Interim Management Statement: European Capital Limited Reports First Half 2011 Net Operating Income of Euro 39 Million and Net Earnings of Euro 86 Million
ST. PETER PORT, Guernsey, August 31, 2011 /PRNewswire/ --
European Capital Limited ("European Capital" or the "Company") today issues an Interim Management Statement announcing net operating income ("NOI") for the first half ended 30 June 2011 of euro 39 million. Net earnings for the half year were euro 86 million. As at 30 June 2011, net asset value ("NAV") was euro 715 million, a 14% or euro 86 million increase from the 31 December 2010 NAV of euro 629 million.
H1 2011 FINANCIAL SUMMARY
- Euro 39 million NOI
- Includes euro 17 million of non-recurring income relating to the removal of investments from non-accrual status
- Euro 98 million net unrealised appreciation on investments
- Euro 102 million increase over the first half of 2010
- Euro 86 million net earnings
- Euro 26 million improvement over the first half of 2010
- 25% annualised return on average equity ("ROE")
- Euro 114 million of cash proceeds from realisations
- Euro 288 million new senior notes issued
- Existing debt refinanced with no required amortisation until 2022
- Euro 715 million NAV
- Euro 86 million, or 14% increase over Q4 2010
"Our book value grew by euro 86 million for the first half to euro 715 million, delivering a 25% annualised return on equity for the half year," said Malon Wilkus, Chairman and Chief Executive Officer. "We have now experienced seven quarters out of the last eight of unrealised appreciation on our investments. We believe the performance of the portfolio will continue to improve if the European economy continues to expand. We remain focused on improving our balance sheet, growing portfolio companies and originating high quality investment opportunities."
PORTFOLIO VALUATION
For the half year ended 30 June 2011, net unrealised appreciation of investments totalled euro 98 million. The primary components of the net unrealised appreciation were:
- Euro 69 million net appreciation from European Capital's private finance portfolio primarily as a result of improved portfolio company performance
- Euro 18 million of reversals of prior unrealised depreciation associated with realisation on portfolio investments.
"During the half year, we followed up on our success in 2010 and continued to strengthen our balance sheet," said Ira Wagner, President. "We have improved our asset coverage to 267%. We continued to see liquidity in the portfolio during the half year and are focused on maximising the value of our investments to generate shareholder value."
PORTFOLIO LIQUIDITY AND PERFORMANCE
In the first half of 2011, euro 114 million of cash proceeds were received from realisations of portfolio investments. The Company made euro 16 million in new committed investments in the first half of the year to support the current portfolio. The weighted average effective interest rate on the Company's debt investments was 8.9% for the half year.
As of 30 June 2011, loans with a cost of euro 200 million were on non-accrual compared to euro 301 million as of 31 December 2011. These loans as of 30 June 2011 had a fair value of euro 65 million and represent 7.8% of total loans at fair value.
"The credit quality of our portfolio continues to improve this half year," noted Juan Carlos Morales Cortes, Director. "In June 2011, we completed the issue of our latest securitisation which is a testament to the credit worthiness of our assets and provides us flexibility for originating new transactions. This was a landmark transaction as it is the first European securitisation that is compliant with new regulatory requirements."
DEBT REFINANCING
In the second quarter of 2011, European Capital's consolidated subsidiary ECAS 2011-1 Loan B.V. ("ECAS 2011-1") sold and issued euro 288 million of AAA-rated secured floating rate notes, backed by assets with a par value of euro 865 million originated by other European Capital consolidated subsidiaries. The notes were rated by Standard & Poor's and comply with recent regulations affecting securitisations. The notes have a coupon payment of Euribor plus 320 basis points, payable semi-annually, and are due in 2024. The proceeds of the sale were used to refinance two existing debt obligations of European Capital consolidated subsidiaries, including a secured senior multicurrency term loan facility and an issuance of secured senior notes, as well as to make new investments.
"This refinancing provides European Capital with certainty in its borrowings," said Nathalie Faure Beaulieu, Managing Director. "It also provides us with liquidity to invest in new opportunities. European Capital and its affiliates will consider mezzanine debt investment opportunities from 5 million to 25 million in either euros or sterling and up to 100 million for One Stop Buyouts®."
"With offices in Paris, London, five offices in the US and one in Hong Kong, we are able to consider companies with financial needs spanning the globe," added Tristan Parisot, Managing Director. "We understand the need for speed and so we have one of the largest underwriting capabilities in the industry, and we can fund senior debt, mezzanine debt and equity."
EUROPEAN CAPITAL LIMITED
CONSOLIDATED BALANCE SHEETS
As of 30 June 2011, 31 December 2010 and 30 June 2010
(in thousands)
H1 2011 Versus
H2 2010
--------------
H1 H2
2011 2010
---- ----
(unaudited) (unaudited)
Assets
Investments at fair value (Cost basis of euro
1,638,416, euro 1,721,230 and euro 1,883,515,
respectively) 1,099,214 1,075,766
Cash and cash equivalents 2,257 3,006
Restricted cash 69,653 21,380
Interest receivable 7,848 5,282
Derivatives agreements at fair value 3,021 10,290
Other 6,522 8,316
----- -----
Total assets 1,188,515 1,124,040
========= =========
Liabilities and Shareholder's Equity
Debt (maturing within one year euro 1,704,
euro 224,742 and euro 163,008, respectively) 429,685 484,872
Due to European Capital Financial Services
(Guernsey) Limited 1,818 1,351
Derivatives agreements at fair value 915 3,283
Other 41,266 5,458
------ -----
Total liabilities 473,684 494,964
------- -------
Shareholder's equity:
Share Capital 224,475 224,475
Undistributed net realised earnings 1,087,988 1,064,903
Net unrealised foreign currency depreciation (133,373) (98,147)
Net unrealised depreciation of investments (464,259) (562,155)
Total shareholder's equity 714,831 629,076
------- -------
Total liabilities and shareholder's equity 1,188,515 1,124,040
========= =========
NM = Not Meaningful
-------------------
H1 2011 Versus
H2 2010
--------------
H1
euro % 2010
---- --- ----
(unaudited)
Assets
Investments at fair value (Cost
basis of euro 1,638,416, euro
1,721,230 and euro 1,883,515,
respectively) 23,448 2% 1,179,726
Cash and cash equivalents (749) -25% 1,766
Restricted cash 48,273 226% 31,031
Interest receivable 2,566 49% 4,928
Derivatives agreements at fair
value (7,269) -71% 5,804
Other (1,794) -22% 9,730
------ -----
Total assets 64,475 6% 1,232,985
====== === =========
Liabilities and Shareholder's
Equity
Debt (maturing within one year
euro 1,704, euro 224,742 and
euro 163,008, respectively) (55,187) -11% 631,986
Due to European Capital Financial
Services (Guernsey) Limited 467 35% 2,385
Derivatives agreements at fair
value (2,368) -72% 6,068
Other 35,808 656% 8,615
-----
Total liabilities (21,280) -4% 649,054
------- --- -------
Shareholder's equity:
Share Capital - 0% 224,475
Undistributed net realised
earnings 23,085 2% 1,085,026
Net unrealised foreign currency
depreciation (35,226) -36% (68,770)
Net unrealised depreciation of
investments 97,896 17% (656,800)
Total shareholder's equity 85,755 14% 583,931
------ --- -------
Total liabilities and
shareholder's equity 64,475 6% 1,232,985
====== === =========
NM = Not Meaningful
-------------------
H1 2011 Versus
H1 2010
--------------
euro %
---- ---
Assets
Investments at fair value (Cost basis of euro
1,638,416, euro 1,721,230 and euro 1,883,515,
respectively) (80,512) -7%
Cash and cash equivalents 491 28%
Restricted cash 38,622 124%
Interest receivable 2,920 59%
Derivatives agreements at fair value (2,783) -48%
Other (3,208) -33%
------
Total assets (44,470) -4%
======= ===
Liabilities and Shareholder's Equity
Debt (maturing within one year euro 1,704,
euro 224,742 and euro 163,008, respectively) (202,301) -32%
Due to European Capital Financial Services
(Guernsey) Limited (567) -24%
Derivatives agreements at fair value (5,153) -85%
Other 32,651 379%
Total liabilities (175,370) -27%
-------- ---
Shareholder's equity:
Share Capital - 0%
Undistributed net realised earnings 2,962 0%
Net unrealised foreign currency depreciation (64,603) -94%
Net unrealised depreciation of investments 192,541 29%
Total shareholder's equity 130,900 22%
------- ---
Total liabilities and shareholder's equity (44,470) -4%
======= ===
NM = Not Meaningful
-------------------
EUROPEAN CAPITAL LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended 30 June 2011 and 2010
(in thousands)
(unaudited)
Six Months Ended
30 June
-------
2011 2010
---- ----
OPERATING INCOME:
Interest and dividend income 66,240 56,242
Fee and other income 508 464
Total operating income 66,748 56,706
------ ------
OPERATING EXPENSES:
Interest 12,887 28,764
Management fee 10,980 9,212
General and administrative 3,703 3,364
Corporate restructuring costs - 2,020
--- -----
Total operating expenses 27,570 43,360
------ ------
OPERATING INCOME BEFORE INCOME TAXES 39,178 13,346
Provision for income taxes (44) (79)
--- ---
NET OPERATING INCOME 39,134 13,267
------ ------
Net realised (loss) gain on investments
Portfolio company investments (23,858) 7,846
Foreign currency translations 4,028 17,030
Derivative agreements 3,781 (255)
Total net realised (loss) gain on
investments (16,049) 24,621
------- ------
NET REALISED EARNINGS 23,085 37,888
------ ------
Net unrealised appreciation (depreciation)
on investments
Portfolio company investments 98,331 (4,039)
Foreign currency translations (35,226) 24,412
Derivative agreements (435) 1,148
Total net unrealised appreciation of
investments 62,670 21,521
------ ------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ("NET EARNINGS") 85,755 59,409
====== ======
NM = Not Meaningful
-------------------
Six Months Ended
30 June
2011 Versus 2010
----------------
euro %
---- ---
OPERATING INCOME:
Interest and dividend income 9,998 18%
Fee and other income 44 9%
Total operating income 10,042 18%
------ ---
OPERATING EXPENSES:
Interest (15,877) -55%
Management fee 1,768 19%
General and administrative 339 10%
Corporate restructuring costs (2,020) -100%
------ ----
Total operating expenses (15,790) -36%
------- ---
OPERATING INCOME BEFORE INCOME TAXES 25,832 194%
Provision for income taxes 35 44%
---
NET OPERATING INCOME 25,867 195%
------ ---
Net realised (loss) gain on investments
Portfolio company investments (31,704) -404%
Foreign currency translations (13,002) -76%
Derivative agreements 4,036 1583%
Total net realised (loss) gain on
investments (40,670) -165%
------- ----
NET REALISED EARNINGS (14,803) -39%
------- ---
Net unrealised appreciation (depreciation)
on investments
Portfolio company investments 102,370 2535%
Foreign currency translations (59,638) -244%
Derivative agreements (1,583) -138%
Total net unrealised appreciation of
investments 41,149 191%
------ ---
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ("NET EARNINGS") 26,346 44%
====== ===
NM = Not Meaningful
-------------------
EUROPEAN CAPITAL LIMITED
OTHER FINANCIAL INFORMATION
Six Months Ended 30 June 2011, 31 December 2010 and 30 June 2010
(in thousands)
H1 2011 Versus
H2 2010
--------------
H1 2011 H2 2010
------- -------
euro euro
New Investments:
Subordinated debt - -
Convertible Bond 6,300 -
Preferred Equity 10,053 555
Common Equity - 1,000
Total 16,353 1,555
====== =====
Add-on Financing for Recapitalisations 16,353 1,555
Total 16,353 1,555
====== =====
Realisations:
Principal Prepayments 75,824 90,888
Payment of Accrued Payment-in-kind
Interest and Dividends and Original Issue
Discount 17,614 23,814
Sale of Equity Investments - 17,138
Sale of Loans 21,046 1,558
Total 114,484 133,398
======= =======
Appreciation, Depreciation, Gains and
Losses:
Gross Realised Gains - 7,677
Gross Realised Losses (23,858) (67,749)
------- -------
Portfolio Net (Losses) Gains (23,858) (60,072)
Foreign Currency 4,028 5,756
Derivative Agreements 3,781 (179)
----- ----
Net Realised Losses (16,049) (54,495)
------- -------
Gross Unrealised Appreciation of Portfolio
Investments 133,965 95,928
Gross Unrealised Depreciation of Portfolio
Investments (53,870) (63,491)
Reversal of Prior Period Unrealised
(Depreciation) Appreciation Upon
Realisation 18,236 60,957
------ ------
Net Unrealised Depreciation of Portfolio
Investments 98,331 93,394
Foreign Currency (35,226) (29,377)
Derivative Agreements (435) 1,252
---- -----
Net Unrealised Depreciation of Investments 62,670 65,269
------ ------
Net Gains, Losses, Appreciation and
Depreciation 46,621 10,774
====== ======
Other Financial Data:
Net Asset Value 714,831 629,076
Financial Liabilities 429,685 484,872
Asset Coverage Ratio 267% 230%
Debt to Equity Ratio 0.6 x 0.8 x
Credit Quality:
Weighted Average Effective Interest Rate on
Debt Investments 8.9% 8.8%
Loans on Non-Accrual at Cost 199,985 300,669
Loans on Non-Accrual at Fair Value 65,190 77,180
Non-Accrual Loans at Cost as a Percentage
of Total Loans 17.3% 23.8%
Non-Accrual Loans at Fair Value as a
Percentage of Total Loans 7.8% 8.9%
Return on Equity:
LTM Net Operating Income Return on Average
Equity at Cost 5.8% 3.7%
LTM Realised Earnings Return on Average
Equity at Cost 0.2% 1.4%
LTM Earnings Return on Average Equity 20.4% 18.0%
Current Half Year Net Operating Income
Return on Average Equity at Cost
Annualised 6.2% 5.4%
Current Half Year Realised Earnings Return
on Average Equity at Cost Annualised 3.6% -3.2%
Current Half Year Earnings Return on
Average Equity Annualised 25.2% 15.1%
NM = Not Meaningful
NA = Not Applicable
-------------------
H1 2011 Versus
H2 2010 H1 2010
------- -------
euro % euro
New Investments:
Subordinated debt - 100% 867
Convertible Bond 6,300 100% -
Preferred Equity 9,498 NM -
Common Equity (1,000) -100% 2
Total 14,798 NM 869
====== === ===
Add-on Financing for
Recapitalisations 14,798 NM 869
Total 14,798 NM 869
====== === ===
Realisations:
Principal Prepayments (15,064) -17% 101,234
Payment of Accrued Payment-in-
kind Interest and Dividends and
Original Issue Discount (6,200) -26% 24,117
Sale of Equity Investments (17,138) -100% 20,585
Sale of Loans 19,488 NM 3,660
Total (18,914) -14% 149,596
======= === =======
Appreciation, Depreciation,
Gains and Losses:
Gross Realised Gains - 0% 11,575
Gross Realised Losses 43,891 65% (3,729)
------ --- ------
Portfolio Net (Losses) Gains 36,214 60% 7,846
Foreign Currency (1,728) -30% 17,030
Derivative Agreements 3,960 NM (255)
----- ----
Net Realised Losses 38,446 71% 24,621
------ --- ------
Gross Unrealised Appreciation of
Portfolio Investments 38,037 40% 52,273
Gross Unrealised Depreciation of
Portfolio Investments 9,621 15% (48,847)
Reversal of Prior Period
Unrealised (Depreciation)
Appreciation Upon Realisation (42,721) -70% (7,465)
------- --- ------
Net Unrealised Depreciation of
Portfolio Investments 4,937 5% (4,039)
Foreign Currency (5,849) -20% 24,412
Derivative Agreements (1,687) -135% 1,148
------ -----
Net Unrealised Depreciation of
Investments (2,599) -4% 21,521
------ --- ------
Net Gains, Losses, Appreciation
and Depreciation 35,847 333% 46,142
====== === ======
Other Financial Data:
Net Asset Value 85,755 14% 583,931
Financial Liabilities (55,187) -11% 631,986
Asset Coverage Ratio 193%
Debt to Equity Ratio 1.1 x
Credit Quality:
Weighted Average Effective
Interest Rate on Debt
Investments 0.2% 2% 6.6%
Loans on Non-Accrual at Cost (100,684) -33% 301,923
Loans on Non-Accrual at Fair
Value (11,990) -16% 48,599
Non-Accrual Loans at Cost as a
Percentage of Total Loans 21.2%
Non-Accrual Loans at Fair Value
as a Percentage of Total Loans 4.9%
Return on Equity:
LTM Net Operating Income Return
on Average Equity at Cost 2.7%
LTM Realised Earnings Return on
Average Equity at Cost -2.5%
LTM Earnings Return on Average
Equity 10.2%
Current Half Year Net Operating
Income Return on Average Equity
at Cost Annualised 2.0%
Current Half Year Realised
Earnings Return on Average
Equity at Cost Annualised 5.8%
Current Half Year Earnings
Return on Average Equity
Annualised 21.2%
NM = Not Meaningful
NA = Not Applicable
-------------------
H1 2011 Versus
H1 2010
-------
euro %
New Investments:
Subordinated debt (867) -100%
Convertible Bond 6,300 100%
Preferred Equity 10,053 100%
Common Equity (2) -100%
Total 15,484 NM
====== ===
Add-on Financing for Recapitalisations 15,484 NM
Total 15,484 NM
====== ===
Realisations:
Principal Prepayments (25,410) -25%
Payment of Accrued Payment-in-kind
Interest and Dividends and Original Issue
Discount (6,503) -27%
Sale of Equity Investments (20,585) -100%
Sale of Loans 17,386 475%
Total (35,112) -23%
======= ===
Appreciation, Depreciation, Gains and
Losses:
Gross Realised Gains (11,575) -100%
Gross Realised Losses (20,129) -540%
------- ----
Portfolio Net (Losses) Gains (31,704) -404%
Foreign Currency (17,030) -100%
Derivative Agreements 4,036 NM
-----
Net Realised Losses (40,670) -165%
------- ----
Gross Unrealised Appreciation of Portfolio
Investments 81,692 156%
Gross Unrealised Depreciation of Portfolio
Investments (5,023) -10%
Reversal of Prior Period Unrealised
(Depreciation) Appreciation Upon
Realisation 25,701 344%
------ ---
Net Unrealised Depreciation of Portfolio
Investments 102,370 NM
Foreign Currency (59,638) -244%
Derivative Agreements (1,583) -138%
------
Net Unrealised Depreciation of Investments 41,149 191%
------ ---
-
Net Gains, Losses, Appreciation and
Depreciation 479 1%
=== ===
Other Financial Data:
Net Asset Value 130,900 22%
Financial Liabilities (202,301) -32%
Asset Coverage Ratio
Debt to Equity Ratio
Credit Quality:
Weighted Average Effective Interest Rate
on Debt Investments 2.3% 36%
Loans on Non-Accrual at Cost (101,938) -34%
Loans on Non-Accrual at Fair Value 16,591 34%
Non-Accrual Loans at Cost as a Percentage
of Total Loans
Non-Accrual Loans at Fair Value as a
Percentage of Total Loans
Return on Equity:
LTM Net Operating Income Return on Average
Equity at Cost
LTM Realised Earnings Return on Average
Equity at Cost
LTM Earnings Return on Average Equity
Current Half Year Net Operating Income
Return on Average Equity at Cost
Annualised
Current Half Year Realised Earnings Return
on Average Equity at Cost Annualised
Current Half Year Earnings Return on
Average Equity Annualised
NM = Not Meaningful
NA = Not Applicable
-------------------
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 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 2011 the Investment Manager had 5 investment teams with 18 investment professionals and employed 27 support staff. European Capital and its affiliates will consider senior and mezzanine debt investment opportunities from 5 million to 25 million in either euros or sterling and up to 100 million for One Stop Buyouts®. For further information, please refer to 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 $52 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 www.AmericanCapital.com.
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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