Interim Management Statement - European Capital Limited Reports H1 2013 Net Operating Income of Euro 23 Million and Net Earnings of Euro 81 Million

News provided by

European Capital Limited

04 Sep, 2013, 08:00 GMT

ST. PETER PORT, Guernsey, Sept. 4, 2013 /PRNewswire/ -- European Capital Limited ("European Capital" or the "Company") today issues an Interim Management Statement announcing net operating income ("NOI") for the half year ended 30 June 2013 of €23 million and Net Earnings of €81 million. As at 30 June 2013, net asset value ("NAV") was €786 million, an 11%, or €81 million increase from the 31 December 2012 NAV of €705 million and a 21%, or €136 million increase from the 30 June 2012 NAV of €650 million.

H1 2013 FINANCIAL SUMMARY

  • €23 million NOI
  • €139 million net unrealised appreciation on investments excluding foreign exchange
    • €122 million improvement compared to H1 2012
  • €81 million net earnings
    • €58 million improvement compared to H1 2012
  • €201 million of cash proceeds from realisations
  • €179 million of securitised debt repaid
  • €12 million of committed investment
  • NAV €786 million
    • €81 million, 11% increase from 31 December 2012

"NAV grew by €81 million, or 11% in the first half, 21% over the past year, with investments performing better despite the weak, but slowly improving economy in Europe," said Malon Wilkus, Chairman and Chief Executive Officer. "Along with our excellent earnings, we generated €201 million of cash realisations in the first half of the year, allowing us to repay a significant portion of our debt."

PORTFOLIO VALUATION

For the half year ended 30 June 2013, net unrealised appreciation of investments totalled €139 million; with €45 million of appreciation for the year attributable to our controlled operating companies driven by performance improvements and €94 million of appreciation attributable to the sponsored finance portfolio.

PORTFOLIO LIQUIDITY, NEW COMMITTED INVESTMENTS AND LOAN PERFORMANCE

In the half year ended 30 June 2013, €201 million of cash proceeds were received from realisations of portfolio investments. The Company also made new committed investments of €12 million. Of the total commitments, €4 million was committed to new portfolio companies and €8 million in our existing portfolio for growth, acquisitions and re-financings.

"During the first half of the year, we continued to see good liquidity in the portfolio, but remain cautious on deploying capital," said Ira Wagner, President. "We remain firmly committed to supporting our existing portfolio companies as well as originating new investments in both debt opportunities and for One Stop Buyouts® that add to shareholder value. It is difficult for banks to lend to mid market companies as they had in the past because of changes in the economic and regulatory environment. We are seeing more opportunities in European credit with better pricing and terms. We remain selective despite those increasingly attractive lending opportunities."

Since inception, European Capital has invested €3.5 billion in 105 portfolio companies and has realised €2.1 billion from portfolio company exits. Out of the €2.1 billion we have exited fully 55 portfolio companies, realising an aggregate of €1.4 billion comprising:

  • €946 million of principal repayments;
  • €194 million from loan syndications and sales;
  • €160 million of collections of PIK notes and dividends; and
  • €145 million from sales of equity. 

These exits achieved an aggregate IRR of 8.6%. The equity investments of these exited portfolio companies have achieved a 20.2% IRR.

The European Capital portfolio as of 30 June 2013 stood at fair value of €1.0 billion, with an average investment size of €20 million per portfolio company. European Capital's largest investment represents 18.0% of total investment assets at fair value and the ten largest investments represent 66.4% of total investment assets at fair value as of 30 June 2013.

As at 30 June 2013, loans with a cost of €205 million and a fair value of €38 million were on non-accrual, representing 5.7% of total loans at fair value, compared to €307 million cost and €60 million fair value of non-accrual loans, representing 7.5% of total loans at fair value as at 31 December 2012. Fair value of loans on non-accrual fell during the first half consistent with cost of loans due to realisations or conversions in the portfolio of loans previously on non-accrual.

EUROPEAN CAPITAL LIMITED

CONSOLIDATED BALANCE SHEETS

As of 30 June 2013, 31 December 2012 and 30 June 2012

(in thousands)






























30 June


31 December


30 June 2013
Versus
31 December 2012


30 June


30 June 2013
Versus
30 June 2012


2013


2012




2012




€


€


€


%


€


€


%


(unaudited)


(audited)






(unaudited)





Assets














Investments at fair value (Cost basis of €1,417,111,
€1,650,113 and €1,568,941, respectively)

1,024,693


1,126,862


(102,169)


-9%


1,027,230


(2,537)


0%

Cash and cash equivalents

5,035


2,573


2,462


96%


4,371


664


15%

Restricted cash and cash equivalents

57,347


87,569


(30,222)


-35%


114,374


(57,027)


-50%

Interest receivable

5,244


3,603


1,641


46%


5,322


(78)


-1%

Derivatives agreements at fair value

18


9


9


100%


305


(287)


-94%

Other

4,531


5,191


(660)


-13%


4,453


78


2%

Total assets

1,096,868


1,225,807


(128,939)


-11%


1,156,055


(59,187)


-5%

Liabilities and Shareholder's Equity














Debt (maturing within one year €782, €1,074 and
 €1,965, respectively)

253,314


441,846


(188,532)


-43%


434,579


(181,265)


-42%

Due to European Capital Financial Services
(Guernsey) Limited

1,932


2,123


(191)


-9%


1,116


816


73%

Derivatives agreements at fair value

16,528


26,571


(10,043)


-38%


33,683


(17,155)


-51%

Other

39,355


50,467


(11,112)


-22%


36,999


2,356


6%

Total liabilities

311,129


521,007


(209,878)


-40%


506,377


(195,248)


-39%

Shareholder's equity:














Share Capital

224,475


224,475


-


0%


224,475


-


0%

Undistributed net realised earnings

1,043,248


1,098,368


(55,120)


-5%


1,076,067


(32,819)


-3%

Net unrealised foreign currency depreciation

(108,529)


(101,090)


(7,439)


-7%


(98,419)


(10,110)


-10%

Net unrealised depreciation of investments

(373,455)


(516,953)


143,498


28%


(552,445)


178,990


32%

  Total shareholder's equity

785,739


704,800


80,939


11%


649,678


136,061


21%

  Total liabilities and shareholder's equity

1,096,868


1,225,807


(128,939)


-11%


1,156,055


(59,187)


-5%














































EUROPEAN CAPITAL LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS

Six Months Ended 30 June 2013 and 2012

(in thousands)

(unaudited)








Six Months Ended


Six Months Ended


30 June


30 June


2013


2012


2013 Versus 2012


€


€


€


%









OPERATING INCOME:








Interest and dividend income

44,739


24,258


20,481


84%

Fee and other income

257


600


(343)


-57%

Total operating income

44,996


24,858


20,138


81%

OPERATING EXPENSES:








Interest

9,147


13,297


(4,150)


-31%

Management fee

11,627


11,244


383


3%

General and administrative

1,298


949


349


37%

          Total operating expenses

22,072


25,490


(3,418)


-13%

OPERATING INCOME BEFORE INCOME TAXES

22,924


(632)


23,556


NM

Provision for income taxes

(32)


(18)


(14)


-78%

NET OPERATING INCOME

22,892


(650)


23,542


NM









Net realisations on investments








Portfolio company investments

(64,850)


(3,277)


(61,573)


NM

Foreign currency translations

(9,213)


1,812


(11,025)


NM

Derivative agreements

(3,949)


(536)


(3,413)


NM

  Total net realisations on investments

(78,012)


(2,001)


(76,011)


NM









NET REALISED EARNINGS / (LOSS) 

(55,120)


(2,651)


(52,469)


NM









Net unrealised appreciation / (depreciation) on investments








Portfolio company investments

139,254


17,542


121,712


NM

Foreign currency translations

(7,439)


11,660


(19,099)


-164%

Derivative agreements

4,244


(3,609)


7,853


218%

  Total net unrealised appreciation / (depreciation) on investments

136,059


25,593


110,466


432%









NET INCREASE / (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS
("NET EARNINGS")

€80,939


22,942


€57,997


NM



NM = Not Meaningful





















 EUROPEAN CAPITAL LIMITED 

OTHER FINANCIAL INFORMATION

Six Months Ended 30 June 2013, 31 December 2012 and 30 June 2012

(in thousands)

(unaudited)













Six Months Ended


Six Months Ended
30 June 2013 Versus


Six Months Ended


Six Months Ended
30 June 2013 Versus



 30 June 2013 


 31 December 2012 


 31 December 2012 


 30 June 2012 


 30 June 2012 



€


€


€


%


€


€


%

















 New Investments: 















 Senior Debt 

8,458


33,345


(24,887)


-75%


89,269


-


0%


 Subordinated debt 

4,000


23,720


(19,720)


-83%


2,713


1,287


47%


 Convertible Bond 

-


-


-


100%


-


-


100%


 Preferred Equity 

-


-


-


100%


5


(5)


-100%


 Common Equity 

-


-


-


100%


3,001


(3,001)


-100%


   Total 

12,458


57,065


(44,607)


-78%


94,988


(1,719)


-2%

















 Add-on Financing for Acquisitions 

4,000


57,065


(53,065)


-93%


83,725


(79,725)


-95%


 Add-on Financing for Recapitalisations 

8,458


-


8,458


100%


11,263


(2,805)


-25%


   Total 

12,458


57,065


(44,607)


-78%


94,988


(82,530)


-87%

















 Realisations: 















 Principal Prepayments 

94,801


21,120


73,681


349%


47,751


47,050


99%


 Payment of Accrued Payment-in-kind Interest and Dividends and Original Issue Discount 

29,757


3,179


26,578


NM


6,261


23,496


375%


 Sale of Equity Investments 

30,093


2,050


28,043


NM


-


30,093


100%


 Sale of Loans 

46,598


316


46,282


NM


1,494


45,104


NM


   Total 

201,249


26,665


174,584


NM


55,506


145,743


263%

















 Appreciation, Depreciation, Gains and Losses: 















 Gross Realised Gains 

13,723


6,802


6,921


102%


-


13,723


100%


 Gross Realised Losses 

(78,585)


(5,877)


(72,708)


NM


(276)


(78,309)


NM


   Portfolio Net (Losses) Gains 

(64,862)


925


(65,787)


NM


(276)


(64,586)


NM


 Foreign Currency 

(9,213)


3,004


(12,217)


-407%


1,812


(11,025)


NM


 Derivative Agreements 

(3,937)


(3,212)


(725)


-23%


(3,385)


(552)


-16%


 Extinguishment of debt 

-


-


-


100%


(152)


152


100%


   Net Realised Losses 

(78,012)


717


(78,729)


NM


(2,001)


(76,011)


-3799%

















 Gross Unrealised Appreciation of Portfolio Investments 

104,308


44,107


60,201


136%


72,856


31,452


43%


 Gross Unrealised Depreciation of Portfolio Investments 

(21,818)


(82,028)


60,210


73%


(56,779)


34,961


62%


   Reversal of Prior Period Unrealised (Depreciation) Appreciation Upon Realisation 

56,764


(847)


57,611


NM


1,465


55,299


NM


   Net Unrealised Depreciation of Portfolio Investments 

139,254


(38,768)


178,022


459%


17,542


121,712


NM


 Foreign Currency 

(7,439)


(2,694)


(4,745)


-176%


11,660


(19,099)


-164%


 Derivative Agreements 

4,244


(3,470)


7,714


222%


(3,609)


7,853


218%


   Net Unrealised Depreciation of Investments 

136,059


(44,932)


180,991


403%


25,593


110,466


432%













-




   Net Gains, Losses, Appreciation and Depreciation 

58,047


(44,215)


102,262


231%


23,592


34,455


146%

















 Other Financial Data: 















 Net Asset Value 

785,739


704,800


80,939


11%


649,678


136,061


21%


 Financial Liabilities 

253,314


441,846


(188,532)


-43%


434,579


(181,265)


-42%


 Asset Coverage Ratio 

410%


260%






249%






 Debt to Equity Ratio 

0.3 x


0.6 x






0.7 x






 Credit Quality: 















 Weighted Average Effective Interest Rate on Debt Investments 

6.6%


5.8%


0.8%


14%


2.1%


4.5%


214.3%


 Loans on Non-Accrual at Cost 

204,840


307,172


(102,332)


-33%


263,429


(58,589)


-22%


 Loans on Non-Accrual at Fair Value 

38,045


59,975


(21,930)


-37%


60,483


(22,438)


-37%


 Non-Accrual Loans at Cost as a Percentage of Total Loans at Cost 

23.4%


26.5%






24.9%






 Non-Accrual Loans at Fair Value as a Percentage of Total Loans at Fair Value 

5.7%


7.5%






8.2%






 Non-Accrual Loans at Fair Value as a Percentage of Non-Accruing Loans at Cost 

18.6%


19.5%






23.0%






 Return on Equity: 















 LTM Net Operating Income Return on Average Equity at Cost 

3.7%


1.8%






1.1%






 LTM Realised Earnings Return on Average Equity at Cost 

-2.7%


1.6%






-1.0%






 LTM Earnings Return on Average Equity 

19.2%


11.8%






-9.8%






 Current Half Year Net Operating Income Return on Average Equity at Cost Annualised 

3.8%


3.6%






-0.1%






 Current Half Year Realised Earnings Return on Average Equity at Cost Annualised 

-9.1%


3.7%






-0.4%






 Current Half Year Earnings Return on Average Equity Annualised 

21.9%


16.3%






7.1%





















 NM = Not Meaningful 































































EUROPEAN CAPITAL LIMITED

STATIC POOL INFORMATION

Six Months Ended 30 June 2013 and 2012

(in thousands)

(unaudited)















Portfolio statistics  (1) (14)



2005


2006


2007


2008


2012


Aggregate















IRR at Fair Value of All Investments(1) (13)



11.6%


8.1%


0.5%


2.1%


9.3%


4.0%

IRR of Exited Investments  (2) (13)



13.5%


9.2%


1.2%


2.0%


8.7%


5.6%

IRR of Exited Portfolio Companies  (13)



14.4%


9.2%


7.9%


2.0%


0.0%


8.6%

IRR at Fair Value of Equity Investments Only  (1) (3) (13) 



4.8%


13.3%


(9.1)%


(9.4)%


0.0%


4.6%

IRR of Exited Equity Investments Only  (2) (3) (4) (13)



11.3%


19.9%


(100.0)%


409.6%


0.0%


(8.1)%

IRR of Exited Portfolio Companies' Equity Only  (3) (4) (13)



21.1%


19.9%


18.7%


409.6%


0.0%


20.2%

IRR at Fair Value of All One Stop Buyout(R)Investments(1) (13) 



(26.4)%


13.3%


(13.4)%


0.0%


0.0%


4.1%

IRR at Fair Value of Current One Stop Buyout®Investments (1) (13)



(24.9)%


20.2%


2.6%


0.0%


0.0%


12.7%

IRR of Exited One Stop Buyout®Investments  (2) (3) (13)



(33.7)%


15.4%


(62.2)%


0.0%


0.0%


(8.0)%

Committed Investments  (13)


€

240,673

€

1,242,200

€

1,543,694

€

333,927

€

125,570

€

3,486,064

Total Exits and Prepayments of Committed Investments  (13)


€

262,607

€

892,424

€

784,138

€

157,319

€

31,665

€

2,128,153

Total Interest, Dividends and Fees Collected  (13)


€

81,216

€

197,038

€

355,078

€

98,151

€

5,198

€

736,681

Total Net Realised Gains (Loss) on Investments


€

3,954

€     

(43,118)

€

(103,973)

€

(49,340)

€

263

€     

(192,214)

Current Cost of Investments


€

9,212

€

378,122

€

772,129

€

174,534

€

83,114

€

1,417,111

Current Fair Value of Investments


€

0

€

344,808

€

460,944

€

135,042

€

83,899

€

1,024,693

Current Fair Value of Investments as a % of Total Investments at Fair Value



0.0%


33.6%


45.0%


13.2%


8.2%


100.0%

Net Unrealised Depreciation  (15)


€

(9,212)

€   

(33,314)

€

(311,185)

€

(39,492)

€

785

€     

(392,418)

Non-Accruing Loans at Cost


€

9,212

€

28,470

€

112,158

€

55,000

€

-

€

204,840

Non-Accruing Loans at Fair Value


€

-

€

12,655

€

17,990

€

7,400

€

-

€

38,045

Equity Interest at Fair Value (3)


€

 0

€

240,151

€

113,148

€

0

€

861

€

354,160

Debt to Adjusted EBITDA  (3) (6) (7) (8) (11)



0.0


3.1


5.5


5.7


3.5


4.5

Interest Coverage  (3) (8) (11)



0.0


13.5


4.7


4.1


4.3


7.5

Debt Service Coverage  (3) (8) (11)



0.0


2.3


2.1


2.6


3.5


2.3

Average Age of Companies (3) (11)



-


71


53


49


37


57

Diluted Ownership Percentage (3) (12)



0.0%


64.6%


14.2%


0.3%


0.7%


28.2%

Average Revenue  (3) (9) (11)


€

 0

€

31,755

€

25,700

€

94,691

€

189,156

€

43,170

Average Adjusted EBITDA  (3) (6) (11)


€

 0

€

253,050

€

172,689

€

436,067

€

1,597,125

€

318,624

Total Revenues(3) (9)


€

29,780

€

4,865,492

€

8,066,588

€

736,007

€

25,788,806

€

39,486,673

Total Adjusted EBITDA  (3) (6)


€

1,725

€

467,845

€

1,021,577

€

128,353

€

3,189,400

€

4,808,900

% Senior Loans  (3) (8) (10)



0.0%


24.6%


48.4%


0.0%


90.2%


38.0%

% Loans with Lien(3) (8) (10)



100.0%


100.0%


100.0%


100.0%


100.0%


100.0%








Majority Owned Portfolio Companies ("MOPC")



2005-2012
Static Pools
Aggregate


Number of MOPC



7


Total Revenues (9)


€

575,026


Total Gross Profits(9)


€

271,256


Total Adjusted EBITDA  (6)


€

73,762


Total Capital Expenditure(9)


€

12,303


Total Current European Capital Investment in MOPC At Fair Value


€

313,912


Total Current European Capital Investment in MOPC At Cost Basis


€

346,669


Total Current European Capital Debt Investment in MOPC At Fair Value


€

76,315


Total Current European Capital Debt Investment in MOPC At Cost Basis


€

95,207


Diluted Ownership Percentage of European Capital in MOPC(12)



72.2%


Total Cash


€

68,216


Total Assets


€

612,423


Total Debt


€

434,863


Total Third Party Debt at Cost


€

292,961


Total Shareholders' Equity (16)


€

362,926









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. There were no new investments made in 2009 to 2011.


(1) Assumes investments are exited at current US GAAP fair value.


(2) Includes fully exited investments of existing portfolio companies.


(3) Excludes investments in Structured Products.


(4) Excludes equity investments that are the result of conversions of debt and warrants received with the issuance of debt.


(5) Majority Owned Portfolio Company ("MOPC") investments represents investments in which European Capital, or its affiliates, have a fully diluted ownership percentage of 50% or more or has over 50% board representation at the portfolio company.


(6) Adjusted EBITDA may reflect certain adjustments to the reported EBITDA of a portfolio company for non-recurring, unusual or infrequent items or other pro-forma items or events to normalize current earnings which a buyer may consider in a change in control transactions. These adjustments may be material and are highly subjective in nature. Portfolio company reported EBITDA is for the most recently available twelve months, or when appropriate, the forecasted twelve months or current annualized run-rate


(7) For portfolio companies with a nominal Adjusted EBITDA amount, the portfolio company's maximum debt leverage is limited to 15 times Adjusted EBITDA.


(8) Excludes investments in which we own only equity.


(9) For the most recent twelve months, or when appropriate, the forecasted twelve months.


(10) As a percentage of our total debt investments.


(11) Weighted average based on fair value.


(12) Weighted average based on fair value of equity investments.


(13) Non euro-denominated amounts are retranslated at the exchange rate ruling at the date of original investment.


(14) Non euro-denominated balances, other than those referred to in (13), are retranslated at the exchange rate ruling at the balance sheet date.


(15) Balance Sheet appreciation (depreciation) of investments excluding foreign exchange revaluation.


(16) Calculated as the estimated enterprise value of the MOPC's less the cost basis of any outstanding debt of the MOPC's.



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 €1.1 billion in assets under management. European Capital is a 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 30 June 2013 the Investment Manager had 5 investment teams with 24 investment professionals and employed 31 support staff. European Capital and its affiliate, American Capital, will consider senior and mezzanine debt investment opportunities from 10 million to 40 million in either euros or sterling and up to 400 million for One Stop Buyouts®. For further information, please refer to www.EuropeanCapital.com.

ABOUT AMERICAN CAPITAL

American Capital, Ltd. (Nasdaq: ACAS) 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. American Capital manages $21 billion of assets, including assets on its balance sheet and fee earning assets under management by affiliated managers, with $119 billion of total assets under management (including levered assets). Through an affiliate, American Capital manages publicly traded American Capital Agency Corp. (Nasdaq: AGNC) with approximately $10 billion of net book value and American Capital Mortgage Investment Corp. (Nasdaq: MTGE) with approximately $1 billion of net book value. From its eight offices in the U.S. and Europe, American Capital and its affiliate, European Capital, will consider investment opportunities from $10 million to $750 million. For further information, please refer to www.AmericanCapital.com.

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