Interim Management Statement

RNS Number : 7147Q

Utilico Limited

16 April 2009

Utilico Limited

16 April 2009

Quarterly Management Review

Utilico Limited ('Utilico') published its half yearly results and investment review to 31 December 2008 on 4 March 2009. Further, 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 31 December 2008 to 31 March 2009, and contains information that covers this period, and up to the date of publication of this IMS. Utilico is publishing this IMS in accordance with DTR 4.3 of the FSA Handbook.

The IMS is based on the consolidated group position for Utilico. The parent company's investment in the Utilico 2016 ZDPS is, on consolidation, netted against the underlying liability. As the investment was made at a substantial discount this has resulted in a gain on consolidation.

This IMS has been produced solely to provide additional information to shareholders as a body to meet the relevant requirements of the UK Listing Authority's Disclosure and Transparency Rules. It should not be relied upon by any other party or for any other purpose.

Performance

The global economy continued to deteriorate during the quarter, with all economic measures such as employment, output, and international trade volumes continuing to fall. In reaction to this, the major global economies have taken measures to boost demand and stimulate economic activity. Interest rates have been reduced sharply, fiscal stimulus packages announced, and International Monetary Fund led bailouts of problem economies are being discussed. Towards the end of the quarter there have been some very tentative signs of economic recovery, or at least a slowing of the pace of decline, which has given the equity markets some confidence. In addition, there is a hope that the April 2009 meeting of the G20 grouping will lead to positive actions to stimulate the global economy.

The equity markets continued to fall in January and February before levelling off in March. For the quarter as a whole, the FTSE All-Share Index fell by 10.2% by contrast, Utilico's NAV (including undistributed income) increased in value by 8.7%.

Portfolio

Utilico's gross assets less current liabilities (excluding current debt) began the quarter at £284.8 million and ended the quarter at £291.1m showing a modest increase. However, Utilico also managed to further reduce its debt balance by £3.0 million, and Shareholders' funds increased by £9.0 million from £102.7 million at 31 December 2008 to £111.7 million at 31 March 2009.

Within the ten largest holdings there has been a relatively wide divergence in performance. Four positions increased in value, four fell in value, and the two unlisted investments were maintained at their previous valuations.

Utilico's largest investment, Infratil, retreated by 9.9% over the three months. Infratil's investments have again performed relatively well with its largest investment, TrustPower, reporting strong operating statistics over the nine month period to December 2008. Infratil's New Zealand bus business has continued to report increased passenger levels. Wellington Airport has recorded a decline in domestic passenger levels in line with other airports worldwide, but has seen growth in international passengers. Infratil's European airports have seen a decline in activity, particularly in cargo levels, but this is a fairly small part of Infratil's overall value. We believe this has had a negative effect on sentiment. Infratil continues to trade at a substantial discount to its asset value.

Utilico Emerging Markets Limited ('UEM') has shown resilience in difficult markets over the first three months of the year, and underlying trading in the majority of investee companies within its portfolio has been robust. UEM's NAV fell by 2.5% over the three months. If the 4.0p interim dividend paid in January is added back, UEM has recorded a positive total return of 1.1%. UEM's share price increased by 3.3% over the three months. This performance is in line with emerging markets generally, which have outperformed developed markets during this first quarter of 2009.

Resolute Mining Limited is a new investment made in the first half of Utilico's financial year. Utilico's investment is primarily through convertible loan notes which have a 12% annual coupon. The convertible notes were acquired at issue by Utilico at A$0.50 per note, and recorded a gain of 70% over the three months to 31 March 2009, to close at A$0.85.

Ecofin's capital share NAV fell by 18.3% over the three months to 31 March 2009 and its share price fell by 12.8%. Ecofin's capital shareholders will now be given the opportunity to either accept a cash tender offer of 97.5% of the capital share NAV as at the 31st March 2009, or exchange capital shares for ordinary shares on an NAV equivalent basis. Based on Ecofin's 31 March capital share NAV, the tender offer for its capital shares would be set at 464.00p per share. As at the 31st March, Utilico's portfolio carried its position in Ecofin capital shares at their traded bid price of 423.00p. Acceptance of the cash offer based on 464.00p would realise £16.0m for Utilico.

ERG has successfully restructured. As part of this process the operating assets were hived down into an unlisted operating company Vix ERG. Utilico's investment in ERG was exchanged for shares in Vix Technology. Vix Technology holds preference shares in Vix ERG. ERG remains listed and has changed its name to Videlli. While we have a significant equity interest in Videlli this has been written down to nil. Vix Technology is a private company focused on exploiting its investment in Vix ERG and complementing technologies. At an operational level Vix ERG continues to make progress.

Of the other companies in the top ten, Jersey Electricity performed well with a share price gain of 30%, while Keytech and Zurich Airport both retreated by 15.8% and 17.8% respectively. The investment in Zurich Airport was reduced in the three months under review over concerns regarding passenger declines. Within the portfolio the investment in Vienna Airport has been sold realising proceeds of £12.6m.Belco re-entered the top 10 with a gain of 1.7% replacing Renewable Energy Generation which has seen the price of its shares reduced sharply by the market.

Debt and Cash

During the period Utilico reduced its debt from £38.0 million at 31 December 2008, to £35.0 million at 31 March 2009. All Utilico's debt was drawn in Sterling. Utilico's cash balance increased marginally over the period, from £2.3 million at 31 December 2008 to £5.8 million at 31 March 2009. Net bank debt at the 31 March 2009 was £29.2m.

Hedging

Options. Utilico has maintained its option positions over the three month period. At the end of 2008, Utilico held Index put options which provided market protection of approximately £57.9 million. By the end of March 2009, the level of protection had reduced to £41.0 million.

Currency Hedging. Utilico maintained its hedge against a fall in the NZ$. At the end of March 2009 Utilico had forward currency contracts for NZ$102.50 million, covering approximately £40.80 million of assets. This provides an effective hedge against movement in the New Zealand Dollar, particularly in relation to Infratil's New Zealand based investments. In addition, Utilico held forward currency contracts for AUD11.1 million and USD14.8m, providing partial coverage for Utilico's investments in those currencies.

Interest rates. Utilico has maintained its interest rate swap contracts which provide protection in the event that interest rates increase. These swap contracts were taken out in previous years when interest rates were substantially above levels seen today, and as such are all now in an 'in the money' position. The swaps are recognised in Utilico's NAV at their liability value of USD1.4 million at 31March 2009, and expire in 2009 and 2010.

ZDP Shares

Over the quarter, the traded price of Utilico's 2012 ZDP shares increased by 2.0p to 142.0p. However, the 2014 and 2016 maturity ZDP shares both fell in value by 7.4% to 99.5p for the 2014 maturity, and by 2.2% to 80.25p for the 2016 maturity. At the 31 March 2009, the three tranches offered yields to maturity of 6.4%, 9.8%, and 12.2% for the 2012, 2014, and 2016 maturities respectively. Likewise the asset covers at final redemption value stood at 2.52x, 1.62x, and 1.19x for the 2012, 2014, and 2016 maturities respectively. As at the date of this interim management statement, Utilico had acquired, for investment purposes, 3.65 million 2016 ZDP shares, representing 9.7% of the total 2016 ZDP shares in issue.

Share price and NAV

Utilico's share price fell from 92.0p at 31 December 2008, to 78.5p at 31 March 2009. Due to this, and the increased NAV as noted above, the discount to NAV increased from 22.7% at 31 December 2008 to 39.3% at 31 March 2009. A combination of all Utilico's traded instruments ended March with a 22.8% discount to underlying asset value, as at 31 December this was 13.4%.

Outlook

Despite the markets being ready to embrace any signs of optimism, the fundamentals of the global economy continue to look weak. Namely, there continues to be concerns over leverage in governments, companies, and also individuals. This should continue to suppress demand levels in the developed world. In turn, this will lead to weak growth and output in the emerging economies, and should continue to exert downward pressure on commodity prices. Against this turbulent background, most of Utilico's investments have demonstrated some resilience against these global forces. Utilico will remain sensitive to leverage, risk, and potential opportunities that often emerge in difficult markets.

Capital Structure		31 March 2009 £m	31 December 2008 £m
Gross assets less current liabilities		291.1	284.8

Bank debt		35.0	38.0
ZDP shares		144.4	144.1
Shareholders' funds (ordinary shares)		111.7	102.7
		291.1	284.8
Effective gearing on ordinary shares		2.61	2.77

Ordinary Shares		31 March 2009	31 December 2008
NAV (undiluted, cum income)		129.33p	118.94p
NAV (diluted, cum income)		129.33p	118.94p
Share price		78.50p	92.00p
Discount to diluted NAV		39.3%	22.7%
Annual average compound return (including dividends)		5.6%	4.2%
Historic dividend yield		-%	0.9%
Shares in issue		86,372,957	86,372,957

Warrants at 31 March 2009			2012
Expiry date			April 2012
Price			5.50p
Warrants in issue			3,589,521
Exercise terms			1 ordinary Share
			per warrant at subscription price
			of 315p

ZDP Shares at 31 March 2009	2012	2014	2016
Accrued capital entitlement	139.28p	113.37p	113.37p
Share price	142.00p	99.50p	80.25p
(Discount)/premium to NAV	2.0%	(12.2%)	(29.2%)
ZDP cover*	2.52x	1.63x	1.19x
Yield to redemption*	6.4%	9.8%	12.2%
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

March

2009

31 December

2008

% change

Utilico NAV (undiluted, cum income)

129.33p

118.94p

8.7%

FTSE All-Share Index

1984.2

2209.3

(10.2%)

Sectoral Split of Investments *	31 March 2009	31 December 2008
Renewable Energy	18%	21%
Electricity	18%	16%
Road & Rail	12%	12%
Gold	11%	6%
Airports	10%	14%
Telecoms	10%	10%
Water	5%	4%
Ports	3%	2%
Investment Funds	2%	2%
Gas	2%	3%
Postal	1%	1%
Other	8%	9%


Geographical Split of Investments *	31 March 2009	31 December 2008
Australasia	42%	39%
Europe (excluding UK)	19%	22%
UK	10%	11%
Asia & Far East	11%	10%
North America	10%	11%
Latin America	8%	7%
* on a look through basis

Top 10 Holdings as % of Gross Assets		31 March 2009
1 (1)	Infratil Limited	20.2%
2 (2)	Utilico Emerging Markets Limited	17.3%
3 (5)	Resolute Mining Ltd	10.7%
4 (6)	Jersey Electricity Company Limited	6.7%
5 (3)	Vix Technology	6.1%
6 (4)	Ecofin Water & Power Opportunities	5.2%
7 (7)	KeyTech Limited	3.9%
8 (9)	Newtel Holdings Limited	3.0%
9 (-)	Belco Holdings Limited	2.8%
10 (8)	Unique Flughafen Zurich AG	2.6%


	Total Top 10	78.5%
	Figures in brackets 31 December 2008