RNS Number : 5999H
Utilico Limited
24 February 2010
 



Date:                24 February 2010

 

Contact:           Charles Jillings                                              

                        Utilico Limited                                                

                        01372 271 486                                               

 

 

 

Utilico Limited

Unaudited Statement of Results

for the six months to 31 December 2009

 

 

 

 

 

 

 

 

 

Financial Highlights

 

     

·      Net asset value per ordinary share rose 28.7% to 189.05p

·      Portfolio gains were £46.7m over the six months

·      Revenue returns of 6.45p per share

 

 



CHAIRMAN'S STATEMENT

 

The six months to 31 December 2009 saw the world's economies continue to recover. Led by China, most economies commenced recovery from recession. The equity markets rose during the six months under review and ended 2009 on a positive note, reflecting increasing confidence in this economic recovery.

 

Two clear trends have been seen during 2009.  Firstly, the emerging markets have outperformed developed markets.  For instance, while the FTSE All-Share and the S&P 500 Index (GBP adjusted) recorded creditable gains of 25.0% and 11.4% respectively, the MSCI Index of emerging markets (GBP adjusted) rose by 57.5%.  Secondly, the utility and infrastructure sectors have substantially under-performed when compared to the wider markets.  Both the FTSE Utilities Index and the Dow Jones World Utilities Index actually recorded modest declines during 2009 of 0.7% and 4.8% respectively.

 

Against this backdrop, Utilico has performed well during the calendar year 2009, with an increase in net asset value ("NAV") of 59.0%. Even if the effects of gearing are stripped out, this represents an outperformance of equity markets.  In the six months Utilico's NAV per ordinary share rose 28.7% to 189.05p.

 

Utilico's portfolio investment activity has been relatively modest with investments of £22.5m and disposals of £25.9m. As expected most investments continue to make operational progress and this translated to their share prices which recovered strongly in the six months. Portfolio gains were £46.7m over the six months.

 

This is especially the case for Resolute Mining Ltd ("Resolute"). Resolute has completed the building of its third gold mine in Mali and successfully brought it into production. The 12% convertible loan notes have responded positively and risen from AUD0.67 to AUD0.92. This resulted in gains of £21.9m in the six months to 31 December 2009. Resolute at £46.3m is now Utilico's largest investment on a look through basis.

 

Revenue returns have improved significantly to 6.45p per share. This is somewhat flattered as Infratil Limited's ("Infratil") final dividend fell within the current six month period (last year it was paid before 30 June 2008) and Utilico Emerging Markets Limited's ("UEM") interim dividend was paid on 31 December 2009 (prior interim was paid in January 2009). As previously announced, despite having positive revenue earnings in the year, plus revenue reserves brought forward, under Bermuda law, Utilico is unable to pay a dividend to shareholders as a result of having negative capital reserves. As soon as investment returns create a positive balance of capital reserves, Utilico intends to recommence dividend payments.

 

Disappointingly the discount on Utilico's ordinary shares remains stubbornly high, ending the year at 24.8%.

 

The current year may well see a continuation of outperformance of emerging markets as a result of stagnation in the debt laden economies of the developed markets and better economic fundamentals of the emerging markets, although this may be constrained by valuations which are looking stretched in some cases, and stock market outperformance is therefore likely to be less pronounced than 2009.  However, we would expect to see an outperformance by the utility and infrastructure sectors due to favourable valuations against the wider markets, and their defensive characteristics, which should become more apparent in what could prove to be a difficult year for a number of economies.

 

The key challenge for the equity markets will be the end to quantitative easing and the financing of the sovereign debt requirements. The recovery should enable both these events to pass without significant disruptions. However we remain in unprecedented territory and there must still be downside risks. We are confident that utility and infrastructure sectors will remain at the forefront of the world development and should continue to be an attractive investment proposition for the long term investor.

 

 

 

J. Michael Collier
February 2010

 

 

 

INVESTMENT manager's REPORT

 

Utilico has performed well with most investments recovering in line with the market. Utilico's NAV per share rose by 28.7% from 146.87p to 189.05p. Since inception in August 2003, Utilico's NAV per share is up 90.2%. This equates to an average annual compound return of 11.3%.

 

Portfolio

The top ten investments on a look through basis have seen changes as a result of performance by the underlying portfolio. Resolute is now our largest investment at £46.3m. Renewable Energy Generation Limited ("REG") has moved up from 8th to 5th as a result of a transformational disposal of its Canadian wind business. Billing Services Group which was 16th in the portfolio has risen to 8th as a result of strong share price performance. TrustPower, Wellington International Airport and Infratil Energy Australia have all risen in value as a result of the stronger New Zealand Dollar.

 

Newtel Holdings Limited ("Newtel") is no longer in the top ten. In the half year under review, Newtel sold its Guernsey business to Jersey Telecom. Arising from this Utilico was repaid £6.4m reducing Utilico's investment from £9.3m to £2.9m.

 

Infratil Airports Europe Limited fell outside the top ten as a result of exiting its investment in Lubeck Airport. Infratil exercised its put option to sell this investment and realised NZD64.0m in cash.

 

Resolute has completed the building of its third gold mine in Mali and has brought it into production. The 12% convertible loan notes that we have invested in have responded positively and increased from AUD0.67 to AUD0.92. This resulted in gains of £21.9m in the six months to 31 December 2009. During the six months we converted our straight loan of AUD10.0m into convertible loan notes. This gives us further upside exposure owing to the conversion rights. Interest in the period has been paid in ordinary shares. We have on both occasions exited the ordinary shares at a premium thus increasing the yield. We also sold some of our convertible loan notes in the six months at an average of AUD1.10 per convertible loan note.

 

The share price performance of Infratil (which holds the investment in Trustpower, Wellington Airport and Infratil Energy Australia) has been disappointing. While the value of the investment has increased this has been driven by a strengthening New Zealand Dollar. The share price has fallen 8.0% over the six months. Infratil are seeking to address the weak performance.

 

During the six months we invested £4.1m in the partly paid warrant. The balance of £9.3m (at current exchange rates) is payable in May 2010.

 

Infratil's assets, on a look through basis, within Utilico's top 10 investments comprise TrustPower, Wellington Airport, and Infratil Energy Australia. TrustPower has continued to trade well, reporting an increase in interim net profit to September 2009 of 6.0%. It continues to benefit from its recent investments in renewable energy, particularly wind farms. Wellington Airport has seen a modest decline in passenger numbers during the year in common with other airports, although it managed to grow earnings slightly in the interim six month period to September 2009, as a result of higher passenger spend and yields. Wellington Airport is seeing the benefit of recent investments into passenger facilities, the full benefit of which will be seen when passenger volumes begin to grow again. Infratil Energy Australia reported reduced earnings to September 2009 as a result of one off energy costs. However, on a more positive note, it continued to grow its client base by over 5% during 2009 to reach over 400,000 clients.

 

UEM has benefited from the strong growth in much of the emerging markets. Their NAV per share increased by 21.2% to 145.65p. UEM's portfolio and strategy remained broadly unchanged over the six months.

 

Jersey Electricity has continued to perform well, with an increase in its share price of 2.8%, and reported solid results for the financial year to September 2009, with only a small decrease in normalised profit despite the effect of sharply lower interest rates on the company's substantial cash balances. In recent years, the company has been forced to implement tariff increases in the face of a strengthening Euro, and higher power prices in Continental Europe. However, more recently, Sterling has levelled out against the Euro, and Europe has seen sharp falls in power prices due to lower demand. This has enabled the company to reduce tariffs by 5.1% from January 2010. Jersey Electricity's other businesses on the island continue to perform well.

 

Vix Technology Pty Ltd's ("Vix") largest investment, Vix ERG, had a promising six months to 31 December 2009, with profit after tax of AUD8.5m. Contracts are progressing well and the company awaits payment from its two largest customers.

 

REG is a generator of renewable energy through the ownership and operation of wind farms and used cooking oil generators. REG is now solely focused on developing projects in the UK, having sold its Canadian subsidiary in the latter part of 2009, enabling REG to repay group debt and free up capital for the development of the UK business. In the UK, REG has seven operational sites with total generation capacity of 21MW, plus a further 14MW due to come online during their financial year to June 2011. The potential identified pipeline is 350MW. In addition to wind farms, REG has commenced operation of two electricity generation units, which use waste cooking oil as a feedstock, with a combined capacity of 1.2MW. REG's share price increased 76.7% during the period to December 2009.

 

Keytech's share price rose by 4.7% over the period. The company's results for the six months to September were encouraging after a weak performance last year. Revenues were up by 1.4% and costs were trimmed, which combined with better returns from investments in companies outside of Bermuda, resulted in a growth in net profit of 32.7%. However, both revenues and profits remain below levels reported in 2007. The company completed its undersea cable to the US and upgrades of its domestic fixed and mobile data networks last year and as a result capital expenditure in the six months to September was less than a quarter of the level reported in 2008.

 

Billing Services is a new entrant in the top ten, after rising 57.9% in the period, although it has been held in the portfolio since 2007. The company operates a clearing house for settlement of telecommunications interconnection and premium rate charges in the USA, primarily to or from small operators. The company reported a 9.0% increase in revenues and a 10.7% increase in EBITDA in the first half of the year to 30 June. The company is highly cash generative and continues to reduce its bank debt.

 

Ascendant Group's performance reflected the resilience and growth characteristics of the Bermuda economy. In its interim report to June 2009, Ascendant reported that electricity sales continued to increase, including a 3.9% increase in volumes supplied to larger clients. Offsetting this were increased pension costs plus start up costs of the company's renewable energy business which meant that first half earnings fell by 17.6%. Ascendant's shares fell in value by 2.3% during the six months to December 2009.

 

During the six months Utilico invested £22.5m and realised £25.9m. This included investing £4.0m in Infratil, realising £4.8m from Resolute, realising £0.4m from Jersey Electricity, investing £2.0m in REG and realising £6.4m from Newtel.

 

As a result of the above, the top ten has seen its concentration increase from 52.6% to 55.1%.

 

The geographic split has been relatively stable, the UK decreased from 22.0% to 18.0% as a result of the realisation from Newtel.

 

On a sector basis there has been little movement over the six months. However, we have added a new investment category, "Infrastructure IT". This represents investments in technology companies which have monopolistic characteristics or supply services to the infrastructure and utilities sector.

 

Such investments include Vix, OneLink Transit Sytems Pty Ltd ("OneLink") and Oceania Capital Partners Limited ("Oceania"). Vix supplies transport ticketing systems and solutions worldwide and OneLink operates the existing transport ticketing system in Melbourne, Australia. Oceania is listed on the Australian Stock Exchange ("ASX"). Its principal investment is a 29.1% effective ownership of iSoft, also listed on the ASX, which supplies software applications to the healthcare sector worldwide including significant contracts with the NHS.

 

"Infrastructure IT" represents 11.0% of our portfolio. As a result of this Road and Rail has decreased to 5.0%. We have also split "Other" into "Other infrastructure" (which includes investment funds) and "Other".

 

"Other" together with "Gold" represents investments regarded as non infrastructure, utility and related companies. Gold has increased as a result of Resolute's strong performance and telecoms have reduced due to the realisation from Newtel.

 

Bank Debt

Bank debt increased from £17.0m to £20.0m. This reflects full utilisation of the bank facility of £20.0m. As at 31 December 2009, this was drawn in New Zealand Dollars. As a result of the gross asset performance the gearing (including the ZDP shares) reduced from 56.1% to 51.9%.

 

Hedging

The rise of the markets in the six months under review has reduced the value of our market hedges.

 

Over the six months our market hedge positions cost £3.6m. We have hedged our entire exposure to the New Zealand Dollar and some of our Australian Dollar as well. As a result of the strengthening of New Zealand Dollar and Australian Dollar we have incurred losses of £6.6m. These losses have been more than offset by gains on the underlying portfolio assets.

 

Revenue Return

Revenue returns are substantially higher in the six months to 31 December 2009 compared to the prior year. This is due to investment income more than doubling to £7.8m from £3.6m, expenses being in line with the prior period, and finance costs more than halving to £0.6m from £1.7m. As a result the earnings per share ("EPS") jumped from 0.63p to 6.45p.

 

The investment income has been flattered by the fact that the Infratil final dividend fell in the period under review as did the UEM interim dividend.

 

Capital Return

Capital returns were strong resulting in some recovery of the losses in the prior year. Total capital income was £36.5m. Finance costs were up marginally as the capital amount of the ZDP shares increases with their compounding coupon. As a result the EPS on the capital account was 35.72p.

 

 



PRINCIPAL RISKS AND UNCERTAINTIES

 

The Group's assets consist mainly of quoted equity securities and its principal risks are therefore market related. The large number of investments held, together with the geographic and sector diversity of the portfolio, enables the Company to spread its risk with regard to liquidity, market volatility, currency movements and revenue streams. 

 

Other key risks faced by the Group relate to investment strategy, external events, management and resources, regulatory issues, operational matters and financial controls.

 

These risks, and the way in which they are managed, are described in more detail under the heading "Principal risks and risk mitigation" within the Report of the Directors contained within the Group's Report and Accounts for the year ended 30 June 2009. The Group's principal risks and uncertainties have not changed materially since the date of that report.

 

 

 

 

STATEMENT OF DIRECTOR'S RESPONSIBILITIES

 

In accordance with Chapter 4 of the Disclosure and Transparency Rules the Directors confirm that to the best of their knowledge:

 

i)       the condensed set of financial statements has been prepared in accordance with applicable International Accounting Standards and gives a true and fair view of the assets, liabilities, financial position and return of the Group;

 

ii)       the half-yearly report includes a fair review of the important events that have occurred during the first six months of the financial year and their impact on the financial statements;

 

iii)      the Directors' Statement of Principal Risks and Uncertainties shown above is a fair review of the principal risks and uncertainties for the remainder of the financial year; and

 

iv)      the half-yearly report includes details on related party transactions.

 

 

The financial statements are published on the Company's website, www.utilico.bm, the maintenance and integrity of which is the responsibility of the Company.

 

 

Signed on behalf of the Board

J.Michael Collier

Chairman

24 February 2010

 

 

 



 

 

 

UNAUDITED CONSOLIDATED PERFORMANCE SUMMARY

 

 

31 December

2009

30 June

2009

 

Change

Ordinary shares

 

 

 

Capital value

 

 

 

Net asset value per ordinary share (undiluted)

189.05p

146.87p

28.7%

Net asset value per ordinary share (diluted)

189.05p

146.87p

28.7%

Share prices and indices

 

 

 

Ordinary share price

142.25p

117.00p

21.6%

Discount based on diluted NAV per ordinary share

24.8%

20.3%

n/a

FTSE All-share Index

2,761

2,172

27.1%

Zero dividend preference (ZDP) shares (1)

 

 

 

2012 ZDP shares

 

 

 

Capital entitlement per ZDP share

146.56p

141.65p

3.5%

ZDP share price

155.75p

150.75p

3.3%

2014 ZDP shares

 

 

 

Capital entitlement per ZDP share

119.51p

115.37p

3.6%

ZDP share price

127.75p

116.50p

9.7%

2016 ZDP shares

 

 

 

Capital entitlement per ZDP share

119.51p

115.37p

3.6%

ZDP share price

109.50p

102.50p

6.8%

Warrants

 

 

 

2012 warrant price

1.50p

3.50p

(57.1%)

Equity holders funds (£m)

 

 

 

Gross assets (2)

339.5

288.9

17.5%

Bank debt

20.5

17.0

20.6%

ZDP debt

155.7

145.1

7.3%

Equity holders' funds

163.3

126.8

28.8%

Financial ratios of the Group (3)

 

 

 

Revenue yield on average Gross Assets

5.1%

2.6%

n/a

Total expense ratio (4) on average Gross Assets

0.8%

0.8%

n/a

Bank loans, ZDP shares gearing on Gross Assets

51.9%

56.1%

n/a

 

Six months to

Six months to

Returns and dividends

31 Dec 09

31 Dec 08(5

Revenue return per ordinary share (undiluted)

6.45p

0.63p

Capital return per ordinary share (undiluted)

35.72p

(107.32p)

Total return per ordinary share (undiluted)

42.17p

(106.69p)

Dividend per ordinary share

-

-

 

(1)  Issued by Utilico Finance Limited, a wholly owned subsidiary of Utilico Limited in June 2007. 2012 ZDP shares previously issued by Utilico

       Investment Trust plc.

(2)  Gross assets less current liabilities excluding loans.

(3)  For comparative purposes the total expense and revenue figures have been annualised.

(4)  Excluding performance fee and income not receivable.

(5)  Restated for consolidation of GERP.



UNAUDITED CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME

 

 

 

 

 

 

 

for the six months to 31 December

 

 

2009

 

2008 - restated

 

Revenue

Capital

Total

Revenue

Capital

Total

 

return

return

return

return

return

return

 

£'000s

£'000s

£'000s

£'000s

£'000s

£'000s

 

 

 

 

 

 

 

Gains/(losses) on investments

-

46,730

46,730

-

(81,356)

(81,356)

(Losses)/gains on derivative instruments

-

(9,944)

(9,944)

-

2,320

2,320

Exchange gains/(losses)

19

(255)

(236)

36

(10,466)

(10,430)

Investment and other income

7,817

-

7,817

3,572

-

3,572

Total income

7,836

36,531

44,367

3,608

(89,502)

(85,894)

Management and administration fees

(768)

-

(768)

(869)

-

(869)

Other expenses

(372)

(5)

(377)

(362)

(20)

(382)

Profit/(loss) before finance costs and taxation

6,696

36,526

43,222

2,377

(89,522)

(87,145)

Finance costs

(637)

(5,296)

(5,933)

(1,657)

(5,010)

(6,667)

(Increase)/decrease in ZDP share liability

-

(374)

(374)

-

308

308

Profit/(loss) before taxation

6,059

30,856

36,915

720

(94,224)

(93,504)

Taxation

(488)

-

(488)

(168)

-

(168)

Profit/(loss) for the period

5,571

30,856

36,427

552

(94,224)

(93,672)

 

 

 

 

 

 

 

Earnings per ordinary share (basic) - pence

6.45

35.72

42.17

0.63

(107.32)

(106.69)

Earnings per ordinary share (diluted) - pence

6.45

35.72

42.17

0.63

n/a

n/a

 

The total column of this statement represents the Group's Condensed Income Statement and the Group's Condensed Statement of Comprehensive Income, prepared in accordance with IFRS.

The supplementary revenue returns and capital returns are prepared under guidance published by the Association of Investment Companies in the UK.

The Group does not have any income or expense that is not included in the profit for the period, and therefore the 'profit for the period' is also the 'total comprehensive income for the period', as defined in International Accounting Standard 1 (revised).

All items in the above statement derive from continuing operations.

All income is attributable to the equity holders of the Company. There are no minority interests.

 

 

 

 



UNAUDITED CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY

 

for the six months to 31 December 2009














Ordinary

Share


Non-

Retained earnings



share

premium

Warrant

distributable

Capital

Revenue



capital

account

reserve

reserve

reserves

reserve

Total


£'000s

£'000s

£'000s

£'000s

£'000s

£'000s

£'000s









Balance at 30 June 2009

8,637

233,951

3,051

32,067

(156,168)

5,320

126,858

Profit for the period

-

-

-

-

30,856

5,571

36,427

Conversion of warrants

-

2

(1)

1

-

-

2

Balance at 31 December 2009

8,637

233,953

3,050

32,068

(125,312)

10,891

163,287

 

 

 

 

for the six months to 31 December 2008














Ordinary

Share


Non-

Retained earnings



share

premium

Warrant

distributable

Capital

Revenue



capital

account

reserve

reserve

reserves

reserve

Total


£'000s

£'000s

£'000s

£'000s

£'000s

£'000s

£'000s









Balance at 30 June 2008

9,200

242,188

3,051

32,067

(84,209)

2,904

205,201

(Loss)/profit for the period (restated)

-

-

-

-

(94,224)

552

(93,672)

Conversion of warrants

-

1

-

-

-

-

1

Ordinary shares repurchased by the

 Company

 

(563)

 

(8,238)

 

-

 

-

 

-

 

-

 

(8,801)

Balance at 31 December 2008

8,637

233,951

3,051

32,067

(178,433)

3,456

102,729

 

 

for the year to 30 June 2009














Ordinary

Share


Non-

Retained earnings



share

premium

Warrant

distributable

Capital

Revenue



capital

account

reserve

reserve

reserves

reserve

Total


£'000s

£'000s

£'000s

£'000s

£'000s

£'000s

£'000s









Balance at 30 June 2008

9,200

242,188

3,051

32,067

(84,209)

2,904

205,201

(Loss)/profit for the year

-

-

-

-

(71,959)

2,416

(69,543)

Conversion of warrants

-

1

-

-

-

-

1

Ordinary shares repurchased by the

 Company

 

(563)

 

(8,238)

 

-

 

-

 

-

 

-

 

(8,801)

Balance at 30 June 2009

8,637

233,951

3,051

32,067

(156,168)

5,320

126,858

 



UNAUDITED CONDENSED GROUP BALANCE SHEET

 

 

 

 

 

 

31 December 2009

31 December 2008

31 December 2008

30 June 2009

 

 

 

restated

as previously stated

 

 

£'000s

£'000s

£'000s

£'000s

Non current assets

 

 

 

 

Investments

324,362

283,554

287,041

281,031

Current assets

 

 

 

 

Other receivables

4,064

3,178

3,178

3,248

Derivative financial instruments

1,649

2,351

-

2,444

Cash and cash equivalents

11,332

3,603

2,309

4,496

 

17,045

9,132

5,487

10,188

Current liabilities

 

 

 

 

Bank loans

(20,547)

(25,565)

(25,565)

-

Other payables

(853)

(1,035)

(1,017)

(912)

Derivative financial instruments

(1,028)

(6,850)

(6,710)

(1,375)

 

(22,428)

(33,450)

(33,292)

(2,287)

Net current (liabilities)/assets

(5,383)

(24,318)

(27,805)

7,901

Total assets less current liabilities

318,979

259,236

259,236

288,932

Non current liabilities

 

 

 

 

Bank loans

-

(12,449)

(12,449)

(17,000)

Zero dividend preference shares

(155,692)

(144,058)

(144,058)

(145,074)

Net assets

163,287

102,729

102,729

126,858

 

 

 

 

 

Equity attributable to equity holders

 

 

 

 

Ordinary share capital

8,637

8,637

8,637

8,637

Share premium account

233,953

233,951

233,951

233,951

Warrant reserve

3,050

3,051

3,051

3,051

Non-distributable reserve

32,068

32,067

32,067

32,067

Capital reserves

(125,312)

(178,433)

(178,451)

(156,168)

Revenue reserve

10,891

3,456

3,474

5,320

Total attributable to equity holders

163,287

102,729

102,729

126,858

 

 

 

 

 

Net asset value per ordinary share

 

 

 

 

Basic - pence

189.05

118.94

118.94

146.87

 



 

UNAUDITED CONDENSED GROUP STATEMENT OF CASH FLOWS

 

Six months to

Six months to

Year  to

 

31 December 2009

31 December 2008

30 June 2009

 

 

restated

 

 

£'000s

£'000s

£'000s

Cash flows from operating activities

(1,426)

49,239

71,741

Cash flows from investing activities

-

-

-

Cash flows before financing activities

(1,426)

49,239

71,741

Financing activities:

 

 

 

Equity dividends paid

-

-

-

Cash flows from borrowings

3,000

(45,902)

(64,754)

Cash flows from ZDP shares

4,948

(848)

(3,583)

Proceeds from warrants exercised

3

1

1

Cost of purchase of ordinary shares

-

(8,801)

(8,801)

Cash flows from financing activities

7,951

(55,550)

(77,137)

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

6,525

(6,311)

(5,396)

Cash and cash equivalents at the beginning of the period

4,496

5,423

5,423

Effect of movement in foreign exchange

311

4,491

4,469

Cash and cash equivalents at the end of the period

11,332

3,603

4,496

 

The Group cash flows from ZDP shares were classified in the Report and Accounts for the six months to 31 December 2008 and year to 30 June 2009 within Operating Activities as cash flows on investments. These cash flows have been re-classified to Financing Activities as cash flows from ZDP shares.

 

 

 

 

NOTES

 

The half-yearly report is available on the website www.utilico.bm and will be posted to shareholders at the beginning of March 2010. Copies may be obtained during normal business hours from Exchange House, Primrose Street, London, EC2A 2NY.

 

 

 

By order of the Board

F&C Management Limited, Secretary

24 February 2009

 

 


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