Interim Management Statement

RNS Number : 0660S

Utilico Investments Limited

14 November 2011

 



Utilico Investments Limited

Interim Management Statement

31 October 2011

Quarterly Management Review

Utilico Investments Limited ("Utilico") published its annual report and accounts for the period to 30 June 2011 on 23 September 2011.  Utilico has published monthly fact sheets on its website: www.utilico.bm.

Set out below is the interim management statement ("IMS") for the period from 1 July 2011 to 31 October 2011 containing information that covers this period, and up to the date of publication of this IMS.

Performance

Equity markets were volatile during the four months, the FTSE All-Share Index fell by 7.6%, the S&P Index (GBP adjusted) was down 5.5% and the MSCI EM Index (GBP adjusted) was down 13.5%. Pleasingly, Utilico outperformed the markets strongly, showing a gain of 11.1% over the same period.

Dividends

A final dividend of 3.25p was announced in September 2011, payable in October 2011, taking the total dividend for the full year to 8.25p, this includes the special dividend of 1.75p.

Redemption of the 2012 zero dividend preference shares

The redemption date for the 2012 zero dividend preference ("ZDP") shares is October 2012. The Company is finalising proposals to offer the holders of these shares the opportunity to elect to roll part of their investment into a new 2018 ZDP share. Any 2012 ZDP shares not rolled over will be redeemed on their redemption date for cash. To provide funds for this redemption, the Company proposes to issue additional 2014 ZDP shares, 2016 ZDP shares and 2018 ZDP shares in advance of the redemption. Details of these proposals will be set out in a prospectus which is expected to be published in due course.

Portfolio

Utilico's gross assets less current liabilities (excluding debt) at the beginning of the period under review were £408.7m and increased by £11.3m to £420.0m at the end of October 2011. Ordinary shareholders funds increased by £22.4m to £223.9m.

The ten largest holdings have remained broadly the same over the four months although there have been changes in the weighting.

Infratil, previously the Company's largest holding has been reduced by approximately 25% as a result of sales to an institutional investor and a company associated with the managers of Infratil. The sale to the management company includes a delayed settlement amounting to NZ$9.25m which will be settled at 31^st March 2012. Over the period Infratil's share price has increased by 2.2%

UEM, Utilico's second largest holding, has seen its share price fall by 9.3% to 149.00p from share weakness associated with the current negative economic environment.

Resolute Mining, has seen its share price increase by 44.2% mainly due to a good set of full year results to June 2011 and good Q1 2011/2012 production volumes with cash costs of gold production reduced to AS$703 per oz. The Company has forecast gold production of 410,000oz for the year to June 2012 at a cash cost of AS$708 per oz. Resolute has also benefitted from the higher gold price which was up 14.3% during the period under review. Resolute is now Utilico's largest holding.

Jersey Electricity's share price fell marginally by 1.5%, Bermuda Commercial Bank's share price remained flat, Renewable Energy Generation was up 10.3%, on the back of good full year results, with reported revenues up 58.34% and total installed capacity of 41.15MW. Keytech's share price was down 12.4%, Ascendant Group also fell by 1.4% and a newcomer to the top ten, Oceania Capital Partners (an Australian investment company) was up 3.3% during the period.

The debt crisis in the Eurozone, specifically the Greek debt, has dominated investors' attention over the four months. An agreement to increase the effective capacity of the European Financial Stability Fund (EFSF) to € 1 trillion was reached towards the end of the month and private bondholders of Greek debt agreed to a 50% haircut on their holdings. A bailout package for Greece was announced, initially followed by a call for a referendum by the current Prime Minister, which in turn has led to the announcement that the PM will step down in favour of a coalition government who will accept the original bailout package. The focus has now turned to Italy amid fears that it could be the next casualty of the Eurozone debt crisis after the yield of their 10 year government bonds reached 7.4%, a level that is widely viewed as unsustainable. A great deal of uncertainty remains, not only with regards to Greece, but also to Italy, Spain, Portugal, Ireland, Belgium and even France.

In the US stock markets began to slide downwards at the beginning of August, as a result of the US credit re-rating to AA+, however there was more optimism in the US with the release of Q3 GDP figures showing annualised growth of 2.5%, which compared favourably to the 1.3% reported for Q2.

Bank debt

During the period under review Utilico reduced its bank debt by roughly half, from £30.9m to £15.9m. This was drawn £10.9m in New Zealand Dollars and £5.0m in Sterling.

Hedging

Put options. Utilico had reduced its equity market option positions to nil at the end of September. However, during October the managers took steps to re-establish a put position. At 31 October 2011 Utilico held a small position providing market protection of approximately £2.0m.

Currency Hedging. At the end of October 2011 Utilico held currency hedges in New Zealand Dollars, Australian Dollars, Euro and US Dollars. In total £45.1m of assets are covered by these currency hedges.

ZDP Shares

Over the four months, the traded price of Utilico's 2012 ZDP shares increased to 171.00p up 1.5%, the 2014 ZDP shares rose 2.3% to 146.00p and the 2016 ZDP shares rose by 6.5% to 142.25p.

As at 31 October 2011 the three ZDP tranches offered yields to maturity of 3.8%, 4.7% and 6.3% for the 2012, 2014, and 2016 maturities respectively. The asset covers at final redemption value stood at 4.35x, 2.63x and 1.81x for the 2012, 2014, and 2016 maturities respectively.

Share price and NAV

Utilico's share price rose from 147.25p at 30 June 2011 to 159.50p at 31 October 2011, an increase of 8.2%. Utilico's discount to NAV widened from 27.0% at 30 June 2011 to 28.8% at 31 October 2011. A combination of all Utilico's traded instruments ended October with a 13.8% discount to underlying asset value.

Outlook

The investment environment is challenging and is likely remain so. Until we gain more confidence in regard to: China's economic activity and the resultant answer to the question of a hard or soft landing, the US economic resilience and need or otherwise for an additional round of quantitative easing and a sustainable solution to sovereign debt in Europe and the banking crisis, markets will remain fragile and volatile.

Note: Annual General Meeting:  While the annual report and accounts correctly stated that the Company's AGM will take place on 30 November 2011 the notice of meeting incorrectly referred to the day as Monday rather than Wednesday.  For the avoidance of doubt, the company's AGM will be held on Wednesday, 30 November 2011. 

Capital Structure			31 October 2011		30 June 2011
Gross assets less current liabilities			£420.0m		£408.7m
Bank debt and other debt			£19.3m		£34.4m
ZDP shares			£176.8m		£172.8m
Shareholders' funds (ordinary shares)			£223.9m		£201.5m
			£420.0m		£408.7m
Effective gearing on ordinary shares			1.9x		2.0x
Ordinary Shares			31 October 2011		30 June 2011
NAV (cum income)			224.05p		201.63p
Share price			159.50p		147.25p
Discount to undiluted NAV			28.8%		27.0%
Annual average compound return (including dividends)			12.1%		11.2%
Shares in issue			99,926,452		99,926,452
Warrants at 31 October 2011
Expiry date					April 2012
Price					0.55p
Warrants in issue					3,587,646
Exercise terms					1.090909 ordinary share per warrant at subscription price of 288.75p
ZDP Shares at 31 October 2011	2012		2014		2016
Accrued capital entitlement	165.89p		135.85p		135.85p
Share price	171.00p		146.00p		142.25p
(Discount)/premium to NAV	3.1%		7.5%		4.7%
ZDP cover*	4.35x		2.63x		1.81x
Yield to redemption*	3.8%		4.7%		6.3%
ZDP redemption value	177.52p		167.60p		192.78p
Shares in issue	45,486,200		37,500,000		37,500,000
*based on final redemption values

Performance		31 October 2011	30 June 2011		% change
Utilico NAV (cum income)		224.05p	201.63p		11.1%
FTSE All-Share Index		2,861	3,097		(7.6%)

Sectoral Split of Investments *			31 October 2011		30 June 2011
Gold Renewable Energy Electricity Infrastructure IT Other Ports Water and waste Airports Banks Toll roads Telecoms			32% 16% 11% 7% 6% 6% 5% 5% 4% 4% 4%		22% 19% 12% 8% 7% 6% 6% 7% 4% 5% 4%
			100%		100%
Geographical Split of Investments *
Gold New Zealand Asia & Far East UK and Channel Islands Bermuda Australia Latin America Europe (excluding UK) North America			32% 15% 13% 12% 8% 7% 7% 4% 2%		22% 21% 14% 13% 8% 8% 8% 4% 2%
			100%		100%
* on a look through basis

Top 10 Holdings as % of Gross Assets			31 October 2011		30 June 2011
1 2 3 4 5 6 7 8 9 10	Resolute Mining Ltd Utilico Emerging Markets Limited Infratil Limited Bermuda Commercial Bank Jersey Electricity Company Limited Vix Technology Renewable Energy Generation Limited KeyTech Limited Ascendant Group Oceania capital Partners Total Top 10		31.4% 21.0% 19.4% 4.1% 4.1% 4.0% 2.8% 1.7% 1.6% 1.2% 91.3%		22.2% 23.9% 25.7% 3.7% 4.3% 3.8% 2.5% 2.0% 1.7% -% 89.8%

Enquiries

Charles Jillings

Utilico Limited

[phone]

 

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