European Capital Limited Reports 2010 Net Earnings of euro 105 Million and Net Operating Income of euro 48 Million
ST. PETER PORT, Guernsey, March 17, 2011 /PRNewswire/ --
European Capital Limited ("European Capital") today issued an Interim Management Statement announcing net operating income ("NOI") for the quarter and year ended 31 December 2010 of euro 29 million and euro 48 million, respectively. Net earnings for quarter and year were euro 47 million and euro 105 million, respectively. As of 31 December 2010, net asset value ("NAV") was euro 629 million, an 8%, or euro 46 million increase from the 30 September 2010 NAV of euro 583 million and a 19%, or euro 101 million increase from the 31 December 2009 NAV of euro 528 million.
Q4 2010 FINANCIAL SUMMARY
- euro 29 million NOI
- euro 24 million net unrealised appreciation on investments
- euro (9) million net realised loss on investments
- euro 47 million net earnings
- euro 48 million improvement over Q3 2010
- 31% annualised return on average equity ("ROE")
2010 FINANCIAL SUMMARY
- euro 48 million NOI
- euro 10 million, or 28%, increase over 2009
- euro 92 million net unrealised appreciation on investments
- euro 395 million improvement over 2009
- euro (53) million net realised loss on investments
- euro 4 million improvement over 2009
- euro 105 million net earnings
- euro 408 million improvement over 2009
- 18% ROE
- euro 283 million of cash proceeds from realisations
- euro 202 million improvement over 2009
- euro 336 million of debt repaid
- euro 293 million reduction in debt net of accrued interest
and exchange
- euro 629 million NAV
- euro 101 million, or 19% increase over Q4 2009
"This past year was the year that many companies, including European Capital, emerged from the great recession, and the year we began rebuilding shareholder value while growing NAV by euro 101 million," said Malon Wilkus, Chairman and Chief Executive Officer. "We earned euro 105 million in 2010 and repaid euro 336 million of debt, delivering a 18% return on equity since the low point of the financial crisis in Q4 2009. We believe this is just the beginning of a growth phase for the economy and European Capital, and we look forward to continuing the progress we made last year, in 2011."
"Our Investment Teams with 18 investment professionals in London and Paris are seeking mezzanine debt investment opportunities from 10 million to 40 million in either euros or sterling and also up to 100 million in One-Stop Buyouts(R)," said Ira Wagner, President. "With the economy improving throughout Europe, we believe there will be many excellent investment opportunities in 2011."
PORTFOLIO VALUATION
For the year ended 31 December 2010, net unrealised appreciation of investments totalled euro 92 million. The primary components of the net unrealised appreciation were:
- euro 25 million appreciation from European Capital's private finance
portfolio as a result of improved portfolio company performance
and improved multiples; and
- euro 53 million of reversals of prior unrealised depreciation
associated with net realised losses on portfolio investments.
"In 2010, we strengthened our balance sheet by reducing our debt to equity ratio to 0:8:1," said Nathalie Faure Beaulieu, Managing Director. "During 2010, we began to see the re-emergence of the M&A and refinancing markets for middle market companies."
"Our seasoned portfolio experienced euro 283 million of liquidity in 2010," said Tristan Parisot, Managing Director. "We look forward to continuing to harvest mature investments and deploying the capital at attractive risk adjusted returns."
PORTFOLIO LIQUIDITY AND PERFORMANCE
Since inception, European Capital has invested euro 3.3 billion in 91 portfolio companies. European Capital has realised euro 1.7 billion from the portfolio since inception, including senior debt syndications. It has exited fully 33 portfolio companies, realising an aggregate of euro 1.0 billion comprising:
- euro 668 million of principal repayments;
- euro 129 million from loan syndications and sales;
- euro 98 million of collections of PIK notes and dividends; and
- euro 110 million from sales of equity.
These exits achieved an aggregate IRR of 10.0%. Exits from all equity investments have achieved a 28.8% IRR.
European Capital's portfolio as of 31 December 2010 at fair market value was euro 1.1 billion, with an average size of euro 19 million per portfolio company. European Capital's largest investment represents 10.3% of total investment assets, and the ten largest investments represent 50.5% of total investment assets as of 31 December 2010.
During the year to 31 December 2010, European Capital:
- Realised proceeds of euro 283 million, compared with euro 81
million in 2009. The proceeds were at an average of 2.1% above the
prior quarter's valuations of the realised investments. The
realisations proceeds included:
- euro 131 million including a euro 14 million equity realised
gain from the sale of Spotless Group, resulting in a 21% annual
equity return and a 15% annual mezzanine rate of return from the
sale;
- euro 74 million including a euro 10 million equity realised
gain from the sale of GO Voyage, resulting in a 19% annual equity
return and a 16% annual mezzanine rate of return from the sale;
- euro 48 million repayment of a debt investment in Inspicio
resulting in a 13% annual mezzanine rate of return.
- Invested euro 2.4 million in existing portfolio companies, compared
with euro 4.6 million in the same period of 2009.
Since the low point of the financial crisis in Q4 2009, European Capital has increased its book value by euro 101 million or a 19% total return. Debt was paid down by euro 336 million, a significant delevering of the balance sheet.
As of 31 December 2010, loans with a fair value of euro 77 million were on non-accrual, representing 8.9% of total loans at fair value, compared to euro 46 million fair value of non-accrual loans, representing 5.5% of total loans at fair value as of 30 September 2010.
European Capital will use proceeds from liquidity events in part to cover expenses and service debt, to invest in its existing portfolio companies for organic growth and add-on acquisitions, as well as to make new mezzanine investments and One-Stop Buyouts(R).
"Our balance sheet continues to strengthen," said Juan Carlos Morales Cortes. "Our asset coverage ratio improved to 230% and debt of euro 336 million has been repaid. This has caused the programme fee of our largest credit facility to drop to the lowest rate available under the facility. We continue to experience strong liquidity in the portfolio at attractive valuations, which we believe will allow us to invest in existing portfolio companies for organic growth and add-on acquisitions, as well as to make new mezzanine investments and One-Stop Buyouts(R)."
EUROPEAN CAPITAL LIMITED
CONSOLIDATED BALANCE SHEETS
As of 31 December 2010 and 2009
(in thousands)
31 December 2010
Versus 31 December 2009
31 December 31 December ----------------------
2010 2009 euro %
---- ---- ---- ---
Assets
Investments at fair
value (Cost basis
of euro 1,721,230
and euro 2,006,647,
respectively) 1,075,766 1,212,319 (136,553) -11%
Cash and cash
equivalents 3,006 36,097 (33,091) -92%
Restricted cash 21,380 36,519 (15,139) -41%
Interest receivable 5,282 5,752 (470) -8%
Derivatives agreements
at fair value 10,290 11,655 (1,365) -12%
Other 8,316 12,943 (4,627) -36%
--------- --------- -------- ---
Total assets 1,124,040 1,315,285 (191,245) -15%
========= ========= ======== ===
Liabilities and
Shareholders' Equity
Debt (maturing within
one year euro 224,742
and euro 163,008,
respectively) 484,872 778,368 (293,496) -38%
Due to European Capital
Financial Services
(Guernsey) Limited 1,351 1,663 (312) -19%
Derivatives agreements
at fair value 3,283 1,449 1,834 127%
Other 5,458 5,900 (442) -7%
------- ------- -------- ---
Total liabilities 494,964 787,380 (292,416) -37%
------- ------- -------- ---
Shareholders' equity:
Share Capital 224,475 224,475 - 0%
Undistributed net
realised
earnings 1,064,903 1,050,521 14,382 1%
Net unrealised
foreign currency
depreciation (98,147) (93,182) (4,965) -5%
Net unrealised
depreciation of
investments (562,155) (653,909) 91,754 14%
--------- --------- -------- ---
Total shareholders'
equity 629,076 527,905 101,171 19%
--------- --------- -------- ---
Total liabilities
and shareholders'
equity 1,124,040 1,315,285 (191,245) -15%
========= ========= ======== ===
NM = Not Meaningful
EUROPEAN CAPITAL LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Twelve Months Ended 31 December 2010 and 2009
(in thousands)
Three Months Ended
Three Months Ended 31 December
31 December 2010 Versus 2009
----------- ----------------
2010 2009 euro %
---- ---- ---- ---
(unaudited) (unaudited)
OPERATING INCOME:
Interest and
dividend income 41,480 28,161 13,319 47%
Fee and other income 276 531 (255) -48%
------ ------ ------ ---
Total operating
income 41,756 28,692 13,064 46%
------ ------ ------ ---
OPERATING EXPENSES:
Interest 7,704 11,445 (3,741) -33%
Management fee 3,943 4,852 (909) -19%
General and administrative 1,536 5,085 (3,549) -70%
------ ----- ------ ---
Total operating
expenses 13,183 21,382 (8,199) -38%
------ ------ ------ ---
OPERATING INCOME BEFORE
INCOME TAXES 28,573 7,310 21,263 291%
Provision for income
taxes (36) (64) 28 44%
------ ----- ------ ---
NET OPERATING INCOME 28,537 7,246 21,291 294%
------ ----- ------ ---
Net realised foreign
currency gains (losses) 308 361 (53) -15%
Net realised losses on
investments (9,164) (20,738) 11,574 56%
------ ------- ------ --
Total net realised
losses (8,856) (20,377) 11,521 57%
------ ------- ------ --
NET REALISED EARNINGS
(LOSSES) 19,681 (13,131) 32,812 NM
------ ------- ------ --
Net foreign currency
appreciation
(depreciation) 3,043 3,441 (398) -12%
Net appreciation
(depreciation) of
investments 23,829 2,634 21,195 805%
------ ----- ------ ---
Total net appreciation
(depreciation) 26,872 6,075 20,797 342%
------ ----- ------ ---
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS ("NET
EARNINGS (LOSSES)") 46,553 (7,056) 53,609 NM
====== ====== ====== ==
Twelve Months Ended
Twelve Months Ended 31 December
31 December 2010 Versus 2009
----------- ----------------
2010 2009 euro %
---- ---- ---- ---
OPERATING INCOME:
Interest and
dividend income 118,457 131,000 (12,543) -10%
Fee and other income 1,385 1,269 116 9%
------- ------- ------- --
Total operating
Income 119,842 132,269 (12,427) -9%
------- ------- ------- --
OPERATING EXPENSES:
Interest 46,492 58,374 (11,882) -20%
Management fee 17,313 22,165 (4,852) -22%
General and administrative 8,228 14,371 (6,143) -43%
------ ------ ------ ---
Total operating
expenses 72,033 94,910 (22,877) -24%
------ ------ ------- ---
OPERATING INCOME BEFORE
INCOME TAXES 47,809 37,359 10,450 28%
Provision for income
taxes (146) (172) 26 15%
------ ------ ------ --
NET OPERATING INCOME 47,663 37,187 10,476 28%
------ ------ ------ --
Net realised foreign
currency gains (losses) 22,786 (28,986) 51,772 NM
Net realised losses on
investments (52,660) (56,739) 4,079 7%
------- ------- ------ --
Total net realised
losses (29,874) (85,725) 55,851 65%
------- ------- ------ --
NET REALISED EARNINGS
(LOSSES) 17,789 (48,538) 66,327 NM
------ ------- ------ --
Net foreign currency
appreciation
(depreciation) (4,965) 48,002 (52,967) NM
Net appreciation
(depreciation) of
investments 91,754 (302,958) 394,712 NM
------ -------- ------- --
Total net appreciation
(depreciation) 86,789 (254,956) 341,745 NM
------ -------- ------- --
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS ("NET
EARNINGS (LOSSES)") 104,578 (303,494) 408,072 NM
======= ======== ======= ==
NM = Not Meaningful
EUROPEAN CAPITAL LIMITED
OTHER FINANCIAL INFORMATION
Fiscal Year ended 31 December 2010 and 2009
(in thousands, except per share data)
2010 Versus
2010 2009 2009
---- ---- -----------
euro euro euro %
New Investments:
Subordinated Debt 867 - 867 100%
Common Equity 1,556 4,567 (3,011) -66%
----- ----- ------ ---
Total 2,423 4,567 (2,144) -47%
===== ===== ====== ===
Add-on Financing for
Recapitalisations 2,423 4,567 (2,144) -47%
----- ----- ------ ---
Total 2,423 4,567 (2,144) -47%
===== ===== ====== ===
Realisations:
Sale of Loans 5,218 14,000 8,782 63%
Principal Prepayments 192,122 53,087 139,035 262%
Payment of Accrued Payment-in-
kind Interest and Dividends
and Original Issue Discount 47,894 13,657 34,237 251%
Sale of Equity Investments 37,724 (236) 37,960 NM
------- ------ ------- ---
Total 282,958 80,508 202,450 251%
======= ====== ======= ===
Appreciation, Depreciation,
Gains and Losses:
Gross Gains 19,224 33,838 (14,614) -43%
Gross Losses (71,884) (90,577) 18,693 21%
------- ------- ------ ---
Net Portfolio (Losses) Gains (52,660) (56,739) 4,079 7%
Net Gains (losses) on
Foreign Currency Translation 22,786 (28,986) 51,772 179%
------ ------- ------ ---
Total Net (Losses) (29,874) (85,725) 55,851 65%
------- ------- ------ ---
Gross Appreciation 175,512 98,556 76,956 78%
Gross Depreciation (83,758) (401,514) 317,756 79%
------- -------- ------- ---
Current Portfolio Net
Appreciation (Depreciation) 91,754 (302,958) 394,712 130%
Net (Depreciation) Appreciation
on Foreign Currency
Translation (4,965) 48,002 (52,966) -110%
------ ------ ------- ----
Total Net Appreciation
(Depreciation) 86,789 (254,956) 341,746 134%
------ -------- ------- ---
Net Gains, Losses, Appreciation
and Depreciation 56,915 (340,681) 397,597 117%
====== ======== ======= ===
Other Financial Data:
Net Asset Value 629,076 527,905 101,171 19%
Financial Liabilities 484,872 778,368 (293,496) -38%
Asset Coverage Ratio 230% 168%
Debt to Equity Ratio 0.8 x 1.5 x
Credit Quality:
Weighted Average Effective
Interest Rate on Debt
Investments 7.7% 7.5%
Loans on Non-Accrual at Cost 300,669 280,368 20,301 7%
Loans on Non-Accrual at
Fair Value 77,180 29,579 47,601 161%
Non-Accrual Loans at Cost
as a Percentage of Total Loans 23.8% 18.3%
Non-Accrual Loans at Fair Value
as a Percentage of Total Loans 8.9% 2.8%
Return on Equity:
LTM Net Operating Income Return
on Average Equity at Cost 3.7% 2.9%
LTM Realised Earnings Return on
Average Equity at Cost 1.4% -3.8%
LTM Earnings Return on Average
Equity 18.0% -59.4%
Current Quarter Net Operating
Income Return on Average
Equity at Cost Annualised 9.1% 2.2%
Current Quarter Realised
Earnings Return on Average
Equity at Cost Annualised 6.2% -4.0%
Current Quarter Earnings Return
on Average Equity Annualised 30.6% -5.3%
NM = Not Meaningful
NA = Not Applicable
EUROPEAN CAPITAL LIMITED
STATIC POOL INFORMATION
Portfolio Statistics for Investments Made in Each of the Following Years
(euro in thousands, unless otherwise stated)
Portfolio statistics (1) (9) 2005 2006 2007
Internal Rate of Return -All
Investments (2) (8) 14.3% 1.4% (3.7)%
Internal Rate of Return -Exited
Investments (2) (8) 14.6% 9.1% 11.6%
Internal Rate of Return -Equity
Investments only (2) (8) (10) 17.1% 1.6% (17.5)%
Internal Rate of Return -Exited
Equity Investments only (2) (8) (10) 21.1% 34.4% 18.7%
Original Investments and
Commitments (8) 240,461 1,220,284 1,508,515
Total Exits and Prepayments of
Original Investments (8) 223,645 869,315 531,894
Total Interest, Dividends and
Fees Collected (8) 80,593 169,739 255,471
Total Net Gains on Investments 11,750 (44,586) (47,596)
Current Cost of Investments 19,860 421,510 1,007,049
Current Fair Value of Investments 25,026 241,276 581,399
Current Fair Value of Investments as
a % of Total Investments at Fair Value 2.3% 22.4% 54.0%
Net Appreciation (Depreciation) (11) 5,194 (127,258) (381,790)
Non-Accruing Loans at Cost - 62,163 223,412
Non-Accruing Loans at Fair Value - 20,526 47,569
Equity Interest at Fair Value 13,740 108,321 73,383
Debt to EBITDA (3) (4) 4.5 4.7 5.9
Interest Coverage (3) 3.6 4.2 5.4
Debt Service Coverage (3) 1.8 2.4 4.0
Average Age of Companies 12 78 46
Ownership Percentage 50.1% 47.8% 13.9%
Average Sales (5) 50,453 482,467 317,404
Average EBITDA (6) 8,867 72,914 61,064
Average EBITDA margin (6) 17.6% 15.1% 19.2%
Total Sales (5) 1,161,817 8,816,204 17,142,834
Total EBITDA (6) 211,138 1,168,696 2,968,826
% Senior Loans (7) 0.0% 24.3% 33.4%
% Loans with Lien (7) 100.0% 100.0% 100.0%
Portfolio statistics (1) (9) 2008 Aggregate
Internal Rate of Return -All Investments (2) (8) 0.5% 0.2%
Internal Rate of Return -Exited
Investments (2) (8) -5.9% 10.0%
Internal Rate of Return -Equity Investments
only (2) (8) (10) (100.0)% (5.3)%
Internal Rate of Return -Exited Equity
Investments only (2) (8) (10) 0.0% 28.8%
Original Investments and Commitments (8) 333,631 3,302,890
Total Exits and Prepayments of Original
Investments (8) 60,691 1,685,544
Total Interest, Dividends and Fees
Collected (8) 58,143 563,946
Total Net Gains on Investments (27,797) (108,229)
Current Cost of Investments 272,811 1,721,230
Current Fair Value of Investments 228,065 1,075,766
Current Fair Value of Investments as a %
of Total Investments at Fair Value 21.2% 100.0%
Net Appreciation (Depreciation) (11) (53,457) (557,311)
Non-Accruing Loans at Cost 15,094 300,669
Non-Accruing Loans at Fair Value 9,085 77,180
Equity Interest at Fair Value - 195,445
Debt to EBITDA (3) (4) 5.9 5.6
Interest Coverage (3) 2.7 4.5
Debt Service Coverage (3) 1.8 3.2
Average Age of Companies 35 49
Ownership Percentage 0.3% 19.4%
Average Sales (5) 182,833 320,873
Average EBITDA (6) 35,626 57,339
Average EBITDA margin (6) 19.5% 17.0%
Total Sales (5) 1,421,054 28,541,909
Total EBITDA (6) 259,650 4,608,309
% Senior Loans (7) 0.0% 24.4%
% Loans with Lien (7) 100.0% 100.0%
(1) Static pool classification is based on the year the initial
investment was made. Subsequent add-on investments are included in
the static pool year of the original investment.
(2) Assumes investments are exited at current US GAAP fair value.
(3) These amounts do not include investments in which we own only equity.
(4) For portfolio companies with a nominal EBITDA amount, the
portfolio company's maximum debt leverage is limited to 15 times
EBITDA.
(5) Sales of the most recent twelve months, or when appropriate, the
forecasted twelve months.
(6) EBITDA of the most recent twelve months, or when appropriate, the
forecasted twelve months.
(7) As a percentage of our total debt investments.
(8) Non euro-denominated amounts are retranslated at the exchange
rate ruling at the date of original investment.
(9) Non euro-denominated balances, other than those referred to in (8),
are retranslated at the exchange rate ruling at the balance
sheet date.
(10) Excludes equity investments that are the result of conversions
of debt and warrants received with the issuance of debt.
(11) Balance Sheet appreciation (depreciation) of investments
excluding foreign exchange revaluation.
IMPORTANT DISCLOSURES
NAV
Any valuation information relating to the portfolio companies of European Capital stated or referred to in this release has been determined by the Board of European Capital in good faith, on a basis consistent with past practice and for the purposes of complying with its reporting obligations under applicable laws.
Forward-looking statements
This document may contain "forward-looking statements." By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Many of these risks and uncertainties relate to factors beyond European Capital's control or which cannot be estimated precisely. These factors include, but are not limited to, uncertainties associated with the timing of transaction closings, changes in interest rates, availability of transactions, changes in regional, national or international economic conditions, and changes in the conditions of the industries in which European Capital has made investments. Actual outcomes and results may therefore differ materially from any outcomes or results expressed or implied by any such forward-looking statements.
Performance data quoted above represents past performance of European Capital. Past performance does not guarantee future results and the investment return and principal value of an investment in European Capital will likely fluctuate. Additionally, European Capital's current performance may be lower or higher than the performance data quoted above.
Basis of preparation
This interim management statement has been prepared to provide further transparent information about European Capital and should not be relied on by any person for any other purpose. Certain financial information in this interim management statement is based on unaudited management accounts. Nothing in this document is intended to be, or should be construed as, a profit forecast.
ABOUT EUROPEAN CAPITAL
European Capital is an investment company for pan-European equity, mezzanine and senior debt investments with euro 1.1 billion in assets under management. European Capital is wholly-owned affiliate of American Capital, Ltd ("American Capital"). It is managed by European Capital Financial Services (Guernsey) Limited ("ECFSG" or the "Investment Manager"), a wholly-owned affiliate of American Capital. The Investment Manager has offices in London and Paris. As of 31 December 2010 the Investment Manager had 5 investment teams with 18 investment professionals and employed 28 support staff. European Capital and its affiliates will consider mezzanine debt investment opportunities from 10 million to 40 million in either euros or sterling and also up to 100 million One-Stop Buyouts(R). For further information, please refer to http://www.EuropeanCapital.com/.
ABOUT AMERICAN CAPITAL
American Capital is a publicly traded private equity firm and global asset manager. American Capital, both directly and through its asset management business, originates, underwrites and manages investments in middle market private equity, leveraged finance, real estate and structured products. Founded in 1986, American Capital has $23 billion in assets under management and eight offices in the U.S., Europe and Asia. American Capital and its affiliates will consider investment opportunities from $10 million to $300 million. For further information, please refer to http://www.AmericanCapital.com/.
EUROPEAN CAPITAL FINANCIAL SERVICES, LTD.
London
25 Bedford Street
London WC2E 9ES
United Kingdom
+44(0)207-539-7000
+44(0)207-539-7001 Fax
Paris Branch
37 Avenue Pierre 1er de Serbie
75008 Paris
France
+33(0)1-40-68-06-66
+33(0)1-40-68-06-88 Fax
Contact: European Capital Financial Services Limited +44-207-539-7000
Ira Wagner, President
Juan Carlos Morales Cortes, Director
Richard Smith, Finance Director
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