Interim results
16 March 2009
General Capital Group Plc (AIM: GENC), the asset and property finance specialist, today announces its interim results for the six month period ended 31 December 2008.
Chairman's Statement
Accounting Period
As previously announced the current accounting period has been extended from 31 December 2008 to 31 March 2009. These interim results, for the half year ended 31 December 2008, are the second 6 monthly report within the 15 month accounting period.
Introduction
In the trading update published on 30 January 2009 the new management team reported, the trading climate in the period to 31 December 2008 remained very difficult. Further deterioration in market conditions and the consequent eroding of asset values continued to provide significant challenges, particularly in terms of recovery of existing loan portfolio balances. The most significant consequence being additional provisions of £17million of which £13million was required in General Capital Venture Finance Ltd ("GCVF") where no new business has been written since Spring 2008.
Trading Results
The results for the 6 months ended 31 December 2008 show revenue for the Company and its subsidiaries ("Group") of £4.2million (£6.6million for comparative 6 month period ending 31 December 2007) and an operating loss of £18.9million (2007: loss £4.8million) before goodwill impairments, fair value adjustments, exceptional bank costs, re-organisation costs and tax. The reduced turnover is principally attributable to reduced activity in GCVF.
Provisions for impairments on investments comprise the write downs on the warrant and equity positions held by GCVF in its customers. These were normally acquired at par or for nil consideration. However under IFRS they are to be measured at fair value based on quoted bid price. The general fall in quoted share prices has led to the IFRS carrying value of the investments being reduced by £2.1million.
The GCVF total provision, which is entirely against loans (including relevant fees and rolled up interest) advanced between 1 January 2004 and 31 December 2007, has been increased to £18million as at the end of December 2008, against a gross debt portfolio of £24million. A further impairment provision of £3million has been made against property portfolio receivables within General Capital Finance Limited ("GCF"). Reduced liquidity in the property market has restricted opportunities for sales or refinancing of properties consequently depressing asset values and resulting in increased pressure on loan covenants of customers.
On a positive note realisations from share sales in Arrow Mobile Communications plc in December and in Helius Energy plc subsequent to the period end have together generated proceeds of approximately £1.6million.
Administrative expenses for the period ended 31 December 2008 were £1.6million (2007: £2.1million). The reduced costs reflect operating efficiencies and cost cutting measures implemented in the summer of 2008. Exceptional bank fees of £0.2million were incurred as a result of ongoing portfolio review work and amendments to senior debt facilities.
During the period, further exceptional and other one-off costs have been incurred. The most significant was the fair value movement in respect of the 10 year cap and enhanced collar hedge instrument which has continued to fluctuate as a result of continuing volatility in the interest rate markets. The charge against income was £1.9million as the valuation of the hedge decreased during the period to become a £2million liability.
The remaining goodwill of £1.5 million arising from the acquisition of the Group's broking division, Norton Folgate has been fully written off at 31 December 2008 prior to the sale of this company today.
As a consequence of these write downs and additional provisions at 31 December 2008, the Group was carrying client receivables and equities with a book value of £28million and bank debt of £38million. In addition General Capital Holdings plc, a group subsidiary has issued preference shares of £2.5million on which dividends have remained unpaid since May 2008, due to lack of distributable reserves in the subsidiary company.
There being no distributable reserves in the holding company, the directors are not able to recommend an interim dividend on the ordinary shares.
Senior Debt Facilities
In June 2008 the Group agreed revised terms and conditions in respect of its debt facilities with its bankers. Since November, and following a breach of the arrears covenant and in light of the continuing deterioration in the estimated values of the receivable assets the Group has been in continuing discussions with its bankers. The discussions have been and remain constructive and have focussed on methods by which the banks can recover their debt, including the possible sale of some or all of the asset portfolios to the bank or other independent third parties. Discussions are continuing and developments will be reported when appropriate.
Going Concern
The interim accounts for the 12 and 6 month periods to 31 December 2008, set out below, have been prepared on a going concern basis. However the breach of bank covenant and the ongoing discussions with the Group's banks referred to above mean that without a successful resolution of these matters, there would be significant uncertainty as to the future of the Group.
The accounts for GCVF incorporated in these consolidated interim accounts have been prepared on a "gone concern" basis, whereas the other trading subsidiaries have been prepared on a going concern basis. If the accounts for the Group were to be prepared and consolidated on a "gone concern" basis, then it is expected that a further write down would be required to reduce the distributable reserves in the consolidated balance sheet by approximately £6million. This potential adjustment is explained further in Note 1 to the accounts.
Norton Folgate
Earlier today the Company announced that it has completed the sale of its finance broker subsidiary, Norton Folgate FG plc ("NF") to a company controlled by its management. Despite attempts to reduce staff and other cost levels to match consistently diminishing turnover levels. NF has continued to report trading and cash losses. The Board determined that the prospects of a short term return to profitability were low and that the Group could no longer afford to finance future losses. Consideration for the transaction comprised the assignment of £125,000 of outstanding receivables in the NF book, the write down of the net inter-company balance owed to the Company of £34,000 and a cash payment of £1,555 for the whole of the NF subsidiary share capital. Net liabilities of NF at 31 December 2008 were £228,000.
Current Trading
To date, with the support of its bankers, the Group has continued to write some new business within its commercial asset and property portfolios. However in order to maintain cash trading solvency the Board intends to reduce Group operating costs aggressively in the next few weeks. This will include reducing staff numbers, the non-executive directors waiving their future remuneration, and the removal of all other non-essential costs. As part of this process the Company will also consider the cancellation of the trading of its shares on AIM. In essence the Company is only continuing to trade due to the support of its bankers and although the Company's discussions have been and remain constructive there can be no certainty that this will always be the case. The Company's present deficit to its banks is of such a scale that it is currently difficult to see any future value for ordinary shareholders of the Company.
For further information:
| General Capital Group Plc |
|
| Steve Hartley, Chief Executive | Tel: +44 (0) 1603 610 610 |
| steve.hartley@generalcapital.co.uk | www.generalcapital.co.uk |
| Collins Stewart Europe Ltd | |
| Hugh Field / Adam Cowen | Tel: +44 (0) 20 7523 8350 |
| www.collins-stewart.com |
Media Enquiries:
| Abchurch Communications | Tel: +44 (0) 20 7398 7700 |
| Heather Salmond / George Parker / Jack Ballantyne | Tel: +44 (0) 20 7398 7719 |