Interim Results

INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 JULY 2002 Intermediate Capital Group PLC ('ICG'), the leading specialist European provider of mezzanine finance, announces its results for the six months ended 31 July 2002. Financial highlights: * Core income, the best measure of ICG's profitability, up 12% to £22m (2001: £19m) * Pre-tax profits up 4% to £26m (2001: £25m) * EPS up 4% to 31p * Proposed interim dividend up 10.5% to 9.5p per share * Gross capital gains of £16m * Loan book up 5% to £740m Operational highlights: * A new €350m (£220m) senior loan fund raised * Funds under management exceed £1.35bn * £148m of financings arranged during the period New Board Appointment ICG also announces the appointment of Paul Piper to the main ICG Board with immediate effect. Paul is Head of the UK Mezzanine Team and has been with ICG since its foundation in 1989. Commenting on the results, John Manser, Chairman of ICG said: I am pleased to report a good performance by ICG for the period in a less active market and a more difficult economic environment. Despite the market backdrop, we succeeded in growing our loan book and reporting a further increase in core income. In addition, we are pleased to have raised a second loan fund bringing our total funds under management to over £1.35bn. The prospects for new lending are very good and the second half has started strongly. We are confident in our ability to continue to grow our business and look forward to the future with confidence. Enquiries: Tom Bartlam, Managing Director, Intermediate Capital Group (020) 7628 9898 PLC Tom Attwood, Managing Director, Intermediate Capital Group (020) 7628 9898 PLC Gill Ackers/Tricia Parish, Brunswick Group Limited (020) 7404 5959 Chairman's Statement Introduction I am pleased to report a good performance by ICG in the six months to 31 July 2002. Core income, supported by strong growth in net interest income, has risen by 12% to £22m compared with the first half of the previous year. Despite a weak IPO market we made gross capital gains of £16m in the period. After provisions at similar levels to last year, pre-tax profits for the first half increased by 4% to £26m. In a less active market and a more difficult economic environment, we succeeded in growing our loan book by 5% to £740m, and in raising a second loan fund of € 350m (£220m), which brings our total funds under management to over £1.35bn. The second half has started strongly and prospects for new lending are very good. We are therefore confident in our ability to continue to grow our business. The European Mezzanine Market The first half of the year saw a significant reduction in the levels of buyout activity in both the UK and Continental Europe with the total value of all buyouts falling by 59% to £12bn compared with £29bn in the first half of the previous year. While buyouts of all sizes have been completed, they were much reduced in numbers compared with recent years and have, for the most part, taken a long time to complete. Against this background the demand for mezzanine has been good. Private equity houses, who have been competing strongly for the relatively scarce buyouts of quality companies, have been keen to have appropriate levels of leverage in their financing structure. The high yield bond market, because of its current volatility and unreliability, has not been as attractive a funding source as it has been in the past. This, together with the more cautious stance taken by some banks on senior debt lending, left good opportunities for mezzanine finance. Although competition for mezzanine has increased from one or two of the newer independent funds, there continue to be relatively few banks who have a significant appetite for mezzanine. When there is the need for substantial amounts of mezzanine, debt arrangers are often nervous of taking on significant underwriting risk and ICG is very often approached. We have continued to obtain satisfactory pricing on new mezzanine loans with the cash margin and overall return expectations being maintained at traditional levels. On a small number of very large transactions we have seen some higher than desirable levels of leverage being proposed but elsewhere in the market financial structures have been more moderate. Asia Pacific Our mezzanine operation in Hong Kong, covering the Asia Pacific region, is now well established and has successfully built relationships with a large number of potential deal providers. We are pleased to report that we have just signed our first deal in the region. Although Asian private equity is still at an early stage we are cautiously optimistic about the long term potential of the region. Loan Portfolio Having started our year strongly in terms of new lending, the second quarter was relatively quiet with a number of potential transactions either not completing or taking a long time and being delayed until the third quarter. Nevertheless we arranged or provided in the first half a total of £148m financings of which £100m was invested on our Balance Sheet, £25m was invested by our fund management clients with the balance being syndicated to third party investors. The mezzanine loans were to 8 different companies of which 4 were in France and one each in The Netherlands, Sweden, Switzerland and the UK. Although the level of repayments was less than originally anticipated because of the weak IPO market, it still amounted to £66m in respect of 8 different loans. Taking into account these repayments and provisions, the loan book rose by 5% to £740m in the first six months of the year. In light of the weak economic environment in both the UK and Continental Europe the performance of our loan portfolio has been satisfactory. Most of the relatively small number of companies which were underperforming at the beginning of the year have continued to do so. The remainder of the portfolio with only one or two exceptions, continues to perform reasonably well. We continue to benefit from having a portfolio of investments in well established cash generative companies, widely spread across different sectors and countries. Fund Under Management Funds under management showed further growth in the first half as a result of the raising of a new loan fund of €350m (£220m). Total funds under management at 31st July 2002 amount to over £1.35bn, which compares with £1.0bn a year earlier. At 31 July 2002 the money invested on behalf of our mezzanine funds, which continue to perform well, amounted to £260m, a small increase since the beginning of the year. We have a substantial amount of money still available in our Mezzanine Fund 2000 to invest in new loans and thus grow the level of funds invested in the second half. In view of the current strong demand for mezzanine we are now about to start raising a new mezzanine fund. The high yield bond markets in which our CDOs invest part of their money have had yet another difficult trading period during the first half, primarily a result of the severe underperformance of a number of large telecom related companies. While our CDOs were also exposed to some of these companies, their relative performance remains good, although below our original expectations. Our new loan fund brings the total funds under management in the leveraged loan area to £500m. There continues to be considerable investor appetite for this specific asset class which we believe offers attractive risk reward characteristics. We therefore expect to see opportunities for raising additional funds in this area, although this will depend on further growth in the leveraged loan market. We remain optimistic about the prospects for growth in fund management. Core Income Core income, which comprises net interest income and fee income less operating expenses, rose by 12% to £21.6m compared with the first half of the previous year. Net interest income increased by 14% to £19.6m compared with the corresponding period last year. This increase arose primarily because of the increase in the loan book over the last twelve months. Total fee income increased by 16% to £ 8.5m compared with the first half of the previous year mainly due to arrangement and agency fees increasing by £1.2m to £4.1m. Fund management fees at £4.4m, again including £1m of carried interest, were similar to the first half of the previous year. Operating expenses, as anticipated, increased by 23% to £6.5m. This increase arose primarily from the move to a larger London office, the new Hong Kong operation and increasing staff costs. Capital Gains and Provisions The weakness of the IPO market in the summer caused the cancellation of the IPOs of three companies in which we are investors. Consequently capital gains were less than we had hoped at the beginning of the year. Nevertheless we still achieved capital gains of £16.3m which arose primarily from the IPO of one Swedish company and the trade sale of one French company. In the first half we have made a general provision of £8.0m to reflect the continuing underperformance of a small number of our investments. Dividends The Board has declared an interim dividend of 9.5p per share, an increase of 10.5% over the interim dividend of 8.6p per share which was paid last year. This is payable on 25 October 2002 to shareholders on the register on 11 October 2002. Funding At 31 July 2002, ICG's borrowings amounted to £539m which represents a relatively low gearing level of 255%. After raising £90m of new medium term bank facilities at the beginning of the year our total borrowing facilities amount to £768m, leaving us with unutilised facilities of £229m at the end of July. In view of the strong outlook for loan book growth we are now considering further debt raising. Board Appointment We are pleased to announce the appointment of Paul Piper to the main ICG Board as an Executive Director. Paul is head of the UK mezzanine team and has been with ICG since its foundation in 1989. His many years experience of the mezzanine market will further strengthen our Board. Prospects Despite a quieter buyout market, the demand for mezzanine is strong and ICG, because of its reputation and longstanding commitment to the mezzanine market, is being approached on a large proportion of the mezzanine opportunities available. As a consequence we have a very good pipeline of new lending opportunities, with France being particularly strong, and currently expect to have an unusually high level of new lending in the second half. Since the end of July, we have already made 5 new loans totalling £92m, which has resulted in £74m being taken on our loan book and a further £18m being invested by our fund management clients. We are therefore confident of substantially increasing our loan book in the second half, as a result of which we are well placed to increase net interest income and fee income. While we are confident of achieving further capital gains in the second half, it is not yet possible to forecast the level of these gains. The strong deal flow in the second half should result in a good increase in invested mezzanine funds under management. While the performance of our two CDO funds give us some cause for concern, that of our two loan funds is good and we believe there continue to be opportunities to grow our funds under management in this specialist area. We are very conscious of the adverse effect the weak economy can have on our existing portfolio and consequently we will continue to devote appropriate resources to monitoring it and maintaining its strength and value. We are encouraged by the high levels of good quality new lending currently available to us and therefore continue to look to the future with confidence. INTERMEDIATE CAPITAL GROUP PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT for the six months ended 31 July 2002 Half year to Half year to Year to 31 Jan 31 July 2002 31 July 2001 2002 (unaudited) (unaudited) (audited) £m £m £m Interest and dividend income 31.6 32.9 62.9 Gain on disposals 16.3 15.1 21.1 Fee and other operating income 8.5 7.3 14.3 -------------- -------------- -------------- 56.4 55.3 98.3 Interest payable and similar (12.0) (15.7) (26.9) charges Provisions against loans and (8.0) (7.5) (16.2) investments Administrative expenses (10.2) (7.0) (13.5) -------------- -------------- -------------- Profit on ordinary activities 26.2 25.1 41.7 before taxation Tax on profit on ordinary (8.0) (7.6) (12.8) activities -------------- -------------- -------------- Profit on ordinary activities 18.2 17.5 28.9 after taxation Dividends paid and proposed - (5.6) (5.0) (16.4) ordinary shares -------------- -------------- -------------- Retained profit transferred to 12.6 12.5 12.5 reserves -------------- -------------- -------------- Earnings per share 31.0p 29.9p 49.3p -------------- -------------- -------------- All activities represent continuing operations Profit on ordinary activities before taxation is split as follows:- Core income Net capital gains 31 July 31 July 31 July 31 July 2002 2001 2002 2001 (unaudited) (unaudited) (unaudited) (unaudited) £m £m £m £m Income Interest and dividend 31.6 32.9 - - income Gain on disposals - - 16.3 15.1 Fee and other operating 8.5 7.3 - - income ---------- ----------- --------- ----------- 40.1 40.2 16.3 15.1 Less: Interest payable and (12.0) (15.7) - - similar charges Provisions against loans - - (8.0) (7.5) and investments Administrative expenses (6.5) (5.3) (3.7) (1.7) ---------- ----------- --------- ----------- 21.6 19.2 4.6 5.9 ---------- ----------- --------- ----------- INTERMEDIATE CAPITAL GROUP PLC CONSOLIDATED BALANCE SHEET 31 July 2002 31 July 31 July 31 January 2002 2001 2002 (unaudited) (unaudited) (audited) £m £m £m Fixed assets Tangible assets 1.8 0.4 1.5 Loans 654.5 601.8 633.3 Investments 85.2 65.2 70.7 Current assets Debtors 19.2 23.5 14.4 Loans and investments 17.0 13.7 33.0 Cash at bank 0.8 1.6 1.1 ---------- ---------- --------- 37.0 38.8 48.5 ---------- ---------- --------- Total assets 778.5 706.2 754.0 ---------- ---------- --------- Capital and reserves Called up share capital 11.7 11.7 11.7 Share premium account 85.3 85.0 85.2 Capital redemption reserve 1.4 1.4 1.4 Profit and loss account 112.8 100.2 100.2 ---------- ---------- --------- Equity shareholders' funds 211.2 198.3 198.5 Creditors: amounts falling due after more 539.1 474.7 523.5 than one year Creditors: amounts falling due within one 28.2 33.2 32.0 year ---------- ---------- --------- Total capital and liabilities 778.5 706.2 754.0 ---------- ---------- ---------- INTERMEDIATE CAPITAL GROUP PLC CONSOLIDATED CASH FLOW STATEMENT for the six months ended 31 July 2002 Half year Half year Year to 31 to 31 July to 31 Jan 2002 2002 July2001 (unaudited) (unaudited) (audited) £m £m £m Operating activities Interest and dividends received 29.2 31.3 58.5 Gain on disposals 16.3 15.2 21.3 Fee and other operating income 6.6 4.6 16.0 Administrative expenses (13.0) (14.5) (25.6) ----------- ----------- ----------- 39.1 36.6 70.2 Interest paid (12.8) (15.2) (26.7) ----------- ----------- ----------- Net cash inflow from operating activities 26.3 21.4 43.5 Taxation paid (4.4) (4.9) (16.5) Capital expenditure and financial investment Loans and investments made (148.5) (111.3) (184.0) Realisations of loans and investments 66.4 43.4 82.7 Loans for syndication 70.4 29.8 13.8 ----------- ----------- ----------- (11.7) (38.1) (87.5) Purchase of tangible fixed assets (0.4) (0.1) (1.3) ----------- ----------- ----------- (12.1) (38.2) (88.8) ----------- ----------- ----------- Equity dividends paid (11.4) (10.1) (15.2) ----------- ----------- ----------- Net cash outflow before financing (1.6) (31.8) (77.0) Financing Increase in share capital 0.1 - 0.2 Increase in debt 1.2 30.3 74.8 ----------- ----------- ----------- Decrease in cash and cash equivalents (0.3) (1.5) (2.0) ----------- ----------- ----------- Notes 1 Basis of accounting The interim financial statements have been prepared under the historical cost convention and on the basis of the accounting policies set out in the statutory accounts of the group for the year ended 31 January 2002. 2 Earnings per share The calculation of earnings per share is based on earnings of £18.2m (2001 - £ 17.5m) and an average number of shares in issue throughout the period of 58,658,402 (2001 - 58,598,825). 3 Dividends The interim dividend of 9.5p per share will be paid out to members registered at the close of business on 11 October 2002. 4 Investments The group's portfolio of warrants and listed shares is included in investments at the lower of cost or net realisable value. 5 General The interim financial statements for the half year to 31 July 2002 were approved by the Board on 1 October 2002. These financial statements are unaudited, but they have been reviewed by the auditors, having regard to the bulletin 'Review of Interim Financial Information' issued by the Auditing Practices Board. The comparative figures for the year ended 31 January 2002 have been extracted from the group's statutory accounts which have been delivered to the Registrar of Companies. The auditors' report on those statements was unqualified and did not include a statement under Section 237 (2) or (3) of the Companies Act 1985. Copies of this statement are being sent to all shareholders. Copies are also available at the registered office of the company. INDEPENDENT REVIEW REPORT TO INTERMEDIATE CAPITAL GROUP PLC Introduction We have been instructed by the company to review the financial information for the six months ended 31 July 2002 which comprises the profit and loss account, the balance sheet, the cash flow statement and related notes 1 to 5. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with the Listing Rules of the Financial Services Authority which require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with the guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with United Kingdom auditing standards and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 31 July 2002. Deloitte & Touche Chartered Accountants London 1 October 2002 NOTES TO THE EDITORS In the six months ended 31 July 2002 ICG made the following loans and investments: Dometic Appliances is the global leader in the supply of appliances for Recreational Vehicles. It also sells refrigerators and other appliances to a variety of other markets including hotels. ICG made a mezzanine loan of €16m to assist in the buyout. Eurodatacar is a company which provides services which complement traditional insurance policies covering theft of vehicles. ICG took a participation of €8m bonds to assist in the secondary buyout. Malmberg, an existing borrower, is a leading publisher of educational material in the Netherlands and Belgium. ICG provided € 3.75m of Junior Mezzanine. Moliflor is the sixth largest operator of casinos in France. ICG arranged the mezzanine facility of €70m to assist in the buyout in March 2002. Risdon Pharma is a European market leader in the pharmaceutical primary packaging materials industry. ICG took a participation of €8m bonds to assist in the buyout. Sia is a designer, importer/wholesaler and retailer of quality interior decoration accessories sold to gift and decoration stores. ICG took a participation of €8.0m in the Bonds of €15.5m to assist in a secondary buyout. SP Investments are an aviation ground handler serving over 500 airlines at 130 stations and is now the world's second largest ground handler. ICG arranged a mezzanine facility of CHF 130m to assist in the buyout. Talbot is a Lloyds insurer which insures a variety if classes, the largest of which is marine insurance. ICG provided US$20m to support their underwriting in 2002.

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