Preliminary Results
Intermediate Capital Group PLC
24 March 2004
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 JANUARY 2004
Intermediate Capital Group PLC ('ICG'), the leading specialist European provider
of mezzanine finance, announces its results for the year ended 31 January 2004.
Financial highlights:
• Core income* up 36% to £62.2m
• Pre-tax profits up 21% to £64.6m
• Proposed final dividend of 24.0p making 34.5p per share for the year, an
11% increase
• Loan book increased by 24% to a record £1.1bn
• Successful equity placing of £82m
Operational highlights:
• A record £652m of financings arranged or provided during the year
• A new mezzanine fund of over €1bn
• Non-mezzanine funds under management rise to over €1.7bn
Commenting on the results, John Manser, Chairman of ICG, said:
'It gives me great pleasure to report another strong performance by ICG.
ICG has had another record year for new lending helped by the buoyant mezzanine
market in Continental Europe where we now have 70% of our portfolio. Our pre-tax
profits have also shown good growth, reaching record levels on the back of a
substantial increase in core income.
Last year saw a significant advance in the scale of our fund management
activities. The closing of our new mezzanine fund, with a total expected size,
including leverage, of well over €1bn, will lead to substantially increased
profitability from this part of our business. In addition, our other
sub-investment grade fund management activities are now reaching a scale where
they are starting to contribute meaningfully to ICG's future profitability.
There is more confidence in the financial markets than there was a year ago,
which is helpful to many aspects of our business but is also leading to a more
competitive environment for mezzanine lending in Europe. Demand for mezzanine,
however, remains good and we are seeing a decent flow of new lending
opportunities.'
Enquiries:
Tom Bartlam, Managing Director, Intermediate Capital Group PLC (020) 7628 9898
Tom Attwood, 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's lending activities is
attached.
* The composition of core income can be found as part of the analysis of profit
before tax.
Results
Pre-tax profits for the year ended 31 January 2004 rose by 21% to £64.6m. The
increase was driven by strong growth in core income.
Core Income
Core income, the most important element of ICG's profits, which is defined as
net interest income plus fee income less related administrative expenses,
increased by 36% to £62.2m last year.
Net interest income grew very strongly by 44% to £61.3m as a result of the large
increase in the loan portfolio over the last eighteen months together with the
increasing use of rolled-up interest in the structure of mezzanine. Transaction
and agency fees increased by 14% to £9.8m and fund management fees increased by
19% to £11.1m as a result of increasing funds under management. Total fee income
increased by 17% to £20.9m.
This year administrative expenses included a £2.3m charge for the cost of the
Medium Term Incentive Scheme resulting from the cash receipt of rolled-up
interest. Excluding this charge, administrative expenses increased by 22% to
£17.7m, mostly as a result of an increase in other staff related costs.
Capital Gains and Provisions
Capital gains decreased from £33.9m to £26.2m in our last financial year, as a
result of the weak market for exiting investments. Payments under the Medium
Term Incentive Scheme relating to capital gains reduced from £8.8m to £4.8m
because of the lower level of capital gains.
Gross provisions for the year amounted to £25.9m, primarily as a result of new
provisions against three of our portfolio companies. Taking into account the
release of £6.9m of provisions no longer required on two of our loans, net
provisions amounted to £19.0m compared with £17.5m in the previous financial
year.
Dividends
The Board is recommending a final dividend of 24.0p net per share to be paid on
28 May 2004 which, with the interim dividend of 10.5p net per share, brings the
total for the year to 34.5p net per share, an increase of 11% over last year's
dividend. The total cost of the dividend has increased by 26% to £23.0m, partly
as a result of the final dividend being paid on the new shares issued last
October.
The dividend will be paid to shareholders on the register on 7 May 2004.
It is ICG's policy to deliver continuing dividend growth subject to satisfactory
core income growth. ICG is also conscious of the need to build up retained
earnings to support the continuing growth of the business.
The year's dividend is covered 1.9 times by post tax earnings.
The Loan Portfolio
We had an excellent year for new lending which resulted in our loan book growing
by 24% to £1.1bn. During the year we arranged or provided a total of £652m of
new lending, of which £354m was invested on ICG's balance sheet, £202m taken by
fund management clients with the balance of £96m being syndicated to third
parties.
As we have anticipated, Continental Europe has continued to be a very
significant market for our new lending and now represents 70% of our total
portfolio. We had our most active year ever in Germany with four new
investments. France continued to be busy with six new investments as was the UK
with four new investments. In addition, we made two new investments in the
Netherlands and one in each of Denmark, Finland, Singapore and Spain.
The level of repayments was quite low early in the year but increased in the
second half, resulting in their totalling £161m for the year in respect of 12
investments. The appreciation of the euro against sterling, offset by the
weakness of the US dollar, had the effect of increasing the sterling value of
the loan portfolio by £15m.
The economic conditions in which the majority of our portfolio companies had to
operate during the past year continued to be difficult. However, most of the
companies in our portfolio have reacted well to these difficult trading
conditions and have performed satisfactorily. Nevertheless, there was a
deterioration in the performance of some of our portfolio companies and we have
decided to make significant provisions against three of them. Looking at our
portfolio as a whole we continue to be satisfied with its performance.
Funding
As a result of the strong growth in the size of our portfolio and the consequent
increase in our gearing ratio to 3.6:1 at 31 July 2003, we decided in September
to seek further capital from our shareholders. The placing of new shares, 97% of
which were taken up by our shareholders, raised £82m. This materially reduced
our gearing ratio, enabling us to continue to grow our loan book in the future
by taking on further borrowings, while remaining conservatively geared.
We reported at the half-year that we had successfully raised over £200m of new
debt facilities from the securitisation market. We are pleased that we were able
to raise such medium term debt facilities from a new source on attractive terms.
We believe that this is a type of funding we can use further in the future.
At 31 January 2004 we had in place total borrowing facilities of over £1.0bn,
compared with outstanding borrowings at that time of £792m, leaving us with
£225m of unutilised facilities. As a result of the equity issue our gearing
ratio has now reduced substantially to 2.5 times. We are currently seeking to
raise new medium term debt facilities to help fund further growth in the loan
book and to replace maturing facilities.
Fund Management
Last year saw a considerable advance in the scale and potential profitability of
our fund management business.
We are delighted to be able to announce the final closing of our new mezzanine
fund with equity commitments of over €650m. It is our intention to gear up this
fund by not less than 1:1 and we have already had discussions with a number of
banks who have expressed interest in providing such gearing. We therefore expect
the fund to have cash resources of up to €1.5bn, which is over three times the
size of our previous mezzanine fund. This fund will take a 40% share of each of
ICG's relevant European mezzanine investment opportunities. It will contribute
significantly to ICG's future profitability, increase our underwriting ability
and further strengthen our position as one of the largest mezzanine investors in
Europe.
Our specialist sub-investment grade fund management business, investing
primarily in high yield bonds and loans, has also continued its growth, raising
a fifth fund which invests predominantly in leveraged loans. This brings our
non-mezzanine funds under management to over €1.7bn. This business is starting
to have real critical mass from which we can expect increasing profitability as
we raise further funds.
A strong bond market, together with active portfolio management, has helped our
CDOs to be in compliance with all their covenants and to pay distributions to
their equity investors. Our three loan funds also continue to perform well. Our
good investment management performance is helping us to raise more funds.
We intend to put more marketing resource into our specialist fund management
business this year so as to further expand the size of our operations and funds
under management in an area which we believe has considerable growth potential.
To this end an experienced marketing team will be joining ICG shortly.
ICG and the European Mezzanine Market
The European buyout market had a good year with high activity levels,
particularly in Continental Europe, which had a record year. Once again we saw
financial buyers with access to large amounts of cash well placed to acquire
many of the companies being put up for sale. Demand for mezzanine in this strong
buyout market was good.
The high yield bond new issue market was inactive for most of last year as far
as the buyout market was concerned, which resulted in more mezzanine
opportunities in large transactions. We are now seeing a recovery in the high
yield market and we can expect high yield bonds to finance some of the larger
buyouts, although mezzanine will also still be used in larger deals, as it can
prove to be a more appropriate form of finance than bonds. The middle market,
where ICG continues to make most of its investments, remains unaffected by the
high yield bond market.
The greatest competition to ICG continued to come from banks and investment
banks seeking to arrange and provide a total debt package of senior debt and
mezzanine for the buyout. Many such banks remain keen to involve ICG,
particularly where large amounts of mezzanine are required. However, with
confidence returning to the debt markets and as liquidity increases, the number
of non-dedicated mezzanine investors to whom the banks syndicate is increasing.
We are seeing some evidence of banks arranging poorly structured and priced
mezzanine which they are able to syndicate and which ICG and the more
experienced mezzanine investors reject.
Competition from independent funds has also increased with a few new funds being
raised.
The pricing of mezzanine has for the most part remained satisfactory with no
erosion of cash margin. However, we have seen increased use of warrantless
mezzanine with minimal prepayment penalties, which we usually find unattractive.
In this more competitive market ICG still sees virtually all the mezzanine
opportunities of relevant size in the European market. Our ability to provide as
big an amount of mezzanine for an individual transaction as anybody gives us a
strong position in the large transactions. In the middle market our reputation,
experience, pan-European reach and multinational team of professionals continue
to give us a distinct competitive advantage. Our overall market position
therefore remains strong.
The Asia Pacific Mezzanine Market
The Hong Kong office was constrained in the first half of the year by the impact
of SARS. In the second half of the year, however, activity levels started to
increase and we successfully completed one new investment. While the volume of
mezzanine opportunities in the region has not been quite as high as we
originally expected we believe in the medium term potential for mezzanine in the
region.
Offices, Management and Staff
In recent months we have opened new offices in Stockholm and Madrid. The purpose
of these offices is to get closer to our key providers of business in these
countries and further differentiate ourselves from our competition. We are
expecting to open an office in Frankfurt during the current year for similar
reasons. We continue gradually to increase our staff resources in the areas in
which we see growth potential, particularly Continental Europe.
We are particularly proud of the quality of our professional staff and consider
them to be one of the great strengths of our business. I would like to take this
opportunity to thank all our staff on your behalf.
The Board
Since last year's statement Andrew Jackson and Jean-Loup de Gersigny, two of the
founders of ICG, have retired from the Board. Without them ICG would not exist
and they made an enormous contribution to the success of ICG over the last
fifteen years. We wish them well in their retirement. Last year we appointed to
the Board three new Executive Directors - Christophe Evain, Francois de Mitry
and Andrew Phillips - all of whom have many years experience in the mezzanine
market. Andrew Phillips has also been responsible for developing our
sub-investment grade debt fund management business.
Outlook
We expect the European buyout market to continue to be strong in the year ahead,
with good demand for mezzanine, particularly on the Continent. While competition
in the mezzanine market has increased over the last year, ICG remains well
placed, because of its size, leading market position and unique pan-European
spread, to see a good flow of mezzanine opportunities. Increased liquidity in
the debt markets may affect the structuring of some new mezzanine loans, which
will cause ICG to be particularly selective in its choice of investments.
The pipeline of new potential deals is good and, in our new financial year, we
have to date made four new loans on our balance sheet totalling £49m. However,
we are also seeing an increase in the level of repayments.
On the back of last year's growth in the loan book we can expect further growth
in net interest income, but not at the rate seen last year. Increased fee
income, resulting from the significant recent increase in funds under
management, should also help to provide growth in core income.
A number of our portfolio companies are currently actively seeking an exit and
we think therefore that there is a good prospect of achieving some attractive
capital gains in the current year. While some companies in our portfolio
continue to find trading conditions difficult we are pleased that overall our
portfolio, which is well diversified, is performing well.
We continue to believe that our business areas of European mezzanine finance and
sub investment grade fund management offer attractive growth opportunities and
we therefore continue to look forward to the future with confidence.
INTERMEDIATE CAPITAL GROUP PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the year ended 31 January 2004
Year to Year to
Jan 04 Jan 03
£m £m
Interest and dividend income 89.1 66.9
Gain on disposals 26.2 33.9
Fee and other operating income 20.9 17.9
--------- ---------
136.2 118.7
Interest payable and similar (27.8) (24.4)
charges
Provisions against loans and (19.0) (17.5)
investments
Administrative expenses (24.8) (23.3)
--------- ---------
Profit on ordinary activities 64.6 53.5
before taxation
Tax on profit (21.0) (18.4)
--------- ---------
Profit on ordinary activities after 43.6 35.1
taxation
Dividend proposed (23.0) (18.3)
--------- ---------
Retained profit transferred to 20.6 16.8
reserves --------- ---------
Earnings per share 70.4p 59.8p
All activities represent continuing
operations
Analysis of profit before tax:
Year to Year to
Jan 04 Jan 03
£m £m
Income
Interest and dividend income 89.1 66.9
Fee and other operating income 20.9 17.9
--------- --------
110.0 84.8
Less: Related expenses
Interest payable and similar charges (27.8) (24.4)
Administrative expenses-Salaries and benefits (10.9) (8.2)
Operating expenses (6.8) (6.3)
Medium term incentive scheme (2.3) -
--------- --------
Core Income 62.2 45.9
========= ========
Capital Gains 26.2 33.9
Medium term incentive scheme (4.8) (8.8)
--------- --------
Net Capital Gains 21.4 25.1
========= ========
Provisions against loans and investments (19.0) (17.5)
========= ========
Profit on ordinary activities before taxation 64.6 53.5
========= ========
INTERMEDIATE CAPITAL GROUP PLC
CONSOLIDATED BALANCE SHEET
31 January 2004
Jan-04 Jan-03
£m £m
Fixed assets
Tangible assets 1.4 1.6
Loans and Investments 1,085.5 876.1
Current assets
Debtors 19.2 26.5
Loans and investments 27.5 53.2
Cash at bank 38.6 1.9
-------- ---------
85.3 81.6
-------- ---------
Total assets 1,172.2 959.3
-------- ---------
Capital and reserves
Called up share capital 13.8 11.8
Share premium account 170.0 86.0
Capital redemption reserve 1.4 1.4
Profit and loss and other reserves 137.6 117.0
-------- ---------
Equity shareholders' funds 322.8 216.2
Creditors: amounts falling due after more than one
year 730.0 627.0
Creditors: amounts falling due within one year 119.4 116.1
-------- ---------
Total capital and liabilities 1,172.2 959.3
-------- ---------
INTERMEDIATE CAPITAL GROUP PLC
CONSOLIDATED CASH FLOW
For the year ended 31 January 2004
Year to Year to
Jan 04 Jan 03
£m £m
Operating activities
Interest and dividends received 81.6 58.0
Gain on disposals 26.2 33.9
Fee and other operating income 19.4 17.0
Administrative expenses (25.8) (15.8)
--------- ---------
101.4 93.1
Interest paid (25.6) (27.6)
--------- ---------
Net cash inflow from operating 75.8 65.5
activities
Taxation paid (20.8) (10.2)
Capital expenditure and financial
investment
Loans and investments made (353.7) (292.9)
Realisations of loans and investments 160.9 132.9
Loans for syndication 25.7 (20.3)
--------- ---------
(167.1) (180.3)
Purchase of tangible fixed assets (0.1) (0.4)
--------- ---------
(167.2) (180.7)
--------- ---------
Equity dividends paid (19.1) (17.0)
========= =========
Net cash outflow before financing (131.3) (142.4)
========= =========
Financing
Increase in share capital 86.0 0.9
Increase in debt 82.0 142.3
--------- ---------
Increase in cash and cash equivalents 36.7 0.8
========= =========
This announcement is prepared on the basis of the accounting policies as stated
in the previous year's financial statements.
The financial information set out in the announcement does not constitute the
group's statutory accounts for the years ended 31 January 2004 or 2003. The
financial information for the year ended 31 January 2003 is derived from the
statutory accounts for that year which have been delivered to the Registrar of
Companies. The auditors reported on those accounts; their report was unqualified
and did not contain a statement under s237(2) or (3) Companies Act 1985. The
statutory accounts for the year ended 31 January 2004 will be finalised on the
basis of the financial information presented by the directors in this
preliminary announcement and will be delivered to the Registrar of Companies
following the company's annual general meeting.
NOTE TO EDITORS
ICG was founded in 1989 and was floated in 1994. Its principal business is to
arrange and provide mezzanine capital for companies in Europe, with offices in
London, Paris, Stockholm and Madrid. It has an office in Hong Kong providing
mezzanine finance to the Asia Pacific Region. ICG also has a specialist fund
management business relating to higher yielding European debt.
ICG makes mezzanine loans from both its own resources and from third party funds
under its management. Mezzanine finance ranks in terms of risk and reward
between bank debt and equity capital. In return for providing finance, ICG seeks
a strong cash yield and an additional return related to the success of the
investee company, in the form of a capital gain or rolled-up interest. Mezzanine
finance has been principally used to finance management buyouts but is also used
as acquisition and refinancing capital.
ICG now has a market capitalisation of approximately £825m and is a FTSE 200
company.
In the year ended 31 January 2004 ICG invested in the following 20 companies:
Asia Directories is the holding company for Yellow Pages (Singapore) Pte, the
official publisher of the Yellow Pages and the White Pages in Singapore. In
December 2003 ICG arranged and provided a mezzanine facility of Sing $ 32m to
assist in the buyout.
Bertelsmann Springer is a scientific academic publishing company based in
Germany. In September 2003 ICG took a participation of €80m in the mezzanine
facility arranged to assist in the acquisition from Bertelsmann AG.
Cardfair is a specialist greeting card retailer in the U.K. In May 2003 ICG
arranged and provided a mezzanine facility of £14m to assist in the acquisition
of Card Warehouse.
Ceva Sante Animale, a French company, develops, manufactures and distributes
animal health products. In September 2003 ICG co-arranged a mezzanine facility
to assist in the buyout and provided €18.8m.
Codere, a Spanish company, is a leading gaming company managing slot machines,
bingo halls, casinos and off track betting. In June 2003 ICG co-arranged a
mezzanine loan of €135m to provide refinancing and acquisition facilities and
provided €52m.
Danish Timber is based in Denmark and supplies materials and related services
for building and home improvement. In December 2003 ICG took a participation of
€50m in the mezzanine facility provided to assist in taking the company private.
D V Holding, a French company, is a leading operator in the French nursing homes
and elderly care market. In June 2003 ICG arranged and provided a mezzanine
facility of €15m to assist in the buyout.
Edscha is a leading global automotive supplier based in Germany. In March 2003
ICG took a participation of €25m in the mezzanine facility required to assist in
taking the company private.
Gala is a leading U.K. bingo and casino operator. In March 2003 ICG took a
participation of £50m in the buyout.
IG Index is a spread betting, contracts for differences ('CFDs') and currency
trading business operating principally in the UK. In September 2003 ICG arranged
facilities of £60m to assist in taking the company private and provided £40m.
Janton Oyj is a leading media company in Finland with its core business in
publishing and distributing free sheet newspapers. In December 2003 ICG arranged
and provided a mezzanine facility of €30m to assist in taking the company
private.
Materis is a French group of businesses in aluminates, mortars, paint,
refractories, and admixtures. In November 2003 ICG co-arranged mezzanine
facilities to assist in the buyout. ICG underwrote €115m of the facilities and
provided €65.5m.
Medica is the second biggest player in the nursing homes and elderly care market
in France. In December 2003 ICG arranged mezzanine facilities totalling €60m to
assist in the buyout and provided €30.2m.
Motip Dupli is a leading European manufacturer of aerosol paints, touch-up paint
pencils and technical aerosols. In October 2003 ICG arranged and provided a
mezzanine facility of €16m to assist in the recapitalisation of the company.
Raet is the leading provider of payroll services in The Netherlands. In July
2003 ICG took a €35m participation in the mezzanine facility to assist in the
buyout.
Sericol is a global ink manufacturer and supplier based in the U.K. In February
2003 ICG arranged and provided a mezzanine loan of €18.8m to assist in the
buyout.
Souriau, a French company, designs, manufactures and sells connectors and
interconnection solutions to the commercial aircraft, space and defence markets.
In April 2003 ICG arranged and provided a mezzanine facility of €25m to assist
in the buyout.
Symrise, a German company, manufactures flavours, fragrances and aroma
chemicals. In June 2003 ICG took a participation of €30m in the mezzanine
facility provided as acquisition finance.
Via Location is France's second largest independent truck rental company. In
January 2004 ICG arranged and provided a mezzanine facility of €26m to assist in
the buyout.
Viterra, based in Germany, is a global services provider for consumption-based
billing in the sub-metering and metering industry. In June 2003 ICG took a
participation of €70m in the mezzanine facility provided to support the buyout.
In addition to the mezzanine loans provided to the companies above, ICG also
took small equity participations in a number of them.
This information is provided by RNS
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