Interim results

General Capital Group Plc (AIM: GENC), the asset and property finance specialist, today announces its interim results for the six month period ended 30 June 2008.

Highlights Chairman's Statement Consolidated income statement Consolidated statement Consolidated balance sheet Consolidated cash flow statement Notes to the interim financial statement

Download The full results are available to download in PDF format.

Highlights

• Group revenue for the period £5.6m (2007: £6.8m).
• Operating profit, before goodwill impairments, fair value adjustments, exceptional bank and reorganisation costs, £0.5m (2007: £2.9m).
• Loss before tax £1.8m (2007: Profit £2.8m).
• Earnings / (loss) per share (7.51p) (2007: 11.00p).
• Senior debt facilities renegotiated and recommitted to December 2009.
• New business for Asset Finance and Property Finance Divisions £3.9m and £2.0m respectively (2007: £4.0m and £4.3m).
• Venture Finance new business ceased for the foreseeable future.
• Group reorganisation completed and cost base significantly reduced.

David Hickey, Non-executive Chairman, said: "The six month period for the Group has been a challenging one, with a change in management and difficult market conditions affecting the Venture Finance division in particular. I am pleased that under the new management we have been able to recommit the senior debt facilities to December 2009 and I am also pleased to confirm that both the Asset Finance and Property divisions are trading in line with expectations."

 

Chairman's Statement

Introduction

The period to 30 June 2008 was one of challenge and change for General Capital. Trading conditions tightened for all areas of the business, although the Asset and Property Finance divisions traded well against a tougher background. The greatest adverse trading effects were seen in the Venture Finance division. In May, following a review of portfolio balances, the Board decided to recognise a material provision against the carrying values at 31 December 2007. Simultaneously, and as was announced in June, the Board decided to cease all new Venture Finance business.

Trading Results

The results for the first half show Group revenues of £5.6m, (2007: £6.8m) and an operating profit of £0.5m, (2007: £2.9m) before goodwill impairments, fair value adjustments, exceptional bank costs, re-organisation costs and tax. The shortfall in revenue compared to 2007 is attributable to a decline in fee income and gains made on investments in the Venture Finance ("VF") portfolio from £3.2m to £1.2m. Interest income for the six months was £4.4m, (2007: £3.6m) an increase of 22% and reflecting the increase in the size of the portfolio from the same period last year. Administrative expenses were £2.0m, an increase of £0.4m over 2007. Norton Folgate was only included in the consolidated results for three months in last year's figures. Since the period end the run rate of administrative costs has been significantly reduced.

As a result of the review of the Group's loan portfolio and amendments to its senior debt facilities, the Group has incurred exceptional costs of £0.6m. Redundancy and re-organisation costs of £0.3m have also been incurred.

Following the cessation of new Venture Finance business an impairment charge of £0.7m has been made against the carrying value of goodwill in respect of this subsidiary and a further impairment charge of £1.1m has been made against goodwill attributable to the Group's broking activities, recognising the difficult market conditions.

The continued volatility in interest rate markets has resulted in a positive reversal of £0.5m of the £0.8m fair value charge applied in the 2007 results. The fair value of these hedging instruments is expected to continue to fluctuate for the foreseeable future but the Board considers the Group to be suitably hedged against interest rate movements.

The Group loss before taxation for the period, after accounting for the exceptional and one-off costs was £1.8m (2007: Profit £2.8m).

As a consequence of the impairment charges made against the Venture Finance portfolio and the associated losses, payment of dividends to holders of subsidiary company preference share capital has been suspended until distributable reserves are available within the subsidiary company.

The directors do not intend to recommend an interim dividend on ordinary shares.

Loan Portfolio

The Group's loan portfolio remained relatively static for the period at £46.1m, compared to £47.4m at 31 December 2007. The Group continues to focus on collecting out the Venture Finance portfolio, minimising downsides and maximising upsides where possible, recycling cash into the Asset and Property Finance divisions and reducing the senior debt facilities.

Asset and Property Finance

During the period, the Asset Finance division continued to make new advances against assets on a measured basis. Business volumes from introducer brokers fell but the quality remained acceptable as better covenanted clients and assets were both forced by the liquidity crisis towards secondary lenders. While margins did not increase significantly, the net effect is that the quality of the portfolio remains within target parameters.

The Property Finance portfolio continued to revolve profitably at its existing level of £10m. Whilst the volume of transactions has been scaled back significantly, in line with the uncertainty in the marketplace, opportunistic loans are still being made on a modest and short term basis, where the borrower has a good record known to the Group.

Venture Finance

No new Venture Finance business has been written since April. The focus instead has been to review and continuously assess how the larger exposures in the Venture Finance portfolio will be able to redeem loans or realise investments either through cash flows or re-financings. Unsurprisingly, a number of the loans have gone into arrears and have been unable to service interest payments or meet capital repayment targets. The provisions made in respect of the carrying values at 31 December 2007 and as previously announced in June, amounted to £6.0m.

In addition to loan receivables the Venture Finance business continued to hold certain equity positions in a number of client and former client companies. At 1 January 2008, these were being carried at an aggregate valuation of £6.4m. Prices of quoted shares have generally fallen in the six month period and under IFRS fair value reporting conventions, these were being carried at a value of £3.2m at 30 June 2008. One material cash gain of £0.2m was realised in April.

Board Changes

As previously announced, the Group appointed Steven Hartley as Chief Executive in April, and Mark Edworthy stepped down from the Board at the Annual General Meeting in August. During the past five months Steven has guided the Group through the changes required to restructure the Group's operating processes and he has reduced the cost base in line with short term trading needs. He also led the re-negotiation of the Group's bank facilities and covenants, following the decision to write down the carrying value of the Venture Finance division, which culminated in the announcement made in July, confirming the new arrangements.

Nick Marsham, the Finance Director, has decided to resign and will leave the Group at the end of September. Helen Votier Turner was appointed as Group Financial Controller and Company Secretary in August.

Bank facilities

On 30 June 2008 the Group announced that, following impairment charges made within the Venture Finance division in the audited financial statements for the year ended 31 December 2007, it had successfully renegotiated terms and covenants with its senior debt providers. The revised terms require the Group to reduce utilisation of the facilities by at least £5m by 31 January 2009 and the Board remains confident that this will be achieved.

Current Trading and Prospects

Trading since the period end has been broadly in line with the Board's expectations and the Group will continue to focus on writing profitable business within the Asset and Property Finance divisions. The Venture Finance division continues to generate portfolio realisations, in part or whole, to minimise further impairment risk to the Group.

In essence therefore the Board will continue to concentrate on cash generation. In parallel, while the market for additional debt funding lines is currently difficult, the Board nonetheless is watchful for opportunities which might broaden the business base of the Group.

David Hickey
Chairman

26 September 2008

 

Consolidated income statement
for the six month period ended 30 June 2008

                                                                                                                                                                                                                                                                                                                                                                                                                                                   

			Six months ended				Year ended
			30 Jun 2008		30 Jun 2007		31 Dec 2007
			Unaudited		Unaudited		Audited
		Notes	£'000		£'000		£'000
Revenue
	Interest income		4,363		3,630		7,787
	Fees and other income		1,002		1,767		4,185
	Gains on investments		216		1,384		1,358
			5,581		6,781		13,330
Interest payable and related funding costs			(1,595)		(1,175)		(2,669)
Provisions for impairment - receivables			(804)		(803)		(8,293)
Provisions for impairment - investments			(161)		150		336
Other direct costs			(369)		(339)		(726)
Administrative expenses			(2,039)		(1,597)		(3,723)
Depreciation and amortisation			(74)		(77)		(157)
			539		2,940		(1,902)
Goodwill impairment			(1,818)		-		-
Fair value adjustment of hedging instruments			537		-		(753)
Exceptional bank and associated costs			(608)		-		-
Reorganisation costs			(280)		-		-
Other interest costs - dividends on preference shares			(134)		(140)		(274)
Profit / (loss) before taxation			(1,764)		2,800		(2,929)
Taxation		2	(123)		(490)		444
	Profit / (loss) for the period attributable to equity shareholders of the parent		(1,887)		2,310		(2,485)
Basic and diluted earnings per share		4	(7.51)		11.00		(10.80)

All amounts relate to continuing operations.

The above consolidated income statement should be read in conjunction with the accompanying notes

 

Consolidated statement of recognised income and expense
for the six month period ended 30 June 2008

                                                                                                                                                               

		Six months ended				Year ended
		30 Jun 2008		30 Jun 2007		31 Dec 2007
		Unaudited		Unaudited		Audited
		£'000		£'000		£'000
Available-for-sale investments:
	Valuation gains / (losses) taken to equity	(2,826)		(122)		1,526
	Transferred to profit and loss on disposal	(82)		(1,152)		(1,152)
Tax on items taken directly to or transferred from equity		872		382		(112)
Net income / (expense) recognised directly in equity		(2,036)		(892)		262
Profit / (loss) for the period		(1,887)		2,310		(2,485)
Total recognised income and expense for the period attributable to equity shareholders		(3,923)		1,418		(2,223)

The above consolidated statement of recognised income and expense should be read in conjunction with the accompanying notes

 

Consolidated balance sheet
as at 30 June 2008

				As at		As at		As at
				30 Jun 2008		30 Jun 2007		31 Dec 2007
				Unaudited		Unaudited		Audited
			Notes	£’000		£’000		£’000
Assets
	Non-current assets
		Property, plant and equipment		198		309		258
		Goodwill		3,563		5,541		5,381
		Other intangible assets		102		148		123
		Deferred tax		414		194		432
		Available-for-sale investments		3,178		3,555		6,437
		Trade receivables		20,156		23,107		21,209
				27,611		32,854		33,840
	Current assets
		Trade and other receivables		27,187		20,821		28,216
		Current tax receivable		864		-		634
		Derivative financial instruments		118		-		-
		Cash and cash equivalents		422		2,209		354
				28,591		23,030		29,204
Total assets				56,202		55,884		63,044
Liabilities
	Current liabilities
		Trade and other payables		1,877		2,229		2,062
		Borrowings		42,208		33,398		43,748
		Derivative financial instruments		-		-		376
		Current tax payable		493		913		454
				44,578		36,540		46,640
	Non-current liabilities
		Trade and other payables		106		135		171
		Borrowings		399		438		447
		Derivative financial instruments		239		-		282
		Deferred tax		34		145		735
				778		718		1,635
Total liabilities				45,356		37,258		48,275
Equity
		Called up share capital	5	22,620		22,620		22,620
		Share premium account		3,011		3,227		3,011
		Capital reserve		80		962		2,116
		Profit and loss account		(2,872)		3,810		(985)
		Reverse acquisition reserve		(11,993)		(11,993)		(11,993)
Total equity			6	10,846		18,626		14,769
Total equity and liabilities				56,202		55,884		63,044

The above consolidated balance sheet should be read in conjunction with the accompanying notes

 

Consolidated cash flow statement
for the six month period ended 30 June 2008

			Six months ended				Year ended
			30 Jun 2008		30 Jun 2007		31 Dec 2007
			Unaudited		Unaudited		Audited
			£’000		£’000		£’000
Cash flow from operating activities
	Profit / (loss) before taxation		(1,764)		2,800		(2,929)
	Interest payable		1,498		1,098		2,506
	Depreciation of property, plant and equipment		55		52		107
	Amortisation of intangible assets		25		25		50
	Goodwill impairment		1,818		-		-
	(Profit) / loss on disposal of property, plant and equipment		(6)		-		-
	Fair value adjustment of hedging instruments		(537)		-		753
	Gains on investments		(216)		(1,384)		(1,358)
	Provision for loss on investments		161		42		(336)
			1,034		2,633		(1,207)
	Changes in working capital
		(Increase) / decrease in trade and other receivables	1,998		(9,028)		(14,524)
		Increase / (decrease) in trade and other payables	(250)		(157)		(440)
	Net cash generated / (used) in operations		2,782		(6,552)		(16,171)
	Taxation paid		(42)		13		(288)
	Interest payable		(1,498)		(1,098)		(2,506)
	Net cash inflow / (outflow) from operating activities		1,242		(7,637)		(18,965)
Cash flow from investing activities
	Acquisition of subsidiary / reverse acquisition		-		(1,398)		(1,365)
	Purchase of property, plant and equipment		(54)		(29)		(57)
	Proceeds from sale of property, plant and equipment		65		-		23
	Purchase of intangible assets		(4)		-		-
	Purchase of  available-for-sale investments		(59)		(164)		(1,247)
	Proceeds from sale of investments		466		2,385		2,586
	Net cash generated / (used) in investing activities		414		794		(60)
Cash flow from financing activities
	Proceeds from issue of share capital		-		10,000		10,000
	Direct costs associated with the issue of new shares		-		(576)		(577)
	Repayment of preference shares		-		(300)		(300)
	Repayment of loan notes		-		(1,200)		(1,200)
	Payment of hire purchase liabilities		(68)		(47)		(82)
	Payment / proceeds from borrowings		(1,520)		1,074		11,318
	Net cash generated / (used) in financing activities		(1,588)		8,951		19,159
Net increase / (decrease) in cash and cash equivalents			68		2,108		134
Cash and cash equivalents at beginning of the period			354		101		220
Cash and cash equivalents at end of the period			422		2,209		354

The above consolidated cash flow statement should be read in conjunction with the accompanying notes

 

Notes to the interim financial statement

The notes are available in the PDF download.