Investcorp Capital profit slides on financing costs

Investcorp Capital’s net profit fell 46% to $44 million for the financial year ended June 30, as higher borrowing costs, softer asset valuations and the timing of private-market exits weighed on earnings.

The Abu Dhabi-listed alternative investment company had reported net profit of $81 million in the previous financial year. Gross operating income declined 24% to $94 million from $124 million, reflecting a more difficult environment for realisations across global private markets.

Investcorp Capital said performance was also affected by geopolitical volatility and higher financing expenses after it drew on its revolving credit facility to maintain surplus liquidity. The precautionary borrowing strengthened the company’s cash position but increased interest costs during the year.

The earnings decline came despite strong cash generation from the portfolio. Investcorp Capital received $1.3 billion through exits and asset syndication, exceeding the $1.1 billion deployed across its investment activities during the financial year.

The company’s total assets stood at $1.87 billion at the end of June, compared with $1.91 billion a year earlier. Yield-generating investments increased to 58% of total assets from 53%, while the cash yield from co-investments remained stable at 7%.

The shift towards a larger proportion of income-producing assets provides Investcorp Capital with more recurring returns at a time when private equity exits remain dependent on market conditions, valuation expectations and the availability of acquisition financing.

Its investments span corporate assets, real estate, infrastructure, global credit, structured products and stakes in alternative-asset managers. The portfolio extends across North America, Europe, the Middle East and Asia, giving the company exposure to several economic cycles and currencies.

Investcorp Capital operates through two principal business lines. Its capital financing services activity provides underwriting and related financing for investments originated by Investcorp, while its capital deployment business invests directly alongside funds and other investors.

Earnings had remained comparatively resilient during the first half of the financial year. Net profit was unchanged at $27 million, while operating income rose 16% to $52 million. Profit for the first nine months reached $35 million, down from $41 million a year earlier, as interest expenses began to offset stronger co-investment income.

The full-year figures indicate that the final quarter generated about $9 million in net profit, compared with approximately $40 million during the corresponding period a year earlier. Private-market income can vary sharply between reporting periods because gains are often recognised when assets are sold, refinanced or revalued.

The board has recommended a final dividend of AED0.092 per share, equivalent to $0.025, subject to shareholder approval at the annual general meeting scheduled for September 21. Combined with the interim dividend paid in March, the distribution meets the company’s commitment to deliver an annual dividend equivalent to 8% of opening net asset value for the 2026 financial year.

That framework was introduced around Investcorp Capital’s listing on the Abu Dhabi Securities Exchange in November 2023 and was designed to offer shareholders a predictable initial return while the company established its public-market record.

A new dividend policy will take effect for the next reporting period. The company plans to distribute between 65% and 75% of annual net profit through semi-annual payments, replacing the fixed return linked to opening net asset value.

The change will tie future dividends more closely to earnings and allow Investcorp Capital to retain a larger share of profits for reinvestment. It may also make distributions more variable when the timing of asset sales or valuation movements causes annual profit to fluctuate.

Investcorp Capital will also change its accounting reference date from June 30 to December 31. The current accounting period, which began on July 1, will therefore run for six months and end on December 31, after which the company will report on a calendar-year basis.