Preliminary Results for the Year Ended 31 December 2007
ACP Mezzanine Limited (“ACP Mezzanine” or the “Company”: ACPM.LN), the closed- ended investment company focused on lending to European small and medium-sized enterprises (“SMEs”), today announces its preliminary and unaudited results for the year ended 31 December 2007 (the “Period”).
Highlights
- Revenue of €16.1 million; net income of €10.2 million; and diluted earnings per
share of €0.10
- Final dividend €0.05 per share declared (interim dividend of €0.045 paid in
August 2007)
- Total dividend of €0.095 per share – 5.6% ahead of targeted of €0.09 per share
- Growth in net asset value to €1.02 per share (31 Dec 2006: €0.98, 30 June 2007:
€1.01)
- Invested assets under management of €122.3 million, up 13.7% from €107.5
million at 31 Dec 2006
- No credit impairments or losses on assets – negligible exposure to UK residential
mortgages and no exposure to the subprime residential mortgage sector in the US
- Strong prospects for continued profitable growth – range of attractive investment
opportunities with potential investments of more than €500 million of primarily
SME loan assets clearly identified
- Intention to raise gross proceeds of up to €200 million via an issue of new equity
to capture these latest opportunities with a transfer of listing to Euronext
Amsterdam, subject to shareholder approval
- Five-year debt funding in place – further growth funding lines currently under
discussion
Derek Vago, Chief Executive Officer of ACP Capital Limited (“ACP Capital”: APL.LN), the parent of ACP Mezzanine’s investment manager, commented:
“ACP Mezzanine has performed strongly during its first full year of trading, surpassing both the earnings and dividend targets stated at the time of listing. The solid foundations we have built and the strong pipeline of attractive investment opportunities mean that the Company is well positioned for further profitable growth.
The exciting new business leads we have are primarily being generated through ACP Capital’s key SME relationships such as GCI Management AG in Germany and Leasecom Group SAS in France. We anticipate further SME origination joint ventures and other initiatives in our key markets which would increase and diversify origination for ACP Mezzanine. In this respect we intend to announce a new appointment to the board of ACP Mezzanine who is a leading specialist in the French SME private equity and mezzanine sectors.
ACP Capital is also in discussion with a series of banks on the provision of new debt funding to assist ACP Mezzanine in its growth and capture the attractive prospects highlighted in this release. We see excellent opportunities in the SME debt markets which we expect will significantly benefit ACP Mezzanine over the next 24 months.”
Director’s Review
ACP Mezzanine has performed strongly in its first year of trading, generating revenue of
€16.1 million and net income of €10.2 million. Diluted earnings per share for the Period were
€0.10. The Directors have recommended a total dividend of €0.095 per share, which exceeds
the stated target level of €0.09 per share by 5.6%. Taking into account payment of an interim
dividend of €0.045 per share on 23 August 2007, the remaining €0.05 per share will be paid
on 20 March 2008, subject to shareholder approval at the Annual General Meeting on 18
March 2008.
As at 31 December 2007, the Company had a total asset base of €146 million, made up of €122 million of invested assets and €24 million of cash and receivables, and a net asset value per share of €1.02. During the Period, ACP Mezzanine experienced no credit impairments or losses on its assets. The exposure to assets in the US has remained limited (approximately 1.5% of net assets), with no exposure to the US subprime market. The exposure to UK residential mortgages has remained limited (approximately 2% of net assets).
Importantly, ACP Mezzanine has reached three critical milestones during the Period:
- Following the successful raising of its second committed leverage facility, ACP
Mezzanine sees no short-term funding risks;
- Transactions such as the potential committed funding line to Leasecom Group SAS
(“Leasecom”) and the pipeline of lending opportunities beginning to be generated from
companies such as GCI Management AG (“GCI Management”: GCI.GR), illustrate the
origination advantages ACP Mezzanine expects to have through its ‘preferred lender’
status in ACP Capital’s strategic origination network; and,
- A trading history with no credit impairments or losses further displays ACP Mezzanine’s diligent and careful investment process.
In light of the successful performance and its robust pipeline of possible investments, ACP
Mezzanine intends to launch a secondary capital raise, targeting up to €200 million of new
equity. Conditional on the completion of this equity capital raise, ACP Mezzanine expects,
subject to shareholder approval, to change its listing from AIM, a market operated by the
London Stock Exchange, to Euronext Amsterdam. The Company will keep shareholders
informed of any progress in this matter.
Strategic Highlights
In May 2007, ACP Mezzanine raised its second committed leverage facility, which was provided by Deutsche Bank. The facility amounted to €150 million and was entered into on improved terms over the Company’s previous leverage facility. This facility benefits from lower financing costs, the option of leveraging unrated assets and extending the maturity from two years to five years. The previous facility raised in 2006 amounted to €125 million and was provided by The Royal Bank of Scotland. ACP Mezzanine believes it has good relationships with its lending banks and with its current facility in place foresees no short- term financing risk or funding constraints. As at 31 December 2007, a total of €53 million of assets were leveraged within the Deutsche Bank leverage facility, resulting in a conservative overall portfolio leverage on invested assets of approximately 29%.
During the Period, ACP Mezzanine started to benefit from an increased flow of investment
opportunities generated by ACP Capital’s strategic origination network. In July 2007, ACP
Mezzanine provided a debt bridge of €75 million for IFR Capital plc’s (“IFR”: IFR.LN)
acquisition of Homann Chilled Food GmbH. This unrated mezzanine debt bridge was
refinanced in December 2007 and syndicated into senior and second-lien term facilities on
attractive terms, which have received preliminary ratings (expected to be finalised during the
first quarter of 2008). ACP Mezzanine holds €17.5 million of this second lien and €22
million of this senior debt that it over time expects to sell down to a final hold of €15 million
of second lien debt. In addition, the Company provided IFR with a €24.1 million preferred
equity bridge, which is expected to be repaid in 2008. Overall, the refinancing allowed more
than €22 million of cash to be released to ACP Mezzanine for further investment. The
transaction demonstrated the Company’s abilities to act as a direct lender, receiving
underwriting fees in addition to interest income.
ACP Mezzanine also agreed to provide an asset-based facility to Leasecom, ACP Capital’s strategic origination partner in France and the holding company for France’s leading independent IT lease broker. The €100 million facility, of which ACP Mezzanine will fund between €10 million and €20 million post syndication to senior lenders, will be supported by an equity first loss position held by Leasecom and secured on lease assets to be originated by the leasing company. It is expected that the facility will be increased over time as the origination capacity of Leasecom increases, and with the addition of new lending products which ACP Capital intends to develop with Leasecom. This facility is expected to be the first of a series of funding lines provided to finance ACP Capital’s localised origination platforms.
As a result of its preferred lender status, ACP Mezzanine is currently carrying out due diligence on a number of smaller lending opportunities to SME companies originated from GCI Management, a leading SME-focused German private equity house in which ACP Capital is a strategic investor. The Company expects that similar opportunities will arise shortly through ACP Capital’s network in France.
The transactions above clearly represent the transition to the next stage of ACP Mezzanine’s growth, in which the Company anticipates benefiting from origination arising from ACP Capital’s European origination companies, leading to growth and diversification of its portfolio.
Portfolio Highlights
As at 31 December 2007, the Company’s portfolio consisted of 18 assets from 12 borrowers, with an average exposure of €6.8 million; the largest asset totalling €24.1 million and the smallest asset totalling €1.1 million. The largest single borrower is IFR with a total of €63.6 million of principal.
The portfolio structure as at 31 December 2007 is as follows (as percentages of invested
assets):
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1 Structured portfolio of leveraged loan assets (“Collateralised Loan Obligations”)
2 Structured portfolio of debt assets (“Collateralised Debt Obligations”)
3 Structured portfolio of residential mortgage assets (“Residential Mortgage Backed Securitisation”)
Dividend Declaration
The Directors of ACP Mezzanine are satisfied that the Company continues to outperform its stated targets and recommend a dividend for the second half of 2007 of €0.05 per share. Together with the interim dividend of €0.045 per share, the total dividend for 2007 would amount to €0.095 per share, representing a dividend yield of 10.6% to the share price as at 14 February 2008 of €0.895 per share. The dividend is subject to shareholder approval at the Annual General Meeting to be held on 18 March 2008, and, should it be approved at that meeting, will be paid on 20 March 2008 to all shareholders on the register at close of business on 29 February 2008.
Liquidity Analysis
As at 31 December 2007, the Company had €15 million of cash. In addition, at least €22
million of unleveraged assets are in the process of being added to the leverage facility, which,
when finalised, will release more than €14 million for further investments. The Company had
€9.6 million of short-term receivables and €8.3 million of short-term liabilities at the end of
the Period. ACP Mezzanine’s ongoing costs are fully covered by the income generated by the
Company’s assets.
Net Asset Value
The Company’s net asset value at 31 December 2007 was equal to €1.02 per share. This compares with net asset value of €0.98 per share as at 31 December 2006 and €1.01 per share as at 30 June 2007.
Outlook – overview of origination strategy
As stated at the time of the Company’s admission to trading to AIM, ACP Mezzanine aims to build up over time a diversified portfolio of assets, by such characteristics as type, rating and geography. ACP Mezzanine would like to take the opportunity to further clarify its target breakdown on the basis of debt product / origination source:
SME Lending – Direct Origination
This group of assets are those originated directly by ACP Capital and its origination
platforms and joint ventures such as GCI Management. These will predominantly include
secured non-investment grade leveraged loans, both senior and mezzanine, although other
assets such as preferred equity will be considered where there are compelling investment
opportunities. As ACP Mezzanine would normally be the sole lender, these assets would not
typically be rated by external agencies. Revenue from these assets would primarily be upfront
underwriting fees and ongoing interest income.
Committed Funding Lines
Committed Funding Lines are debt lines provided by ACP Mezzanine to companies such as Leasecom in order to finance the latter’s ongoing balance sheet lending, such as in the transaction with Leasecom. It is envisaged that ACP Mezzanine would provide the whole funding line where the borrower provides a first loss equity position and the senior debt portions are syndicated out. These debt lines will typically be rated on a structured portfolio basis. Revenue from these assets would primarily be upfront underwriting fees, interest income on the drawn advances and commitment fees on the undrawn portions of the facility.
Underwriting
Where ACP Mezzanine has underwritten a comparatively larger debt position with the
intention of syndicating a portion to other lenders in order to achieve its desired final holding,
the portion to be syndicated is included within this category. ACP Mezzanine may decide to
have an asset in this category rated by an external agency in order to facilitate syndication or
when recommended by its investment committee. Revenue from these assets would primarily
include net underwriting fees (total underwriting fees less any amounts paid to syndicate
investors) and interest income incurred for the underwriting period.
Market Purchases
Assets that fall under ‘Market Purchase’ comprise of leveraged loans, bonds and other sub- investment grade facilities purchased as part of primary syndication or by way of secondary market purchase. Such assets often possess a public or private rating from Moody’s, S&P and / or Fitch. These assets are acquired on an opportunistic basis in order to adjust the portfolio or where relative value is deemed attractive. Revenue from the assets would primarily be interest income.
Enquiries:
| Rob Bailhache & Nick Henderson, Financial Dynamics (Media Relations) |
+44 (0) 207 269 7200 |
| Sacha Macintosh, ACP Capital UK LLP | +44 (0) 844 800 4530 |
| Chris Wells, Stewart Wallace, Collins Stewart | +44 (0) 207 523 8350 |
For further information on ACP Mezzanine, please visit www.acpcapital.com.
Analyst Presentation
There will be an analyst presentation to discuss the results at 9:30 am on 18 February 2008 at Financial Dynamics, Holborn Gate, 26 Southampton Buildings, WC2A 1PB.
Those analysts wishing to attend or to register to dial-in on the conference call are asked to contact Rob Bailhache / Nick Henderson at Financial Dynamics on +44 20 7269 7200 / +44 20 7269 7114 or at robert.bailhache@fd.com / nick.henderson@fd.com.
About ACP Mezzanine
ACP Mezzanine Limited (LSE AIM: ACPM) is a Jersey-incorporated, closed ended
investment company listed on AIM. It is a provider of sub-investment grade finance to
European small and mid-sized enterprises – with a primary focus on the UK, France,
Germany and Italy – originating, structuring and underwriting the majority of its investments
through ACP Capital Limited (“ACP Capital”: APL.LN) and ACP Capital’s European
network. ACP Mezzanine aims to optimise risk-adjusted returns by actively managing its
portfolio and to distribute at least 85% of profits as dividends. ACP Capital Limited owns
47% of ACP Mezzanine and, through a subsidiary, acts as its investment manager.
Fundamental changes in the market, such as Basel II, are expected to accelerate demand for
alternatives to traditional bank financing in these segments. As a non-regulated lender, ACP
Mezzanine is not affected by Basel II. In line with its strategy, ACP Mezzanine has a small
exposure to the retail mortgage backed securities sector as well as an anticipated negligible
exposure to the US (expected to be limited to certain US infrastructure assets).
By taking control of a majority of the underwriting process through ACP Capital’s investment manager, ACP Mezzanine benefits from a diversified flow of assets whilst ensuring a risk-balanced growth.
By the end of 2009, the Company intends to have €550 million of assets under management and looks set to achieve its target balance sheet mix as stated in its admission document.
Consolidated Income Statement
As at 31 December 2007
| Unaudited Year Ending 2007 |
Audited 31 May 2006 to 31 December 2006 |
|
| Revenue | £ | £ |
| Investment income | 13,489,908 | 3,035,995 |
| Loss on disposal of loans and receivables | (6,250) | - |
| Fee income | 2,596,892 | 2,885 |
| 16,080,550 | 3,038,880 | |
| Interest payable and other related financing costs | (2,798,202) | (67,401) |
| Exchange movements | (809,032) | (42,398) |
| Equity-settled share-based payments | (64,569) | (41,069) |
| Investment manager's fees | (1,942,767) | (753,460) |
| Other operating expenses | (252,109) | (96,838) |
| Profit before tax | 10,213,871 | 2,037,714 |
| Income Taxes | - | - |
| Profit for the period attributable to the equity shareholders | 10,213,871 | 2,037,714 |
| Earnings per share: | ||
| Basic (Euro cents) | 10.07 | 2.01 |
| Diluted (Euro cents) | 9.98 | 1.99 |
All activities relate to continuing operations
There are no recognised gains and losses other than the profit for the period stated above. Accordingly, a separate consolidated statement of recognised income and expense is not presented in these financial statements.
Consolidated Balance Sheet
As at 31 December 2007
| Unaudited Year Ending 2007 |
Audited 31 December 2006 |
|
| £ | £ | |
| Assets | ||
| Non-current assets | ||
| Investments measured at fair value through profit or loss | 63,018,969 | - |
| Loans and receivables | 58,728,562 | 107,522,875 |
| Total non-current assets | 121,747,531 | 107,522,875 |
| Current assets | ||
| Investments measured at fair value through profit or loss | 538,460 | |
| Trade and other receivables | 9,025,040 | 1,507,980 |
| Cash and cash equivalents | 15,157,208 | 15,798,227 |
| Total current assets | 24,720,708 | 17,306,207 |
| Total assets | 146,468,239 | 124,829,082 |
| Equity & Reserves | ||
| Issued capital | - | - |
| Share premium | 95,783,580 | 95,783,580 |
| Share-based payment reserve | 1,767,142 | 1,781,071 |
| Retained earnings | 5,738,303 | 2,037,714 |
| Equity Shareholders' funds | 103,289,025 | 99,602,365 |
| Non-current liabilities | ||
| Loans and borrowings | 34,854,559 | 19,265,934 |
| Total non-current liabilities | 34,854,559 | 19,265,934 |
| Current liabilities | ||
| Trade and other payables | 8,324,655 | 5,960,783 |
| Total current liabilities | 8,324,655 | 5,960,783 |
| Total liabilities | 43,179,214 | 25,226,717 |
| Total equity and liabilities | 146,468,239 | 124,829,082 |