Annual Financial Report

RNS Number : 2499O

Utilico Investments Limited

18 September 2013

 



Date:                18 September 2013

Contact:           Charles Jillings                                              

                        Utilico Investments Limited                             

                        01372 271 486                                               

Utilico Investments Limited

Audited Statement of Results

for the year to 30 June 2013

COMPANY Financial Highlights

·     Revenue return per ordinary share 12.09p (12.02p)

·     Capital return per ordinary share -63.53p (2.72p)

·     Total return per ordinary share -51.44p (14.74p)

·     Ordinary dividend per share 7.50p (7.00p)

·     Special dividend per share 2.50p (nil)

·     2012 ZDP shares redeemed

·     Further 2018 ZDP shares issued

              Figures in brackets are for the prior year

The Group accounts this year include BFIC and Zeta as they are subsidiaries. The share prices of both of these companies at 30 June 2013 traded at a

discount. The consolidation of these companies eliminates the discount and results in a gain on consolidation. We have commented throughout this report

on the Company's results as we report the weekly NAV based on the Company's investments, which better reflect the investment value to shareholders.

CHAIRMAN'S STATEMENT

It is disappointing to report that Utilico Investments Limited ("Utilico" or the "Company") achieved a total negative return per ordinary share of 24.5% in the twelve months to 30 June 2013 as a result of net portfolio losses of £47.8m. This loss is principally accounted for by the share price decline of Resolute Mining Limited ("Resolute") from A$1.34 to A$0.60 over the twelve months. This, together with a weak Australian Dollar to Sterling exchange rate, resulted in losses of £59.4m on the Resolute investment. The FTSE All Share Total Return Index increased by 17.9% over the same period.

During the year Utilico achieved a number of positives. The portfolio produced record revenue income of £16.2m. The majority of the portfolio was positive and there were some outstanding results. Bermuda National Limited ("BNL") has been expanded and Bermuda First Investment Company Limited ("BFIC") and Zeta Resources Limited ("Zeta") were established as investment companies. Utilico Emerging Markets Limited ("UEM") won two industry awards for its strong performance. The 2012 ZDP shares were redeemed for £67.8m in accordance with their terms on 31 October 2012 and the 2018 ZDP shares, with a market value of £56.5m, now trade at a premium to NAV. 

Resolute's poor share price performance during the current year has overshadowed the rest of the portfolio, which performed well in relatively difficult markets. Excluding Resolute, the rest of the portfolio returned a gain of £11.6m. 

Since August 2003 Utilico's net asset value ("NAV") per ordinary share plus cumulative dividends of 38.20p has increased by 87.7%. This is an average annual compound total return per ordinary share of 7.0%, which was behind the FTSE All Share Total Return Index, which achieved an 8.5% compound annual growth over the same period.

Resolute's share price weakness has been driven by a combination of a lower gold price and negative market sentiment towards gold mining companies and the mining sector more generally. The gold price rose  in the first quarter to US$1,792 per ounce in October 2012 and fell to US$1,235 on 30 June 2013.

The Board agrees with the Investment Manager's view that both of these factors are unduly pessimistic particularly in the case of Resolute where operating performance remains strong with production of 436,000 ounces at an average cost of A$811 per ounce. However, despite good operational performance ahead of production targets, realistically, we must anticipate continued volatility in Resolute's share price.

The Board is anticipating this volatility as a consequence of our views on the state of global economic recovery in circumstances where the actions of central banks continue to mask many substantial sovereign structural problems most notably in Europe. Despite extensive support, Europe has generated minimal growth overall with government debt levels continuing to rise in the absence of meaningful welfare and other reforms. Furthermore, in contrast to the US for example, it would appear that European banks de-leveraging will need to continue for some considerable time to come as many appear not to have seriously tackled the issue of non-performing loans.

The Board will, of course, continually and actively review our investment in Resolute with the Investment Manager and indeed, this led to the realisation of £10.8m with the sale of 7.0% of our original investment at an average price of A$1.92. However, against the economic backdrop I have described we must anticipate further, possibly significant, disruption in financial and economic markets. Such market features have, historically, been positive for gold and the Board currently regards the Resolute investment as appropriate in a risk reflective portfolio.

During the twelve months the investment in Infratil Limited ("Infratil") was reduced by 13.7% realising £13.0m.

A key feature of the twelve months has been the creation and development of BNL and the establishment of BFIC and Zeta. These three platforms should enable better focus on the opportunities within the financial services sector, the Bermuda investment market and the resources sector respectively.

As Utilico holds over 50.0% of BFIC and Zeta, these two companies were consolidated with the accounts of Utilico at the year-end. While clearly regarded as investments, the accounting rules currently require their consolidation, which we expect to see reversed next year when a new International Accounting Standard becomes effective. This has beneficially impacted on the presentation of these results and lifted the reported Group NAV per share from 148.50p to 157.44p. The majority of this uplift is due to the inclusion of Zeta at NAV as opposed to its market price, which stands at a 50.0% discount. We have commented on the Company's results (rather than the Group's results) as these better reflect the investment value to shareholders. Further details are set out in the Investment Manager's Report.

The portfolio returned a record revenue total income of £16.2m. The revenue income has remained strong as a result of dividends and interest from our investments, especially from our unlisted transport ticketing related investments. This has resulted in record earnings per share ("EPS") of 12.09p versus 12.02p per ordinary share in 2012.

The Board has decided to pay a final dividend of 3.75p, making a total of 7.50p for the year, an increase of 7.1% over the previous year's dividends of 7.00p. This dividend per share represents a yield of 5.8% on the closing share price of 130.00p. Utilico also paid a special dividend of 2.50p at the interim stage, taking total dividends for the year to 10.00p, a yield of 7.7%. The revenue reserves per ordinary share carried forward (after deduction of the final dividend) are 10.12p. This strong position should enable the Directors to declare a rising dividend for the current year, although the income from the unlisted transport ticketing related investments is expected to reduce significantly this financial year.

The Board is aware of the increasing emphasis investors are placing on dividend income and intends to commence paying dividends in the current financial year on a quarterly basis. It is expected that the first quarterly dividend will be declared in October and paid in November 2013.

The 2012 Zero Dividend Preference shares ("ZDP shares") were redeemed in full on 31 October 2012. Following on from the issue of further 2014 and 2016 ZDP shares and the issue of new 2018 ZDP shares in the year to June 2012, we issued a further 27.6m 2018 ZDP shares during the year to 30 June 2013. The balance required for the redemption of the 2012 ZDP shares was financed from the bank debt. Utilico subscribed for 12.3m 2018 ZDP shares, which it has subsequently been selling in the market when prices have been favourable. Since October 2012, it has sold 7.6m 2018 ZDP shares, leaving it with a resultant holding of 4.7m 2018 ZDP shares at 17 September 2013 which it intends to continue to sell over the coming months.

On 31 October 2014 Utilico is due to redeem the 2014 ZDP shares with a redemption value of £79.6m. The Board is currently reviewing options available to the Company to facilitate the redemption of the 2014 ZDP shares and will make a further announcement in due course. 

I would like to thank my colleague Directors for their commitment and valued contribution to the Company in these challenging times.  I particularly want to record my own and my predecessor Michael Collier, gratitude to Susan Hansen who is stepping down as a Director with effect from 17 September 2013. Susan has served on the Board with great distinction since May 2007 and we will miss her effective contribution.

Warren McLeland, who was Susan's alternate and previously a Director of the Company, has been re-appointed with effect from 17 September 2013. We all welcome him back onto the Board.

Outlook

We expect our investee companies, including Resolute, to continue to make good progress at the operating level which will be positive for the Company over time. Our assessment of continued volatility in markets and wider economic performance should create new investment opportunities for us but will also inevitably introduce volatility into investment valuations which we will seek to manage.

Dr R J Urwin
17 September 2013

INVESTMENT MANAGER'S REPORT

Utilico has made progress on a number of fronts. However, this progress has been overshadowed by the poor share price performance of Resolute which declined by 55.6%, and as a result the total return for the twelve months was negative 24.5%.

Over the last twelve months Utilico has made positive progress. The portfolio produced record revenue income of £16.2m. The capital performance of the majority of the portfolio was positive and included an increase in Renewable Energy Generation Limited's ("REG") share price of 45.1%. Operationally most investee companies made good progress. Bermuda National Limited ("BNL") was expanded and Bermuda First Investment Company Limited ("BFIC"), a Bermuda focused investment vehicle and Zeta Resources Limited ("Zeta"), a resource based investment vehicle, were established. The 2012 ZDP shares were redeemed in full for £67.6m and the 2018 ZDP shares issued to part fund this redemption now trade at a premium to their NAV and have a market value of £56.5m.

BFIC and Zeta have been established as subsidiaries of Utilico and are listed on the Bermuda Stock Exchange and the Australian Stock Exchange respectively. Utilico held 67.2% of BFIC and 70.9% of Zeta at year end. Under current accounting convention both must be consolidated which has a beneficial impact on Utilico's group results as the underlying investments are included at fair values. At the Company level we reflect the listed share price of both in the portfolio. This results in an increase in NAV per share on consolidation of 0.9p for BFIC and 8.2p for Zeta. Overall the consolidated Group NAV per share is 157.44p versus the Company NAV of 148.50p per share.

We anticipate in the current year the accounting standards will reverse the need for consolidation. Further, it should be noted that Utilico's weekly NAV is reported on an unconsolidated basis. For these reasons throughout the commentary (both in the Chairman's Statement and our Investment Manager's Report) we have referred to the Company's position and not the Group's position.

The platforms have been set up to provide better focused investment decisions within their sectors. Over time we hope that BNL, BFIC and Zeta can raise external capital and develop a dynamic profile similar to Infratil and UEM.

Given the shifting profile of Utilico to a core set of investments, including these platforms we have included both a list of the top 10 direct investments and a portfolio of the top 10 on a look through basis.

Portfolio

Utilico's portfolio continues to reflect a strong bias towards infrastructure and utilities with over 60.4% invested in these sectors (2012: 55.0%).

During the year we invested £98.6m, including £21.4m into Zeta mainly by way of reversing assets held by Utilico into Zeta; £14.3m into BFIC by way of reversing assets held by Utilico into BFIC; and £11.5m into BNL to help it fund acquisitions.

Disposals amounted to £102.8m including a part realisation of Infratil raising £13.0m, a part realisation of Resolute raising £10.8m, and a part realisation of Jersey Electricity Limited ("JEL") raising £4.0m.

Within the sectors, gold mining has reduced substantially from 26.0% to 13.0% of the portfolio as a result of Resolute's negative share price performance. Increases have been seen in renewables, up from 13.0% to 19.0%, mainly driven by a 45.1% increase in REG's share price; and in financial services up from 5.0% to 9.0%, mainly as a result of investments in BNL.

Geographically, gold mining has reduced substantially from 26.0% to 13.0%, Asia and Far East is up 4.0% to 18.0% as a result of UEM's strong performance; UK and Channel Islands are up 4.0% to 16.0% in part due to REG's performance and Bermuda is up from 9.0% to 15.0% mainly as a result of investments in BNL.

At the year-end Utilico held unlisted and untraded investments of £39.0m, equal to 10.0% of the gross assets (2012: £32.3m and 7.4% of gross assets).

Major Investments

Utilico now has six platform investments - UEM, Infratil, BNL, BFIC, Zeta and the Vix Group. To this can be added the core investment in Resolute. These together represent seven out of the top 10 investments and account for 81.5% of the gross assets at 30 June 2013.

UEM is now Utilico's top investment accounting for 26.3% of the portfolio. It has achieved this through a strong share price performance. In the year to 31 March 2013, UEM achieved a total return of 20.5%. This has been driven by good stock selection and positive operational performance by most of its investments. UEM's performance has been recognised by two industry awards: it won Investment Week's Emerging Markets category Investment Company of the Year at the 2012 awards and in June 2013 it won the Money Observer Best Emerging Markets Trust Award.

Currently the emerging markets are facing significant challenges and the currency and equity markets have been weak. This weakness has negatively impacted UEM's NAV and share price.

Infratil's share price was up 8.6% over the year. In addition, we received a dividend equivalent to 5.4% on our opening valuation. Infratil continues to report good operational performance. During the year Utilico reduced its exposure to Infratil by selling into the market, reducing its holding by 13.7% at an average price of NZ$2.40, realising £13.0m.

Since the year end Infratil has successfully IPO'd Z Energy which  enabled it to partially exit the investment, realising NZ$420.0m. This is a significant step for Infratil and demonstrates its ability to identify good investments, make a significant difference to the investee operations and successfully exit at higher valuations.

Resolute's share price fell by 55.6% to A$0.60. This significantly impacted both  Resolute's carrying value and  Utilico's gross assets. Over the twelve months, Resolute's share price rose from A$1.34 to A$2.03 then fell to A$0.60 at year-end and went to a low of A$0.53 after year-end. This peak to trough loss of 70.4% is mirrored by the peak to trough gold price. Gold started the year at US$1,597, reached a peak of US$1,772 then declined to a low of US$1,235 at year end. The peak to trough loss was 30.3%. Given Resolute's cash cost per ounce of some $800 to $900 the loss reflected in gold price would be magnified in the case of Resolute's profits.

We believe that gold is a repository of wealth in times of uncertainty and going forward we expect the gold price to improve.

In October 2012 Utilico took advantage of Resolute's firmer share price to sell 5.4m shares at an average price of A$1.92 per share, realising £10.8m for Utilico. Following the weak market price for Resolute, Utilico bought 3.5m shares at an average price of A$0.75, costing Utilico £1.7m.

Resolute's operations have been ahead of budget. Production during the year of over 435,000 ounces comfortably exceeded forecasts, and cash costs of A$811 per ounce were lower than forecast. The average gold price realised was A$1,562 per ounce, down from A$1,627 the previous year. Forecast production for the year to 30 June 2014 is 345,000 ounces at an average cost of A$890 per ounce, with reduced production in line with expectations due to the closure of the Golden Pride operation in Tanzania, having reached the end of its mine life.

While the company has significantly scaled back its future capital expenditure plans somewhat, it has continued to produce excess cash flows, and has taken advantage of the bear market in gold mining company shares (and subsequent lack of investment capital) to make investments in other gold mining companies and projects.

BNL is a financial services investment holding company which is listed on the Bermuda Stock Exchange. BNL acquired Bermuda Commercial Bank Limited ("BCB") in October 2012 and shareholders in BCB became shareholders in BNL on a one-for-one basis. Utilico invested further in BNL during the year enabling it to restructure its investments. As at year end, Utilico held approximately 45.0% of BNL.

BNL's larger investments now include 100% of BCB, 62.5% of JO Hambro Investment Management Limited ("JOHIM"), 66.0% of Private & Commercial Finance Group plc ("PCFG") on a fully diluted basis and 46.1% of Westhouse Holdings plc ("Westhouse").

BCB reported good results for the six months ended 31 March 2013, with net profit of US$5.1m (2012: US$3.2m) on total assets of US$631.3m (30 September 2012: US$572.0m). Total customer deposits were US$510.3m (30 September 2012: US$457.5m). PCFG, which is listed on AIM in London, reported strong results in the year to 31 March 2013 with profits after tax and basic earnings per share up 22.2% over the prior year and net assets up 6.3%. The business secured further funding in the form of a convertible loan note ("CLN") and increased and extended its borrowing facilities. BCB subscribed for £4.6m of the £5.9m CLNs issued. On a fully diluted basis this takes BNL's interest to 66.0% of PCFG. Westhouse, a UK small and mid cap broker, which de-listed from AIM in early 2013, continues to find trading challenging.

Since year end, Utilico has invested a further £10.0m into BNL to enable BNL to take a majority position in JOHIM. JOHIM is a UK wealth manager with over £4.0bn in assets under management. This is an exciting investment for BNL and we believe offers substantial opportunity for growth. As at 30 August 2013 Utilico holds 49.8% of BNL.

BFIC shares and loan notes are listed on the Bermuda Stock Exchange. BFIC is an investment holding company with investments in companies in Bermuda. In October 2012, Utilico, BCB and other investors sold their holdings in certain Bermuda companies in exchange for shares and loan notes in BFIC. Utilico holds approximately 67.2% of BFIC. BFIC's strategy is to build up strategic stakes in Bermuda listed local companies. Its two main holdings are a 23% holding in KeyTech Limited and 10% holding in Ascendant Group Limited. As at 31 March 2013 it had total assets of BM$32.1m and had reported income for the period ended 31 March 2013 of BM$1.3m.

Zeta listed on the Australian Stock Exchange ("ASX") in June 2013 following a scheme of arrangement to merge a portfolio of some of Utilico's holdings in resource companies with ASX-listed junior gold explorer Kumarina Resources Limited. The investments transferred by Utilico were valued at market prices and amounted to £21.0m. Since listing, Utilico has been purchasing Zeta ordinary shares in the market at a substantial discount. As at 30 June 2013 Utilico held 70.9% of Zeta, which has increased to 73.2% since that date. In addition Utilico has made available a A$10.0m loan facility to Zeta. Zeta had gross assets of A$40.5m as at 30 June 2013. Zeta is focused on the resource sectors, in particular gold and oil and gas. Zeta will look for mis-priced asset backed investments within the sector or positions which offer strong optionality.

Vix Group ("Vix") has made continued progress in the twelve months to 30 June 2013. The transport ticketing systems business has taken steps to reduce its cost base, invest in its technology and generally strengthen its core skill set. This has resulted in one-off costs in the year. Notwithstanding this, the business should be EBITDA positive. The OneLink business, which ran the Melbourne transport ticketing systems, has seen its contract end. Within the investment portfolio of Vix there are a number of interesting investments in the wider payment solutions industry. A number of these are cutting edge technologies and offer good prospects. During the year Utilico invested a net £1.0m into Vix.

Gold Mining - 13%

Our largest investment in gold mining is in Resolute. Resolute has been reviewed above.

Renewables - 19%

Climate change remains a key factor in energy policy worldwide, with widespread commitment to reducing greenhouse gas emissions. This is mainly being implemented through renewable subsidy schemes as well as "cap and trade" carbon emission trading. The economic downturn following the financial crisis has renewed political debate over the cost of such incentive schemes and the resulting impact of higher energy tariffs. At the same time, meeting CO2 targets have become increasingly challenging as some major economies are moving away from nuclear power generation following the Fukushima disaster. Against this backdrop we continue to see the sector as offering attractive investment opportunities, particularly in selected regions such as the UK where long-term sustainability of the renewable sector has been underpinned by the draft Electricity Market Reform policies.

Utilico's main exposure to renewables is through TrustPower Limited ("TrustPower") and Renewable Energy Generation Limited ("REG").

TrustPower is held indirectly through the investment in Infratil Limited, which in turn holds 50.5% of TrustPower's share capital. TrustPower continues to operate in a challenging retail environment in New Zealand, which combined with weak hydrological conditions and no new generation capacity, resulted in earnings falling 6.3% in the year to March 2013. The company currently operates 730MW of hydro and wind capacity in New Zealand and Australia, and is well on track to commission the 270MW Snowtown II wind farm project in Australia in 2014. This project underpins the strong growth and optionality potential of TrustPower in the medium term.

REG has made excellent progress in the past year, with the sale of two wind farms amply demonstrating the intrinsic value of the assets. In January 2013 REG announced the disposal of the newly-commissioned South Sharpley and Sancton Hill projects, with total capacity of 16MW, for £32.1m. With a portfolio of 51.2MW of operational wind farms as at end-June 2013 and over 130MW of wind farm projects in the planning process, REG is well positioned to capitalise on the increasing demand from financial investors for operational wind farm assets. REG's market capitalisation increased substantially during the period following the announcement of the transaction.

Electricity - 10%

Jersey Electricity plc ("JEL") continues to experience tough operating conditions which was compounded by the failure and subsequent decommissioning of its older subsea cable supplying electricity from France. This has resulted in JEL relying on only one subsea connection, constraining the supply of cheaper electricity and increasing its reliance on more expensive on-island diesel generation facilities. While the regulator allowed JEL a 9.0% tariff increase in January 2013, this failed to compensate for the higher operating expenses, with interim normalised net income to end-March 2013 falling almost 80%. We continue to be concerned about JEL's ability to procure an adequate return on investment, particularly given the forthcoming £70m cost of a replacement interconnector to France due to be commissioned in 2015. In our view the lack of regulatory certainty on returns is a continuing encumbrance on JEL which leaves its shares heavily undervalued given the installed operational asset base.

We have been shareholders since 1993, but against this background Utilico sold 29.0% of its investment for £4.0m during the year.

Infratil Energy Australia Pty Ltd ("IEA") is held indirectly through the investment in Infratil. IEA has delivered a strong performance during the year. Customer numbers grew by 10% on last year to 498,000 as at end-May 2013, while generation capacity has remained flat at 285MW. The growth in the retail business combined with lower wholesale electricity prices ensured profits rose by over 50% to A$77m to end-March 2013, an excellent result.

Oil and Gas - 8%

New Zealand Oil & Gas Limited ("NZOG") is held indirectly through the investment in Zeta. NZOG was relatively quiet during the period under review. Production from its offshore Taranaki, New Zealand oil interests (Kupe 15% and Tui 12.5%) was healthy, with revenues ahead of forecasts, albeit down on the previous year which is normal for oil production in the absence of new exploration. In June 2013 the company announced promising results from its joint venture (22.5%) drilling in Kisaran, Indonesia; further work is needed to demonstrate whether the results can be developed commercially. The company decided not to pursue an opportunity in Tunisia, a decision we supported as the potential capital expenditure costs were substantial. The coming year will be an active one for drilling. Even accounting for that, NZOG still has substantial cash reserves (NZ$158.0m as at 30 June 2013), and it is our preference that excess cash should be returned to shareholders, ideally in the form of a buy-back.

Utilico invested a further £3.1m in NZOG this year and has transferred this investment to Zeta.

Z Energy Limited ("Z Energy"), which is held indirectly through Infratil, delivered a strong performance following the completion of the rebranding and upgrade of its service stations. A rebalancing of sales mix away from low margin customers saw revenues decline by 6.0% in the year to end-March 2013, while current cost EBITDAF increased by 13.4% as margins improved. Post the period end in August 2013 Z Energy was successfully floated on the New Zealand and Australian stock exchanges which resulted in Infratil reducing its stake in Z Energy from 50% to 20%. This raised NZ$420.0m for Infratil.

Seacrest Limited ("Seacrest"), which is held direct and through Zeta, has access to Petroleum Geo-Services' ("PGS") substantial seismic database and licensing opportunities on a first refusal basis for seven years. This seismic database enables exploration companies to accelerate their progress in determining their drilling programmes without the need to first commission 2D data and then 3D data from seismic companies. Seacrest has used this world-wide data set to effectively farm into a number of prospective licences, mainly in off-shore Namibia and the North Sea. If one of these prospective licences produces meaningful oil, the value of Seacrest would be significant.

Airports - 5%

Wellington International Airport Ltd ("WIAL") is held indirectly through  Infratil. WIAL performed solidly over the year, with passenger numbers increasing by 3.5%, as domestic growth benefited from increased capacity of Jetstar and a competitive response from Air New Zealand. International passenger growth however was slightly subdued compared to previous years as the market has consolidated following two years of significant growth which included the 2011 Rugby World Cup.

Derivatives

Over the years there have been two parts to Utilico's derivative position. First, portfolio market derivatives, mainly through S&P500 Index options. Second, currency positions within Utilico's portfolio.

The market derivatives have remained modest through the year. Given the strong performance by the US markets in particular, modest losses of £0.3m were incurred.

Utilico has maintained significant currency positions in part to protect the Sterling value of certain investments. At the period end, forward currency sale contracts were in place for nominal NZ$126.0m, €11.9m and A$21.3m.

Debt

The bank debt had been reduced to nil last year, partly through the placing of 2018 ZDP shares in the market for cash, in anticipation of the redemption of the 2012 ZDP shares. The level of bank debt increased from nil to £42.5m as at 30 June 2013 as the debt was drawn down to redeem the 2012 ZDP shares.

As reported in last year's accounts, the amount of the facility was increased from £30.0m to £50.0m.

ZDP Shares

The 38.2m 2012 ZDP shares outstanding as at 30 June 2012 were redeemed on 31 October 2012. To fund this redemption, Utilico used its bank facility with Scotiabank Europe plc together with funds raised by placing 2014, 2016 and 2018 ZDP shares in the market over the last two years. 

At year-end Utilico held 5.8m 2018 ZDP shares and Utilico intends to continue to sell these in the market to satisfy demand.

Capital Returns

Capital returns were negative in the year to 30 June 2013 amounting to a loss of £63.2m. This comprised a loss on the portfolio of £47.8m and finance costs of £14.3m. The resulting EPS negative return was 63.5p, compared with a prior year gain of 2.7p.

Revenue Returns

Utilico reported record revenue returns in the twelve months to 30 June 2013. Total income was £16.2m, up 2.5% on the previous year and nearly double the returns seen in the year to June 2007. Most investee companies increased their dividends and Resolute declared a maiden dividend in November 2012 of A$0.05.

Management and finance costs were flat year on year while other expenses of £1.1m were up 27.6% as a result of an increase in professional fees and travel expenses. Taxation rose from £0.02m to £0.3m.

The combined effect of the above resulted in the revenue EPS increasing marginally to a record 12.09p (2012: 12.02p).

ICM Limited
Investment Manager
17 September 2013

PRINCIPAL RISKS AND RISK MITIGATION 

The Company's assets consist mainly of listed and quoted securities and its principal risks are therefore market related or currency 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, counter party and revenue streams. 

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

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 2013. The Annual Report and Accounts is published on the Company's website, www.utilico.bm.

DIRECTOR'S STATEMENT OF RESPONSIBILITIES

The Directors are responsible for preparing the Report of the Directors and the financial statements in accordance with applicable Bermuda law and IFRS, as adopted by the European Union.

The Directors must not approve the Group financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit and loss of the Group and Company for that period. In preparing these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

• make judgements and estimates that are reasonable and prudent;

• provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance;

• state that the Group and Company has complied with IFRS, subject to any material departures disclosed and explained in the financial statements; and

• prepare the accounts on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping proper accounting records which are sufficient to show and explain the Group's and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements comply with IFRS. They are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

To the best of the knowledge of the Directors: (i) the accounts which have been prepared in accordance with IFRS, as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group, including its protected cell within GERP included in the consolidation, and the Company; (ii) the Chairman's Statement and Investment Manager's Report includes a fair review of development and performance of the business and the Report of the Directors contains a description of the principal risks and uncertainties that the Group and Company faces. The financial risks are also provided in note 36 to the accounts.

Insofar as the Directors are aware:

• there is no relevant audit information of which the Company's auditor is unaware; and

• the Directors have taken all reasonable steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditor is aware of that information.

The annual report and accounts are published on the Company's website, www.utilico.bm, the maintenance and integrity of which is the responsibility of the Company. The work carried out by the auditor does not involve consideration of the maintenance and integrity of the website and accordingly, the auditor accepts no responsibility for any changes that have occurred in the financial statements since they were originally presented on the website. Visitors to the website need to be aware that the legislation governing the preparation and dissemination of the accounts may differ from legislation in their jurisdiction.

Approved by the Board on 17 September 2013 and signed on its behalf by:

Dr R J Urwin

Chairman

consolidated PERFORMANCE SUMMARY

	30 June 2013 (Company)(1)	30 June 2012 (Group)	Change 2012/13
Ordinary shares
Total return (annual) (2)	(24.5%)	7.3%	n/a
Annual compound total return (since inception)	7.0%	10.8%	n/a
Net asset value per ordinary share	148.50p	209.67p	(29.2%)
Share prices and indices
Ordinary share price	130.00p	144.00p	(9.7%)
Discount	12.5%	31.3%	n/a
FTSE All-Share Total Return Index	4,837	4,101	17.9%
Returns and dividends
Revenue return per ordinary share	12.09p	11.99p	0.8%
Capital return per ordinary share	(63.53p)	2.73p	n/a
Total return per ordinary share	(51.44p)	14.72p	n/a
Dividend per ordinary share	10.00p(3)	7.00p	42.9%
Zero dividend preference ("ZDP") shares(4)
2012 ZDP shares - repaid 31 October 2012
Capital entitlement per ZDP share	n/a	173.52p	n/a
ZDP share price	n/a	175.50p	n/a
2014 ZDP shares
Capital entitlement per ZDP share	152.64p	142.33p	7.2%
ZDP share price	158.50p	154.00p	2.9%
2016 ZDP shares
Capital entitlement per ZDP share	152.64p	142.33p	7.2%
ZDP share price	165.50p	148.50p	11.4%
2018 ZDP shares
Capital entitlement per ZDP share	110.50p	103.03p	7.3%
ZDP share price	113.38p	104.00p	9.0%
Capital structure (£m)
Gross assets(5)	389.5	434.5	(10.4%)
Bank debt	42.5	-	n/a
ZDP shares	199.8	224.4	(11.0%)
Other debt	-	1.2	n/a
Equity holders' funds	147.2	208.9	(29.5%)
Revenue account (£m)
Income	16.2	15.9	1.9%
Costs (management and other expenses)	3.2	3.0	6.7%
Finance costs	0.8	0.8	0.0%
Financial ratios of the Group
Revenue yield on average gross assets	3.8%	4.0%	n/a
Ongoing charges figure(6)	2.1%	1.7%	n/a
Bank loans, ZDP shares and other loans gearing on gross  assets	62.2%	51.9%	n/a

(1) Company figures have been used in 2013, rather than Group, due to the consolidation this year of BFIC and Zeta, which we anticipate will be reversed in future years.

(2) Total return is calculated as change in NAV per ordinary share plus dividends re-invested.

(3) Includes special dividend of 2.50p per share

(4) Issued by Utilico Finance Limited, a wholly owned subsidiary of Utilico Investments Limited.

(5) Gross assets less current liabilities excluding loans and ZDP shares.

(6) Expressed as a percentage of average net assets. Ongoing charges comprise all operational, recurring costs that are payable by the Company or suffered within underlying investee funds, in the absence of any purchases or sales of investments.

COMPANY INCOME STATEMENT

	Year to 30 June 2013			Year to 30 June 2012
	Revenue	Capital	Total	Revenue	Capital	Total
	return	return	return	return	return	return
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
(Losses)/gains on investments	-	(47,769)	(47,769)	-	13,338	13,338
(Losses)/gains on derivative instruments	-	(273)	(273)	-	1,002	1,002
Exchange (losses)/gains	(12)	(830)	(842)	-	1,772	1,772
Investment and other income	16,228	-	16,228	15,850	-	15,850
Total income	16,216	(48,872)	(32,656)	15,850	16,112	31,962
Income not receivable	-	-	-	(126)	-	(126)
Management and administration fees	(2,009)	-	(2,009)	(2,022)	-	(2,022)
Other expenses	(1,147)	(8)	(1,155)	(899)	(7)	(906)
Profit/(loss) before finance costs and taxation	13,060	(48,880)	(35,820)	12,803	16,105	28,908
Finance costs	(754)	(14,333)	(15,087)	(783)	(13,388)	(14,171)
Profit/(loss) before taxation	12,306	(63,213)	(50,907)	12,020	2,717	14,737
Taxation	(275)	-	(275)	(21)	-	(21)
Profit/(loss) for the year	12,031	(63,213)	(51,182)	11,999	2,717	14,716
Earnings per ordinary share (basic) - pence	12.09	(63.53)	(51.44)	12.02	2.72	14.74

The Company does not have any income or expense that is not included in the profit for the year, and therefore the 'profit for the year' is also the 'total comprehensive income for the year', 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.

GROUP INCOME STATEMENT

	Year to 30 June 2013			Year to 30 June 2012
	Revenue	Capital	Total	Revenue	Capital	Total
	return	return	return	return	return	Return
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
(Losses)/gains on investments	-	(35,402)	(35,402)	-	13,403	13,403
(Losses)/gains on derivative instruments	-	(3,714)	(3,714)	-	942	942
Exchange (losses)/gains	(12)	(430)	(442)	-	1,792	1,792
Impairment of goodwill	-	(1,583)	(1,583)	-	-	-
Investment and other income	17,072	-	17,072	15,850	-	15,850
Total income	17,060	(41,129)	(24,069)	15,850	16,137	31,987
Income not receivable	-	-	-	(126)	-	(126)
Management and administration fees	(2,140)	-	(2,140)	(2,022)	-	(2,022)
Other expenses	(1,515)	(118)	(1,633)	(928)	(7)	(935)
Profit before finance costs and taxation	13,405	(41,247)	(27,842)	12,774	16,130	28,904
Finance costs	(884)	(13,609)	(14,493)	(783)	(13,401)	(14,184)
Profit/(loss) before taxation	12,521	(54,856)	(42,335)	11,991	2,729	14,720
Taxation	(275)	360	85	(21)	-	(21)
Profit/(loss) for the year	12,246	(54,496)	(42,250)	11,970	2,729	14,699
Profit/(loss) for the year attributable to:
Equity holders of the Parent Company	12,105	(53,368)	(41,263)	11,970	2,729	14,699
Non-controlling interests	141	(1,128)	(987)	-	-	-
	12,246	(54,496)	(42,250)	11,970	2,729	14,699
Earnings per ordinary share (basic) - pence	12.17	(53.64)	(41.47)	11.99	2.73	14.72

GROUP STATEMENT of comprehensive income

					Year to 30 June 2013	Year to 30 June 2012
					Total	Total
					return	Return
					£'000s	£'000s
(Loss)/profit before taxation					(42,250)	14,699
Other comprehensive income:
Foreign exchange movements on translation
of foreign operations					533	-
Total comprehensive (expense)/income
for the year					(41,717)	14,699
Comprehensive (expense)/income for the year
attributable to:
Equity holders of the Parent Company					(40,766)	14,699
Non-controlling interests					(951)	-
					(41,717)	14,699

All items in the above statement derive from continuing operations.

COMPANY STATEMENT OF CHANGES IN EQUITY

for the year to 30 June 2013
	Ordinary	Share		Non-
	share	premium	Special	distributable	Capital	Revenue
	capital	account	reserve	reserve	reserves	reserve	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 30 June 2012	9,963	29,743	233,866	32,069	(108,172)	11,442	208,911
(Loss)/profit for the year	-	-	-	-	(63,213)	12,031	(51,182)
Ordinary dividends paid	-	-	-	-	-	(9,714)	(9,714)
Shares purchased by the Company	(47)	(723)	-	-	-	-	(770)
Balance at 30 June 2013	9,916	29,020	233,866	32,069	(171,385)	13,759	147,245

for the year to 30 June 2012
	Ordinary	Share			Non-
	share	premium	Special	Warrant	distributable	Capital	Revenue
	capital	account	reserve	reserve	reserve	reserves	reserve	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 30 June 2011	9,993	30,250	233,866	3,049	32,069	(113,938)	6,188	201,477
Profit for the year	-	-	-	-	-	2,717	11,999	14,716
Ordinary dividends paid	-	-	-	-	-	-	(6,745)	(6,745)
Conversion of warrants	-	2	-	-	-	-	-	2
Transfer on cancellation of warrants	-	-	-	(3,049)	-	3,049	-	-
Shares purchased by the Company	(30)	(509)	-	-	-	-	-	(539)
Balance at 30 June 2012	9,963	29,743	233,866	-	32,069	(108,172)	11,442	208,911

GROUP STATEMENT OF CHANGES IN EQUITY

for the year to 30 June 2013					Foreign
	Ordinary	Share		Non-	currency			Non-
	share	premium	Special	distributable	translation	Capital	Revenue	controlling
	capital	account	reserve	reserve	reserve	reserves	reserve	interests	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 30 June 2012	9,963	29,743	233,866	32,069	-	(108,055)	11,308	-	208,894
(Loss)/profit for the year	-	-	-	-	-	(53,368)	12,105	(987)	(42,250)
Other comprehensive income	-	-	-	-	497	-	-	36	533
Total comprehensive income /(expense)	-	-	-	-	497	(53,368)	12,105	(951)	(41,717)
Ordinary dividends paid	-	-	-	-	-	-	(9,714)	-	(9,714)
Shares purchased by the Company	(47)	(723)	-	-	-	-	-	-	(770)
Loss on partial disposal of subsidiary	-	-	-	-	-	(1,529)	-	-	(1,529)
Increase in non- controlling interests	-	-	-	-	-	-	-	12,063	12,063
Distribution payable to non- controlling interests	-	-	-	-	-	-	-	(74)	(74)
Balance at 30 June 2013	9,916	29,020	233,866	32,069	497	(162,952)	13,699	11,038	167,153

for the year to 30 June 2012
	Ordinary	Share			Non-
	share	premium	Special	Warrant	distributable	Capital	Revenue
	capital	account	reserve	reserve	reserve	reserves	reserve	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 30 June 2011	9,993	30,250	233,866	3,049	32,069	(113,833)	6,083	201,477
Profit for the year	-	-	-	-	-	2,729	11,970	14,699
Ordinary dividends paid	-	-	-	-	-	-	(6,745)	(6,745)
Conversion of warrants	-	2	-	-	-	-	-	2
Transfer on cancellation of warrants	-	-	-	(3,049)	-	3,049	-	-
Shares purchased by the Company	(30)	(509)	-	-	-	-	-	(539)
Balance at 30 June 2012	9,963	29,743	233,866	-	32,069	(108,055)	11,308	208,894

BALANCE SHEETs

at 30 June		GROUP		COMPANY
	2013	2012	2013	2012
	£'000s	£'000s	£'000s	£'000s
Non-current assets
Investments	393,830	423,243	380,169	432,165
Deferred exploration and evaluation expenditure	2,832	-	-	-
	396,662	423,243	380,169	432,165
Current assets
Other receivables	3,375	6,056	2,741	2,020
Derivative financial instruments	2,020	4,739	1,074	927
Cash and cash equivalents	8,456	8,246	7,581	7,908
	13,851	19,041	11,396	10,855
Current liabilities
Loans	(42,500)	(1,253)	(42,500)	(1,253)
Other payables	(3,696)	(5,437)	(201,757)	(231,813)
Zero dividend preference shares	-	(66,275)	-	-
Derivative financial instruments	(63)	(2,304)	(63)	(1,043)
	(46,259)	(75,269)	(244,320)	(234,109)
Net current liabilities	(32,408)	(56,228)	(232,924)	(223,254)
Total assets less current liabilities	364,254	367,015	147,245	208,911
Non-current liabilities
Loan notes	(3,705)	-	-	-
Zero dividend preference shares	(193,396)	(158,121)	-	-
Net assets	167,153	208,894	147,245	208,911
Equity attributable to equity holders
Ordinary share capital	9,916	9,963	9,916	9,963
Share premium account	29,020	29,743	29,020	29,743
Special reserve	233,866	233,866	233,866	233,866
Non-distributable reserve	32,069	32,069	32,069	32,069
Foreign currency translation reserve	497	-	-	-
Capital reserves	(162,952)	(108,055)	(171,385)	(108,172)
Revenue reserve	13,699	11,308	13,759	11,442
Total attributable to equity holders	156,115	208,894	147,245	208,911
Non-controlling interests	11,038	-	-	-
Total equity attributable to Group/Company	167,153	208,894	147,245	208,911
Net asset value per ordinary share
Basic - pence	157.44	209.67	148.50	209.68

CASH FLOW STATEMENTs

		GROUP		COMPANY
for the year to 30 June	2013	2012	2013	2012
	£'000s	£'000s	£'000s	£'000s
Cash flows from operating activities	12,779	10,092	12,430	10,123
Investing activities
Purchases of investments	(50,573)	(46,593)	(47,146)	(58,842)
Sales of investments	51,363	44,860	60,889	48,567
Purchases of derivatives	(6,977)	(14,055)	-	(899)
Sales of derivatives	3,741	12,185	(1,400)	1,266
Exploration and evaluation expenditure	(139)	-	-	-
Cash from acquisition of subsidiary	3,766	-	-	-
Cash flows on margin accounts	4,035	(4,036)	-	-
Cash flows from investing activities	5,216	(7,639)	12,343	(9,908)
Cash flows before financing activities	17,995	2,453	24,773	215
Financing activities
Equity dividends paid	(9,714)	(6,745)	(9,714)	(6,745)
Movement on loans	41,247	(31,551)	41,247	(31,551)
Cash flow from issue of ZDP shares	23,209	40,240	15,955	40,240
Cash flow from redemption of ZDP shares	(67,801)	(2,007)	(67,609)	-
Issue of share capital in subsidiary	2	-	-	-
Proceeds from warrants exercised	-	2	-	2
Cost of shares purchased for cancellation	(770)	(539)	(770)	(539)
Cash flows from financing activities	(13,827)	(600)	(20,891)	1,407
Net increase in cash and cash equivalents	4,168	1,853	3,882	1,622
Cash and cash equivalents at the beginning of the year	4,879	1,293	4,541	1,206
Effect of movement in foreign exchange	(823)	1,733	(842)	1,713
Cash and cash equivalents at the end of the year	8,224	4,879	7,581	4,541

Comprised of:
Cash and cash equivalents	8,456	8,246	7,581	7,908
Bank overdraft	(232)	(3,367)	-	(3,367)
Total	8,224	4,879	7,581	4,541

NOTES

The Directors have declared a final dividend of 3.75p per ordinary share in respect of the year to 30 June 2013 payable on 18 October 2013 to all ordinary shareholders on the register at close of business on 4 October 2013. The total cost of the dividend which has not been accrued in the results for the year to 30 June 2013, is £3,718,000 based on 99,157,214 ordinary shares in issue at the date of this report.

The Company is an investment company incorporated in Bermuda and listed on The London Stock Exchange.

The consolidated Accounts for the year to 30 June 2013 comprise the results of the Company and its subsidiaries Utilico Finance Limited, Bermuda First Investment Limited and Zeta Resources Limited and its special purpose entity Global Equity Risk Protection Limited.

This statement was approved by the Board on 17 September 2013. It is not the Company's statutory accounts. The statutory accounts for the financial year to 30 June 2013 have been approved and audited, and received an audit report which was unqualified and did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report. The statutory accounts for the financial year to 30 June 2012 received an audit report which was unqualified and did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report.

The Report & Accounts will be posted to shareholders in early October and are made available on the website www.utilico.bm. Copies may be obtained during normal business hours from Exchange House, Primrose Street, London, EC2A 2NY.

By order of the Board

ICM Limited, Secretary

17 September 2013

 

END

 

 

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