CVC
(formerly known as CVC Credit Partners European Opportunities Limited)
Annual Financial Report 31 December 2022
INCOME &
GROWTH LIMITED
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
WHY INVEST IN CVC INCOME & GROWTH?
Generating income and growing your capital
CVC Income & Growth Limited (the “Company”) aims to provide shareholders with income and
capital upside from a diversified portfolio of predominantly sub-investment grade European
corporate debt instruments. The Company’s investment policy is to invest predominantly in debt
instruments issued by companies domiciled in, or with material operations in Western Europe
across various industries.
CVC Credit Partners Investment Management Limited (the “Investment Vehicle Manager”) has a
strong track record in investing in these asset classes, which provides the Company’s investors with
an opportunity to benefit from rising interest rates through the largely floating rate nature of the
underlying investments. The key features of the Company are its ability to provide attractive, risk-
adjusted returns which include a reliable income stream, with the opportunity for enhancement
of capital. The Company also offers investors additional liquidity opportunities through its share
tender mechanism.
What we offer
Reliable income
The Company seeks to generate regular
cash income via a stable and attractive
dividend, as well as offering the potential
for
capital
appreciation.
The
Company
currently distributes quarterly dividends to
shareholders based on a target of 7.5p / 7c per
GBP and EUR share respectively per annum.
Strong track record
The Company has a proven long-term track
record and, since the Company’s listing in
2013, has achieved a net average total return
per annum of 3.58%
1
and 4.39%
1
per Euro
share and Sterling share respectively.
Liquidity
In addition to the daily liquidity offered
by the stock market, the Company offers
shareholders
alternative
liquidity
via
a
share tender mechanism. A description of
the current share tender mechanism can
be found on pages 101 to 102. Refer to the
Company’s latest tender circular, available on
the Company’s website (
ig.cvc.com
), for the
detailed terms and conditions of the tender
mechanism.
Interest rate protection
The Company, via Compartment A of CVC
European Credit Opportunities S.à r.l. (the
“Investment Vehicle”), invests mainly in
loans, which are typically floating rate
instruments,
which
offer
investors
an
opportunity to benefit from a rising interest
rate environment. We continue to believe that
floating rate assets are preferable to fixed
rate due to the recently witnessed increase in
inflation rates.
Capital preservation
The
Company’s
focus
is
on
downside
protection and capital preservation. The
Investment
Vehicle
invests
primarily
in
senior secured loans at the top of the capital
structure, increasing the chance of strong
recoveries in the event of a rise in defaults. The
portfolio typically comprises between 90 and
100 positions in large companies diversified
by geography and sector predominantly in
Western Europe as well as the US.
Stability
Offering more security and less volatility than
equity markets, the Company offers investors
a way of accessing the wholesale corporate
credit markets, typically an asset class
dominated by institutional investors. Since
its establishment in 1998, the Credit Suisse
Leveraged Loan Index, which represents
the closest index analogy to the underlying
portfolio, has only had two down years,
demonstrating the stability of the asset class.
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
WHY INVEST IN CVC INCOME & GROWTH? (CONTINUED)
What we offer (continued)
Risk-adjusted returns
The Company targets attractive risk-adjusted
returns for its shareholders and has a medium-
term (3-5 years) average annualised target
total return of 8% per annum. The Company
seeks to allocate and reallocate capital to
a mix of performing senior secured loans
and to issuers where the Investment Vehicle
Manager perceives there to be a market-
driven mispricing opportunity based on
fundamental credit assessment and technical
market
factors.
The
Investment
Vehicle
Manager seeks relative value opportunities,
meaning it is able to simultaneously target
a reliable income stream while maintaining
the potential to generate capital upside for
shareholders.
Part of the CVC Credit Platform
The Investment Vehicle is managed by CVC
Credit Partners, a leading global investment
management firm with over $38.7 billion in
AUM across performing credit and private
credit strategies
2
, allowing shareholders the
opportunity to gain exposure to institutional-
quality
credit
investments.
CVC
Credit
Partners is part of the CVC platform, a world
leader in private equity and credit investment
with $142.0 billion of AUM, $189.7 billion of
funds committed and a global network of
25 local offices
3
.
Environmental, Social and Governance Considerations (“ESG”)
The Company has identified the growing importance of responsible investment and integrating
ESG considerations into the investment process.
On 24 January 2022, the Company established an ESG Committee to oversee the ESG policies
and processes adopted by the Investment Vehicle Manager to enable the integration of ESG
factors into the investment process and to oversee the Company’s ESG disclosures.
The ESG Committee closely follows regulatory and legislative developments in the area of
Sustainability and ESG to ensure that the Company is continually working towards improvements
in disclosure of relevant ESG metrics and targets for the benefit of investors.
The Investment Vehicle utilises leverage in executing its investment strategy. As at 31 December
2022, the Investment Vehicle’s borrowings as a percentage of its NAV stood at 35.01% (31 December
2021: 30.29%).
1
From inception to 31 December 2022.
2
All amounts as at 31 December 2022. Commitment figure used for pooled-closed end funds and separately managed
accounts in ramping phase. Includes warehouse and drawn leverage facility figures for certain investment vehicles
managed by CVC Credit entities. Underlying figures not in U.S. Dollars are converted using a spot rate as at 31 December
2022. Includes managed funds, securitisation vehicles, listed vehicles, separately managed accounts and CLOs managed
by CVC Credit Partners Investment Management Limited, CVC Credit Partners LLC, CVC Credit Partners European
Investment Fund Management Limited, CVC Credit Partners European CLO Management LLP and CVC Credit Partners
U.S. CLO Management LLC, on a discretionary and non-discretionary basis.
3
All amounts as at 31 December 2022 for both CVC Capital and CVC Credit entities.
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
1
CONTENTS
Summary
.........................................................................................................
2
Financial Highlights and Performance Summary
....................................................
4
Strategic Report -
- Chairman’s Statement
..............................................................................
6
- Investment Vehicle Manager’s Report
.........................................................
9
- Executive Report
....................................................................................
16
- Principal Risks and Uncertainties
.............................................................
26
- Section 172(1) Statement
.........................................................................
30
Board Members
...............................................................................................
35
Directors’ Report
.............................................................................................
38
Board and Committees
....................................................................................
42
AIFMD Report
.................................................................................................
49
Report of the Audit Committee
.........................................................................
50
Directors’ Statement of Responsibilities
..............................................................
54
Directors’ Remuneration Report
.........................................................................
55
Independent Auditor’s Report
............................................................................
58
Statement of Comprehensive Income
.................................................................
70
Statement of Financial Position
..........................................................................
71
Statement of Changes in Net Assets
...................................................................
72
Statement of Cash Flows
..................................................................................
73
Notes to the Financial Statements
.....................................................................
74
Useful Information for Shareholders
..................................................................
107
Glossary
........................................................................................................
113
Company Information
.....................................................................................
116
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
2
SUMMARY
Key performance indicators summary
As at 31 December 2022, the Company’s Euro and Sterling NAV per share was €0.8902 and £0.9796, respec-
tively, and Euro and Sterling share price (bid price)
1
was €0.8200 and £0.9200, respectively, representing a
7.88% discount and 6.08% discount to NAV. The Company’s ongoing charges ratio increased to 1.78% for
the year ended 31 December 2022 since year ended 31 December 2021 (ongoing charges for the year ended
31 December 2021: 1.61%
2
). The Company paid total dividends during the year of €0.05250 per Euro Share and
£0.05250 per Sterling Share, increasing the Company’s dividend from 5p per annum to 6p per annum with
effect from the Company’s Q3 2022 dividend.
Further information in respect of the Company’s key performance indicators, some of which the Board
considers to be its alternative performance measures (“APMs”), can be found in the Financial Highlights
and Performance Summary section on page 4, within the Executive Report on pages 20 to 21 and within the
Useful Information for Shareholders on pages 107 to 112.
Significant events during the year ended 31 December 2022
z
New Director appointments
z
Changes to the structure of the tender mechanism
z
Change to the frequency of the Company’s share conversions
z
Change to the name of the Company
z
Changes to the Company’s investment policy
z
Amendments to the Company’s Articles of Association
z
Granting of share issuance authority to the Board
Refer to pages 16 to 18 for details regarding the significant events summarised above.
Purpose
Company’s purpose is to provide investors with sustainable long-term returns by investing in a diversified
portfolio of principally European corporate debt. In fulfilling the Company’s purpose, the Board seeks to
consider the views of all stakeholders and is mindful of the impact that the Company has on the society in
which it operates.
Investment objective, policy and strategy
The Company’s investment objective is to provide shareholders with regular income returns and capital
appreciation from a diversified portfolio of predominantly sub-investment grade European corporate debt
instruments. The Company’s investment policy is to invest predominantly in debt instruments issued by
companies domiciled in, or with material operations in Western Europe across various industries. The Com-
pany’s investments are focused on the senior secured obligations of such companies, but investments are
also made across the capital structure of such companies. Refer to pages 18 to 20 for the Company’s full
investment objective, policy and strategy.
Going concern and viability
The Directors consider it appropriate to adopt the going concern basis in preparing the financial statements
and have a reasonable expectation that the Company will continue to be viable for a period of at least three
years from the date of this report. Refer to pages 22 to 23 for further details.
1
Source: Bloomberg
2
The Company’s ongoing charges are considered to be APMs which are calculated according to the methodology
outlined on page 109 and differ to the ongoing costs disclosed within the Company’s Key Information Documents (“KID”)
which follows the methodology prescribed by EU rules. For example, the ongoing costs disclosed in the Company’s KID
include interest expense and are based on average ongoing charges over the past three years whereas the ongoing
charges ratio disclosed in this report does not include interest expense and is based on ongoing charges incurred
during the year ended 2022 only. The Company’s most current KID and an accompanying explanatory note reconciling
the two different ratios are available on the Company’s website (
https://ig.cvc.com/key-information-documents/
).
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
3
SUMMARY (CONTINUED)
Investment Vehicle Manager’s Report
Refer to pages 9 to 15 for the Investment Vehicle Manager’s Report.
Directors’ remuneration, Directors’ Report and Report of the Audit Committee
Vanessa Neill, a specialist consultant on sustainability, joined the Board on 11 January 2022.
Esther Gilbert, a consultant specialising in product development and process enhancement for asset man-
agers and asset owners, joined the Board on 23 September 2022.
Following Vanessa Neill’s appointment on 11 January 2022, Ms Neill will receive £42,500 per annum, being
the same base fee as the other Directors, and a fee of £5,000 per annum as the Chair of the Company’s
ESG Committee, established on 24 January 2022. Following Ms Gilbert’s appointment on 23 September 2022,
Ms Gilbert will receive £42,500 per annum, being the same base fee as the other Directors.
On 29 June 2022, the Directors approved one-off payments of £10,000 per Director and £15,000 for the Chair,
at the recommendation of the Nomination & Remuneration Committee, for the Directors’ additional work
in conjunction with the Company’s Strategic Review.
Other than one-off payments above, there has been no other changes to Directors’ remuneration since
1 July 2015.
As a self-managed company, the Company requires substantial time commitment from the Directors. This
was taken into account when determining the Directors’ fixed remuneration.
Financial statements
The Company’s full financial results can be found in the accompanying financial statements on pages 74
to 106.
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
4
FINANCIAL HIGHLIGHTS AND PERFORMANCE SUMMARY
For the year under review, the NAV total return of (8.31)% (Euro) and (6.75)% (Sterling) were
below the Company’s medium-term average annualised total return target of +8%.
Euro Shares
Sterling Shares
NAV total return
1
31 December 2022: (8.31)%
(31 December
2021: 11.41%)
NAV total return
1
31 December 2022: (6.75)%
(31 December
2021: 12.17%)
Dividend Yield
2
31 December 2022: 6.40%
(31 December
2021: 5.00%)
Dividend Yield
2
31 December 2022: 5.71%
(31 December
2021: 4.57%)
Dividend Coverage ratio
(PEC income)
3
31 December 2022: 1.07
(31 December 2021:1.01)
Dividend Coverage ratio
(PEC income)
3
31 December 2022: 1.13
(31 December 2021:1.24)
Dividend Coverage ratio
(Coupon income)
4
31 December 2022: 1.57
(31 December 2021:1.49)
Dividend Coverage ratio
(Coupon income)
4
31 December 2022: 1.68
(31 December 2021:1.70)
Discount
5
31 December 2022: 7.88%
(31 December
2021: 7.46%)
Discount
5
31 December 2022: 6.08%
(31 December
2021: 5.95%)
Share price
6,7
31 December 2022: €0.8200
(31 December
2021:
€
0.9500)
Share price
6,7
31 December 2022: £0.9200
(31 December
2021: £
1.0400
)
NAV per Share
31 December 2022: €0.8902
(31 December
2021:
€
1.0266)
NAV per Share
31 December 2022: £0.9796
(31 December
2021:
£
1.1058)
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
5
FINANCIAL HIGHLIGHTS AND PERFORMANCE SUMMARY (CONTINUED)
The average discount since inception in 2013 for the Euro share and Sterling share is 2.76% and 2.89% respectively.
For further information on the Company’s dividend history and total return metrics, please refer
to the supplementary financial information section on page 107.
1
NAV total return measures how the NAV per Euro Share and Sterling Share has performed over a period of time, taking into account both
capital returns and dividends paid to shareholders. This is a Key Performance Indicator (“KPI”), refer to page 20 for further details on how
NAV total return is calculated.
2
Dividend yield expresses the return that dividends represent as a percentage of the Company’s share price. Refer to page 111 for further
details on how dividend yield is calculated.
3
Dividend cover ratio calculated as the PEC income per share divided by the dividend per Euro and Sterling Share expressed as a ratio.
4
Dividend cover ratio calculated as the coupon income received by the Investment Vehicle for the Series 4 and 5 of Compartment A per
share divided by the dividend per Euro and Sterling Share expressed as a ratio.
5
The Company’s discount or premium is calculated by expressing the difference between the share price (bid price) and its NAV per share
as a percentage of its NAV per share. This is a KPI, refer to page 21 for further details on how the discount or premium is calculated.
6
Bid price
7
Source: Bloomberg
Dividend per Share
Dividend per Share
Euro Share Class
Sterling Share Class
Premium / Discount
5
Premium / Discount
5
7/12/2013
7/12/2014
7/12/2015
7/12/2016
7/12/2017
7/12/2018
7/12/2019
7/12/2020
7/12/2021
7/12/2022
7/12/2013
7/12/2014
7/12/2015
7/12/2016
7/12/2017
7/12/2018
7/12/2019
7/12/2020
7/12/2021
7/12/2022
-25.00%
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
-25.00%
-20.00%
-30.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
€ 0.00
€ 0.02
€ 0.04
€ 0.06
€ 0.08
2014 2015 2016 2017 2018 2019 2020 2021 2022
£0.00
£0.02
£0.04
£0.06
£0.08
2014 2015 2016 2017 2018 2019 2020 2021 2022
NAV vs Monitored Indices
0%
10%
20%
30%
40%
50%
60%
70%
Jun-13
Sep-13
Dec-13
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
Jun-17
Sep-17
Dec-17
Mar-18
Jun-18
Sep-18
Dec-18
Mar-19
Jun-19
Sep-19
Dec-19
Mar-20
Jun-20
Sep-20
Dec-20
Mar-21
Jun-21
Sep-21
Dec-21
Mar-22
Jun-22
Sep-22
Dec-22
Euro Shares total return % since inception
Sterling Shares total return % since inception
Credit Suisse Western European High Yield Index (hedged in Euros) Total Return
Credit Suisse Western European Levera
g
ed Loan Index (hed
g
ed in Euros) Total Return
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
6
STRATEGIC REPORT
CHAIRMAN’S STATEMENT
Introduction
I am pleased to have the opportunity to report to you on the Company’s performance and
activities in respect of the year ended 31 December 2022, to look forward to 2023, and to provide
some commentary on recent market events.
Performance
2022 was a difficult year for many risk asset classes as central banks entered a monetary policy
tightening phase in response to accelerating and increasingly persistent inflation. The full year
performance for the Euro and Sterling share classes showed net asset value per share declines
of 11.41% and 13.29% respectively. The detailed background to those performance numbers is
covered in great detail in the Investment Vehicle Manager’s report, and I will not repeat that
historic background here. The Company’s shares responded accordingly, as shown in the below
table:
Euro Shares
Sterling
Shares
Opening share price – 31 December 2021
0.9500
1.0400
Closing share price – 31 December 2022
0.8200
0.9200
Fall in nominal terms
0.1300
0.1200
Fall in percentage terms
13.68%
11.54%
Opening discount to NAV
7.46%
5.95%
Closing discount to NAV
7.88%
6.08%
Through February 2023, however, performance has been significantly positive, with year to date
gains in net asset value per share at €0.0417 (4.68%) (EUR class) and £0.0404 (4.12%) (GBP
class), with the Sterling share price discount to net asset value being largely eliminated. More on
the reasons for this below.
Current Market Conditions and Outlook
As I indicated in my statement accompanying the semi-annual results to 30 June 2022, I believe
the current market conditions are inherently attractive for the Company. I indicated that the
combination of increased credit spreads, taken together with increasing risk free rates on offer
by central banks, drive current yield on the underlying investment vehicle portfolio to levels not
seen for many years. At 28th February 2023, being the most recent published data available, yield
to maturity of the underlying Investment Vehicle portfolio was 17.3% (€ hedged) / 19.0% (GBP
hedged) and running cash yields of 11.5% (EUR hedged) /13.1% (GBP hedged) are being achieved.
These are very significant numbers. Floating rate instruments at that date comprised 83.2% of the
portfolio. Current economic conditions and inflation data appear to indicate, both in Europe and
the United States, a “higher for longer” expectation for risk free rates, thus indicating continual
favourable conditions for the underlying portfolio as the Investment vehicle Manager continued
to deploy capital to fresh positions with “built in” higher all-in rates.
Recent events in the banking sectors, both in the US and Europe, of course deserve special
mention. The root causes of the failure of Silicon Valley Bank, and the difficulties faced by First
Republic, are US centric, complex, technical and do not warrant comment here other than to
note that we assess them as having no direct or indirect effect on the Investment Vehicle portfolio
or our chosen asset class environment as a while. Credit Suisse’s troubles are different, more
driven by long terms problems in the senior management of the organisation, and whilst call
into question the commercial viability of the organisation as a whole, do not call into question its
solvency. So far so good. The difficulty, if there is one, is that banking sector stress generally drives
tighter credit conditions. Tighter conditions are per se attractive for the Company, as they drive
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
7
STRATEGIC REPORT (CONTINUED)
CHAIRMAN’S STATEMENT (CONTINUED)
credit spreads higher, feeding through positively to the yield to maturity and running cash yields
that I mentioned earlier. The inverse of this is that central bank reactions are naturally to adopt
an easing bias when considering the direction of future risk-free rates. Currently, and has been
observed by many economic commentators, central banks will struggle to position this way given
that they have arguably fallen behind the curve in seeking to tame inflation through increases in
risk-free rates, and would need to keep such rates higher for longer in order to have the desired
monetary policy effects. Chris Giles wrote in the Financial Times just before Christmas that central
bankers will, in 2023, need “nerves of steel and the hides of rhinos”. They face significantly greater
difficulties now.
I mention all of this because I am sure that investors in the Company will want to understand how
the Board sees the short to medium term future given recent events. Our base case, which is that
relevant risk-free rates will remain at or around current levels through 2022, and credit spreads
will remain elevated, remains unchanged.
When I say “relevant”, I exclude UK rates, which are likely to show a materially softer performance
than other developed markets due to the ongoing damage caused by the effects of Brexit and
government missteps, because the underlying portfolio’s geographical exposure to the UK is only
28% of the whole, and in practice is even less than that, given that both Doncasters and Wella,
being both UK issuers and totalling together 8.75% of the portfolio at 28th February 2023, are
global businesses with only a small fraction of their revenues being earned in the UK.
A necessary caveat to our base case is that it would not be surprising to see further pockets of
stress arising in other parts of the financial markets, particularly within more highly leveraged
market participants, which could exacerbate the dilemmas facing central banks and upend
markets again, with unforeseeable consequences. Investors should be alive to this and monitor
markets carefully in order to ensure that their portfolios are properly positioned and nimble.
Corporate Activities & Liquidity
The Company’s structural changes which were announced, voted on and implemented in the first
half of 2022 have now bedded down and are operating as expected. No further material changes
are envisaged, and no special business will be introduced at this year’s Annual General Meeting.
Distribution Policy
Shareholders will have seen a number of recent announcements by the Company in relation to
distribution policy. The continued positive trends in the yield metrics that I mentioned above have
enabled the Board to again raise the Company’s quarterly dividend and also to pay a specially
enhanced dividend in respect of the fourth quarter of 2022. At the current nominal target dividend
levels of 7.0c per Euro share and 7.5p per Sterling share for 2023, the Company’s Euro and Sterling
shares offer a cash yield of around 8% and 7.5% respectively. No changes to these levels are
anticipated for at least the next 12 months.
Conclusion
These are very positive times for the Company, and the Board is excited by current prospects. That
said, we are keeping a close eye on the financial system and its key actors.
Beyond what I have set out above, the Company’s Directors have also been active, as always, in
a number of key corporate areas, including enhancing the Company’s approach to responsible
investing, dealing with auditor tenders, and considering the current’s Board’s composition and
tenure. I urge you to read the individual reports which cover these matters in more detail. I would
like to take the opportunity to thank my co-Directors, the portfolio management team at the
Current Market Conditions and Outlook (continued)
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
8
STRATEGIC REPORT (CONTINUED)
CHAIRMAN’S STATEMENT (CONTINUED)
Investment Vehicle Manager, our advisors and investment bankers for their wise counsel, hard
work, diligence and support during the year.
I look forward to providing shareholders with further updates, and invite the expression of views
and opinions about the Company, to be directed to the usual contact points.
Richard Boléat
Chairman
Conclusion (continued)
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
9
STRATEGIC REPORT (CONTINUED)
INVESTMENT VEHICLE MANAGER’S REPORT
Summary
2022 was a tough year for most asset classes, with the S&P 500 recording its worst annual
performance since 2008
a
. The traditional 60/40 portfolio, with 60% equities and 40% bonds,
recorded a loss of 17% in 2022, the worst performance since at least 1999. The inverse correlation
between equities and bonds broke down as both asset classes had negative returns in 2022
b
. There
were a number of drivers behind this negative performance across the board. First of all, central
banks worldwide acknowledged early on in 2022 that inflation was more than just transitory.
Most central banks globally, including the Federal Reserve, European Central Bank (“ECB”) and
Bank of England (“BoE”) were all behind the curve and had to hike interest rates aggressively
during 2022 to fight high single digit/low double digit inflation. Secondly, the Russian invasion
of Ukraine caused, on top of the human tragedy, an economic fall-out which mainly impacted
Europe and Emerging Markets. Many countries were quick to impose sanctions on Russia, but as
a large exporter of commodities (mainly food and energy), the situation drove global inflation to
new highs. As tensions between Russia and Europe/US rose, the gas flows from Russia to Europe
stopped, resulting in a large spike in European natural gas prices and driving Europe into an
energy crisis. Finally, in Q4, the mini-budget in the UK led to more volatility in financial markets
and the BoE had to step in to avert a systemic risk from spreading.
If we focus on the performance of European credit in general, we can see that leveraged loans held
up very well compared to other asset classes. European investment grade returned (17.2)%
c
for the
year while High Yield returned (11.6)%
d
. The European leveraged loan market returned (3.3)%
e
as
the lack of duration and increasing coupon income drove the relative outperformance for loans.
When we dig deeper into the performance of the Credit Suisse Western European Leveraged Loan
Index (“CS WELLI”), hedged to EUR, we note that BB rated loans actually returned 0.42% for the
year, while single B rated loans returned (3.2)% and CCC rated loans returned (20.94)%. The
average price on the index dropped from 98.71 at the end of 2021 to 91.56 at the end of 2022,
having hit a low of 89.98 at the end of September.
The sell-off we saw in the sub-investment grade market was partially a result of the deteriorating
macro outlook, as described above, but also due to market technicals. Over the year, we saw
forced selling from two corners of the market. On the back of 2021’s significant mergers and
acquisitions, banks came into 2022 with a large pipeline of underwritten bridge loans, which on
internal estimates stood at €30-35bn at the time Russia invaded Ukraine. With collateralised loan
obligations (“CLO”) issuance grinding to a halt, and outflows from multi-asset funds occurring,
demand for broadly syndicated loans dried up. Banks were forced to syndicate these bridge loans
at material losses and this put pressure on secondary loan prices. Secondly, on the back of Kwasi
Kwarteng’s mini-budget in the UK, we saw forced selling from UK liability-driven investment
(“LDI”) pension funds of, amongst others, CLO liabilities, ranging all the way from AAAs to single
B’s. After a difficult few months on the back of the Russia-Ukraine conflict, the CLO market
had found an equilibrium between supply and demand over the summer. However, this renewed
volatility, driven by LDI sellers, yet again put a halt on CLO creation and hence loan buyers again
backed away from the secondary market. To put this into context, pricing on AAA liabilities was in
the 95-110 bps range at the end of January 2022, peaked at 225-275 bps just after the UK’s mini-
budget, and finished the year in the region of 180-210 bps
f
.
On the fundamental side, we did see a marginal deterioration in credit quality, in particular for
companies that struggled to pass on raw material/labour cost inflation. However, default rates
remained very low with the CS WELLI recording 1.9% defaults at the end of 2022. With the index,
hedged to EUR, showing an average cash price of 91.56 and a 3yr discount margin of 661 bps, the
loan market has rarely been cheaper. Moreover, the increase in base rates we saw during 2022
provides investors with additional buffer in case defaults were to pick up in 2023. In July, 3 month
Euribor went positive for the first time since early 2015, making the 0% floor, that most loans
have, irrelevant for the first time in 7 years.
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
10
STRATEGIC REPORT (CONTINUED)
INVESTMENT VEHICLE MANAGER’S REPORT (CONTINUED)
Portfolio
As at 31 December 2022, the Investment Vehicle portfolio was invested in accordance with the
investment policy, was diversified with 91 issuers
1
(31 December 2021: 107) across 26 (31 December
2021: 29) different industries and 14 (31 December 2021: 17) different countries, and had exposure
of no more than 5.8% (31 December 2021: 5.3%) to any single issuer.
Portfolio Statistics
2
As at
31 December
2022
As at
31 December
2021
Percentage of Portfolio in Floating Rate Assets
85.6%
78.1%
Percentage of Portfolio in Fixed Rate Assets
11.3%
20.5%
Percentage of Portfolio in Other
3.1%
1.4%
Weighted Average Price
3
83.6
96.5
Yield to Maturity (“YTM”)
EUR
18.5%
7.0%
GBP
20.2%
n/a
4
Current Yield
EUR
11.5%
6.6%
GBP
13.2%
n/a
4
Weighted Average Fixed Rate Coupon
6.6%
6.3%
Weighted Average Floating Rate plus Margin
7.1%
4.9%
5 Largest Issuers as at 31 December 2022
Issuer
% of Gross
Assets
Industry
Country
Doncasters
5.8
Diversified/Conglomerate Manufacturing
UK
Ekaterra
3.4
Beverage & Food
Netherlands
Civica
3.2
Software
UK
Wella
3.2
Non-Durable Consumer Goods
UK
Drive DeVilbiss
2.6
Healthcare & Pharmaceuticals
US
5 Largest Issuers as at 31 December 2021
Issuer
% of Gross
Assets
Industry
Country
Doncasters
5.3
Diversified/Conglomerate Manufacturing
UK
Colouroz
3.7
Chemicals, Plastics and Rubber
Germany
Civica
3.4
Electronics
UK
D&G
2.5
Financial Intermediaries
UK
Douglas
2.4
Retail
Germany
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
11
STRATEGIC REPORT (CONTINUED)
INVESTMENT VEHICLE MANAGER’S REPORT (CONTINUED)
Portfolio Statistics
2
(continued)
5 Largest Industry Positions as at 31 December 2022
1
Healthcare & Pharmaceuticals
12.5%
Beverage & Food
9.7%
Chemicals
8.4%
Travel & Leisure
7.8%
Business Services
6.7%
5 Largest Industry Positions as at 31 December 2021
1
Healthcare & Pharmaceuticals
16.6%
Chemicals, Plastics and Rubber
9.7%
Hotels, Motels, Inns and Gaming
7.2%
Finance
5.7%
Diversified/Conglomerate Manufacturing
5.5%
Geographical Breakdown by issuer country
1
As at
31 December
2022
As at
31 December
2021
UK
30.2%
25.4%
US
21.0%
20.9%
Netherlands
13.2%
11.0%
Germany
10.4%
13.5%
France
9.2%
11.6%
Luxembourg
4.8%
3.3%
Spain
3.8%
2.7%
Finland
1.6%
2.3%
Sweden
0.0%
0.7%
Other
5.8%
8.6%
Currency Breakdown
As at
31 December
2022
As at
31 December
2021
EUR
60.1%
60.3%
USD
20.3%
23.5%
GBP
19.6%
16.2%
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
12
STRATEGIC REPORT (CONTINUED)
INVESTMENT VEHICLE MANAGER’S REPORT (CONTINUED)
Portfolio Statistics
2
(continued)
Asset Breakdown
As at
31 December
2022
As at
31 December
2021
Loans (1st Lien)
62.3%
59.0%
Senior Secured Bonds
11.4%
19.1%
Loans (2nd Lien)
6.5%
7.7%
Structured
8.5%
3.7%
Senior Unsecured Bonds
2.6%
3.5%
Cash
(0.3)%
(0.3)%
Other
9.0%
7.3%
1
Excludes 41 (31 December 2021: 18) structured finance positions.
2
Note: all metrics exclude cash unless otherwise stated.
3
Average market price of the portfolio weighted against the size of each position.
4
Limited interest rate differential between Euribor and SONIA in 2021, therefore no separate computation made for the
GBP share class.
Performance
The Euro Shares and Sterling Shares NAV total returns for 2022 were (8.31)% (31 December 2021:
11.41%) and (6.75)% (31 December 2021: 12.17%), respectively.
The performing credit segment of the portfolio returned (6.64)% gross
5
during 2022 (31 December
2021: 6.23%), while the credit opportunities segment returned (7.05)% gross during 2022
(31 December 2021: 22.21%). Based on an average allocation of 49% (31 December 2021: 47%)
to performing credit and 51% (31 December 2021: 53%) to credit opportunities, this resulted in
a gross contribution of (3.09)% (31 Dec 2021: 2.85%) from the performing credit segment and
(3.61)% (31 Dec 2021: 11.79%) from the credit opportunities segment.
The CS WELLI, hedged to EUR, was down (3.28)% for 2022, as compared to being up 4.63% for the
year ended 31 December 2021. The Credit Suisse Western European High Yield Index (“CS WEHYI”),
hedged to EUR, was down (11.64)% for 2022, as compared to being up 4.04% for the year ended
31 December 2021.
Market Review
The loan market experienced, similar to most other asset classes, heightened volatility during
2022. There were a number of drivers behind this volatility. In the early stages of 2022, central
banks worldwide started turning more hawkish and guided towards considerable interest rate
hikes during the year. This resulted in some risk reduction in the European High Yield market and
some CLO managers saw this as an opportunity to sell loans and buy high yield bonds.
Towards the end of February, when Russia invaded Ukraine, the global macro outlook took a turn
for the worse and the repercussions of the war were initially difficult to estimate, which resulted
in loan managers selling some lower rated loans to switch into higher rated loans. At the time of
the invasion, banks had a large underwritten pipeline of deals that they were planning to bring
to market. While initially banks held this risk on their balance sheet, we started seeing some
forced selling from banks as their risk departments forced them to reduce some of this risk ahead
of their H1 2022 reporting. The same banks forced their loan market traders to reduce overall
exposure to the European loan market, which resulted in further forced selling.
5
Excluding management and performance fees.
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
13
STRATEGIC REPORT (CONTINUED)
INVESTMENT VEHICLE MANAGER’S REPORT (CONTINUED)
Finally, the CLO market also saw increased volatility across all parts of the capital structure as
per the table below. This volatility came from a combination of fears around rising defaults in
Europe, but also from forced selling from UK pension funds on the back of the UK’s mini budget in
September 2022. With the CLO vehicles still accounting for the large majority of the buyer base in
the European broadly syndicated loan market, the volatility in the liabilities meant CLO managers
put their buying of loans on hold.
2022
Tights
2022
Wides
2021
Tights
2021
Wides
2020
Wides
End of Feb
2020
2016
Wides
2018
Tights
AAA
95-110
225-275
105-120
125-145
300-400
130-150
175-200
50-75
AA
155-195
350-425
150-190
170-220
500-700
H100s
300a
L100s
A
195-260
525-625
190-245
240-290
650-850
M200s
400a
H100s
BBB
285-370
650-775
275-345
315-450
850-1000
L400s
550-700
200s
BB
540-670 1025-1225
515-635
575-750 1300-1500+ L600s-L800s 850-1050
400s
Spreads tracker (Morgan Stanley Trading Desk Source)
Morgan Stanley EU Leveraged Loan Review – End of Year 2022 Commentary – January 2023
The combination of rates-driven volatility in the European and US High Yield markets, a worsening
macro environment, forced selling from banks (both on the primary and secondary side) and a
lack of buyers due to volatility in the CLO market, meant that European loans had a much more
volatile year than most investors had expected at the start of 2022.
However, actual default rates remained fairly benign in 2022. With yields on European loans
having only been higher during the global financial crisis and briefly during the Covid sell-off of
2020, and an improving macro outlook, the Investment Vehicle Manager believes that European
loans are attractive at the moment.
Portfolio Overview
The performance for 2022 was obviously disappointing with the first negative return since
inception of the strategy in 2009. However, very few asset classes generated positive returns in
2022 given the heightened volatility described above.
The Investment Vehicle Manager focused mainly on higher quality businesses. The average
EBITDA of the portfolio was €294m as the Investment Vehicle Manager believes that default rates
amongst larger businesses should be lower than for smaller businesses. Larger businesses have
more diversified sources of funding (banks, syndicated loans, high yield bond market both in
Europe and the US), they tend to attract better management teams, are more geographically
diversified and often have private equity owners with considerable dry powder to invest.
The split between performing credit and credit opportunities was around 50/50 for most of the
year. With exceptionally wide spreads in performing credit and considerable macro uncertainty,
there was no real need to increase exposure to credit opportunities materially. However, on the
back of the UK’s mini-budget, we saw some forced selling of CLO liabilities mainly from UK
pension funds and used that market technical to increase exposure to this asset class from 4% at
the end of 2021 to 9% at the end of 2022.
Across the entire portfolio, as of December month end, the weighted average market price was
83.6, trading at a YTM of 18.5% on the EUR share class and 20.2% on the GBP share class. This
compares to a weighted average market price of 96.5 at the end of December 2021. Floating rate
assets comprised 85.6% of the portfolio, and hence the YTM on both the EUR and GBP share class
should continue to increase if, as anticipated, the ECB and BoE hike base rates further in 2023. At
the end of December 2022, the fund had a cash position of (0.3)% with leverage (being market
value of assets plus cash divided by the market value of assets plus cash less borrowings) of 1.38x,
Market Review (continued)
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
14
STRATEGIC REPORT (CONTINUED)
INVESTMENT VEHICLE MANAGER’S REPORT (CONTINUED)
up from 1.30x at the end of 2021, reflecting that the Investment Vehicle Manager marginally
added some leverage given the positive outlook for loans into the end of 2022.
Environmental, Social and Governance (“ESG”) Considerations
ESG remains a key focus for the Investment Vehicle Manager. CVC Group published its 2022 annual
ESG report (
www.cvc.com/responsibility/esg-reporting
), thereby providing greater insight into
how ESG is managed within the overall CVC group. The report looks at CVC’s view on themes that
are core to the evolving approach to sustainability and provides an update on progress over the
last 12 months.
The Investment Vehicle Manager introduced its proprietary ESG scorecards in 2022. These
ESG scorecards allow the Investment Vehicle Manager to better compare ESG metrics and
characteristics across its investments.
The Investment Vehicle Manager also partnered with Sustainable Fitch. As of 31 December 2022,
over half
6
of the Investment Vehicle’s underlying investments were covered by Sustainable Fitch.
Conclusion and Outlook
2022 was one of the worst years for credit markets since the global financial crisis. Rampant
inflation, geopolitical tensions and an energy crisis created high levels of uncertainty in financial
markets and volatility spiked. Traditional correlations broke down and a considerable number of
asset classes experienced their worst performance in many years.
With rising base rates, the Investment Vehicle Manager was well positioned with 78.1% of the
portfolio in floating rate instruments at the start of 2022. However, when on 24 February 2022
Russian tanks crossed the Ukrainian border, both equities and credit were up for sale as uncertainty
spiked. A full-blown war in such close proximity to Europe created several new unknowns that
many investors had never had to contend with before.
There was significant volatility in European loans as investors repositioned their portfolios to move
up in quality. However, actual default rates in Europe remained low at 1.90%
e
of the market.
At the time of writing, in February 2023, there remains a great deal of uncertainty. However, there
are some green shoots. Inflation appears to have peaked in most developed countries. The pace
of interest rate hikes has slowed in the last few months and Europe appears to have ample gas
reserves to see through the winter. The combination of a relatively mild winter, new sources of gas
supply (mainly liquefied natural gas), but additionally structural drivers such as demand curbs
and large investments in renewable energy means that the outlook for Europe is likely better than
a large number of people may have feared when Russia shut down gas supply to Germany.
European loans started 2023 at attractive valuations. The average cash price on the CS WELLI,
hedged to EUR, was at 91.56, the 3yr discount margin was 661 bps and base rates were well into
positive territory for the first time since 2015. In the last 10 years, the average cash price has
only been lower during the global financial crisis and briefly during Covid in 2020, and hence the
market is already discounting a material spike in default rates. In S&P’s annual study, it found
that recovery rates on first lien senior secured loans over the 2003-2021 period were 72.5%, while
in 2021 the three-year rolling average recovery was about 70%
g
. This implies that the downside
for first lien senior secured loans is fairly low even if there is an event of default. As a result, the
Investment Vehicle Manager believes that leveraged loans are well positioned for a recovery in
2023.
6
Excludes CLO positions and restructured equity and preferred equity.
Portfolio Overview (continued)
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
15
STRATEGIC REPORT (CONTINUED)
INVESTMENT VEHICLE MANAGER’S REPORT (CONTINUED)
CVC Credit Partners Investment Management Limited
Investment Vehicle Manager
Pieter Staelens
Managing Director, Portfolio Manager
27 March 2023
Pieter Staelens joined CVC in 2018. He is a member
of the Performing Credit team and based in London.
Prior to joining CVC, he worked at Janus Henderson
Investors in London where he was involved in various
high yield strategies and a credit long/short strategy.
Pieter is a graduate of the Université Catholique de
Louvain in Belgium. He also holds an MSc in Finance,
Economics and Econometrics from the Cass Business
School and an MBA from the University of Pennsylvania.
Past performance is not indicative of future results. There can be no assurance that the Investment Vehicle will be able to
implement its investment strategy, achieve its investment objective or avoid substantial losses.
The indices referred to herein (including the Credit Suisse Western European High Yield Index hedged to Euro and the Credit
Suisse Western European Leveraged Loan Index hedged to Euro) are widely recognised, unmanaged indices of market
activity and have been included as general indicators of market performance. The Credit Suisse Western European High
Yield Index is a market cap weighted benchmark index designed as an objective proxy for the investable universe of the
Western European high yield debt market. The Credit Suisse Western European Leveraged Loan indices are designed to
mirror the investable universe of the Western European leveraged loan market. There are significant differences between
the types of investments made or expected to be made by the Investment Vehicle and the investments covered by the
indices, and the methodology for calculating returns. For example, the Credit Suisse Western European High Yield Index
does not take transaction costs (bid-offer spreads) into account and for the month during which a coupon is paid, the
cash flow is reinvested at a fixed money-market rate until the end of the month. Additionally, the Credit Suisse Western
European Leveraged Loan Index assumes that coupon payments are reinvested into an index at the beginning of each
period. In contrast, the Investment Vehicle Manager may have discretion whether to reinvest such payments during any
relevant investment period. It should not be assumed that the Investment Vehicle will invest in any specific equity or debt
investments, such as those that comprise the indices, nor should it be understood that there will be a correlation between
the Investment Vehicle’s returns and those of the indices. It should not be assumed that correlations to the indices based
on historical returns will persist in the future. No representation is made that the Investment Vehicle will replicate the
performance of any of the indices. The indices are included for general, background informational purposes only and
recipients should use their own judgment to appropriately weight or discount their relevance to the Investment Vehicle.
Sources
a
Bloomberg
b
Financial Times – 11 January 2023
c
Bloomberg EuroAgg Index
d
Credit Suisse Western European High Yield Index
e
Credit Suisse Western European Leveraged Loan Index
f
Morgan Stanley EU Leveraged Loan Review – End of Year 2022 Commentary – January 2023
g
S&P Global - European Corporate Recoveries 2003-2021: Stability prevails despite the pandemic – 31 May 2022
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
16
STRATEGIC REPORT (CONTINUED)
EXECUTIVE REPORT
This Executive Report is designed to provide information about the Company’s business and
results for the year ended 31 December 2022. It should be read in conjunction with the Chairman’s
Statement and the Investment Vehicle Manager’s report which gives a detailed review of
investment activities for the year and an outlook for the future.
Corporate summary
incorporated in Jersey
are denominated in Euro and Sterling respectively. The Company’s Euro Shares and Sterling Shares
are listed on the Official List of the UK Listing Authority and admitted to trading on the Main
Market of the London Stock Exchange. The Company also has two Management Shares in issue,
which are unlisted. Details of the shares in issue are detailed on page 38.
The Company’s assets are managed by its own Directors, thus self-managed. The Directors of the
Company have invested the net proceeds from share issues into Compartment A of an existing
European credit opportunities investment vehicle, CVC European Credit Opportunities S.à r.l. (the
“Investment Vehicle”), managed by the Investment Vehicle Manager.
The Company is a member of the Association of Investment Companies (“AIC”) and the European
Leverage Finance Association (“ELFA”). The Company is regulated by the Jersey Financial Services
Commission (“JFSC)”.
Significant events during the year ended 31 December 2022
Director appointments
On 11 January 2022, Vanessa Neill was appointed as a Non-Executive Director of the Company.
Ms Neill has since been appointed as Chair of the Company’s ESG Committee established on
24 January 2022.
On 23 September 2022, Esther Gilbert was appointed as a Non-Executive Director of the Company.
Ms Neill’s and Ms Gilbert’s biographies can be found on pages 35 to 37.
AGM and strategic review update
On 9 March 2022, the Company announced that the Board was considering making certain changes
that the Board believed would increase the Company’s appeal to both existing shareholders and
new investors, and that it intended to consult with shareholders through its advisers.
On 22 April 2022, the Company announced that following consultation with shareholders
representing a significant proportion of the Company’s shares, the Board had included the
following proposals for the consideration and approval of shareholders at its AGM on 18 May 2022:
z
Tender mechanism:
changing the structure of the tender mechanism, moving from a
quarterly to a semi-annual structure with a 25.00% annual limit and a 15.00% semi-annual
limit, instead of a 50.00% annual limit and 24.99% quarterly limit as in previous years;
z
Share conversions:
changing the frequency of the Company’s share conversions from
monthly to semi-annual;
z
Company name:
changing the name of the Company to CVC Income & Growth Limited
from CVC Credit Partners European Opportunities Limited;
z
Investment policy:
amending the Company’s investment policy to increase the restriction
on allocation to collateralised loan obligation securities from 7.50% to 20.00%;
z
Articles of Association (the “Articles”):
making certain amendments to the Company’s
Articles relating to Board composition; and
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
17
STRATEGIC REPORT (CONTINUED)
EXECUTIVE REPORT (CONTINUED)
z
Share issuance authorities:
seeking authority to issue an additional 300 million shares,
conditional on the launch of a share issuance programme, in addition to the usual
authorities previously obtained.
On 18 May 2022, all of the resolutions proposed at the Company’s AGM were duly passed. The
change to the Company’s name came into effect on 13 June 2022, as announced by the Company
on this date.
Extraordinary General Meeting (“EGM”)
On 19 August 2022 the Company published notice of an EGM that was to be held on 7 September
2022, together with an accompanying circular and new Articles being proposed for the approval
of shareholders. The proposed new Articles primarily included amendments to, or the removal of,
existing provisions within the Articles which were inconsistent with an amendment to the Articles
approved at the AGM. The aforementioned amendment removed the prohibition on having a
majority of UK tax resident Directors so as to enable the Company and its shareholders to appoint
the most suitable candidates as Directors. The new Articles had been drafted to ensure that the
Company is not unnecessarily restricted in circumstances where a majority of the Directors are
resident in the UK and the Company holds meetings in the UK.
Tender mechanism
The Company completed the following tenders under its contractual tender mechanism during
the period. All of the shares tendered were transferred into the Company’s name and held in
treasury.
Contractual
tender
Settlement
date
Euro Shares
tendered
Euro Share
tender price
Sterling
Shares
tendered
Sterling
Share
tender price
December 2021
16/02/2022
6,167,976
€1.0166
10,918,578
£1.0958
March 2022
17/05/2022
852,436
€0.9979
3,490,001
£1.0789
September 2022
16/11/2022
2,658,322
€0.8884
4,049,381
£0.9705
At the Company’s Annual General Meeting (“AGM”) on 18 May 2022, shareholders approved a
revised tender circular; refer to the ‘AGM and Strategic Review Update’ section on pages 16 to 17
which details the primary changes made.
A description of the current tender mechanism can be found on pages 101 to 102.
Share conversions
Following requests made by shareholders, the Company converted a total of 5,660,302 Euro
Shares into 5,692,752 Sterling Shares and 295,233 Sterling Shares into 298,964 Euro Shares under
the conversion facility during the year ended 31 December 2022.
Dividends
On 21 September 2022 the Board announced that the Company had increased its annual dividend
by 20% to 6 pence per Sterling Share and 6 cents per Euro Share, with effect from the dividend
payments for the quarter ended 30 September 2022. On 7 March 2023, the Board announced
that the Company’s annual dividend targets are being increased to 7.5p per ordinary Sterling
Share and 7c per ordinary Euro Share with immediate effect. The Company’s distribution policy is
reviewed on an ongoing basis.
Significant events during the year ended 31 December 2022(continued)
AGM and strategic review update (continued)
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
18
STRATEGIC REPORT (CONTINUED)
EXECUTIVE REPORT (CONTINUED)
The Company paid four dividends totalling €0.0525 and £0.0525 per Euro share and Sterling share,
respectively, during the year ended 31 December 2022. Refer to note 12 for full details of each
quarterly dividend (31 December 2021: €0.0475 and £0.0475).
Purpose
The Company is an investment company, and its scope is restricted to that activity. In that context,
the Company’s purpose is to provide investors with sustainable long-term returns by investing in
a diversified portfolio of principally European corporate debt. In fulfilling the Company’s purpose,
the Board seeks to consider the views of all stakeholders and is mindful of the impact that the
Company has on wider society.
Investment Objective
The Company’s investment objective is to provide shareholders with regular income returns and
capital appreciation from a diversified portfolio of predominantly sub-investment grade European
corporate debt instruments.
Investment Policy
The Company’s investment policy is to invest predominantly in debt instruments issued by
companies domiciled, or with material operations, in Western Europe across various industries.
The Company’s investments are focused on the senior secured obligations of such companies, but
investments are also made across the capital structure of such companies.
The Company pursues its investment policy by investing all of its assets, save for a working capital
balance, in the Investment Vehicle. The investment policy of the Investment Vehicle is subject to
the following limits (the “Investment Limits”):
z
A minimum of 50% of the Investment Vehicle’s gross assets will be invested in senior secured
obligations (which, for the purpose of this Investment limits will include cash and cash
equivalents);
z
A minimum of 60% of the Investment Vehicle’s gross assets will be invested in obligations of
companies/borrowers domiciled, or with material operations, in Western Europe;
z
A maximum of 7.5% of the Investment Vehicle’s gross assets will be invested at any given
time in obligations of a single borrower subject to a single exception at any one time
permitting investment of up to 15% in order to participate in a loan to a single borrower,
provided the exposure is sold down to a maximum of 7.5% within 12 months of acquisition;
z
A maximum of 20% of the Investment Vehicle’s gross assets will be invested in collateralised
loan obligation securities; and
z
A maximum of 25% of the Investment Vehicle’s gross assets will be invested in CVC Capital
Portfolio Company
3
debt obligations calculated as invested cost as a percentage of the
Investment Vehicle’s gross assets.
The Investment Vehicle is permitted to borrow up to an amount equal to 100% of the NAV of the
Investment Vehicle at the time of borrowing. The Investment Vehicle’s borrowings as a percentage
of the Investment Vehicle’s NAV
1
as at 31 December 2022 stood at 35.01% (31 December 2021:
30.29%).
General
The investment objective and investment policy of the Investment Vehicle are consistent with
the investment objective and investment policy of the Company. In the event that changes are
Significant events during the year ended 31 December 2022(continued)
Dividends (continued)
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
19
STRATEGIC REPORT (CONTINUED)
EXECUTIVE REPORT (CONTINUED)
made to the investment objective or investment policy of the Company or of the Investment
Vehicle (including the “Investment Limit” and/or the “Borrowing Limit”), the Directors will seek
shareholder approval for changes which are either (a) material in their own right or, (b) when
viewed as a whole, together with previous non-material changes, constitute a material change
from the published investment objective or policy of the Company. This action was completed
with the proposed change to the investment policy which received approval at the Company’s
AGM on 18 May 2022, as outlined on pages 16 to 17.
Company borrowing limit
The Company may borrow up to 15% of the NAV of the Company for the sole purpose of purchasing
or redeeming its own shares otherwise than pursuant to its tender mechanism. As at 31 December
2022, the Company did not have any borrowings (31 December 2021: no borrowings).
Investment strategy and approach
The Company has given effect to its investment policy by subscribing for Preferred Equity
Certificates, (the “PECs”), Series 4 and 5, issued by the Investment Vehicle. Series 4 and 5 PECs
are denominated in Euro and Sterling, respectively, and are income distributing.
The Investment Vehicle Manager’s investment strategy for the Investment Vehicle is to make
investments across approximately 40 to 60 companies based on detailed fundamental analysis
of the operations and market position of each company and its capital structure.
The Investment Vehicle Manager invests in the debt of larger companies and invests in companies
with a minimum EBITDA of €50 million or currency equivalent at the time of investment. The
Investment Vehicle Manager believes that the debt of larger companies offers a number of
differentiating characteristics relative to the broader market, including:
(i)
larger, more defensive market positions;
(ii) access to broader management talent;
(iii)
multinational operations which may reduce individual customer, sector or geographic risk
and provide diverse cashflow;
(iv)
levers such as working capital and capital expenditure which can be managed in the event
of a slowdown in economic growth; and
(v)
wider access to both debt and equity capital markets.
Based on the market opportunity, the Investment Vehicle Manager invests in a range of different
credit instruments across the capital structure of target companies (including, but not limited to,
senior secured, second lien and mezzanine loans and senior secured, unsecured and subordinated
bonds). Assets are sourced in both the new issue and secondary markets, using the sourcing
networks of the Investment Vehicle Manager and in certain circumstances the CVC Group
2
more
broadly. The Investment Vehicle Manager’s access to deals is supported by the network of contacts
and relationships of its leadership team and investment professionals, as well as the strong
positioning of the CVC Group in the European leveraged finance markets. CVC Capital Portfolio
Companies are some of the largest sponsor-led issuers of leveraged loan deals in Europe
4
.
Each investment considered by the Investment Vehicle Manager is built around an investment
thesis and generally falls into one of two categories:
1.
Performing Credit
5
; and
2.
Credit Opportunities
6
.
Investment Policy (continued)
General (continued)
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
20
STRATEGIC REPORT (CONTINUED)
EXECUTIVE REPORT (CONTINUED)
The Investment Vehicle Manager analyses the risk of credit loss for each investment on the basis
it will be held to maturity but takes an active approach to the sale of investments once the
investment thesis has been realised.
Further information in respect of the Investment Vehicle portfolio and performance as at
31 December 2022 can be found in the Investment Vehicle Manager’s report on pages 9 to 15.
KPIs
The Board meets regularly to review performance and risk against a number of key measures. With
the exception of dividends, the Company considers the below KPIs to be Alternative Performance
Measures. Further details of these can be found on pages 107 to 112.
NAV total return
The Board regularly reviews and compares the NAV and share price of the Company. The Directors
regard the Company’s NAV total return as being the overall measure of value delivered to
shareholders over the long-term.
Total return reflects both NAV growth of the Company and also dividends paid to shareholders.
The NAV total return for Euro Shares and Sterling Shares has increased by 40.26% (31 December
2021 52.97%) and 51.88% (31 December 2021 62.87%), respectively, from IPO. The Euro Shares and
Sterling Shares NAV total return for the year ended 31 December 2022 was (8.31)% (31 December
2021: 11.41%) and (6.75)% (31 December 2021: 12.17%), respectively. Please refer to the Financial
Highlights and Performance Summary on page 4 for the Euro Shares and Sterling Shares NAV total
return analysis. The divergence in NAV per share performance between share classes principally
derives from the risk-free rate differential between Euro and Sterling.
Dividends
The Company’s annual dividend level at the year-end was €0.06000 and £0.06000 per Euro
Share and Sterling Share, respectively. This Company’s annual dividend targets have since been
increased to £0.07500 per Sterling Share and €0.07000 per Euro Share with effect from 7 March
2023. During 2022, Shareholders received total dividends of €0.05250 and £0.0525 (2021: €0.04750
and £0.04750) per Euro Share and Sterling Share, respectively. Please refer to page 107 for the
Company’s dividend history from inception.
Ongoing charges
The Board reviews and compares the Company’s operating expenses against budget on a monthly
basis and performs an analysis of deviations.
The Company’s ongoing charges for the year ended 31 December 2022 were 1.78% (ongoing charges
31 December 2021: 1.61%). The above ongoing charges figure includes the Company’s pro-rata
share of the Investment Vehicle management fee, custodian and administration expenses and
other general expenses, but excludes interest costs and performance fees. The ongoing charges
for the Company’s Euro and Sterling share classes individually are approximate to each other and
therefore the Company has chosen to disclose one ongoing charges figure.
In line with the recommended methodology for the calculation of an ongoing charges figure
published by the AIC (and most recently updated in April 2022), the Board has also chosen to
disclose an ongoing charges figure inclusive of the Investment Vehicle’s performance fee. However,
for the year ended 31 December 2022, there was no accrued performance fee. Additionally, the
Company announced on 17 February 2023 that it was notified by the Investment Vehicle that
the Investment Vehicle Manager had waived its future right to receive an Investment Vehicle
performance fee with effect from 1 January 2023.
Investment strategy and approach (continued)
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
21
STRATEGIC REPORT (CONTINUED)
EXECUTIVE REPORT (CONTINUED)
For the year ended 31 December 2022, the ongoing charges ratio was 1.80% for the Company’s
Euro Shares (31 December 2021: 2.86%) and 1.76% for the Company’s Sterling Shares (31 December
2021: 2.72%).
Premium/discount
The Directors review the trading prices of the Company’s Euro Shares and Sterling Shares and
compare them against their respective NAVs to assess volatility in the discount or premium of
the share prices to their NAVs. As at 31 December 2022, the Company’s discount to NAV per Euro
Share was 7.88% (2021: 7.46% discount) and discount to NAV per Sterling Share was 6.08% (2021:
5.95% discount), respectively. Please refer to the Financial Highlights and Performance Summary
on page 4 for NAV and share price analysis.
Please refer to pages 107 to 112 for further information on the calculation methodology applied
to these KPIs.
Other measures
In addition to the above KPIs, the Board meets regularly to review the performance and risk
against the below other measures:
Diversification
The Directors review the geographical, industry, asset and currency diversification of the
underlying Investment Vehicle to ensure that holdings are in line with the prospectus and also to
monitor the diversification risk of the underlying portfolio. Please refer to the Investment Vehicle
Manager’s Report on pages 9 to 15 for analysis of the Investment Vehicle portfolio and note 8 for
further details regarding the Investment Vehicle’s risk diversification policies.
Default rates in Europe and US
The Directors regularly discuss historic and emerging default risk in Europe and the US with the
Investment Vehicle Manager to help assess and understand the performance and prospective
performance of the Company. Performance of the Company may be affected by the default
or perceived credit impairment of investments held by the Investment Vehicle. A withdrawal of
investment capital, an economic downturn and/or rising interest rates could severely disrupt the
European and US markets which could impact the ability of issuers to repay principal and interest
and could adversely affect the value of the Company’s investment in the Investment Vehicle and
by extension, the Company’s NAV and/or the market price of the Company’s shares. As indicated
in the Investment Vehicle Manager’s report on page 9, actual default rates in Europe remained
low at 1.90% of the market. The Directors hold monthly discussions with representatives of the
Investment Vehicle Manager to assist in monitoring the above indicator.
Life of the Company
The Company has an indefinite life. In accordance with the Articles of Association, the Directors
are required to propose an Ordinary Resolution that the Company continues its business as a
closed-ended investment company (the “Continuation Resolution”) if the following occur:
(i)
the Company NAV falls below €75 million; or
(ii)
the Directors are required to convene “class closure meetings” for all classes of shares in
issue. A class closure meeting is required if a share class is delisted for any reason, or, if in
any rolling 12-month period, the average daily closing market price (as derived from the
market data published by Bloomberg or any successor market data service thereto) of any
class of shares during such 12-month period is 10% or more below the average NAV per share
(calculated inclusive of current year income).
KPIs (continued)
Ongoing charges (continued)
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
22
STRATEGIC REPORT (CONTINUED)
EXECUTIVE REPORT (CONTINUED)
If a Continuation Resolution is not passed, the Directors are required to put forward proposals
within six months for the reconstruction or reorganisation of the Company to the shareholders
for their approval.
These proposals may or may not involve winding up the Company and, accordingly, failure to
pass the Continuation Resolution will not necessarily result in the winding up of the Company.
A failure to pass a Continuation Resolution may result in the redemption by the Company of its
entire holding of PECs.
Going concern
Under the Listing Rules, the AIC Code of Corporate Governance (“AIC Code”) and applicable
regulations, the Directors are required to satisfy themselves that it is reasonable to assume that
the Company is a going concern as at the date of approval of the financial statements.
In making this assessment, the Directors have reviewed the Company’s budget and cash flow
forecast for the next 12 months from the date of approval of the financial statements and also
considered information regarding climate-related matters in conjunction with other uncertainties.
On the basis of this review, and after making due enquiries, the Directors have a reasonable
expectation that the Company has adequate resources to continue in operational existence
for the period to 27 March 2024, a period of twelve months form the date of approval of the
financial statements. The Directors are also satisfied that no material climate-related matters or
uncertainties exist that cast significant doubt over the Company’s ability to continue as a going
concern. In making this assessment, the Board have considered the impact that Covid-19 and the
Russian invasion of Ukraine may have on the Company. Accordingly, they continue to adopt the
going concern basis in preparing the interim condensed financial statements.
Viability Statement
Under the AIC Code, the Directors are required to make a Viability Statement which explains how
they have assessed the prospects of the Company, over what period they have done so and why
they consider that period to be appropriate, taking into account the Company’s current financial
position and principal risks. The principal risks faced by the Company are described on pages 26
to 29.
The prospects of the Company are driven by its investment objectives, investment policy and
investment strategy as summarised on pages 18 to 20, and also by the conditions existing in
the markets in which the Company’s ordinary shares trade and in which the Investment Vehicle
invests and financial markets generally.
In assessing the prospects of the Company, the Directors have, in addition to taking into account
the principal and emerging risks facing the Company, taken into account the Company’s current
financial position. Their assessment has included a robust process encompassing an examination
of the:
(i)
Investment Vehicle Manager’s view of the investment opportunity and the conditions existing
in the markets in which the Investment Vehicle is exposed and financial markets generally,
including scenario analysis, stress tests and volatility and return comparisons;
(ii)
liquidity and fundamental prospects of the underlying positions of the Investment Vehicle;
(iii) extent to which the Company directly or indirectly uses gearing;
(iv) liquidity of the PECs in which the Company invests; and
(v)
impact on the Company’s viability under scenarios stemming from the application of the
tender mechanism.
Life of the Company(continued)
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
23
STRATEGIC REPORT (CONTINUED)
EXECUTIVE REPORT (CONTINUED)
Based on the results of their assessment of the above processes, and in the absence of any
unforeseen circumstances, the Directors have concluded that a period of three years from
the date of this statement is an appropriate period over which to assess the prospects of the
Company as the principal risks, mitigating controls and investment strategy and policy are
not expected to materially change over this period. This period reflects the effect of significant
redemption requests received from shareholders under the tender mechanism, coupled with no
further issuances of ordinary shares by the Company, before a Continuation Resolution would be
proposed as a result of the NAV falling below €75 million.
The Directors have a reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due within at least this period of assessment. The
Directors are also of the opinion that given the information available to them at the date of these
financial statements, the Company will be able to continue to conduct its commercial activities
in a manner consistent with its investment objectives for the foreseeable future.
Social and environmental responsibility
The Board acknowledges that the Company, in addition to utilising financial capital, is also a user
of social capital, particularly in Jersey, the jurisdiction in which the Company operates. The Board
further acknowledges that the Company has an environmental footprint that is in addition to
and distinct from that of the Investment Vehicle and its portfolio companies. The Directors have
considered the Company’s use of social capital and the environmental impact of the operation
of the Company upon wider society and in response has commenced a programme of support in
favour of the Jersey National Park as further described on page 33. The Board has also established
an ESG Committee chaired by Vanessa Neill, details of which can be found on page 23.
Investment Vehicle Manager stewardship
Whilst the Investment Vehicle Manager does not formally commit to all 12 Principles of the FRC’s
Stewardship Code, certain aspects of the Code are crucial to its business activity.
Environmental, Social and Governance (“ESG”) Approach
The Company has identified the growing importance of responsible investment and integrating
ESG into the investment process. The Company recognises the importance of ESG and therefore
engages with the Investment Vehicle Manager in order to better understand and monitor ESG-
related risks and opportunities and to keep under review the Investment Vehicle Manager’s ESG
policies and practices.
Aware of evolving sustainability initiatives from European and UK regulators, legislation, industry
associations and the harmonisation of frameworks; the Company has prioritised the continued
progress in the development of its approach to ESG.
Governance
With effect from 24 January 2022 the Company established an ESG Committee, chaired by Ms Neill
who joined the Board with effect from 11 January 2022. Guided by its Terms of Reference, the ESG
Committee oversees the Company’s ESG disclosures and the ESG policies and processes adopted
by the Investment Vehicle Manager to enable the integration of ESG factors into the investment
process.
The Company has integrated ESG risks into its governance structure and continues to:
z
promote ESG as an item for Directors’ continued professional development in-line with the
Board’s belief that ESG risks and opportunities are key developments in the credit industry
that the Directors should keep up-to-date with;
Viability Statement (continued)
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
24
STRATEGIC REPORT (CONTINUED)
EXECUTIVE REPORT (CONTINUED)
z
include ESG factors as a priority agenda topic in regular discussions with the Investment
Vehicle Manager at each quarterly Board meeting;
z
receive ESG policy and regulation updates from its legal advisors with a view to continually
ensuring best practice.
ESG Strategy
The Investment Vehicle Manager’s ESG and investment policies mandate that the investment
management team includes material ESG considerations when reviewing an investment
opportunity and throughout the lifecycle of an investment.
The following issues are examples of potential material ESG considerations the Investment Vehicle
Manager takes into account throughout the investment process: environmental factors, including
climate change risk, biodiversity risk and water use; social factors, including Diversity, Equity
& Inclusion (“DEI”), health and safety practices, supply chain transparency and human rights;
and governance factors, including transparency and disclosure, compliance with applicable laws
and oversight bodies such as the FCA and European Commission. ESG and responsible investing
factors are considered at the following stages:
z
Investment selection – Consider high level and material ESG and responsible investing issues
as part of the overall due diligence process.
z
Investment Committee Process – ESG Considerations that are sufficiently material are
referenced in the investment committee memo. Such memos may also include a review
of environmental and social reports, of the issuers’ ESG policy and website disclosures, site
visits, management interviews, and discussions with key stakeholders noted during the
diligence process when appropriate. Material ESG Considerations are reviewed internally
by the respective Investment Committee, and as needed, the appropriate course of
action related to a material ESG Consideration will be cooperatively determined by such
Committee.
ESG Disclosure and Metrics
The EU Sustainable Finance Disclosures Regulation (“SFDR”) requires managers to assess and
disclose how sustainability risks are considered in their investment processes, and how they
consider investment decisions that might result in negative effects on sustainability factors,
known as Principal Adverse Impacts (“PAIs”). The EU SFDR does not have a direct impact in the
UK due to Brexit, however, it applies to third-country products marketed in the EU. Whilst CVC
Income & Growth Limited is a self-managed alternative investment fund (“AIF”), it is marketed
in the EU by CVC Credit Partners and therefore; the following disclosures have been provided to
comply with the high-level requirements of SFDR.
The Company continues to work toward reporting and disclosing the proportional operational
(Scope 1 and 2) greenhouse gas emissions of the investee companies that comprise the Investment
Vehicle investment portfolio along with metrics that evidence an intention to reduce these
emissions. The Company recognises the importance of value chain (Scope 3) emissions; however
due to the higher complexity of quantifying Scope 3, the Company will initially prioritise Scope 1
and 2.
The Company has been a formal supporter of the TCFD recommendations since 2018 and expects
the companies in which the Investment Vehicle Manager invests to consider TCFD disclosures in
jurisdictions where it is mandatory and to make improvements overtime where required.
Given the type and structure of the Company, the Company’s own impact is minimal. However,
the ESG Committee monitors the Company’s carbon footprint, including travel.
Environmental, Social and Governance (“ESG”) Approach (continued)
Governance (continued)
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
25
STRATEGIC REPORT (CONTINUED)
EXECUTIVE REPORT (CONTINUED)
Looking forward
The approach described above covers the assets of the Investment Vehicle. The Company
recognises that enhancements to this approach will be needed in areas where the data to conduct
the necessary analysis is currently limited, or where the tools available remain in a nascent stage
of development. These are challenges that the Company is working in collaboration with the
Investment Vehicle Manager to resolve and will continue to report on progress relating to ESG
in the Company’s Annual Report. In response to these challenges, the Company has laid out the
following steps to take its commitment further:
z
The Company has identified investors’ initiatives, such as the PRI’s Transition Pathway
Initiative, Sustainability Fitch ESG Scores and ELFA’s Industry ESG initiatives, to be important
avenues to increase its understanding and deepen its risk mitigation strategy.
z
The Company will continue to work with its external advisors as needed to continuously
develop its ESG strategy.
The Board continues to believe that the investment strategy and policy adopted by the Investment
Vehicle is appropriate for and is capable of meeting the Company’s current objectives.
It is the Board’s assessment that the Investment Vehicle Manager’s resources are appropriate to
properly manage the Investment Vehicle’s portfolio in the current and anticipated investment
environment.
This Strategic Report was approved by the Board of Directors on 27 March 2023 and signed on its
behalf by:
Richard Boléat
Mark Tucker
Chairman
Audit Committee Chairman
1
Pro-rated for the Company’s interest in the net assets of the Investment Vehicle of 52.04% as at 31 December 2022
(31 December 2021: 58.54%).
2
CVC Group being the Investment Vehicle Manager and CVC Credit Partners Group Holding Foundation, together with
its direct and indirect subsidiaries and their respective affiliates and excluding any funds managed and/or advised by the
CVC Group.
3
CVC Capital Portfolio Company means a company in which one or more CVC Capital Partners Funds: (i) has board
representation; (ii) holds more than 25 per cent of the share capital; or (iii) has an economic interest in excess of €100
million. CVC Capital Partners Fund means private equity funds that acquire controlling or significant minority interests
in European, Asian and North American companies which CVC Capital Partners provides investment advisory and/or
investment management services to.
4
Source: Morningstar LCD European Loan Pipeline, for the period between January 2017 and March 2022.
5
Performing Credit generally refers to senior secured loans and senior secured high yield bonds sourced in both the
primary and secondary markets. The investment decision is primarily driven by a portfolio decision around liquidity, cash
yield and volatility.
6
Credit Opportunities refers to investments where the Investment Vehicle Manager anticipates an event in a specific
credit situation is likely to have a positive impact on the value of its investment. This may include events such as a
repayment event before maturity, a deleveraging event, a change to the economics of the instrument such as increased
margin and/or fees or fundamental or sentiment-driven change in the value. The Investment Vehicle Manager seeks
relative value opportunities, which involve situations where market technicals have diverged from credit fundamentals
often driven by selling by mandate-constrained investors, CLO managers or hedge funds rebalancing their portfolios,
macro views affecting different credit instrument types or sales by banks. The Investment Vehicle Manager has additional
flexibility compared to mandate-constrained capital and believes these assets have potential for capital gains and early
cash flow generation based on the acquisition prices.
Environmental, Social and Governance (“ESG”) Approach (continued)
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
26
STRATEGIC REPORT (CONTINUED)
PRINCIPAL RISKS AND UNCERTAINITIES
When considering the distribution policy and total return of the Company, the Directors take
account of the risks which have been taken in order to achieve that return. The Directors have
carried out a robust assessment of the principal and emerging risks facing the Company including
those which would threaten its business model, future performance, solvency or liquidity. An
overview of the principal and emerging risks and uncertainties is set out below:
Since the publication of the Company’s Annual Financial Report for the year ended 31 December
2021, the key changes to the Company’s principal risks and uncertainties are as follows:
-
the removal of “Covid-19” as a principal risk, together with the removal of “Brexit”, which
the Company had included under the principal risk “Geopolitical factors”; and
-
the reclassification of “Default risk”, previously included as interest rate risk, and “ESG
matters” as principal risks, both of which were previously classified as emerging risks.
Principal Risks
Mitigating Factors
Supply and demand
The value of the investments in which the
Company indirectly invests are affected
by the supply of primary issuance and
secondary paper and the continued demand
for such instruments from buy side market
participants. A change in the supply of, or
demand for, underlying investments may
materially affect the performance of the
Company.
The Company has no control over the supply
and demand characteristics of the leveraged
finance markets. However, the Directors are in
regular communication with the Investment
Vehicle
Manager
and
receive
monthly
performance reports and independent data
to assist in monitoring the performance of
the Investment Vehicle and the supply and
demand characteristics of the asset class.
It is the Investment Vehicle’s performance
which is the main driver of the Company’s
performance.
Credit risk
The Investment Vehicle invests predominantly
in sub-investment grade European corporate
issuers and therefore credit risk is greater
than would be the case with investments in
investment grade issuers.
The Company and the Investment Vehicle
have Investment Limits and risk diversification
policies in place to mitigate individual issuer
credit risk. Please refer to page 18 for details
of the Investment Limits and the Investment
Vehicle Manager’s Report on pages 9 to 14 for
analysis of the Investment Vehicle portfolio.
Liquidity
The Company relies on the periodic redemption
mechanism offered by the Investment Vehicle
to realise its investment in PECs, and on
that mechanism operating in a timely and
predictable manner.
The Board holds periodic meetings at which
extensive
discussion
of
the
Investment
Vehicle’s portfolio takes place. This includes
consideration of portfolio liquidity. Please
refer to note 8.2 for further details.
The
Investment
Vehicle’s
underlying
investments
are
not
inherently
liquid.
Investments are generally bought and sold by
market participants on a bilateral basis and
any reduction in liquidity caused by a reduction
of demand or market dislocation may have a
negative impact on the Company’s ability to
effectively conduct its periodic redemption
activities.
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
27
STRATEGIC REPORT (CONTINUED)
PRINCIPAL RISKS AND UNCERTAINITIES (CONTINUED)
Principal Risks
Mitigating Factors
Foreign exchange risk
Foreign exchange risk is the risk that the
values of the Company’s and the Investment
Vehicle’s assets and liabilities are adversely
affected by changes in the values of foreign
currencies by reference to the Company’s
base currency, the Euro.
The effect of foreign exchange risk at the
Investment Vehicle level is actively managed
by the Board of the Investment Vehicle and
its advisors through hedging arrangements
as detailed in note 8.6. The Board monitors
the NAV per share divergence between the
Euro and Sterling share classes in order to
identify the impacts of the foreign exchange
movement and interest rate differentials
between the two share classes.
Macro-economic factors
Adverse macro-economic conditions may
have a material adverse effect on the
performance of the Investment Vehicle’s
underlying assets and liabilities and on the
ability of underlying borrowers to service their
ongoing debt obligations.
The Board is reliant on the active portfolio
management of the Investment Vehicle
Manager which monitors and manages each
investment on an ongoing basis. Part of this
monitoring
includes
considering
macro-
economic, credit specific, event-driven and
environmental and social factors in respect of
each investment. This analysis helps inform
the Investment Vehicle Manager’s decision
to buy, sell or hold each investment. The
Directors are in regular communication with
the Investment Vehicle Manager and receive
monthly performance reports to assist in
monitoring these factors.
Changes in the level of short-term risk-free
rates in the Company’s chosen markets has a
direct impact, both positively and negatively,
on
the
performance
of
the
Company,
depending on the direction of such rates,
given that the Investment Vehicle invests in
predominantly floating rate assets.
The Company’s investment policy is to invest in
predominantly floating rate assets. As a result,
the Company’s performance will improve in
absolute terms during times of rising interest
rates and will decline during times of declining
interest rates. The Investment Vehicle does
not seek to speculate on the direction of such
rates, or hedge its predominantly floating
rate exposure, as this would be inconsistent
with its and the Company’s investment policy.
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
28
STRATEGIC REPORT (CONTINUED)
PRINCIPAL RISKS AND UNCERTAINITIES (CONTINUED)
Principal Risks
Mitigating Factors
Capital management risks
Shareholders may seek to redeem their
shareholdings
in
the
Company
using
the
Company’s
periodic
redemption
arrangements, subject to restrictions as
detailed in note 12, which could result in the
NAV of the Company falling below €75 million
and as such, triggering the requirement for
the Directors to convene an extraordinary
general meeting to propose an ordinary
resolution that the
Company
continues
its business as a closed-ended investment
company. There is a risk that a “Continuation
Resolution” will not be passed which could
result in the redemption by the Company of
its entire holding in the Investment Vehicle.
The Company has placed restrictions within
the tender mechanism that limit the amount
of shares that shareholders can redeem at
each tender (refer to note 12 for details of these
restrictions). The Board performs an annual
modelling exercise to determine whether
consecutive tender requests would prompt
a “Continuation Resolution” and actively
monitors the level of tenders throughout the
year. The Company engages with tendering
shareholders to understand the rationale
behind significant tender requests. The Board
and representatives of the Investment Vehicle
Manager proactively engage with current
and prospective shareholders and seek to
understand their views on the Company.
The engagement and monitoring in place by
the Board allows the Company to be proactive
in identifying any common themes driving
significant tender requests.
Geopolitical factors
- Russian Invasion of Ukraine
The ongoing Ukraine / Russia war continues to
have the potential to destabilise global and
regional geopolitics, the full effects of which
cannot be fully ascertained at this time.
In
addition,
the
ongoing
approach
by
western governments towards the Russian
state continues to contribute to significant
market dislocations in the supply and cost of
petrochemicals. This impact has exacerbated
increases in the rate of wholesale price
appreciation
in
the
Company’s
chosen
markets,
which
are
having
significant
impacts on the level of global interest rates
and economic activity.
The Company
At the date of the approval of this annual
financial
report
the
impact
from
the
Russian invasion of Ukraine on the European
economy and leveraged loan market appears
contained; spot natural gas prices being
below pre-war levels; and Europe successfully
sourcing natural gas from sources alternative
to Russia. In the absence of escalation we
expect any impact on the Company from this
war to be minimal. The Board will continue
to monitor the effects of the war for direct
or indirect impacts on the Company and its
future prospects and will report any material
change to its assessment as appropriate.
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
29
STRATEGIC REPORT (CONTINUED)
PRINCIPAL RISKS AND UNCERTAINITIES (CONTINUED)
Principal Risks
Mitigating Factors
Environmental, Social and Governance
(“ESG”) Matters
The Company
Reputational damage stemming from the
Company’s environmental footprint, deemed
disregard of its use of social capital and
related activities and disclosures failing to
meet the standard expected by shareholders
and regulators.
The Company continues with its programme to
better understand the views and expectations
of stakeholders in regard to ESG-related
matters.
This is aided by the appointment
of Vanessa Neill to the Board.
Ms Neill is a
consultant
specialising
in
sustainability
and has been appointed as chair of the
Company’s ESG Committee as referred to in
the Chairman’s Statement.
The Company has set up an ESG Committee,
which interacts with the Investment Vehicle
Manager on ESG matters. Additionally, the
Investment Vehicle Manager considers ESG
factors within the investment process and the
use of the CVC Credit Partners proprietary ESG
Scorecard during the due diligence process
as well as ESG assessment from external
providers such as Fitch.
Financial losses stemming from climate-
related factors adversely impacting the
capital value of securities held within the
Investment Vehicle portfolio and/or the
ability of those companies whose securities
are held to meet their financial obligations
thereunder.
The consideration of such risks is embedded
within the Investment Vehicle Manager’s ESG
policy.
Reputational damage stemming from the
Company’s
association
with
companies
whose
securities
are
held
within
the
Investment Vehicle portfolio and whose ESG
policies, activities or disclosures fail to meet
the standards expected by stakeholders.
The Company engages with representatives
of the
Investment Vehicle
Manager
on
a continual basis in order to ensure the
policy is appropriate and is implemented
appropriately.
Emerging Risk
Mitigating Factor
Taxation
There is a risk that revisions to the taxation
of the Investment Vehicle through the
introduction and implementation of new
or amended tax legislation will impact its
ability to continue to deliver current after-tax
returns to the Company.
The Board and the Investment Vehicle take
ongoing advice on all tax compliance matters
relating to the Company and the Investment
Vehicle as necessary, and keep all such
developments under review.
The Company may be exposed to additional risks not disclosed above or within the Annual
Financial Report as they are not considered by the Board to be principal or emerging risks. The
Company assesses risks, and the mitigation thereof, on an ongoing basis and as part of its formal
business risk assessment process.
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
30
STRATEGIC REPORT (CONTINUED)
SECTION 172(1) STATEMENT
Through adopting the AIC Code, the Board acknowledges its duty to comply with section 172 of
the UK Companies Act 2006 to act in a way that promotes the success of the Company for the
benefit of its members as a whole, having regard to (amongst other things):
a)
the consequences of any decision in the long-term;
b)
the interests of the Company’s employees;
c)
the need to foster business relationships with suppliers, customers and others;
d)
the impact on community and environment;
e)
the maintaining of reputation for high standards of business conduct; and
f)
acting fairly as between members of the Company
The Board considers this duty to be inherent within the culture the Company and a part of its
decision-making process.
Information on how the Board has engaged with its stakeholders and promoted the success of
the Company, through the decisions it has taken during the year, whilst having regard to the
above, is outlined below.
The principal decisions section on pages 33 to 34 outlines decisions taken during the year which the
Board believes has the greatest impact on the Company’s long-term success. The Board considers
the factors outlined under section 172 and the wider interests of stakeholders as a whole in all
decisions it takes on behalf of the Company.
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
31
STRATEGIC REPORT (CONTINUED)
SECTION 172(1) STATEMENT (CONTINUED)
Stakeholder engagement
Who
Why we engage
How we engage
Outcome
Shareholders
Shareholders enable the
Company to give effect to
its purpose through the
commitment of risk capital.
Their continued support is
imperative to the effective
implementation of the
Company’s investment
strategy, under the terms of
the Company’s prospectus
as issued from time to time.
The Company’s monthly
fact sheets and market
announcements are
published on the Company’s
website (
ig.cvc.com
).
More detailed
communications are
made to shareholders on a
biannual basis through the
publication of the half-
yearly and annual financial
reports.
Representatives of the
Investment Vehicle
Manager hold regular
meetings with both
current and potential
shareholders, whose views
are communicated to the
Board, and periodically host
investor events.
The Board, in conjunction
with the input of the
Corporate Brokers, has
arranged, and will continue
to periodically arrange,
meetings with shareholders
for the primary purpose
of remaining cognisant of
shareholder views on a wide
range of topics relevant to
their shareholding in the
Company.
As part of the Company’s
Strategic Review
undertaken at the
start of 2022 the Board
held meetings with
shareholders representing
a significant proportion
of the Company’s shares
regarding amending the
Company’s investment
policy, increasing the
Company’s target dividend,
amending its target total
return, and the parameters
of the Company’s tender
mechanism.
Shareholders receive
relevant information
allowing them to make
informed decisions about
their investments.
Shareholders’ views inform
Board decisions.
The Board also seeks
to address pertinent
shareholder queries
in its half-year and
annual financial reports,
together with any other
communications or events
during the year.
In 2022 the views
of shareholders,
communicated to the
Board, informed the
following changes:
-
The resolutions proposed
to the Company’s AGM
on 18 May 2022, which
all received approval.
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
32
STRATEGIC REPORT (CONTINUED)
SECTION 172(1) STATEMENT (CONTINUED)
Stakeholder engagement (continued)
Who
Why we engage
How we engage
Outcome
Investment
Vehicle
Manager
The Board needs to
inform itself as to
the effectiveness of
the operation of the
Investment Vehicle and its
investment programme. In
addition, the Investment
Vehicle Manager provides
investor relations support
to the Company and
the Board works with
the Investment Vehicle
Manager to support the
investor relations function
on a regular basis.
The Investment Vehicle
Manager reports on
the performance of the
Investment Vehicle to the
Board on a regular basis. In
addition, the Board meets
with representatives of the
Investment Vehicle Manager
on a regular basis in order
to develop and monitor its
sales and marketing strategy
and to discuss strategic and
market issues generally.
The Company is
well
managed, receives
appropriate and timely
advice and guidance and
has an appropriate, open
and transparent relationship
with the Investment Vehicle
Manager.
Association
of
Investment
Companies
(“AIC”) and
European
Leveraged
Finance
Association
(ELFA)
The Board is informed
of the emerging
legislative and regulatory
developments, market
conditions and ESG
initiatives undertaken by
the AIC and ELFA for their
members. Additionally,
the Company gets to
interact with the wider
investment community,
thus identifying trends and
potential opportunities.
The Company is an active
member of the AIC and
Board members regularly
attend and actively
participate in AIC sponsored
events.
Ms Neill is a member of
the AIC’s ESG Forum whose
members are non-executive
directors of investment
companies and meets
approximately three times a
year.
Ms Neill and Ms Gilbert are
both members of ELFA’s ESG
Committee, which meets
approximately four times a
year.
The Company and the
Investment Vehicle Manager
are both active members of
ELFA and actively participate
in ELFA sponsored events.
The Board and
representatives of the
Investment Vehicle
Manager are well
informed and positioned
to identify market trends,
opportunities and emerging
risks as well as expand the
network of the Company.
The AIC is also positioned
to support and promote
investment companies
including the Company.
The AIC ESG Forum provides
advice to the AIC on its ESG
initiatives and projects;
relevant ESG regulatory
issues and ESG trends
and developments, which
could impact investment
companies.
Third-party
service
providers
The Board receives
operational, compliance
and associated reports
and gets satisfied as to
the effective operation of
the services, systems and
internal controls operated
by service providers on
behalf of the Company.
The Board oversees the
performance of third-
party service providers.
Refer to page 47 for further
information.
The Company’s operations
and internal controls are
effective, efficient and
compliant.
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
33
STRATEGIC REPORT (CONTINUED)
SECTION 172(1) STATEMENT (CONTINUED)
Wider Society
As a responsible corporate
citizen, the Company
recognises that its
operations have an
environmental footprint
and an impact on wider
society.
The Board meets
with stakeholders
to remain current in
their understanding of
stakeholder views relating
to environmental and social
matters.
The Board has continued
with its programme to
offset the impact of the
Company’s operations on
the community in which it
operates, as demonstrated
in the decision to engage
with the Jersey National
Park, having made a
commitment to the value
of £100,000 over a five-
year period. Additionally
the Board also held a
volunteering day at the
Jersey National Park in
October 2022.
Principal decisions
Decision
Impact on long-term
success
Stakeholder considerations
Dividend
level
changes
Delivering consistent
income distributions to
shareholders.
The Board understands that reliable income distributions
through
dividends
are
of
significant
importance
to
shareholders. The Board’s dividend target at the start of the
year under review was 5 cents per Euro Share / 5 pence per
Sterling Share.
On 21 September 2022, the Board announced that the
Company had increased its annual dividend by 20% to 6 cents
per Euro Share / 6 pence per Sterling Share, with effect from
the dividend payments for quarter ended 30 September 2022.
This change was made in the light of market conditions and,
in particular, the rising risk-free rate environment.
The dividend coverage ratio from coupon income, of 1.57x
and 1.68x for the EUR and GBP share classes respectively,
was a factor in the Board’s decision to further increase the
dividend target for the next twelve months as announced on
7th March 2023, to €0.070 and £0.075 for the EUR and GBP
share classes respectively.
The Company’s distribution policy is reviewed on an ongoing
basis, with a key focus being the determination of a stable
level of dividends that, based on market conditions and
expected cash yield, could reasonably be declared without
recourse to capital for a forward-looking period of 12 months.
Stakeholder engagement (continued)
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
34
STRATEGIC REPORT (CONTINUED)
SECTION 172(1) STATEMENT (CONTINUED)
Director
Appointments
Appointment of Ms Neill
and Ms Gilbert
The Board sought candidates with ESG and leveraged finance
expertise to ensure a combination of skills, experience and
knowledge, as assessed by the Company’s Nomination &
Remuneration Committee, and for the purpose of succession
planning.
The Company engaged Fletcher Jones to conduct
this search and interviewed a shortlist of suitable candidates
before appointing both Ms Neill and Ms Gilbert.
The Board considers that Ms Neill and Ms Gilbert bring valuable
skills to the role and have made a valuable contribution to
the Board’s discussions and decision making since their
appointment.
Tender
mechanism
Offering shareholders
liquidity on a net asset
value basis.
The Board is aware of the importance shareholders place on
being able to realise a proportion of their shareholding on a
net asset value basis.
To ensure that the tender mechanism continues to be
operated in a way that is in the best interests of the Company
and the shareholder base as a whole, the Board sought and
obtained shareholder approval to amend terms of the tender
mechanism at its AGM on 18 May 2022.
These changes encompassed the structure of the tender
facility, moving from a quarterly to a semi-annual structure
with a 25% annual limit and a 15% semi-annual limit, instead
of a 50% annual limit and 24.99% quarterly limit as in previous
years and changes to the tender record date to a year before
the deadline for making a tender request.
The Board believes that the shift to a semi-annual tender
facility will be more cost effective for the Company to
implement, while providing sufficient liquidity to Shareholders.
The reduction of the annual restriction from 50% to 25% and
the introduction of a semi-annual restriction of 15% reflects
the amount of liquidity that the company can reasonably
expect to create in respect of two contractual semi-annual
tenders under normal market conditions.
The Board believes that the changes to the tender record
date should disincentivise short-term shareholders who seek
to benefit from arbitrage between the price at which the
company’s shares trade from time to time and the tender
price by taking part in the contractual semi-annual tenders.
Employee engagement
The Company has no employees.
Business relationships
The Board considers its business relationships with stakeholders to be important to the ongoing
success of the Company and is proactive in fostering these relationships. For details on the nature
of these relationships and how the Company fosters relationships with its stakeholders, refer to
the “Stakeholder engagement” section on pages 31 to 33 above. The Board also considers the
impact principal decisions have on its stakeholders, which is detailed in the “Principal decisions”
section above.
Principal decisions (continued)
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
35
BOARD MEMBERS
All the Directors are independent and non-executive.
CHAIRMAN
Richard Michael Boléat.
Appointed 20 March 2013.
Richard Boléat is a Fellow of the Institute of Chartered
Accountants in England & Wales, having trained with
Coopers & Lybrand in Jersey and the United Kingdom.
After qualifying in 1986, he subsequently worked
in the Middle East, Africa and the UK for a number
of commercial and financial services groups before
returning to Jersey in 1991. He was formerly a Principal
of Channel House Financial Services Group from 1996
until its acquisition by Capita Group plc (‘Capita’)
in September 2005. Richard led Capita’s financial
services client practice in Jersey until September
2007, when he left to establish Governance Partners,
L.P., an independent corporate governance practice.
Alongside his role at the Company, he currently acts as: Senior Independent Director and Audit
Committee Chairman of M&G Credit Income Investment Trust plc and a Non-Executive Director
of Third Point Investors Limited, both of which are listed on the London Stock Exchange. He is
regulated in his personal capacity by the Jersey Financial Services Commission.
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
36
BOARD MEMBERS (CONTINUED)
DIRECTORS
Mark Richard Tucker.
Appointed 20 March 2013.
In 1997 Mark joined Arborhedge Investments, Inc. (formally
HFR Investments, Inc.) a Chicago based, boutique broker
dealer specialising in the placement of hedge fund interests
to institutions globally. Mark served as the President and
Chief Executive Officer of Arborhedge until his return to
Jersey in 2002, after which he remained a director and
shareholder until 2012. Previously, Mark held a variety of
retail and private banking roles in Jersey with both HSBC
and Cater Allen Bank.
In 1988, Mark relocated first to London, where he joined GNI Limited in a financial futures business
development role, and later to New York where he was responsible for the alternative investment
programme of Gresham Asset Management, Inc. and later for the asset allocation and manager
selection activities of Mitsui & Company.
Mark is personally regulated by the Jersey Financial Services Commission in the conduct of
financial services business, is an Associate of the Chartered Institute of Bankers and a Chartered
Fellow of the Chartered Institute for Securities and Investment. Mark also serves as a non-
executive director to several other offshore structures.
Stephanie Carbonneil.
Appointed 21 February 2019.
Stephanie is a senior investment professional and is
currently Head of Investment Trusts at Allianz Global
Investors. She has experience in portfolio management
specifically in institutional fund of funds and private
wealth management. She also has broad experience
in management of multi-asset funds and manager
selection across European equities, US and Emerging
equities, Global Emerging equities, High yield and
European fixed income.
Stephanie has extensive knowledge of best practices
in asset management through the implementation of a disciplined selection process and
capital allocation to best-in-class managers. She has particularly strong experience in business
development based on her combination of strong asset management technical expertise and
experience as fund allocator. She also has been involved in implementing a diversity programme
whilst in a previous role at Architas.
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
37
BOARD MEMBERS (CONTINUED)
Vanessa Neill.
Appointed 11 January 2022.
Vanessa is an independent consultant specialising
in Sustainability
and
ESG. She
advises
global
public and private companies on the integration
of Environmental, Social and Governance (ESG)
factors into their core business strategy and works
with clients to support them in communicating the
value and impact of their sustainability initiatives
in a clear, transparent and authentic way. Vanessa
currently advises companies across multiple sectors,
with particular expertise in asset management and
private equity.
Alongside her client work, Vanessa is currently
undertaking an executive Postgraduate Masters Level Diploma at the Cambridge Institute for
Sustainable Leadership (CISL), and in April 2021 successfully completed a Postgraduate Masters
Level Certificate in Sustainable Business at the same institution.
Vanessa has had over 20 years of experience in strategic communications. She was formerly
a Partner at Kekst CNC, a global leading strategic communications consultancy, where she
co-led the firm’s ESG and Sustainability Steering Group. Prior to that, she served as Head of
Communications for the Investment Banking and Capital Markets Division at Credit Suisse from
2009 to 2018, where she supported the launch of the Impact Advisory and Finance Department.
Esther Gilbert.
Appointed 23 September 2022.
Esther is a consultant specialising in product development
and process enhancement for asset managers and asset
owners.
She works with global companies to enhance
their position in the UK market, particularly in relation
to their strategy offering, ESG integration and research
capabilities, across both public and private markets.
Esther has sixteen years of experience investing in
fixed income and alternatives markets, most recently
as Senior Fixed Income Analyst at Investec Wealth &
Investment, a leading UK wealth manager, where she
was integral to the development of the investment
research process, including ESG integration, as well as
fixed income portfolio construction.
Prior to that, she held roles as Portfolio Manager Analyst at AXA IM in London, and Fixed Income
Portfolio Manager at Mitsubishi UFJ Asset Management (UK).
Esther is a CFA Charter holder and
holds the CFA Certificate in ESG Investing.
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
38
DIRECTORS’ REPORT
The Directors present the Annual Financial Report for the Company for the year ended 31 December
2022. The results for the year are set out in these accounts.
Dividend Policy
The Company’s dividend policy is to generate consistent income distributions to shareholders, at
levels consistent with prevailing market conditions. This policy, as announced on 7 March 2023, is
currently implemented by way of annual dividends of €0.07000 / £0.07500 per Euro / Sterling share
paid equally on a quarterly basis. The Company announced and paid four quarterly dividends
totalling €0.05250 and £0.05250 (2021: €0.0475 and £0.0475) per Euro Share and Sterling Share
respectively in 2022 which equates to a dividend yield based on year-end bid share price of 6.40%
and 5.71% (2021: 5.00% and 4.57%), respectively.
Share capital and voting rights
The Company has two classes of ordinary shares, being Euro shares and Sterling shares. The
Company held the following number of shares in treasury as at 31 December 2022:
44,767,789 Euro shares (31 December 2021: 35,089,055 Euro shares)
236,506,595 Sterling shares (31 December 2021: 218,048,635 Sterling shares)
Excluding shares held in treasury, the Company had the following number of shares in issue as at
31 December 2022:
105,076,336 Euro shares (31 December 2021: 120,016,565 Euro shares)
129,518,607 Sterling shares (31 December 2021: 143,874,174 Sterling shares)
Each Euro share holds 1 voting right, and each Sterling share holds 1.17 voting rights. As
at 31 December 2022, the total number of voting rights of the Euro shares of no par value is
105,076,336 (40.95%) and of the Sterling shares is 151,536,770 (59.05%). The total number of
voting rights in the Company is 256,613,106.
Borrowing limits
The Company does not have any external borrowings. The Directors may, if they feel it is in the best
interest of the Company, borrow funds subject to the appropriate resolutions of shareholders. The
Investment Vehicle holds external loans and borrowings as disclosed in note 7.
Acquisition of own shares
The Board has the authority to purchase its own shares under the terms and conditions of the
tender mechanism as summarised in note 12. Details of the shares tendered and repurchased
during the year are given in the Strategic Report on page 17.
To assist the Company to minimise the discount at which the shares trade relative to the net asset
value per share, as well as reduce the volatility and increase liquidity in the shares, on 18 May
2022, the Company renewed the general authority to purchase in the market up to 14.99% of the
shares in issue as at 18 May 2022. This authority expires on the date of the 2023 AGM scheduled for
2 May 2023. During the year the Company did not purchase any shares in the market.
The Directors will seek renewal of these authorities from shareholders at the Company’s 2023
AGM.
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
39
DIRECTORS’ REPORT (CONTINUED)
Directors’ interests
As at 31 December 2022 and the date of approval of the annual financial report, directors held the
following shares in the Company:
Number of Sterling
Shares held
Director
As at
31 December
2022
As at
27 March
2023
Richard Boléat
30,000
30,000
Stephanie Carbonneil
22,200
22,200
Mark Tucker
50,000
50,000
Vanessa Neill
11,780
11,780
Esther Gilbert
7,273
7,273
No Director has any interest in any contract to which the Company is a party.
Shareholders’ interests
As at 31 December 2022, the Company had been notified in accordance with Chapter 5 of the
Disclosure and Transparency Rules (“GDTRs”) (which covers the acquisition and disposal of major
shareholdings and voting rights), of the following shareholders that had an interest of greater
than 5% in the Company’s issued share capital.
Percentage of total
voting rights (%)
Investec Wealth & Investment Limited
9.60%
Brewin Dolphin Limited
8.07%
Mizrahi Tefahot Bank
8.04%
Canaccord Genuity Group Inc
5.55%
Fidelity Funds – Global Multi-Asset Income Fund
5.50%
Between 31 December 2022 and 27 March 2023 the Company did not receive any notifications.
Disclosures required under LR 9.8.4R
The Financial Conduct Authority’s Listing Rule 9.8.4R requires that the Company includes certain
information relating to arrangements made between a controlling shareholder and the Company,
waivers of Director’s fees, and long-term incentive schemes in force. The Directors confirm that
there are no disclosures to be made in this regard.
Events after the reporting date
The Directors are not aware of any matters that might have a significant effect on the Company
in subsequent financial periods not already disclosed in this report or the attached financial
statements under note 16.
Statement as to disclosure of information to the auditor
The Directors who held office at the date of approval of this Directors’ Report confirm that, so far
as they are each aware, there is no relevant audit information of which the Company’s auditors
are unaware and that they have taken the steps that they ought to have taken as Directors to
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
40
DIRECTORS’ REPORT (CONTINUED)
make themselves aware of any relevant audit information and to establish that the Company’s
auditors are aware of that information.
Fair, balanced and understandable
In assessing the overall fairness, balance and understandability of the Annual Financial Report,
including the financial statement, the Board has performed a comprehensive review to ensure
consistency and overall balance.
AGM
The Company will hold the 2023 AGM on or around 2 May 2023. The notice and details of the
resolutions being proposed will be circulated in a separate letter and will be available shortly
afterwards on the Company’s website (
ig.cvc.com
).
All resolutions proposed at the 2022 AGM held on 18 May 2022 were passed without significant
votes cast against any of the resolutions.
Corporate Governance Statement - Compliance with the AIC Code
The Company has a premium listing on the London Stock Exchange and is therefore required to
report on how the principles of the UK Corporate Governance Code (the “UK Code”) have been
applied. By reporting against the AIC Code, the Company has met its obligations under the UK
Code and the associated disclosure requirements under paragraph 9.8.6 of the Listing rules, and
as such does not need to report further issues contained in the UK Code which are not applicable
to the Company. Being an investment company, a number of the provisions of the UK Code are
not applicable as the Company has no executive directors or internal operations.
The AIC Code is available on the AIC website
www.theaic.co.uk
. The Company has complied with
all the principles and applicable provisions of the AIC Code during the year ended 31 December
2022.
As the Company is self-managed, provisions pertaining to the relationship with managers are
not applicable to the Company. As the Company is not newly incorporated, provisions pertaining
to new companies are not applicable.
It is noted that Vanessa Neill and Esther Gilbert were
appointed during the year, and relevant disclosures have been made in accordance with the AIC
Code.
Set out below is where stakeholders can find further information within the Annual Financial
Report about how the Company has complied with the various principles and provisions of the
AIC Code.
1. Board Leadership and Purpose
Purpose
Page 2
Strategy
Page 2
Values and culture
Page 42
Stakeholder Engagement
Pages 31 to 33
2. Division of Responsibilities
Director Independence
Page 42
Board meetings
Pages 45 to 46
Management Engagement Committee
Page 44
Statement as to disclosure of information to the auditor (continued)
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
41
DIRECTORS’ REPORT (CONTINUED)
3. Composition, Succession and Evaluation
Remuneration and Nomination Committee
Page 44
Director re-election
Page 42
Use of an external search agency
Page 42
Board evaluation
Pages 44 to 45
4. Audit, Risk and Internal Control
Audit Committee
Page 44
Principal and Emerging risks
Pages 26 to 29
Risk management and internal control systems
Pages 47 to 48
Going concern statement
Page 22
Viability statement
Pages 22 to 23
5. Remuneration
Directors’ Remuneration Report
Pages 55 to 56
This Directors’ Report was approved by the Board of Directors on 27 March 2023 and signed on its
behalf by:
Richard Boléat
Mark Tucker
Chairman
Audit Committee Chairman
Corporate Governance Statement - Compliance with the AIC Code (continued)
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
42
BOARD AND COMMITTEES
Culture
The Company’s culture is one of openness, transparency and inclusivity. Respect for the opinions
of its diverse stakeholders features foremost as does its desire to implement its operations in a
sustainable way, conducive to the long-term success of the Company.
The Board
The Board consists of five non-executive directors:
z
Richard Boleat (Chairman);
z
Mark Tucker (Audit Committee Chairman and Senior Independent Director);
z
Stephanie Carbonneil (Nomination and Remuneration Committee Chair)
z
Vanessa Neill (ESG Committee Chair, appointed 11 January 2022); and
z
Esther Gilbert (appointed 23 September 2022).
All of the Directors are independent of the Investment Vehicle Manager. Please refer to pages 35
to 37 for the biographies and dates of appointment for all Directors.
Mark Tucker is the Senior Independent Director. In this role, he provides support to the Chairman
and serves as an alternate point of contact for stakeholders.
Directors’ appointment, retirement and rotation
Following Mr Wood’s resignation in 2021, the Directors engaged Fletcher Jones, an external search
consultancy, in their search for an additional Director.
Fletcher Jones has no other connection to
the Company or any individual Directors. The Nomination and Remuneration Committee prepared
a candidate specification which included the Board’s desire for an ESG specialist, and shortlisted
and interviewed candidates before appointing Ms Neill. The Nomination and Remuneration
Committee also prepared a candidate specification for a Director with leveraged finance
expertise. The Committee then also shortlisted and interviewed candidates before appointing
Ms Gilbert.
Both Ms Neill and Ms Gilbert were appointed to enhance the Board’s skillset.
Directors have agreed letters of appointment with the Company. No Director has a service
contract with the Company and Directors’ appointments may be terminated at any time by one
month’s written notice with no compensation payable at termination upon leaving office for
whatever reason.
Subject to the Articles of Association, Directors may be appointed by the Board. In compliance
with the AIC Code, the Board has resolved that all Directors will stand for re-election at each
AGM, including the forthcoming AGM. Ms Gilbert’s election will be proposed at the forthcoming
AGM, this being the first AGM pursuant to Ms Gilbert’s appointment.
Board diversity
Whilst the Company has not set a policy with prescriptive diversity metrics. In addition to the
metrics prescribed by Listing Rule 9.8.6R (9)(a), the Board recognises that diversity, including
gender and ethnic diversity, is of material importance to both its own shareholders and that of
wider society, and both gender and ethnicity are key considerations of the board when appointing
new members.
While the requirements of Listing Rule 9.8.6R (9)(a) are only applicable to financial years starting
on or after 1 April 2022, the Board has decided to report early on how it meets the following
targets on board diversity.
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
43
BOARD AND COMMITTEES (CONTINUED)
The tables below set out the Board’s current composition against the targets prescribed by Listing
Rule 9.8.6R (9)(a).
Number of
board members
Percentage of
the board
Number of senior positions on the Board (CEO, CFO, SID
and Chair)*
Men: 2
40%
Chair – Richard Boléat
Senior Independent Director (SID) – Mark Tucker
Women: 3
60%
Chair of the Nomination and Remuneration Committee –
Stephanie Carbonneil
Chair of the ESG Committee – Vanessa Neill
Number
of Board
members
Percentage of
the Board
Number of senior
positions on the Board
(CEO, CFO, SID and
Chair)*
White British or other White
(including minority-white groups)
5
100%
Chair – Richard Boléat
SID and Chair of the Audit
Committee – Mark Tucker
Chair of the Nomination
and Remuneration
Committee – Stephanie
Carbonneil Chair of the
ESG Committee –
Vanessa Neill
Mixed/Multiple Ethnic Groups
Nil
N/A
N/A
Asian/Asian British
Nil
N/A
N/A
Black/African/Caribbean/Black British
Nil
N/A
N/A
Other ethnic group, including Arab
Nil
N/A
N/A
Not specified/ prefer not to say
Nil
N/A
N/A
* The Company is a self-managed fund and does not have executive management.
At least one of the female directors needs to have a senior position within the Board. Vanessa
Neill Chairs the ESG Committee and Stephanie Carbonneil chairs the Remuneration and the
Nomination committee.
The Board recognises the importance of diversity and will continue to welcome applications from
diverse candidates irrespective of their ethnicity or gender.
The Board (continued)
Board diversity (continued)
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
44
BOARD AND COMMITTEES (CONTINUED)
The table below sets out the Board skills matrix.
Director
Appointed
Experience
Qualification
Richard Boléat
2013
I,D,CG,AF
FCA ICAEW
Mark Tucker
2013
I,D,CG,AF
ACIB, Chartered FCSI
Stephanie Carbonneil
2019
I,D,CG
MA in Finance, French LLM in Contract
Law, IMC
Vanessa Neill
2022
I,CG,ESG
Postgraduate Masters Certificate in Sus-
tainable Business, Cambridge Institute
for Sustainable Leadership (CISL)
Esther Gilbert
2022
I,CG,ESG
BA Mathematics with Finance, CFA, IMC,
CFA ESG Investing
I Investment
D Distribution
CG Corporate Governance
AF Accounting and Finance
ESG ESG expertise
Committees
The Board has established three committees, namely the Audit Committee, the Nomination and
Remuneration Committee and the ESG Committee. Items relevant to a management engagement
committee were considered by the Board as a whole.
Audit Committee
The Audit Committee membership comprises all of the Directors. The Chairman of the Board is
a member of this Committee (but he does not chair it) which is considered appropriate given
that he is a Fellow of the Institute of Chartered Accountants in England and Wales and also has
extensive knowledge of the financial services industry.
The report on the role and activities of this Committee and its relationship with the external
auditor is set out in the Report of the Audit Committee on pages 50 to 53.
Nomination and Remuneration Committee
The Nomination and Remuneration Committee is comprised of Ms Carbonneil, Mr Tucker, Ms Neill
and Ms Gilbert, and is chaired by Ms Carbonneil.
ESG Committee
The ESG Committee was formed on 24 January 2022, is chaired by Ms Neill and comprises all of the
Directors. They can be found within the tab “Terms of Reference” within the “News & Documents”
section of the Company’s website (
ig.cvc.com
).
Board and Committees evaluation
During the year, the Board engaged Boardroom Dialogue Group to carry out an external board
evaluation. The Company does not have any other business relationships with Boardroom Dialogue
Group. The evaluation considered guidance outlined in the AIC Code, with account taken of other
best practice guidance, including the FRC publication, Guidance on Board Effectiveness, March
2018, and interviewed the Directors of the Company together with representatives of key service
providers.
The results of the board evaluation were positive and a number of limited recommendations
were made to further enhance the good governance of the Company. Some of the positive
outcomes of the Board evaluation was that the Chairman provides strong leadership, and the
The Board (continued)
Board diversity (continued)
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
45
BOARD AND COMMITTEES (CONTINUED)
skills makeup of the Board is appropriate, as well as the Board having a collegiate approach. One
of the recommendations was the Board’s continuing focus on succession planning. The Board has
already implemented a number of the recommendations and the remaining recommendations
have formed a part of the Board’s rolling action plan.
Director Remuneration
In November 2022, the Nomination and Remuneration Committee undertook its annual review of
the fees paid to the Directors and compared these with the fees paid by reasonably comparable
listed companies. The committee concluded that the fees should remain unchanged.
Tenure and succession policy
The Board regularly and critically examines and evaluates its membership and that of its
committees, and its succession requirements. In doing so, the Board takes into consideration:
the duration of each member’s appointment; their continued satisfactory performance; gender
diversity; diversity of social and ethnic background; diversity of thought and previous experience;
and continued prepossession of the skills identified by the Board as being essential to the
Company’s long-term success.
In addition, the Board recognises that to carry out its duties successfully and for the benefit of
the Company’s long-term success and its stakeholders, corporate knowledge of the type that is
acquired over time, is beneficial to the Company and its stakeholders. It is against this backdrop
that the policy adopted by the Company does not include fixed terms of service for non-executive
directors, including the position of Chairman.
Whilst the Board shares the view of the AIC that long periods of service pose a risk to each
Director’s independence, the Board takes the view that tenure is not the sole determinant of
independence. The Board believes that Mr Boléat and Mr Tucker demonstrate constructive
challenge in their dealings with other Board members and the Investment Vehicle Manager, and
that, notwithstanding the length of their tenure, Mr Boléat and Mr Tucker remain independent in
character and judgement within their roles. The Board composition was refreshed in the past 18
months and given the complexity of the markets, the technicalities of a self-managed Company
and the time it requires for new Non-Executive Directors to settle in, it is in the interest of
shareholders to favour stability and continuity by ensuring that the Chair of the Audit Committee
and the Chair remain on the Board to ensure a smooth transition.
Board succession planning is nevertheless discussed, and shareholders will informed as when
there are further developments. It is also noted that changes to the Board and the Investment
Vehicle Manager personnel have provided new perspectives within this business relationship.
In making Board appointments and developing a succession plan, the Board takes into
consideration the above factors which are aligned with the principles, provisions and spirit of
the AIC Code and targets prescribed by Listing Rule 9.8.6R (9)(a), and will ensure that any
appointments to the Board follow a formal, rigorous and transparent process. This is with ultimate
consideration to ensuring that the Board and all committees have an appropriate mix of skills
and experience to best serve the Company.
The Board continues to welcome the views of major shareholders on the matter of Board tenure.
Board meetings
The Board meets periodically throughout the year. The Investment Vehicle Manager, together
with the Company Secretary, also ensure that all Directors receive, in a timely manner, all relevant
management, regulatory and financial information relating to the Company and the Investment
Vehicle portfolio.
Committees (continued)
Board and Committees evaluation (continued)
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
46
BOARD AND COMMITTEES (CONTINUED)
The Board applies its primary focus to the following:
z
investment performance, ensuring that the investment objective and strategy of the
Company are met;
z
ensuring investment holdings are in line with the Company’s prospectus;
z
reviewing and monitoring financial risk management and operating cash flows, including
cash flow forecasts and budgets for the Company; and
z
reviewing and monitoring of the key risks to which the Company is exposed as set out in
the Strategic Report.
At each relevant meeting, the Board undertakes reviews of key investment and financial data,
transactions and performance comparisons, share price and NAV performance, marketing and
shareholder communication strategies, peer group information and industry issues. The Board
holds regular discussions with the Investment Vehicle Manager to discuss performance of the
Investment Vehicle portfolio, whilst considering ways in which future share price and overall
performance can be enhanced. The share tender mechanism impacts the number of units of PECs
that are to be redeemed to provide the required liquidity for the shares tendered by shareholders
and is therefore discussed only to that extent, with the Investment Vehicle Manager.
The Board considers whether the investment policy continues to meet the Company’s objectives
and notes the change to the Company’s investment policy to enable a maximum of 20% of
the Investment Vehicle’s gross assets to be invested in collateralised loan obligation securities
(increased from 7.5%) which was proposed to, and received approval at, the Company’s AGM on
18 May 2022.
Attendance at 2022 scheduled meetings of the Board and its committees
Vanessa Neill joined the Board as a Non-Executive Director on 11 January 2022 and Esther Gilbert
joined the Board as a non-Executive Director on 23 September 2022.
Accordingly, their attendance
is only reported in respect of the meetings following their appointments.
Director
Board
Meetings
Audit
Committee
Audit Sub-
Committee
Committee of
the
Board (Share
Conversions,
Tenders,
Dividends
and Accounts
Approval)
Nomination and
Remuneration
Committee
Strategy
Meeting
ESG Committee
Richard Boléat
7/7
3/3
2/2
6/6
3/3
1/1
4/4
Stephanie
Carbonneil
7/7
3/3
N/A**
N/A*
3/3
1/1
4/4
Mark Tucker
7/7
3/3
2/2
11/11
3/3
1/1
4/4
Vanessa Neill
7/7
3/3
N/A**
N/A*
3/3
1/1
4/4
Esther Gilbert
2/2***
N/A***
N/A**
N/A*
1/1***
1/1
1/1
*
The Board has formed a committee of any one Jersey based Director to approve routine matters associated with the
administration of the quarterly share conversion, tender and dividend meetings.
**
The Audit Committee has formed a sub-committee of any two Jersey-based Directors for accounts approval.
***
Esther Gilbert was appointed to the Board on 23 September 2022 and was appointed to the Nomination & Remuneration
Committee and to the ESG Committee following these committee meetings on 1 November 2022.
Board meetings (continued)
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
47
BOARD AND COMMITTEES (CONTINUED)
Monitoring and evaluation of service providers
The Board reviews the performance of the Company’s third-party service providers (See “Company
Information”) together with their anti-bribery and corruption policies to ensure that they comply
with the Corruption (Jersey) Law 2006, the Bribery Act 2010, the Criminal Finances Act 2017
and ensure their continued competitiveness and effectiveness and ensure that performance is
satisfactory and in accordance with the terms and conditions of the respective appointments.
As part of the Board’s ongoing evaluation of third-party service providers, it considers and reviews,
on a periodic basis, contractual arrangements with the major service suppliers of the Company.
The Directors have adopted a procedure whereby they are required to report any potential acts of
bribery and corruption in respect of the Company that come to their attention to the Company’s
Compliance Officer.
Shareholder communications
An analysis of the substantial shareholders of the Company’s shares is provided to the Board on
a quarterly basis, as applicable.
The Board views shareholder relations and communications as a high priority and the Board aims
to have a thorough understanding of the views of shareholders. The Chairman and the Senior
Independent Director are available for discussion about governance and strategy with major
shareholders and they communicate shareholders’ expressed views to the Board. Shareholders
wishing to communicate with the Chairman, or the Senior Independent Director, may do so by any
conventional means. The Directors welcome the views of all shareholders and place considerable
importance upon them.
The main method of communication with shareholders is through the half-yearly and annual
financial reports which aim to give shareholders a clear and transparent understanding of the
Company’s objectives, strategy and results. This information is supplemented by the publication
of monthly fact sheets, and the weekly estimated and monthly NAV of the Company’s Euro shares
and Sterling shares on the London Stock Exchange, via a Regulatory Information Service.
The Company’s website (
ig.cvc.com
) is regularly updated with monthly fact sheets and provides
further information about the Company, including the Company’s financial reports and
announcements. The maintenance and integrity of the Company’s website is the responsibility
of the Directors. Legislation in Jersey governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
The Board believes that the AGM provides an appropriate forum for investors to communicate
with the Board and encourages participation. The AGM will be attended by at least the Chairman
of the Company and the Chairman of the Audit Committee.
The Board has also instigated a programme of quarterly investor calls, to allow investors and
other interested parties to receive an update on the previous quarter’s performance and market
conditions. It also provides a forum for questions to be posed to the Chairman of the Board and
representatives of the Investment Vehicle Manager.
Financial risk management objectives and policies
The Board is responsible for the Company’s system of risk management and internal control
and meets regularly in the form of periodic Board meetings to assess the effectiveness of such
controls in managing and mitigating risk.
The Board confirms that it has reviewed the effectiveness of the Company’s system of risk
management and internal control for the year ended 31 December 2022, and to the date of
approval of this Annual Financial Report. The Board has taken into consideration the Financial
Reporting Council (FRC)’s, “Guidance on Risk Management, Internal Control and Related Financial
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
48
BOARD AND COMMITTEES (CONTINUED)
and Business Reporting” to ensure that the Company’s system of risk management and internal
control is designed and operated effectively, in line with best practice guidance provided by the
FRC.
The key financial risks that the Directors believe the Company is exposed to include credit risk,
liquidity risk, market risk, interest rate risk, valuation risk and foreign currency risk. Please refer to
note 8 for reference to financial risk management disclosures, which explains in further detail the
above risk exposures and the policies and procedures in place to monitor and mitigate these risks
The Company has appointed BNP Paribas S.A., Jersey Branch (the “Administrator”) to act as
administrator. The Administrator has established an internal control framework to provide
reasonable but not absolute assurance on the effectiveness of the internal controls operated on
behalf of its clients. The effectiveness of these controls is assessed by the compliance and risk
department of the Administrator on an on-going basis and by periodic review by external parties.
The Company’s Compliance Officer presents an assessment of their review to the Board in line
with the compliance monitoring programme on a quarterly basis which has revealed no matters
of concern.
Financial risk management objectives and policies (continued)
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
49
AIFMD REPORT (UNAUDITED)
The Company (which is a non-European Union (“EU”) Alternative Investment Fund (“AIF”) for the
purposes of the Alternative Investment Fund Manager (“AIFM”) Directive and related regimes in
European Economic Area (“EEA”) member states) is a self-managed fund and therefore acts as
the deemed AIFM of the Company. The Company is authorised as an Alternative Investment Fund
Services Business as defined under Article 2(11) of the Financial Services (Jersey) Law 1998 and,
as such, fulfils the role of Alternative Investment Fund Manager.
In 2014, the Company registered with the Jersey Financial Services Commission, being the
Company’s competent regulatory authority, as a self-managed non-EU Alternative Investment
Fund (AIF), and has registered with the UK Financial Conduct Authority, under the relevant
National Private Placement Regime (“NPPR”).
In 2015, the Company registered with the Finnish Financial Supervisory Authority, Belgium
Financial Services and Markets Authority, Danish Finanstilsynet, Luxembourg Commission de
Surveillance du Secteur Finacier and Swedish Finansinspektionen, under the relevant NPPR of
each jurisdiction.
In 2017, the Company registered with Central Bank of Ireland, under the relevant NPPR.
As the Company is non-EU domiciled, no depositary has been appointed in line with the AIFM
Directive, however BNP Paribas S.A., Jersey Branch has been appointed to act as custodian.
Information relating to the current risk profile of the Company and the risk management systems
employed by the Company to manage those risks, as required under paragraph 4(c) of Article 23
of the AIFM Directive, is set out in note 8 – financial risk management. Please refer to pages 26 to
29 for the Board’s assessment of the principal risks and uncertainties facing the Company.
AIFM remuneration
The total fees paid to the Board by the Company are disclosed within the Directors’ remuneration
report on page 55 and disclosed in note 6.
Article 22(2)(e) and 22(2)(f) of the AIFM Directive is not deemed applicable as the AIFM has no
staff. No other remuneration costs have been incurred with the exception of those costs incurred
by the Board as referenced above.
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
50
REPORT OF THE AUDIT COMMITTEE
It is my pleasure to present this report describing the activities of the Audit Committee in respect
of the 2022 financial year.
Membership
The Board appointed Audit Committee operates within clearly defined Terms of Reference which
are reviewed regularly by the Committee and amended as required. They can be found within
the tab “Terms of Reference” within the “News & Documents” section of the Company’s website
(
ig.cvc.com
).
The Audit Committee comprises all the Directors and each Committee member has recent and
relevant financial experience. The Committee has competence relevant to the sector in which the
Company operates.
During the year, the Committee formally convened on three occasions. The members’ attendance
record can be found on page 46 of this annual financial report.
Role of the Audit Committee
The main role of the Committee is to protect the interests of the Company’s shareholders
regarding the integrity of the half-yearly financial report and the annual financial report of the
Company and manage the Company’s relationship with the external auditor.
The Audit Committee’s key duties are:
z
to review and monitor the fairness and balance of the financial statements of the Company
including its half-year financial report and annual financial report to shareholders,
reviewing any significant financial reporting issues and judgements which they contain;
z
to advise the Board on whether the Committee believes that the 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 performance, position, business model
and strategy;
z
to identify and disclose those risks considered by the Committee to be significant to their
financial reporting process;
z
to consider and make recommendations to the Board in relation to the appointment, re-
appointment and removal of the external Auditors and to negotiate their remuneration
and terms of engagement on audit and non-audit work;
z
to meet regularly with the external Auditor in order to review their proposed audit
programme of work and the subsequent Audit Report and to assess the effectiveness of
the audit process and the level of fees paid in respect of audit and non-audit work; and
z
to annually assess the external Auditor’s independence, objectivity, effectiveness, resources
and expertise.
In last year’s Audit Committee Report I reported that, after considering the tenure of the
Company’s Auditor, it was the intention of the Committee to conduct an audit services tender
process to allow the Committee to ensure it selected the best auditor able to provide the robust
audit approach the Company demanded. I am pleased to report that the tender process was
undertaken during the year and the Committee’s recommendation to the Board to reappoint
Ernst & Young LLP as the Company’s Auditor was accepted.
The audit services tender process involved a rigorous selection criteria and was a process in which
each Committee member participated. I led the process, commencing with a desk-top review
of potential audit service providers. I identified and discussed the Company’s requirements with
five potential audit firms, each of which possessed the resources and experience necessary to
ensure an effective audit. Of the five, two were invited to formally express their interest via the
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
51
REPORT OF THE AUDIT COMMITTEE (CONTINUED)
Company’s Request For Proposal protocol which led to both firms being invited to attend formal
interviews with the Committee. The Committee was delighted with the processes and experience
demonstrated by both candidate firms throughout the tender process, ultimately concluding
that the reappointment of Ernst & Young LLP as the Company’s Auditor was in the best interests
of the Company based on continuity, notwithstanding the risks of their reappointment to their
independence.
The Committee was also involved in a project to oversee the redrafting of the Company’s KID,
a process made necessary by the divergence of post-Brexit regulations between the UK and
the European Union and changes by the Financial Conduct Authority to the UK KID disclosure
requirements. The Company has, as required, published four KID documents, being a KID
document in respect of each of the Company’s Sterling and Euro share classes in both UK and
European mandated formats.
The Company’s KID documents can be found within the tab “Key
Information Documents” within the “News & Documents” section of the Company’s website.
The Committee was also instrumental in an exercise to support the Board in making the Viability
Statement which appears within the Strategic Report, on pages 22 to 23 of this annual financial
report.
Significant risks
The Committee view the below as significant risks to the financial statements:
Title to, and the existence of the Company’s investments
Procedures to confirm the Company’s title to, and the existence of, the Company’s investments
are embedded within the Company’s share issuance, conversion, tender, and dividend declaration
processes as they occur throughout the year and further processes during the preparation of
the Company’s half year and annual financial reports. These procedures are executed through
the Company’s Administrator, the Investment Vehicle Manager and the Administrator of the
Investment Vehicle Manager. Accordingly, title to, and existence of the Company’s investments
are confirmed by the Board regularly.
Valuation of Investments
The risk of misstatement due to errors in the valuation of the Company’s investments is an issue of
significance to the Committee.
This risk is mitigated by regular Board meetings in which a review
of the valuation of the Company’s investments is included.
Additionally, the Committee regularly
interviews representatives of the Investment Vehicle Manager in order to gain assurances as to
the continued appropriateness of the valuation methodology.
External audit process
The Committee met formally with the Auditor prior to the commencement of the audit and
agreed an audit plan that would adopt a risk-based approach.
The Committee and the Auditor
agreed that a significant portion of the Audit effort would include an examination of revenue
recognition with respect to investment income and an examination of the procedures in place
at the Administrator and at the Investment Vehicle Manager in respect of the valuation and
existence of the Company’s investments and the underlying portfolio assets respectively.
Upon completion of the audit, the Committee discussed the effectiveness of the audit and
concluded that the audit had been effective on the grounds that:
z
The audit plan had been met;
z
The Auditor had demonstrated a good understanding of the Company’s business;
z
No risks to audit quality had been identified;
Role of the Audit Committee(continued)
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
52
REPORT OF THE AUDIT COMMITTEE (CONTINUED)
z
The Auditor demonstrated a robustness of process and perceptiveness in handling key
accounting issues and judgements; and
z
All issues that arose during the audit were satisfactorily resolved.
Additionally, procedures employed by the Auditors, described above, are viewed by the Committee
as being appropriate and sufficiently robust for the Committee to gain sufficient assurance as to
the effectiveness of the audit.
Non-audit services
The Company has adopted a policy such that the provision of non-audit services by the Company’s
auditors is considered and approved by the Audit Committee on a case-by-case basis, taking
into account relevant law, regulation, the Revised Ethical Standard 2019 and other applicable
professional requirements.
The following factors are assessed when considering the provision of non-audit services by the
Auditors:
z
Threats to independence and objectivity resulting from the provision of such services and
any safeguards in place to eliminate or reduce these threats to a level where they would not
compromise the Auditor’s independence and objectivity;
z
The nature of the non-audit services;
z
Whether the skills and experience of the audit firm makes it the most suitable supplier of
the non-audit service; and
z
The fees incurred, or to be incurred, for non-audit services both for individual services and
in aggregate, relative to the audit fee, including special terms and conditions (for example,
contingent fee arrangements).
During the course of the year the Auditor was engaged to conduct a review of the Company’s
half-yearly financial report for the six months ended 30 June 2022.
The fees for the year-end audit were €84,543 (£72,063) (2021: €81,118 (£69,727)). Fees for non-
audit services were €12,442 (£10,100) (2021: €11,750 (£10,100)) for the review of the half year
report.
Auditor independence
The Committee undertakes an annual assessment of the independence of the Auditor prior to the
commencement of the audit, this includes:
z
Discussing with the Auditor the threats to their independence and the safeguards applied
to mitigate such threats;
z
Considering all of the relationships between the Company and the Auditor;
z
Reviewing and confirming no relationships between the Company and the Auditor which
could impact independence and objectivity;
z
Reviewing the level of fees paid by the Company in proportion to the overall fee income of
the firm, office and partner; and
z
Reviewing the Auditor’s policies and processes for maintaining independence and
monitoring compliance with relevant requirements.
Based on the above criteria the Committee was satisfied as to the independence of the Auditor
during the year ended 31 December 2022 and throughout the course of the audit.
External audit process (continued)
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
53
REPORT OF THE AUDIT COMMITTEE (CONTINUED)
Auditor appointment
The Company’s current external Auditor is Ernst & Young LLP, who were appointed on 19 August
2013.
During 2022 the Committee undertook an audit tender process as described above in the
Audit Committee Report.
The Committee considers the reappointment of the external auditor, including the rotation of
the audit engagement partner, each year.
The external auditor is required to rotate the audit
engagement partner responsible for the Company audit every five years.
The current audit
engagement partner was appointed by the Auditor prior to the commencement of the Company’s
2020 half year review.
The Committee reviews a number of factors when considering proposing the re-appointment/
appointment of an auditor including:
z
Effectiveness and quality of the previous audit (if applicable);
z
Independence;
z
Qualification, expertise and resources; and
z
Consideration as to whether it would be appropriate to recommend an external audit
tender be conducted earlier than the maximum best practice ten-year period.
After considering the above the Committee provided the Board with its recommendation to the
shareholders on the reappointment of Ernst & Young LLP as external auditor for the year ending
31 December 2023.
Accordingly, a resolution proposing the reappointment of Ernst & Young LLP as the Company’s
Auditor will be put to shareholders at the AGM. There are no contractual obligations restricting
the Committee’s choice of external auditor and the Company does not indemnify its external
auditor.
Internal control
The Board is responsible for ensuring that suitable systems of risk management and internal
control are implemented by the third-party service providers to the Company, the Committee
has reviewed the BNP Paribas Securities Services ISAE 3402 report (Report on the description
of controls placed in operation, their design and operating effectiveness for the period from 1
October 2021 to 30 September 2022) on Fund Administration and are pleased to note that no
significant issues were identified.
In accordance with the FRC’s Internal Control: Guidance to Directors, and the FRC’s Guidance
on Audit Committees, the Board confirms that there is an on-going process for identifying,
evaluating and managing the significant internal control risks faced by the Company.
As the Company does not have any employees it does not have a “whistle blowing” policy in
place. The Company delegates its day-to-day administrative operations to third-party providers
who are monitored by the Board and who report on their policies and procedures to the Board.
Accordingly, the Board believes an internal audit function is not required.
I welcome feedback from all shareholders as to the form and content of this Annual Report.
For and on behalf of the Audit Committee,
Mark Tucker
Audit Committee Chairman
27 March 2023
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
54
DIRECTORS’ STATEMENT OF RESPONSIBILITIES
The Directors are responsible for preparing the Annual Financial Report and financial statements
in accordance with applicable Jersey law and International Financial Reporting Standards as
adopted by the European Union (IFRS).
Jersey Law requires the Directors to prepare financial statements for each financial year which
give a true and fair view of the state of affairs of the Company at the end of the year and of the
profit or loss of the Company for that year.
In preparing these financial statements, the Directors should:
z
select suitable accounting policies and apply them consistently;
z
make judgments and estimates that are reasonable;
z
state whether applicable accounting standards have been followed, subject to any material
departures disclosed and explained in the financial statements; and
z
prepare the financial statements on the going concern basis unless it is inappropriate to
presume that the Company will continue in business.
The Directors are responsible for keeping proper accounting records that 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 (Jersey) Law 1991. They have general
responsibility for taking such steps as are reasonably open to them to safeguard the assets of the
Company and to prevent and detect fraud and other irregularities.
The Directors confirm to the best of their knowledge that:
z
the financial statements, which have been prepared in accordance with IFRS, give a true
and fair view of the assets, liabilities, financial position and profit of the Company; and
z
the Strategic Report includes a fair review of the development and performance of the
business and the position of the Company, together with a description of the principal risks
and uncertainties that they face.
The Annual Report and financial statements, taken as a whole, are fair, balanced and
understandable and provide the information necessary for shareholders to assess the Company’s
performance, position, business model and strategy.
Richard Boléat
Mark Tucker
Chairman
Audit Committee Chairman
27 March 2023
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
55
DIRECTORS’ REMUNERATION REPORT
Table of Directors’ Remuneration
Director
Annual Rate
Richard Boléat (Chairman)
– Annual Fee
£65,0 00 (€76,257)
– One-off strategic review fee
£15,000 (€17,598)
Mark Tucker
– Annual Fee
£43,750 (€51,327)
– Senior Independent Director
£1,250 (€1,467)
– Chairman of the Audit Committee
£5,000 (€5,866)
– One-off strategic review fee
£10,000 (€11,732)
Stephanie Carbonneil
– Annual Fee
£42,500 (€49,860)
– Chair of the Nomination and Remuneration Committee
£5,000 (€5,866)
– One-off strategic review fee
£10,000 (€11,732)
Vanessa Neill*
– Annual Fee
£42,500 (€49,860)
– Chair of the ESG Committee
£5,000 (€5,866)
– One-off strategic review fee
£10,000 (€11,732)
Esther Gilbert**
– Annual Fee
£42,500 (€49,860)
All Directors
Reimbursement of ad hoc expenses
* appointed with effect from 11 January 2022
** appointed with effect from 23 September 2022
Directors receive the above annual fees for their commitment as Directors. All additional fees are
for additional responsibilities and time commitments. The Directors are also reimbursed for their
expenses on an ad hoc basis.
No other remuneration or compensation was paid or is payable by the Company during the
period to any of the Directors. There has been no change to the Company’s remuneration policy
as detailed below.
The Company has no employees. Accordingly, there are no differences in policy on the
remuneration of Directors and the remuneration of employees.
Remuneration policy
The determination of the Directors’ fees is a matter for the Board. The Nomination and
Remuneration Committee considers the remuneration policy annually to ensure that it remains
appropriately positioned and makes recommendations to the Board as applicable. As part of this
process, the Directors review the fees paid to the boards of directors of similar companies. No
Director is involved in decisions relating to their own remuneration.
Directors are remunerated in the form of fees, payable quarterly in advance. No Director has any
entitlement to a pension, and the Company has not awarded any share options or performance
incentives to any of the Directors.
Directors are authorised to claim reasonable expenses from the Company in relation to the
performance of their duties.
The Company’s policy is that the fees payable to the Directors should reflect the time spent by
the Board on the Company’s affairs and the responsibilities borne by the Directors and should be
sufficient to enable high calibre candidates to be recruited. The policy is for the Chairman of the
Board and Chairs of Committees to be paid a higher fee than the other Directors in recognition of
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
56
DIRECTORS’ REMUNERATION REPORT (CONTINUED)
their more onerous roles and more time spent. The Board may amend the level of remuneration
paid within the limits of the Company’s Articles of Association.
The Company’s Articles of Association limit the aggregate fees payable to the Directors to a total
of £426,193 (€500,000) per annum.
Statement of consideration of shareholder views
An ordinary resolution to ratify the Directors’ remuneration report will be proposed at the
forthcoming AGM scheduled to be held on 2 May 2023.
Stephanie Carbonneil
Nomination and Remuneration Committee Chair
27 March 2023
Remuneration policy (continued)
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
57
PROGRESS ON ENVIRONMENTAL, SOCIAL AND GOVERNANCE (“ESG”) MATTERS
The Company has identified, through close monitoring of market and regulatory developments,
the growing importance of responsible investment and integrating ESG considerations into the
investment process.
CVC Credit Partners, which manages the Investment Vehicle, is a member of the United Nations
Principles for Responsible Investment (“PRI”).
On 24 January 2022, the Company established an ESG Committee, Chaired by Ms Neill, to provide
the right governance structure for the Board to oversee disclosures the Company makes to its
shareholders and to better understand the ESG policies and processes adopted by the Investment
Vehicle Manager, which seek to incorporate ESG characteristics into the investment process. The
Company’s ESG Committee has engaged and collaborated with the Investment Vehicle Manager
to better understand how ESG risk and in certain cases opportunities may be incorporated into
the investment process. During the last year, a significant amount of progress has been made
by the Investment Vehicle Manager with regard to further improving the assessment of ESG
characteristics for new and existing investments. The manager has started collecting data as it
pertains to E, S, and G characteristics and in the future, may be able to report on information that
shareholders may find interesting and/or valuable. Additionally, in July 2022, CVC Credit Partners
partnered with Sustainability Fitch, a provider of ESG scoring and analysis for issuers of debt
instruments. Both these initiatives have helped to provide a more robust and evidenced-based
process to the Investment Vehicle Manager’s ESG due diligence process.
The Company participates in the ESG initiatives of the industry bodies, in order to inform its Directors
of the latest regulatory and legislative developments relating to ESG as well as collaborative
industry developments. It became a member of the European Leverage Finance Association
(“ELFA”) in July 2022 and both Ms Neill and Ms Gilbert are members of ELFA’s ESG Committee.
Ms Neill is also a member of the ESG Forum at the Association of Investment Companies (“AIC”).
Participation in both these industry ESG forums provides useful insights on current ESG initiatives
and issues in the investment trust sector and the debt, loan and CLO markets.
The Company is aware of current and upcoming sustainability and ESG regulations and has made
the necessary disclosures in the Annual Report on pages 23 to 25 and on the Company’s website
(
ig.cvc.com
) as an Article 6 fund under Sustainable Finance Disclosures Regulation (SFDR).
The ESG Committee looks forward to continuing its’ collaboration with the Investment Vehicle
Manager in understanding the progress being made to the ESG strategy. The ESG committee
will continue to monitor the regulations, legislation and frameworks such as the Sustainability
Disclosure Requirements (“SDR”); the Task Force on Nature related Financial Disclosures (“TNFD”);
and Corporate Sustainability Reporting Directive (“CSRD”).
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
58
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CVC INCOME &
GROWTH LIMITED
Opinion
We have audited the financial statements of CVC Income & Growth Limited (the “company”) for
the year ended 31 December 2022 which comprise the Statement of Comprehensive Income, the
Statement of Financial Position, and the Statement of Changes in Net Assets, the Statement of
Cash Flows, and the related notes 1 to 17, including a summary of significant accounting policies.
The financial reporting framework that has been applied in their preparation is applicable law
and International Financial Reporting Standards as adopted by the European Union.
In our opinion, the financial statements:
z
give a true and fair view of the state of the company’s affairs as at 31 December 2022 and
of its loss for the year then ended;
z
have been properly prepared in accordance with International Financial Reporting Standards
as adopted by the European Union; and
z
have been properly prepared in accordance with the requirements of the Companies
(Jersey) Law 1991.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs
(UK)) and applicable law. Our responsibilities under those standards are further described in
the Auditor’s responsibilities for the audit of the financial statements section of our report. We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Independence
We are independent of the company in accordance with the ethical requirements that are relevant
to our audit of the financial statements, including the UK FRC’s Ethical Standard as applied to
listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance
with these requirements.
The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the company
and we remain independent of the company in conducting the audit.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going
concern basis of accounting in the preparation of the financial statements is appropriate. Our
evaluation of the directors’ assessment of the company’s ability to continue to adopt the going
concern basis of accounting included:
z
Ascertaining that the going concern assessment covers a period of at least twelve months
from the date of approval of the financial statements. The directors’ have performed an
assessment to 27 March 2024 which is at least twelve months from the date of approval of
the financial statements.
z
Reviewing the cash flow and revenue forecasts which support the directors’ assessment
of going concern. This involved challenging the sensitivities and assumptions used in the
forecasts.
z
Reviewing the stress testing performed by the directors’ and assessing whether the basis on
which it was performed was appropriate and adequate, including validating assumptions
used, that could have a material impact, by agreeing these to supporting documentation
where possible.
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
59
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CVC INCOME &
GROWTH LIMITED(CONTINUED)
z
Holding discussions with the directors’ and the administrator to determine whether, in
their opinion, there is any material uncertainty regarding the company’s ability to pay
liabilities and commitments as they fall due and challenging this assessment through our
audit procedures over the assessment of the company’s liquidity.
z
Considering whether the directors’ assessment of going concern, as included in the Annual
Report, is consistent with the disclosure in the viability statement.
z
Assessing whether the subsequent events identified by the directors impact the company’s
ability to continue as a going concern.
Based on the work we have performed, we have not identified any material uncertainties relating
to events or conditions that, individually or collectively, may cast significant doubt on the
company’s ability to continue as a going concern for a period of twelve months from when the
financial statements are authorised for issue.
In relation to the company’s reporting on how they have applied the UK Corporate Governance
Code, we have nothing material to add or draw attention to in relation to the directors’ statement
in the financial statements about whether the directors considered it appropriate to adopt the
going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are
described in the relevant sections of this report. However, because not all future events or
conditions can be predicted, this statement is not a guarantee as to the company’s ability to
continue as a going concern.
Overview of our audit approach
Key audit matters
z
Risk of inappropriate revenue recognition with respect to
investment revenue, including risk of management override
z
Risk of incorrect valuation of investments
z
Risk that investments do not exist, including incomplete and
inaccurate investment transactions
Materiality
z
Overall materiality of €2.4m which represents 1% of the net assets
attributable to shareholders.
An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance
materiality determine our audit scope for the company. This enables us to form an opinion on
the financial statements. We take into account size, risk profile, the organisation of the company
and effectiveness of controls, changes in the business environment and the potential impact of
climate change when assessing the level of work to be performed.
Climate change
The company has determined that the most significant future impacts from climate change
on its operations will be from financial losses stemming from climate-related factors adversely
impacting the capital value of securities held within the Investment Vehicle portfolio and/or the
ability of those companies whose securities are held to meet their financial obligations thereunder.
These are explained on page 26 to 29 in the principal risks and uncertainties, which form part
of the “Other information,” rather than the audited financial statements. Our procedures on
Conclusions relating to going concern (continued)
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
60
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CVC INCOME &
GROWTH LIMITED(CONTINUED)
these unaudited disclosures therefore consisted solely of considering whether they are materially
inconsistent with the financial statements or our knowledge obtained in the course of the
audit or otherwise appear to be materially misstated, in line with our responsibilities on “Other
information”.
Our audit effort in considering climate change was focused on evaluating management’s
assessment of the impact of climate risk, physical and transition, and ensuring that the effects of
material climate risks disclosed in Note 2.1(d) have been appropriately reflected in the significant
assumptions used in estimating the valuation of investments.
Details of our procedures are
included in our key audit matters below.
We also challenged the directors’ considerations of
climate change in their assessment of going concern and viability and associated disclosures.
Based on our work we have not identified the impact of climate change on the financial
statements to be a key audit matter.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance
in our audit of the financial statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to fraud) that we identified. These
matters included those which had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the engagement team. These matters were
addressed in the context of our audit of the financial statements as a whole, and in our opinion
thereon, and we do not provide a separate opinion on these matters.
An overview of the scope of our audit (continued)
Climate change (continued)
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
61
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CVC INCOME &
GROWTH LIMITED(CONTINUED)
Risk
Our response to the risk
Key observations communicated
to the Audit Committee
Risk
of
inappropriate
revenue recognition with
respect
to
investment
revenue, including risk of
management override
Refer to Accounting policy
2.9 (page 78) and Note 3
of the Financial Statements
(page 79)
For
the
year
ended
31
December
2022,
the
company
recognised
investment
revenue
of
€14.9m (2021 €15.6m).
The
ability
to
generate
dividend
yield
for
shareholders that is funded
from investment revenue
(rather than capital gains
arising
on
the
disposal
of investments) is a key
strategic objective of the
company.
Investment
revenue
is
primarily generated in the
form of distributions from
the
Investment
Vehicle
(CVC
European
Credit
Opportunities
S.à.r.l.).
Given the importance that
the company’s ability to
generate a consistent level
of
investment
revenue
has
on
the
company’s
dividend yield objectives,
we
consider
that
the
recognition of investment
revenue represents a fraud
risk and thus a significant
risk.
We have performed the following
procedures:
•
Updated our understanding of the
nature of the investment revenue
attributable to the company from
the Investment Vehicle.
•
Updated our understanding of
how this risk is considered and
managed by the directors, the
Investment
Vehicle
Manager
(CVC Credit Partners Investment
Management Limited) and the
administrator and performed a
walkthrough to assess the design
and implementation of controls.
•
Traced the investment revenue
received in the year to bank
statements.
•
Obtained
income
distribution
notices from the administrator
and agreed these to signed Board
meeting minutes and the income
recorded in the year.
•
Recalculated
the
investment
revenue
attributable
to
the
company from the Investment
Vehicle based on the company’s
ownership
of
the
Investment
Vehicle
and
the
income
distributions
made
by
the
Investment Vehicle during the
year and agreed to the audited
financial
statements
of
the
Investment
Vehicle.
Performed
recalculations
of
the
foreign
currency
translations
from
Sterling to Euros.
Based on the work performed, we
have no matters to report to the
Audit Committee.
Key audit matters (continued)
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
62
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CVC INCOME &
GROWTH LIMITED(CONTINUED)
Risk
Our response to the risk
Key observations communicated
to the Audit Committee
Risk of incorrect valuation
of investments
Refer to the Report of the
Audit Committee – per the
financial statements (pages
50 to 53); Accounting policy
2.4 (pages 77 to 78); and
Note 8.5 of the Financial
Statements (page 97).
At the year end, the company
held
103,934,273.50
Euro
Preferred Equity Certificates
(‘PECs’) and 127,666,119.03
Sterling
PECs
(2021:
118,672,886.93
Euro
PECs
and 142,063,595.26 Sterling
PECs) with a total value of
€235.0m (2021: €309.7m).
There is a risk that investment
values are misstated or that
valuations
are
incorrectly
calculated
through
errors
in the valuation of the PECs
held by the company.
The valuation of the PECs
is dependent on a range of
factors including the NAV
of the Investment Vehicle
and its underlying portfolio.
The
underlying
portfolio
includes level 3 securities
valued by the Investment
Vehicle Manager, and the
directors of the company
assess whether a liquidity
adjustment should be taken
on the NAV of the Investment
Vehicle when arriving at the
final valuations.
We have performed the following
procedures:
•
Updated our understanding of
how this risk is considered and
managed by the directors and
the Investment Vehicle Manager
by
performing
walkthrough
procedures to assess the design
and implementation of controls.
•
Obtained an understanding of
the administrator’s systems and
controls in respect of investment
valuation
and
performed
walkthrough
procedures
to
confirm the design effectiveness
of the process and key controls.
•
Additionally,
we
obtained
the ISAE 3402 report and the
related
bridging
letter
from
the administrator to consider
the impact of any significant
deficiencies, identified in this
report, to our audit.
•
Confirmed
our
understanding,
obtained
through
our
walkthrough procedures, of the
current valuation methodology
used by the Investment Vehicle
Manager through enquiries with
the auditors of the Investment
Vehicle.
Reviewed
minutes
of meetings of the Board and
the
Valuation
Committee
to
corroborate
the
valuation
methodology and data inputs
used
and
assessed
whether
the nature of the information
and
methodology
utilised
is
appropriate.
Based on the work performed, we
have no matters to report to the
Audit Committee.
Key audit matters (continued)
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
63
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CVC INCOME &
GROWTH LIMITED(CONTINUED)
Risk
Our response to the risk
Key observations communicated
to the Audit Committee
As the investment valuations
are received directly from the
Investment Vehicle Manager,
who is remunerated by the
Investment Vehicle in the
form of management fees
based on NAV, there is also
a risk the Investment Vehicle
Manager
may
influence
the valuations to meet the
expectations of investors. As
such, this has been changed
from a significant risk to a
fraud and significant risk in
the current year.
•
Reviewed minutes of meetings
of the Board and the Valuation
Committee to corroborate the
valuation methodology and data
inputs used and assessed whether
the nature of the information
and
methodology
utilised
is
appropriate.
•
Agreed
the
valuation
of
the
PECs to the audited financial
statements of the Investment
Vehicle, taking into account the
ownership percentages.
•
Made enquiries of the Investment
Vehicle’s auditors in relation to the
valuation of investments held by
the Investment Vehicle to assess
whether
year-end
valuations
underlying the PECs held by the
company are in accordance with
IFRS 13: Fair value measurement.
•
We have considered the impart
of climate change throughout
the
procedures
performed
on
the valuation of investments by
making enquiries of the Board of
the Directors.
•
Considered
and
challenged
whether the Board’s assumptions
around liquidity adjustments to
NAV of the Investment Vehicle are
appropriate by considering the
historic trading and redemption
activity in the Investment Vehicle
and agreeing PEC redemptions to
the bank statements.
Key audit matters (continued)
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
64
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CVC INCOME &
GROWTH LIMITED(CONTINUED)
Risk
Our response to the risk
Key observations communicated
to the Audit Committee
Risk that investments do not
exist, including incomplete
and inaccurate investment
transactions
Refer to the Report of the
Audit Committee – per the
financial statements (page
50 to 53); Accounting policy
2.4 (pages 77 to 78); and Note
7 of the Financial Statements
(page 82).
At the year end, the company
held 103,934,273.50 Euro and
127,666,119.03 Sterling PECs
(2021:
118,672,886.93
Euro
and 142,063,595.26 Sterling
PECs) with a total value of
€235.0m (2021: €309.7m).
There
is
a
risk
that
investments presented in the
financial statements do not
exist or the company does
not have legal title to these.
The individual investments
are significant in value and
the process that is involved in
the completion of a purchase
or a disposal of the PECs
takes an extended period
of time. As a result, there
is a risk that incomplete or
inaccurate
transactional
information with regards to
the PECs would result in a
material misstatement in the
reported results and financial
position of the company.
We have performed the following
procedures:
z
Updated our understanding of
how this risk is considered and
managed by the directors, the
Investment Vehicle Manager and
the administrator and performed
walkthrough procedures to assess
the design and implementation of
controls.
z
Obtained
the
PEC
registers
independently from the company
Secretary
of
the
Investment
Vehicle (‘SS&C’) and agreed the
holdings to those disclosed in the
accounts.
z
Agreed a sample of investment
trades in the year to agreements
and traced cash movements to
bank statements.
z
Reviewed the audited financial
statements of the Investment
Vehicle to check the existence and
completeness of the company’s
investment
in
the
PECs,
and
agreed the PEC units held by
the company to the Series 4 and
Series 5 PEC units disclosed in the
audited financial statements of
the Investment Vehicle.
z
Reviewed
minutes
of
Board
meetings
and
other
internal
reports
for
indications
of
significant
investment
transactions
not
appropriately
recorded.
Based on the work performed, we
have no matters to report to the
Audit Committee.
Key audit matters (continued)
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
65
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CVC INCOME &
GROWTH LIMITED(CONTINUED)
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the
effect of identified misstatements on the audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could
reasonably be expected to influence the economic decisions of the users of the financial statements.
Materiality provides a basis for determining the nature and extent of our audit procedures.
We determined materiality for the company to be €2.4 million (2021: £3.1 million), which is 1% (2021:
1%) of the net assets attributable to shareholders. We believe that the net assets attributable
to shareholders are the most important financial metric on which shareholders would judge the
performance of the company.
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount
to reduce to an appropriately low level the probability that the aggregate of uncorrected and
undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the company’s overall
control environment, our judgement was that performance materiality was 75% (2021: 75%) of
our planning materiality, namely €1.8m (2021: €2.3m).
We have set performance materiality at
this percentage based on our understanding of the entity and past experiences with the audit.
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them all uncorrected audit
differences in excess of €0.1m (2021: €0.2m), which is set at 5% of planning materiality, as well
as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of
materiality discussed above and in light of other relevant qualitative considerations in forming
our opinion.
Other information
The other information comprises the information included in the annual report pages 2 to 57 and
107 to 112, other than the financial statements and our auditor’s report thereon.
The directors are
responsible for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to
the extent otherwise explicitly stated in this report, we do not express any form of assurance
conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our knowledge obtained
in the course of the audit or otherwise appears to be materially misstated. If we identify such
material inconsistencies or apparent material misstatements, we are required to determine
whether this gives rise to a material misstatement in the financial statements themselves. If,
based on the work we have performed, we conclude that there is a material misstatement of the
other information, we are required to report that fact.
We have nothing to report in this regard.
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
66
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CVC INCOME &
GROWTH LIMITED(CONTINUED)
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the Companies
(Jersey) Law 1991 requires us to report to you if, in our opinion:
z
proper accounting records have not been kept by the company, or proper returns adequate
for our audit have not been received from branches not visited by us; or
z
the financial statements are not in agreement with the company’s accounting records and
returns; or
z
we have not received all the information and explanations we require for our audit.
Corporate Governance Statement
We have reviewed the directors’ statement in relation to going concern, longer-term viability and
that part of the Corporate Governance Statement relating to the company’s compliance with
the provisions of the UK Corporate Governance Code specified for our review by the Listing Rules.
Based on the work undertaken as part of our audit, we have concluded that each of the following
elements of the Corporate Governance Statement is materially consistent with the financial
statements or our knowledge obtained during the audit:
z
Directors’ statement with regards to the appropriateness of adopting the going concern
basis of accounting and any material uncertainties identified set out on page 22 of the
annual financial report.
z
Directors’ explanation as to its assessment of the company’s prospects, the period this
assessment covers and why the period is appropriate set out on pages 22 to 23 of the annual
financial report.
z
Director’s statement on whether it has a reasonable expectation that the company will
be able to continue in operation and meets its liabilities set out on page 22 of the annual
financial report.
z
Directors’ statement on fair, balanced and understandable set out on page 40 of the annual
financial report.
z
Board’s confirmation that it has carried out a robust assessment of the emerging and
principal risks set out on pages 26 to 29 of the annual financial report.
z
The section of the annual report that describes the review of effectiveness of risk
management and internal control systems set out on pages 47 to 48 of the annual financial
report; and;
z
The section describing the work of the Audit Committee set out on pages 50 to 51 of the
annual financial report.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, as set out on page 50, the
directors are responsible for the preparation of the financial statements and for being satisfied
that they give a true and fair view, and for such internal control as the directors determine
is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the company’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern
and using the going concern basis of accounting unless the directors either intend to liquidate
the company or to cease operations, or have no realistic alternative but to do so.
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
67
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CVC INCOME &
GROWTH LIMITED(CONTINUED)
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect
a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these financial statements.
Explanation as to what extent the audit was considered capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations.
We design procedures in line with our responsibilities, outlined above, to detect irregularities,
including fraud. The risk of not detecting a material misstatement due to fraud is higher than the
risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for
example, forgery or intentional misrepresentations, or through collusion. The extent to which our
procedures are capable of detecting irregularities, including fraud is detailed below.
However, the primary responsibility for the prevention and detection of fraud rests with both
those charged with governance of the company and management.
z
We obtained an understanding of the legal and regulatory frameworks that are applicable
to the company and determined that the most significant are International Financial
Reporting Standards as adopted by the European Union, the Companies (Jersey) Law 1991,
UK Corporate Governance Code (taken in the context of the AIC Code), and the Listing
Rules.
z
We understood how the company is complying with those frameworks by making enquiries
with the directors including the Chairman of the Audit Committee. We corroborated our
understanding through our review of board minutes and board papers provided to the Audit
Committee.
z
We assessed the susceptibility of the company’s financial statements to material
misstatement, including how fraud might occur by considering the key risks impacting
the financial statements. We identified fraud risks in relation to inappropriate revenue
recognition with respect to investment revenue, including risk of management override in
relation to inappropriate journal entries and risk of incorrect valuation of investments. Our
audit procedures stated above in the ‘Key audit matters’ section of this Auditor’s report,
including test of journal entries, were performed to address these identified fraud risks.
z
Based on this understanding we designed our audit procedures to identify non-compliance
with such laws and regulations. Our procedures involved journal entry testing, with a focus
on manual journals, journals posted around the year end date and other focused testing
procedures.
A further description of our responsibilities for the audit of the financial statements is located on
the Financial Reporting Council’s website at
https://www.frc.org.uk/auditorsresponsibilities
. This
description forms part of our auditor’s report.
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
68
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CVC INCOME &
GROWTH LIMITED(CONTINUED)
Other matters we are required to address
z
Following the recommendation from the Audit Committee, we were re-appointed by the
company on 18 November 2022 to audit the financial statements for the year ending 31
December 2023 and subsequent financial periods.
The period of total uninterrupted engagement including previous renewals and
reappointments is 9 years, covering the years ending 31 December 2014 to 31 December
2022.
z
The audit opinion is consistent with the additional report to the Audit Committee.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Article 113A
of the Companies (Jersey) Law 1991. 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.
Denise Davidson
for and on behalf of Ernst & Young LLP
London
28 March 2023
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
70
STATEMENT OF COMPREHENSIVE INCOME
For the year from 1 January 2022 to 31 December 2022
Year ended
31 December
2022
Year ended
31 December
2021
Notes
€
€
Income
Investment revenue
Tender fee revenue
3
Bank interest revenue
Net (losses)/gains on financial assets held at fair value
through profit or loss
7
(33,535,183 )
Foreign exchange (loss)/gain on financial assets held at
fair value through profit or loss
7
(8,497,450 )
Foreign exchange gain/(loss) on ordinary shares
12
(12,484,070 )
Other net foreign currency exchange (loss)/gain through
profit or loss
(106,967 )
(18,237,293 )
Expenses
Operating expenses
4
(1,701,289 )
(1,402,690 )
(1,701,289 )
(1,402,690 )
(Loss)/profit before finance costs and taxation
(19,938,582 )
Finance costs
Dividends paid
5, 12
(13,833,833 )
(14,328,495 )
Bank interest expense
(2,128 )
(Loss)/profit before taxation
(33,772,415 )
Taxation
(Decrease)/increase in net assets attributable to
shareholders from operations
(33,772,415 )
(Loss)/return per Euro Share
12
€(0.14400 )
€0.083772
(Loss)/return per Sterling Share (Sterling equivalent)
12
£(0.12750 )
£0.070438
All items in the above statement are derived from continuing operations.
The Company has no items of other comprehensive (loss)/income.
The notes on pages 74 to 106 form an integral part of these financial statements.
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
71
STATEMENT OF FINANCIAL POSITION
As at 31 December 2022
31 December
2022
31 December
2021
Notes
€
€
Assets
Financial assets held at fair value through profit or
loss
7
Prepayments
Cash and cash equivalents
Total assets
Liabilities
Payables
9
Total liabilities excluding net assets attributable to
shareholders
Net assets attributable to shareholders
13
Total Liabilities
2023 and signed on its behalf by:
Richard Boléat
Mark Tucker
Chairman Audit
The notes on pages 74 to 106 form an integral part of these financial statements.
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
72
STATEMENT OF CHANGES IN NET ASSETS
For the year ended 31 December 2022
Net assets
attributable to
shareholders
2022
Note
€
As at 1 January 2022
Issuance and subscriptions arising from conversion of ordinary shares
12
Redemption payments arising on conversion and tender of ordinary
shares
12
(39,153,683 )
Decrease in net assets attributable to shareholders from operations
(33,772,415 )
Net foreign currency exchange gain on opening ordinary shares
12
(8,642,248 )
As at 31 December 2022
For the year ended 31 December 2021
Net assets
attributable to
shareholders
2021
Note
€
As at 1 January 2021
Issuance and subscriptions arising from conversion of ordinary
shares
12
Redemption payments arising on conversion and tender of ordinary
shares
12
(81,510,535 )
Increase in net assets attributable to shareholders from operations
Net foreign currency exchange loss on opening ordinary shares
12
As at 31 December 2021
The notes on pages 74 to 106 form an integral part of these financial statements.
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
73
STATEMENT OF CASH FLOWS
For the year ended 31 December 2022
Year ended
31 December
2022
Year ended
31 December
2021
Note
€
€
Cash flows from operating activities
(Loss)/profit before taxation
1
(33,772,415 )
Adjustments to reconcile (loss)/profit before tax to net
cash flows:
– Net losses/(gains) on investments held at fair value
through profit or loss
7
(21,595,428 )
– Foreign exchange loss/(gain) on financial assets held
at fair value through profit or loss
7
(12,303,760 )
– Foreign currency exchange (gain)/loss on ordinary
shares
12
(8,642,248 )
– Dividends paid
12
Changes in working capital:
– Decrease/(increase) in prepayments
(32,961 )
– Increase in payables
Net cash provided by operating activities
Cash flows from investing activities
Proceeds from redemption of financial assets held at
fair value through profit or loss
2
7
Net cash provided by investing activities
Cash flows from financing activities
Payments from redemption of ordinary shares
3
12
(33,198,148 )
(66,650,700 )
Dividends paid
12
(13,833,833 )
(14,328,495 )
Net cash used in financing activities
(47,031,981 )
(80,979,195 )
Net (decrease)/increase in cash and cash equivalents
in the year
(805,241 )
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at the end of the year
1
Includes cash receipts relating to income distributions of €14,901,667 (2021: €15,609,665 ), interest revenue of €22,770
(2021: €(2,128 )) and tender fee revenue of €335,621 (2021: €646,329 ).
2
Cash flows arising from purchases and redemptions of financial assets above does not include subscriptions and
redemptions arising from conversion of €(5,991,717 ) (2021: €(14,795,161 )) and €5,955,535 (2021: €14,859,835 , respectively,
as these transactions have no associated cash flow.
3
Cash flows arising from the issuance and redemption of ordinary shares above does not include subscriptions and
redemptions arising from conversion of €5,991,717 (2021: €14,795,161 ) and €(5,955,535 ) (2021: €(14,859,835 )), respectively,
as these transactions have no associated cash flow.
The notes on pages 74 to 106 form an integral part of these financial statements.
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
NOTES TO THE FINANCIAL STATEMENTS
74
The Company was incorporated on 20 March 2013 and is registered in Jersey as a closed-ended
investment company with registration number 112635. The Company’s Euro shares and Sterling
shares were admitted to the Official List of the UK Listing Authority (“UKLA”) and admitted to
trading on the Main Market of the London Stock Exchange on 25 June 2013.
The principal accounting policies applied in the preparation of these financial statements are set
out below. These policies have been consistently applied to the years presented.
The Annual Financial Report is prepared in accordance with the Disclosure Guidance and
Transparency Rules of the Financial Conduct Authority (“FCA”) and with International Financial
Reporting Standards (“IFRS”) as adopted by the European Union which comprise standards and
interpretations approved by the International Accounting Standards Board, and interpretations
issued by the International Financial Reporting Standards Interpretations Committee as
approved by the International Accounting Standards Board which remain in effect. The financial
statements give a true and fair view of the Company’s affairs and comply with the requirements
of the Companies (Jersey) Law 1991.
The liquidity method of presentation is followed in the Statement of Financial Position. Please
(b) Basis of measurement
These financial statements have been prepared on the historical cost basis except for the
revaluation of financial assets held at fair value through profit or loss and ordinary shares that
are held at amortised cost.
The Company’s functional currency is the Euro, which is the currency of the primary economic
environment in which it operates. The Company’s performance is evaluated and its liquidity is
managed in Euros. Therefore, the Euro is considered the currency that most faithfully represents
the economic effects of the underlying transactions, events and conditions. The financial
statements are presented in Euros, except where otherwise indicated, and are rounded to the
The preparation of financial statements in conformity with IFRS requires the Company to make
judgements, estimates and assumptions that affect items reported in the Statement of Financial
Position and Statement of Comprehensive Income and the disclosure of contingent liabilities at
the date of the financial statements. It also requires management to exercise its judgement in
the process of applying the Company’s accounting policies.
Critical accounting judgements
Classification of ordinary shares as a financial liability
During the May 2022 AGM, shareholders reapproved a suspension restriction that allows the
Directors, in their sole discretion, to alter or suspend the tender mechanism. This restriction
allows the Directors to respond to sudden changes in market conditions and the macro-economic
climate more generally. The Directors’ power is limited by clauses in the circular which limit the
circumstances under which such discretion can be exercised only in relation to material and
adverse changes in market conditions and the macroeconomic environment.
The Board believe it is appropriate to classify the ordinary shares as a financial liability under IAS
32 – Financial Instruments: Presentation (“IAS 32”) rather than equity as their interpretation of
‘suspend’ is to delay the facility tenders, not to cancel or avoid them permanently. As such, the
obligation to honour redemption requests is delayed rather than negated and the Company has a
contractual obligation to deliver cash and does not have the unconditional right to avoid paying
such cash.
This position has been further supported by legal correspondence whereby the Company’s legal
counsel has confirmed the Directors do not have unfettered ability to cancel a tender under
the facility and could only use their powers in extreme circumstances (e.g. Covid-19 pandemic,
Russia/Ukraine war, etc.) which would not violate the contract between the Directors and the
shareholders in relation to the facility. In the circular, the Company has committed to the tender
mechanism as a key feature and, therefore, if the Directors’ powers are read in the context of the
other representations in the documents, there is an obligation to deliver cash and the Directors
do not have the unconditional right to avoid paying such cash. As such, classification of the
ordinary shares as a liability is deemed appropriate.
Climate change
In preparing the financial statements, the Directors have considered the impact of climate
change and have concluded that climate-related matters have no material financial impact
on the Company’s financial statements as there were no significant climate change related
issues in any of the issuers in which the Investment Vehicle invests. The Directors will continue to
monitor the reputational risks emanating from climate change identified in the principal risks
and uncertainties section of the Strategic Report.
Critical accounting estimates
Valuation of financial assets
Valuation of financial assets is also considered a significant estimate and is monitored by the
Board to ensure that judgements, estimates and assumptions made and methodologies applied
are appropriate and in accordance with IFRS 13. The Board believes that it is appropriate to measure
the PECs at the NAV of the investments held at the Investment Vehicle, adjusted for discount for
lack of liquidity if necessary, as the underlying investments held at the Investment Vehicle are
held at fair value. As such the Board applies judgement to determine the liquidity adjustment
necessary in the relevant financial period. Please refer to note 2.4(c) for details regarding fair
value estimation of financial assets and note 7 for IFRS 13 disclosures.
The Board has concluded that no adjustment was necessary in the current year, given that the
PECs have not been redeemed at a price below the NAV during current and prior periods.
As outlined above in note 2.1(c) the Directors have used their judgement to determine that the
Company’s presentational and functional currency is Euro.
Although these judgements, estimates and assumptions are based on best knowledge of current
facts, circumstances and, to some extent, future events and actions, the actual results may
(e) New standards, amendments and interpretations
The amendments have no impact on the financial statements.
(f) Standards, amendments and interpretations issued but not yet effective
Standards, amendments and interpretations that become effective in future accounting periods
and have not been adopted by the Company:
International Financial Reporting Standards (IFRS)
Effective for periods
beginning on or after
•
IFRS 17 – Insurance Contracts
1 January 2023
•
IAS 8 - Accounting Policies, Changes in Accounting Estimates
and Errors - amendments regarding the definition of
accounting estimates
1 January 2023
As the Company does not participate in insurance contracts in the normal course of its business,
the Directors believe that the application of IFRS 17 – Insurance Contracts, will not have an impact
on the Company’s financial statements.
The amendments revise IAS 8 to replace the definition of a change in accounting estimates with
a definition of accounting estimates and provide other clarifications to help entities distinguish
accounting policies from accounting estimates. The Directors believe that the application of this
amendment will not have an impact on the Company’s financial statements.
A number of amendments and interpretations to existing standards have been issued, but are not
yet effective, that are not relevant to the Company’s operations. The Directors believe that the
application of these amendments and interpretations will not impact the Company’s financial
The Directors have reviewed the Company’s budget and cash flow forecast for the next 12 months
from the date of approval of the financial statements and also considered information regarding
climate-related matters in conjunction with other uncertainties. On the basis of this review, and
after making due enquiries, the Directors have a reasonable expectation that the Company has
adequate resources to continue in operational existence for the period to 27 March 2024, a period
of twelve months form the date of approval of the financial statements, being the period of
assessment covered by the Directors. The Directors are also satisfied that no material climate-
related matters or uncertainties exist that cast significant doubt over the Company’s ability to
continue as a going concern. In making this assessment, the Board have considered the impact
that Russia’s invasion of Ukraine may have on the Company. Accordingly, they continue to adopt
Transactions in foreign currencies are translated to Euro at the foreign exchange rate on the
transaction date. Monetary assets and liabilities denominated in foreign currencies at the
Statement of Financial Position date are translated to Euro at the foreign exchange rate ruling at
that date. Foreign exchange differences arising on translation are recognised in the Statement of
(a) Classification
The Company classifies its investments as financial assets held at fair value through profit or loss.
These financial assets do not possess contractual terms which give rise to cash flows on specified
dates that are solely payments of principal and interest, and therefore these financial assets
default to this classification. Financial assets also include cash and cash equivalents as well as
other receivables which are measured at amortised cost.
(b) Recognition, measurement and derecognition
Purchases and sales of investments are recognised on the trade date – the date on which the
Company commits to purchase or sell the investment. Financial assets at fair value through profit
or loss are measured initially and subsequently at fair value. Transaction costs are expensed as
incurred and movements in fair value are recorded in the Statement of Comprehensive Income.
Financial assets are derecognised when the rights to receive cash flows from the investments
have expired or the Company has transferred substantially all risks and rewards of ownership.
(c) Fair value estimation
Fair value is the price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date. The Company
holds PECs issued by the Investment Vehicle. These investments are not listed or quoted on any
securities exchange and are not traded regularly and, on this basis, no active market exists.
(d) Valuation process
The Company relies on the Board of the Investment Vehicle making fair value estimates
of an equivalent basis to those that would be made under IFRS. As at 31 December 2022, the
Directors reviewed documentary evidence of the valuation of Investment Vehicle investments
and scrutinised fair value estimates used to gain assurances as to the appropriateness and
robustness of the valuation methodology applied by the Investment Vehicle to its underlying
portfolio assets and hence to the Company investments in the Investment Vehicle. Being satisfied
by the appropriateness and robustness of the valuation methodology applied by the Investment
Vehicle, the Directors then incorporated those fair value estimates into the Company’s Statement
of Financial Position without adjustment.
The Directors interviewed representatives of the Investment Vehicle Manager in order to verify
how the PECs are valued and the composition of the NAV of the PECs as of the date of the
Statement of Financial Position.
The Directors are in regular communications with the Investment Vehicle Manager and receive
monthly performance reports from the Investment Vehicle Manager in respect of the Investment
Vehicle and its underlying investments, which are presented to the Directors by the Investment
Vehicle Manager and discussed by these parties.
The Directors consider the impact of general credit conditions on the valuation of both the PECs
and Investment Vehicle portfolio, as well as specific credit events in the European corporate
environment. The Directors also analyse the Investment Vehicle portfolio in terms of both
(a) Classification
As disclosed in note 2.7, the Company classifies its ordinary shares as financial liabilities held at
amortised cost. Financial liabilities also include payables, excluding accruals, which are also held
at amortised cost.
(b) Recognition, measurement and derecognition
Financial liabilities are recognised initially at fair value plus any directly attributable incremental
costs of acquisition or issue and are subsequently carried at amortised cost. Financial liabilities
are derecognised when the obligation specified in the contract is discharged, cancelled or expires.
Ordinary shares are carried at amortised cost, being the redemption value that an investor can
Operating expenses, placing programme costs and share issue costs are recognised on an accruals
Dividends are recognised as finance costs in the Statement of Comprehensive Income on the
In accordance with IAS 32 – Financial Instruments: Presentation, the ordinary shares are classified
as a financial liability rather than equity due to the redemption mechanism of the ordinary
shares, in addition to there being two share classes which have different characteristics. Refer to
note 2.1(d) for detail on critical accounting judgements regarding the classification of ordinary
2.8 Management shares
The management shares are non-redeemable and the most subordinate share class. Therefore,
management shares are classified as equity. Please refer to note 11 for further detail.
Investment revenue primarily relates to quarterly income distributions received from the Investment
Vehicle based on income returns and capital appreciation from a diversified portfolio of sub-
investment grade debt instruments. The Company is entitled to receive income distributions every
quarter, which will equate to not less than 75% of the net income of the Company’s investment
in the Investment Vehicle. Investment revenue is recognised in the Statement of Comprehensive
Cash and cash equivalents include cash in hand and deposits held at call with banks. Cash
equivalents are short-term, highly liquid investments, with original maturities of three months
or less that are readily convertible to known amounts of cash and are subject to an insignificant
The Directors view the operations of the Company as one operating segment, being the investment
business. All significant operating decisions are based upon analysis of the Company’s investments
as one segment. The financial results from this segment are equivalent to the financial results
of the Company as a whole, which are evaluated regularly by the Board with insight from the
A contingent liability is a possible obligation depending on whether some uncertain future event
occurs; or a present obligation, but payment is not probable or the amount cannot be measured
reliably. A provision is recognised when:
z
the Company has a present legal or constructive obligation as a result of past events;
z
it is probable that an outflow of resources will be required to settle the obligation; and
z
Profits arising in the Company for the 2022 year of assessment will be subject to Jersey tax at the
The Board defines capital as financial resources available to the Company. The Company’s
capital as at 31 December 2022 comprises its net assets attributable to shareholders at a total of
€236,839,070 (2021: €312,415,699).
The Company’s objectives when managing capital are to:
z
safeguard the Company’s ability to continue as a going concern;
z
provide returns for shareholders; and
z
maintain an optimal capital structure to minimise the cost of capital.
The Board monitors the capital adequacy of the Company on an on-going basis and the Company’s
objectives regarding capital management have been met.
Under the Code of Practice for Alternative Investment Funds and AIF Services Business, the
Company, as a self-managed AIF is required to have an initial capital of at least €300,000. With
the exception of the aforementioned, the Company has no other internally or externally imposed
The tender price pursuant to the Company’s tender mechanism is calculated based on the NAV
per share (calculated as at the final business day in each quarter up until, and including, the
March 2022 tender and thereafter (i) as at the final Business Day of the month of September
2022; or (ii) as at the final Business Day of the month of March 2023, or such other date as
the Directors in their absolute discretion may determine from time to time) minus 1.0% of the
Reference Price (the Reference Price being €1.00 per Euro share and £1.00 per Sterling share),
which is retained by the Company. The Company recognises retained redemption proceeds of 1%
as tender fee revenue.
During the year 9,678,734 Euro shares and 18,457,960 Sterling shares (2021: 14,490,284 Euro shares
and 43,101,194 Sterling shares) have been tendered by shareholders which generated tender fee
Year ended
31 December
2022
€
Year ended
31 December
2021
€
Directors’ fees (see note 6)
313,968
221,748
Administration fees
246,133
248,809
Professional fees
404,433
189,334
Advisor fees
167,910
137,001
Audit fees
84,543
81,118
Registrar fees
67,503
76,424
Regulatory fees
53,675
69,143
Corporate Broker fees
54,752
53,375
Marketing fees
70,278
47,820
Recruitment fees
-
43,627
Trustee fees
11,879
11,026
Non-audit fees paid to the Auditor
12,442
11,750
Sundry expenses
213,773
211,515
Total operating expenses
1,701,289
1,402,690
Non-audit fees paid to the Auditor relate to interim review services amounting to €12,442 (2021:
€11,750).
Advisor fees
CVC Credit Partners Investment Services Management Limited (the “Corporate Services
Manager”) agreed to provide the services of Mr Justin Atkinson to assist with the marketing
and promotion of the Company’s shares (the “Advisor fees”). The Corporate Services Manager
recharges the Company for Mr Atkinson’s cost. During the year, Advisor fees incurred were
€167,910 (2021: €137,001).
Trustee fees
Trustee fees relate to fees paid to the trustee of the Trust which facilitates the conversion of
treasury shares as further described in note 12. As the Trust was not engaged to convert treasury
shares during the year ended 31 December 2022, the Trust did not earn any commission fee income
for providing such services. As such, the Board agreed to settle the expenses of the Trust, being
trustee fees of £10,126 (€11879) (2021: £9,525 (€11,026)) which were paid to BNP Paribas Jersey
Dividends paid
During the year ended 31 December 2022, the Directors of the Company were remunerated for
their services as follows:
Director
Year ended
31 December 2022
Year ended
31 December 2021
Richard Boléat (Chairman)
- Annual Fee
£65,000 (€76,257)
£65,000 (€75,534)
- One-off strategic review fee*
£15,000 (€17,598)
-
Mark Tucker
- Annual Fee
£43,750 (€51,327)
£43,750 (€50,899)
- Senior Independent Director
£1,250 (€1,467)
£1,250 (€1,454)
- Chairman of the Audit Committee
£5,000 (€5,866)
£5,000 (€5,817)
- One-off strategic review fee*
£10,000 (€11,732)
-
Stephanie Carbonneil
- Annual Fee
£42,500 (€49,860)
£42,500 (€49,445)
- Chair of the Nomination and Remuneration
Committee
£5,000 (€5,866)
£5,000 (€5,817)
- One-off strategic review fee*
£10,000 (€11,732)
-
Vanessa Neill**
- Annual Fee
£42,500 (€49,860)
-
- Chair of the ESG Committee
£5,000 (€5,866)
-
- One-off strategic review fee*
£10,000 (€11,732)
-
Esther Gilbert***
- Annual Fee
£42,500 (€49,860)
-
* The Directors received a one-off strategic review fee in connection with additional work undertaken on the Company’s
strategic review.
** Vanessa Neill’s annual, Chair of the ESG committee and one-off strategic review fees were paid on a pro-rata basis,
pursuant to her appointment as a Non-Executive Director on 11 January 2022. Amounts paid are £41,219 (€48,357), £4,849
(€5,689) and £9,699 (€11,378) respectively.
*** Esther Gilbert’s annual fees were paid on a pro-rata basis, pursuant to her appointment as a Non-Executive Director
on 23 September 2022. Amount paid is £11,644 (€13,660).
Refer to note 4 for details of total Directors fees for the year ended 31 December 2022 and
31 December 2021. Director’s fees are paid gross of any taxes. Expenses incurred by the Directors
are included within sundry expenses within note 4. Details of the shares held by each Director at
the date of approval of this report can be found on page 39.
No pension contributions were payable in respect of any of the Directors.
The Company has no employees.
Richard Boléat acts as the enforcer of the CVC Credit Partners European Opportunities Limited
Purpose Trust. Please refer to note 15 for further detail.
The Directors made the following share purchases during the year:
Director
Shares
Share Class
Date of trade Price per share
Total Price
Mark Tucker
10,000
Sterling
21/06/2022
£0.967239
(€1.126737)
£9,672.39
(€11,267.37)
Vanessa Neill
11,780
Sterling
03/08/2022
£0.902263
(€1.079377)
£10,628.66
(€12,715.06)
Richard Boléat
10,000
Sterling
27/09/2022
£0.966941
(€1.077366)
£9,669.41
(€10,773.66)
Esther Gilbert
7,273
Sterling
09/11/2022
£0.883090
(€1.002219)
£6,422.71
31 December
2022
€
31 December
2021
€
PECs - Unquoted investment
234,969,326
309,706,971
The PECs are valued taking into consideration a range of factors including the audited NAV of
the Investment Vehicle as well as available financial and trading information of the Investment
Vehicle and of its underlying portfolio; the price of recent transactions of PECs redeemed and
advice received from the Investment Vehicle Manager; and such other factors as the Directors,
in their sole discretion, deem relevant in considering a positive or negative adjustment to the
valuation.
As at the year ended 31 December 2022, the Company held 103,934,273.50 Euro PECs and
127,666,119.03 Sterling PECs (2021: 118,672,886.93 Euro PECs and 142,063,595.26 Sterling PECs).
Please refer below for reconciliation of PECs from 1 January 2021:
Euro PECs
Sterling PECs
As at 1 January 2021
123,587,333.61 193,056,156.64
Subscriptions
-
-
Monthly conversions
9,421,597.32
(7,729,409.38)
Quarterly tenders
(14,336,044.00) (43,263,152.00)
As at 31 December 2021
118,672,886.93 142,063,595.26
Subscriptions
-
-
Monthly conversions
(5,210,131.43)
4,137,739.77
Contractual tenders
(9,528,482.00)
(18,535,216.00)
As at 31 December 2022
103,934,273.50
127,666,119.03
Fair value hierarchy
IFRS 13 ‘Fair Value Measurement’ (“IFRS 13”) requires an analysis of investments valued at fair
value based on the reliability and significance of information used to measure their fair value.
The Company categorises its financial assets and financial liabilities according to the following
fair value hierarchy detailed in IFRS 13, that reflects the significance of the inputs used in
determining their fair values:
Level 1:
Quoted market price (unadjusted) in an active market for an identical instrument.
Level 2:
Valuation techniques based on observable inputs, either directly (i.e., as prices) or
indirectly (i.e., derived from prices). This category includes instruments valued using: quoted
market prices in active markets for similar instruments; quoted prices for identical or similar
instruments in markets that are considered less than active; or other valuation techniques where
all significant inputs are directly or indirectly observable from market data.
Level 3:
Valuation techniques using significant unobservable inputs. This category includes all
instruments where the valuation technique includes inputs not based on observable data and
the unobservable variable inputs have a significant effect on the instrument’s valuation. This
category includes instruments that are valued based on quoted prices for similar instruments
where significant unobservable adjustments or assumptions are required to reflect differences
between the instruments.
As at 31 December 2022
Level 1
€
Level 2
€
Level 3
€
Total
€
Financial assets
Financial assets held at fair value
through profit or loss
-
-
234,969,326
234,969,326
Financial liabilities
Ordinary shares
1
220,750,561
-
-
220,750,560
As at 31 December 2021
Level 1
€
Level 2
€
Level 3
€
Total
€
Financial assets
Financial assets held at fair value
through profit or loss
-
-
309,706,971
309,706,971
Financial liabilities
Ordinary shares
1
291,969,674
-
-
291,969,674
1
As disclosed in note 2.7, the Company classifies its ordinary shares as financial liabilities held at amortised cost. Please
note for disclosure purposes only, ordinary shares have been disclosed at fair value using the quoted price in accordance
with IFRS 13.
The fair value of investments is assessed on an ongoing basis by the Board.
Due to the short-term nature of the payables, their carrying amount is considered to be the same
as their fair value.
The carrying amount of cash and cash equivalents is considered to be the same as their fair value.
Level 3 reconciliation
The following table shows a reconciliation of all movements in the fair value of financial assets
held at fair value through profit or loss categorised within Level 3 between the beginning and the
end of the reporting period.
31 December
2022
€
Balance as at 1 January 2022
309,706,971
Purchases
-
Subscriptions arising from conversion
5,991,716
Redemption proceeds arising from conversion
(5,955,535)
Redemption proceeds arising from tenders
(32,741,193)
Realised loss on financial assets held at fair value through profit or loss
(311,842)
Unrealised loss on financial assets held at fair value through profit or loss
(33,223,341)
Foreign exchange loss on financial assets held at fair value through profit or loss
(8,497,450)
Balance as at 31 December 2022
234,969,326
Net loss on financial assets held at fair value through profit or loss for the
year ended 31 December 2022
33,535,183
During 2022, there were no reclassifications between levels of the fair value hierarchy.
31 December
2021
€
Balance as at 1 January 2021
341,742,461
Purchases
-
Subscriptions arising from conversion
14,795,162
Redemption proceeds arising from conversion
(14,859,836)
Redemption proceeds arising from tenders
(65,870,004)
Realised loss on financial assets held at fair value through profit or loss
(1,282,445)
Unrealised gain on financial assets held at fair value through profit or loss
22,877,873
Foreign exchange loss on financial assets held at fair value through profit or loss
12,303,760
Balance as at 31 December 2021
309,706,971
Net loss on financial assets held at fair value through profit or loss for the year
ended 31 December 2021
21,595,428
During 2021, there were no reclassifications between levels of the fair value hierarchy.
Quantitative information of significant unobservable inputs – Level 3 – PECs
Description
31 December
2022
€
Valuation technique
Unobservable input
Input used
PECs
234,969,326
Adjusted net asset value
Discount for lack of liquidity
0%
Description
31 December
2021
€
Valuation technique
Unobservable input
Input used
PECs
309,706,971
Adjusted net asset value
Discount for lack of liquidity
0%
The Board believes that it is appropriate to measure the PECs at the NAV of the investments held
at the Investment Vehicle, adjusted for discount for lack of liquidity if necessary, as the underlying
investments held at the Investment Vehicle are held at fair value. The Board has concluded that
no adjustment was necessary in the current year (2021: none).
The net asset value of the Investment Vehicle attributable to each PEC unit is €1.0131 (2021:
€1.1878).
Sensitivity analysis to significant changes in unobservable inputs within Level 3
hierarchy – Level 3 – PECs
The significant unobservable inputs used in the fair value measurement categorised within Level 3
of the fair value hierarchy together with a quantitative sensitivity analysis as at 31 December 2022
and comparative are as shown below:
As at 31 December 2022
Description
Input
Sensitivity used
Effect on fair value
€
PECs
Discount of lack of liquidity
3%
(7,049,080)
As at 31 December 2021
Description
Input
Sensitivity used
Effect on fair value
€
PECs
Discount of lack of liquidity
3%
(9,291,209)
The sensitivity applied in the analysis above reflects the possible impact of the worst case scenario
in the 0-3% (2021: 0-3%) range that is applicable to the discount for lack of liquidity. This level
of change is considered to be possible based on observation of current market conditions and
historical trends that do not suggest the possibility of a more than 3% decline in the redemption
value when compared to the NAV. Refer to note 2.4 for valuation methodology of PECs.
Listed equity securities and corporate bonds
The fair values of listed equity securities and corporate bonds at the reporting date are based on
quoted market prices or binding dealer price quotations (bid price for long positions and ask price
for short positions), without any deduction for transaction costs. The listed equity securities and
corporate bonds are included within Level 1 of the hierarchy.
Unlisted equities, warrants and debt securities
For all other financial instruments, fair value is determined using valuation techniques.
The Investment Vehicle invests in some unlisted equities, warrants, corporate bonds and other
debt securities. When these instruments are not measured at the quoted price in an active
market, they are valued using observable inputs, initially sourcing broker quotes from a number of
sources and, where this data does not yield a reliable market price, utilising appropriate valuation
techniques, such as recently executed transaction prices in securities of the issuer or comparable
issuers. Adjustments are made to the valuations when necessary to recognise differences in
the instrument’s terms. To the extent that these inputs are observable, the Investment Vehicle
classifies the fair value of these investments as Level 2.
The Compartment invests in unlisted corporate debt and managed CLOs, including asset backed
securities. These investments are generally not quoted in an active market and may be subject
to restrictions on redemptions such as lock up periods. Transactions in these assets do not occur
on a regular basis. Investments in these debt securities are valued based on a combination of a
third-party pricing service, an appraisal of the performance of the issuing company and utilising
appropriate valuation techniques such as counterparty marks and recently executed transaction
prices in securities of the issuer or comparable issuers. The Investment Vehicle has classified the
fair value of these investments as Level 3 for this financial year.
Forward currency contracts
Foreign currency forward contracts are recognised as contractual commitments on a trade date
basis and are carried at fair value based on quotes obtained from an independent source (e.g.
Bloomberg). Foreign currency forward contracts are commitments to either purchase or sell a
designated currency at a future date for a specified price and are settled in cash. Foreign currency
forward contracts are valued by reference to the forward price at which a new contract of the
same size and remaining maturity could be undertaken at the valuation date. For these financial
instruments, significant inputs are market observable and are included within Level 2.
Valuation process for Level 3 investments
Valuations are the responsibility of the board of the Investment Vehicle, who have engaged the
Investment Vehicle Services Manager, the Investment Vehicle Manager and the independent
service provider to independently value the assets on a monthly basis and perform a price
challenge process. Following the completion of the price challenge process, the Investment
Vehicle Manager presents the valuation of the assets to the Board on a monthly basis, including
a discussion on the assumptions used and significant fair value changes during the year.
Investments in CLOs are primarily valued based on the bid price as provided by the third-party
pricing service and may be amended following consideration of the Net Asset Value published by
the administrator of the CLOs. Furthermore, such a Net Asset Value is adjusted when necessary,
to reflect the effect of the time passed since the calculation date, liquidity risk, limitations on
redemptions and other factors. Depending on the fair value level of a CLO’s assets and liabilities,
and on the adjustments needed to the Net Asset Value published by that CLO, the Investment
Vehicle classifies the fair value of these investments as Level 3.
Investments in debt securities for which there are a limited number of broker quotes and for
which no other evidence of liquidity exists, and investments in unlisted equity and private equity
companies that are not quoted in an active market, are classified as Level 3. For debt securities
with a limited number of broker quotes, these are then valued by considering in detail the limited
broker quotes available for evidence of outliers (which may skew the average) which, if existent,
are then removed, and then by calculating the average of the remaining quotes. For debt
securities and unlisted equity or private equity companies for which there are no broker quotes,
the Investment Vehicle Manager produces a pricing memorandum for the Investment Vehicle
drawing on the International Private Equity Valuation (“IPEV”) guidelines, which is discussed,
reviewed and accepted by the Investment Vehicle Manager’s board and the independent service
provider.
If the Investment Vehicle Manager and the independent service provider have difficulty in
establishing an agreed upon valuation for an asset, they will discuss and agree alternative
valuation methods.
The tables on page 85, detail the investment holding of the Company at the Investment Vehicle
level, categorising these assets according to the fair value hierarchy in accordance with IFRS
13 and detailing the quantitative information of significant unobservable inputs of the Level 3
investments held. The below disclosure has been included to provide an insight to shareholders
of the asset class mix held by the Investment Vehicle portfolio. It is important to note that as at
31 December 2022, the Company held a 52.04% (2021: 58.54%) interest in the net assets of the
Investment Vehicle. This disclosure has not been apportioned according to the Company’s PEC
holding, as the Board believes to do so would be misleading and not an accurate representation
The below information regarding the financial assets at fair value through profit or loss for the
Investment Vehicle has been included for informational purposes only.
Financial assets at fair value through profit or loss – (for Investment Vehicle)
31 December 2022
Financial assets
Level 1
€’000
Level 2
€’000
Level 3
€’000
€’000
Equity securities
Equities and warrants
-
-
18,641
18,641
Debt securities
Corporate bonds and other debt
securities
90,208
301,035
144,364
535,607
CLOs including Asset Backed
Securities
-
-
51,617
51,617
Derivative financial instruments
Forward currency contracts
-
13,555
-
13,555
Total
90,208
314,590
214,622
619,420
Financial assets and liabilities at fair value through profit or loss – (for Investment
Vehicle)
31 December 2021
Financial assets
Level 1
€’000
Level 2
€’000
Level 3
€’000
€’000
Equity securities
Equities and warrants
-
-
9,637
9,637
Debt securities
Corporate bonds and other debt
securities
155,985
409,061
89,216
654,262
CLOs including Asset Backed
Securities
-
-
33,307
33,307
Derivative financial instruments
Forward currency contracts
-
3,438
-
3,438
Total
155,985
412,499
132,160
700,644
Transfers between Level 2 and Level 3 – (for Investment Vehicle)
Following the Russian invasion of Ukraine, there was some material weakness in the European
leveraged loan market. However, despite the volatility, liquidity in the secondary market continued
to be adequate and the Investment Manager was able to continue to trade in the secondary
market.
There have been no new or additional risks arising to those that would already have been
considered and monitored by the Investment Manager.
No reclassifications from Level 1 to Level 3 in 2022 and 2021. During 2022, there were investments
reclassified from Level 2 to Level 3 having a market value of EUR 44.6 million (31 December 2021:
Nil). There were investments reclassified from Level 3 to Level 2 having a market value of EUR 4.1
million as at 31 December 2022 (31 December 2021: EUR 5.0 million).
Level 3 reconciliation – (for Investment Vehicle)
The following table shows a reconciliation of all movements in the fair value of financial
instruments categorised within Level 3 between the beginning and the end of the reporting year.
Equities
and
Warrants
€’000
Corporate
bonds and
other debt
securities
€’000
CLOs
(including
Asset Backed
Securities)
€’000
Total
€’000
Balance as at 1 January 2021
12,304
102,919
34,907
150,130
Total gains in statement of
comprehensive income during the
year
3,697
20,708
729
25,134
Purchases / subscriptions
77
61,441
20,762
82,280
Sales / redemptions
(6,441)
(90,890)
(23,091)
(120,422)
Transfers into and out of Level 3
-
(4,962)
-
(4,962)
Balances as at 31 December 2021
9,637
89,216
33,307
132,160
Total gains in statement of
comprehensive income during the
year
-
7,351
(7,351)
-
Purchases / subscriptions
9,006
(10,307)
(11,970)
(13,271)
Sales / redemptions
10,187
39,891
39,343
89,421
Transfers into and out of Level 3
-
40,456
-
40,456
Balances as at 31 December 2022
18,641
144,364
51,617
214,622
Total unrealised losses and gains
at 31 December 2021 included in
statement of comprehensive income
for assets held at the end of the
year
523
2,706
(120)
3,109
Total unrealised losses and gains
at 31 December 2022 included in
statement of comprehensive income
for assets held at the end of the
year
9,048
(11,616)
(11,999)
(14,567)
Quantitative information of significant unobservable inputs – Level 3 – (in
Investment Vehicle)
Description
31 December
2022
€’000
Valuation
technique
Unobservable
input
Range
(weighted
average)
Equities and warrants
2,952
Broker quotes /
other methods
Discount to broker
quotes / valuation
method
N/A
Equities and warrants
15,689
Asset value
approach
Valuation method
N/A
Corporate bonds and
other debt securities
16,596
Discounted Cash
Flow
Yield
8.15% –
12.3%
Corporate bonds and
other debt securities
127,768
Broker quotes /
other methods
Cost of market
transactions / multiple
of listed companies
/ management
information
N/A
CLOs
51,617
Broker quotes /
other methods
Specific valuations of
the industry: expert
valuation
N/A
Description
31 December
2021
€’000
Valuation
technique
Unobservable
input
Range
(weighted
average)
Equities and warrants
2,881
Broker quotes /
other methods
Discount to broker
quotes / valuation
method
N/A
Equities and warrants
6,756
Asset value
approach
Valuation method
N/A
Corporate bonds and
other debt securities
89,216
Broker quotes /
Market multiples
/ Discounted Cash
Flow
Cost of market
transactions / multiple
of listed companies
/ management
information
N/A
CLOs (including Asset
Backed Securities)
33,307
Broker quotes /
other methods
Specific valuations of
the industry: expert
valuation
N/A
The Board and CPIM have valued the CLO positions at bid-price as at 31 December 2022 and
31 December 2021, as they believe this is the most appropriate value for these positions. The
Board and CPIM believe that where certain credit facilities are classified as Level 3 due to limited
number of broker quotes, there is still sufficient supporting evidence of liquidity to value these at
an undiscounted bid price.
The above categorizations and descriptions of valuation technique and unobservable inputs,
including ranges, may vary year-on-year due to changes or evolutions in valuation techniques as
well as the addition or removal of positions due to trade activity or transfers to or from Level 3.
Sensitivity analysis to significant changes in unobservable inputs within Level 3
hierarchy – Level 3 – (for Investment Vehicle)
The significant unobservable inputs used in the fair value measurement categorised within Level 3
of the fair value hierarchy together with a quantitative sensitivity analysis as at 31 December 2022
are as shown below:
Description
Input
Sensitivity
used
Effect on fair
value €’000
Equities and warrants
Discount to broker quotes /
valuation method
20%
1,144 / (1,147)
Equities and warrants
Valuation method
20%
811 / (816)
Corporate bonds and other debt
securities
Yield
2.5%
(575) / 616
Corporate bonds and other debt
securities
Cost of market transactions /
Multiple of listed companies /
Management information
10%
12,777 / (12,777)
CLOs (including Asset Backed
Securities)
Specific valuations of the
industry: expert valuation
20%
10,323 / (10,323)
The significant unobservable inputs used in the fair value measurement categorised within Level 3
of the fair value hierarchy together with a quantitative sensitivity analysis as at 31 December 2021
are as shown below:
Description
Input
Sensitivity
used
Effect on fair
value €’000
Equities and warrants
Discount to broker quotes /
valuation method
20%
1,131 / (1,131)
Equities and warrants
Valuation method
20%
2,188 / (2,188)
Corporate bonds and other debt
securities
Cost of market transactions /
Multiple of listed companies /
Management information
10%
8,922 / (8,922)
CLOs (including Asset Backed
Securities)
Specific valuations of the
industry: expert valuation
20%
6,661 / (6,661)
The above categorizations, unobservable inputs and use of sensitivities may vary year-on-year
due to changes or evolutions in valuation techniques as well as the addition or removal of positions
due to trade activity or transfers to or from Level 3.
The below information regarding loans and borrowings for the Investment Vehicle, which are
financial liabilities held at amortised cost, has been included for informational purposes only.
Effective
interest rate
(EIR, %)
Maturity
31 December
2022
€’000
31 December
2021
€’000
Current interest-bearing loans
and borrowings
Loan - Bank (principal EUR 160
million)
1.35%
30-Sep-22
-
160,000
Interest on loan - Bank
-
389
-
160,389
Effective
interest rate
(EIR, %)
Maturity
31 December
2022
€’000
31 December
2021
€’000
Non-current interest-bearing
loans and borrowings
Loan – Bank (principal: EUR 157.5
million)
2.66%
28-Jul-25
157,328
-
Interest on loan - bank
763
-
158,091
-
Total loans and borrowings at year end
158,091
160,389
On 28 July 2022, the existing facility was fully paid and closed out and a new credit facility
agreement was entered into by the Compartment with a different finance provider. The new loan
facility has a maturity date of 28 July 2025 and a rate of interest of (a) Margin of 0.95%; and (b)
Euribor floor 0%.
A maximum of 20% of the Compartment’s Gross Assets (as defined in the PPM) are invested or
shall be invested in structured finance securities at any time. As at year-end, the Compartment
had an exposure to structured finance securities (CLOs) of 8.33% (2021:4.4%).
The financing bank has collateral to the loans held by the Compartment, and to high yield bonds
(to the extent that these are not subject to a repurchase agreement), as well as to the cash
The main risks arising from the Company’s financial instruments are credit risk, liquidity risk,
market risk, interest rate risk, valuation risk and foreign currency risk.
Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an
obligation or commitment that it has entered into with the Company. The Board has in place
monitoring procedures in respect of counterparty risk which is reviewed on an ongoing basis.
The Company’s credit risk is attributable to its financial assets at fair value through profit or loss,
financial assets receivable and cash and cash equivalents.
In the opinion of the Board, the carrying amounts of financial assets best represent the maximum
credit risk exposure to the Company. The Company’s financial assets exposed to credit risk
amounted to the following:
31 December
2022
€
31 December
2021
€
Financial assets held at fair value through profit or loss
234,969,326
309,706,971
Cash and cash equivalents
2,196,695
3,001,936
Total assets
237,166,021
312,708,907
The Company is indirectly exposed to credit risks associated with the investments held by the
Investment Vehicle. These credit risks include (among others): (i) the possibility that earnings of
Sensitivity analysis to significant changes in unobservable inputs within Level 3
hierarchy – Level 3 – (for Investment Vehicle) (continued)
an underlying issuer may be insufficient to meet its debt service obligations; (ii) an underlying
issuer’s assets declining in value; (iii) the declining creditworthiness of the Investment Vehicle’s
financial counterparties; and (iv) the declining creditworthiness, default and potential for
insolvency of issuers during periods of rising interest rates and/or economic downturn. An
economic downturn and/or rising interest rates could severely disrupt the leveraged finance
market and adversely affect the value of the Investment Vehicle’s investments and the ability
of issuers to repay principal and interest. In turn, this may adversely affect the performance of
the Investment Vehicle and, by extension, the Company’s business, financial condition, results of
operations, NAV and/or the market prices of the ordinary shares.
The Board discusses the creditworthiness of the Investment Vehicle’s underlying portfolio
constituents and banking counterparties (e.g. banks, money market funds and the issuers of the
debt securities) with CVC Credit Partners on a periodic basis.
The Compartment’s investment portfolio exposure, categorised according to the credit rating of
the issuers, is: BB 6%, B 65%, CCC 19% and not rated 10% (31 December 2021: BB 2%, B 68%, CCC
22% and not rated 8%). Cash and cash equivalents exposure is with institutions rated A+ 100%
(31 December 2021: A+ 100%). Derivative financial instruments market value exposure is with
institutions rated A+ 100% (31 December 2021: A+ 100%).
Cash amounts of €72,240 and £236,734 (€297,888) (2021: €33,765 and £492,341 (€585,541)
are placed with BNP Paribas S.A., Jersey Branch and £1,617,147 (€1,826,568) (2021: £2,003,389
(€2,382,630)) with Santander Financial Services plc, Jersey Branch.
BNP Paribas S.A., Jersey Branch, is a wholly owned subsidiary of BNP Paribas Securities Services
S.A. which is publicly traded and a constituent of the S&P 500 Index with a long-standing credit
rating of A+ (2021: A+) from Standard & Poor’s. Santander Financial Services plc, Jersey Branch, is
a wholly owned subsidiary of Santander International with a long-term credit rating of A1 from
Moody’s.
Liquidity risk is the risk that the Company will encounter difficulties in realising assets or otherwise
raising funds to meet financial commitments. Given that the PECs issued by the Investment
Vehicle and held by the Company are not traded on a stock exchange, the Company relies on
the periodic redemption mechanism provided by the Investment Vehicle in order to realise its
investments in the Investment Vehicle, and on mechanisms operating in accordance with their
contracted terms. The Company does not have any control over the redemption mechanism
operated by the Investment Vehicle.
Please refer to pages 26 to 29 – “Principal risks and uncertainties” and note 12 for detail regarding
the option available to ordinary shareholders to tender their ordinary shares, and the applicable
restrictions around that tender mechanism.
The Company may redeem PECs in accordance with its contracted rights. However, if the
Investment Vehicle receives applications to redeem Investment Vehicle interests in respect of
any redemption date and it determines (in its sole judgement) that there is insufficient liquidity
to make redemptions without prejudicing existing investors in the Investment Vehicle, then the
Investment Vehicle is entitled to suspend or scale down the redemption requests on a pro rata
basis so as to only carry out redemptions that will not prejudice remaining investors.
As such, in circumstances where the Company wishes to redeem part or all of its holdings in the
Investment Vehicle, it may not be able to achieve this on a single redemption date. This may also
result in restrictions on the Company’s ability to complete or to conduct the tender mechanism.
In certain circumstances, whether prior to or following a NAV determination date, (being the
Investment Vehicle valuation date), the Investment Vehicle directors may, at their discretion,
suspend all calculations, payments and redemptions of the outstanding Investment Vehicle
interests (including the Company’s Investment Vehicle interests).
In the event of a material adverse event occurring in relation to the Investment Vehicle or the
market in which it operates generally, the ability of the Company to realise its investment and
prevent the possibility of further losses could, therefore, be limited by its restricted ability to realise
its investment in the Investment Vehicle. This delay could materially affect the value of the PECs
and the timing of when the Company is able to realise its investments in the Investment Vehicle,
which may adversely affect the Company’s business, financial condition, results of operations,
NAV and/or the market prices of the ordinary shares.
The table below shows the worst case scenario of the residual contractual maturity of the
Company’s financial liabilities and the best case scenario for the financial assets as at 31 December
2022:
Less than
1 year
€
1 to 5
years
€
Total
€
Financial assets
Financial assets held at fair value through profit or
loss
1
124,915,876
110,053,450
234,969,326
Cash and cash equivalents
2,196,695
-
2,196,695
Total undiscounted financial assets
127,112,571
110,053,450
237,166,021
Financial liabilities
Payables
(377,325)
-
(377,325)
Ordinary shares
2
(59,209,767)
(177,629,303) (236,839,070)
Total undiscounted financial liabilities
(59,587,092) (177,629,303) (237,216,395)
1
The Company has classified financial assets held at fair value through profit or loss into maturity bands based on the
annual maximum redeemable PECs set by the Investment Vehicle Manager at 50% after the expected income distribution
which amounted to €14,862,427.
2
The Company has classified the ordinary shares into maturity bands based on the approved limits of the shares
redeemable by the shareholders with the maximum annual limit set at 25%. Details of the Company’s financial liabilities
in relation to the ordinary shares, which are carried at amortised cost, are set out in note 12. The ordinary shares above
include the lifetime decrease in net assets attributable to the Euro and Sterling shares.
The table below shows the worst case scenario of the residual contractual maturity of the financial
liabilities and the best case scenario for the financial assets as at 31 December 2021:
Less than
1 year
€
1 to 5
years
€
Total
€
Financial assets
Financial assets held at fair value through profit or
loss
1
162,617,276
147,089,695
309,706,971
Cash and cash equivalents
3,001,936
-
3,001,936
Total undiscounted financial assets
165,619,212
147,089,695
312,708,907
Financial liabilities
Payables
(371,590)
-
(371,590)
Ordinary shares
2
(156,207,850) (156,207,849) (312,415,699)
Total undiscounted financial liabilities
(156,579,440) (156,207,849) (312,787,289)
1
The Company has classified financial assets held at fair value through profit or loss into maturity bands based on the
annual maximum redeemable PECs set by the Investment Vehicle Manager at 50% after the expected income distribution
which amounted to €15,527,581.
2
The Company has classified the ordinary shares into maturity bands based on the approved limits of the shares
redeemable by the shareholders with the maximum annual limit set at 50%. Details of the Company’s financial liabilities
in relation to the ordinary shares, which are carried at amortised cost, are set out in note 12. The ordinary shares above
include the lifetime decrease in net assets attributable to the Euro and Sterling shares.
In the ordinary course of business, the Directors expect the Company’s tender mechanism to be
funded by redemptions from the Investment Vehicle, excepting cumulative tenders received in an
amount equal to or less than £100,000 which may initially, at the discretion of the Directors, be
Market risk is the risk that the Company’s performance will be adversely affected by changes in
the markets in which it invests. The Company holds a single investment in the form of PECs in the
Investment Vehicle which is the main driver of the Company’s performance.
At the Investment Vehicle level, performance is driven by the portfolio of the Investment Vehicle
and therefore consideration of the market risks to which the Company is exposed should be taken.
The Investment Vehicle is required to hold at least 60% of its gross assets in companies domiciled
in, or with material operations in, Western Europe. As such, the Company and the Investment
Vehicle could be particularly exposed to any deterioration in the current European economic
climate.
In addition, the Investment Vehicle does not have any restrictions on the amount of investments
it can make in a single industry. As such, any significant event which affects a specific industry in
which the Investment Vehicle has significant exposure could materially and adversely affect the
performance of the Investment Vehicle and, by extension, the Company’s ordinary shares.
In order to avoid excessive concentrations of risk, the Investment Vehicle’s private placement
memorandum includes specific guidelines on maintaining a diversified portfolio. These guidelines
are detailed in the “Investment Limits” and “Borrowing Limits” sections detailed on page 18.
The Board receives from third-party service providers the results of investment and borrowing
restriction monitoring exercises performed over the investment portfolio. During the year ended
31 December 2022, the Company was in compliance with all Investment and Borrowing limits.
Continued or recurring market deterioration may materially adversely affect the ability of an
issuer whose debt obligations form part of the Investment Vehicle portfolio to service its debts or
refinance its outstanding debt. Further, such financial market disruptions may have a negative
effect on the valuations of the Investment Vehicle investments (and, by extension, on the NAV
and/or the market price of the Company’s ordinary shares), and on liquidity events involving
such Investment Vehicle investments. In the future, non-performing assets in the Investment
Vehicle’s portfolio may cause the value of the Investment Vehicle’s portfolio to decrease (and,
by extension, the NAV and/or the market price of the Company’s ordinary shares to decrease).
Adverse economic conditions may also decrease the value of any security obtained in relation
to any of the Investment Vehicle investments. The Board receives frequent presentations and
reporting at board meetings from CVC Credit Partners which allows it to monitor the performance
of the Investment Vehicle’s investment portfolio.
Please refer below for sensitivity analysis on the Statement of Comprehensive Income and NAV
of the Company, if the fair value of the PECs at the year-end increased or decreased by 5% (2021:
5%). This level of change is considered to be possible based on observation of current market
conditions.
Current value
2022
Total
Increase by
5%
Decrease by
5%
Euro PECs
€94,343,115
€4,717,156
€(4,717,156)
Sterling PECs (Euro equivalent)
€140,626,211
€7,031,311
€(7,031,311)
Financial assets held at fair value through profit
or loss
€234,969,326
€11,748,466 €(11,748,466)
Sterling PECs
£124,503,064
£6,225,153
£(6,225,153)
Current value
2021
Total
Increase by
5%
Decrease by
5%
Euro PECs
€123,621,784
€6,181,089
€(6,181,089)
Sterling PECs (Euro equivalent)
€186,085,187
€9,304,259
€(9,304,259)
Financial assets held at fair value through profit
or loss
€309,706,971
€15,485,349 €(15,485,349)
Sterling PECs
£156,466,146
£7,823,307
£(7,823,307)
The above calculations are based on the investment valuation at the Statement of Financial
8.4 Interest rate risk
Interest rate movements affect the fair value of investments in fixed interest rate securities and
floating rate loans and on the level of income receivable on floating rate loans and cash deposits.
The Company invests in PECs which are non-interest bearing and therefore the majority of the
Company’s interest rate exposure arises in the fair value of the underlying Investment Vehicle
portfolio which is largely invested in the debt securities of companies domiciled in, or with
material operations in, Western Europe.
As at 31 December 2022, the Investment Vehicle portfolio contained interest bearing financial
assets at fair value through profit or loss of €587.2m (2021: €687.6m) and financial liabilities at
fair value through profit or loss of €nil (2021: € nil). Most of these investments in debt securities
carry variable interest rates and have various maturity dates. Interest rate risk on fixed interest
instruments is considered to be part of market risk on fair value and is monitored by the Board
on a monthly basis. In addition, as at 31 December 2022, the Company was exposed to interest
rate risk arising on the Investment Vehicle’s derivative financial instruments of €13.6m (2021:
€3.4m), receivables and payables on unsettled trades of €4.8m (2021: €35.9m) and €20.1m (2021:
€50.6m), respectively, and loans and borrowings of €158.1 (2021: €160.4).
The Company is also exposed to changes in interest rates on cash and cash equivalents held
directly of €2,196,695 (2021: €3,001,936). The Board considers this risk to be immaterial to the
Company.
8.5 Valuation risk
Valuation risk is the risk that the valuation of the Company’s investments in the Investment
Vehicle, and accordingly the periodic calculation of the NAV of the Company’s Euro and Sterling
shares, does not reflect the true value of the Company’s proportionate interest in the Investment
Vehicle’s underlying investment portfolio.
The Investment Vehicle’s portfolio may at any given time include securities or other financial
instruments or obligations which are very thinly traded, for which no ready market exists or which
are restricted as to their transferability under applicable securities laws. These investments may
be extremely difficult to value accurately.
Further, because of overall size or concentration in particular markets of positions held by the
Investment Vehicle, the value of its investments at which they can be liquidated may differ,
sometimes significantly, from their carrying values. Third-party pricing information may not be
available for certain positions held by the Investment Vehicle and therefore investments held by
the Investment Vehicle may be valued based on valuation techniques using unobservable inputs.
In light of the foregoing, there is a risk that an Investment Vehicle interest holder, such as the
Company, which redeems all or part of its investment while the Investment Vehicle holds such
investments, could be paid an amount less than it would otherwise be paid if the actual value of
the Investment Vehicle’s investment was higher than the value designated for that investment
by the Investment Vehicle. Similarly, there is a risk that a redeeming Investment Vehicle interest
holder might, in effect, be overpaid at the time of the applicable redemption if the actual value
of the Investment Vehicle’s investment was lower than the value designated for that investment
by the Investment Vehicle, in which case the value of the Investment Vehicle interests to the
remaining Investment Vehicle interest holders would be reduced.
The Board of the Investment Vehicle monitors and reviews the PEC valuation process on an ongoing
basis and the Board of the Company monitors and reviews the Company’s NAV production process
on an ongoing basis.
Refer to note 7 for sensitivity analysis to significant changes in unobservable inputs within Level
3 hierarchy of the Company’s investments and underlying investments held by the Investment
Vehicle.
Foreign currency risk is the risk that the values of the Company’s assets and liabilities are adversely
affected by changes in the values of foreign currencies by reference to the Company’s functional
currency. The functional currency of the Company and the Investment Vehicle is the Euro.
At the Company level, the Euro and Sterling share classes invest into Euro and Sterling PECs,
respectively, and therefore there is no material foreign currency risk at the Company level. The
Company only has exposure to material foreign currency movements at the Investment Vehicle
level.
At the Investment Vehicle level, certain assets are typically denominated in other currencies. The
Investment Vehicle is subject to material foreign currency exchange risks and the value of its
assets may be affected by fluctuations in foreign currency exchange rates. This may, in turn, result
in fluctuations in the value of the Euro and Sterling PECs which would result in similar variances
within the NAV per share of the Euro shares and the Sterling shares issued by the Company, and
so in variations between the market prices of Euro shares and the Sterling shares.
The Investment Vehicle uses a third-party professional foreign exchange manager to seek to fully
hedge the foreign currency exposures to which it is exposed. However, it may not be possible for
the Investment Vehicle to hedge against a particular change or event at an acceptable price or at
all. In addition, there can be no assurance that any attempt to hedge against a particular change
or event would be successful, and any such hedging failure could materially and adversely affect
the performance of the Investment Vehicle and, by extension, the Company’s business, financial
condition, results of operations, NAV and/or the market prices of the ordinary shares.
Subscription monies for Sterling shares issued by the Company have been used to fund subscriptions
for Sterling-denominated PECs and such monies may then be converted to Euro by the Investment
Vehicle for operating purposes. The holders of Sterling shares will therefore be subject to the
foreign currency fluctuations between Sterling and Euro. Although the Investment Vehicle has in
place a hedging programme, there is no guarantee that any such hedging arrangements will be
successful. In addition, the costs and any benefit of hedging such foreign currency exposure will
be allocated solely to the Sterling-denominated PECs (and, as a consequence, to the Company’s
Sterling shares).
The below information regarding the foreign currency risk for the Investment Vehicle has been
included for informational purposes only.
The following table indicates the currencies to which the Investment Vehicle had significant
exposure as at 31 December 2022 on its financial assets and liabilities. The analysis calculates
the total effect of a reasonably possible increase of principal currency rates against the EUR on
the net assets attributable to PEC holders with all other variables held constant, and includes the
impact of the hedging programme undertaken by the Investment Vehicle.
Effect on net assets attributable to PEC holders and on
the change in net assets attributable to PEC holders from
operations
Currency
Change in
currency rate
2022
€’000
2021
€’000
GBP
10%
142
(98)
USD
10%
197
457
An equivalent decrease in each of the aforementioned currencies against the EUR would have
31 December
2022
€
31 December
2021
€
Advisor fees
148,314
47,691
Audit fees
49,089
89,818
Administration fees
21,833
46,810
Other payables
158,089
187,271
Total payables
377,325
Number of
shares
31 December
2022
Stated capital
31 December
2022
€
Number of
shares
31 December
2021
Stated capital
31 December
2021
€
Management shares
2
-
2
-
Management shares
Management shares are non-redeemable, have no par value and no voting rights, and also no
profit allocated to them in the earnings per share calculation.
Number of
shares
31 December
2022
Stated capital
31 December
2022
€
Number of
shares
31 December
2021
Stated capital
31 December
2021
€
Euro shares
105,076,336
106,767,222
120,016,565
121,709,872
Sterling shares
129,518,607
161,549,578
143,874,174
188,411,142
Total
234,594,943
1
268,316,800
2
263,890,739
1
310,121,014
2
1 Excludes 44,767,789 (2021: 35,089,055) Euro shares and 236,506,595 (2021: 218,048,635) Sterling shares held as treasury
shares.
2 Excludes (€31,477,730) (2021: €2,294,685) relating to the decrease (2021: increase) since inception in net assets
attributable to shareholders from operations.
31 December
2022
Total
€
Balances as at 1 January 2022
310,121,014
Issue of ordinary shares
-
Subscriptions arising from conversion of ordinary shares
5,991,717
Redemption payments arising from conversion of ordinary shares
(5,955,535)
Redemption payments arising from tenders of ordinary shares
(33,198,148)
Foreign currency exchange gain on ordinary shares
(8,642,248)
Balances as at 31 December 2022
268,316,800
31 December
2021
Total
€
Balances as at 1 January 2021
364,352,318
Issue of ordinary shares
-
Subscriptions arising from conversion of ordinary shares
14,795,161
Redemption payments arising from conversion of ordinary shares
(14,859,835)
Redemption payments arising from tenders of ordinary shares
(66,650,700)
Foreign currency exchange loss on ordinary shares
12,484,070
Balances as at 31 December 2021
310,121,014
The Company has two classes of ordinary shares, being Euro shares and Sterling shares.
Each Euro share holds 1 voting right, and each Sterling share holds 1.17 voting rights. Each share
has no par value.
As at 31 December 2022, the Company had 149,844,125 (inclusive of 44,767,789 treasury shares)
(2021: 155,105,620 (inclusive of 35,089,055 treasury shares)) Euro shares and 366,025,202
(inclusive of 236,506,595 treasury shares) (2021: 361,922,809 (inclusive of 218,048,635 treasury
shares)) Sterling shares in issue.
Share conversions
Until 1 June 2022, at the first Business Day of each month (each first Business Day of the relevant
month being a “Conversion Calculation Date”), shareholders could convert shares of any class
into shares of any other class (of which shares were in issue at the relevant time) by giving not
less than 10 Business Days’ notice to the Company in advance of such Conversion Calculation
Date.
With effect from 1 July 2022, at the first Business Days of January and July of each year (each
first Business Day of January or July of each year being a “Share Conversion Calculation Date”),
shareholders can convert shares of any class into shares of any other class (of which shares are
in issue at the relevant time) by giving not less than 10 Business Days’ notice to the Company in
advance of such Share Conversion Calculation Date, either through submission of the relevant
instruction mechanism (for shareholders holding shares in uncertificated form) or through
submission of a share conversion notice and the return of the relevant share certificate to the
Company’s registrars. This mechanism is subject to regulatory considerations.
Such share conversion will be effected on the basis of the ratio of the last reported NAV per share
of the class of shares held (calculated in Euro less the costs of effecting such share conversion
and adjusted to reflect the impact of adjusting any currency hedging arrangements and taking
account of any dividends resolved to be paid), to the last reported NAV per share of the class of
shares into which they will be converted (also calculated in Euro, and each as at the relevant
share Conversion Calculation Date) in each case, for the avoidance of doubt, such Net Asset
Value per share shall be calculated inclusive of accrued income.
During the year 5,580,392 (2021: 2,625,562) Euro shares were converted into 4,352,393 (2021:
2,091,786) Sterling shares and 250,000 (2021: 9,945,620) Sterling shares were converted into
318,897 (2021: 12,363,657) Euro shares.
This section should be read in conjunction with the Company’s AGM circular dated 22 April 2022
and approved at the Company’s AGM on 18 May 2022 (
https://ig.cvc.com/media/1446/2022-
agm-notice-and-tender-circular-final-v2-correct.pdf
).
At the 2016 Annual General Meeting, the Company requested, and received, shareholder approval
to create a mechanism whereby treasury shares held by the Company be converted from one
currency denomination to another in accordance with the procedure set out in the Articles. As
the conversion cannot take place while the treasury shares are held by the Company, it was
proposed that a facility be created so that some or all of the treasury shares be sold to a related
party, who would be willing to facilitate the conversion of the treasury shares from one currency
denomination to another. The treasury share convertor mechanism was put in place to provide
the Company with a means of converting one class into another to meet demand in the market
from time to time.
Accordingly, on 11 September 2017, the Company established the CVC Credit Partners European
Opportunities Limited Purpose Trust (“Trust”), a business purpose trust established under Jersey
law. The purpose of the Trust is the facilitation of the conversion of the treasury shares by the
incorporation of a company, Conversion SPV Limited (“Conversion Vehicle”), who would purchase
treasury shares from the Company, convert them into shares of the other currency denomination
and sell those converted shares back to the Company. The Chairman of the Company was
appointed as the enforcer of the Trust.
The treasury share convertor mechanism was not utilised during the year ended 31 December
Tender mechanism
The Company has, established a tender mechanism that enables shareholders to tender their
shares in the Company in accordance with a stated contracted mechanism.
The Directors believe that the Company’s tender mechanism provides shareholders with additional
liquidity when compared with other listed closed-ended investment companies. The offer of the
Company’s tender mechanism is subject to annual shareholder approval and subject to the terms,
conditions and restrictions as set out in the prospectus.
Prior to the Company’s AGM on 18 May 2022, the Company offered a quarterly tender mechanism
for up to 24.99 per cent of the shares of such class in issue at the relevant quarter record date
(being the date on which the number of shares then in issue were recorded for the purposes of
determining the restrictions), subject to a maximum annual limit of 50 per cent of the shares of
such class in issue.
At the Company’s AGM on 18 May 2022, a revised tender circular was approved, which incorporated
the following amendments:
(i)
Instead of a quarterly tender mechanism, the tender mechanism will operate on a semi-
annual basis with two tenders for the 12 month period thereafter, to be conducted by
reference to the NAV as at 30 September 2022 and 31 March 2023, respectively. Subject to
shareholder approval, future tenders will be conducted on a semi-annual basis by reference
to the NAV as at 31 March if settling in the first half of the calendar year or 30 September if
settling in the second half of the calendar year.
(ii)
The tender record date will be approximately one year before the deadline for making a
tender request. While the tender record date in respect of the September 2022 tender was
set as 9 February 2022, in respect of the March 2023 tender and each subsequent tender,
the Directors intend to set the equivalent of the tender record date at approximately a year
before the deadline for making a tender request.
(iii)
The additional powers in favour of the Board introduced in 2020 to enable the Board to
respond to sudden changes in the market conditions as a result of, and in connection with,
the Covid-19 pandemic will be widened to allow the Board to respond to changes in the
market conditions and the macroeconomic climate more generally.
(iv)
Made permanent the removal of the right that allowed shareholders to roll over the residual
shares tendered but not purchased in any year to the next year with priority treatment.
Any shareholders wishing for such residual shares to be purchased would in future need to
submit a new tender request in respect of the subsequent tender and will be treated in the
same way as other shareholders tendering their shares in that subsequent tender.
This section should be read in conjunction with the Company’s AGM circular dated 22 April 2022
and approved at the Company’s AGM on 18 May 2022 (
https://ig.cvc.com/media/1446/2022-
agm-notice-and-tender-circular-final-printers-proof.pdf
).
It is important to note that tenders, if made, are contingent upon certain factors including, but
not limited to, the Company’s ability to finance tender purchases through submitting redemption
requests to the Investment Vehicle to redeem a pro rata amount of Company Investment Vehicle
interests.
Factors, including restrictions at the Investment Vehicle level on the amount of PECs which can be
redeemed, may mean that sufficient Company Investment Vehicle interests cannot be redeemed
and, consequently, tender purchases in any given period may be scaled back on a pro rata basis.
In the absence of the availability of the tender mechanism shareholders wishing to realise their
investment in the Company will be required to dispose of their shares on the stock market.
Accordingly, shareholders’ ability to realise their investment at any particular price and/or time
may be dependent on the existence of a liquid market in the shares.
Liquidity risks associated with the tender mechanism are set out in note 8.2.
During the year 9,678,734 (2021: 14,490,284) Euro shares and 18,457,960 (2021: 43,101,194) Sterling
shares were redeemed as part of the tender mechanism and subsequently held by the Company
in the form of treasury shares. Refer to page 17 for details. Treasury shares do not carry any right
to attend or vote at any general meeting of the Company. In addition, the tender mechanism and
the voluntary conversion facility are not available in respect of Treasury shares.
Ad hoc purchase of shares
In addition to the tender mechanism, the Directors seek annual shareholder approval to grant
them the power to make ad hoc market purchases of shares. If such authority is subsequently
granted, the Directors will have complete discretion as to the timing, price and volume of shares
to be purchased. Shareholders should not place any reliance on the willingness or ability of the
Directors so to act. Refer to note 2.1(d) for detail on critical accounting judgements regarding the
classification of ordinary shares as a financial liability.
The ordinary shares of each class carry the right to receive all income of the Company attributable
to such class of ordinary share, and to participate in any distribution of such income made by
the Company and within each such class such income shall be divided pari passu among the
shareholders in proportion to the shareholdings of that class. During the year ended 2022, the
Company declared and paid dividends based on the investment revenue received from the
Investment Vehicle during the year.
Please refer below for amounts recognised as dividend distributions to ordinary shareholders in
the years ended 31 December 2022 and 31 December 2021.
Ex-dividend
date
Payment
date
£ equivalent
€
Euro - €0.0125 per share
1
03/02/2022
25/02/2022
1,365,602
Sterling - £0.0125 per share
1
03/02/2022
25/02/2022
1,706,768
2,002,342
Euro - €0.0125 per share
1
26/05/2022
17/06/2022
1,342,697
Sterling - £0.0125 per share
1
26/05/2022
17/06/2022
1,672,725
1,962,403
Euro - €0.01250 per share
1
04/08/2022
26/08/2022
1,346,683
Sterling - £0.01250 per share
1
04/08/2022
26/08/2022
1,669,600
1,958,737
Euro - €0.01500 per share
1
03/11/2022
25/11/2022
1,576,145
Sterling - £0.01500 per share
1
03/11/2022
25/11/2022
1,942,779
2,279,224
13,833,833
1
Recognised in the year ended 31 December 2022
Ex-dividend
date
Payment
date
£ equivalent
€
Euro - €0.01125 per share
2
04/02/2021
26/02/2021
1,371,742
Sterling - £0.01125 per share
2
04/02/2021
26/02/2021
1,911,608
2,223,908
Euro - €0.01125 per share
2
06/05/2021
28/05/2021
1,327,003
Sterling - £0.01125 per share
2
06/05/2021
28/05/2021
1,795,612
2,088,961
Euro - €0.01250 per share
2
05/08/2021
27/08/2021
1,466,964
Sterling - £0.01250 per share
2
05/08/2021
27/08/2021
1,944,693
2,262,398
Euro - €0.01250 per share
2
11/11/2021
03/12/2021
1,443,022
Sterling - £0.01250 per share
2
11/11/2021
03/12/2021
1,843,348
2,144,497
14,328,495
2
Recognised in the year ended 31 December 2021
31 December
2022
£ equivalent
31 December
2022
€
31 December
2021
£ equivalent
31 December
2021
€
Euro Shares
(Decrease)/Increase in net assets
for the year
-
(14,254,567)
-
10,054,074
Results per share
-
(0.1440)
-
0.0838
Sterling Shares
(Decrease)/Increase in net assets
for the year
(16,857,334)
(19,517,848)
10,134,266
12,052,682
Results per share
(0.1275)
(0.1440)
0.0704
0.0838
Return per share has been calculated on a weighted average basis. The weighted average
number of ordinary shares held during the year ended 31 December 2022 was 234,594,943 (2021:
263,890,739), comprising 105,076,336 (2021: 120,016,565) Euro shares and 129,518,607 (2021:
143,874,174) Sterling shares.
Refer to note 17 for transactions involving the Company’s Euro or Sterling shares between 1 January
13. Net asset value per ordinary share
31 December
2022
£ equivalent
31 December
2022
€
31 December
2021
£ equivalent
31 December
2021
€
Euro Shares
NAV
-
93,535,520
-
123,210,226
NAV per ordinary share
-
0.8902
-
1.0266
Sterling Shares
NAV
126,873,439
143,303,549
159,089,778
189,205,473
NAV per ordinary share
0.9796
1.1064
1.1058
1.3151
Net assets attributable to
shareholders
-
236,839,070
-
312,415,699
NAV per share has been calculated based on the share capital in issue as at year end, excluding
shares held in treasury. The issued share capital as at 31 December 2022 comprised of 105,076,336
Euro shares (31 December 2021: 120,016,565) and 129,518,607 Sterling shares (31 December 2021:
143,874,174).
2022
€
2021
€
Opening Balance
312,415,699
344,540,247
Cash flow movements
Proceeds from issuance of ordinary shares
-
-
Payments from redemption of ordinary shares
(39,153,683)
(81,510,535)
Dividends paid
(13,833,833)
(14,328,495)
Non-cash flow movements
Proceeds from subscriptions arising from conversion of ordinary
shares
5,991,717
14,795,161
Foreign currency exchange loss/(gain) on ordinary shares
(8,642,248)
12,484,070
Profit/(loss) before finance costs and taxation
(19,938,582)
36,435,251
Closing Balance
236,839,070
Related party disclosure
The Directors are entitled to remuneration for their services and all Directors hold Sterling shares
in the Company. Please refer to note 6 for further detail.
Transactions between the Company and the Trust and Conversion Vehicle are disclosed in note 4
and 12.
Richard Boléat acts as the enforcer of the Trust, a business purpose trust established under Jersey
law and settled by the Company. The role has arisen as a result of the implementation of the
resolution passed at the Company’s Annual General Meeting on 4 April 2016 which authorised the
Company to make arrangements to enable the conversion of treasury shares held by the Company
from time to time from one currency denomination to another. The position is unremunerated
and represents an alignment of interests with those of the Company.
The below information regarding select related party disclosures for the Investment Vehicle has
been included for information purposes only.
As at 31 December 2022, the Compartment holds debt securities in entities where CVC Capital
Partners also has an interest. These positions were entered into pari passu with third party
Management has evaluated subsequent events for the Company through 27 March 2023, the date
the financial statements were available to be issued, and has concluded that the material events
listed below do not require adjustment of the financial statements.
Contractual tender
On 14 February 2023, the Company announced it had received applications from shareholders to
tender 378,000 Euro shares and 2,681,399 Sterling shares under the March 2023 tender.
Dividend declaration
On 30 January 2023, the Company declared a dividend of €0.0175 per Euro share and £0.0250 per
Sterling share payable on 3 March 2023 to shareholders on the register as at 10 February 2022.
Offsetting carbon footprint
On 26 January 2023, it was agreed during the ESG committee meeting that it would be prudent
for all Directors to record their travel individually and offset their carbon footprint with effect
from 1 February 2023.
Withdrawal of Performance Fee
On 17 February 2023, the Company announced that it was notified by the Investment Vehicle
that the Investment Vehicle Manager had waived its future right to receive an Investment Vehicle
performance fee, such waiver to take effect from 1st January 2023. The Board has also been
advised by the Investment Vehicle that no performance fee has been accrued in respect of the
calendar year ended 31st December 2022.
Increase in Annual Dividend Targets
On 7 March 2023, the Board announced that it had completed its review of the Company’s annual
dividend targets, given the significantly elevated cash yield being produced by the Investment
Vehicle’s underlying portfolio. As a consequence, the Company’s annual dividend targets were
increased to 7.5p per ordinary Sterling Share and 7c per ordinary Euro Share with effect from
17. Controlling party
16. Material events after the Statement of Financial Position date (continued)
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
107
USEFUL INFORMATION FOR SHAREHOLDERS (UNAUDITED)
Dividend history
Year ended
Total dividend paid
per Euro Share
Total dividend paid
per Sterling Share
2014
€0.03500
£0.03500
2015
€0.05000
£0.05000
2016
1
€0.06250
£0.06250
2017
€0.05250
£0.05250
2018
€0.05500
£0.05500
2019
€0.05500
£0.05500
2020
€0.04875
£0.04875
2021
€0.04750
£0.04750
2022
€0.05250
£0.05250
Alternative performance measures disclosure
In accordance with ESMA Guidelines on APMs, the Board has considered what APMs are included in
the Annual Financial Report, including the financial statements, which require further clarification.
An APM is defined as a financial measure of historical or future financial performance, financial
position, or cash flows, other than a financial measure defined or specified in the applicable
financial reporting framework. APMs included in the financial statements, which are unaudited
and outside the scope of IFRS, are deemed to be as follows:
NAV total return vs monitored indices
The NAV total return measures how the NAV per Euro share and Sterling share has performed over
a period of time, taking into account both capital returns and dividends paid to shareholders.
The Company quotes NAV total return as a percentage change from a certain point in time,
such as the initial issuance of Euro and Sterling shares or the beginning of the period, to the
latest reporting date, being 31 December 2022 in this instance. It assumes that dividends paid to
shareholders are reinvested back into the Company therefore future NAV gains are not diminished
by the paying of dividends.
The Board monitors the Company’s NAV total return against the Credit Suisse Western European
High Yield Index (hedged in Euros) total return and Credit Suisse Western European Leveraged
Loan Index (hedged in Euros) total return. The total return results for both the Company’s NAV
and the monitored indices over certain time periods are presented below:
Total Return
3 Months
6 Months
12 Months
Since
inception
Euro NAV Total Return
0.77%
1.59%
(8.31)%
40.26%
Sterling NAV Total Return
1.45%
2.63%
(6.75)%
51.88%
Credit Suisse Western European
High Yield Index (hedged in Euros)
Total Return
4.94%
3.83%
(11.64)%
29.71%
Credit Suisse Western European
Leveraged Loan Index (hedged in
Euros) Total Return
2.93%
3.75%
(3.28)%
31.30%
1
As a result of the Company amending the frequency of its dividend payments to a quarterly basis rather than a semi-
annual basis during 2016, shareholders received an additional €0.0125 and £0.0125 dividend per Euro and Sterling share
respectively.
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
108
USEFUL INFORMATION FOR SHAREHOLDERS (UNAUDITED) (CONTINUED)
Total Return (continued)
The Company’s Euro share and Sterling share NAV capital return is calculated by dividing the
difference between the closing NAV per share and the opening NAV per share by the opening
NAV per share. The income return is calculated by adding each dividend paid back to the NAV
per share on the ex-dividend date (being the date dividends are deducted from the NAV of the
Company). This amplifies the value of each dividend paid by the capital return and demonstrates
the effect of reinvesting dividends back into the Company at the ex-dividend date. The total
return is then determined by adding the capital and income return. The total return calculations
for 31 December 2022 and 31 December 2021 are presented below.
2022
Euro share
2022 Annual
dividend per share
NAV per share as at 31 December 2021
€1.0266
NAV per share as at 31 December 2022
€0.8902
Capital return
(13.29)%
Income return
5.250c
4.97%
Total return
8.32%
Sterling share
NAV per share as at 31 December 2021
£1.1058
NAV per share as at 31 December 2022
£0.9796
Capital return
(11.41)%
Income return
5.250c
4.66%
Total return
(6.75)%
2021
Euro share
2021 Annual
dividend per share
NAV per share as at 31 December 2020
€0.9657
NAV per share as at 31 December 2021
€1.0266
Capital return
6.31%
Income return
4.750c
5.10%
Total return
11.41%
Sterling share
NAV per share as at 31 December 2020
£1.0299
NAV per share as at 31 December 2021
£1.1058
Capital return
7.36%
Income return
4.750p
4.80%
Total return
12.17%
NAV to market price discount
The NAV per share is the value of the Company’s assets, less any liabilities it has, divided by the
total number of Euro and Sterling shares. However, because the Company’s ordinary shares are
traded on the London Stock Exchange’s Main Market, the share price may be higher or lower than
the NAV. The difference is known as a premium or discount. The Company’s premium or discount
to NAV is calculated by expressing the difference between the period end respective share class
price (bid price) and the period end respective share class NAV per share as a percentage of the
respective NAV per share.
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
109
USEFUL INFORMATION FOR SHAREHOLDERS (UNAUDITED) (CONTINUED)
NAV to market price discount (continued)
At 31 December 2022, the Company’s Euro shares and Sterling shares traded at €0.8200 (2021:
€0.9500) and £0.9200 (2021: £1.0400), respectively. The Euro shares traded at a discount of 7.88%
(2021: 7.46% discount) to the NAV per Euro share of 0.8902 (2021: €1.0266) and the Sterling shares
traded at a discount of 6.08% (2021: 5.95% discount) to the NAV per Sterling share of £0.9796
(2021: £1.10576).
Ongoing charges
The Company has chosen the AIC’s methodology for calculating an ongoing charges figure. In line
with the AIC’s recommended guidance on ongoing charges, the Company’s ongoing charges ratio
includes a relevant proportion of the Investment Vehicle’s operating expenses; please refer below
for further details. The ongoing charges ratio for the year ended 31 December 2022 was 1.78%
(2021: 1.61%). The ongoing charges for the Company’s Euro and Sterling share classes individually
are approximate to each other and therefore the Company has chosen to disclose one ongoing
charges figure. The Company’s ongoing charges ratio is based on annualised ongoing charges
of €4,681,787 (2021: €5,104,115) divided by average NAV in the period of €263,566,986 (2021:
€317,614,082).
Calculating ongoing charges
The ongoing charges are based on actual costs incurred in the year excluding any non-recurring
fees in accordance with the AIC methodology. Expense items have been excluded in the calculation
of the ongoing charges figure when they are not deemed to meet the following AIC definition:
“Ongoing charges are those expenses of a type which are likely to recur in the foreseeable future,
whether charged to capital or revenue, and which relate to the operation of the investment
company as a collective fund, excluding the costs of acquisition/disposal of investments, financing
charges and gains/losses arising on investments. Ongoing charges are based on costs incurred in
the year as being the best estimate of future costs.”
Ongoing charges methodology
1
In accordance with the recommended methodology for the calculation of an ongoing charge
figure published by the AIC (and most recently updated in April 2022), the Company has
incorporated, in addition to a relevant portion of the management fee
2
, a relevant proportion
Investment Vehicle operating expenses (that would be considered ongoing charges under the
AIC methodology) into its own ongoing charges figure. For the avoidance of doubt, the ongoing
charges ratio includes the Company’s pro-rata share of the Investment Vehicle management fee,
custodian and administration expenses and other general expenses but excludes interest costs
and performance fees.
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
110
USEFUL INFORMATION FOR SHAREHOLDERS (UNAUDITED) (CONTINUED)
Ongoing Charges (continued)
Please refer below for ongoing charges reconciliation for the years ended 31 December 2022 and
31 December 2021:
31 December
2022
€
31 December
2021
€
Total operating expenses for the year:
1,701,287
1,402,690
Expenses excluded from the calculation of ongoing charges
figures, in accordance with AIC’s methodology:
Professional fees
(263,961)
(174,054)
Sundry expenses
-
-
Total ongoing charges for the year (excluding Investment
Vehicle management fee)
1,437,326
1,228,636
Add: Investment Vehicle operating expenses
916,140
901,559
Add: Investment Vehicle management fee
2
2,328,320
2,973,920
Total ongoing charges for the year (including Investment
Vehicle management fee)
4,681,787
5,104,115
Ongoing charges inclusive of Investment Vehicle performance fee
In accordance with the recommended methodology for the calculation of an ongoing charges
figure published by the AIC (and most recently updated in April 2022), the Board has chosen to
disclose an ongoing charges figure inclusive of the Investment Vehicle’s performance fee
3
. As
the performance fee can differ between share classes, the Company has disclosed the ongoing
charges plus performance fee ratio for both share classes separately. However, there was no
performance fee for the year ended 31 December 2022.
31 December 2022
Euro
shares
Sterling
shares
Ongoing charges ratio
1.80%
1.76%
Add: Investment Vehicle performance fee
3
-
-
Ongoing charges plus performance fee ratio
1.80%
1.76%
31 December 2021
Euro
shares
Sterling
shares
Ongoing charges ratio
1.59%
1.62%
Add: Investment Vehicle performance fee
3
1.13%
1.24%
Ongoing charges plus performance fee ratio
2.72%
2.86%
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
111
USEFUL INFORMATION FOR SHAREHOLDERS (UNAUDITED) (CONTINUED)
Dividend yield
The dividend per Euro and Sterling share is expressed as a percentage of the Euro and Sterling
share price (bid price).
31 December
2022
31 December
2021
Euro shares
Annual dividend per Euro share
€0.05250
€0.04750
Share price (bid price)
€0.8200
€0.9500
Dividend yield
4
6.40%
5.00%
Sterling shares
Annual dividend per Euro share
£0.05250
£0.04750
Share price (bid price)
£0.9200
£1.0400
Dividend yield
4
5.71%
4.57%
Dividend Cover ratio
Two dividend cover ratios are calculated being PEC income per share and the coupon income
received by the Investment Vehicle for the Series 4 and 5 of Compartment A per share divided by
the dividend per Euro and Sterling share expressed as a ratio.
31 December
2022
31 December
2021
Euro shares
PEC income per share
5
€0.0560
€0.0481
Coupon income per share
6
€0.0827
€0.0706
Annual dividend per share
€0.05250
€0.04750
Dividend cover ratio (PEC income)
1.07
1.01
Dividend cover ratio (Coupon income)
1.57
1.49
Sterling shares
PEC Income per share
5
£0.0593
£0.0587
Coupon Income per share
6
£0.0884
£0.0807
Annual dividend per share
£0.05250
£0.05250
Dividend cover ratio (PEC income)
1.13
1.124
Dividend cover ratio (Coupon income)
1.68
1.70
1
The Company’s ongoing charges are considered to be APMs which are calculated according to the methodology outlined
on page 109 and differ to the ongoing costs disclosed within the Company’s KIDs which follows the methodology prescribed
by EU rules. For example, the ongoing costs disclosed in the Company’s KIDs include interest expense and are based on
average ongoing charges over the past three years whereas the ongoing charges ratio disclosed in this report do not
include interest expense and are based on ongoing charges incurred during the year ended 2022 only. The Company’s most
current KIDs and an accompanying explanatory note reconciling the two different ratios are available on the Company’s
website (
https://ig.cvc.com/key-information-documents/
).
2
The Investment Vehicle management fee is 0.90%, which reduces by a further 5 basis points each time the Investment
Vehicle’s NAV exceeds €500m, €750m and €1bn respectively, to a minimum of 0.75% per annum. Details of the
management fee that CVC Credit Partners is entitled to can be found on the Company RNS announcement dated 23 April
2021 (
Distribution Policy Change | CVC Income & Growth
).
3
There was no performance fee accrued in respect of the year ended 31 December 2022. Additionally, the Company
announced on 17 February 2023 that it was notified by the Investment Vehicle that the Investment Vehicle Manager had
waived its future right to receive an Investment Vehicle performance fee with effect from 1 January 2023.
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
112
USEFUL INFORMATION FOR SHAREHOLDERS (UNAUDITED) (CONTINUED)
4
Annual dividend yield per Euro share and Sterling share as at 31 December 2022 and 31 December 2021 is based on the
four quarterly dividends announced and paid by the Company during the 12 months prior to the year end as applicable.
5
PEC income represents the total income received by the Company from the Investment Vehicle Manager in relation to
the PECs divided by the number of shares of the Company at yearend.
6
Coupon income represents the total coupon income received by the Investment Vehicle Manager in relation to the
Series 4 and Series 5 of Compartment A that the Company invests in divided by the number of shares of the Company at
yearend.
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
113
GLOSSARY
Administrator
BNP Paribas S.A., Jersey Branch
Advisor fees
Cost of services provided by Mr Justin Atkinson to assist with the
marketing and promotion of the Company’s shares
AGM
Annual General Meeting
AIC
Association of Investment Companies
AIC Code
AIC Code of Corporate Governance, February 2021
AIF
Alternative Investment Fund
AIFM
Alternative Investment Fund Manager
APMs
Alternative Performance Measures
Auditor
Ernst & Young LLP
Borrowing Limit
Up to an amount equal to 100% of the NAV of the Investment
Vehicle at the time of borrowing
CEO
Chief Executive Officer
CFO
Chief Finance Officer
CLOs
Collateralised Loan Obligations
Company
CVC Income & Growth Limited (formerly known as CVC Credit
Partners European Opportunities Limited)
Continuation Resolution
An ordinary resolution proposed by the Directors that the
Company continue its business as a closed-ended investment
company
Conversion Vehicle
Conversion SPV Limited
Compartment
Compartment A of the Investment Vehicle
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
114
GLOSSARY (CONTINUED)
Credit Opportunities
Refers to investments where CVC Credit Partners anticipates
an event in a specific credit is likely to have a positive impact
on the value of its investment. This may include events such
as a repayment event before maturity, a deleveraging event, a
change to the economics of the instrument such as increased
margin and/or fees or fundamental or sentiment driven
change in the value. CVC Credit Partners seeks relative value
opportunities which involve situations where market technicals
have diverged from credit fundamentals often driven by selling
by mandate constrained investors, CLO managers or hedge funds
rebalancing their portfolios, macro views affecting different
credit instrument types or sales by banks. CVC Credit Partners
has additional flexibility compared to mandate-constrained
capital and believes these assets have potential for capital gains
and early cash flow generation based on the acquisition prices
CVC Group
CVC Group being CVC Credit Partners and CVC Credit Partners
Group Holding Foundation, together with its direct and indirect
subsidiaries and their respective affiliates and excluding any
funds managed and/or advised by the CVC Group
DTRs
Disclosure Guidance and Transparency Rules
ESG
Environmental, Social and Governance
EEA
European Economic Area
ELFA
European Leveraged Finance Association
EU
European Union
FRC
Financial Reporting Council
IFRS 13
IFRS 13 – Fair Value Measurement
IPO
Initial Public Offering on 25 June 2013
Investment Limits
As defined within the Investment Policy on page 18
Investment Vehicle
Compartment A of CVC European Credit Opportunities S.à r.l.
Investment Vehicle
Manager (CVC Credit
Partners)
CVC Credit Partners Investment Management Limited
Investment Vehicle Services
Manager
CVC Credit Partners Investment Services Management Limited
KIDs
Key Information Documents
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
115
GLOSSARY (CONTINUED)
KPIs
Key Performance Indicators
NAV
Net Asset Value
NPPRs
National Private Placement Regimes
Original Placing Price
€1.00 and £1.00 per share
PECs
Preferred Equity Certificates
Performing Credit
Generally refers to senior secured loans and senior secured high
yield bonds sourced in both the primary and secondary markets.
The investment decision is primarily driven by a portfolio decision
around liquidity, cash yield and volatility
PRI
Principles for Responsible Investment
SID
Senior Independent Director
Trust
CVC Credit Partners European Opportunities Limited Purpose
Trust
UK Code
The UK Corporate Governance Code 2018
Viability Statement
A statement made by the Directors explaining how they assessed
the prospects of the Company, over which period they have done
so and why they consider that period to be appropriate
CVC INCOME & GROWTH LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2022
116
COMPANY INFORMATION
Registered Office
IFC1, The Esplanade
St Helier, Jersey
JE1 4BP
Advocates to the Company
(as to Jersey law)
Bedell Cristin
26 New Street
St Helier, Jersey
JE2 3RA
Investment Vehicle Manager
CVC Credit Partners Investment
Management Limited
111 Strand, London
WC2R 0AG
Custodian
BNP Paribas S.A.,
Jersey Branch
IFC1, The Esplanade
St Helier, Jersey
JE1 4BP
Corporate Services Manager
CVC Credit Partners Investment Services
Management Limited
27 Esplanade,
St Helier, Jersey
JE1 1SG
Auditor
Ernst & Young LLP
25 Churchill Place
Canary Wharf
London
E14 5EY
Corporate Brokers
Goldman Sachs International
Peterborough Court,
133 Fleet Street
London
EC4A 2BB
Administrator and Company Secretary
BNP Paribas S.A.,
Jersey Branch
IFC1, The Esplanade
St Helier, Jersey
JE1 4BP
Winterflood Securities Limited
The Atrium Building
Cannon Bridge House
25 Dowgate Hill
London
EC4R 2GA
BNP Paribas S.A. Jersey Branch is regulated by the
Jersey Financial Services Commission.
Solicitors to the Company
(as to English law)
Herbert Smith Freehills LLP
Exchange House
Primrose Street
London
EC2A 2EG
Registrar
Computershare Investor Services (Jersey) Limited
13 Castle Street
St Helier, Jersey
JE1 1ES
For Investors in Switzerland:
The Prospectus, the Memorandum and Articles of Association as well as the annual and half-yearly
financial reports of the Company may be obtained free of charge from the Swiss Representative.
In respect of the shares distributed in and from Switzerland to qualified investors, the place of
performance and the place of jurisdiction is at the registered office of the Swiss Representative.
Swiss Representative: FIRST INDEPENDENT FUND SERVICES LTD., Klausstrasse 33, CH-8008 Zurich,
Switzerland.
Swiss Paying Agent: Helvetische Bank AG, Seefeldstrasse 215, CH-8008 Zurich, Switzerland.
