ICP.L Regulatory News (ICP)

11 Oct 2005 07:00

Intermediate Capital Group PLC11 October 2005 Embargoed until 07.00am on Tuesday 11th October 2005 INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 JULY 2005 Intermediate Capital Group PLC ("ICG"), the leading specialist European providerof mezzanine finance, announces its results for the six months ended 31 July2005. For the first time these results have been prepared under IFRS. IFRS Financial highlights: • Core income* up 28% to £44.0m (2004: £34.5m) • Gains on investments up 173% to £64.6m (2004: £23.7m) • Pre-tax profits up 94% to £78.5m (2004: £40.5m) • EPS up 81% to 71.5p (2004: 39.4p) • Interim dividend up 19% to 14.0p per share Operational highlights: • New investments of £168m by ICG compared to repayments at exit of £141m • £208m of loans were refinanced with ICG reinvesting £216m in these companies • Loan book up 5% to £1.3bn Commenting on the results, John Manser, Chairman of ICG said: "I am delighted to report a record performance by ICG in our first half withpre-tax profits up by over 94% at £78.5m year on year. Core income and pre-tax profits reached record levels by any accounting measure.We have had satisfactory levels of new lending despite the continued competitionfor mezzanine assets. On a like for like basis, the loan book has increased by5% to £1.3bn in the last six months which is encouraging in the light of thehigh levels of refinancing and repayments. The buoyant exit market for LBOs hasresulted in strong gains on investments of £64.6m in the first six months. Whileit is too early to comment on the second half, the first half growth in theportfolio and the encouraging pipeline for new deals and exits should lead toanother good performance". The comparatives have been restated under IFRS, but do not include the effectsof IAS 32 and IAS 39 and are therefore not directly comparable to this year. Atable setting out comparisons under UK GAAP, as well as IFRS, is shown below. UK GAAP** IFRS ------------------------------- ------------------------ July 2004 July 2005 July 2004 July 2005 Jan 2005 ----------- ----------- ----------- ----------- ---------- (Unaudited) (Unaudited) % (Unauditied) (Unaudited) % (Pro-forma, unaudited)*** £m £m £m £m £m Net InterestIncome 35.1 46.3 35.1 49.6 88.5Core Income* 34.8 41.1 18% 34.5 44.0 28% 76.5 Gains oninvestments 23.7 56.1 137% 23.7 64.6 173% 57.0Provisions (13.0) (15.3) (13.0) (17.5) (26.5)Profit beforeTax 40.8 69.6 71% 40.5 78.5 94% 107.0 Investments 1,033.5 1,239.0 1,033.5 1,311.2 1,253.5 \* The definition of core income may be found in the "analysis of profit beforetax" **References to UK GAAP refer to UK GAAP used to present the 31 January 2005financial statements rather than currently in existence ***From the transitional statement released on 16 September 2005 Enquiries:Tom Attwood (020) 7628 9898Managing Director, Intermediate Capital Group PLCPaul Piper (020) 7628 9898Director, Intermediate Capital Group PLCGill Ackers, Brunswick Group Limited (020) 7404 5959 An interview with Tom Attwood, Managing Director, Intermediate Capital GroupPLC, in video, audio and text format is available at www.icgplc.com and atwww.cantos.com CHAIRMAN'S STATEMENT Introduction I am delighted to report an excellent performance by ICG in the six months to 31July 2005. Core income, prepared for the first time under IFRS, rose by 28% to £44.0mcompared to the first half of last year. This resulted from growth in netinterest income due to an increase in the loan book and the impact of the newaccounting standards. On a like for like basis, under UK GAAP, the increasewould have been 18%. Gains on investments were particularly strong in the periodand, after taking into account provisions against impaired assets, pre-taxprofits for the first half almost doubled to £78.5m. While we have seen a good flow of mezzanine opportunities throughout Europe andhad satisfactory levels of new lending, we have been selective in theincreasingly competitive mezzanine market and continue to reject a number ofpotential deals on the grounds of inadequate return for the perceived risk.Refinancing and repayments have been at record levels. The second half has started well, in similar market conditions to those of thefirst half. We continue to experience high levels of repayment which are beingmatched by a satisfactory level of investment opportunities. Profits for thesecond half should again benefit from a good level of gains on investmentsresulting from exit activity and from further growth in core income. Loan Portfolio In the six months to July our extensive coverage throughout Europe generatedhealthy deal flow. While we have continued to be selective in the face ofincreasing leverage, we have maintained a good level of new lending. We arrangedor underwrote £302m in 14 new deals, with £168m being taken onto our own balancesheet, £94m being taken by our fund management clients and the balance beingsyndicated to third parties. Seven of these new deals were in France, two ineach of Sweden and Germany and one in each of the UK, South Korea and theNetherlands. Twelve of these loans were to finance buyouts, one was acquisitioncapital and one a high yield bond. After a good year for repayments in 2004/05, this year has been stronger still.The level of repayments in the first half amounted to £141m from 13 companies inour portfolio. Additionally, existing borrowers with £208m of lending from ICGtook advantage of the current hot debt market to refinance the debt in theirbalance sheet at lower pricing and, for the lender, higher risk. ICG chose toincrease its overall exposure to these companies by £8m. In aggregate £349m ofloans were repaid or refinanced, 28% of our opening loan book. Taking into account the levels of new lending, repayments and impairmentprovisions, the value of the loan book has risen by 5% to £1.3bn over the lastsix months. In addition the depreciation of sterling against the US dollarincreased the loan book by £7.4m. While the majority of our portfolio continues to trade well and we benefit fromhaving a well-diversified portfolio, both by sector and geography, a smallnumber of our loans continue to disappoint and appropriate provisions have beenmade. The European Mezzanine Market The European buyout market was very active in the first half of the year, withits total value amounting to approximately £37bn, a 50% increase on the level ofbuyouts in the first half of 2004. There is heavy competition among financialbuyers who have or are in the process of raising record levels of liquidity fornew funds. This has led to ever higher prices being paid for some companies. Further increase in the levels of liquidity in the debt markets has resulted inbanks being more aggressive in the amount of senior debt that they are preparedto offer to finance some of the larger buyouts. This is evident in the recordlevels of refinancing experienced across the leveraged buyout sector and in thebanks', and other lenders', new willingness to allow private equity investors totake substantial amounts of money out of their investments prior to exit. Thehigh yield bond market had a strong first quarter but activity fell in thesecond quarter following the rating downgrades of General Motors and Ford. During the first half, there continued to be good demand for mezzanine, withgrowth of some 10% over last year. However, it should be noted that over 75% ofthis volume was derived from recapitalisations and secondary or tertiarybuyouts. Mezzanine accounted for approximately 6% of the total value of buyouts. In the highly competitive banking market, banks are being tempted to reducemargins and increase leverage for some larger mezzanine transactions. Banks,hedge funds and structured debt funds are targeting the mezzanine market.Accordingly, mezzanine loans have been arranged where, in ICG's opinion, theterms do not adequately reflect the risk and in which ICG has therefore chosennot to invest. The first half has also seen an increase in the use of secondlien debt which, in some cases, replaced all or part of the mezzanine layer butat lower pricing. Outside the larger transactions, lenders such as ICG, which have long creditexperience in the mezzanine market and the ability to structure complextransactions, coupled with a pan European presence, remain well placed. Asia Pacific The Asia Pacific markets are becoming increasingly active. Private equityinvestors are targeting the region and over the last twelve months a significantnumber of new funds have been raised which is stimulating investment activity. During the first six months of the year, we achieved our second exit, recordinga very satisfactory return, and in the same period made one new mezzanine loan.In addition, we have in recent weeks launched our first Asia Pacific MezzanineFund targeting third party funds of US$200m. The raising of a dedicated fund inAsia is an important step in building our business there. We believe the AsiaPacific Region will provide a source of good investment opportunities andgrowth. Funds under management Our mezzanine funds are performing well. Total mezzanine funds under managementnow stand at £1.05m of which £668 million (€968 million) is invested. Our latestfund, the ICG Mezzanine Fund 2003, is 57% invested. Our specialist sub-investment grade fund management business has continued toperform satisfactorily. The strong liquidity in the high yield bond market thatcharacterised the second half of 2004 continued into the first quarter but wasreversed by mid year on the back of concerns in the Automotive Sector andinflationary fears in the US. The performance of our two older CDOs has beenstable and both funds made distributions to their equity investors during theperiod. Our four loan funds are also performing well and are fully investeddespite a high level of prepayments. We now manage assets of over €2.25bn(£1.55bn) for the six existing funds and, additionally, hold assets of £86m ascurrent assets on our own balance sheet as a warehouse for future funds. We have launched our new credit fund, Eurocredit Opportunities I PLC, which hasattracted considerable interest from both existing and new investors. This fundis more lowly geared than our previous funds allowing us the flexibility topursue alternative strategies in European credit markets. We expect to closethis fund within the next month at a level of €400m. We remain confident that we have the potential to increase significantly thesize of our fund management business in the years ahead. IFRS This year we have prepared our interim accounts under IFRS. We have restatedlast year's figures, but have taken advantage of the exemption to exclude theimpact of IAS 32 (Financial Instruments: Disclosure and Presentation) and IAS 39(Financial Instruments: Recognition and Measurement). The results for the yearare therefore not directly comparable. On page 1 is a table which sets out our headline figures in such a way that acomparison may be made. The overall impact of IFRS has been the earlierrecognition of capital profits and non-cash interest which, along with therequirement to fair value financial derivatives, is likely to lead to increasedvolatility in our profits going forward. Core Income Under IFRS, core income, which is the key component of ICG's profitability andconsists of net interest and fee income less relevant administrative expenses,rose by 28% to £44.0m compared to the first half of last year. Under UK GAAP,the increase would have been 18%. Net interest income at £49.6m rose strongly in the period due to the effects ofan increased loan book plus the impact of IFRS from, firstly, the inclusion ofunderwriting and agency fees as part of interest income and, secondly, reservesagainst unpaid interest income now being shown as part of provisions. Total fee income has reduced to £11.4m from £12.5m last year. The principalreason for this is that agency and deal fees have decreased from £3.9m to £2.8mas a result of their partial inclusion in interest income under IFRS. Fees fromfund management remained at similar levels to last year at £8.6m. Operating expenses, excluding the cost of the medium term incentive scheme,increased to £12.2m from £10.1m for the period mainly as a result of increasedstaffing and staff costs. Gains on investments As the market for exits has improved, the level of gains on investmentsincreased substantially in the first six months of the year. Total gainsamounted to £64.6m, of which £56.1m came as a result of cash gains arising fromone IPO, eight trade sales and the sale of shares from our quoted portfolio. Inaddition, there has been a net increase of £8.5m in the fair value of warrantsand listed shares held in the balance sheet and therefore included in gains oninvestments. Provisions Provisions relating to loans and investments during the period amounted to£17.5m compared to £13.0m for the same period last year. These provisionsprimarily relate to the recent significant underperformance of one of ourportfolio companies, along with some further provisions against existingimpaired assets. Dividends The Board has declared an interim dividend of 14.0p per share, an increase of19% over the interim dividend last year, reflecting the strong results andexceptional capital gains. This will be paid on 11 November 2005 to shareholderson the register at 21 October 2005. Funding In April we took advantage of the liquidity in the banking market and completeda new five year revolving credit facility with a group of banks for £845m,replacing previous banking facilities of £359m. At the end of the period, ICG had £1bn of debt, which resulted in comparativelylow gearing of 2.3:1. Board appointment It is with regret that I have to announce the resignation of Dr. MartinKohlhaussen as a non-executive director of the company. Martin is Chairman ofthe Supervisory Board of Commerzbank and this sadly led to some conflicts ofinterest. I would like to take this opportunity to thank Martin for his valuablecontribution to our discussions at the Board. Year End It is our intention to change the year end of the company from 31 January to 31March for this and future years. The reason for the change is that we wish toalign ICG's year end with those of our fund clients to enable us to providecommon information to both our shareholders and our fund investors. The resultsfor this accounting period will therefore be for 14 months ending 31 March 2006. Prospects The buyout market remains extremely buoyant, leading to a healthy stream ofmezzanine opportunities. We expect this level of activity to continue in themedium term fuelled by record amounts of new fund raising by private equityfunds. The demand for mezzanine also remains high but competition in the Europeanmezzanine market, including that from second lien debt, will continue to have anadverse influence on the pricing and structuring of some larger mezzanine loans.Maintaining our credit discipline in this environment will of course beessential. Nevertheless, we believe that with our brand, pan European network,long term commitment to the market and our ability to underwrite and supplylarge amounts of mezzanine, we will continue to see a satisfactory level ofquality deal flow. However, the current trend of refinancing of loans toexisting borrowers is having the effect of increasing the overall levels ofrisk. We will, therefore, remain particularly selective in new lending. In the remainder of the year, we forecast that the level of repayments willremain high, as evidenced by six repayments totalling £65m since July. We expectthat this will continue to temper loan book growth although we have invested infour new loans totalling £59m over the same period. The growth in the portfolio in the first half and the increase in funds undermanagement should lead to decent momentum in core income. The strong exit marketleads us to view confidently the outlook for gains on investments for theremainder of the year. As a result we expect to be able to record another goodperformance in profits in the second half. While there are a few of ourinvestments whose performance gives us concern, our portfolio overall continuesto do well. We therefore continue to view the future with confidence. INTERMEDIATE CAPITAL GROUP PLC CONSOLIDATED INCOME STATEMENT for the six months ended 31 July 2005 Half year to 31 Half year to 31 Year to 31 July 2005 July 2004 January 2005 (unaudited) (unaudited) (audited) £m £m £mInterest anddividend income 67.9 46.9 101.6Gains on investments 64.6 23.7 62.9Fee and otheroperating income 11.4 12.5 27.4 ----------- ----------- --------- 143.9 83.1 191.9 Interest payable andsimilar charges (18.3) (11.8) (26.5)Provisions forimpairment of assets (17.5) (13.0) (28.2)Administrative expenses (29.6) (17.8) (42.2) ----------- ----------- ---------Profit before tax 78.5 40.5 95.0Income tax expense (28.7) (13.2) (33.5) ----------- ----------- ---------Profit for theperiod attributableto the equityshareholders 49.8 27.3 61.5 =========== =========== =========Earnings per share 71.5p 39.4p 88.6p =========== =========== ========= In accordance with the transitional rules on first-time adoption of IFRS, the2004/05 statutory comparatives do not follow IAS 32 'Financial Instruments:Disclosure and Presentation' and IAS 39 'Financial Instruments: Recognition andMeasurement', but instead follow applicable UK GAAP requirements. ANALYSIS OF PROFIT BEFORE TAX for the six months ended 31 July 2005 Half year to 31 Half year to 31 Year to 31 July 2005 July 2004 January 2005 (unaudited) (unaudited) (audited) £m £m £mIncome Interest and dividendincome 67.9 46.9 101.6Fee and other operatingincome 11.4 12.5 27.4 --------- ---------- --------- 79.3 59.4 129.0 Less: Related expenses Interest payable andsimilar charges (18.3) (11.8) (26.5)Administrativeexpenses -Salaries andbenefits (7.8) (6.5) (13.3)Operatingexpenses (4.4) (3.6) (8.3)Medium termincentive scheme (4.8) (3.0) (6.3) --------- ---------- ---------Core Income 44.0 34.5 74.6 --------- ---------- --------- Realised capital gainsand changes in warrantvaluations 64.6 23.7 62.9Medium term incentivescheme (12.6) (4.7) (14.3) --------- ---------- ---------Net Capital Gains 52.0 19.0 48.6 --------- ---------- --------- Provisions forimpairment of assets (17.5) (13.0) (28.2) --------- ---------- ---------Profit before tax 78.5 40.5 95.0 ========= ========== ========= INTERMEDIATE CAPITAL GROUP PLC CONSOLIDATED BALANCE SHEET 31 July 2005 31 July 2005 31 July 2004 31 January 2005 (unaudited) (unaudited) (audited) £m £m £m Non current 1.3 1.3 1.3assetsProperty, plantand equipmentFinancial assets,loans and 1,311.2 1,033.5 1,182.8investmentsDeferred tax - 0.9 0.8asset --------- --------- -------- 1,312.5 1,035.7 1,184.9 --------- --------- -------- Current assetsTrade and other 5.8 25.5 20.2receivablesFinancial assets,loans and 156.5 1.4 40.9investmentsCash and cash 83.7 83.3 55.6equivalents --------- --------- -------- 246.0 110.2 116.7 --------- --------- -------- --------- --------- -------- Total assets 1,558.5 1,145.9 1,301.6 ========= ========= ======== Equity and reservesCalled up share 13.9 13.9 13.9capitalShare premium 174.0 172.4 172.5accountCapital 1.4 1.4 1.4redemptionreserveOther reserves 13.4 0.4 0.5Retained earnings 231.2 165.7 191.6 --------- --------- --------Equity 433.9 353.8 379.9shareholders' --------- --------- --------funds Non current liabilities Financial 955.1 649.3 711.4liabilitiesDeferred tax 11.7 - -liabilities --------- --------- -------- 966.8 649.3 711.4 --------- --------- -------- Current liabilitiesTrade and other 52.4 56.9 58.9payableFinancial 73.0 69.1 131.5liabilitiesLiabilities for 32.4 16.8 19.9current tax --------- --------- -------- 157.8 142.8 210.3 --------- --------- -------- --------- --------- --------Total liabilities 1,124.6 792.1 921.7 --------- --------- -------- --------- --------- -------- Total equity andliabilities 1,558.5 1,145.9 1,301.6 ========= ========= ======== In accordance with the transitional rules on first-time adoption of IFRS, the2004/05 statutory comparatives do not follow IAS 32 'Financial Instruments:Disclosure and Presentation' and IAS 39 'Financial Instruments: Recognition andMeasurement', but instead follow applicable UK GAAP requirements. INTERMEDIATE CAPITAL GROUP PLC CONSOLIDATED CASH FLOW STATEMENT for the six months ended 31 July 2005 Half year to 31 Half year to 31 Year to 31 July 2005 July2004 January 2005 (unaudited) (unaudited) (audited) £m £m £mCash flows fromoperating activitiesInterest andfee receipts 59.2 55.1 115.3Dividends received 3.1 0.2 0.9Gain on disposals 56.4 23.7 62.9Interest payments (17.0) (13.9) (24.4)Cash payments to suppliersand employees (30.6) (17.8) (28.9) --------- --------- ---------Cash generatedby operations 71.1 47.3 125.8 Income taxes paid (19.8) (11.6) (26.5) --------- --------- ---------Net cash fromoperating activities 51.3 35.7 99.3 --------- --------- --------- Cash flows frominvesting activitiesInterest received 0.9 0.7 1.6Purchase of current financial assets (110.5) 26.1 (14.2)Purchase ofloans and investments (213.4) (168.7) (398.6)Proceeds fromsale of loansand investments 160.8 190.3 311.7Purchase of property,plant and equipment (0.1) (0.1) (0.3) --------- --------- --------- Net cash (usedin)/from investingactivities (162.3) 48.3 (99.8) --------- --------- --------- Cash flows fromfinancing activitiesDividends paid (19.6) (16.7) (24.9) Increase/(decrease) in long-term borrowings 163.3 (34.4) 39.8(Decrease)/increase in otherborrowings (6.1) 9.4 -Increase inshare capital 1.5 2.4 2.6 --------- --------- --------- Net cash from/(used in)financing activities 139.1 (39.3) 17.5 --------- --------- ---------Net increasein cash 28.1 44.7 17.0 Cash atbeginning ofyear 55.6 38.6 38.6 --------- --------- --------- Cash at end of year 83.7 83.3 55.6 ========= ========= ========= INTERMEDIATE CAPITAL GROUP PLC CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE for the six months ended 31 July 2005 Half year to 31 Half year to 31 Year ended 31 July 2005 July 2004 January 2005 (Unaudited) (Unaudited) (Unaudited) £m £m £mAvailable for sale investments:Valuation gains /(losses) takento equity 11.6 - -Transferred toprofit or lossfor the period (9.0) - -Tax on itemstaken directlyto ortransferredfrom equity (0.8) - --------------------------- --------- --------- ----------Net incomerecogniseddirectly inequity 1.8 - -Profit for theperiod 49.8 27.3 61.5-------------------------- --------- --------- ----------Totalrecognisedincome andexpense forthe periodattributableto shareholders 51.6 27.3 61.5-------------------------- --------- --------- ---------- CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the six months ended 31 July 2005 Retained earnings Half year to 31 Half year to 31 Year ended 31 July 2005 July 2004 January 2005 (Unaudited) (Unaudited) (Unaudited) £m £m £mBalance at 31January (IFRSexcluding IAS32 and 39) 191.6 155.0 155.0IFRS adjustmentsfor IAS 32 and 39 9.4 - -------------------------- --------- --------- ----------Balance at 1February (IFRSincluding IAS32 and IAS 39) 201.0 155.0 155.0 Profit on ordinary activities after tax 49.8 27.3 61.5Dividends paid (19.6) (16.7) (24.9)------------------------- --------- --------- ----------Balance at 31July / 31January 231.2 165.6 191.6------------------------- --------- --------- ---------- This information is provided by RNS The company news service from the London Stock Exchange