Interim Results
Intermediate Capital Group PLC
11 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 provider
of mezzanine finance, announces its results for the six months ended 31 July
2005. 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 with
pre-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 competition
for mezzanine assets. On a like for like basis, the loan book has increased by
5% to £1.3bn in the last six months which is encouraging in the light of the
high levels of refinancing and repayments. The buoyant exit market for LBOs has
resulted in strong gains on investments of £64.6m in the first six months. While
it is too early to comment on the second half, the first half growth in the
portfolio and the encouraging pipeline for new deals and exits should lead to
another good performance'.
The comparatives have been restated under IFRS, but do not include the effects
of IAS 32 and IAS 39 and are therefore not directly comparable to this year. A
table 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 Interest
Income 35.1 46.3 35.1 49.6 88.5
Core Income* 34.8 41.1 18% 34.5 44.0 28% 76.5
Gains on
investments 23.7 56.1 137% 23.7 64.6 173% 57.0
Provisions (13.0) (15.3) (13.0) (17.5) (26.5)
Profit before
Tax 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 before
tax'
**References to UK GAAP refer to UK GAAP used to present the 31 January 2005
financial statements rather than currently in existence
***From the transitional statement released on 16 September 2005
Enquiries:
Tom Attwood (020) 7628 9898
Managing Director, Intermediate Capital Group PLC
Paul Piper (020) 7628 9898
Director, Intermediate Capital Group PLC
Gill Ackers, Brunswick Group Limited (020) 7404 5959
An interview with Tom Attwood, Managing Director, Intermediate Capital Group
PLC, in video, audio and text format is available at www.icgplc.com and at
www.cantos.com
CHAIRMAN'S STATEMENT
Introduction
I am delighted to report an excellent performance by ICG in the six months to 31
July 2005.
Core income, prepared for the first time under IFRS, rose by 28% to £44.0m
compared to the first half of last year. This resulted from growth in net
interest income due to an increase in the loan book and the impact of the new
accounting standards. On a like for like basis, under UK GAAP, the increase
would have been 18%. Gains on investments were particularly strong in the period
and, after taking into account provisions against impaired assets, pre-tax
profits for the first half almost doubled to £78.5m.
While we have seen a good flow of mezzanine opportunities throughout Europe and
had satisfactory levels of new lending, we have been selective in the
increasingly competitive mezzanine market and continue to reject a number of
potential 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 the
first half. We continue to experience high levels of repayment which are being
matched by a satisfactory level of investment opportunities. Profits for the
second half should again benefit from a good level of gains on investments
resulting from exit activity and from further growth in core income.
Loan Portfolio
In the six months to July our extensive coverage throughout Europe generated
healthy deal flow. While we have continued to be selective in the face of
increasing leverage, we have maintained a good level of new lending. We arranged
or underwrote £302m in 14 new deals, with £168m being taken onto our own balance
sheet, £94m being taken by our fund management clients and the balance being
syndicated to third parties. Seven of these new deals were in France, two in
each of Sweden and Germany and one in each of the UK, South Korea and the
Netherlands. Twelve of these loans were to finance buyouts, one was acquisition
capital 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 in
our portfolio. Additionally, existing borrowers with £208m of lending from ICG
took advantage of the current hot debt market to refinance the debt in their
balance sheet at lower pricing and, for the lender, higher risk. ICG chose to
increase its overall exposure to these companies by £8m. In aggregate £349m of
loans were repaid or refinanced, 28% of our opening loan book.
Taking into account the levels of new lending, repayments and impairment
provisions, the value of the loan book has risen by 5% to £1.3bn over the last
six months. In addition the depreciation of sterling against the US dollar
increased the loan book by £7.4m.
While the majority of our portfolio continues to trade well and we benefit from
having a well-diversified portfolio, both by sector and geography, a small
number of our loans continue to disappoint and appropriate provisions have been
made.
The European Mezzanine Market
The European buyout market was very active in the first half of the year, with
its total value amounting to approximately £37bn, a 50% increase on the level of
buyouts in the first half of 2004. There is heavy competition among financial
buyers who have or are in the process of raising record levels of liquidity for
new 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 in
banks being more aggressive in the amount of senior debt that they are prepared
to offer to finance some of the larger buyouts. This is evident in the record
levels of refinancing experienced across the leveraged buyout sector and in the
banks', and other lenders', new willingness to allow private equity investors to
take substantial amounts of money out of their investments prior to exit. The
high yield bond market had a strong first quarter but activity fell in the
second quarter following the rating downgrades of General Motors and Ford.
During the first half, there continued to be good demand for mezzanine, with
growth of some 10% over last year. However, it should be noted that over 75% of
this volume was derived from recapitalisations and secondary or tertiary
buyouts. Mezzanine accounted for approximately 6% of the total value of buyouts.
In the highly competitive banking market, banks are being tempted to reduce
margins 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, the
terms do not adequately reflect the risk and in which ICG has therefore chosen
not to invest. The first half has also seen an increase in the use of second
lien debt which, in some cases, replaced all or part of the mezzanine layer but
at lower pricing.
Outside the larger transactions, lenders such as ICG, which have long credit
experience in the mezzanine market and the ability to structure complex
transactions, coupled with a pan European presence, remain well placed.
Asia Pacific
The Asia Pacific markets are becoming increasingly active. Private equity
investors are targeting the region and over the last twelve months a significant
number of new funds have been raised which is stimulating investment activity.
During the first six months of the year, we achieved our second exit, recording
a 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 Mezzanine
Fund targeting third party funds of US$200m. The raising of a dedicated fund in
Asia is an important step in building our business there. We believe the Asia
Pacific Region will provide a source of good investment opportunities and
growth.
Funds under management
Our mezzanine funds are performing well. Total mezzanine funds under management
now stand at £1.05m of which £668 million (€968 million) is invested. Our latest
fund, the ICG Mezzanine Fund 2003, is 57% invested.
Our specialist sub-investment grade fund management business has continued to
perform satisfactorily. The strong liquidity in the high yield bond market that
characterised the second half of 2004 continued into the first quarter but was
reversed by mid year on the back of concerns in the Automotive Sector and
inflationary fears in the US. The performance of our two older CDOs has been
stable and both funds made distributions to their equity investors during the
period. Our four loan funds are also performing well and are fully invested
despite 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 as
current assets on our own balance sheet as a warehouse for future funds.
We have launched our new credit fund, Eurocredit Opportunities I PLC, which has
attracted considerable interest from both existing and new investors. This fund
is more lowly geared than our previous funds allowing us the flexibility to
pursue alternative strategies in European credit markets. We expect to close
this fund within the next month at a level of €400m.
We remain confident that we have the potential to increase significantly the
size of our fund management business in the years ahead.
IFRS
This year we have prepared our interim accounts under IFRS. We have restated
last year's figures, but have taken advantage of the exemption to exclude the
impact of IAS 32 (Financial Instruments: Disclosure and Presentation) and IAS 39
(Financial Instruments: Recognition and Measurement). The results for the year
are therefore not directly comparable.
On page 1 is a table which sets out our headline figures in such a way that a
comparison may be made. The overall impact of IFRS has been the earlier
recognition of capital profits and non-cash interest which, along with the
requirement to fair value financial derivatives, is likely to lead to increased
volatility in our profits going forward.
Core Income
Under IFRS, core income, which is the key component of ICG's profitability and
consists 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 of
an increased loan book plus the impact of IFRS from, firstly, the inclusion of
underwriting and agency fees as part of interest income and, secondly, reserves
against unpaid interest income now being shown as part of provisions.
Total fee income has reduced to £11.4m from £12.5m last year. The principal
reason for this is that agency and deal fees have decreased from £3.9m to £2.8m
as a result of their partial inclusion in interest income under IFRS. Fees from
fund 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 increased
staffing and staff costs.
Gains on investments
As the market for exits has improved, the level of gains on investments
increased substantially in the first six months of the year. Total gains
amounted to £64.6m, of which £56.1m came as a result of cash gains arising from
one IPO, eight trade sales and the sale of shares from our quoted portfolio. In
addition, there has been a net increase of £8.5m in the fair value of warrants
and listed shares held in the balance sheet and therefore included in gains on
investments.
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 provisions
primarily relate to the recent significant underperformance of one of our
portfolio companies, along with some further provisions against existing
impaired assets.
Dividends
The Board has declared an interim dividend of 14.0p per share, an increase of
19% over the interim dividend last year, reflecting the strong results and
exceptional capital gains. This will be paid on 11 November 2005 to shareholders
on the register at 21 October 2005.
Funding
In April we took advantage of the liquidity in the banking market and completed
a 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 comparatively
low gearing of 2.3:1.
Board appointment
It is with regret that I have to announce the resignation of Dr. Martin
Kohlhaussen as a non-executive director of the company. Martin is Chairman of
the Supervisory Board of Commerzbank and this sadly led to some conflicts of
interest. I would like to take this opportunity to thank Martin for his valuable
contribution to our discussions at the Board.
Year End
It is our intention to change the year end of the company from 31 January to 31
March for this and future years. The reason for the change is that we wish to
align ICG's year end with those of our fund clients to enable us to provide
common information to both our shareholders and our fund investors. The results
for 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 of
mezzanine opportunities. We expect this level of activity to continue in the
medium term fuelled by record amounts of new fund raising by private equity
funds.
The demand for mezzanine also remains high but competition in the European
mezzanine market, including that from second lien debt, will continue to have an
adverse influence on the pricing and structuring of some larger mezzanine loans.
Maintaining our credit discipline in this environment will of course be
essential. Nevertheless, we believe that with our brand, pan European network,
long term commitment to the market and our ability to underwrite and supply
large amounts of mezzanine, we will continue to see a satisfactory level of
quality deal flow. However, the current trend of refinancing of loans to
existing borrowers is having the effect of increasing the overall levels of
risk. We will, therefore, remain particularly selective in new lending.
In the remainder of the year, we forecast that the level of repayments will
remain high, as evidenced by six repayments totalling £65m since July. We expect
that this will continue to temper loan book growth although we have invested in
four new loans totalling £59m over the same period.
The growth in the portfolio in the first half and the increase in funds under
management should lead to decent momentum in core income. The strong exit market
leads us to view confidently the outlook for gains on investments for the
remainder of the year. As a result we expect to be able to record another good
performance in profits in the second half. While there are a few of our
investments whose performance gives us concern, our portfolio overall continues
to 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 £m
Interest and
dividend income 67.9 46.9 101.6
Gains on investments 64.6 23.7 62.9
Fee and other
operating income 11.4 12.5 27.4
----------- ----------- ---------
143.9 83.1 191.9
Interest payable and
similar charges (18.3) (11.8) (26.5)
Provisions for
impairment of assets (17.5) (13.0) (28.2)
Administrative expenses (29.6) (17.8) (42.2)
----------- ----------- ---------
Profit before tax 78.5 40.5 95.0
Income tax expense (28.7) (13.2) (33.5)
----------- ----------- ---------
Profit for the
period attributable
to the equity
shareholders 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, the
2004/05 statutory comparatives do not follow IAS 32 'Financial Instruments:
Disclosure and Presentation' and IAS 39 'Financial Instruments: Recognition and
Measurement', 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 £m
Income
Interest and dividend
income 67.9 46.9 101.6
Fee and other operating
income 11.4 12.5 27.4
--------- ---------- ---------
79.3 59.4 129.0
Less: Related expenses
Interest payable and
similar charges (18.3) (11.8) (26.5)
Administrative
expenses -
Salaries and
benefits (7.8) (6.5) (13.3)
Operating
expenses (4.4) (3.6) (8.3)
Medium term
incentive scheme (4.8) (3.0) (6.3)
--------- ---------- ---------
Core Income 44.0 34.5 74.6
--------- ---------- ---------
Realised capital gains
and changes in warrant
valuations 64.6 23.7 62.9
Medium term incentive
scheme (12.6) (4.7) (14.3)
--------- ---------- ---------
Net Capital Gains 52.0 19.0 48.6
--------- ---------- ---------
Provisions for
impairment 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 1.3
assets
Property, plant
and equipment
Financial assets,
loans and 1,311.2 1,033.5 1,182.8
investments
Deferred tax - 0.9 0.8
asset --------- --------- --------
1,312.5 1,035.7 1,184.9
--------- --------- --------
Current assets
Trade and other 5.8 25.5 20.2
receivables
Financial assets,
loans and 156.5 1.4 40.9
investments
Cash and cash 83.7 83.3 55.6
equivalents --------- --------- --------
246.0 110.2 116.7
--------- --------- --------
--------- --------- --------
Total assets 1,558.5 1,145.9 1,301.6
========= ========= ========
Equity and reserves
Called up share 13.9 13.9 13.9
capital
Share premium 174.0 172.4 172.5
account
Capital 1.4 1.4 1.4
redemption
reserve
Other reserves 13.4 0.4 0.5
Retained earnings 231.2 165.7 191.6
--------- ---------
--------
Equity 433.9 353.8 379.9
shareholders' --------- --------- --------
funds
Non current liabilities
Financial 955.1 649.3 711.4
liabilities
Deferred tax 11.7 - -
liabilities --------- --------- --------
966.8 649.3 711.4
--------- --------- --------
Current liabilities
Trade and other 52.4 56.9 58.9
payable
Financial 73.0 69.1 131.5
liabilities
Liabilities for 32.4 16.8 19.9
current tax --------- --------- --------
157.8 142.8 210.3
--------- --------- --------
--------- --------- --------
Total liabilities 1,124.6 792.1 921.7
--------- --------- --------
--------- --------- --------
Total equity and
liabilities 1,558.5 1,145.9 1,301.6
========= ========= ========
In accordance with the transitional rules on first-time adoption of IFRS, the
2004/05 statutory comparatives do not follow IAS 32 'Financial Instruments:
Disclosure and Presentation' and IAS 39 'Financial Instruments: Recognition and
Measurement', 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 £m
Cash flows from
operating activities
Interest and
fee receipts 59.2 55.1 115.3
Dividends received 3.1 0.2 0.9
Gain on disposals 56.4 23.7 62.9
Interest payments (17.0) (13.9) (24.4)
Cash payments to suppliers
and employees (30.6) (17.8) (28.9)
--------- --------- ---------
Cash generated
by operations 71.1 47.3 125.8
Income taxes paid (19.8) (11.6) (26.5)
--------- --------- ---------
Net cash from
operating activities 51.3 35.7 99.3
--------- --------- ---------
Cash flows from
investing activities
Interest received 0.9 0.7 1.6
Purchase of current
financial assets (110.5) 26.1 (14.2)
Purchase of
loans and investments (213.4) (168.7) (398.6)
Proceeds from
sale of loans
and investments 160.8 190.3 311.7
Purchase of property,
plant and equipment (0.1) (0.1) (0.3)
--------- --------- ---------
Net cash (used
in)/from investing
activities (162.3) 48.3 (99.8)
--------- --------- ---------
Cash flows from
financing activities
Dividends paid (19.6) (16.7) (24.9)
Increase/(decrease) in
long-term borrowings 163.3 (34.4) 39.8
(Decrease)/increase in other
borrowings (6.1) 9.4 -
Increase in
share capital 1.5 2.4 2.6
--------- --------- ---------
Net cash from/(used in)
financing activities 139.1 (39.3) 17.5
--------- --------- ---------
Net increase
in cash 28.1 44.7 17.0
Cash at
beginning of
year 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 £m
Available for sale investments:
Valuation gains /
(losses) taken
to equity 11.6 - -
Transferred to
profit or loss
for the period (9.0) - -
Tax on items
taken directly
to or
transferred
from equity (0.8) - -
-------------------------- --------- --------- ----------
Net income
recognised
directly in
equity 1.8 - -
Profit for the
period 49.8 27.3 61.5
-------------------------- --------- --------- ----------
Total
recognised
income and
expense for
the period
attributable
to 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 £m
Balance at 31
January (IFRS
excluding IAS
32 and 39) 191.6 155.0 155.0
IFRS adjustments
for IAS 32 and 39 9.4 - -
------------------------- --------- --------- ----------
Balance at 1
February (IFRS
including IAS
32 and IAS 39) 201.0 155.0 155.0
Profit on ordinary
activities after tax 49.8 27.3 61.5
Dividends paid (19.6) (16.7) (24.9)
------------------------- --------- --------- ----------
Balance at 31
July / 31
January 231.2 165.6 191.6
------------------------- --------- --------- ----------
This information is provided by RNS
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