacity. The Head
of Internal Audit reports to the Audit
Committee Chairman.
The 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 coverage of the Group as a
whole. Its development reflects the priorities
of management, the CRO, our regulators
and the 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 15 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.
The Committee has monitored the working
relationship between the Head of Internal
Audit and the CRO, ensuring that the roles
are coordinated and optimised to reduce
the potential for significant gaps in oversight
and 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
During the financial year the Committee
appointed a third party, Independent Audit,
to undertake a review of the effectiveness
of the Internal Audit function. The review
concluded that Internal Audit had, in its
short life, succeeded in establishing itself
as a necessary and valuable element of
the Group’s risk and control framework.
Independent Audit made their assessment
based on certain observations and
document inspections, together with
interviews with Committee members,
the Executive Directors and other relevant
senior management.
The Committee also asked Independent
Audit to consider whether the function is
expected to continue to meet the needs
of the organisation. Independent Audit
provided some suggestions for the
Committee to consider as the function
matures. The suggestions included regular
visits to all significant locations, enhancing
the reports to include more context about
the control environment and consideration
of succession planning. The review findings
and a plan for implementing the suggested
improvements were discussed with the Head
of Internal Audit.
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 60
R ISK COMMIT TEE
REPORT
Our work focuses on defining
the risk appetite of the Group,
assessing risk exposures, including
external and emerging risks, and the
oversight of risk-related regulations
such as the ICAAP
KATHRYN PURVES
Chairman of the Risk Committee
The following pages set out the Risk Committee
(Committee) report for financial year 2017. The report
is structured in three parts:
1. Committee governance: roles and responsibilities,
composition and effectiveness (page 61)
2. Review of the year: significant risk areas we
addressed (page 63)
3. Internal audit and compliance monitoring (page 64)
DEAR SHAREHOLDER
The Board is accountable for the oversight
of risk management, and an effective risk
management framework and risk culture
are critical components to support the
achievement of our strategic goals.
Good risk management practice requires
a sound understanding of the Group’s
risks, the appetite for risk taking and
mitigations to limit downside exposure and
maximise opportunities.
I am pleased to report that during the year
the Board has overseen the continued
enhancement of the Group’s risk
management framework. The Committee
undertook a robust assessment of the
Group’s principal risks and associated risk
appetite, taking into account changes in
the business and the external environment.
Enhancements were made to management
information and risk reporting, and there
was a greater focus on emerging risks.
Additionally, the senior management team
has recently established an Executive
Risk Committee to complement the
activities of the Operational Risk Group
and further strengthen the robust
governance processes.
The principal risks faced by the Group and
how they are managed are set out on pages
30 to 33 of this Annual Report.
ICG ANNUAL REPORT & ACCOUNTS 2017BOARD OF DIRECTORSCOMMITTEE REPORTSREMUNERATIONREPORTDIRECTORS’ REPORTCORPORATE GOVERNANCECHAIRMAN’S LETTER 61
As I mentioned last year, I consider that a core
component of an effective risk management
framework for a financial services business
is the Internal Capital Adequacy Assessment
Process (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 at least an annual
basis. The Committee’s current year review
included the challenge of the operational
risk capital calculations and consideration
of whether the Group’s consolidated CLOs
should be included in the regulatory capital
calculations. Benchmarking with peers, advice
from lawyers/consultants and feedback from
the FCA have helped the Board to clarify
these points and enhance our ICAAP.
The Committee has continued its focus
on systems of control and monitoring.
In particular, it has considered the ongoing
development of the process to assess
the effectiveness of material controls
operated to manage the principal risks
to the Group. This year, greater focus
has been placed on senior managers’
accountability for operating key controls
and this Committee, together with the Audit
Committee, reviewed the reporting on the
effectiveness of material controls meeting
the requirements of the UK Corporate
Governance Code (see page 29).
A particular focus of the Committee has
been the work being undertaken by the
Group to prepare for the implementation of
MiFID II and the impact of the UK’s decision
to leave the EU. Cyber risk continues to be
closely and carefully monitored as this risk
area continues to evolve. The Committee
is satisfied with the work done to date, and
will continue to monitor progress over the
coming year.
The 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.
The Committee will continue to focus on
maintaining a strong control environment
and monitoring the risks faced by the
Group in delivering its strategic objectives,
particularly emerging and external risks
which include the impact of the UK’s
departure from the EU and other possible
political developments. Key areas of priority
will be the implementation of MiFID II and the
Senior Managers and Certification Regime
for Asset Managers.
I would be pleased to discuss the
Committee’s work with any shareholder.
KATHRYN PURVES
Chairman of the Risk Committee
24 May 2017
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:
• Advising the Board on the Group’s overall
risk appetite and tolerance
• Reviewing the Group’s risk management
framework and approving risk policies,
standards and limits within the overall
appetite and tolerance approved by
the Board
• Annually reviewing, and recommending
to the Board, the Group’s principal risks
• Keeping under review the effectiveness
of the Group’s risk management systems
• Reviewing and approving the statements
to be included in the annual report
concerning risk management
• Reviewing any reports on the
effectiveness of systems of risk
management and/or the Group’s attitude
to, and tolerance of, risk, including
financial and non financial risks
• Reviewing the Company’s procedures
for identifying, assessing, controlling and
mitigating the material risks faced by the
Group; and ensuring these procedures
allow proportionate and independent
investigation of such matters and
appropriate follow up action
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 62
• Annually considering and approving the
remit of the risk management function;
and ensuring it has adequate resources
and appropriate access to information to
enable it to perform its function effectively
and in accordance with the relevant
professional standards
• Receiving timely notification of material
breaches of risk limits and the remedial
action taken or proposed
• Advising the Remuneration Committee
on the alignment of remuneration with
risk appetite
• Informing the Remuneration Committee
of the conduct of any individual who
has acted without appropriately taking
account of risk
Composition
The Committee consists of Non Executive
Directors only. The current members
are Kathryn Purves (Chairman of the
Committee), Peter Gibbs, Kevin Parry,
Rusty Nelligan and Kim Wahl.
+ Biographical details can be found on pages 42
and 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 the CRO of Partnership
Assurance Group plc and Kevin Parry is
the former chairman of Schroders 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,
Group Compliance Officer, Head of Internal
Audit and the Company Secretary attend
all the meetings.
R ISK COMMIT TEE
REPORT
CONTINUED
AREAS OF COMMITTEE FOCUS
GOVERNANCE
+ Committee governance
+ People changes
+ Best practice developments
PRINCIPAL AND EMERGING RISKS
+ Identification and management
of principal risks
+ Risk appetite and tolerances
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
Effectiveness
The Committee reviews its terms
of reference and effectiveness
annually. The terms of reference are
summarised above.
During the year the Committee engaged a
third party, Independent Audit, to conduct
an effectiveness review. Independent Audit
noted that the implementation of a risk
management framework was nearing
completion and commented that it was
important that the purpose of the Committee
was clearly communicated and understood.
The effectiveness review recommended
that the Committee’s scope and objectives
were clearly defined in order to ensure that
discussions focused on consideration of the
organisation’s risk appetite, risk exposures
and major outcomes, and oversight of
risk‑related regulations such as the ICAAP.
Summary of meetings in the year
The Committee held four meetings during
the year. In each of its meetings, it received
a report from the CRO providing an
assessment on each principal risk versus
appetite, key risk events, key emerging risks,
actions taken or being taken to manage
the risks, reports on global compliance
(including the monitoring programme) and
regulatory developments. Other work is
undertaken periodically including ‘deep
dives’ into particular risk areas such as cyber
risk to allow the Committee to consider over
the course of the year, the full spectrum of
risks facing the Group. Over the course of
the year the Committee considered and
discussed the following significant matters.
ICG ANNUAL REPORT & ACCOUNTS 2017BOARD OF DIRECTORSCOMMITTEE REPORTSREMUNERATIONREPORTDIRECTORS’ REPORTCORPORATE GOVERNANCECHAIRMAN’S LETTER 63
COMMENTS AND
CONCLUSION
The regular updates provide sufficient information to enable
the Committee to be satisfied that the Group has appropriate
systems and controls to identify and implement regulatory
change. Furthermore, the Committee was comfortable with
the changes being made to satisfy the requirements of the
Market Abuse Regulation.
+ Principal risk – see pages 30 to 33
The Committee is satisfied that the framework established
is operating effectively to identify areas where risk is
decreasing and to highlight where particular risks may be
approaching, or outside, risk appetite.
+ Principal risks – see pages 30 to 33
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
based on its current risk profile.
The ICAAP is an important tool and will continue to be used
in decision making processes.
Feedback from the FCA has now been received in which
they confirmed that they had no objections to the proposed
approach in relation to consolidation of CLOs.
The Pillar 3 disclosures are available on the Company’s
website at www.icgam.com
REVIEW OF THE YEAR
THE ISSUE AND
ITS SIGNIFICANCE
WORK
UNDERTAKEN
The Committee received regular updates setting out the
enacted and expected changes to regulations, including
MiFID II and the Senior Managers and Certification Regime
for Asset Managers.
In particular, the Committee considered in detail the
requirements of the Market Abuse Regulations and the
impact on the Group’s business processes. The Committee
noted that the most significant impact was on the business
processes related to its Capital Markets strategies.
The Committee considered its risk appetite for the principal
risks and how the appetite for risk varied across the classes
of principal risk.
Key risk indicators were reviewed and the thresholds set
were considered as part of the discussion of risk appetite to
ensure that the risk framework functioned holistically.
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 review of the ICAAP,
reviewing the current and future impact of the principal risks
facing the Group on the Group’s regulatory capital position.
As part of this review the Committee considered whether
the capital held in respect of Operational Risk was sufficient
and the treatment of the Group’s consolidated CLOs.
Following a review of legal advice the Committee concurred
with management that the CLOs should not be consolidated
for regulatory purposes. The Committee asked management
to consult with the FCA and confirm that they had no
objections prior to implementing this approach.
Following the detailed review a revised ICAAP was
approved. The Pillar 3 disclosures were reviewed
and approved.
The Group is exposed to risk as
the regulatory requirements for
its activities change
Risk appetite and key
risk indicators
ICAAP – the Internal
Capital Adequacy
Assessment Process
Other principal risks (see pages
30 to 33) – the Group uses a
principal/key risk register as a
key part of its risk management
framework. The register
summarises the principal
risks faced by the Group, the
appetite of the Group for each
respective principal risk, and
key risk indicators that indicate,
for each principal risk, the
extent to which the risk appetite
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 considers that the principal risks faced by
the Group and the risk appetite and key risk indicators for
each principal risk are adequately captured by the processes
in place.
There were no changes to the list of principal risks faced by
the Group during the year.
The Committee is satisfied that the risk register is an effective
mechanism for identifying and monitoring the principal
risks to which the Group is exposed; and to ensure that
management actions are taken where appropriate.
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 64
R ISK COMMIT TEE
REPORT
CONTINUED
REVIEW OF THE YEAR
THE ISSUE AND
ITS SIGNIFICANCE
Specific risk reviews
WORK
UNDERTAKEN
COMMENTS AND
CONCLUSION
Major external change
The Committee was regularly updated on the potential risks
to the business of the UK’s decision to leave the EU, both
in the lead up to, and following, the referendum vote. The
Committee considered the impact on the Group’s ability to
access clients, risks to European and UK fund investment
strategies, the impact of market volatility on regulatory
capital requirements, and whether there were any new
principal risks.
The Committee was satisfied with the analysis that the
UK’s decision to leave the EU did not give rise to any
new principal risks and that existing risks were being
appropriately managed.
Following the referendum the Committee supported and
provided oversight in relation to the actions taken to open
an AIFMD regulated entity in Luxembourg.
+ Principal risk – see pages 30 to 33
Regulatory and legislative compliance risk
The Committee reviewed the results of the Group’s
US Securities and Exchange Commission (SEC) mock
examination, including the recommendations for
improvement. The Committee noted while there were no
significant recommendations, the examination did suggest
the Group obtain an updated legal opinion on its SEC
registration status, in particular in respect of the designation
of Access Persons. Management sought updated advice,
and the Committee is monitoring the implementation of
the recommendations.
The Securities and Futures Commission of Hong Kong
undertook a regular audit during the year. The Committee
received an update on the visit and confirmation that there
were no major issues.
People risk
The Committee considered the implications of staff turnover
on the operational risk of the Group and, in particular, where
it relates to Fund ‘key man’ clauses.
The Committee was briefed on the actions being taken to
mitigate the risks associated with any potential adverse
consequences associated with this contractual clause.
The Committee was satisfied that appropriate action was
being taken to manage the regulatory risk of the Group.
Following the successful SEC mock process the Committee
asked management to consider undertaking a similar
exercise for FCA regulated businesses.
+ Principal risk – see pages 30 to 33
The Committee was satisfied that management’s systems to
identify, monitor and manage people risk were appropriate.
+ Principal risk – see pages 30 to 33
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, updates on key policies and review
of the Money Laundering Officer’s annual report.
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.
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.
The Committee received an update from Duff & Phelps, who undertake UK compliance monitoring activities on behalf of the Compliance
function on the programme in place. They confirmed that the programme was fit for purpose, highlighted areas of good practice and made
recommendations for enhancing the monitoring. These recommendations were taken into account in the development of the compliance
monitoring programme for FY18 which was approved at the March Risk Committee.
ICG ANNUAL REPORT & ACCOUNTS 2017BOARD OF DIRECTORSCOMMITTEE REPORTSREMUNERATIONREPORTDIRECTORS’ REPORTCORPORATE GOVERNANCECHAIRMAN’S LETTER
65
DEAR SHAREHOLDER
The main focus of the Committee is
to consider the skills and experience
of the Board and ensure that the
Board’s membership is adequate to
meet the challenges of our business.
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.
These factors were particularly important
this year as Christophe Evain informed
the Committee of his intention to retire
from the Board after seven years as CEO.
As described in the report below, Benoît
Durteste was appointed as his successor.
The Committee also oversaw the search for,
and appointment of, two new Non Executive
Directors. Rusty Nelligan (appointed in
September 2016) spent over 40 years as
an auditor with PwC, and brings a wealth
of audit experience to his role as Chairman
of the Audit Committee. Virginia Holmes
(appointed in March 2017) has executive
experience as an investment manager and
has also served extensively on a number
of other Boards in the UK and abroad; her
appointment also increases the number of
women on our Board to two, meaning that
from the end of the annual general meeting
female representation will be 25%.
NOMIN ATIONS COMMIT TEE
REPORT
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 skills to meet the challenges faced
by the Group.
KEVIN PARRY
Chairman of the Nominations Committee
The following pages set out the Nominations Committee
(Committee) report for the financial year 2017.
The report is structured in two parts:
1. Committee governance: roles and responsibilities,
composition and effectiveness (page 66)
2. Review of the year: the significant issues we
addressed (page 67)
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 66
NOMIN ATIONS COMMIT TEE
REPORT
CONTINUED
The Committee’s focus during the year
will be on reviewing the structure and
composition of the Board and considering
whether further Non‑Executive appointments
are desirable (particularly as the Senior
Independent Director will cease being
deemed independent under the Corporate
Governance Code in 2019). The Committee
will also review the executive management
structure of the Group in light of the change
of CEO and the Senior Managers and
Certification Regime.
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.
KEVIN PARRY
Chairman of the Nominations Committee
24 May 2017
GOVERNANCE OF
NOMINATIONS COMMITTEE
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
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 2017.
The terms of reference are available on the
Group’s website or by contacting the
Company Secretary.
Effectiveness
An external evaluation of the Committee’s
effectiveness was undertaken by
Independent Audit during the year.
The report concluded that the Committee
continues to operate effectively. The report
highlighted that the Committee will need
to consider:
• Regularly reviewing the appropriateness
of the size, structure and skills of the Board
• succession planning for the Senior
Independent Director
• whether further Non Executive Director
appointments will enhance the expertise
of the Board
• the management structure of the group
below the Executive Directors
All of these topics were already on the
agenda for the Committee and will be
considered in FY18.
• 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
Kevin Parry (Chairman of the Committee),
Peter Gibbs, Kim Wahl, Kathryn Purves and
(since 15 September 2016) Rusty Nelligan.
The Company Secretary acts as Secretary
to the Committee. Justin Dowley retired
from the Committee on 21 July 2016.
+ Biographical details can be found
on pages 42 to 43
ICG ANNUAL REPORT & ACCOUNTS 2017BOARD OF DIRECTORSCOMMITTEE REPORTSREMUNERATIONREPORTDIRECTORS’ REPORTCORPORATE GOVERNANCECHAIRMAN’S LETTER 67
A meeting of the Committee then formally
considered Benoît Durteste’s suitability
for the role. The Committee noted his:
• considerable existing knowledge of the
Group and its business
• outstanding track record as a
fund manager
• excellent investor feedback
• approved status with the FCA
His relationships with investors and staff
were considered. It was noted that he
had recently become more visible to
shareholders, who have always been
very supportive of resolutions to re‑elect
him. His wide knowledge of regulatory
and corporate governance matters from
membership of the boards of ICG and
several of its regulated subsidiaries was
also taken into account.
The Committee noted that there were a
number of other good candidates available
but it was not possible to tell whether
they would be able to match his skill set,
especially in terms of his investment record
and understanding of the Group. Even if they
were able to do so over the long term there
remained a risk of disruption to the smooth
operation of the Board and the Group in the
intervening period.
The Committee unanimously concluded
that it should recommend that Benoît
Durteste be offered the role of CEO, subject
to reappointment by shareholders at the
AGM in July 2017.
AREAS OF COMMITTEE FOCUS
NON EXECUTIVE SKILLS
AND EXPERIENCE
SUCCESSION
PLANNING
NON EXECUTIVE
APPOINTMENTS
EXECUTIVE
APPOINTMENTS
TRAINING AND DEVELOPMENT
REVIEW OF THE YEAR
Appointment of a new Chief Executive
During the year Christophe Evain informed
the Committee of his intention to retire from
the Board in due course. The Committee
then met to agree their approach in respect
of succession. It was noted that in previous
succession reviews Benoît Durteste
had been identified as a strong internal
candidate for the role of Chief Executive.
The Committee took the following actions
to identify other candidates and conclude
who was the most appropriate candidate
for the role:
• approving a job description for the
Chief Executive’s role
• appointing a leading executive search
agency to search for available candidates
• assessing the quality and breadth of the
research undertaken by the agency
• reviewing and benchmarking the CVs
provided by the agency and comparing
those with the CV of Benoît Durteste
The Committee agreed that, taking
into account all relevant available
information, Benoît Durteste was the
strongest candidate.
The Committee invited Benoît Durteste
to present his proposed business plan
for the Group. A detailed presentation
was provided including a review of
current strategy (identifying some
minor changes of focus) and a proposed
management structure.
The Committee supported the proposed
business plan put forward by Benoît
Durteste and mandated Christophe Evain
to obtain feedback from the Group’s fund
investors on Benoît Durteste. The feedback
was positive, noting his strong investment
background and excellent market reputation.
At this stage, Christophe Evain felt
comfortable that he would not leave the
Group in a difficult position if he were to step
down and so he submitted his resignation
to the Chairman.
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 68
NOMIN ATIONS COMMIT TEE
REPORT
CONTINUED
Appointment of new Non Executives
Following the appointment of Kevin Parry
as Chairman of the Company in July 2016,
it was necessary for the Company to appoint
a new Chairman of the Audit Committee.
The Committee had been planning for
this change and had approved a job
description for the role and appointed
a leading executive search agency to
search for available candidates, with the
key requirement that the candidate should
be ready to assume the role of Chairman
of the Audit Committee. The agency
conducted extensive research and provided
a number of CVs for potential appointees.
After several candidates were shortlisted
and interviewed by the Chairman and other
Directors, the Committee unanimously
concluded that Rusty Nelligan was an
excellent candidate to join the Board; Rusty
had been an audit partner at PwC prior to his
recent retirement after spending his entire
42 year career with the firm. With Rusty’s
lengthy audit experience and calm persona,
he met all the criteria the Committee were
looking for; he was appointed in September
2016 and immediately assumed leadership
of the Audit Committee.
The Committee noted that the retirement
of Justin Dowley in July 2016 had also left
a reduced level of investment experience
on the Board. A leading executive search
agency was briefed to provide a shortlist
of candidates. Key criteria for the search
were executive experience in a leadership
role in an investment firm, experience in
closed end funds, experience in more than
one jurisdiction and prior experience on
UK Boards. The search was also conducted
with an eye to increasing the diversity of the
Company’s Board. A targeted advertisement
of the role was also placed using a specialist
online board recruitment platform.
The executive search agency identified
over 20 candidates, with a number of
additional realistic options being identified
via the online platform. After a number
of candidates were shortlisted and
interviewed by the Chairman and other
Directors, the Committee unanimously
concluded that Virginia Holmes was an
outstanding candidate to join the Board.
The Committee noted that Virginia has
had an extensive executive career as an
investment professional and leader, and
has served on a number of other UK Boards.
She was appointed in March 2017 and
will be a strong all round addition to the
Board’s proceedings.
Size, structure and composition
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 recent appointments.
While the new Non Executive appointments
provide more audit and investment
experience, the Committee is keen to
ensure that the overall skill set of the Board
accurately reflects that of the Group’s
business. The Committee will monitor
the balance of the Board to ensure that
broad enough insight and expertise is
available from the existing members, and
will recommend a further appointment
if desirable.
During the year 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.
Succession planning
During the year, the Committee considered
CEO and Non Executive succession as
detailed elsewhere in this report. There was
also an extensive amount of time spent at
Board meetings on succession planning,
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. The Committee has debated the
report presented to the Board and has
agreed that while there are no material
concerns in respect of executive succession,
further work should be undertaken to ensure
that appropriate succession planning is in
place for key individuals in executive roles
and that talented individuals are retained.
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 will consider
gender diversity, along with all other
relevant factors, when making future
recommendations to the Board.
ICG ANNUAL REPORT & ACCOUNTS 2017BOARD OF DIRECTORSCOMMITTEE REPORTSREMUNERATIONREPORTDIRECTORS’ REPORTCORPORATE GOVERNANCECHAIRMAN’S LETTER R EMUNER ATION COMMIT TEE
REPORT
During the year, the Committee
has undertaken significant work
to review, benchmark and update
our remuneration policy. The new
policy proposed simplifies our
arrangements while continuing to
ensure alignment with shareholders.
PETER GIBBS
Chairman of the Remuneration Committee
The following pages set out the Remuneration
Committee (Committee) report and associated
disclosures for financial year 2017. The reports are
structured into five parts:
1. Governance of remuneration: our scope and terms
of reference (page 72)
2. Review of the year: the significant topics we
addressed (page 73)
3. Compensation summary: an overview of the
remuneration arrangements in place (page 74)
4. Directors’ Remuneration Policy (page 78)
5. Annual Report on Remuneration (page 87)
69
DEAR SHAREHOLDER
I am pleased to report on the work of the
Remuneration Committee.
The Committee places high priority on
ensuring the remuneration of the Group’s
employees in general, and of the Executive
Directors in particular, reflects performance
against the Group’s strategic objectives
and is aligned with shareholders’ interests.
In addition, we place importance upon
paying competitively in the context of the
specialist asset management industry
in which we operate.
I recognise that our remuneration
arrangements are untypical of the wider
listed market, although they are reflective
of our industry, and therefore we have
increased the level of interaction with
shareholders and shareholder bodies to
ensure our arrangements are understood
and stakeholder views can be better
considered by the Committee on an
ongoing basis.
From my perspective, in addition to the
annual compensation awards to staff, the
Committee considered two significant
matters during the year, these being a review
of the existing remuneration policy and the
treatment of previously made compensation
awards for the outgoing CEO.
REMUNERATION POLICY REVIEW
This is the third year of our existing
Directors’ Remuneration Policy. During the
year we have undertaken a ‘root and branch’
review of the remuneration arrangements
throughout the Group. The purpose
of the review was to address some of
the concerns raised by shareholders,
including the complexity of some of the
arrangements, and to assess whether the
remuneration arrangements available to
our employees remained market competitive.
The review involved a robust consideration
of the efficacy of each of the incentive
arrangements and a detailed benchmarking
exercise comparing all roles against relevant
market data.
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 70
R EMUNER ATION COMMIT TEE
REPORT
CONTINUED
As part of our review, we invited the views
of our major investors and shareholder
bodies on the changes proposed to the
Policy. We are very grateful for their input
and we have ensured their feedback has
been reflected appropriately in the Policy
included in our Report.
We will, therefore, be seeking a binding vote
on the revised Policy and an advisory vote
on the rest of the Remuneration Committee
Report at the 2017 AGM.
Revised remuneration policy –
the annual award pool
Our existing policy rewards all employees
from the annual award pool (AAP).
The AAP is derived from 30% of a five year
rolling average of pre-incentive cash profit
(PICP). The review concluded that this
approach remains in the best interests of
shareholders for two main reasons. First,
using cash profit ensures that employees
are only remunerated for sustained long
term performance. Secondly, the five year
average allows us to ‘smooth’ volatility and
take a longer term view, ensuring retention
of key employees throughout the cycle.
We are not proposing to materially change
this approach. However, the Committee
has proposed two amendments to the
calculation of the AAP.
The first of these is to discontinue the
adjustment that has been made since 2014
in respect of the incentive spend for the
in house distribution team. The second
is to introduce the concept of a Business
Growth Pool (BGP). We believe that it is
in shareholders’ interest for management
to be able to balance short and long term
considerations when assessing new
business growth opportunities. In the short
term new strategies are often unprofitable
and dilute the overall AAP available for
existing employees.
The Committee proposes to introduce
a BGP which may be made available in
addition to the AAP up to a maximum value
of 3% of the five year average PICP. This will
allow short term and long term growth to
be balanced.
The BGP will be ring-fenced and used solely
to fund the incentives of employees working
on new strategies in the future which are not
yet profitable. Each approval of its use will
be limited in duration. The Committee will
be responsible for approving when and how
much of the BGP is used and will oversee its
operation. Disclosure of the extent of BGP
use will be made retrospectively each year
in the Report.
These two proposals, taken together, ensure
that the total percentage spend on staff
reward remains at the same level, or lower,
than the current policy.
Revised remuneration policy – delivery
Following the review described above,
a new Policy has been developed with
the following major changes impacting
Executive Directors:
• Individual cap on incentive
awards introduced
• Number of incentive
arrangements reduced
• Period over which remuneration is
deferred extended
The quantum of the Executive Directors’
remuneration and the percentage of
remuneration deferred into ICG shares,
currently between 70% and 90% of incentive
remuneration, are broadly unchanged.
However, we have introduced an overall
individual cap on new incentive awards made
each year of £6.0m for the Chief Executive
Officer and £3.0m for the Chief Finance and
Operating Officer.
During this review we also sought to simplify
the remuneration arrangements.
We concluded that the Executive Directors
were participating in two equity plans
that were undifferentiated other than in
terms of the length of the vesting period
and that the award of Balance Sheet Carry
overcomplicated their arrangements
(particularly given this forms a relatively
small proportion of the awards made).
The Committee has therefore determined
that remuneration delivered to the Executive
Directors in ICG shares will all vest over five
years, rather than a proportion vesting over
three years, as is currently the case, and they
will no longer be eligible to participate in
Balance Sheet Carry.
When considering the arrangements
for other staff, it is evident that the Fund
Management Company Equity Plan has met
its objectives in incentivising and rewarding
staff during the Group’s transition from
being an investment company to a third party
specialist asset manager. We have therefore
decided to discontinue this arrangement.
Those who may previously have participated
in this plan will instead receive any deferral in
the form of ICG shares vesting over the same
three year period. At more junior levels we
will slightly reduce the overall percentage
of compensation deferred (more in line with
market benchmarks). This will increase costs
minimally in the first year.
In summary, the outcome of our review is
a major simplification of the remuneration
structures of both the Executive
Directors and other employees, and the
strengthening of the Executive Directors’
shareholder alignment.
ICG ANNUAL REPORT & ACCOUNTS 2017BOARD OF DIRECTORSCOMMITTEE REPORTSREMUNERATIONREPORTDIRECTORS’ REPORTCORPORATE GOVERNANCECHAIRMAN’S LETTER 71
CHIEF EXECUTIVE
ARRANGEMENTS
As noted elsewhere, Christophe Evain
will be standing down as CEO at the AGM
to be succeeded by Benoît Durteste.
In recognition of Christophe’s outstanding
contribution to the business, and that
he is retiring from full time employment,
the Committee have determined that his
outstanding Deferred Share Awards may
be retained to vest on their normal vesting
dates rather than be forfeited. Christophe’s
outstanding PLC Equity Awards will vest
at the normal vesting dates in accordance
with the applicable rules for leavers.
Details of these outstanding awards made
to Christophe in prior years are disclosed in
the Annual Report on Remuneration. He will
continue to receive payments of Balance
Sheet Carry in respect of his vested interests
and his unvested interests will lapse.
The Committee also used its discretion
to determine that Christophe should retain
Third Party Carry (TPC) points pro-rata to
the invested amounts of the relevant fund at
the time of his departure to reward the work
done to date. The Committee determined
that the remaining portion of the TPC points
should be forfeit.
It is not proposed to increase Benoît’s salary
or his overall remuneration beyond that set
out in the Policy on his becoming CEO.
CURRENT YEAR ALLOCATIONS
TO EXECUTIVE DIRECTORS
As in previous years, the Committee has
assessed the Group’s performance against
specific KPIs to determine the level of
awards to be made from the AAP. This has
been a year of particularly strong Group
performance with our pre-tax profit and
cash profit up sharply. During the year, our
European business has had outstanding
success with the sale of the assets in the
ICG Recovery Fund 2008 contributing
significantly to cash profit. We have also
had a successful year in a number of our
strategic priorities including asset raising
and the deployment of capital. The extent
to which these KPIs have been met, and their
alignment with the corporate strategy, is
described in greater detail on page 88 in the
Annual Report on Remuneration.
We then consider the personal performance
(including risk management and compliance)
of each of the three Executive Directors
over the financial year before finalising
their individual awards. The executive team
have each made an excellent contribution
to the Group’s progress this year and we
have provided details of the Committee’s
considerations of each of the Executive
Directors along with a summary of the
awards made on pages 88 and 89 in the
Annual Report on Remuneration.
CONCLUSION
We believe that last year we materially
improved our disclosure of Executive
Directors’ KPIs and the performance
achieved against them; the outcome of the
vote on our 2016 Report would appear
to support that view. However, we realise
that continued and improved transparency
is a key requirement for shareholders and
consequently we have endeavoured to
provide further disclosure over the process
of determining the Executive Directors’
awards from the AAP this year, which I trust
you will find valuable.
I shall be available at our AGM to answer any
questions you may have and look forward
to your support.
PETER GIBBS
Chairman of the Remuneration Committee
24 May 2017
REMUNERATION PRINCIPLES
Five guiding principles are
reflected in the design of the staff
compensation arrangements
ALIGNMENT BETWEEN STAFF
AND SHAREHOLDERS
Cap of 30% of cash profit on expected
value of awards ensures long term
affordability with proposed BGP
to facilitate long term growth
SUPPORT THE LONG TERM
CORPORATE STRATEGY
Key employees rewarded by awards of
PLC Equity to incentivise them to grow
the business
PROMOTE STAFF
EQUITY OWNERSHIP
The majority of executive remuneration
is in the form of equity; and shareholding
guidelines are in place for senior employees
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
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 72
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.
R EMUNER ATION COMMIT TEE
REPORT
CONTINUED
REMIT AND RESPONSIBILITIES
The Committee is responsible for:
• Determining the total individual
remuneration package of each Executive
Director, having given due regard to
regulatory requirements
• 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 taking 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),
Kevin Parry, Kim Wahl and, since her
appointment on 19 May 2017, Virginia
Holmes. Justin Dowley left the Committee
in July 2016 due to his retirement from
the Board.
Kathryn Purves and Rusty Nelligan have
attended meetings of the Committee at the
invitation of the Chairman to ensure that risk
and audit matters are taken into account in
determining the remuneration of Directors.
+ Biographical details can be found on pages 42
and 43
None of the Committee members have any
personal financial interests (other than as
shareholders or investors in ICG funds)
which would lead to a conflict of interests
or conflicts arising from cross directorships
or day to day involvement in running the
business. The Company therefore considers
that it complies with the Corporate
Governance Code recommendations
regarding the composition of the Committee.
The Committee meets at least three times
a year and more frequently if necessary.
Executive Directors 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 41
EFFECTIVENESS
An external evaluation of the Committee’s
effectiveness was undertaken by
Independent Audit during the year.
The report concluded that the Committee
continues to operate effectively; it
suggested that in the coming year the
Committee will need to be mindful of the
amount of work done by the Chairman of
the Committee, who is a very significant
contributor to the Committee and may
need to enhance his support from advisors,
and should also be mindful of succession
planning for the Chairman of the Committee.
These topics were already on the agenda
for the Committee and will be considered
in FY18.
ICG ANNUAL REPORT & ACCOUNTS 2017BOARD OF DIRECTORSCOMMITTEE REPORTSREMUNERATIONREPORTDIRECTORS’ REPORTCORPORATE GOVERNANCECHAIRMAN’S LETTER 73
REVIEW OF THE YEAR
The Committee held five
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.
ADVISERS TO THE COMMITTEE
PwC has been appointed by the Committee
and advises the Committee and management
on remuneration matters. PwC also provides
advice to the Committee on other HR issues
on request. Legal advisers have been
available to the Committee during the year
to 31 March 2017. These advisers were
appointed by the Company. 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.
The fees charged for advice to the
Committee were £193,650 (PwC) and
£20,000 (White & Case). Fees are charged
on the basis of time spent.
AREAS OF COMMITTEE FOCUS
REMUNERATION POLICY
+ comprehensive review of the
Remuneration Policy
KEY PERFORMANCE INDICATORS
+ setting objectives for the Executive
Directors and Executive Committee
+ monitoring performance
GOVERNANCE,
STAKEHOLDERS AND
SHAREHOLDERS
+ consideration
of feedback
from shareholders
+ consideration of
regulatory requirements
OVERSIGHT OF AWARDS
+ review of the calculation
of PICP
+ review of market data
+ oversight of Third Party
Carry entitlements
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 74
R EMUNER ATION COMMIT TEE
REPORT
CONTINUED
COMPENSATION SUMMARY
An overview of our
remuneration arrangements
including details of FY17
awards to Executive
Directors and other staff.
LONG TERM NATURE OF CASH PROFIT
Cash profit is generated by realising investments and receiving fund management fees.
The holding period for investments is typically 4–8 years. This characteristic means that
the Annual Award Pool is inherently deferred as it includes realisations from a number of
investment vintages. By generating the award pool in this way we ensure that staff are only
rewarded when returns are crystallised.
The following chart shows the origination by year of cash profit generated in FY17:
FY17
IN
V
E
S
T
M
E
N
T
S
:
O
P
R
E
F
Y
0
8
V
E
R
F
I
V
E
Y
E
A
R
S
MANAGEMENT
FEES/OTHER
INCOME
E -I N C E N TIVE CASH P
F Y 1 5 F Y 1 6
ICG P R
£407.5M
F
I
R
O
T
58%
of pre-incentive cash profit
is long term in nature
4
1
Y
F
2
1
Y
F
9
0
Y
F
3
1
Y
F
1
1
Y
F
0
1
Y
F
F
Y
0
8
Management Fees/Other Income 7%
FY10
Pre FY08
FY08
FY09
15%
41%
1%
FY11
FY12
FY13
0%
1%
0%
1%
FY14
FY15
FY16
FY17
22%
5%
5%
2%
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 2
ICG ANNUAL REPORT & ACCOUNTS 2017BOARD OF DIRECTORSCOMMITTEE REPORTSREMUNERATIONREPORTDIRECTORS’ REPORTCORPORATE GOVERNANCECHAIRMAN’S LETTER
75
ADJUSTED CASH PROFIT FY17
£407.5m
ANNUAL AWARD POOL
£122.2m
30%
AVAILABLE TO SHAREHOLDERS
£285.2m
70%
ACTUAL VARIABLE
COMPENSATION SPEND
FY17
£65.9m
16.2%
RETAINED PROFIT
£212.3m
52.1%
DISTRIBUTED TO
SHAREHOLDERS
£72.9m
17.9%
AVERAGE AAP SPEND
33.5%
cumulative spend as a percentage of profit
20.6%
22.3%
23.5%
21.6%
13
14
15
16
17
%
35
30
25
20
15
10
5
0
ANNUAL AWARD POOL (AAP)
Each year 30% of pre-incentive cash profit
is added to the AAP. This caps the amount
of variable remuneration that can be paid
over a five year rolling period. (See page
87 for details of how our pre-incentive
cash profit is calculated.) Our investment
cash flows can be unpredictable so the
five year period 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, Group KPIs, and
individual performance. This is subject
to the overall cap on the AAP.
AVERAGE AAP SPEND OVER
FIVE YEARS
The graph shows the cumulative rolling
average spend from the AAP made in FY17
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.
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 76
R EMUNER ATION COMMIT TEE
REPORT
CONTINUED
COMPENSATION SUMMARY
CONTINUED
ALLOCATION OF THE AWARD POOL
Of the total amount of variable awards made in FY2017, 16% were made to Executive
Directors, of which 90% was deferred in nature. Please see page 89 for more details
of how Executive Director compensation is linked to their performance.
TOTAL AWARDS FY17
£65.9m
VARIABLE AWARDS TO
EXECUTIVE DIRECTORS
£10.6m
16%
VARIABLE AWARDS
TO OTHER STAFF
£55.3m
84%
The remuneration policy for Directors is set out on pages 78 to 86. The current variable
compensation mix for all employees is allocated according to the framework below. This will
be simplified by the proposed new policy.
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
•
•
•
•
•
•
•
•
•
•
ICG ANNUAL REPORT & ACCOUNTS 2017BOARD OF DIRECTORSCOMMITTEE REPORTSREMUNERATIONREPORTDIRECTORS’ REPORTCORPORATE GOVERNANCECHAIRMAN’S LETTER
77
EXECUTIVE DIRECTOR AWARDS
All variable awards made to the Executive Directors are subject to malus and clawback provisions.
TOTAL VARIABLE AWARDS
TO EXECUTIVE DIRECTORS
£10.6m
PENSION
£0.2m
SALARY
£1.1m
VARIABLE
AWARDS
AT RISK
£10.6m
100%
of variable awards to
Executive Directors in
respect of FY17 are at risk
PERIOD OF DEFERRAL AND RISK
ANNUAL CASH BONUS
10%
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
76%
BALANCE SHEET CARRY
8%
1/3
1/3
1/3
VESTING SCHEDULE
TIMING AND PAYMENT UNKNOWN – SUBJECT TO HURDLE
Calendar year
2018
2019
2020
2021
2022
2023
2024 or beyond
Executive Directors also have the opportunity to participate in carried interest schemes directly with third party funds (see page 94) 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.
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT
78
DIRECTORS’ REMUNERATION
POLICY
This section describes the
remuneration policy proposed
to be adopted from the date
of the 2017 AGM, subject to
shareholder approval at that
meeting; it includes a note
of the changes to the policy
that has been in operation
since being adopted at the
2014 AGM.
R EMUNER ATION COMMIT TEE
REPORT
CONTINUED
A full copy of the Policy approved by
shareholders at the 2014 AGM is available
on the ICG website under the Shareholders
Governance section.
ANNUAL AWARD POOL (AAP) AND
BUSINESS GROWTH POOL (BGP)
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
The variable pay of all employees is
awarded out of the AAP. In previous years,
an adjustment was made to cash profit
to reflect the remuneration cost of our in
house distribution team. This adjustment is
no longer included in the policy proposed
for adoption.
The current AAP limit is considered by the
Committee to be appropriate for our existing
business model but we have consulted
investors about our proposal to introduce
a Business Growth Pool (BGP), capped
at 3% of the five year rolling average PICP,
when a new business strategy is established.
A BGP will be used to fund the incentives of
a particular team, will be ring-fenced and will
be limited in duration to the period when the
new strategy is in start-up mode. Any BGP
will be overseen by the Committee and will
be reported in future annual reports.
Apart from the introduction of the BGP
for new business strategies, the ongoing
appropriateness of the 30% limit for the
existing business will be kept under review,
Should it be determined that the limit should
be amended, the Committee will engage
with shareholders.
The proposed change to the adjustment
in respect of the in house marketing team
together with the introduction of BGP
ensure that the total percentage spend on
employee reward remains at the same level,
or lower, than the current policy.
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 and under the policy
to be proposed at the 2017 AGM will
be discontinued for other employees.
Under the policy to be proposed Deferred
Share Awards will be discontinued for
Executive Directors. Any cash awards are
distributed from the AAP.
Certain performance fees (funded by third
party investors) and other fund performance
incentives funded by ICG are distributed
under the umbrella of the AAP.
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.
ICG ANNUAL REPORT & ACCOUNTS 2017BOARD OF DIRECTORSCOMMITTEE REPORTSREMUNERATIONREPORTDIRECTORS’ REPORTCORPORATE GOVERNANCECHAIRMAN’S LETTER 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 retain
• Paid monthly
Executive Directors who will drive
the business forward
• Designed to be sufficient to ensure
that Executive Directors do not
become dependent on their bonuses
• Reflects local competitive
market levels
• Normally reviewed annually with any
changes generally applying from the
start of the financial year
BENEFITS
• Appropriate to recruit and retain
Executive Directors who will drive
the business forward
• Benefits currently receivable by Executive
Directors include life assurance, private
medical insurance and income protection
• Reflects local competitive
market levels
• Additional minor fringe benefits (such as
Cycle to Work) may be offered in line with
market practice if considered appropriate
by the Committee
• None
• In considering base salary
increases, the Committee
considers the range of salary
increases applying across the
Group and local market levels
• Any increase in salary for an
Executive Director will not
normally exceed the average
salary increase across the
Group unless there is a change
in the role or responsibility
of the Executive Director
• Provision and level of
• None
benefits are competitive
and appropriate in the
context of the local market
• The maximum opportunity
will depend on the type
of benefit and cost of its
provision, which will vary
according to the market and
individual circumstances
PENSION
• Adequate to recruit and retain
• All Executive Directors are entitled to
Executive Directors who will drive the
business forward
a pension allowance payable each month
at the same time as their salary
• A pension allowance of up
to 15% of salary is available
to Executive Directors
• None
• Helps Executive Directors to provide
for their retirement
ANNUAL BONUS
• Rewards Executive Directors for
• Awards are made after the end of the
• An Executive Director’s annual
delivering cash profits, managing the
cost base, employing sound risk and
business management
financial year
• The annual bonus is awarded in cash
• Annual bonus awards made are subject
to clawback which will apply for two years
post award. Forfeiture of compensation
may be triggered by, amongst other things,
a misstatement of the accounts, fraud,
regulatory breaches and serious breaches
of contract
bonus is drawn from the
AAP which is determined as
described on page 87
• Variable awards to Executive
Directors are subject to a cap
• Awards are made based on
performance as described
on page 89
• An Executive Director’s annual
bonus is drawn from the AAP,
and so is directly determined
by reference to the Group’s
cash profit for the relevant
financial year
• Executive Director’s annual
bonus entitlement is also
determined by reference to
performance against personal
and corporate performance
objectives, which are derived
from the Group’s key
performance indicators
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 80
R EMUNER ATION COMMIT TEE
REPORT
CONTINUED
DIRECTORS’ REMUNERATION POLICY CONTINUED
PURPOSE AND LINK TO STRATEGY OPERATION
OPPORTUNITY
PERFORMANCE CONDITIONS
PLC EQUITY AWARD
• Rewards Executive Directors for
• Awards are made over shares in the
increasing long term shareholder value
Company after the end of the financial year
• Aligns the interests of Executive
Directors with those of shareholders
• 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, in which
case the awards lapse. The Committee
has discretion to vary the date of vesting
if necessary or desirable for regulatory
or legislative reasons
• In the event of a change in control (other
than an internal reorganisation) shares vest
in full
• Dividend equivalents accrue to participants
during the vesting period and are paid at the
vesting date
• PLC Equity Awards made are subject to
both malus and clawback which will apply
for two years post vesting. Forfeiture of
compensation may be triggered by, amongst
other things, a misstatement of the accounts,
fraud, regulatory breaches and serious
breaches of contract
• An Executive Director’s PLC
Equity Award is drawn from
the AAP which is determined
as described on page 87
• Variable awards to Executive
Directors are subject to a cap
• Awards are made based on
performance as described
on page 89
• An Executive Director’s PLC
Equity Award is drawn from
the AAP, and so is directly
determined by reference
to the Group’s cash profit
• 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
CARRIED INTEREST OVER THIRD PARTY FUNDS (THIRD PARTY CARRY OR TPC) AND SHADOW CARRY
• 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 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 are outside
the AAP
• TPC and similar arrangements that do not
give rise to a cost or liability to the Company
are outside the AAP
• 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
• Awards of TPC and Shadow
Carry are made to Executive
Directors to reflect their
seniority and involvement
in the management of the
relevant funds
• The overall percentage of
carried interest available to
ICG and its employees in each
fund varies; for existing funds
these are set out on page
94. An individual’s share of
the carried interest may be
increased to the extent that
another participant leaves
and forfeits their points
ICG ANNUAL REPORT & ACCOUNTS 2017BOARD OF DIRECTORSCOMMITTEE REPORTSREMUNERATIONREPORTDIRECTORS’ REPORTCORPORATE GOVERNANCECHAIRMAN’S LETTER 81
PURPOSE AND LINK TO STRATEGY OPERATION
OPPORTUNITY
PERFORMANCE CONDITIONS
THE INTERMEDIATE CAPITAL GROUP PLC SAYE PLAN 2014
• 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 may 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
• Fees are payable to Non Executive
Executive Directors who will oversee
the development of strategy and
monitor the Executive Directors’
stewardship of the business
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 are reimbursed
for expenses, such as travel and subsistence
costs, incurred in connection with the
carrying out of their duties. Any tax costs
associated with these benefits are paid
by the Company
• None of the Non
Executive Directors’
remuneration is subject
to performance conditions
• 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
• Any benefits receivable by
Non Executive Directors will
be in line with market practice
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 82
R EMUNER ATION COMMIT TEE
REPORT
CONTINUED
DIRECTORS’ REMUNERATION POLICY CONTINUED
NOTES TO THE POLICY TABLE
CHANGES TO DIRECTORS’ REMUNERATION POLICY FROM PREVIOUS POLICY
COMPONENT
DESCRIPTION OF CHANGE
REASONS FOR CHANGE
Annual bonus and Deferred Share Awards Deferred Share Awards have been discontinued for
Executive Directors
PLC Equity Award
Malus and clawback provisions included in policy
FMC Equity Award
Discontinued for all employees
To simplify the remuneration arrangements for
Executive Directors and to extend the vesting period
of any shares awarded
Compliance with best practice and
regulatory requirements
The FMC equity scheme has served its purpose
as the Group has transitioned to an asset manager
Balance Sheet Carry Award
No new awards will be made to Executive Directors.
Existing awards may pay out during the period when the
new policy is in force
To simplify the remuneration arrangements for
Executive Directors
Non Executive Director expenses
Included reimbursed expenses
Certain expenses may be taxable benefits
Annual Award Pool
Removed adjustment for our in house distribution team Removal of the distribution adjustment simplifies
Established Business Growth Pool
the arrangements and improves transparency
The introduction of the Business Growth Pool will
support further strategic growth of ICG’s business
Introduction of maximum cap for awards to individual
Executive Directors
To bring the company in line with best
practice reporting
PERFORMANCE MEASURES
AND TARGETS
The AAP is calculated based on 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 87).
Once the AAP has been calculated, it is
then allocated based on an individual’s
contribution and performance as
determined by the annual appraisal process.
Executive Directors have performance
objectives set and KPIs are monitored by the
Remuneration Committee. Details of these
KPIs are set out on page 88.
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, compliance
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 two
times the Director’s annual base salary.
Current share ownership levels are on page
92; all Executive Directors currently exceed
this amount.
LEGACY REMUNERATION SCHEME
The following remuneration scheme formed
part of the Company’s remuneration policy
in previous years. Following the review of the
remuneration policy it is proposed that this
scheme is discontinued. No new awards will
be made in future but some awards granted
in earlier years and held by Executive
Directors may vest while the new policy
is in force.
ICG ANNUAL REPORT & ACCOUNTS 2017BOARD OF DIRECTORSCOMMITTEE REPORTSREMUNERATIONREPORTDIRECTORS’ REPORTCORPORATE GOVERNANCECHAIRMAN’S LETTER 83
BALANCE SHEET CARRY PLAN
PURPOSE AND LINK TO STRATEGY OPERATION
OPPORTUNITY
PERFORMANCE CONDITIONS
• An Executive Director’s Balance
Sheet Carry Plan award was
drawn from the AAP, and so was
directly determined by reference
to the Group’s cash profit in the
previous year
• The hurdle rate was fixed by the
Committee, at its discretion, prior
to making the first awards in each
vintage. The Committee did not at
any time fix 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)
• An Executive Director’s
Balance Sheet Carry
allocation was drawn from
the AAP which is capped
• Awards are made on
the basis of grade
and performance
• 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
• In the event of a change in control all
awards vest
• 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
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 84
R EMUNER ATION COMMIT TEE
REPORT
CONTINUED
DIRECTORS’ REMUNERATION
POLICY CONTINUED
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 for all employees is drawn from the AAP and is allocated
by reference to role, responsibility and performance and with regard to regulatory
requirements. Awards to individuals may be made up of different types of award as
appropriate to incentivise them depending on their role within the business.
Position
Executive Director
Investment Executives
Marketing Executive,
Business Infrastructure
Partner or Director
Other employees
Awards made from Annual Award Pool
Awards from Third Party Funds
Annual
bonus
Equity
Award
Performance
fees
Balance
Sheet
Carry
Third
Party and
Shadow
Carry
Performance
Fees on
Third Party
Funds
•
•
•
•
•
•
•
•
•
•
•
•
The variable compensation mix may be varied from the above if required by law or regulation.
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.
Statement of consideration of employment conditions elsewhere in the Company
and employee views
The Remuneration Committee considers the employment conditions and the remuneration
structures in place for all employees of the Group when setting the Directors’ remuneration
policy. The Remuneration Committee has oversight of the remuneration arrangements of
senior investors and senior management and control function employees and reviews the
remuneration structure and market positioning for other roles. The overall and average
salary increase across the Group is approved by the Remuneration Committee each year.
The Remuneration Committee does not consult with employees when setting the Directors’
Remuneration Policy but employees’ views are represented at Remuneration Committee
meetings through the Head of HR and Head of Reward.
APPROACH TO RECRUITMENT REMUNERATION
ICG operates in a highly specialised and competitive market, and so competition for talent
is fierce. The Committee’s approach to recruitment remuneration is to pay what is sufficient
to attract appropriate candidates to a role.
Newly recruited Executive Directors are offered a remuneration package similar to that of existing
employees in the same job role. All Executive Directors are offered the same annual salary,
benefits and pension and all participate in the Annual Award Pool and are subject to an overall
cap on incentives. Furthermore, objectives are assigned to the Executive Directors. However,
it may be necessary to offer a new Executive Director a remuneration package that differs from
that currently provided to the Executive Directors in order to attract the best recruit. This could
include a higher base salary and relocation and/or housing benefits.
Buying out deferred bonuses and long term incentives is permitted subject to, as far as
possible, the timing, delivery mechanism (i.e. shares or cash) and amounts paid out being
ICG ANNUAL REPORT & ACCOUNTS 2017BOARD OF DIRECTORSCOMMITTEE REPORTSREMUNERATIONREPORTDIRECTORS’ REPORTCORPORATE GOVERNANCECHAIRMAN’S LETTER 85
set to reflect any former arrangement including potential forfeiture of part or all of the former arrangement. As far as possible, the value
of any replacement awards will reflect the expected value of the forfeited awards.
In the event of an internal promotion to the Board, the Committee reserves the right to allow any pre-existing awards or arrangements
to continue notwithstanding that these may not be consistent with the approved policy.
SERVICE CONTRACTS AND POLICY ON PAYMENTS FOR LOSS OF OFFICE
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 and the treatment of long term incentive awards to Executive Directors
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
July 2016
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
Long term incentive award Status
Death, disability, long term ill health Redundancy
Cause or competing
Any other reason
PLC Equity Award
Unvested Retain with early vesting
Retain
Forfeit, subject to discretion Retain, subject to discretion
Deferred Share Award Unvested Retain with early vesting
Retain, subject to discretion Forfeit, subject to discretion Forfeit, subject to discretion
Carried Interest Over
Third Party Funds
Vested
Retain
Retain
Forfeit, subject to discretion Retain
Unvested
Forfeit, subject to discretion
Forfeit, subject to discretion Forfeit, subject to discretion Forfeit, subject to discretion
Exercise of discretion
The discretion available to the Committee under the long term incentive plans is intended to provide the Committee with flexibility to deal fairly
with every eventuality. In exercising its discretion, the Committee will take into account the circumstances in which the individual has left the
Company, their performance and the impact that this has had on the Company’s overall performance. 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 (with the exception of Rusty
Nelligan and Virginia Holmes) were last re-elected in July 2016. Rusty Nelligan and Virginia Holmes were appointed subsequent to the last
Annual General Meeting and so will be proposed for re-election at the upcoming Annual General Meeting. Details of Non Executive Directors’
appointment dates are as shown below.
Non Executive Director
Kevin Parry
Peter Gibbs
Kim Wahl
Kathryn Purves
Rusty Nelligan
Virginia Holmes
Date appointed
June 2009
March 2010
July 2012
October 2014
September 2016
March 2017
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 86
R EMUNER ATION COMMIT TEE
REPORT
CONTINUED
DIRECTORS’ REMUNERATION
POLICY CONTINUED
ILLUSTRATION OF APPLICATION OF REMUNERATION POLICY
The total remuneration for each of the Executive Directors that could be awarded under
proposed remuneration policy in 2017/18 under three different performance levels
is shown below.
BENOÎT DURTESTE
PHILIP KELLER
£6.0m
64.2%
27.5%
8.3%
£4.0m
61.25%
26.25%
12.5%
£0.5m
100%
£3.0m
61.9%
26.2%
11.9%
£2.5m
61.3%
22.6%
16.1%
£0.5m
100%
Maximum On target
Fixed pay
Maximum On target
Fixed pay
Fixed elements
Annual variable cash
Annual variable deferred
Fixed elements
Annual variable cash
Annual variable deferred
The Annual variable pay included in the chart is split between the following elements of pay:
• Annual bonus; and
• PLC Equity Award
It is likely that remuneration earned over more than one financial year will be disclosed in future
years’ single figure table, emanating from previous awards of Balance Sheet Carry (BSC) or
Shadow Carry. No further awards will be made to existing Executive Directors under the BSC
plans and it is not the current intention for any more awards of Shadow Carry to be made.
The value of on target remuneration for each of the Executive Directors is based on the
aggregate remuneration that the Committee has agreed should be receivable in the
circumstances in which the Company achieves its targets.
The Company does not currently anticipate appointing a further Executive Director beyond
the two specified. If it does so during the period of the policy, the Company will publish a
scenario chart in a similar format for that new Executive Director in the next Annual Report.
STATEMENT OF CONSIDERATION OF SHAREHOLDER VIEWS
The Remuneration Committee is responsible for the overall remuneration policy for all the
Company’s employees and ensures that the remuneration arrangements should take into
account the long term interests of shareholders, investors and other stakeholders.
The Company recognises the importance of communication with its shareholders, particularly
through interim and annual reports and the AGM. The Remuneration Committee Chairman and
Company Secretary contacted the Company’s major shareholders to offer a meeting or call to
discuss the proposed changes to Directors’ Remuneration Policy. Where shareholders accepted
the offer, after discussions they were generally supportive of the proposals. The Remuneration
Committee Chairman and the Company Secretary also met with a number of shareholder
advisory groups, including the Investment Association, ISS and Glass Lewis, to seek their input
on the changes. The Chief Executive, CFOO and the Chairmen of the Board and each of its
Committees will be available to answer shareholders’ questions at the AGM. The CEO and the
CFOO meet institutional shareholders on a regular basis, and the Chairman periodically
contacts the Company’s major shareholders and offers to meet with them. The Board as a
whole is kept fully informed of the views and concerns of the major shareholders. When
requested to do so, Non Executive Directors will attend meetings with major shareholders.
ICG ANNUAL REPORT & ACCOUNTS 2017BOARD OF DIRECTORSCOMMITTEE REPORTSREMUNERATIONREPORTDIRECTORS’ REPORTCORPORATE GOVERNANCECHAIRMAN’S LETTER ANNUAL REPORT
ON REMUNERATION
This section reports on
remuneration paid during
the financial year.
87
DETERMINATION OF THE ANNUAL AWARD POOL (AUDITED)
The central feature of the Remuneration Policy is the Annual Award Pool (AAP). The AAP
is determined by the Executive Committee and Remuneration Committee through an
assessment of ICG’s financial performance. Cash profit provides a link between income
generation for shareholders and employee compensation, ensuring that excessive awards
to employees are not made and that any awards that are made are affordable on a cash
basis. Management information is provided to the Executive Committee and Remuneration
Committee on performance to ensure that financial results are put into the context of wider
performance and risk appetite.
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
FY13
FY14
FY15
FY16
FY17 Cumulative
(10.7)
339.1
182.6
184.2
407.5
1,102.7
AAP, being 30% of cash profit
(3.2)
101.7
54.8
55.3
122.2
330.9
Spend on incentives
22.1
50.2
48.6
51.5
65.9
238.2
Cumulative percentage of cash profit spent
33.5% 20.6% 22.3% 23.5%
21.6%
21.6%
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 reaction to a single year’s exceptional 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 this year, the Committee
may choose not to distribute the full AAP, but can instead choose to retain some of it for
potential use in future years, while in a lower profit year (such as FY13) 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, employees 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 employees at all levels, and seeks to ensure that employees are rewarded against
appropriate benchmarks.
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 Committee 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.
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 88
A NNUA L R EPORT ON
REMUNER ATION
ANNUAL REPORT ON REMUNERATION CONTINUED
EXECUTIVE DIRECTORS – PERFORMANCE IN THE YEAR
A summary of the KPIs, and the Executive Directors’ performance against these objectives is set out below:
Link to
Strategic
Objectives Weighting Target
Performance
Underperforming
Target
Outperforming Narrative
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
15%
4bn p.a.
15%
3.5bn
15%
80%
10%
50%
of funds
15%
<2.5%
10%
>40%
10% 0.8x-1.2x
Target adjusted ROE
10%
>=13%
LINK TO STRATEGY
Grow assets under management
Invest selectively
Manage portfolios to maximise value
The Group raised €4bn of gross inflows, in line
with its long term target, taking the three year
average to €4.4bn.
The target was exceeded by €500m in the year, with
funds raised across 11 strategies including some of
our newer strategies, such as Strategic Secondaries
and Australian Senior Loans.
This has been an extremely strong year for
realisations, 92% of which were above the relevant
hurdle rate. In particular, we have successfully
realised some of our older and more challenging
vintage assets, which required significant
management by our investment committee
over many years.
The investment market remains highly competitive
and it is therefore a considerable achievement to
have maintained the investment pace of our funds
with 86% meeting their deployment targets whilst
continuing to apply our disciplined and rigorous
approach to investing across all funds.
At 2.7%, impairments are slightly above our
historic average and relate to a small number
of specific assets. In general, the portfolios are
performing well.
At 41.2% we exceeded our target FMC profit margin.
This was achieved whilst continuing to invest in
our people and the systems necessary to grow
the business and to meet the increasing demands
of strong governance and regulation.
We have completed the structural regearing of our
balance sheet with a £200m special dividend paid
in August 2016. At 0.95x, gearing is well within
our target range.
Adjusted ROE at 18.2% was materially
above the long term objective of 13%.
ICG ANNUAL REPORT & ACCOUNTS 2017BOARD OF DIRECTORSCOMMITTEE REPORTSREMUNERATIONREPORTDIRECTORS’ REPORTCORPORATE GOVERNANCECHAIRMAN’S LETTER 89
In addition to the KPIs, each Executive Director is measured against the effective application of commercially appropriate risk management
practices, metrics and controls. In some years, 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 this year.
In addition, the Executive Directors are evaluated by the Board against 10 criteria in order to establish how effectively they are operating as
a team in terms of their complementary knowledge and skills mix, their strategic thinking, decision making, communications, relationship and
resource management. Overall, the Board assessed their performance in FY17 to be good and improved on the previous year. The Executive
Directors are also fully appraised and that appraisal is informed by the Board evaluation, peer, HR and Compliance feedback.
EXECUTIVE DIRECTORS – SETTING THE LEVEL OF AWARD
In considering the appropriate level of awards for the Executive Directors, the Committee first considers their collective performance against
their KPIs . The Committee believes that this is necessary in order that the collaborative leadership structure and joint decision making of
the Executive Committee, which has been so important to the overall success of the Group, is maintained and appropriately rewarded.
This approach has, over many years, ensured 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 extremely strong performance across the
Executive Directors, taking into account all the feedback collated, and in particular the results achieved against the KPIs, and most notably,
the growth in Fund Management Company profit, which was driven by the successful execution of the stated strategy, and outperforming
on fundraising in a year in which the Group was raising for its less mature strategies. The Committee also gave careful consideration to the
improvements made across the Group in terms of operational risk management practice and reporting and noted the continued improvement
in these areas. This all combined to deliver record profits for the Group as a whole and both individual business segments independently
(FMC and IC). The Committee noted that the impairment target was narrowly missed but were satisfied that the performance of the
underlying portfolio remained strong.
The Pre-Incentive Cash Profits resulting largely from successful realisations, and strong fund management profitability were a record
high (at £407.5m), up 121% over the prior year. As this is a core measure which aligns the interests of Executive Directors and employees
with shareholders, the Committee considered that it was appropriate to increase overall spend on annual awards across the Group whilst
also taking the opportunity to protect the future sustainability of the business. Against the backdrop of such strong financial results, the
Committee considered that awards to each of the Executive Directors should be increased compared with last year to reflect their respective
contributions to the overall achievements of the Group but have exercised some restraint in the magnitude of that increase, with spend for the
Executive Directors increasing by 26%, and all other employees by 20%. The FY17 spend on awards to the Executive Directors represents
a significantly reduced proportion of Pre-Incentive Cash profit as compared with the previous three years.
Additionally, the awards to both Christophe Evain and Benoît Durteste positively reflect the material contributions made by each of them
to the significant realisations and successful fundraising achieved during the year. The Committee also chose to recognise the fact that both
had maintained the investment discipline which is so important to the future success of the Group, particularly during such unpredictable
economic conditions, and also considered the impact of the successful ICG Recovery Fund 2008 transaction. As a result of Philip Keller’s
contribution to the overall achievements of the Group and effective representation of the interests of the PLC’s investments through his
participation in the Investment Committees, his awards have been increased compared with last year. In arriving at this decision, we also
recognised his role in effecting the significant development of risk management and operations, with a clear focus on quality and scalability.
He was also instrumental in the structural regearing of the Group and its ongoing strong financial management.
The Executive Directors’ KPIs for FY18 have been set in the same categories as those disclosed above. The specific short term 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 4 and 5
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 90
A NNUA L R EPORT ON
REMUNER ATION
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 2017 for
each Executive Director, together with comparative figures for the previous financial year:
Remuneration in respect of the financial year 2017
Salaries
and fees
£000
Benefits1
£000
Pension
allowance
£000
Short term
incentives,
available
as cash2
£000
Total
emoluments
£000
Short term
incentives,
deferred3
£000
Total
remuneration in
respect of the
financial year
2017
£000
Long term
Incentives4
vested from
prior years
£000
Other
remuneration5
£000
Single total
figure of
remuneration
£000
375.0
369.0
11.5
11.1
375.0
10.6
369.0
10.1
375.0
369.0
8.9
7.9
56.3
400.0
842.8
3,850.0
4,692.9
2,195.0
55.4
300.0
735.5
2,851.7
3,587.2
708.3
56.3
55.4
56.3
55.4
330.0
771.9
2,658.4
3,430.3
5,539.5
250.0
684.5
2,271.4
2,955.9
2,532.5
281.0
721.2
2,208.0
2,929.2
1,297.2
216.7
649.0
1,550.4
2,199.4
450.4
–
–
–
–
–
–
6,887.9
4,295.5
8,969.8
5,488.4
4,226.4
2,649.8
Executive Directors
Christophe Evain
2017
2016
Benoît Durteste
2017
2016
Philip Keller
2017
2016
Total emoluments paid to all Directors were £2,903,800 (2016: £2,591,000). See page 95 for details of payments to Non Executive Directors.
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 ended 31 March 2017:
• Deferred Share Award (50% of annual bonus in excess of £100,000).
• PLC Equity Award.
4 The long term incentive amounts are payments received during the year in respect of BSC and shadow carry awards made in prior years.
In FY17, 59% of the long term incentive awards arose as a result of the ICG Recovery Fund 2008 transaction completed during the year
and 90% related to awards made in 2013 or earlier.
In the case of Benoît Durteste, 71.8% of the long term incentive 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 94.
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
was increased to £375,000 per annum from £369,000 per annum, a 1.6% increase. The percentage increase received is in line with
other employees.
ICG ANNUAL REPORT & ACCOUNTS 2017BOARD OF DIRECTORSCOMMITTEE REPORTSREMUNERATIONREPORTDIRECTORS’ REPORTCORPORATE GOVERNANCECHAIRMAN’S LETTER
91
SCHEME INTERESTS AWARDED DURING THE FINANCIAL YEAR (AUDITED)
The following share scheme interests were granted to Executive Directors in relation to their performance in the prior financial year.
Basis on which
award was made
Percentage of award for
minimum performance
End of period over which
performance measures and
targets must be achieved
Scheme interest awarded
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
annual appraisal
100
Face Value
Christophe Evain
£
Philip Keller
£
Benoît Durteste
£
200,000
116,667
150,000
2,651,747
1,433,764
2,121,398
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.
The share price on the date of award of PLC Equity and Deferred Share Awards was £6.552. This was the middle market quotation for the five
dealing days prior to 24 May 2016.
TOTAL PENSION ENTITLEMENTS (AUDITED)
No Executive Directors had a prospective entitlement to a defined benefit pension by reason of qualifying services.
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 asset managers
• Unlisted private equity firms
• Listed private equity firms
• Unlisted asset managers
• Other organisations as appropriate
• Investment banks
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 with 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.
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 92
A NNUA L R EPORT ON
REMUNER ATION
CONTINUED
DIRECTORS’ INTERESTS IN SHARES (AUDITED)
At 31 March 2017, Directors held the following interests in shares of the Company:
Directors
Shares held outright
DSA and PLC Equity
Award interests
SAYE options subject to
service condition
SAYE options vested
but unexercised
Shareholding
requirement met?
Christophe Evain
Philip Keller
Benoît Durteste
Kevin Parry
Kathryn Purves
Peter Gibbs
Virginia Holmes
Rusty Nelligan
Kim Wahl
1,598,329
600,485
160,976
14,922
2,237
–
–
50,000
–
2,279,403
1,313,036
1,838,200
–
–
–
–
–
–
5,027
2,513
–
–
–
–
–
–
–
–
–
2,593
–
–
–
–
–
–
N/A
N/A
N/A
N/A
N/A
N/A
The Executive Directors are required to hold 102,418 shares, being 200% of their annual salary at the share price prevailing on 31 March 2017.
There are no shareholding requirements for Non Executive Directors.
Subsequently, DSA and PLC Equity Awards were made to Executive Directors in respect of their prior year performance. A total of 477,666
interests over shares were awarded to Christophe Evain, a total of 329,827 interests over shares were awarded to Benoît Durteste and a total
of 273,945 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 2017 were as follows:
• DSA and PLC Equity Award interests awarded in prior years vested on 1 and 2 June 2016. The shares held outright by Executive Directors
increased as follows: Christophe Evain – 366,066; Philip Keller – 239,148; Benoît Durteste – 118,204.
• In June 2016 Philip Keller sold 200,000 shares in the market at a price of £6.491 per share, and Benoît Durteste sold 163,244 shares in the
market at a price of £6.558 per share.
• In June 2016 Philip Keller exercised 77,579 options over shares awarded under a prior policy. The option price paid was £6.008 per share
and the market price at exercise was £6.601. At the time of exercise 74,045 shares were sold to meet the option price and tax. 3,534 shares
were retained and form a part of the shareholding disclosed above.
• The share consolidation which took place in July 2016 in association with the payment of a special dividend reduced the shares held outright
by Directors as follows: Christophe Evain – 199,785; Philip Keller – 74,154; Benoît Durteste – 20,123; Kevin Parry – 1,866.
• In September 2016 Philip Keller exercised 25,396 options over shares awarded under a prior policy. The option price paid was £6.008
per share and the market price at exercise was £6.25. At the time of exercise 25,000 shares were sold to meet the option price and tax.
396 shares were retained and form a part of the shareholding disclosed above.
• In November 2016 Philip Keller exercised 78,464 options over shares awarded under a prior policy. The option price paid was £6.008 per
share and the market price at exercise was £6.765. At the time of exercise 74,182 shares were sold to meet the option price and tax. 4,282
shares were retained and form a part of the shareholding disclosed above.
• In December 2016 Kathryn Purves purchased 2,237 shares in the market at a price of £6.699 per share.
• In January 2017 Philip Keller exercised 2,593 options over shares under a Save As You Earn scheme. The option price paid was £3.47 per
share and the market price at exercise was £6.93. The shares have been retained and form a part of the shareholding disclosed above.
The share price at 31 March 2017 was £7.03.
ICG ANNUAL REPORT & ACCOUNTS 2017BOARD OF DIRECTORSCOMMITTEE REPORTSREMUNERATIONREPORTDIRECTORS’ REPORTCORPORATE GOVERNANCECHAIRMAN’S LETTER 93
BALANCE SHEET CARRY AWARDS (AUDITED)
BSC awards cannot be accurately valued, as the value depends on performance over a multi-year period and, if a hurdle is not met, awards
may never have any value. Amounts actually received under BSC awards are disclosed in the single figure table (under ‘Long Term Incentives’)
in the year in which they arise (see page 90).
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 BSC that was allocated
from the AAP for awards made to Executive Directors in respect of FY17. This is not included within the Single Figure Table.
Christophe Evain
Benoît Durteste
Philip Keller
Notional value as a charge to AAP
£
–
514,480
344,043
Executive Directors’ allocation of BSC represents 4.3% of the total available for allocation to employees in FY17.
SHAREHOLDER IMPACT OF AWARDS
For all awards made during the 2010/11 financial year and subsequent financial years, the Company has used, 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 committed by current
Executive Directors from their own resources into third party funds operated by ICG:
Executive Director
Christophe Evain
Benoît Durteste
Philip Keller
Executive Director
Christophe Evain
Benoît Durteste
Philip Keller
EOS
€000
250
400
100
ICG EF06 B
Fund
€000
ICG RF 08B
Fund
€000
ICG Europe
Fund V
€000
775
617
428
761
1,000
508
2,100
2,250
500
ICG
Europe
Fund VI
€000
2,000
2,000
750
ICG
Senior Debt
Partners I
€000
Strategic
Secondaries
Carbon Fund I
$000
Strategic
Secondaries
Fund II
$000
North America
Private Debt
Fund
$000
250
250
–
375
500
375
506
1,131
396
1,000
1,000
1,000
Intermediate
Capital
Asia Pacific
Fund 2008
$000
Intermediate
Capital
Asia Pacific III
$000
250
–
–
Total
Credit
€000
–
–
116
750
1,000
400
ICG
Longbow
III
£000
–
–
200
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 94
A NNUA L R EPORT ON
REMUNER ATION
CONTINUED
CARRIED INTEREST ON THIRD PARTY FUNDS
The Company has established for its executives (including Executive Directors) carried interest arrangements under which between 60% and
90% 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 2017 was as follows:
Executive Directors
Former Executive Directors
Other executives
ICG
Total
Executive Directors
Other executives
ICG
Total
Executive Directors
Other executives
ICG
Total
ICG Europe
Fund V
ICG EF06 B
Fund
23.9%
56.1%
20.0%
100.0%
30.3%
49.7%
20.0%
100.0%
Intermediate Capital
Asia Pacific III
North America
Private Debt Fund
20.0%
60.0%
20.0%
20.0%
60.0%
20.0%
Strategic
Secondaries
Carbon Fund I
18.0%
62.0%
20.0%
Intermediate
Capital
Asia Pacific
Mezzanine Fund 2005
Mezzanine
Fund 2003
Intermediate
Capital
Asia Pacific
Fund 2008
12.4%
25.1%
37.5%
25.0%
9.5%
21.6%
43.9%
25.0%
21.3%
4.3%
54.4%
20.0%
100.0%
100.0%
100.0%
ICG
Europe
Fund VI
24.7%
55.3%
20.0%
100.0%
ICG
Senior Debt
Partners I
ICG
Senior Debt
Partners II
ICG
Strategic Secondaries
Carbon Fund
20.0%
60.0%
20.0%
100.0%
20.0%
60.0%
20.0%
100.0%
18.0%
62.0%
20.0%
100.0%
Secondaries
Velocity
Strategic
Secondaries Fund II
ICG
Longbow
Development
ICG Longbow IV
17.7%
62.3%
20.0%
17.7%
62.3%
20.0%
6.0%
74.0%
20%
100%
13.1%
76.9%
10%
100%
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 and 19.
THIRD PARTY CARRY (TPC) PURCHASES
The following allocation of TPC was made during the financial year.
% of
ICG Europe Fund VI
points
% of ICG
Strategic Secondaries
Fund II points
% of ICG
Longbow Development
points
% of North America
Private Debt Fund points
% of ICG Longbow IV
points
% of ICG Senior Debt
Partners II points
Christophe Evain
Benoît Durteste
Philip Keller
0.84%
0.84%
0.28%
8.19%
8.19%
1.34%
2.0%
2.0%
2.0%
8.19%
8.19%
3.62%
3.33%
3.33%
6.45%
9.33%
9.33%
1.34%
The percentages represent the individuals’ share of the carry points available. Further details of these funds are available on pages 18 and 19.
ICG ANNUAL REPORT & ACCOUNTS 2017BOARD OF DIRECTORSCOMMITTEE REPORTSREMUNERATIONREPORTDIRECTORS’ REPORTCORPORATE GOVERNANCECHAIRMAN’S LETTER
95
FEES PAID TO NON EXECUTIVE DIRECTORS (AUDITED)
In the financial year under review, Non Executive Directors’ fees were as follows:
Non Executive Directors
Justin Dowley
Kevin Parry (Chairman)
Peter Gibbs
Kathryn Purves
Kim Wahl
Rusty Nelligan
Virginia Holmes
Board
membership
fees
£000
Board and
Committee
Chairman fees
£000
Senior
Independent
Director fee
£000
Audit
Committee
£000
Remuneration
Committee
£000
Risk
Committee
£000
Total for year
ending 2017
£000
Total for year
ending 2016
£000
0.0
18.6
60.0
60.0
60.0
32.8
–
66.2
153.0
20.0
15.0
0.0
8.2
–
0.0
3.2
6.7
0.0
0.0
0.0
–
0.0
0.0
9.0
9.0
9.0
0.0
–
0.0
2.9
0.0
0.0
9.0
0.0
–
0.0
2.9
9.0
0.0
9.0
4.9
–
66.2
180.6
104.7
84.0
87.0
45.9
–
195.0
94.1
88.0
71.9
73.0
–
–
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 2017, 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
François de Mitry
Andrew Phillips
Paul Piper
PLC Equity
Vesting
£
Balance Sheet
Carry
£
Shadow Carry
Payments
£
Total
£
1,049,858
1,574,787
162,245
395,028
21,032
1,233,135
14,031
1,983,846
–
–
–
–
136,552
136,552
9,345
9,346
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 96
A NNUA L R EPORT ON
REMUNER ATION
CONTINUED
PERFORMANCE GRAPH OF TOTAL SHAREHOLDER RETURN (EIGHT 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 2009 of £100 invested in Intermediate
Capital Group plc with the FTSE All Share Financial Index over the subsequent eight 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.
1000
900
800
700
600
500
400
300
200
100
0
Mar 09
Mar 10
Mar 11
Mar 12
Mar 13
Mar 14
Mar 15
Mar 16
Mar 17
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.
200
180
160
140
120
100
80
Mar 14
Jun 14
Sep 14
Dec 14
Mar 15
Jun 15
Sep 15
Dec 15
Mar 16
Jun 16
Sep 16
Dec 16
Mar 17
Intermediate Capital Group
FTSE All-Shares Financials
ICG ANNUAL REPORT & ACCOUNTS 2017BOARD OF DIRECTORSCOMMITTEE REPORTSREMUNERATIONREPORTDIRECTORS’ REPORTCORPORATE GOVERNANCECHAIRMAN’S LETTER 97
TOTAL REMUNERATION OF THE CHIEF EXECUTIVE OFFICER
The table below details the total remuneration (including the value of awards vesting in the current year, but awarded in prior years) of the
Director holding the position of CEO of Intermediate Capital Group plc for the past eight years. This year’s short term award to the CEO
exceeds the maximum due to a portion of his final award being made in PLC Equity, reflecting his planned retirement, rather than in BSC.
The long term award exceeding the maximum is significantly due to the one off gain arising from the unanticipated ICG Recovery Fund
2008 transaction.
Christophe Evain
Tom Attwood
Financial year
Total remuneration
£000
Percentage of maximum
opportunity of short term
incentives awarded
Percentage of maximum
opportunity of long term
incentives awarded
2017
2016
2015
2014
2013
2012
2011
2010
6,888
4,295
5,103
4,797
1,492
2,973
5,941
4,631
102%
76%
80%
97%
24%
43%
44%
44%
160%
98%
98%
20%
1%
97%
100%
100%
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.
The short term incentive award to the CEO represents an award of PLC Equity, reflecting his planned retirement.
Chief Executive Officer
All employees
Salaries and fees
Taxable benefits
Short term incentives
3.00%
3.88%
9.94%
14.42%
34.85%
14.41%
RELATIVE IMPORTANCE OF SPEND ON PAY
The table 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. A special dividend of £200m was paid in July 2016 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 and the higher cost of awards due to a strong performance year.
Ordinary dividend
Special dividend
Total shareholder distributions
Permanent headcount
Employee costs
FY16
£m
72.5
200.0
272.5
268
103.4
FY17
£m
75.7
0.0
75.7
281
139.3
Percentage
change
4%
(100%)
(72%)
5%
35%
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 98
A NNUA L R EPORT ON
REMUNER ATION
CONTINUED
STATEMENT OF IMPLEMENTATION OF REMUNERATION POLICY IN FOLLOWING FINANCIAL YEAR
The growth in ICG, its increased complexity, the time commitment required from NEDs and market levels of remuneration have not been fully
reflected in recent NED fee levels. In the coming years the NED burden will further increase due to the introduction of the senior managers’
and certification regime to asset managers. ICG’s fees have been benchmarked against median fees in the financial sector for FTSE 250
companies. Accordingly, with effect from 1 April 2017, fees have been increased but do not exceed a median benchmark.
The proposed salaries for the Executive Directors and fees for the NEDs for FY18 are set out below.
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
Annual salaries and fees £000
Y/E 31 March 2018
Y/E 31 March 2017
386.0
236.5
75.0
15.0
20.0
20.0
20.0
12.0
375.0
215.0
60.0
10.0
20.0
15.0
15.0
9.0
Committee composition is set out on pages 42 and 43 and in the relevant Committee reports on pages 51 to 98.
For FY18, 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 88.
STATEMENT OF VOTING AT GENERAL MEETING
At the last AGM, votes on the remuneration report were cast as follows:
Directors’ Remuneration Report
91.06%
8.94%
568,840 While there were no particular concerns raised last year, the Committee
has continued to engage with shareholders and their feedback has been
incorporated into the proposed Policy.
Votes for
Votes against
Abstentions
Reasons for votes against, if known and actions taken by the Committee
At the AGM in July 2014, votes on the remuneration policy were cast as follows:
Remuneration Policy
79.85%
20.15%
18,112,805 Directors of the Company met with a number of shareholders in the
Votes for
Votes against
Abstentions
Reasons for votes against, if known and actions taken by the Committee
period subsequent to this vote; however, no material concerns in
respect of the Policy were raised.
ICG ANNUAL REPORT & ACCOUNTS 2017BOARD OF DIRECTORSCOMMITTEE REPORTSREMUNERATIONREPORTDIRECTORS’ REPORTCORPORATE GOVERNANCECHAIRMAN’S LETTER
99
DIRECTORS’ REPORT
The Directors present their Annual Report and the audited
financial statements for the 12 months ended 31 March 2017.
The risks to which the Group is subject and the policies in respect
of such risks are set out on pages 27 to 34 and are incorporated
into this report by reference. The Corporate Governance section
set out on pages 39 to 98, is incorporated into this report
by reference.
Throughout the year to 31 March 2017 the Group was in compliance with the provisions
of the UK Corporate Governance Code issued by the Financial Reporting Council. A copy
of the Code is available on the Financial Reporting Council’s website: www.frc.org.uk.
Significant shareholdings
As at 24 May 2017 the Company had been notified or otherwise become aware of the
following interests pursuant to the Disclosure Rules and the Transparency Rules representing
3% or more of the issued share capital of the Company.
Institution
Aviva Investors
Schroders Plc
BlackRock Inc
Henderson Global Investors
Employee Share Scheme Trustees
Allianz Global Investors
Ameriprise Financial Inc
Legal & General Investment Mgmt Ltd
Number of
shares
22,349,308
13,444,270
12,118,384
10,217,560
10,153,592
9,589,800
9,332,855
8,720,387
Percentage of
voting rights
7.70
4.64
4.18
3.52
3.50
3.31
3.21
3.01
DIRECTORS
The profiles of the Directors are shown
on pages 42 and 43; those details are
incorporated into this report by reference.
In addition, Justin Dowley served as a Non
Executive Director during the year, stepping
down 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 98.
Directors’ interests
The interests of Directors who held office at
31 March 2017 and their connected persons,
as defined by the Companies Act, are
disclosed in the report of the Remuneration
Committee on page 92.
Details of Directors’ share options are
provided in the report of the Remuneration
Committee on page 92. During the financial
year ending 31 March 2017, 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, Kevin Parry, was
considered independent at the date
of his appointment as Chairman.
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT
100
DIRECTORS’ REPORT
CONTINUED
The Board has delegated the
following responsibilities to the
Executive Directors:
• The development and recommendation
of strategic plans for consideration by
the Board
• Delivery of objectives and priorities
determined 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 maintaining 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 the Group’s resources,
determining strategy, financial and
operational control and managing the
business worldwide. Christophe Evain
is CEO and in addition to his strategic and
operational remit he oversees the Group’s
Investment Committees in his role as the
Chief Investment Officer. Philip Keller
is CFOO and is responsible for finance,
operations, IT, human resources, risk,
compliance and legal. Benoît Durteste
is Head of European Investments.
No one Executive Director is able to
significantly affect the running of the
Company without consulting his colleagues.
Following the change of Chief Executive,
certain refinements to our management
structures may be needed as we widen
our management team.
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 Executive 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 the Chairman
The Non Executive Directors regularly hold
meetings in the absence of the Executive
Directors (at least five times per year
and usually before or after each Board
meeting) and, separately, in the absence
of the Chairman.
Senior Independent Director
Peter Gibbs currently holds the position
of Senior Independent Director (SID) of
the Company. In accordance with the Code,
any shareholder concerns not resolved
through the usual mechanisms for investor
communication can be conveyed to the
SID. The SID has met with a number of
shareholders during the year.
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 standard
contractual indemnities with each of the
Directors. 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.
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.
ICG ANNUAL REPORT & ACCOUNTS 2017BOARD OF DIRECTORSCOMMITTEE REPORTSREMUNERATIONREPORTDIRECTORS’ REPORTCORPORATE GOVERNANCECHAIRMAN’S LETTER 101
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 individuals 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 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 27 to 34 and the report of the Risk
Committee on pages 60 to 64.
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.
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.
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 have adopted the
going concern basis of preparing the
financial statements.
The Directors have made this assessment
after reviewing the Group’s latest forecasts
for a period of three years, noting the
£970.8m cash and unutilised committed
debt facilities as at the end of FY17, no drawn
debt facilities due to mature within the
next 12 months and that 44% of committed
(drawn and undrawn) facilities are due
to mature within two years.
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 2 to 38. The financial position of the
Group, its cash flows, liquidity position and
borrowing facilities are described in the
Finance and Operating Review on pages
20 to 26. In addition, note 5 to the financial
statements includes the Group’s objectives,
policies and processes for managing its
capital; its financial risk management; 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 the
business risks successfully in the current
economic environment.
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.
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 102
DIRECTORS’ REPORT
CONTINUED
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 arrangements
totalling £20m equivalent dated 26 June
2008, $150m dated 8 May 2013,
£258m equivalent dated 11 May 2015,
$292m dated 29 September 2016 and
€74m dated 26 January 2017 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
2. Nine bilateral committed loan facility
agreements totalling £440m and €98m
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
3. The terms and conditions of the £35m
retail bond issue which took place in
December 2011, the £80m retail bond
issue which took place in September
2012, the €50m wholesale bond issue
which took place in March 2014, the
€25m wholesale bond issue which took
place in June 2014 and the £160m bond
issue which took place in March 2015,
each of which set out that following
a change of control event, investors
have the right but not the obligation
to sell their notes to ICG if the change
of control results in either a credit
ratings downgrade from investment
grade to sub-investment grade, or a
downgrade of one or more notches
if already sub-investment grade
4. The employee share schemes, details
of which can be found in the Report of
the Remuneration Committee on pages
69 to 98, 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. Awards and options under
the Omnibus Plan and the BSC Plan vest
immediately on a change of control
5. Carried interest arrangements in respect
of a number of funds vest fully in favour
of ICG and certain of its employees
following a change of control event
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
those described above and the usual
payment in lieu of notice.
Dividend
The Directors recommend a final net
ordinary dividend payment in respect of
the ordinary shares of the Company at a
rate of 19.5p per share (2016: 15.8p), which
when added to the interim net dividend of
7.5p per share (2016: 7.2p), gives a total
net dividend for the year of 27.0p per share
(2016: 23.0p). The recommendation is
subject to the approval of shareholders
at the Company’s AGM on 25 July 2017.
The amount of ordinary dividend paid
in the year was £70.9m (2016: £78.2m).
In addition, a £200m special dividend
payable at a rate of 63.4p 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 held by the
Group’s EBT, or 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.
Further details are set out in the Audit
Committee report on pages 51 to 59.
ICG ANNUAL REPORT & ACCOUNTS 2017BOARD OF DIRECTORSCOMMITTEE REPORTSREMUNERATIONREPORTDIRECTORS’ REPORTCORPORATE GOVERNANCECHAIRMAN’S LETTER 103
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.
• 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
Share capital and rights attaching
to the Company’s shares
As at 31 March 2017 the issued share capital
of the Company was 293,903,724 ordinary
shares of 26₁/4p each (including 3,733,333
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 26₁/4p 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:
• 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)
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 104
DIRECTORS’ REPORT
CONTINUED
Relationships with shareholders
The Company recognises the importance
of communication with its shareholders,
particularly through interim and annual
reports and the AGM. The Executive
Directors, the SID 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.
Please see page 50 for more details on
engagement with shareholders.
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 2016 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 £25,364,129 and, in the case of a fully
pre-emptive rights issue only, up to a total
amount of £50,728,259.
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 24 May 2017 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 24 May
2017. 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 2016
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 31 May 2016. 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.
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
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 Chairman, the
Non Executive Directors are satisfied that he
continues to be effective and demonstrates
commitment to his role.
ICG ANNUAL REPORT & ACCOUNTS 2017BOARD OF DIRECTORSCOMMITTEE REPORTSREMUNERATIONREPORTDIRECTORS’ REPORTCORPORATE GOVERNANCECHAIRMAN’S LETTER 105
RESULTS OF RESOLUTIONS PROPOSED AT 2016 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 2016.
To approve the Directors’ remuneration report for the financial year ended
31 March 2016.
To declare a final dividend of 15.8 pence per ordinary share for the financial
year ended 31 March 2016.
To reappoint Deloitte LLP as auditors of the Company to hold office as the
Company’s auditors until the conclusion of the Company’s Annual General
Meeting in 2017.
To authorise the Directors to set the remuneration of the auditors.
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 13, 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 Annual
General Meeting) may be called on less than 14 clear days’ notice.
To declare a special dividend of 63.4 pence per ordinary share payable to
holders of ordinary shares.
Subject to the passing of resolution 17, that every 9 existing ordinary shares
be consolidated into 8 new ordinary shares of 26₁/4 pence each in the capital
of the Company.
For the purposes of Article 97 of the Company’s Articles of Association, to
increase the maximum aggregate amount per annum which Directors shall be
entitled by way of fees to £1,000,000.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
250,378,998
173,403
59,737
227,692,707
22,350,591
568,840
250,473,122
139,016
220,412,857
30,198,353
248,902,236
247,882,398
249,317,417
245,291,608
249,588,443
248,996,574
247,364,906
247,602,999
240,987,824
1,709,624
2,729,215
1,294,196
1,914,726
1,023,170
1,254,353
3,246,707
3,008,614
9,622,314
0
928
278
525
525
3,405,804
525
361,211
525
525
2,000
220,174,077
19,106,825
11,331,236
246,681,581
3,930,528
231,016,847
19,595,110
29
181
250,582,498
16,048
13,592
250,581,711
16,806
13,621
19
245,852,345
4,751,827
7,966
The issued share capital of the Company at the date of the Annual General Meeting was 326,204,747 ordinary shares of 23⅓p each
(excluding 4,200,000 treasury shares).
2017 ANNUAL GENERAL MEETING
The AGM of the Company will take place at the Head Office of the Company on 25 July 2017 at 11:30am. 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 2017 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.
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT
106
DIRECTORS’ RESPONSIBILITIES
CHRISTOPHE EVAIN
Chief Executive 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:
PHILIP KELLER
Chief Finance and Operating Officer
• Properly select and apply
accounting policies
• Present information, including accounting
policies, in a manner that provides
relevant, reliable, comparable and
understandable information
• Provide additional disclosures when
compliance with the specific requirements
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
• Make an assessment of the Company’s
ability to continue as a going concern
The Directors are responsible for
keeping adequate accounting records
that are sufficient to show and explain the
Company’s transactions and disclose with
reasonable accuracy at any time the financial
position of the Company and enable them to
ensure that the financial statements comply
with the Companies Act 2006. They are
also responsible for safeguarding the
assets of the Company and hence for taking
reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for the
maintenance and integrity of the corporate
and financial information included on the
Company’s website. Legislation in the United
Kingdom governing the preparation and
dissemination of financial statements may
differ from legislation in other jurisdictions.
We confirm that to the best of
our knowledge:
• The financial statements, prepared in
accordance with IFRS as adopted by the
EU, 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
• 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
CHRISTOPHE EVAIN
Chief Executive Officer
24 May 2017
PHILIP KELLER
Chief Finance and Operating Officer
24 May 2017
ICG ANNUAL REPORT & ACCOUNTS 2017BOARD OF DIRECTORSCOMMITTEE REPORTSREMUNERATIONREPORTDIRECTORS’ REPORTCORPORATE GOVERNANCECHAIRMAN’S LETTER 107
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
Glossary
Shareholder and Company information
108
114
115
116
117
118
120
163
168
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 108
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 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
2017 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;
• 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 34.
We are required to state whether we have
anything material to add or draw attention
to in relation to:
• the directors’ confirmation on page
34 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 30 to 33 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 34 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 confirm that we have nothing material
to add or draw attention to in respect
of these matters.
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 confirm that we are
independent of the Group and we have
fulfilled our other ethical responsibilities
in accordance with those standards.
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 to the Group as referred to in
those standards.
SUMMARY OF OUR
AUDIT APPROACH
The key risks we identified are:
1.
2.
Valuation of unquoted equities,
warrants and CLOs
Impairment of loans and equity
investments classified as available
for sale
3. Management fee recognition
We determined materiality for the Group
to be £10.8 million (2016: £12.2 million).
A lower materiality of £3.7 million
(2016: £3.7 million) has been applied
for the fund management revenue
stream. We reported all audit differences
in excess of £215,000 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 92% of the
Group’s profit before tax and 98% of the
Group’s net assets.
ICG ANNUAL REPORT & ACCOUNTS 2017 109
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.
In the prior year, we identified a key risk
relating to the application and interpretation
of IFRS 10 Consolidated Financial
Statements (IFRS 10). As there has been no
significant change in the judgements relating
to the application and interpretation of IFRS
10 during the reporting period, we have not
reported on this risk this year.
We refined our risk assessment for interest
income in the current year and focused
on the significant judgements on changes
to loan repayment dates and amounts.
These have been addressed via our
procedures performed on impairments
of loans, which have been included in this
audit report.
1. VALUATION OF UNQUOTED EQUITIES, WARRANTS AND CLOS
RISK DESCRIPTION
HOW THE SCOPE OF OUR
AUDIT RESPONDED TO THE RISK
KEY OBSERVATIONS
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. For the most material portfolio
company investment, valued at £38million,
we accepted management’s valuation was
appropriate and reflected the uncertainty
in the relevant external factors. No CLO loan
notes were outside of our 5% threshold.
Unquoted equities, warrants and CLOs
represented £297 million (25.3% of Group
net assets) at 31 March 2017.
Valuing unquoted equities, warrants and
CLOs 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 capital gains in the Consolidated
Income Statement.
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.
The description of this risk should be
read conjunction with the significant
issues considered by the Audit Committee
discussed on page 55.
We assessed the Group’s valuation methodology and
challenged its appropriateness. We evaluated 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 determining the appropriateness of the underlying
data and assumptions, specifically including discount
rates and comparable companies. We verified the
inputs to the valuations (specifically to the management
accounts and audited financial statements of the investee
companies). We reviewed independent information, such
as news stories, for the investee companies to identify
any impact on management’s valuation. We assessed the
reasonableness of management estimates in previous
valuations by performing a retrospective review of
valuations based on recent exits. For the most material
portfolio company investment, valued at £38million, we
challenged management as to whether they have been
too conservative in their valuation when taking into
account news of a possible merger and debt write off
in the portfolio company.
We selected a sample of CLO loan notes, comprising
different tranches of debt in CLO vehicles. For
our sample, we recalculated the fair value with
reference to an independent third party cash flow
model. We used our internal specialists to challenge
the significant assumptions; 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. Where our base price was within a 5% threshold
of the Group’s we considered these valuations to
be acceptable.
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 110
AUDITOR’S
REPORT
CONTINUED
2. IMPAIRMENT OF LOANS AND EQUITY INVESTMENTS CLASSIFIED AS AVAILABLE FOR SALE
RISK DESCRIPTION
HOW THE SCOPE OF OUR
AUDIT RESPONDED TO THE RISK
KEY OBSERVATIONS
The Group’s impairment charge
represented £25.3 million for the year
ending 31 March 2017. 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. There is a
risk that management fail to identify an
impairment event or that the impairment
reported is overestimated.
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.
The description of this risk should be
read conjunction with the significant
issues considered by the Audit Committee
discussed on page 55.
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 respect of the £6.8 million loan asset
we concluded that, considering significant
uncertainties that could have a negative
impact on the company’s performance,
management’s impairment charge was
acceptable. In respect of the portfolio
company reflecting £30.2 million
of assets, based on our additional
procedures performed, we concurred
with management’s judgement that an
impairment event had not occurred.
We are satisfied that there is no material
impairment event which occurred during
the year that has not been identified
by management.
We tested the design and implementation of key
controls around impairments. We reviewed the whole
loan portfolio for impairment indicators, including
equity assets held at available for sale, and 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, or where
the equity value of an investee company was nil, we
determined whether this indicated an impairment
had occurred.
For a sample of impairments that occurred during the
year, we assessed management assumptions relating to
the timing and recognition of the impairment events and
charges and corroborated them to underlying data; such
as enterprise valuations.
We challenged management on one loan asset which had
been impaired by £6.8 million; as there were indicators
that management had been over conservative with the
impairment charge. We also identified one portfolio
company reflecting £30.2 million of assets, in which the
Group has an equity and debt holding. The portfolio
company had a negative cash position with debt
covenants very close to being breached. We challenged
management’s judgement that an impairment event had
not occurred by reviewing the portfolio company’s
performance and equity valuation.
We also considered whether any impaired assets
classified as available for sale have been correctly
recycled through the Consolidated Income Statement.
ICG ANNUAL REPORT & ACCOUNTS 2017 111
3. MANAGEMENT FEE RECOGNITION
RISK DESCRIPTION
HOW THE SCOPE OF OUR
AUDIT RESPONDED TO THE RISK
KEY OBSERVATIONS
We are satisfied that management fees are
not materially misstated.
Management fees represented
£123.1 million (19.6% of the
Group’s revenue).
There is a risk that there are errors in
the amounts of the management fees
reported as there is judgement around the
interpretation and application of the terms
of the investment management agreements.
The Group’s revenue accounting
policy is disclosed in note 3 to the
financial statements.
The description of this risk should be
read conjunction with the significant
issues considered by the Audit Committee
discussed on page 55.
We sampled the management fees across the Group’s
four asset classes, Corporate Investments, Capital Market
Investments, Real Estate Investments and Secondary
Investments, and tested £118 million (96%) of the total
fees. We assessed the design and implementation
of key controls around the management fee revenue
cycle and the reliability of data provided by third party
administrator of funds managed by the Group.
We reviewed board minutes to identify any new fund
launches to assess if management fees have been
recognised on all funds under management. For our
sample of management fees we obtained the most
up to date management agreements and determined
if the terms of the agreements were interpreted and
applied correctly.
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.
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 112
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 £10.8 million (2016: £12.2 million), which
is approximately 1% of Net Assets (2016: 1%
Net assets).
A lower materiality threshold of £3.7 million
(2016: £3.7 million) has been applied to
the Fund Management Company (‘FMC’)
management fee income and FMC
administrative expense account balances,
transactions and disclosures. In the current
year we revised our method of determining
our lower materiality threshold to a more
accurate reflection of FMC performance.
The lower materiality has been based on
5% of profit before tax of the FMC segment
adjusted to remove any management
fees earned from the Investment
Company segment.
We considered these measures to be
suitable having compared to other industry
benchmarks and consider them to be key
measures that the users of the financial
statements consider when assessing the
performance of the Company.
We agreed with the Audit Committee that
we would report to the Committee all
audit differences in excess of £215,000
(2016: £244,000) for all items except
FMC management fee income and the
FMC administrative expense revenue
streams. For these balances we report
all misstatements above £72,000
(2016: £72,000). 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.
AN OVERVIEW OF THE SCOPE
OF OUR AUDIT
The Group operates across Europe, Asia
and America and is made up of entities within
the Fund Management Company (FMC) and
Investment Company (IC) businesses. All the
key accounting records are maintained in the
UK. We perform our Group scoping on an
individual entity by entity basis to determine
the significant components or specific
balances which may be subject to testing.
In performing this scoping we perform both
a quantitative and qualitative assessment of
all the entities consolidated into the Group.
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 £1.8 million – £7.3 million.
(2016: £1.85 million – £6.1 million).
Our quantitative assessment was preliminary
based on each entity’s profit before tax
(PBT), management fees and net assets.
Further assessment is performed to
ensure that reasonable coverage has been
obtained across the entities. Our qualitative
scoping is based on our understanding of
the Group and its environment, including
group-wide controls, current year events
and our assessment of 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
significant components subject to full scope
audits for the year ended 31 March 2017.
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 UK Limited
We also performed full scope audits on
an additional three 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 twelve 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% (2016: 98%) of the group’s net assets
and 92% (2016: 93%) 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.
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.
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;
• 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; and
• the Strategic Report and the Directors’
Report have been prepared in accordance
with applicable legal requirements.
ICG ANNUAL REPORT & ACCOUNTS 2017 113
In the light of the knowledge and
understanding of the company and its
environment obtained in the course of the
audit, we have not identified any material
misstatements in the Strategic Report and
the Directors’ Report.
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:
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.
• 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
24 May 2017
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 114
CONSOLIDATED INCOME STATEMENT
FO R T H E Y E A R E N D E D 31 M A RCH 2017
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
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
2017
£m
204.2
286.8
134.1
625.1
(153.4)
(25.3)
(194.3)
–
0.3
252.4
(34.2)
218.2
217.8
0.4
218.2
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
74.5p
41.9p
74.5p
41.9p
ICG ANNUAL REPORT & ACCOUNTS 2017 CONSOLIDATED AND PARENT COMPANY
STATEMENTS OF COMPREHENSIVE INCOME
FO R T H E Y E A R E N D E D 31 M A RCH 2017
Group
Profit for the year
Available for sale financial assets:
– (Losses)/gains arising in the year which may be reclassified to profit or loss in future periods
– Reclassification adjustment for net gains recycled to profit
Exchange differences on translation of foreign operations
Tax credit/(charge) on items taken directly to or transferred from equity
Other comprehensive (expense)/income for the year
Total comprehensive income for the year
Attributable to:
Equity holders of the parent
Non controlling interests
Company
(Loss)/profit for the year
Available for sale financial assets:
– Gains arising in the year which may be reclassified to profit or loss in future periods
– Reclassification adjustment for gains recycled to profit
Tax (charge)/credit on items taken directly to or transferred from equity
Other comprehensive (expense)/income for the year
Total comprehensive (expense)/income for the year
115
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
Notes
9
9
26
Notes
6
26
2017
£m
218.2
(2.6)
(45.7)
23.0
(25.3)
6.3
(19.0)
199.2
198.8
0.4
199.2
2017
£m
(94.6)
1.6
(9.8)
(8.2)
(1.2)
(9.4)
The Group’s other comprehensive expense for the year of £19.0m (2016: income of £31.7m) and the Company’s other comprehensive
expense for the year of £9.4m (2016: income of £3.6m) may be reclassified to profit or loss in future periods.
The accompanying notes are an integral part of these financial statements.
(104.0)
131.3
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 116
CONSOLIDATED AND PARENT COMPANY
STATEMENTS OF FINANCIAL POSITION
A S AT 31 M A RCH 2017
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 including Company loss of £94.6m (2016: £127.7m profit)
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
2017
Group
£m
20.7
9.2
2016
Group
£m
23.6
8.1
2017
Company
£m
2016
Company
£m
16.3
8.2
19.1
6.4
4,886.7
3,715.9
1,476.6
1,412.4
6.4
0.3
3.3
0.4
3.2
–
2.0
–
4,923.3
3,751.3
1,504.3
1,439.9
208.3
89.7
40.3
33.7
780.9
1,152.9
6,076.2
77.1
179.0
5.0
(82.2)
66.5
927.2
1,172.6
0.7
1,173.3
216.4
182.6
28.3
15.1
182.5
624.9
4,376.2
77.0
177.6
5.0
(77.0)
95.5
963.1
1,241.2
0.9
1,242.1
1.3
2.0
4,304.9
2,674.2
33.6
77.0
31.6
51.0
530.1
89.6
40.3
28.8
443.9
1,132.7
2,637.0
77.1
179.0
5.0
(21.3)
56.3
459.4
755.5
–
755.5
1.3
1,121.5
32.7
23.3
630.0
182.6
28.3
16.8
48.0
905.7
2,345.6
77.0
177.6
5.0
(21.3)
53.3
824.9
1,116.5
–
1,116.5
2.0
761.2
31.6
9.8
4,416.8
2,758.8
1,178.8
804.6
0.7
464.8
–
14.0
6.6
486.1
4,902.9
6,076.2
0.7
233.4
106.6
5.1
29.5
375.3
3,134.1
4,376.2
0.7
695.4
–
–
6.6
702.7
1,881.5
2,637.0
0.7
289.5
106.6
–
27.7
424.5
1,229.1
2,345.6
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 24 May 2017 and were signed on its behalf by:
KEVIN PARRY
Director
PHILIP KELLER
Director
ICG ANNUAL REPORT & ACCOUNTS 2017 CONSOLIDATED AND PARENT COMPANY
STATEMENTS OF CASH FLOW
FO R T H E Y E A R E N D E D 31 M A RCH 2017
Notes
2017
Group
£m
232.4
140.4
158.5
(149.4)
(135.9)
153.7
2016
Group
£m
206.3
77.9
28.4
(95.3)
(141.2)
(35.8)
(2,344.6)
(1,378.3)
–
1,070.0
797.4
(77.5)
(7.7)
(85.2)
–
(4.1)
–
–
(4.1)
(270.9)
1,931.1
(807.9)
(150.2)
(41.7)
(23.6)
1.5
638.3
549.0
182.5
49.4
780.9
1.7
1,034.1
66.6
(235.6)
(3.9)
(239.5)
–
(4.2)
(18.3)
(9.1)
(31.6)
(378.2)
679.1
(183.1)
(40.5)
–
(27.4)
3.4
53.3
(217.8)
391.9
8.4
182.5
17
16
14
7
Operating activities
Interest received
Fees received
Dividends received
Interest paid
Payments to suppliers and employees
Net proceeds/(purchase) 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
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
Loss of control of subsidiary
Net cash (used in)/generated from investing activities
Financing activities
Dividends paid
Increase in long term borrowings
Repayment of long term borrowings
Net cash outflow from derivative contracts
Purchase of remaining 49% of Longbow Real Estate Capital LLP
Net purchase of own shares
Proceeds on issue of shares
Net cash generated from/(used in) financing activities
Net increase/(decrease) in cash
Cash and cash equivalents at beginning of year
Effect of foreign exchange rate changes
Net cash and cash equivalents at end of year
Presented on the statements of financial position as:
Cash and cash equivalents
The accompanying notes are an integral part of these financial statements.
117
2017
Company
£m
2016
Company
£m
90.5
24.0
15.1
(53.0)
(91.4)
98.2
(37.1)
–
211.8
95.3
353.4
(6.4)
347.0
305.1
(4.0)
–
–
301.1
(270.9)
648.1
(466.7)
(132.1)
(41.7)
–
1.5
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)
–
(19.4)
(378.2)
309.2
(121.6)
(52.5)
–
(5.5)
3.4
(261.8)
(245.2)
386.3
48.0
9.6
443.9
(159.1)
206.8
0.3
48.0
780.9
182.5
443.9
48.0
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 118
CONSOLIDATED AND PARENT COMPANY
STATEMENTS OF CHANGES IN EQUITY
FO R T H E Y E A R E N D E D 31 M A RCH 2017
Group
Balance at 1 April 2016
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 (expense)/income
for the year
Movement in control of subsidiary
Own shares acquired in the year
Options/awards exercised
Credit for equity settled share schemes
Dividends paid
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
77.0
177.6
5.0
43.6
51.9
(77.0)
963.1
1,241.2
Total
equity
£m
1,242.1
218.2
(48.3)
23.0
6.3
0.9
0.4
–
–
–
217.8
217.8
–
(48.3)
23.0
23.0
–
6.3
240.8
198.8
0.4
199.2
0.6
(0.6)
–
–
–
–
–
–
18.5
(6.4)
0.6
–
–
(23.7)
1.5
25.1
(270.9)
(270.9)
–
–
–
–
(23.7)
1.5
25.1
(270.9)
–
–
–
–
–
–
–
0.1
–
–
–
–
–
–
–
–
–
1.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2.8)
–
(48.3)
–
9.1
(2.8)
(39.2)
–
–
(12.1)
25.1
–
53.8
–
–
–
–
–
–
(23.7)
–
–
Balance at 31 March 2017
77.1
179.0
5.0
12.7
(82.2)
927.2
1,172.6
0.7
1,173.3
Company
Balance at 1 April 2016
Loss for the year
Available for sale financial assets
Tax on items taken directly to or transferred from equity
Total comprehensive expense for the year
Options/awards exercised
Credit for equity settled share schemes
Dividends paid
Balance at 31 March 2017
Share
capital
£m
Share
premium
£m
Capital
redemption
reserve
£m
Share
based
payments
reserve
£m
Available
for sale
reserve
£m
77.0
177.6
5.0
41.4
–
–
–
–
0.1
–
–
–
–
–
–
1.4
–
–
–
–
–
–
–
–
–
77.1
179.0
5.0
–
–
(2.8)
(2.8)
(11.7)
24.1
–
51.0
11.9
–
(8.2)
1.6
(6.6)
–
–
–
Own
shares
£m
Retained
earnings
£m
Total
equity
£m
(21.3)
824.9
1,116.5
–
–
–
–
–
–
–
(94.6)
(94.6)
–
–
(8.2)
(1.2)
(94.6)
(104.0)
–
–
(10.2)
24.1
(270.9)
(270.9)
5.3
(21.3)
459.4
755.5
The accompanying notes are an integral part of these financial statements.
ICG ANNUAL REPORT & ACCOUNTS 2017 119
CONSOLIDATED AND PARENT COMPANY
STATEMENTS OF CHANGES IN EQUITY
FO R T H E Y E A R E N D E D 31 M A RCH 2017 CONTINUED
Group
Balance at 1 April 2015
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
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
80.6
674.3
1.4
45.8
32.5
(162.0)
783.8
1,456.4
2.2
1,458.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3.3
–
(500.0)
(3.6)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3.6
–
5.0
–
–
–
2.8
2.8
–
–
–
(22.3)
17.3
–
–
–
–
24.6
–
(5.2)
19.4
–
–
–
–
–
–
–
–
138.6
–
9.5
138.6
24.6
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)
(8.1)
–
500.0
3.3
17.3
–
–
79.3
(79.3)
–
(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
Balance at 31 March 2016
77.0
177.6
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
80.6
674.3
1.4
43.7
Own shares
£m
Retained
earnings
£m
Total
equity
£m
(97.6)
654.7
1,368.2
127.7
127.7
–
–
–
–
(3.0)
–
–
–
–
–
127.7
–
–
–
500.0
0.8
2.8
131.3
(3.0)
(18.1)
16.3
–
–
11.1
–
0.8
–
0.8
–
–
–
–
–
–
79.3
(79.3)
–
(378.2)
(378.2)
41.4
11.9
(21.3)
824.9
1,116.5
–
–
–
–
–
–
–
–
–
–
–
–
–
3.3
–
(500.0)
(3.6)
–
–
–
77.0
177.6
–
–
–
–
–
–
–
–
3.6
–
5.0
–
–
–
–
–
–
–
(24.7)
30.4
–
–
–
–
2.8
2.8
–
(21.4)
16.3
–
–
–
In December 2015, the High Court granted a £500m reduction in the Company’s share premium account. This resulted in £500m being
transferred to retained earnings and increased the distributable reserves of the Company at 31 March 2016 by £500m.
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 120
NOTES TO THE ACCOUNTS
FO R T H E Y E A R E N D E D 31 M A RCH 2017
1. GENERAL INFORMATION
Intermediate Capital Group plc is incorporated in England and Wales 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 15
IFRS 16
IFRIC 22
Amendments to IFRS 10/IAS 28
Amendments to IAS 12
Amendments to IAS 7
Amendments to IFRS 15
Amendments to IFRS 2
Financial Instruments
Revenue from Contracts with Customers
Leases
Foreign Currency Transactions and Advance Consideration
Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture
Recognition of Deferred Tax Assets for Unrealised Losses
Disclosure Initiative
Revenue from Contracts with Customers
Classification and Measurement of Share-based
Payment Transactions
Accounting periods commencing on or after
1 January 2018
1 January 2018
1 January 2019
1 January 2018
Effective date
deferred indefinitely
1 January 2017
1 January 2017
1 January 2018
1 January 2018
IFRS 9: Financial Instruments is effective for implementation during the financial year ending 31 March 2019. A detailed analysis of the Group’s
financial instruments and how these will be affected by the requirements of IFRS 9 has been undertaken. At this stage, there is not expected
to be a material impact on the financial statements, although the ongoing assessment of IFRS 9 is continuing.
IFRS 15: Revenue from Contracts with Customers is effective for implementation during the financial year ending 31 March 2019. A preliminary
assessment of IFRS 15 indicates that this will not have a material impact on the financial statements of the Group.
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
EU 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 £970.8m cash and unutilised debt facilities following a period of high realisations,
no significant drawn bank facilities maturing in the next 12 months, and after reviewing the Group’s latest forecasts for a period of three years
from the reporting date.
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 2 to 38. This includes on pages 20 to 26 the Finance and Operating 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.
ICG ANNUAL REPORT & ACCOUNTS 2017 121
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 drawn 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 reassesses 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.
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 122
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 movements 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
is recognised only when there is a reasonable expectation that performance conditions will be met and the amounts will be paid in cash.
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 is 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.
NOTES TO THE ACCOUNTSFOR THE YEAR ENDED 31 MARCH 2017ICG ANNUAL REPORT & ACCOUNTS 2017 123
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.
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
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
• 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 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.
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 124
3. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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.
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 FVTPL, 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 FVTPL include derivative liabilities and other financial liabilities designated as FVTPL. 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 FVTPL 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 hedging
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.
NOTES TO THE ACCOUNTSFOR THE YEAR ENDED 31 MARCH 2017ICG ANNUAL REPORT & ACCOUNTS 2017 125
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 eight 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.
Key sources of judgement
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. Across each of the funds where ICG has a significant ownership interest (greater than 15%) we have reviewed these kick-out
rights. Where the investors have substantive rights to remove ICG as the investment adviser it has been concluded that ICG is an agent to the
fund and thus the fund does not require consolidation into the Group. However, we consider ICG to have significant influence over these
funds and have therefore recognised them as associates. Where the conclusion is that ICG acts in the capacity of principal the fund has been
consolidated into the Group.
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:
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 126
4. CRITICAL JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY CONTINUED
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 or, where the Group holds an investment in an
unlisted fund, the net asset value of the fund. We have reviewed the underlying valuation techniques of these funds and consider them to be in
line with those of the Group.
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, a restructuring or a significant and prolonged decline in the value
of the investment.
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.
5. FINANCIAL RISK MANAGEMENT
The Board of Directors has 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.
NOTES TO THE ACCOUNTSFOR THE YEAR ENDED 31 MARCH 2017ICG ANNUAL REPORT & ACCOUNTS 2017 127
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
2017
Total
£m
4,336.0
1,629.6
5,965.6
Floating
£m
2,581.4
Fixed
£m
2016
Total
£m
1,716.0
4,297.4
(3,227.0)
(1,544.7)
(4,771.7)
(1,968.1)
(1,048.8)
(3,016.9)
1,109.0
84.9
1,193.9
613.3
667.2
1,280.5
The sensitivity of floating rate financial assets to the 100 basis points interest rate increase is £43.4m (2016: £25.8m) and the sensitivity of
financial liabilities to the same interest rate increase is £32.3m (2016: £19.7m). 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 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.
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
153.9
730.2
56.8
253.0
1,193.9
Net statement
of financial
position exposure
£m
(147.6)
960.4
205.7
262.0
1,280.5
Forward
exchange
contracts
£m
851.6
(617.2)
(6.7)
(221.2)
Net exposure
£m
1,005.5
113.0
50.1
31.8
6.5
1,200.4
2017
Sensitivity to
strengthening
%
Increase
in net assets
£m
–
15%
20%
10–25%
–
–
17.0
10.0
–
27.0
2016
Forward
exchange
contracts
£m
1,079.1
(700.9)
(214.9)
(192.8)
(29.5)
Net exposure
£m
Sensitivity
to strengthening
%
Increase
in net assets
£m
931.5
259.5
(9.2)
69.2
1,251.0
–
15%
20%
10–25%
–
–
38.9
(1.8)
–
37.1
The weakening of the above currencies would have resulted in an equal but opposite impact, being a decrease in net assets.
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 128
5. FINANCIAL RISK MANAGEMENT CONTINUED
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
2017. It is assumed that Group borrowings under its senior debt facilities remain at the same level as at 31 March 2017 until contractual maturity.
Included in financial liabilities maturing in less than one year are contractual interest payments.
Liquidity profile
As at 31 March 2017
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
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
Less than
one year
£m
One to
two years
£m
Contractual maturity analysis
Two to
five years
£m
More than
five years
£m
34.5
18.2
0.7
76.6
(1.8)
128.2
120.5
117.1
43.1
76.6
(4.7)
352.6
361.5
111.5
–
411.3
168.0
–
229.7
3,658.5
4,041.4
(6.8)
695.9
12.8
(0.5)
4,250.6
5,427.3
Less than
one year
£m
One to
two years
£m
Contractual maturity analysis
Two to
five years
£m
More than
five years
£m
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
142.2
191.7
176.0
–
2,364.8
2,601.8
(8.6)
653.8
10.0
2,742.5
4.9
3,683.0
Total
£m
927.8
414.8
43.8
Total
£m
591.3
426.6
58.4
As at 31 March 2017 the Group has unutilised debt facilities of £970.8m (2016: £781.3m) which consists of undrawn debt of £480.9m
(2016: £669.0m) and £489.9m (2016: £112.3m) of unencumbered cash. Unencumbered cash excludes £291.0m (2016: £70.2m) of restricted
cash held principally by structured entities controlled by the Group.
The Group’s policy is to maintain continuity of funding. Due to the long term nature of the Group’s assets, the Group seeks to ensure that the
maturity of its debt instruments is matched to the expected maturity of its assets. During the financial year, $292m and €74m of US private
placements were raised with five, eight and 10 year maturities, enabling the repayment of maturing private placements and a reduction in
existing bank facilities.
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 Committees 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 the 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.
NOTES TO THE ACCOUNTSFOR THE YEAR ENDED 31 MARCH 2017ICG ANNUAL REPORT & ACCOUNTS 2017 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
129
2016
£m
386.2
181.6
115.4
530.6
1,213.8
103.7
224.9
131.3
124.3
1,917.9
3,715.9
2017
£m
271.9
211.4
154.6
452.2
1,090.1
151.7
168.2
196.9
107.1
3,172.7
4,886.7
Included within the co-investment portfolio is £653.4m (2016: £508.3m) 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.
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 2017 was £114.5m to Diamond
Castle Partners 2014 LP, a portfolio of investments (2016: £110.1m to Parkeon).
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)
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 130
5. FINANCIAL RISK MANAGEMENT CONTINUED
Fair value measurements recognised in the statement of financial position CONTINUED
This is followed by a more detailed analysis of the financial instruments which are based on unobservable inputs (Level 3 assets).
The following tables provide reconciliations of movements 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
2017
£m
Fair value
as at
31 March
2016
£m
Fair value
hierarchy
Valuation techniques
and inputs
Significant
unobservable inputs
Relationship
of unobservable
inputs to fair value
4.3
62.1
1 A small number of assets have been
n/a
listed on various stock exchanges around
the world, providing an external basis for
valuing the Group's holdings
50.2
64.2
1 Quoted bid prices in an active market
n/a
54.5
38.0
126.3
33.1
3,337.2
2,048.7
2
Internally modelled valuation based
on combination of market prices and
observable inputs
2 The fair value has been determined using
independent broker quotes based on
observable inputs
n/a
n/a
46.7
31.6
2 The Group uses widely recognised
n/a
n/a
n/a
n/a
n/a
n/a
Financial
assets/
financial
liabilities
Listed
portfolio
investments
Listed
credit fund
investments
Level 1 assets
Listed
portfolio
investments
Level 2
assets within
structured
entities
controlled by
the Group
Current and
non current
derivative
assets
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
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
The higher the
adjusted multiple,
the higher
the valuation
The discount applied is
generally in the range of 11%
to 35% and exceptionally as
high as 55%. A premium has
been applied to four assets in
the range of 2% to 79%. The
earnings multiple is generally
in the range of 8 to 13, and
exceptionally as high as 16
and as low as 4
Level 2 assets
3,421.9
2,113.4
Level 3
investments
204.1
308.7
3
NOTES TO THE ACCOUNTSFOR THE YEAR ENDED 31 MARCH 2017ICG ANNUAL REPORT & ACCOUNTS 2017 131
Relationship
of unobservable
inputs to fair value
The higher the
premium, the higher
the valuation.
The higher the
discount, the lower
the valuation
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 NAV of the underlying
fund, typically calculated
under IFRS
The higher the
NAV, the higher the
fair value
The higher the cash
flows, the higher the
fair value. The higher
the discount, the
lower the fair value
n/a
n/a
Fair value
as at
31 March
2017
£m
Fair value
as at
31 March
2016
£m
62.5
40.9
Financial
assets/
financial
liabilities
Illiquid debt
investments
within structured
entities
controlled by
the Group
Investments
in unlisted
funds
916.2
678.3
Level 3 assets
1,237.7
1,061.3
(3,183.4)
(1,913.0)
Investments
in unlisted
CLOs
Level 2 liabilities
within structured
entities
controlled by
the Group
Current and
non current
derivative
liabilities
Level 2 liabilities (3,223.6)
(1,974.1)
Fair value
hierarchy
Valuation techniques
and inputs
Significant
unobservable inputs
3 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
3 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
of 11%. The following assumptions are
applied to each investment’s cashflows:
3% annual default rate, 20% annual
prepayment rate, 70% recovery rate
2 The fair value of debt securities issued at
FVTPL 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
n/a
54.9
33.4
3 Discounted cash flow at a discount rate
Discounted cash flows
(40.2)
(61.1)
2 The Group uses widely recognised
n/a
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
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 132
5. FINANCIAL RISK MANAGEMENT CONTINUED
Fair value measurements recognised in the statement of financial position CONTINUED
Financial assets at FVTPL
Designated as FVTPL
– US
– UK
– France
– Germany
– Netherlands
– Other
Derivative financial instruments – warrants
– Germany
– France
– Other
AFS financial assets held at fair value
– US
– France
– UK
– Italy
– 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
–
51.0
3.5
–
–
–
2,327.2
151.3
243.8
176.3
134.0
304.6
54.5
3,337.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
38.0
–
–
–
–
38.0
46.7
227.4
703.1
131.8
8.0
4.3
104.8
1,179.4
6.2
3.4
0.6
10.2
1.6
26.3
13.8
2.9
3.5
48.1
–
2017
Total
£m
2,554.6
905.4
379.1
184.3
138.3
409.4
4,571.1
6.2
3.4
0.6
10.2
39.6
26.3
13.8
2.9
3.5
86.1
46.7
54.5
3,421.9
1,237.7
4,714.1
–
–
–
3,183.4
40.2
3,223.6
–
–
–
3,183.4
40.2
3,223.6
NOTES TO THE ACCOUNTSFOR THE YEAR ENDED 31 MARCH 2017ICG ANNUAL REPORT & ACCOUNTS 2017
133
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
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
–
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
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
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.
At 1 April 2016
Total gains or losses in the income statement
– Realised gains
– Fair value gains/(losses)
– Foreign exchange
Total gains or losses in other comprehensive income
– Unrealised losses
Purchases
Realisations
Transfer between assets
At 31 March 2017
Financial
assets at
FVTPL
£m
962.3
(87.1)
173.8
77.9
–
261.5
(224.4)
15.4
1,179.4
Derivative
financial
instruments
– warrants
£m
19.8
(10.3)
(0.6)
1.3
–
–
–
–
10.2
AFS
assets
£m
79.2
Total
£m
1,061.3
(12.4)
(109.8)
–
5.1
(0.4)
0.3
(23.7)
–
48.1
173.2
84.3
(0.4)
261.8
(248.1)
15.4
1,237.7
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 134
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 CONTINUED
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
Financial
assets at
FVTPL
£m
679.8
(22.4)
89.6
49.2
–
192.3
(69.5)
61.8
(18.5)
962.3
Derivative
financial
instruments
– warrants
£m
13.8
(10.0)
15.0
1.0
–
–
–
–
–
19.8
AFS
assets
£m
117.1
(0.9)
–
1.9
23.8
0.4
(19.3)
–
(43.8)
79.2
Total
£m
810.7
(33.3)
104.6
52.1
23.8
192.7
(88.8)
61.8
(62.3)
1,061.3
Transfer between assets relate principally to movements between current and non current financial assets. During the prior 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.
The Level 3 fair value movements by geography are as follows:
Financial assets at FVTPL
At 1 April 2016
Total gains or losses in
the income statement
– Realised gains
– Fair value gains
– Foreign exchange
Purchases
Realisations
Transfer between assets
At 31 March 2017
US
£m
147.7
(3.2)
23.5
21.9
50.3
(16.1)
3.3
227.4
UK
£m
592.6
(76.4)
80.3
39.4
178.2
(105.2)
(5.8)
703.1
France
£m
168.3
–
49.4
5.6
1.8
(93.3)
–
131.8
Derivative financial instruments – warrants
At 1 April 2016
Total gains or losses in the income statement
– Realised gains
– Fair value gains/(losses)
– Foreign exchange
At 31 March 2017
Singapore
£m
10.5
Australia
£m
12.8
–
3.5
4.8
9.2
–
16.2
44.2
France
£m
12.3
(10.3)
0.6
0.8
3.4
–
5.9
2.3
6.4
–
1.2
28.6
Germany
£m
7.5
–
(1.8)
0.5
6.2
Other
£m
30.4
(7.5)
11.2
3.9
15.6
(9.8)
0.5
44.3
Other
£m
–
–
0.6
–
0.6
Total
£m
962.3
(87.1)
173.8
77.9
261.5
(224.4)
15.4
1,179.4
Total
£m
19.8
(10.3)
(0.6)
1.3
10.2
NOTES TO THE ACCOUNTSFOR THE YEAR ENDED 31 MARCH 2017ICG ANNUAL REPORT & ACCOUNTS 2017 AFS assets
At 1 April 2016
Total gains or losses in the income statement
– Realised gains
– Foreign exchange
Total gains or losses in other comprehensive income
– Unrealised (losses)/gains
Purchases
Realisations
At 31 March 2017
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
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
France
£m
42.3
(3.9)
3.0
(2.8)
–
(12.3)
26.3
UK
£m
464.3
(15.7)
36.6
34.0
132.3
(44.3)
(14.6)
–
592.6
Australia
£m
4.5
–
0.6
(2.8)
–
–
2.3
France
£m
120.2
–
29.8
13.6
11.3
(2.9)
–
(3.7)
168.3
US
£m
14.1
(8.5)
0.4
(1.0)
–
(3.4)
1.6
Singapore
£m
2.4
–
1.6
0.1
6.4
–
–
–
10.5
France
£m
5.4
–
6.4
0.5
12.3
UK
£m
18.1
–
1.1
2.3
0.3
(8.0)
13.8
Australia
£m
24.2
–
2.3
(0.7)
–
–
–
(13.0)
12.8
UK
£m
4.8
(10.0)
5.2
–
–
Other
£m
0.2
–
–
3.9
–
–
4.1
Other
£m
30.8
(6.7)
0.8
0.8
11.7
(12.7)
5.7
–
30.4
Germany
£m
3.6
–
3.4
0.5
7.5
135
Total
£m
79.2
(12.4)
5.1
(0.4)
0.3
(23.7)
48.1
Total
£m
679.8
(22.4)
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
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 136
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 CONTINUED
AFS assets
At 1 April 2015
Transfer between levels
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
At 31 March 2016
France
£m
37.8
–
(0.9)
3.3
10.0
–
(7.9)
42.3
Australia
£m
38.9
(43.8)
–
(3.5)
12.9
–
–
4.5
US
£m
12.5
–
–
0.5
1.1
–
–
14.1
UK
£m
25.9
–
–
1.5
1.7
0.4
(11.4)
18.1
Other
£m
2.0
–
–
0.1
(1.9)
–
–
0.2
Total
£m
117.1
(43.8)
(0.9)
1.9
23.8
0.4
(19.3)
79.2
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
2017
Financial assets designated as FVTPL
Derivative financial instruments held at fair value – warrants
AFS financial assets held at fair value
2016
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
1,179.4
1,309.3
1,049.4
10.2
48.1
12.2
55.6
8.2
40.8
1,237.7
1,377.1
1,098.4
962.3
19.8
79.2
1,071.5
25.2
86.3
1,061.3
1,183.0
820.3
14.3
72.2
906.8
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
885.1
382.6
20.0
1,287.7
Group 2017
Fair values
Asset
£m
Liability
£m
7.1
38.2
1.4
46.7
(7.5)
(32.7)
–
(40.2)
Contract or
underlying
principal
amount
£m
1,172.8
456.5
20.0
1,649.3
Group 2016
Fair values
Asset
£m
Liability
£m
5.6
23.8
2.2
31.6
(24.6)
(36.5)
–
(61.1)
NOTES TO THE ACCOUNTSFOR THE YEAR ENDED 31 MARCH 2017ICG ANNUAL REPORT & ACCOUNTS 2017
137
Included in derivative financial instruments is accrued interest on swaps of £1.9m (2016: £1.9m).
Foreign exchange derivatives
Forward foreign exchange contracts
Cross currency swaps
Interest rate swaps
Total
Contract or
underlying
principal
amount
£m
757.9
382.6
20.0
1,160.5
Company 2017
Fair values
Asset
£m
Liability
£m
3.9
38.2
1.4
43.5
(6.6)
(32.7)
–
(39.3)
Contract or
underlying
principal
amount
£m
1,077.1
456.5
20.0
1,553.6
Company 2016
Fair values
Asset
£m
Liability
£m
4.3
23.8
2.2
30.3
(22.8)
(36.5)
–
(59.3)
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 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 2016.
The capital structure comprises debts, which include 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.icgplc.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 loss for the year amounted to £94.6m (2016: profit of £127.7m).
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. In the current period external
fee income has been shown by strategic asset class and interest income and interest expense have been shown separately whereas previously
these were disclosed as net interest income. The prior periods have been restated to reflect these changes.
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.
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 138
7. BUSINESS AND GEOGRAPHICAL SEGMENTS CONTINUED
Analysis of income and profit before tax
Corporate
Investments
£m
Capital Market
Investments
£m
Real Asset
Investments
£m
Secondary
Investments
£m
78.2
12.7
90.9
23.7
2.1
25.8
21.9
1.7
23.6
14.8
1.6
16.4
Corporate
Investments
£m
Capital Market
Investments
£m
Real Asset
Investments
£m
Secondary
Investments
£m
70.0
13.5
83.5
17.7
2.0
19.7
19.1
1.7
20.8
2.1
1.2
3.3
Year ended 31 March 2017
External fee income
Inter-segmental fee
Fund management fee income
Other operating income
Gains on investments
Interest income
Dividend income
Total revenue
Interest expense
Net fair value loss on derivatives
Impairment
Staff costs
Incentive scheme costs
Other administrative expenses
Profit before tax
Year ended 31 March 2016
External fee income
Inter-segmental fee
Fund management fee income
Other operating income
Gains on investments
Interest income
Dividend income
Total revenue
Interest expense
Net fair value loss on derivatives
Impairment
Staff costs
Incentive scheme costs
Other administrative expenses
Profit before tax
Total
FMC
£m
138.6
18.1
156.7
–
–
(0.2)
23.2
179.7
–
–
–
(39.0)
(33.8)
(32.9)
74.0
Total
FMC
£m
108.9
18.4
127.3
–
–
(0.4)
19.3
146.2
–
–
–
(30.4)
(24.5)
(30.1)
61.2
IC
£m
–
(18.1)
(18.1)
8.0
201.4
144.7
6.7
342.7
(53.9)
(1.3)
(48.0)
(14.4)
(54.2)
(8.7)
162.2
IC
£m
–
(18.4)
(18.4)
5.0
128.6
126.0
16.4
257.6
(45.9)
(17.3)
(39.4)
(8.8)
(39.7)
(9.4)
97.1
Total
£m
138.6
–
138.6
8.0
201.4
144.5
29.9
522.4
(53.9)
(1.3)
(48.0)
(53.4)
(88.0)
(41.6)
236.2
Total
£m
108.9
–
108.9
5.0
128.6
125.6
35.7
403.8
(45.9)
(17.3)
(39.4)
(39.2)
(64.2)
(39.5)
158.3
NOTES TO THE ACCOUNTSFOR THE YEAR ENDED 31 MARCH 2017ICG ANNUAL REPORT & ACCOUNTS 2017 139
Reconciliation of financial statements reported to the Executive Committee to the position reported under IFRS
Included in the table below are statutory adjustments made to the Investment Company for the following:
• For internal reporting purposes, the interest earned and impairments charged on assets where the Group co-invests in funds (ICG Europe
Fund V, ICG Europe Fund VI, ICG Asia Pacific Fund III and ICG North America Private Debt Fund) and where the investment is in a fund
where the underlying assets are interest bearing (real estate, liquid credit and senior debt funds) is presented within interest income/
impairments whereas under IFRS it is included within the value of the investment/dividends
• 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
• Other adjustments relate to the joint venture investment in Nomura ICG KK which is presented internally on a proportional consolidation
basis, whereas it is equity accounted under IFRS and Questus Energy Pty Limited where the costs are included on a line by line basis
in the income statement for internal reporting purposes whereas in the IFRS financial statements these are collapsed into a single line,
administrative expenses, to reflect its status as a non-controlled entity. In the prior year 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 2017
Fund management fee income
Other operating income
Gains on investments
Interest income
Dividend income
Total revenue
Share of results of joint venture accounted for using
equity method
Interest expense
Net fair value (loss)/gain on derivatives
Impairment
Staff costs
Incentive scheme costs
Other administrative expenses
Profit before tax
Reclass of
interest to
dividends and
gains
£m
Consolidated
structured
entities
£m
Internally
reported
£m
Other
adjustments
£m
Total
adjustments
£m
Financial
statements
£m
138.6
8.0
201.4
144.5
29.9
522.4
–
(53.9)
(1.3)
(48.0)
(53.4)
(88.0)
(41.6)
236.2
–
–
51.3
(77.3)
3.3
(22.7)
–
–
–
22.7
–
–
–
–
(15.0)
3.4
34.6
130.6
(26.8)
126.8
–
(99.0)
0.8
–
–
–
(12.0)
16.6
(0.9)
–
(0.5)
–
–
(1.4)
0.3
–
–
–
2.1
–
(1.4)
(0.4)
(15.9)
3.4
85.4
53.3
(23.5)
102.7
122.7
11.4
286.8
197.8
6.4
625.1
0.3
0.3
(99.0)
(152.9)
0.8
22.7
2.1
–
(13.4)
16.2
(0.5)
(25.3)
(51.3)
(88.0)
(55.0)
252.4
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 140
7. BUSINESS AND GEOGRAPHICAL SEGMENTS CONTINUED
Year ended 31 March 2016
Fund management fee income
Other operating income
Gains on investments
Interest income
Dividend income
Total revenue
Interest expense
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
Longbow
deferred
consideration
£m
EBT
settlement
£m
Other
adjustments
£m
Total
adjustments
£m
Financial
statements
£m
108.9
5.0
128.6
125.6
35.7
403.8
(45.9)
(17.3)
(39.4)
(39.2)
(64.2)
(39.5)
–
158.3
–
–
(6.0)
(24.5)
–
(30.5)
–
–
30.5
–
–
–
–
–
(9.9)
1.0
15.5
87.8
(17.3)
77.1
(57.7)
(1.0)
–
–
–
(2.2)
–
16.2
–
–
–
–
–
–
–
–
–
–
–
–
(17.8)
(17.8)
–
–
–
–
–
–
–
–
–
–
–
2.3
–
2.3
(0.7)
–
(0.4)
–
–
(1.1)
–
–
–
0.4
–
0.5
–
(0.2)
(10.6)
1.0
9.1
63.3
(17.3)
45.5
(57.7)
(1.0)
30.5
0.4
–
0.6
(17.8)
0.5
98.3
6.0
137.7
188.9
18.4
449.3
(103.6)
(18.3)
(8.9)
(38.8)
(64.2)
(38.9)
(17.8)
158.8
Employee Benefit Trust
In the prior year, the Group utilised £1.3m of a £3.6m accrual held on the balance sheet as at 31 March 2015 in relation to a claim for taxes in
respect of the Employee Benefit Trust (EBT), with the remaining £2.3m released to the income statement.
Longbow deferred consideration
In the prior year, 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. The final deferred consideration amount was calculated at £41.7m following the outstanding success of this
business, resulting in a £17.8m increase to the original estimate. This was recognised through the income statement.
Consolidated statement of financial position
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 liabilities
Total liabilities
Equity
Total equity and liabilities
Internally
reported
£m
1,711.6
36.6
490.3
89.7
172.9
2,501.1
1,121.5
106.5
158.8
1,386.8
1,114.3
2,501.1
Reclass of
interest
to gains
£m
Consolidated
structured
entities
£m
Other
adjustments
£m
Total
adjustments
£m
Financial
statements
£m
2017
1.1
–
–
–
(1.1)
–
–
–
–
–
–
–
3,172.7
–
293.5
–
111.9
3,578.1
3,183.4
5.4
329.8
3,518.6
59.5
3,578.1
(2.9)
290.6
1.3
–
–
(1.4)
(3.0)
–
–
(2.5)
(2.5)
(0.5)
(3.0)
3,175.1
4,886.7
–
–
109.4
3,575.1
36.6
780.9
89.7
282.3
6,076.2
3,183.4
4,304.9
5.4
327.3
111.9
486.1
3,516.1
4,902.9
59.0
1,173.3
3,575.1
6,076.2
NOTES TO THE ACCOUNTSFOR THE YEAR ENDED 31 MARCH 2017ICG ANNUAL REPORT & ACCOUNTS 2017 141
2016
Other
adjustments
£m
Total
adjustments
£m
Financial
statements
£m
1.1
–
(2.4)
–
(1.0)
(2.3)
–
–
–
13.2
13.2
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
–
–
107.0
2,020.0
84.6
106.6
268.7
3,134.1
Reclass of
interest
to gains
£m
Consolidated
structured
entities
£m
(2.9)
1,919.7
1.3
72.2
–
55.1
2,048.3
1,913.0
–
–
93.8
2,006.8
–
–
–
2.9
–
–
–
–
–
–
–
–
41.5
(15.5)
26.0
1,242.1
2,048.3
(2.3)
2,046.0
4,376.2
Internally
reported
£m
Reclass of
dividends from
realisations
£m
Consolidated
structured
entities
£m
Other
adjustments
£m
Financial
statements
£m
2017
321.0
(53.0)
153.7
(366.0)
716.5
(115.0)
657.2
(7.7)
649.5
(4.1)
(270.9)
181.4
(132.1)
(41.7)
(23.6)
1.5
(285.4)
360.0
112.7
17.6
490.3
122.4
–
–
–
87.9
(96.4)
–
(1,978.6)
(122.4)
1,273.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(20.8)
(734.6)
–
(734.6)
–
–
941.8
(18.1)
–
–
–
923.7
189.1
72.2
32.2
293.5
–
–
–
–
–
(0.1)
(0.1)
–
(0.1)
–
–
–
–
–
–
–
–
(0.1)
(2.4)
(0.4)
(2.9)
531.3
(149.4)
153.7
(2,344.6)
1,867.4
(135.9)
(77.5)
(7.7)
(85.2)
(4.1)
(270.9)
1,123.2
(150.2)
(41.7)
(23.6)
1.5
638.3
549.0
182.5
49.4
780.9
Internally
reported
£m
1,798.0
34.1
112.7
182.6
202.8
2,330.2
761.2
84.6
106.6
161.7
1,114.1
1,216.1
2,330.2
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
Consolidated statement of cash flows
Interest, fees and dividends received
Interest paid
Net proceeds from current financial assets
Purchase of loans and investments
Cash in from realisations
Other operating expenses
Cash generated from/(used in) operating activities
Taxes paid
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 remaining 49% of Longbow Real Estate
Capital LLP
Purchase of own shares
Proceeds on issue of shares
Net cash (used in)/generated from financing activities
Net increase/(decrease) in cash
Cash and cash equivalent at beginning of year
FX impact on cash
Cash and cash equivalent at end of year
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 142
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
Cash generated from/(used in) operating activities
Taxes paid
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 (used in)/generated from financing activities
Net decrease in cash
Cash and cash equivalent at beginning of year
FX impact on cash
Cash and cash equivalent at end of year
Analysis of non current financial assets by geographical segment
Europe
Asia Pacific
North America
Group revenue by geographical segment
Europe
Asia Pacific
North America
Internally
reported
£m
256.3
(47.0)
(35.8)
(247.1)
394.3
(140.3)
180.4
(3.9)
176.5
(22.5)
(378.2)
131.1
(52.5)
(27.4)
3.4
(323.6)
(169.6)
278.5
3.8
112.7
Consolidated
structured
entities
£m
58.8
(48.3)
–
(1,131.2)
708.1
(2.3)
(414.9)
–
(414.9)
(9.1)
–
364.9
12.0
–
–
376.9
(47.1)
115.3
4.0
72.2
Other
adjustments
£m
(2.5)
–
–
–
–
1.4
(1.1)
–
(1.1)
–
–
–
–
–
–
–
(1.1)
(1.9)
0.6
(2.4)
2016
Financial
statements
£m
312.6
(95.3)
(35.8)
(1,378.3)
1,102.4
(141.2)
(235.6)
(3.9)
(239.5)
(31.6)
(378.2)
496.0
(40.5)
(27.4)
3.4
53.3
(217.8)
391.9
8.4
182.5
2017
£m
2016
£m
2,092.5
1,897.6
152.3
2,641.9
4,886.7
2017
£m
395.4
73.5
156.2
625.1
177.2
1,641.1
3,715.9
2016
£m
304.0
47.5
97.8
449.3
NOTES TO THE ACCOUNTSFOR THE YEAR ENDED 31 MARCH 2017ICG ANNUAL REPORT & ACCOUNTS 2017 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
Interest income recognised under the amortised cost method includes £5.4m (2016: £0.9m) accrued on impaired loans.
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
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
Reclassification adjustment for 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
(Losses)/gains arising in the AFS reserve in the year which may be reclassified to profit or loss in future periods
Net movement in the AFS reserve in the year
2017
£m
67.1
130.6
6.4
0.1
204.2
2017
£m
44.0
99.0
0.5
9.9
153.4
2017
£m
(54.4)
8.7
(45.7)
(3.4)
(1.1)
1.9
(2.6)
(48.3)
143
2016
£m
100.7
87.2
18.4
1.0
207.3
2016
£m
34.6
57.7
18.3
11.3
121.9
2016
£m
(19.8)
1.8
(18.0)
38.4
1.4
2.8
42.6
24.6
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 144
9. GAINS AND LOSSES ARISING ON INVESTMENTS CONTINUED
Gains and losses arising on investments recognised in the income statement
Realised gains on warrants
Realised gains/(losses) 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 assets held for sale
Unrealised gains/(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
Unrealised (losses)/gains on liabilities designated as FVTPL
– In structured entities controlled by the Group
Realised gains 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
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
2017
£m
–
13.2
7.7
54.4
16.8
92.1
169.2
0.7
109.8
279.7
2016
£m
0.3
(1.0)
5.7
19.8
2.1
26.9
95.9
17.1
(81.8)
31.2
(95.7)
70.9
10.7
8.8
286.8
–
286.8
2017
£m
15.9
11.0
(1.6)
25.3
2017
£m
139.3
6.0
4.3
1.2
137.8
(0.1)
137.7
2016
£m
10.3
2.0
(3.4)
8.9
2016
£m
103.0
4.3
4.9
1.3
NOTES TO THE ACCOUNTSFOR THE YEAR ENDED 31 MARCH 2017ICG ANNUAL REPORT & ACCOUNTS 2017 145
Auditor’s 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 auditor
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
2017
£m
2016
£m
0.5
0.4
0.9
0.1
0.1
–
0.1
0.2
1.2
0.5
0.4
0.9
0.1
0.1
0.2
–
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 58. No services
were provided pursuant to contingent fee arrangements.
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
2017
£m
2.3
126.1
9.7
3.5
139.3
2017
146
127
3
276
2016
£m
2.6
95.1
5.1
2.8
103.0
2016
130
118
3
251
The performance related element included in wages and salaries is £88.0m (2016: £64.2m) which is derived as a result of the annual bonus
scheme, Omnibus Scheme and the Balance Sheet Carry Scheme. Please refer to the report of the Remuneration Committee on pages 69 to 98.
In addition, former and current employees received £46.4m (2016: £9.2m) of carried interest directly from the funds.
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 146
13. TAX EXPENSE
Analysis of tax on ordinary activities
Current tax
Corporate tax
Prior year adjustment
Deferred taxation
Current year
Prior year adjustment
Tax charge on profit on ordinary activities
Profit on ordinary activities before tax
Profit before tax multiplied by the rate of corporation tax in the UK of 20%
Effects of:
Non deductible expenditure
Non taxable income
Overseas withholding tax suffered
Different tax rates of overseas subsidiaries
Current year risk provision charge – current tax
Changes in statutory tax rates
Prior year adjustment to current tax
Prior year adjustment to deferred tax
Current tax charge for the year
2017
£m
11.6
(9.7)
1.9
26.8
5.5
32.3
34.2
2017
£m
252.4
50.5
6.7
(3.3)
–
(16.5)
2.9
(1.9)
(9.7)
5.5
34.2
2016
£m
3.1
2.8
5.9
16.4
(2.1)
14.3
20.2
2016
£m
158.8
31.8
4.7
(3.4)
0.6
(13.4)
–
(0.8)
2.8
(2.1)
20.2
The Group’s effective tax rate is lower than the standard rate of UK corporation tax of 20%. This is principally due to the impact of differences
in overseas tax rates where we invest directly into funds which are based offshore. The Group is currently reviewing its transfer pricing
policies and documentation in the light of the revised ‘Base Erosion Profit Shifting’ (BEPS) guidelines issued by the OECD. While the
Group has low tax risk status in the UK, and no open enquiries elsewhere, a provision has been recorded until the review is finalised and the
application of the BEPS guidelines by the tax authorities is known. The adjustments in respect of prior years relate to the carry back of UK tax
losses into a prior period.
14. DIVIDENDS
Ordinary dividends paid
Final
Interim
Per share
pence
15.8
7.5
23.3
2017
£m
49.9
21.0
70.9
Per share
pence
15.1
7.2
22.3
2016
£m
55.5
22.7
78.2
The proposed final ordinary dividend for the year ended 31 March 2017 is 19.5 pence per share (2016: 15.8 pence per share), which will
amount to £54.7m (2016: £49.9m).
Of the £70.9m (2016: £78.2m) of ordinary dividends paid during the year, £1.2m were reinvested under the dividend reinvestment plan that
was offered to shareholders (2016: £1.1m). In addition, a special dividend of £200m was paid in August 2016, which amounted to 63.4 pence
per share (2016: a special dividend of £300m was paid in July 2015, which amounted to 82.6 pence per share).
NOTES TO THE ACCOUNTSFOR THE YEAR ENDED 31 MARCH 2017ICG ANNUAL REPORT & ACCOUNTS 2017 147
2017
£m
2016
£m
217.8
138.6
2017
2016
292,255,497
330,685,568
13,654
42,077
292,269,151
330,727,645
74.5p
74.5p
41.9p
41.9p
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
Weighted average number of ordinary shares for the purposes of basic earnings per share
Effect of dilutive potential ordinary shares share options
Weighted average number of ordinary shares for the purposes of diluted earnings per share
Earnings per share
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
Goodwill
Investment management contract
2017
£m
4.3
–
4.3
–
–
–
2016
£m
4.3
–
4.3
–
–
–
2017
£m
25.5
–
25.5
6.2
2.9
9.1
2016
£m
7.2
18.3
25.5
4.7
1.5
6.2
2017
£m
29.8
–
29.8
6.2
2.9
9.1
Total
2016
£m
11.5
18.3
29.8
4.7
1.5
6.2
Net book value at 31 March
4.3
4.3
16.4
19.3
20.7
23.6
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
Investment management contract
2017
£m
19.9
–
19.9
0.8
2.8
3.6
16.3
2016
£m
1.6
18.3
19.9
0.2
0.6
0.8
19.1
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 148
16. INTANGIBLE ASSETS CONTINUED
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, Intermediate Capital Group plc purchased an investment management contract from Graphite Capital Management LLP for
a consideration of £18.3m. The management contract related to the Graphite Enterprise Trust, renamed the ICG Enterprise Trust which has
been listed on the London Stock Exchange since 1981. The Directors 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.
17. PROPERTY, PLANT AND EQUIPMENT
Furniture and equipment
Cost
At 1 April
Transfer from short leasehold premises
Additions
Exchange differences
At 31 March
Depreciation
At 1 April
Charge for the year
Exchange differences
At 31 March
Net book value
Short leasehold premises
Cost
At 1 April
Transfer to furniture and equipment
Additions
Exchange differences
At 31 March
Depreciation
At 1 April
Charge for the year
Exchange differences
At 31 March
Net book value
Total net book value
2017
£m
22.3
0.5
3.9
0.4
27.1
15.2
2.8
0.2
18.2
8.9
5.9
(0.5)
0.2
0.1
5.7
4.9
0.3
0.2
5.4
0.3
9.2
Group
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
2017
£m
19.6
0.2
3.9
–
23.7
13.4
2.2
–
15.6
8.1
4.3
(0.2)
0.1
–
4.2
4.1
–
–
4.1
0.1
8.2
Company
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
NOTES TO THE ACCOUNTSFOR THE YEAR ENDED 31 MARCH 2017ICG ANNUAL REPORT & ACCOUNTS 2017 149
18. NON CONTROLLING INTERESTS
The Group has consolidated the following companies which have non controlling interests. The amounts shown in the table represent the
share of net assets and profit relating to the 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
US CLO 2016-1
US CLO 2017-1
St Paul’s CLO II
St Paul’s CLO III
St Paul’s CLO VI
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
Other derivative financial instruments held at fair value
%
41%
44%
49%
50%
43%
44%
40%
66%
51%
47%
–
2017
£m
0.7
–
–
–
–
–
–
–
–
–
–
0.7
2017
£m
218.0
–
86.1
3,768.4
802.7
1.3
10.2
4,886.7
6.4
4,893.1
Group
2016
£m
445.4
–
159.4
2,457.2
633.0
1.1
19.8
3,715.9
3.3
3,719.2
%
41%
44%
49%
50%
43%
–
–
66%
51%
–
14%
2017
£m
0.4
(0.6)
(0.2)
2017
£m
195.1
937.5
12.7
285.0
39.8
–
6.5
1,476.6
3.2
1,479.8
2016
£m
0.3
–
–
–
–
–
–
–
–
–
0.6
0.9
2016
£m
–
(1.3)
(1.3)
Company
2016
£m
304.5
721.0
27.8
297.7
54.0
–
7.4
1,412.4
2.0
1,414.4
Included within associates designated as FVTPL £653.4m (2016: £508.3m) is related to the Group’s investment in ICG Europe Fund V
Limited, ICG North America Private Debt Fund, ICG Asia Pacific Fund III and ICG Europe Fund VI Limited.
Included within financial assets designated as FVTPL is £3,403.2m (2016: £2,092.7m) relating to the structured entities controlled by the
Group and in the prior year £94.6m relating to the Group’s joint venture investments in Parkeon and Via Location which were sold during
the year.
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 150
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 gains
Purchases
Realisations
Impairments
Foreign exchange
Balance at 31 March
20. TRADE AND OTHER RECEIVABLES
Other receivables
Amount owed by Group companies
Prepayments
2017
£m
159.4
(54.4)
4.2
0.3
(25.6)
(8.7)
10.9
86.1
2017
£m
196.6
–
11.7
208.3
Group
2016
£m
158.3
(19.8)
40.5
0.4
(25.5)
(1.8)
7.3
159.4
Group
2016
£m
196.9
–
19.5
216.4
2017
£m
27.8
(9.8)
0.8
0.3
(7.9)
–
1.5
12.7
2017
£m
39.7
486.2
4.2
530.1
Company
2016
£m
50.6
(6.1)
5.8
0.2
(24.1)
–
1.4
27.8
Company
2016
£m
48.3
575.0
6.7
630.0
Included within other receivables are £114.9m (2016: £57.2m) relating to structured entities controlled by the Group and in the prior year
£52.4m relating to the sale of financial assets where the cash was received after year end.
21. FINANCIAL ASSETS – CURRENT
Loans and investments held for sale
Other derivative financial instruments held at fair value
22. CALLED UP SHARE CAPITAL AND OWN SHARES RESERVE
Group and Company
Allotted, called up and fully paid
293,903,724 ordinary shares of 26¼p (2016: 330,310,239 ordinary shares of 23⅓p)
2017
£m
89.7
40.3
130.0
Group
2016
£m
182.6
28.3
210.9
2017
£m
89.6
40.3
129.9
2017
£m
77.1
Company
2016
£m
182.6
28.3
210.9
2016
£m
77.0
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 3,733,333 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
2017
£m
77.0
23.7
2016
£m
2017
Number
2016
Number
162.0
15,010,728
39,586,992
24.7
3,611,309
4,209,858
(18.5)
(30.4)
(3,587,843)
(8,033,081)
–
–
(79.3)
–
(18,241,423)
–
(1,670,466)
(2,511,618)
82.2
77.0
13,363,728
15,010,728
NOTES TO THE ACCOUNTSFOR THE YEAR ENDED 31 MARCH 2017ICG ANNUAL REPORT & ACCOUNTS 2017 151
The number of shares held by the Group at the balance sheet date represented 4.5% (2016: 4.5%) 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 2016
Purchased
Options/awards exercised
Share consolidation
Purchased
As at 31 March 2017
Total number of
shares allotted,
called up and
in issue
330,310,239
–
120,681
330,430,920
(36,714,547)
293,716,373
187,351
293,903,724
On 1 August 2016, the Company undertook a share consolidation issuing eight new ordinary shares at 26¼ pence each for each holding
of nine existing ordinary shares of 23⅓ pence each, reducing shares in issue to 293,716,373.
23. PROVISIONS
Group and Company
At 1 April 2016
Utilisation of provision
Unwinding of discount
As at 31 March 2017
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
2.7
(0.8)
0.1
2.0
2016
£m
0.7
2.0
2.7
2017
£m
0.7
1.3
2.0
The Group holds onerous lease provisions of £2.0m (2016: £2.7m) 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
Liabilities held at FVTPL:
– Structured entities controlled by the Group
2017
2016
Current
£m
Non current
£m
Current
£m
Non current
£m
–
–
–
–
–
743.5
335.5
42.5
3,183.4
4,304.9
82.6
–
24.0
–
106.6
398.7
330.5
32.0
1,913.0
2,674.2
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 152
24. FINANCIAL LIABILITIES CONTINUED
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
2017
2016
Current
£m
Non current
£m
Current
£m
Non current
£m
–
–
–
–
2017
£m
2.6
454.8
–
7.4
743.5
335.5
42.5
1,121.5
Group
2016
£m
1.0
231.3
–
1.1
464.8
233.4
82.6
–
24.0
106.6
2017
£m
2.2
109.0
577.1
7.1
695.4
398.7
330.5
32.0
761.2
Company
2016
£m
2.1
78.5
208.0
0.9
289.5
Included within accruals are £332.2m (2016: £91.8m) relating to structured entities controlled by the Group and in the prior year £41.7m
deferred consideration recognised on the acquisition of the remaining 49% interest in Longbow Real Estate Capital.
26. DEFERRED TAX
Group
At 31 March 2015
Prior year adjustment
Prior year adjustment – rate change
(Credit)/charge to equity
(Credit)/charge to income
At 31 March 2016
Prior year adjustment
Prior year adjustment – rate change
(Credit)/charge to equity
(Credit)/charge to income
At 31 March 2017
Other
derivatives
£m
Warrants and
investments
£m
Remuneration
deductible
as paid
£m
Other
temporary
differences
£m
8.3
–
(0.3)
–
(3.0)
5.0
–
(0.1)
–
0.7
5.6
22.9
(0.9)
(0.7)
5.2
8.6
35.1
2.7
(0.3)
(9.1)
17.2
45.6
(12.0)
(0.3)
0.5
(2.8)
5.6
(9.0)
–
0.1
2.8
(1.2)
(7.3)
14.7
0.1
(0.5)
–
5.2
19.5
3.3
(0.1)
–
10.1
32.8
Total
£m
33.9
(1.1)
(1.0)
2.4
16.4
50.6
6.0
(0.4)
(6.3)
26.8
76.7
NOTES TO THE ACCOUNTSFOR THE YEAR ENDED 31 MARCH 2017ICG ANNUAL REPORT & ACCOUNTS 2017 Company
At 31 March 2015
Prior year adjustment
Prior year adjustment – rate change
Credit to equity
(Credit)/charge to income
At 31 March 2016
Prior year adjustment
Prior year adjustment – rate change
(Credit)/charge to equity
(Credit)/charge to income
At 31 March 2017
Other
derivatives
£m
Warrants and
investments
£m
Remuneration
deductible
as paid
£m
Other
temporary
differences
£m
8.3
–
(0.3)
–
(3.0)
5.0
–
(0.1)
–
0.4
5.3
6.4
(0.1)
(0.3)
–
2.4
8.4
2.4
(0.1)
(1.6)
8.8
17.9
(6.5)
(0.3)
0.3
(2.8)
4.4
(4.9)
–
–
2.8
1.1
(1.0)
2.6
–
–
–
(1.3)
1.3
3.1
–
–
(3.3)
1.1
153
Total
£m
10.8
(0.4)
(0.3)
(2.8)
2.5
9.8
5.5
(0.2)
1.2
7.0
23.3
The Group’s net deferred tax balance of £76.7m (2016: £50.6m) consists of £77.0m (2016: £51.0m) of non current liabilities and £0.3m
(2016: £0.4m) of non current assets. The Company’s deferred tax balance of £23.3m (2016: £9.8m) consists solely of non current liabilities.
Deferred tax has been accounted for at the substantively enacted corporation tax rate of 19%.
As at 31 March 2017 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 £25.1m (2016: £17.3m)
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, and 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 2.5 years (2016: 1.00 year).
2017
Number
2016
323,064
1,161,722
(68,922)
(88,471)
(228,541)
(750,187)
25,601
25,601
323,064
323,064
Exercise price
£2.230
£2.947
£6.008
£4.844
£5.048
Weighted average
exercise price (£)
2017
5.15
5.05
5.42
2.95
2.95
2017
Number
–
25,601
–
–
–
2016
4.57
4.10
4.38
5.15
5.15
2016
Number
30,173
25,601
181,439
16,929
68,922
25,601
323,064
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 154
27. SHARE BASED PAYMENTS CONTINUED
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 98.
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
Vested
Forfeited
Outstanding at 31 March
Number
Weighted average fair value (£)
2017
2016
1,140,049
1,057,780
962,285
734,024
(492,679)
(456,020)
(26,141)
(4,908)
(177,388)
(190,827)
1,406,126
1,140,049
2017
4.99
6.55
4.86
4.73
5.97
5.98
2016
4.20
5.47
3.92
5.35
4.99
4.99
Number
Weighted average fair value (£)
2017
2016
4,916,580
6,672,897
1,129,709
1,335,214
(1,293,320)
(2,272,098)
(528,106)
(819,433)
4,224,863
4,916,580
2017
4.07
6.55
3.06
4.93
4.93
2016
3.34
5.47
2.74
4.07
4.07
Number
Weighted average fair value (£)
2017
69,082
19,631
2016
83,989
26,996
(13,737)
(38,627)
(3,875)
71,101
(3,276)
69,082
2017
360.00
515.00
310.00
365.00
412.00
2016
284.00
425.00
246.00
313.00
360.00
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.
Intermediate Capital Group plc Buy Out Awards
Buy out awards outstanding were as follows:
Buy Out Awards
Outstanding at 1 April
Granted
Outstanding at 31 March
Number
Weighted average fair value (£)
2017
–
508,604
508,604
2016
–
–
–
2017
–
6.51
6.51
2016
–
–
–
The fair values of the buy out awards granted are determined by the average share price for the five business days prior to grant.
NOTES TO THE ACCOUNTSFOR THE YEAR ENDED 31 MARCH 2017ICG ANNUAL REPORT & ACCOUNTS 2017 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 Strategic Secondaries Fund II
ICG-Longbow UK Real Estate Debt Investments IV
Longbow Development Fund
2017
£m
9.6
33.2
255.3
89.0
86.2
52.4
12.7
136.0
12.4
4.7
691.5
155
2016
£m
10.3
48.7
356.4
92.9
99.2
50.7
16.7
152.9
17.0
6.5
851.3
29. OPERATING LEASES
At the balance sheet date, the Group and Parent Company had outstanding commitments for future minimum lease payments under
non cancellable operating leases, falling due as follows:
Within one year
Two to five years
After five years
2017
£m
5.8
16.1
1.4
Group
2016
£m
5.2
18.1
3.3
2017
£m
2.6
7.4
–
Company
2016
£m
2.4
9.7
0.6
30. RELATED PARTY TRANSACTIONS
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 £5.4m (2016: £192.9m).
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.
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 156
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 and the ICG Group’s holding is in the ordinary share class, 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 LLP1
Intermediate Investments Jersey Limited
Intermediate Capital Asia Pacific Limited
Intermediate Capital Group SAS
Intermediate Capital Group España SL
Intermediate Capital Nordic AB
Intermediate Capital Group Beratungsgesellschaft GmbH
Intermediate Capital Group Benelux B.V.
Intermediate Capital Australia Pty Limited
Intermediate Capital Group Inc
Intermediate Capital Group (Singapore) Pte. Limited
ICG FMC Limited2
Longbow Real Estate Capital LLP1
ICG Global Investment Jersey Limited
ICG Fund Advisors LLC
ICG Debt Advisors LLC
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
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
United States of America
Advisory company
Singapore
United Kingdom
United Kingdom
Jersey
Advisory company
Holding company for
funds management
Advisory company
Investment company
United States of America
Advisory company
United States of America
Advisory company
ICG Alternative Investment Limited
United Kingdom
Intermediate Capital Group Dienstleistungsgesellschaft mbH
Germany
Intermediate Capital Limited
ICG European Fund 2006 GP Limited
Intermediate Capital GP 2003 Limited
Intermediate Capital GP 2003 No.1 Limited
Intermediate Capital Asia Pacific Mezzanine 2005 GP Limited
United Kingdom
Jersey
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 Limited3
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
Advisory company
Service company
General partner
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
NOTES TO THE ACCOUNTSFOR THE YEAR ENDED 31 MARCH 2017ICG ANNUAL REPORT & ACCOUNTS 2017 157
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
ICG Alternative Credit LLC
ICG Alternative Credit (Cayman) GP Limited
ICG Senior Debt Partners Sarl
ICG Japan (Funding 2) Limited
Nomura ICG KK
ICG-Longbow Investment 3 LLP1
ICG Strategic Secondaries Advisors LLC
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
United States of America
Advisory company
Cayman Islands
Luxembourg
United Kingdom
Japan
General partner
General partner
Holding company
Joint venture
United Kingdom
Limited liability partnership
United States of America
Advisory company
ICG Strategic Secondaries Carbon Associates LLC
United States of America
General partner
Jersey
General partner
United States of America
Service company
ICG European Fund 2006 B GP Limited
ICG Debt Administration LLC
ICG-Longbow B Investments LP1
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 Kingdom
United Kingdom
United Kingdom
Germany
United Kingdom
Jersey
ICG Strategic Secondaries Associates LLC
United States of America
ICG Total Credit (Global) GP Sarl
ICG Longbow Development GP LLP1
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
ICG Velocity Co-Investor Associates LLC
United States of America
Limited partner
Holding company for loans
and investments
Special purpose vehicle
Special purpose vehicle
General partner
General partner
General partner
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
General partner
ICG NA Debt Co-Invest Limited
United Kingdom
Investment company
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 158
31. SUBSIDIARIES CONTINUED
Name
ICG Asia Pacific III Scotland GP Limited
ICG Asia Pacific III Scotland General Partner LLP1
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
Country of incorporation
Principal activity
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
General partner
ICG Strategic Secondaries Associates II LLC
United States of America
Intermediate Capital Inc
Intermediate Finance Inc
Intermediate Finance 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
ICG Debt Advisors (Cayman) Limited
ICG Debt Advisors LLC – Holdings Series
ICG Debt Advisors LLC – Manager Series
Intermediate Capital Group Polska SZOO
ICG Luxembourg Sarl
ICG Centre Street Partnership GP Limited
United States of America
Dormant company
United States of America
Dormant company
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Cayman Islands
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Advisory company
United States of America
Investment company
United States of America
Advisory company
Poland
Luxembourg
Jersey
Service company
Advisory company
General partner
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.
1 Holding in partnership investment.
2 Holding in A ordinary share class.
3 Holding of 59% in A, B and C ordinary share class.
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.
NOTES TO THE ACCOUNTSFOR THE YEAR ENDED 31 MARCH 2017ICG ANNUAL REPORT & ACCOUNTS 2017 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
US CLO 2016-1
US CLO 2017-1
St Paul’s CLO II (i)
St Paul’s CLO III (ii)
St Paul’s CLO VI
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
United States of America
United States of America
Ireland
Ireland
Ireland
Ireland
Ireland
159
% of ownership interests
and voting rights
2017
100.00%
56.00%
51.30%
50.30%
57.50%
55.60%
59.90%
33.90%
49.40%
53.20%
100.00%
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 ICG is acting
as principal.
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.
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 160
32. ASSOCIATES AND JOINT VENTURES CONTINUED
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
United Kingdom
Gerflor Group (i)
Interbest Holding BV
ICG Total Credit Fund (ii)
ICG Europe Fund V Jersey Limited (iii)
ICG Europe Fund VI Jersey Limited (iv)
Manufacturer of PVC flooring
France
Roadside advertising masts
Netherlands
Credit fund
Investment company
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
Proportion of ownership
interest/voting rights
held by the Group
2017
20.00%
11.76%
31.26%
21.75%
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)
(iii)
(iv)
(v)
(vi)
The fund manager can be removed without cause by only three investors who together hold more than 60% of the issued units.
Although this would indicate an agent relationship, as ICG has a 21.75% interest in this entity it has been considered an associate.
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.
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 33% 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 16.67% holding, and therefore
significant influence in this entity, it has been considered an associate.
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. 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.
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 eight 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.
During the year ICG Group received income distributions of £73.3m (2016: £10.0m) from the four investment companies above.
NOTES TO THE ACCOUNTSFOR THE YEAR ENDED 31 MARCH 2017ICG ANNUAL REPORT & ACCOUNTS 2017 There were no changes in the Group’s ownership interests in an associate in the year.
Details of each of the Group’s joint ventures at the end of the reporting period are as follows:
Name of joint venture
Nomura ICG KK
HMY
Principal activity
Advisory company
Manufacturing
Country of incorporation
Japan
France
161
Proportion of ownership
interest/voting rights
held by the Group
2017
50.00%
50.00%
Nomura ICG KK is equity accounted as a joint venture in accordance with IFRS 11. HMY is 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.
The Group’s investments in Parkeon, Via Location and Viadom, which were previously classified as joint ventures, have been sold during the
year. There were no other changes in the Group’s ownership interests in a joint venture.
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 associates or joint ventures are ICG Europe Fund V Jersey Limited and ICG Europe Fund VI Jersey Limited, which
are associates. The information below is derived from the IFRS financial statements of the entities. Materiality has been determined by the
carrying value of the associate or joint venture as a percentage of total Group assets.
Current assets
Non current assets
Current liabilities
Non current liabilities
Revenue
Profit from continuing operations
Total comprehensive income
ICG Fund VI Jersey Limited
ICG Fund V Jersey Limited
2017
£m
0.5
1,219.6
(0.1)
–
1,220.0
163.1
160.9
160.9
2016
£m
3.8
263.5
(0.2)
–
267.1
27.7
26.7
26.7
2017
£m
–
2016
£m
0.2
1,759.4
2,083.0
(7.5)
–
–
–
1,751.9
2,083.2
205.2
204.9
204.9
90.9
90.6
90.6
Summarised financial information for equity accounted joint ventures
Nomura ICG KK made a profit from continuing operations and total comprehensive income of £0.3m for the year end 31 March 2017
(2016: £nil).
FINANCIAL STATEMENTSSTRATEGIC REPORTICG ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE REPORT 162
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.
At 31 March 2017, ICG’s interest in and exposure to unconsolidated structured entities including outstanding management and performance
fees is detailed in the table below, and recognised within financial assets: loans, investments and warrants and trade and other receivables
in the statement of financial position:
Funds
CLOs
Credit Funds
Corporate
Investment Funds
Real Asset Funds
Secondaries Funds
Total
Investment
in Fund
£m
Management
fees
receivable
£m
Management
fees
%
Performance
fees
receivable
£m
62.3
39.8
61.3
92.5
152.1
408.0
1.7
0.35% to 0.60%
0.4
0.50% to 0.75%
23.7
0.75% to 2.0%
8.7
0.40% to 1.33%
1.15% to 1.40%
7.2
41.7
–
–
5.3
2.7
0.5
8.5
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
20% of total performance fee of 12.5%
of profit over the threshold
Maximum
exposure
to loss
£m
64.0
40.2
90.3
103.9
159.8
458.2
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.
NOTES TO THE ACCOUNTSFOR THE YEAR ENDED 31 MARCH 2017ICG ANNUAL REPORT & ACCOUNTS 2017 163
GLOSSARY
This document contains non IFRS GAAP alternative performance measures. These are defined below:
TERM
SHORT FORM
DEFINITION
Adjusted earnings per share
Adjusted EPS
Adjusted Group profit before tax
Adjusted Investment Company profit
before tax
Adjusted profit after tax (annualised when reporting a six month period’s results)
divided by the weighted average number of ordinary shares as detailed in note 15.
Group profit before tax adjusted for the impact of the consolidated structured
entities, the presentation of Nomura ICG KK and Questus Energy Pty Limited
(other adjustments) and the fair value movements on derivatives. In the prior
year profit was also adjusted for changes to the estimate of Longbow deferred
consideration and the impact of the settlement of the Employee Benefit Trust.
As at 31 March 2017, this is calculated as follows:
Profit before tax
Plus other adjustments
Plus fair value movement of derivatives
Less consolidated structured entities
Adjusted Group profit before tax
£252.4m
£0.4m
£1.3m
(£16.6m)
£237.5m
Investment Company profit adjusted for the impact of the consolidated
structured entities, the presentation of Nomura ICG KK and Questus Energy
Pty Limited (other adjustments) and the fair value movements on derivatives.
In the prior year profit was also adjusted for changes to the estimate of Longbow
deferred consideration and the impact of the settlement of the Employee Benefit
Trust.
As at 31 March 2017, this is calculated as follows:
Investment Company profit before tax
Plus other adjustments
Plus fair value movement of derivatives
Less consolidated structured entities
£178.4m
£0.4m
£1.3m
(£16.6m)
Adjusted Investment Company profit before tax
£163.5m
Adjusted return on equity
Adjusted profit after tax divided by average shareholders’ funds for the period.
Balance sheet investment portfolio
Capital gains
Dividend income
Earnings per share
As at 31 March 2017, this is calculated as follows:
Adjusted profit after tax
Average shareholders’ funds
Adjusted return on equity
£202.6m
£1,115.8m
18.2%
The balance sheet investment portfolio represents non current financial
assets from the Statement of Financial Position, adjusted for the impact of the
consolidated structured entities and the presentation of Nomura ICG KK (other
adjustments). See note 7 for a full reconciliation.
Capital gains represent the increase in value of equity investments. Capital gains
reported on an internal basis excludes the impact of the consolidated structured
entities and excludes capital gains where the Group’s investment is through a
fund structure, but the underlying assets are interest bearing. See note 7 for a full
reconciliation.
Dividend income represents distributions received from equity investments.
Dividend income reported on an internal basis excludes the impact of the
consolidated structured entities and includes dividends on assets where
the Group’s co-investment is through a fund structure. See note 7 for a full
reconciliation.
Profit after tax (annualised when reporting a six month period’s results) divided
by the weighted average number of ordinary shares as detailed in note 15.
ICG ANNUAL REPORT & ACCOUNTS 2017 164
TERM
Gearing
Impairments
Interest expense
Interest income
Investment income
Net asset value per share
Net current assets
Net debt
GLOSSARY
CONTINUED
SHORT FORM
DEFINITION
Gross borrowings, excluding the consolidated structured entities, divided by
closing shareholders’ funds. Gross borrowings represent the cash amount
repayable to debt providers.
As at 31 March 2017, this is calculated as follows:
Gross borrowings
Shareholders’ funds
Gearing
£1,119m
£1,173m
0.95x
Impairments are recognised on debt instruments to the extent that the debt
is deemed irrecoverable. Impairments are reported on an internal basis and
includes impairments on assets where the Group’s co-investment is through
a fund structure, but the underlying assets are interest bearing. See note 7
for a full reconciliation.
Interest expense excludes the cost of financing associated with the consolidated
structured entities. See note 7 for a full reconciliation.
Interest income is contractual income earned on debt investments. Interest
income reported on an internal basis excludes the impact of the consolidated
structured entities and includes interest income on assets where the Group’s
co-investment is through a fund structure, but the underlying assets are interest
bearing. See note 7 for a full reconciliation.
Investment income is the total of interest income, capital gains and dividend
and other income.
Total equity from the Statement of Financial Position divided by the closing
number of ordinary shares.
As at 31 March 2017, this is calculated as follows:
Total equity
Closing number of ordinary shares
Net asset value per share
£1,173m
280,539,996
418p
The total of cash, plus current financial assets, plus other current assets, less
current liabilities as internally reported. This excludes the consolidated structured
entities and the presentation of Nomura ICG KK and Questus Energy Pty Limited
(other adjustments).
As at 31 March 2017, this is calculated as follows:
Cash
Current financial assets
Other current assets
Current liabilities
Net current assets
£490.3m
£89.7m
£172.9m
(£158.8m)
£594.1m
Total drawn debt less unencumbered cash of the Group, excluding the
consolidated structured entities and the presentation of Nomura ICG KK and
Questus Energy Pty Limited (other adjustments).
As at 31 March 2017, this is calculated as follows:
Total drawn debt
Less unencumbered cash
Net debt
£1,119.0m
(£489.9m)
£629.1m
ICG ANNUAL REPORT & ACCOUNTS 2017 TERM
Operating cash flow
Operating expenses of the
Investment Company
Operating profit margin
Return on assets
ROA
165
SHORT FORM
DEFINITION
Operating cash flow represents the cash generated from operating activities
from the Statement of Cash Flows, adjusted for the impact of the consolidated
structured entities, the presentation of Nomura ICG KK (other adjustments).
See note 7 for a full reconciliation.
Investment Company operating expenses are adjusted for the impact of
the consolidated structured entities, the presentation of Nomura ICG KK
and Questus Energy Pty Limited (other adjustments). See note 7 for a
full reconciliation.
Fund Management Company profit divided by Fund Management Company
total revenue.
As at 31 March 2017 this is calculated as follows:
Fund Management Company Profit
Fund Management Company Total Revenue
Operating profit margin
£74.0m
£179.7m
41.2%
Returns divided by the average balance sheet investment portfolio. Returns
comprise interest and dividend income, plus net capital gains, less impairments
(as defined in this glossary) on the balance sheet investment portfolio,
i.e. excluding assets held for sale.
As at 31 March 2017 this is calculated as follows:
Interest income
Dividend and other income
Capital gains
Net impairments
Total returns
Average balance sheet
Return on assets
£127.2m
£37.9m
£184.6m
(£48.0m)
£301.7m
£1,755m
17.2%
Return on equity
ROE
Third party fee income
Weighted average fee rate
Profit after tax (annualised when reporting a six month period’s results) divided
by average shareholders’ funds for the period.
Fees generated on fund management activities as reported in the Fund
Management Company including fees generated on consolidated structured
entities which are excluded from the IFRS consolidation position. See note 7
for a full reconciliation.
An average fee rate across all strategies based on fee earning AUM in which
the fees earned are weighted based on the relative AUM.
ICG ANNUAL REPORT & ACCOUNTS 2017 166
GLOSSARY
CONTINUED
Other definitions which have not been identified as non IFRS GAAP alternative performance measures are as follows:
TERM
SHORT FORM
DEFINITION
AIFMD
The EU Alternative Investment Fund Managers Directive.
Assets under management
AUM
Catch up fees
Closed end fund
Co-investment
Co-invest
Collateralised Debt Obligation
CDO
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.
Fees charged to investors who commit to a fund after its first close. This has the
impact of backdating their commitment thereby aligning all investors in the fund.
A fund where investor’s commitments are fixed for the duration of the fund and
the fund has a defined investment period.
A direct investment made alongside or in a fund taking a pro-rata share of
all instruments.
Investment grade security backed by a 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
HMRC
IAS
IFRS
Illiquid assets
Internal Capital Adequacy
Assessment Process
Investment Company
Internal Rate of Return
Key Man
Key performance indicator
Key risk indicator
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 services 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.
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.
ICAAP
The ICAAP allows companies to assess the level of capital that adequately
supports all relevant current and future risks in their business.
IC
IRR
KPI
KRI
The Investment Company invests the Group’s capital in support of third party
fundraising and funds the development of new strategies.
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.
ICG ANNUAL REPORT & ACCOUNTS 2017 167
SHORT FORM
DEFINITION
TERM
Liquid assets
Open ended fund
Payment in kind
Performance fees
Realisation
Securitisation
Senior debt
Total AUM
PIK
Carry
UK Corporate Governance Code
The Code
UNPRI
Weighted average
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.
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.
A form of financial structuring whereby a pool of assets is used as security
(collateral) for the issue of new financial instruments.
Senior debt ranks ahead of 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 2017 168
TIMETABLE
EVENT
Ex dividend date
SHAREHOLDER AND COMPANY INFORMATION
Record date for financial year 2017 final ordinary dividend
Last date for dividend reinvestment election
AGM
Payment of ordinary dividend
Date
15 June 2017
16 June 2017
14 July 2017
25 July 2017
4 August 2017
Half year results announcement for the six months to 30 September 2017
14 November 2017
COMPANY INFORMATION
Stockbrokers
JPMorgan Cazenove
25 Bank Street
Canary Wharf
London
E14 5JP
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London
EC4M 7LT
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.
ICG ANNUAL REPORT & ACCOUNTS 2017 Design and production
Radley Yeldar | www.ry.com
icgam.com