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Transcript of Intermediate Capital Group PLC Results for the 6 months to ... · PDF fileElectronics...
Authorised and regulated by the Financial Services Authority
Intermediate Capital Group PLCResults for the 6 months to 30 September 2008
25 November 2008
2
Financial Highlights
Loan book increased by 12% to £2,589m
Core income up 30% to £84.6m
Low level of gains on investments
£42.8m of net provisions
Interim dividend up 11% to 20.5p
33
Repayments
Repayments ( 3-month moving average )
-
200
400
600
800
1,000
1,200
1,400
Jun-00 Sep-00 Dec-00 Mar -01 Jun-01 Sep-01 Dec-01 Mar -02 Jun-02 Sep-02 Dec-02 Mar -03 Jun-03 Sep-03 Dec-03 Mar -04 Jun-04 Sep-04 Dec-04 Mar -05 Jun-05 Sep-05 Dec-05 Mar -06 Jun-06 Sep-06 Dec-06 Mar -07 Jun-07 Sep-07 Dec-07 Mar -08 Jun-08 Sep-08
Repayments
£m
44
New Lending vs Repayments
New Lending vs Repayment ( 3-month moving average )
-
200
400
600
800
1,000
1,200
1,400
1,600
Jun-00 Sep-00 Dec-00 Mar -01 Jun-01 Sep-01 Dec-01 Mar -02 Jun-02 Sep-02 Dec-02 Mar -03 Jun-03 Sep-03 Dec-03 Mar -04 Jun-04 Sep-04 Dec-04 Mar -05 Jun-05 Sep-05 Dec-05 Mar -06 Jun-06 Sep-06 Dec-06 Mar -07 Jun-07 Sep-07 Dec-07 Mar -08 Jun-08 Sep-08
New Lending Repayments
£m£m
5
Operating Highlights
£559m arranged or provided in 11 transactions, pricing up by 200 bps on average in the first half
Portfolio is performing well but will not be immune to adverse economic environment
The balance sheet is strong
6
Market Background
Credit crisis worsened since September: no liquidity at all
Forced sale of loan portfoliosNationalisation of Banks
No senior debt for LBOs
Outstanding opportunity to invest in secondary assets
But
Economic environment deteriorating around the world
7
Evolution of European Institutional Investor Market
Source: S&P
3
14
53
115
22
99
7
18
33
0
50
100
150
1999 2001 2003 2005 3Q070%
25%
50%
75%
1999 2000 2001 2002 2003 2004 2005 2006 3Q 07
European Banks Institutional Investors
Non-European BanksSecurities Firms
Number of loan fund managers Share of primary loan market
Source: S&P
8
European LBO Market
164.5
12.719.2
35.139.9
58.8
92.9
82.9
69.170.0
79.3
110.0
152.3
71.6
–
20
40
60
80
100
120
140
160
180
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 9m08
Source: Initiative Europe, S&P
Reflects total sources of funding of initial or secondary buyout by a private equity firm (excludes recaps, refinancings, etc)
Leve
rage
d B
uyou
t Vol
ume
(€bn
)
9
Monitoring and managing our portfolio
Investing in the secondary market
Continuing to raise third party funds
Maintaining a strong balance sheet
Operational Priorities
10
Senior focus on the existing portfolio
At end September 50% above budget and 75% above last year
Portfolio diversified and defensive
Larger assets performing well
Some watch list assets reporting poor results since September
Monitoring and Managing our Portfolio
11
Portfolio diversity
*at 30 September 2008
Portfolio by geography* Portfolio by sector*
Benelux
Nordic
France
Germany
Spain
UK
Other Europe
Asia Pacific
North America
Business Services
Electronics
Financial Services
Health
Motors
Restaurants
Shipping & Transport
Mechanical Engineering
Publishing & Printing Drapery &
Stores
Consumer Products
Chemicals & Plastics
Food RetailingFood Manufacturing
Electrical
UitilitiesPharmaceuticals
Waste Management
Telephone Networks
Leisure
Hotels and Caterers
Agencies
Building Materials
12
Secondary market opportunities
Forced sellers have led to unseen pricing level
Now possible to buy a good quality portfolio of senior loans yielding more than 20%
ICG ideally placed to manage these assets
Recovery Fund will be primary vehicle
13
Leveraged Loan Prices
Source: ELLI, S&P
60.00
70.00
80.00
90.00
100.00
May-02
Aug-02
Nov-02
Feb-03
May-03
Aug-03
Nov-03
Feb-04
May-04
Aug-04
Nov-04
Feb-05
May-05
Aug-05
Nov-05
Feb-06
May-06
Aug-06
Nov-06
Feb-07M
ay-07
Aug-07
Nov-07
Feb-08
May-08
Aug-08
Nov-08
14
Examples of Secondary Loan Asset Pricing
Company Margin Offer 3 Yr Yield 4 Yr Yield 5 Yr Yield 6 Yr Yield YTMIsta 200.0 61.00 26.35% 21.45% 18.62% 16.77% 15.48%UPC 200.0 69.00 20.89% 17.35% 15.28% 13.93% 13.93%Amadeus 237.5 56.00 30.87% 24.96% 21.57% 19.37% 19.37%NTL 362.5 75.50 19.05% 16.43% 14.88% 13.87% 13.87%Nycomed 275.0 59.00 28.97% 23.67% 20.62% 18.63% 17.25%Pages Jaunes 175.0 58.50 27.90% 22.52% 19.42% 17.40% 15.99%TDF 212.5 62.00 25.79% 21.07% 18.34% 16.56% 15.32%Eircom 200.0 75.00 17.35% 14.67% 13.09% 12.06% 11.33%Gala 325.0 53.00 34.90% 28.30% 24.53% 22.09% 22.09%PHS 275.0 60.00 28.19% 23.08% 20.13% 18.22% 18.22%TDC 200.0 86.00 11.78% 10.43% 9.63% 9.10% 8.73%Wind 287.5 84.00 13.70% 12.13% 11.20% 10.58% 10.58%ISS 200.0 68.00 21.53% 17.83% 15.67% 14.26% 15.67%Formula 1 237.5 70.00 20.76% 17.36% 15.37% 14.08% 15.37%Smurfit 250.0 66.00 23.50% 19.47% 17.13% 15.60% 15.60%Yell 300.0 68.00 22.84% 19.13% 16.96% 15.55% 16.96%Prosieben 187.5 51.00 34.57% 27.54% 23.51% 20.92% 17.78%Numericable 250.0 56.00 31.06% 25.15% 21.75% 19.56% 18.02%United Biscuits 250.0 68.00 22.18% 18.48% 16.32% 14.90% 14.90%KDG 175.0 87.00 11.04% 9.80% 9.07% 8.58% 9.07%Springer 262.5 71.00 20.46% 17.21% 15.31% 14.07% 17.21%Ineos 275.0 49.00 38.01% 30.43% 26.12% 23.35% 23.35%Vivarte 225.0 43.00 43.87% 34.57% 29.32% 25.96% 21.94%YBR 275.0 71.00 20.62% 17.37% 15.47% 14.22% 14.22%Molnlycke 212.5 73.00 18.64% 15.68% 13.95% 12.81% 12.01%
242.0 65.60 24.59% 20.24% 17.73% 16.10% 15.77%
15
Growing source of funding for ICG transactions
Fund raising on track despite challenging environment
Asia Pacific II
Minority Partners Fund
Recovery fund
Mezzanine Fund management fees up 14% at £12.9m
Awful fund raising environment
Mezzanine Fund Management
1616
Fund Management Fee Income
0
5
10
15
20
25
30
35
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
H108
H208
H109
CFM
Mezzanine
£m
17
Credit Fund Management
Cash flow CDOs continue to perform well
Eurocredit Opportunities remains within covenants but is structurally weakened
Fee income up 18% to £11.1m
No new CDOs in current environment but increased institutional interest in credit
18
Adverse economic conditions
Resulting in increased default rates across private equity portfolios requiring extra vigilance
Investing into the secondary market where we see outstanding value
Maintaining strong balance sheet and liquidity in our third party funds
Outlook
1919
Business & Financial Review
2020
Highlights for the 6 Months to 30 September 2008
Strong underlying earnings
Portfolio performing well overall but increasing provisions
Low level of realisations
Robust balance sheet
2121
Core Income
0
20
40
60
80
100
120
140
160
FY 00 FY 01 FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 H1 08 H2 08 H1 09
£m
2222
Pre-tax Profits
0
50
100
150
200
250
FY 00 FY 01 FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 H1 08 H2 08 H1 09
Note: Excludes fair value movements on derivatives held for hedging purposes from 2005 onwards
£m
2323
Core Income
Core Income up 30% to £84.6m
65
85
42
13
81
0
20
40
60
80
100
120
Sep-07 Interest income
Interestexpense
Fee income Costs Sep-08
£m
24
Breakdown of Operating Costs
0
10
20
30
40
50
H1 07 H2 07 H1 08 H2 08 H1 09
MTIS in CoreIncome
Other Admin
Staff Costs
£m
2525
Pre-tax Profit
Pre-tax profit at £39.8m, £57.8m excluding fair value movement
142
19
77
33
4040
16
27
0
50
100
150
200
Sep-07 Core Income Capital Gains MTIS Provisions Derivatives Sep-08
£m
26
Breakdown of Provisions
-40
-20
0
20
40
60
80
FY 06 FY 07 FY 08 H1 09
Mezz Recoveries CDO
£mGross Provisions/ closing Loan Book (ex CDO)
FY 06: 2.06%
FY 07: 2.20 %
FY 08: 2.21%
H1 09: 4.22% annualised
27
0.0%
10.0%
20.0%
30.0%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 9m2008
Vintage Year
Annual Default RateAnnual Loss Rate
27
Default Analysis – ICG Portfolio
Recovery rate of 60% since inception
2828
Loan and Investment Portfolio
Loan and investment portfolio up 12% to £2.6bn£m
2,545 2,549 2,579 2,589
139
2,306
70
7110
31268 31
0
500
1,000
1,500
2,000
2,500
3,000
Mar-08
Interes
t acc
rued
Interes
t rec
eived
New lo
ans
Repay
ments
Provis
ions
Others FX
Sep-08
2929
Investment Activity for the 6 Months to 30 September 2008
Investment Country Business Equity Sponsor Currency Mcurrency
Asia Pacific
Veda Australia Consumer and commercial credit reporting PEP/ Merrill Lynch AUD 15*
Europe
Biffa UK Waste management Montagu/GIP GBP 125
Casa Reha Germany Care homes Hg Capital EUR 45
CEPL France Logistics services Arcapita EUR 50
Labco France Private clinical or routine laboratories 3i EUR 80
Löwenplay Germany Gaming arcade Axa PE EUR 60
Sicurglobal Italy Security services Stirling Square EUR 48
Veinsur Spain Truck distribution and maintenance services Inversiones Ibersuizas EUR 36
North America
AST USA Share registry services Pacific Equity Partners USD 137
Behavioral Interventions USA Correctional products and services AEA Investors USD 103
Hudson USA Air cooled heat exchangers and axial flow fans Riverstone USD 53
*A further AUD165m was provided to Veda in early October and will be included in the figures for the second half
3030
Balance Sheet
148%184%Gearing ratios
2,2702,572
£2,379m£2,340mDebt facilities
1,3741,684Borrowings
896888Shareholders’ funds
2,2702,572
(36)(17)Net current liabilities
2,3062,589Loans and investments
31 March 2008
£m
30 September 2008
£m
3131
Funding
30 September 2008 £m
TERM
Existing bank facilities 1,032 3 - 4 yrs
New bank facility
Private placement
Securitisation
450
465
393
2.5 yrs
0 - 10 yrs
16 yrs
2,340 5.4 years*
Utilised
Headroom
1,684
656
* weighted average life
3232
Repayment Schedule
0
500
1,000
1,500
2,000
2,500
2009 2010 2011 2012 2013 2014 2020
£450m Revolver Securitisation Private Placements
£m
…
3333
High cash outflows in H1 09 related to FY 08 realisationsMTIS on capital gains of £27mMTIS on realised rolled up interest of £11m
Tax outflow also high because of FY 08 capital gains
H1 cash flow not reflective of run rate
H1 09 Cash flow impacted by FY 08 Realisations
3434
Monitoring and managing our portfolio
Investing in the secondary market
Continuing to raise third party funds
Maintaining a strong balance sheet
Priorities
3535
Lower new investment rate
Stable interest income as higher cost of debt offsets loan book growth
Control of cost base. No significant further cost growth
Realisations and capital gains to remain low
Gross provisions for portfolio companies expected to increase further but limited visibility
Outlook for the Second Half
3636
Appendix
3737
Core Income
* Restated for Rights Issue completed in February 2008
H1 09£m
H2 08£m
H1 08£m
H1 09vs
H2 08
H1 09vs
H1 08
Income
Interest and dividend income 147.6 130.9 106.0 13% 39%Fee and other operating income 29.4 26.7 30.3 10% -3%
177.0 157.6 136.3 12% 30%
Less related expensesInterest payable and other related finance costs (65.9) (40.0) (25.4) n.a. n.a.
Add back: net losses on derivateves held for hedging purposes 18 (27.1) (9.1) n.a. n.a.
Administrative & operating expenses (44.5) (46.5) (36.5) -4% 22%
Core Income 84.6 71.1 65.3 19% 30%
Core Income per share* 66.6p 65.0p 58.2p 2% 15%
3838
Net Interest Income
H1 09£m
H2 08£m
H1 08£m
H1 09vs
H2 08
H1 09vs
H1 08
Interest Income 147.6 130.9 106.0 13% 39%
Interest Expenses (47.9) (40.0) (34.5) 20% 39%
Net Interest Income 99.7 90.9 71.5 10% 39%
3939
Fee Income
H1 09£m
H2 08£m
H1 08£m
H1 09vs
H2 08
H1 09vs
H1 08
Arrangement/underwriting fees 4.7 3.3 3.9 42% 21%
Mezzanine Fund Management fees 13.6 14.2 17.0 -4% -20%
Credit Fund Management fees 11.1 9.2 9.4 21% 18%
29.4 26.7 30.3 10% -3%
4040
Operating Expenses
* Charge relates to accrual of rolled up interest
H1 09£m
H2 08£m
H1 08£m
H1 09vs
H2 08
H1 09vs
H1 08
Staff Costs 23.4 23.5 19.7 0% 19%
Other admin costs 8.9 11.1 8.4 -20% 6%
32.3 34.6 28.1 -7% 15%
Medium Term Incentive scheme* 12.2 11.9 8.4 3% 45%
Operating Expenses 44.5 46.5 36.5 -4% 22%
Expenses as % of core income 52.6% 65.4% 55.9%
4141
Gains on Investments
H1 09£m
H2 08£m
H1 08£m
H1 09vs
H2 08
H1 09vs
H1 08
Realised gains on investments 18.5 43.3 90.6 -57% -80%
Unrealised gains on investments 1.4 (5.2) 6.5 -127% -78%
Cost of medium term incentive scheme (3.9) (12.1) (20.2) -68% -81%
Net gains on investments 16.0 26.0 76.9 -38% -79%
4242
Impairments
H1 09£m
H2 08£m
H1 08£m
H1 09vs
H2 08
H1 09vs
H1 08
Mezzanine and equity investment
Gross Impairment 54.2 33.8 16.4 60% 230%
Recoveries (25.6) (4.2) (10.6) n.a. n.a.
Equity in ICG - managed CDO's
Gross Impairment 14.2 7.1 3.5 100% 306%
Recoveries - - -
Impairments net of write backs 42.8 36.7 9.3 17% 360%
4343
Pre-tax profits
* Excluding impact of fair value movements of derivatives held for hedging purposes
H1 09£m
H2 08£m
H1 08£m
H1 09vs
H2 08
H1 09vs
H1 08
Interest and dividend income 147.6 130.9 106.0 13% 39%
Gains on investments 19.9 38.1 97.1 -48% -80%
Fee and other operating income 29.4 26.7 30.3 10% -3%
196.9 195.7 233.4 1% -16%
Interest payable and other related financing costs (47.9) (40.0) (34.5) 20% 39%
Impairment of assets (42.8) (36.7) (9.3) 17% 360%
Administrative expenses (48.4) (58.6) (56.7) -17% -15%
Profit before tax* 57.8 60.4 132.9 -4% -57%
Fair value movements (18.0) 27.1 9.1 n.a. n.a.
Profit before tax 39.8 87.5 142.0 -55% -72%
4444
Pre-tax Profits, Earnings per Share & Dividends
* Excluding impact of fair value movements of derivatives held for hedging purposes
** Adjusted for Rights Issue completed in February 2008
H1 09£m
H2 08£m
H1 08£m
H1 09vs
H2 08
H1 09vs
H1 08
Pre-tax profit* £57.8m £60.4m £132.9m -4% -57%
Pre-tax profit £39.8m £87.5m £142.0m -55% -72%
Earning per share** 29.8p 87.7p 125.7p 66% -76%
Dividend per share** 20.5 45.5 18.5 n.a. 11%
4545
Blended Mezzanine Spread – New ICG Investments
* Exclusive of equity co-investment
341 313 347 359 373 345 368 316 346 343
206 199
356 338399 443 455 603 580 608
665 766
594462
511 441 310
298
91 115
L+0
L+400
L+800
L+1,200
L+1,600
Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Sep-08
Cash Spread PIK Spread Equity Kicker
1,2121,278 1,297
1,159
1,2831,229
1,1331,011
`
1,041
1,249
4646
Leverage & Deal Size at Funding
Verity to supply on Monday afternoon
(weighted by ICG Amount)
2.5x
3.5x
4.5x
5.5x
6.5x
7.5x
8.5x
9.5x
10.5x
11.5x
2000* 2001* 2002* 2003* 2004* 2005* 2006* 2007* 9m 2008
Tota
l Deb
t / E
BIT
0
100
200
300
400
500
600
700
800
Dea
l Siz
e £
m
Average Deal Size Ttl Debt / EBIT
* Calendar Year
4747
Portfolio diversity
Senior Mezzanine
Equity in ICG managed CDOs
Equity Investments
Junior Mezzanine
Investment assets by type at 30 September 2008
81%
18%1%
67%
17%
15%
4848Final Slide: ICG Disclaimer
The materials being provided to you are intended only for informational purposes and convenient reference. This information is not intended to provide, and should not be relied upon, for accounting, legal or tax advice or investment recommendations. You should consult your tax, legal, accounting or other advisors about the issues discussed herein. The descriptions contained herein are summaries and are not intended to be complete.These materials are not intended as an offer or solicitation with respect to the purchase or sale of any security and may not be relied upon in evaluating the merits of investing in the securities. These materials are not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. Neither Intermediate Capital Group PLC (“ICG”) or any of its affiliates makes any representation or warranty,express or implied as to the accuracy or completeness of the information contained herein, and nothing contained herein shall be relied upon as a promise or representation whether as to past or future performance.Distribution of this material to any person other than the person to whom this information was originally delivered and to such person’s advisors is unauthorised and any reproduction of these materials, in whole or in part, or the disclosure of any of their contents, without the prior consent of ICG or its affiliates is prohibited.This communication is limited to and directed to those persons invited to the presentation. It is therefore only directed at intermediate customers and market counterparties, as defined by Financial Services Authority. Any other persons should not seek to rely upon the information contained therein. Collective investment schemes referred to herein are not regulated for the purposes of the UK’s Financial Services and Markets Act 2000 and are not available to members of the general public. ICG is authorised and regulated in the United Kingdom by the Financial Services Authority. Intermediate Capital Managers Limited is a wholly-owned subsidiary of ICG and is also authorised and regulated in the United Kingdom by the Financial Services Authority.