ICG Enterprise Trust PLC (ICGT) Earnings Call Transcript & Summary

Good morning, and welcome to ICG Enterprise Trust's half year results for the 6 months to 31st of July, 2026. As you'll hear over the next 15 minutes or so, it was a 6-month period demonstrating growth across multiple investment areas with positive net portfolio cash flow and selective investment. Our portfolio companies continued to perform well. We've realized assets above carrying values, and we've returned capital to shareholders through both dividends and buybacks. Today, Portfolio Manager, Colm Walsh, will take you through the half year performance, the activity in the portfolio and how we are positioned for the current environment. The slides and the results announcement are available on our website. We'll leave time for Q&A at the end. You can submit your questions at any point using the Q&A box on your screens. With that, I'll hand over to Colm.

Thanks, Martin, and thank you, everyone, for joining this call. First of all, let me just take a few minutes to outline our investment strategy, particularly for newer shareholders, but also just to recap for existing shareholders as well. Broadly speaking, we aim to deliver private equity returns whilst managing risk through a focused investment strategy. Firstly, we focus on buyouts. That's to say profitable cash-generative companies, typically relatively mature companies for the companies which have scope to grow. Secondly, we invest primarily in developed markets. And in terms of private equity, that's North America and Europe. -- where we believe that the depth and quality of the managers available in those markets is the strongest. Thirdly, we focus on mid-market deals. That's companies with enterprise values approximately between $250 million and $2 billion. That's obviously, they're big numbers, but small by public market standards. We think, though, that companies of this size or for a particular sweet spot, they are -- the companies trave the ability to be transformed into market-leading companies. And finally, and really critically, we partner with top-tier private equity managers, managers with proven track records, experience through cycles and a really strong institutional framework. Put together, that gives us a diversified portfolio of resilient companies with a more consistent return profile where performance is less cyclical, less seasonal, more resistant. So moving on to the next slide. What is that deliberate in practice? Let's just take a quick look at the data. On this slide, a little bit technical. We plot ICG Enterprise and our peers on a risk return graph, simply the NAV per share total return against the standard deviation of those returns. It's not a standard industry measure, but we think it's a useful way to illustrate how ICG Enterprise compares with peers from a portfolio construction perspective. And since January 2020, ICG Enterprise ranks first amongst its peer group delivering sector-leading returns per unit of risk or thinking it another way, sector-leading returns on a risk-adjusted basis. And we also ranked first over the last 10 years. For us, the critical point is not just about the absolute level of return, but it's the balance of return and risk. And that's very consistent with our approach, our resilient growth strategy, which I just talked about, delivering strong returns but also at the same time, managing risk. So moving on to the next slide. We show that this strong risk-adjusted return performance is supported by a diversified vintage exposure. So around 23% of the portfolio is in the older vintages, that's 2017 to 2020, 31% in newer vintages, the '23 to '25. And what you see here is that 41% of the portfolio is in the 2021 and 2022 vintages. Now that's, to some degree, what you would expect. You would expect a 3- to 5-year old vintages to be a high percentage of the portfolio given that they're in the growth phase and typically before they are likely to be realized. We often get asked a really consistent question in recent quarters has been about our thoughts on the '21 and '22 vintages. It was a period of very high levels of activity and that's particularly in the context of market volatility in some of the sectors like tech and software that were especially favored in those vintages. 16 of our top 30 companies are from those vintages. But actually, you can see from these logos and some of the less familiar companies, but as you can see from the logos, it's a very diversified portfolio, and it's substantially underweight what a typical private equity portfolio for those vintages would have looked like. We invested in the likes of theater operators, retirement home operators, mortgage appraisal providers. So a very wide range of themes and underlying external growth factors. And even in the 4 software investments listed, they're typically in subsectors of software that are resilient defensive an example, [ Pin Identity ] provides cybersecurity solutions. Actually, a subsector of software that has that benefits from the secular trend that is AI. And we also have a number of these such as precisely, which have downside protection within the structure. In other words, we're not just investing in common equity, we invest in a structure, which offers downside protection, which is very much part of the heritage and DNA, if you like, of ICG. So when we look through the headline vintage, as I say, we see a very diversified group of companies. It's not a concentrated bet on any single investment thesis or any single secular trend. And we think that supports the resilience of our long-term growth. So moving on to the next slide and turning to the period. Firstly, I want to frame the discussion with 3 key points. Firstly, our portfolio performance, which strengthened in the second quarter with growth across a range of companies as secondly, exits continue to anchor our strong returns. We had 24 full exits in the half year period and collectively, those investments generated a 3x cost return. And finally, whilst macro events post period, likely will extend a period of slower sector-wide activity ICG Enterprise has a robust balance sheet, and that gives us significant flexibility. So let's go through each in turn, moving on to the next slide. So whilst the first quarter's return was relatively flat, we saw 3.5% portfolio return on a sterling basis in the second quarter. Some of the key contributors to our second quarter portfolio growth are shown on the slide, just to pick up on a few Ambassador theatre Group and Exail, some of our largest exposures in our top 30 companies were both marked up to the expected sale price. In fact, that makes Exail our largest underlying company exposure. Brooks Automation is benefiting from demand for semiconductors. This is, if you like, a kind of picks and shovels business. It benefits from the derived demand for semiconductors without being exposed to a much more volatile demand cycle for those semiconductors. So that AI-driven demand continues to support strong growth and in fact, Brooks has recently filed for an IPO in the U.S. And Greenix, again, illustrating this trend of having a very diverse range of companies, Greenix is a provider of pest control services. and that continues to report strong EBITDA growth. So everything from semiconductors to catching pests, it's quite a broad range of activities. And we think it's really encouraging that breadth of that growth and how that -- our portfolio is tapping into a very wide variety of long-term growth trends across multiple different sectors and multiple different business models, multiple different geographies. We also received, as you can see on the slide here, significant liquidity from 2 of our top 30 companies in the period as Curium and Yodo and we're expecting approximately GBP 70 million of additional proceeds in the coming quarters through 2 further large exits, Exail and Ambassador Theatre Group. Our approach of investing in high-quality market-leading companies have seen in recent periods, a number of successful exits from our larger exposures. You would have seen that reflected in our results for last year as well. So moving on now to look at our balance sheet. That realization activity leaves our balance sheet in a good position at the 31st of July 2026. We have GBP 190 million in terms of total available liquidity, and we had a net debt of GBP 66 million. And that's against the portfolio, which is almost GBP 1.4 million. So really strong coverage. We believe that positions us strongly with 1 of the lowest gearing ratios in our peer group. And the financial flexibility we think is really important in this environment. It's a core strength of ICG enterprise. It gives us the ability to continue to invest in high-quality new investments to maintain vintage diversification, which will support in turn, our long-term growth but it also gives us the resources to continue to enhance shareholder returns through buybacks and through dividends. Moving on now to activity in the half year. And over the next few slides are going to run through what we've seen in the portfolio over the last 12 months. As a reminder, we break down the investment life cycle in 4 phases. Firstly, we made commitments to new funds alongside our U.S. and European managers, mixture of old and new. Second, we call for capital or we invest directly into portfolio companies. Thirdly, those companies go through a period of value creation. We partner, and we like to partner with managers. As a reminder, that have multiple different levers to create value and in particular, those that have significant operational expertise. And finally, and obviously very critically, we and our managers exit the businesses, thus generating proceeds. So the cycle repeats. Proceeds come in, we then have to redeploy into new commitments and new investments. Starting with Phase 1 of the next slide, commitments. So we made GBP 104 million of new fund commitments during the 6 months. Most of that was alongside managers already in our portfolio, long established managers where we have long-standing relationships, good examples being Gridiron, TJC, formerly known as the Jordan Company. We've also added some new managers to our portfolio. You can see the logo here for SkyKnight and Archimed, perhaps not household names, but in both cases, very highly source after managers that had very competitive fundraisings and where not everybody was able to secure an allocation. They have very significant domain expertise and both managers also have the potential to generate significant co-investment deal flow, a really critical part of our co-investment program is partnering with the best managers. Moving on now to slide this slide about deploying capital. Our new investments, we invested GBP 65 million in the period. That's lower than recent years. But that's consistent with the point I made earlier that we have remained highly selective and that activity is obviously relatively light in this market and below our 5-year trend. The largest company investment was a business called Pharmacy2U. It's an operator of an online pharmacy business, predominantly in the U.K. really a good example of what we look for an established market position, but a company which has significant structural growth in online health care and alongside a specialist manager that has the right level of sector domain expertise. This was a GBP 13 million co-investment alongside G. Square, as I said a specialist health care investor. Turning now to portfolio growth. During the period, the portfolio of return on a local currency basis was 3.2%. In this period, FX had a limited impact on the portfolio and we ended up with a closing portfolio valuation, as I said earlier, a little under GBP 1.4 billion. Over the longer term, our portfolio return on a local currency basis was 10.2% on an annualized basis over the last 5 years, that translates to an annualized NAV per share total return of 8.4%. Moving on to the next slide, which summarizes some of the key financial metrics for the underlying portfolio. Portfolio companies remained resilient. They delivered 11% growth over the last 12 months and 16% growth in EBITDA. So it's 11% revenue and 16% in EBITDA. Valuation multiples remained broadly similar at 15.8x and net debt at 4.8x EBITDA. We remain comfortable with these valuation metrics in the context of the portfolios high revenue and EBITDA growth, and we believe is reflective of a focus on high-quality companies with strong quality brands. Moving to the fourth and final phase, exits. Realizations in the period totaled GBP 84 million. As with the investment slide earlier, this does reflect a drop from recent years, reflecting the slower market-wide transaction environment. However, 2 further large exits have been signed, they're not reflected in these numbers but have been signed. And we expect to generate, as I mentioned earlier, an additional GBP 70 million worth of cash proceeds to ICG Enterprise subject to closing process. And on that topic, I wanted to expand on Ambassador Theatre Group, which was our fourth largest company exposure at the 31st of July. And as I mentioned, will likely be realized in the coming quarters. We invested alongside our colleagues in ICG Strategic Equity, that's our GP-led Secretary strategy in 2021. And that was at the time, but a brave decision at a point when the live entertainment industry was still recovering from the impacts of the COVID pandemic. Since then, the company has benefited from the strong return of audiences to live theatre and in particular, the return of tourism as well and has continued to build its position as a leading international venue operator. The business has been sold to a strategic buyer with approximately GBP 23 million worth of proceeds expected for ICG Enterprise in the coming quarters. And for us, this is a good example of backing a high-quality, market-leading company and a good endorsement of our diversified approach and it will be a meaningful exit from our 2021 vintage portfolio to [indiscernible]. So staying on exits, One of the best proof points for NAV is what a company sells for on exit. It's a metric we've tracked over a number of years. You can see the last 12 months, ICG Enterprise Trust completed 60 full exits. They were executed at a multiple of 3.1x cost and at an average 10% uplift to the previous carrying value and that continues the long-term trend of crystallizing strong returns on exit. On average, exits have been around 2.5x cost, and as a premium to carrying value. We see this as a very good validation of the underlying portfolio quality and ultimately, for now. So to conclude, our priorities for the second half of the financial year remain very similar to what we outlined at the start of the year. That is to say -- we're going to keep the high bar for new investments. I think you'll have heard us say that over multiple quarters, but we think that discipline is especially important in the environment that we're currently investing into. Secondly, the byproduct of a strong 12 to 18 months of realizations is a number of our larger positions have been exited. And over time, we intend to refresh those larger exposures because we believe that portfolio concentration helps to generate alpha. And finally, we'll continue to balance long-term and near-term shareholder returns through a combination of investing through executing buybacks and also through our progressive dividend policy. All of that, we believe, supports resilience through market turbulence through change and deliver its long-term and should deliver long-term compounding growth for shareholders. And with that, I'm going to pass back to Martin, who's going to host the Q&A.

Great. Thanks, Colm. We now have about 10 minutes or so for Q&A. So as a reminder, please feel free to submit questions via the Q&A box you see on the webinar platform. A few have come in already. So just taking them in turn and grouping them into themes the best I can. Obviously, a lot of questions on realizations. Colm, what are your approximate expectations for realization activity next 6 months given the recent movement in rates?

Anyone who has any certainty over this, I think, is probably -- is making it up. I think it's very, very difficult to give I don't think anyone will be surprised that I'm not able to give an accurate forecast. We do have a very high level of expectation that Exail and Ambassador Theatre Group will close, which have meaningful exposures in our portfolio. So I think the the number -- the biggest company being Exail, the fourth biggest big of Ambassador Theatre Group. And there's also obviously some potentially good news coming out of Brooks Automation with an IPO and of course, it's uncertain as to when that actually will generate proceeds in the event that happens. But aside from that, I think it's always a little uncertain. What I would say, though, is that -- at some point, there will be, I think, a recovery to a more -- what we would consider a more normalized level of activity because within the private equity ecosystem, everyone is very aligned to deliver liquidity. It's a critical feature of managers fundraising is to be able to demonstrate realized returns. Managers are incentivized to try and raise new funds. So -- and there is a significant -- having had 2 or 3 years of low levels of activity, damages are under pressure to deliver liquidity. So I do think that it will crystallize at some point. The conditions are all there. Whilst rates rising is obviously all else equal, we would prefer rate state lower for longer, but I think it was broadly expected, the financing market still work well. And I think it's something that people are able to build in to their pricing. So I think that the conditions are all there, but the precise timing. And of course, the other thing we're always at the mercy of as well are external events or things like some of the -- if you think about recent years, we've had things like the tariffs in the U.S. for Ukraine, the U.S.-Iran conflict. There's a whole series of external events, which often can throw spare in the works as well. So I won't be drawn on forecast to get precisely, but I do think at some point, it will bounce back. And I think we're in a good position with high-quality companies that seem to attract a market even when activity levels are low. And I think we've demonstrated that over recent years.

Great. A question on secondaries, what are the opportunity sets we're seeing there? And how long do we think it will take us to get to the 25% to 30% asset allocation target?

Yes. It's a really good question. I think in some ways, our current allocation to secondaries is a reflection of both disciplined investing on the parts of our colleagues and our secondaries team, which has meant they have lost out on some deals on price and maybe not deployed as quickly as they might pool. But the other thing is the success of the strategy has meant that there's been quite a high realization rate. So it's a case of having to run quite fast to stand still, as I always think of it. We haven't taken a number of steps to build up for allocation to secondaries. So we've made commitments to our to a number of our secondary strategies in ICG. We've also made recently a co-investment alongside our LP secondary colleagues. So the investment activity is building up that allocation. And in terms of the opportunity set, it's a market which continues to grow. ICG specializes in both elements of secondaries being both the GP led and the LP led. We have dedicated teams for both market-leading teams. And I think what they're seeing is that in a liquidity-constrained environment, Secondary solutions are very popular, being increasingly adopted. The deal flow is good. There's a strong opportunity set, and we think the next few years, particularly given some of the low levels of activity we've seen should present some significant opportunity.

Great. Just staying on the theme of secondaries because the question has come in. Can we elaborate on the negative performance from secondaries in H1. Now we should say it's a half of 2 half, if you like, where it was in Q1, which saw the negative second performance, in Q2 secondaries was positive. But Colm, do you want to give any more color?

Yes. I think it's fair to say that some of that contraction is just a series of kind of one-off marking of positions that happened in a particular quarter. What I would guide people is all of these the things we invested in, you have to look at over a longer time period. They don't grow necessarily in a linear way. So I would just guide that contraction in a given quarter, we obviously -- we want to be transparent and show that. But at the same time, we don't think it's reflective of a broader trend. It was just a certain number of investments just got were marked down given some of the market volatility. But as I say, we would guide towards looking at the performance over a longer time period.

And staying on the topics of secondaries and realizations, a question on secondary sales. So the question is, are there any plans to make a portfolio sale as you did previously? Obviously, listeners will know we've done approximately 4 in the last 6 years, but do you want to just guide to the audience colon how we think about secondary sales?