ICP.L Regulatory News (ICP)

6 Apr 2005 07:00

Intermediate Capital Group PLC06 April 2005 Embargoed until 7.00am on Wednesday 6th April 2005 PRELIMINARY RESULTS FOR THE YEAR ENDED 31 JANUARY 2005 Intermediate Capital Group PLC ("ICG"), the leading specialist European providerof mezzanine finance, announces its results for the year ended 31 January 2005. Financial highlights: • Core income* up 21% to £75.1m • Capital gains reach a record level of £62.9m • Pre-tax profits up 48% to £95.5m • Earnings per share up 27% to 89.4p • Proposed final dividend of 28.2p making 40.0p per share for the year, a 16% increase • Loan book increased by 8% to a record £1.18bn Operational highlights: • A record £778m of financings arranged or provided during the year • Funds under management rise to £2.4bn • A substantial increase in debt facilities to fund the future growth of the business Commenting on the results, John Manser, Chairman of ICG, said: "It gives me great pleasure to report excellent results from ICG. Core income, capital gains and pre-tax profits all reached record levels.Additionally, in what was a very active but competitive mezzanine market, weproduced a further increase in our loan book, despite higher levels ofrepayments. Our fund management division grew further with the raising of a new fund andcontinues to have good growth potential. I am particularly pleased that we have achieved these record results in thefinancial year prior to Tom Bartlam's retirement as Managing Director." Enquiries: Tom Attwood, Managing Director, Intermediate Capital Group PLC (020) 7628 9898Tom Bartlam, Managing Director, Intermediate Capital Group PLC (020) 7628 9898 Gill Ackers/Helen Barnes, Brunswick Group Limited (020) 7404 5959 Note to the Editors A brief explanation of Intermediate Capital Group PLC's lending activities isattached. * The composition of core income can be found as part of the analysis of profit before taxation. Results Pre-tax profits for the year ended 31 January 2005 increased by 48% to £95.5m asa result of strong growth in core income and record capital gains. Core Income The most important element of ICG's profits, which is defined as net interestincome plus fee income less related administrative expenses, increased by 21% to£75.1m. Net interest income rose by 17% to £75.1m as a result of the furthergrowth in the loan portfolio and the continuing use of rolled-up interest inmany of the mezzanine loans in our portfolio. Our arrangement and agency feesincreased slightly to £10.1m and fund management fees increased by 56% to £17.3mon the back of the significant increase in funds under management over the last18 months. Administrative expenses increased by 21% to £27.4m. Capital Gains and Provisions Gross capital gains increased by 140% to £62.9m, a new record, and were derivedfrom the realisation of 19 different investments of which five were from IPOsand fourteen from trade sales and secondary buyouts. Gross provisions for theyear amounted to £30.0m compared with £25.9m the previous year, primarily as aresult of new provisions against three of our portfolio companies. Taking intoaccount the release of a £1.8m provision no longer required, net provisionsamounted to £28.2m compared with £19.0m in the previous financial year. Dividends The Board is recommending a final dividend of 28.2p net per share to be paid on27 May 2005, which, with the interim dividend of 11.8p net per share, brings thetotal for the year to 40.0p net per share, an increase of 16% over last year'sdividend. Our policy remains to provide double-digit dividend growth on the back ofcontinuing growth in core income. The dividend will be paid to shareholders on the register on 6 May 2005. The year's dividend is covered 2.2 times by post tax earnings. The Loan Portfolio We had an excellent year for new lending. We arranged or provided a record totalof £778m of new investments, up 19% on the previous year, of which £409m (2004 -£354m) was invested on our balance sheet, £283m (2004 - £202m) taken by fundmanagement clients with the balance being syndicated to third parties. Most of the investments we made during the year were in medium sizedtransactions in the middle market, but in addition we participated in four largemezzanine financings (two of which were in the UK and two in France). These twocountries represented our largest markets for new investments, with £166minvested in the UK in 11 new loans and £147m invested in France in 9 new loans.We also made two investments in both Germany and Sweden and one each in Denmark,the Netherlands, Italy and Switzerland. Loan repayment levels were particularly high last year with 23 mezzanineinvestments totalling £315m being repaid, which was nearly double the level ofrepayments experienced in the previous year. £215m was repaid as a result of therealisation of investments in what was a good year for exits and, in addition,there was an unusually high level of prepayments amounting to £100m, arisingprincipally because of the strong debt markets, which encouraged banks to offerrefinancing of mezzanine with cheaper bank debt. The overall performance of the portfolio continued to be satisfactory. However,we did see underperformance on three of our loans, against which we have takensignificant provisions for the first time, and further underperformance on twoof our loans where we had already taken some provisions. As a result of the levels of new lending, repayments and provisioning as well asthe increase in the sterling value of the portfolio by £8m due to currencymovements, our portfolio grew by 8% to £1.18bn in the year to 31 January 2005. At the year end our portfolio comprised loans to 86 companies in 26 differentsectors across 10 different countries. At 31 January 2005 our portfolio of warrants and quoted shares was valued at£146m in excess of their nominal Balance Sheet cost compared with £82m in theprevious year. Funding At 31 January 2005 we had borrowings outstanding of £830m, which represented aconservative gearing ratio of 2.3:1. During the course of the year we undertook a number of initiatives on thefunding side in order to take advantage of attractive borrowing conditions. Wewent back to the US private placement market, raising £140m, and undertook a tapissue under the previous year's securitisation, raising £40m. In addition, wehave, since the year end, refinanced all of our existing revolving credit bankfacilities of £372m on more attractive terms with a new five year revolvingcredit facility of £845m. Following these fund raising initiatives we have in place total borrowingfacilities of over £1.5bn, leaving us currently with over £600m of unutilisedfacilities. We therefore have substantial spare capacity enabling us to grow ourloan book in the future. Fund Management Last year we made a further advance in the development of our fund managementbusiness with the closing in November 2004 of a new €350m Loan Fund. We nowmanage six CDOs/Loan Funds, and have €2.2bn (£1.5m) under management in thisarea. All of these funds were in compliance with their covenants at 31 January2005. Growing this sub-investment grade fund management business is, however,becoming increasingly challenging despite a benign fund-raising environment, ascompetition for attractive higher yielding assets is now very strong. We havetherefore recently committed to purchase a €450m (£310m) portfolio of leveragedloans from a bank exiting the London market, which will be transferred to ourcurrent and future fund management clients, thus facilitating the raising offurther funds in the current year. Our €1.5bn (£1bn) 2003 Mezzanine Fund has made good progress and is now over 45%invested. We are pleased with the quality of the portfolio in terms of creditworthiness and diversification. We expect further growth in our fund management business in the year ahead. The European Mezzanine Market 2004 was an active year for buyouts in Western Europe with recorded transactionstotalling £53bn over the period compared with £43bn in 2003. This was because ofthe large cash resources in the hands of the private equity investors and theever increasing amounts of debt available to finance buyouts as a result of thevery high levels of liquidity in the debt markets. Senior bank debt was beingoffered aggressively across the market and the high yield bond market becameactive again with a continued reduction in pricing. In addition, mezzanine wasagain much in demand with the use of mezzanine in European buyouts in 2004reaching approximately £3bn, compared to £2.3bn in 2003. The increased demand for mezzanine was more than matched by increased supply,not only from traditional sources such as banks and independent mezzanine funds,of which there were some new entrants in the market last year, but also from newsources in the form of hedge funds and other structured debt funds. This led toincreased competition for mezzanine assets, particularly at the larger end ofthe market, which often resulted in increased leverage levels and thus more riskand in some cases reduced pricing. Consequently, while we have invested in anumber of large mezzanine transactions, we turned down more mezzanineopportunities last year than we have done in previous years. In the middle market, which is where ICG does most of its business, thecompetitive pressures, although increased, were not as acute and consequentlythe adverse affect on leverage levels and pricing has not been as great. In thismarket ICG continues to benefit from its large experienced pan-European team ofinvestment professionals and its local presence in most of the principalfinancial centres in Europe. Another trend that we saw during the year was an increase in prepayment levelsresulting from the exceptional level of liquidity in the debt markets, which hasproduced a higher level of risk appetite from senior and subordinated debtlenders who are prepared to refinance mezzanine with cheaper debt. This has theeffect of shortening the life of mezzanine assets. The Asia Pacific Mezzanine Market Because of the size and quality of the deal flow we have been seeing in recentmonths in the Asia Pacific region, together with the growing interest in the useof mezzanine, we increasingly believe that there is real potential for ICG todevelop a good mezzanine business in the region in the years to come. Of our first two investments in the region one has been successfully exitedthrough an IPO and the other was fully repaid with the potential to generate asignificant capital gain. While we completed no new transactions in the AsiaPacific market last year, we expect to be more active in the region in thecoming year. Offices, Management and Staff In recent months we have opened a new office in Frankfurt, to add to our officesin London, Paris, Madrid, Stockholm and Hong Kong. The purpose of these officesis to get closer to our key providers of business in these countries and furtherdifferentiate us from our competition. The performance of our staff during this extremely busy year has beenexceptional. I would once again like to take this opportunity to thank them allon your behalf. The Board In January we announced that Tom Bartlam will be retiring as Managing Directorat the end of April, but will be remaining on the Board as a non-executivedirector. Tom was a founder of ICG in 1989 and a key factor in its veryprofitable growth since then, and I know his fellow Directors and executiveswill miss him greatly. We are all grateful for his willingness to continue in anon-executive capacity. Outlook Like all markets the debt markets are cyclical. The benign global economicconditions of recent years, together with increasing liquidity in the debtmarkets, has pushed these markets near to what we consider to be a cyclicalpeak. Interest spreads across the whole spectrum of the global debt market haveshrunk and lenders have become prepared to take more risk for the same or evenlower returns. The high availability of debt in such a market, together with thelarge amounts of cash in the hands of private equity investors, should continueto sustain a strong buyout market in the year ahead. This cyclical trend in the debt markets is also leading to an increased supplyof mezzanine and other forms of subordinated debt, in some cases from new lessexperienced investors, and thus to increased competition. This in turn is nowoften resulting in increased leveraged and reduced pricing which we believesometimes gives the wrong balance of risk and reward within the mezzanine andsubordinated debt markets, particularly in the larger transactions. We willtherefore continue to be particularly selective in our choice of investments inthe year ahead, seeking to maintain our credit discipline. We believe our market position and reputation, size and local infrastructurewill, in the current year, enable us to continue to source and execute a goodnumber of sensibly priced and structured mezzanine investments, particularly inthe middle market, where we are traditionally strong. However, taking intoaccount the high expected level of repayments in the year ahead, it will be achallenge to grow our loan book. In the year-to-date we have invested approximately £50m on our balance sheet in4 different companies and we have had repayments of £55m. As a result of last year's loan book growth the prospects for net interestincome this year are good as are the prospects for fund management income, withfurther good growth in funds under management expected. We have had a strongstart to the year for capital gains and expect this to continue for the rest ofthe year, as a result of where we now are in the market cycle. In addition theportfolio continues to perform satisfactorily. We are therefore pleased to beable to look to the year ahead with confidence. INTERMEDIATE CAPITAL GROUP PLCCONSOLIDATED PROFIT AND LOSS ACCOUNTFor the year ended 31 January 2005 --------- --------- Year to Year to Jan 05 Jan 04 £m £m Restated --------- --------- Interest and dividend income 101.6 91.8Gain on disposals 62.9 26.2Fee and other operating income 27.4 20.9 --------- --------- 191.9 138.9Interest payable and similar charges (26.5) (27.8)Provisions against loans and investments (28.2) (19.0)Administrative expenses (41.7) (27.5) --------- --------- Profit on ordinary activities before taxation 95.5 64.6Tax on profit (33.5) (21.0) --------- ---------Profit on ordinary activities after taxation 62.0 43.6Dividend proposed (27.9) (23.0) --------- ---------Retained profit transferred to reserves 34.1 20.6 --------- --------- Earnings per share 89.4p 70.4p All activities represent continuing operations Analysis of profit before tax: --------- ---------- Year to Year to Jan 05 Jan 04 £m £m Restated --------- ----------Income Interest and dividend income 101.6 91.8Fee and other operating income 27.4 20.9 --------- ---------- 129.0 112.7Less: Related expensesInterest payable and similar charges (26.5) (27.8)Administrative expenses-Salaries and benefits (12.8) (10.9)Operating expenses (8.3) (6.8)Medium term incentive scheme (6.3) (5.0) --------- ----------Core Income 75.1 62.2 ========= ========== Capital Gains 62.9 26.2Medium term incentive scheme (14.3) (4.8) --------- ----------Net Capital Gains 48.6 21.4 ========= ========== --------- ----------Provisions against loans and investments (28.2) (19.0) ========= ========== --------- ----------Profit on ordinary activities before taxation 95.5 64.6 ========= ========== INTERMEDIATE CAPITAL GROUP PLCCONSOLIDATED BALANCE SHEET31 January 2005 Jan-05 Jan-04 £m £m RestatedFixed assetsTangible assets 1.3 1.4 Loans and Investments 1,182.8 1,093.9 Current assetsDebtors 20.2 19.2Loans and investments 40.9 27.5Cash at bank 55.6 38.6 -------- --------- 116.7 85.3 -------- --------- -------- --------- Total assets 1,300.8 1,180.6 -------- --------- Capital and reservesCalled up share capital 13.9 13.8Share premium account 172.5 170.0Capital redemption reserve 1.4 1.4Profit and loss and other reserves 171.7 137.6 -------- ---------Equity shareholders' funds 359.5 322.8 Creditors: amounts falling due after more than one year 728.5 730.0Creditors: amounts falling due within one year 212.8 127.8 -------- --------- Total capital and liabilities 1,300.8 1,180.6 -------- --------- INTERMEDIATE CAPITAL GROUP PLCCONSOLIDATED CASH FLOW STATEMENTFor the year ended 31 January 2005 Year to Year to Jan 05 Jan 04 £m £mOperating activitiesInterest and dividends received 93.8 81.6Gain on disposals 62.9 26.2Fee and other operating income 24.0 19.4Administrative expenses (28.9) (25.8) --------- ---------- 151.8 101.4 Interest paid (24.4) (25.6) --------- ---------- Net cash inflow from operating 127.4 75.8activities Taxation paid (26.5) (20.8) Capital expenditure and financial investmentLoans and investments made (398.6) (353.7)Realisations of loans and investments 311.7 160.9 Loans for syndication (14.2) 25.7 --------- ---------- (101.1) (167.1) Purchase of tangible fixed assets (0.3) (0.1) --------- ---------- (101.4) (167.2) --------- ---------- Equity dividends paid (24.9) (19.1) ========= ========== Net cash outflow before financing (25.4) (131.3) ========= ========== FinancingIncrease in share capital 2.6 86.0Increase in debt 39.8 82.0 --------- ---------- Increase in cash and cash 17.0 36.7equivalents ========= ========== This announcement is prepared on the basis of the accounting policies as statedin the previous year's financial statements except as noted below. Restatement of prior year As a result of the increasing prominence of rolled-up interest in mezzanine, thedirectors believe that it is now appropriate to modify the accountingpresentation of the amount payable under the medium term incentive scheme withrespect to rolled-up interest. It is now shown in full separately underadministrative expenses in the profit and loss account and creditors in thebalance sheet, whereas previously, it was shown as a reduction to interestincome and investments. As a result, both interest income and administrative expenses have increased by£2.7m for the year ending 31 January 2004 and by £1.1m for the year ending 31January 2005. Investments and creditors have both increased by £8.4m at 31January 2004 and £9.5m at 31 January 2005. Core income, profit before tax and net assets are unaffected in all periods. The financial information set out in the announcement does not constitute thegroup's statutory accounts for the years ended 31 January 2005 or 2004. Thefinancial information for the year ended 31 January 2004 is derived from thestatutory accounts for that year, as amended by the restatement on the previouspage, which have been delivered to the Registrar of Companies. The auditorsreported on those accounts; their report was unqualified and did not contain astatement under s237(2) or (3) Companies Act 1985. The statutory accounts forthe year ended 31 January 2005 will be finalised on the basis of the financialinformation presented by the directors in this preliminary announcement and willbe delivered to the Registrar of Companies following the company's annualgeneral meeting. NOTE TO THE EDITORS ICG was founded in 1989 and was floated in 1994. Its principal business is toarrange and provide mezzanine capital for companies in Europe and the AsiaPacific Region. ICG has offices in London, Paris, Stockholm, Madrid, Frankfurtand Hong Kong. ICG also has a specialist fund management business relating tohigher yielding European debt ICG makes mezzanine loans from both its own resources and from third party fundsunder its management. Mezzanine finance ranks in terms of risk and rewardbetween bank debt and equity capital. In return for providing finance, ICG seeksa strong cash yield and an additional return related to the success of theinvestee company. Mezzanine finance has been principally used to financemanagement buyouts but is also used as acquisition and refinancing capital. In the year ended 31 January 2005 ICG and its mezzanine funds invested in thefollowing companies: Ist Credit, a U.K. company, provides debt purchase and outsourced debtcollection services. In October 2004 ICG arranged and provided a mezzaninefacility of £20m to assist in the secondary buyout.The A.A. is a U.K. provider of roadside breakdown services and insurancebrokerage. In November 2004 ICG took a participation of £85m in the mezzaninefacility provided to assist in the buyout. ICG also took a participation of £5min the equity.Accantia is a U.K. brand owner and manufacturer, operating in feminine hygieneand health & beauty. In March 2004 ICG took a participation of £23m in themezzanine facility provided to assist in the secondary buyout.Comptage Immobilier Services is the French leader in water and heat meteringservices. In July 2004 ICG arranged and provided a mezzanine facility of €20m toassist in the secondary buyout.Condor Ferries, a U.K. company, provides ferry and catamaran services to theChannel Islands. In December 2004 ICG took a participation of £42.5m in themezzanine and subordinated shareholder loan facilities used to assist in thesecondary buyout.D V Holding, a French company, is a leading operator in the nursing homes andelderly care market. In December 2004 ICG arranged and provided a €16m PIKfacility to assist in the buyout of a minority shareholding. ICG also provided€10m of equity.DSV Miljo is an environmental services business based in Denmark. In February2004 ICG arranged and provided a mezzanine facility of DKK 200m to assist in thebuyout.Elmville, an existing borrower in the UK, is a hotel operating company. In March2004 ICG arranged and provided a facility of £8m to refinance the portion of themezzanine loan not held by ICG.Eurodatacar is a French company that provides services to complement traditionalinsurance policies covering theft of vehicles. In January 2005 ICG took aparticipation of €9m in the mezzanine facility arranged to assist in thesecondary buyout.Eurofarad is the French leader of customised and small batch high-end passivecomponents. In June 2004 ICG arranged and provided a mezzanine facility of €20mto assist in the buyout. ICG also took a participation of €2m in the equity.Gealan, a German company, is a manufacturer of PVC window systems. In January2005 ICG provided a mezzanine facility of €25m to assist in the secondarybuyout.Global Garden Products is the European powered garden equipment market leaderwith particularly strong positions in Italy, Scandinavia, France and the UK. InFebruary 2004 ICG took a participation of €23m in the mezzanine facilityarranged to assist in the secondary buyout.Groupe Moniteur, a French company, is a leading magazine group. In April 2004ICG arranged and provided a mezzanine facility of €47m to assist in the buyout.ICG also took a participation of €4m in the equity.Homann is a German company that produces chilled food and delicacies. InNovember 2004 ICG arranged and provided a €30 mezzanine facility to assist inthe secondary buyout.IMO Car Wash, a U.K. company, operates the largest standalone car wash businessin Europe. In March 2004 ICG took a participation of £6m in the mezzanine bondprovided to assist in the secondary buyout.Keolis is France's leading private passenger transport company. In September2004 ICG arranged and provided a mezzanine facility of €130m to assist in thebuyout.Leisure Link, an existing borrower, is a U.K. company that manages a wide rangeof gaming and other entertainment machines. In July 2004 ICG arranged andprovided an additional mezzanine facility of £2.5m for business development.Picard, is the leading French company in the distribution of frozen food. InDecember 2004 ICG jointly arranged mezzanine facilities totalling €270m toassist in the secondary buyout. ICG also took a participation of €15m in theequity.Red Funnel is a U.K. company operating ferry services between Southampton andthe Isle of Wight. In December 2004 ICG took a participation of £20m in thesubordinated loan stock provided to assist in the secondary buyout.Regent Medical, a U.K. company, manufactures and distributes surgical gloves. InSeptember 2004 ICG took a participation of €20m in the mezzanine facilityprovided to assist in the buyout.Remeha is a leading boiler manufacturer based in The Netherlands. In July 2004ICG arranged and provided a mezzanine facility of €33m to assist in theacquisition of a French heating company.Saga is a U.K. company providing products and services to people aged 50 andover. In December 2004 ICG took a participation of £85m in the mezzaninefacility provided to assist in the buyout.Score is a French company in the contract catering market. In October 2004 ICGarranged and provided a mezzanine facility of €7.5m to assist in the buyout.Sia, an existing borrower, is a French company which designs and imports highquality decoration accessories. In June 2004 ICG provided €4.5m of additionalfinancing for acquisition purposes.SR Technics, an existing borrower, is a high quality global aircraft maintenanceprovider based in Switzerland. In June 2004 ICG arranged and provided anadditional mezzanine facility of £9.4m to assist in financing an acquisition.Team System is an Italian company providing software packages and relatedmaintenance. In December 2004 ICG arranged and provided a mezzanine facility of€25m to assist in the secondary buyout. ICG also took a participation of €5m inthe equity.Thule is a Swedish based leading global sports utility transportation company.In December 2004 ICG took a participation of €33.6m in the mezzanine facilityarranged to assist in the secondary buyout.Vetco International is a U.K. company supplying products, systems and servicesto upstream oil and gas companies. In July 2004 ICG took a $31m participation inthe mezzanine facility arranged to assist in the buyout. This information is provided by RNS The company news service from the London Stock Exchange