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Hirco plc (HRCO)

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Tuesday 24 May, 2011

Hirco plc

Hirco Reports Interim Results

RNS Number : 1396H
Hirco plc
24 May 2011


May 24, 2011


Hirco PLC

("Hirco" or the "Company")





Profit of £27.2 million (2010 first half profit £36.0 million)

Net Asset Value increases to £7.07 from £6.71 per share

Continued progress in construction

Strategy Update

Further Board Changes



LONDON - Hirco PLC (AIM:HRCO), the AIM-quoted real estate investment company, today announced its interim results for the six months ending 31 March 2011.




·    As of 31 March 2011, Hirco's Net Asset Value ("NAV") was £7.07 per share, up 36 pence from a NAV of £6.71 per share as at 30 September 2010 essentially due to the accrual of the preference dividend.


·    For the six month period ended 31 March 2011, Hirco reported a profit for the period of £27.2 million, representing earnings per share of £0.36 based on 76,526,984 shares outstanding.


·    Hirco's investment in the four developments - Chennai Residential, Chennai Commercial, Panvel Commercial, and Panvel Residential (the "Projects") - was approximately £350.8 million when made. The last valuation conducted by Jones Lang LaSalle Meghraj was as at 30 September 2010 at which time Hirco's NAV for accounting purposes was calculated as £513.5 million.


·    As of 31 March 2011, sales for the Chennai developments  relates to approximately 1.83 million square feet and sales consideration collected of INR 3.8 billion (approximately £52.3 million) on total sales contracts of INR 7.6 billion (approximately £ 104.7 million)  (49.96% of total contract value) was INR 4,167.


·     As of 31 March 2011, sales consideration for the Panvel developments had been accepted on approximately 2.69 million square feet and sales consideration collected of INR 1.7 billion (approximately £23.2 million) on total sales contacts of INR 13.1 billion (approximately £180.7 million) (12.85% of total contract value).

Chairman's Statement


Shareholders will be aware from the statement made at the Annual General Meeting ("AGM") on 14 February 2011 (the "AGM Statement") that the Hirco Board has been dealing with a number of challenges in 2011.


The main focus since the AGM has been on downsizing the operations of the Hirco group and seeking to reduce operating costs to below £2 million per annum (they were over £4 million in 2010).  In part this has been achieved by centralising functions in the Isle of Man.  This exercise has now largely been completed, and whilst the benefit is not seen in these results due to non-recurring costs associated with the restructuring, the current annual run rate of expenditure is now down to approximately £1.6 million.


We have also continued to explore with our advisers and certain key shareholders raising additional funding to meet Hirco's working capital requirements for the medium term and to help it meet its strategic goals.  A further announcement regarding these matters will be made presently.




In the period commencing on 1 October 2010 and ending 31 March 2011, we reported a profit for the period of £27.2 million, essentially due to the accrual of the preference dividend in the Projects.  There was no movement in the fair value of the investments in this period as the equity element (Hirco's residual profit share in the Projects) had been fully provided for previously.


The Company's net asset value has increased during the period to £7.07 per share (from £6.71 per share) reflecting the accrued dividend from the Projects.


The Company's total expenditure for this period stood at £2.4 million which is comparable with the same period last year.  However, this expenditure includes a significant amount of non-recurring expenditure in relation to the restructuring of the Company during the last few months.  The total non-recurring element of approximately £0.8 million of expenditure for restructuring of the Company means that the Company's underlying expenditure was around £1.6 million for the six month period.  Within that figure however there is a considerable difference between the first and second quarters during which time the Board has been reducing the cost base of the Company considerably.  As a result our annualized run rate of expenses is currently estimated at approximately £1.6 million.




We have referenced on numerous occasions the continuing prospect of Hirco and the relevant members of the Hiranandani family (the "Family") merging their respective interests in the underlying real estate developments.  This would also simplify Hirco's investment structure and improve transparency as a fully integrated development company, as well as potentially providing opportunities for the enlarged group to grow by pursuing additional development opportunities.  The Board continues to believe a merger of interests would also represent an obvious solution for Hirco and its shareholders - but only if on acceptable terms.


Discussions regarding a potential merger continue to be hampered by the fact that the Family has a number of constituent elements and that arbitration proceedings are ongoing between the former Family Board members.  Hirco is not party to these legal disputes but the Board understands that they need to be addressed before the Family (as a group) is in a position to contribute the assets required to effect a merger.  Since February, limited discussions have been held with one constituent element of the Family regarding the terms on which they may be prepared to effect a merger following that part of the Family putting forward a proposal which, however, did not meet the criteria set out by the Board in the AGM Statement. 


The principal term of this proposal was that the Family should obtain control of Hirco, through 50% of the voting rights of Hirco, without the contribution of cash or any additional assets to the merged group which would, in the view of the Board, be necessary to balance the current significant disparity between the accrued economic interest of the Company and that of the Family.  The Board, consistent with the views of key shareholders (with whom it was asked to consult), concluded that this offer was not a basis for meaningful discussion.


It remains the Board's position that any transaction which it might put to shareholders would have to (a) be one it considers in Hirco's best interests to be fair and reasonable and satisfying the requirements of the AIM Rules, (b) be premised on a robust analysis of the relative values of contributed assets and Hirco's current interests and (c) putting in place a governance regime for the enlarged group which is consistent with market best practice.  Within these parameters the Board remains willing to engage in discussion and recognises the need for a pragmatic and commercial realignment of interests. 


In the light, inter alia, of the current differences of views as to a realistic merger ratio, relations with the Family remain strained. The relationship is now necessarily on a more formal footing, with Hirco needing to rely on its legal rights rather than aligned interests. The Board is nevertheless fully aware of the need to work constructively with the Family towards a merger and/or other strategies which will meet the Board's objectives for creating shareholder value, and is therefore considering in particular the following actions:


1.   to continue to explore with the Family and its constituent parties the basis on which each would be prepared to effect a merger and to arrive at terms which the Board believes would be acceptable to shareholders. Given the current differences in valuation expectations and the need for the Family arbitration to be settled, this is a key focus of the Board; but it is likely to take further significant time to effect.  The merger proposal received by the Board from one constituent element of the Family since 14 February 2011 has done little to increase the Board's confidence that a merger will be consummated.  Given these uncertainties, the Board is of the view that considering additional strategies may also be required;


2.   to explore any alternative mechanisms for accelerating cash flow to shareholders.  This may include, for example, seeking a purchaser of both Hirco and the Family's interests in the relevant Projects with a view to realizing value for the current shareholding and/or returning capital to shareholders and re-negotiating the contractual agreements with the various Family entities.  The Board believes that there a number of potential parties who may be in a position to propose such a transforming transaction or alternatively might wish to purchase Hirco's and/or the Family's interests in the Projects; and


3.   pending such strategies being pursued, seeking to ensure that the contractual and other legal protections available to Hirco are fully secured, monitored and, if necessary, enforced in order to best preserve the value of Hirco's investments in the Projects. Similarly, continued pressure being applied to effect covenant releases from the Projects' lenders to facilitate distributions to Hirco and onwards to shareholders.


Following the departure of both Family Board members and Hirco's programme of cost cutting measures, Hirco engaged KPMG to review both compliance with information requests pursuant to its contractual rights and areas of expenditure.  In relation to the former, Hirco has issued formal requests for information and is awaiting delivery of all outstanding documentation.  In relation to the latter, Hirco is investigating items of expenditure highlighted by KPMG and will be seeking to establish that they have been properly allocated between Hirco and the Project owners/developer.




Following a review of the Board structure, the Board announced on 20 May 2011 the appointment of John D. Chapman as an additional non-executive director of the Company.  Mr Chapman, aged 55, is a qualified lawyer and a Chartered Financial Analyst.  He has extensive experience as a hands-on non-executive director of AIM-quoted property companies investing in India and other emerging market companies.  He has also worked as an adviser to various U.S. and foreign governmental bodies on law enforcement issues and has worked as a white collar criminal prosecutor in the United States and as a commercial litigator handling complex commercial litigation. 


Mr Chapman will be charged with overseeing any major decisions in connection with legal disputes that Hirco may have in the course of its strategy together with working with his fellow directors in pursuance of Hirco's stated strategies.




The information below has been extracted from reports provided to Hirco by the project companies and from a Board briefing by Niranjan Hiranandani.  We will shortly post on our website,, pictures and other information relating to the Projects.


The Chennai Residential Township


At 31 March 2011, there are currently 19 buildings of the 32 residential buildings under construction at various levels of completion and one small office plaza under consideration.   There have been 4 buildings handed over with a further 7 scheduled for hand-over in the next several months.  


During the period 1 December 2010 to 31 March 2011, 80 units were sold and the number of cancellations was 89 resulting in a net decrease of 9 units.  The total square footage sold was 89,310 with cancellations of 121,579 resulting in a net decrease of 32,269.  The cumulative average price per square foot was INR 4,157   Sales consideration has been accepted on 1,835,213 square feet and sales consideration collected of INR 3,820,676,000 (approximately £52.6 million) on total sales contacts of INR 7,647,363,978 (approximately £105.3 million)  (49.96% of total contract value).

The number of units available for sale at 31 March 2011 was 2,785.  Of the total number of units available, 1,471 have been sold (52.8%).  The 1,471 units that have been sold comprise 1,179 retail sales and 292 bulk sales.


As previously reported in December, as at 30 November 2010 sales consideration had been accepted on approximately 1.9 million square feet of buildable area at a cumulative average price of INR 4,168 (£60) per square foot. The value of sales contracts in the Chennai township at 30 November 2010 was approximately £110.2 million.


The Panvel Residential Township


At 31 March 2011, there are 27 residential buildings planned and 3 office buildings under consideration.


During the period 1 December 2010 through 31 March 2011, the number of units sold was 162 and the number of units cancelled was 16, resulting in a net increase of 146 units.  The total square footage sold was 199,915 with cancellations of 19,121 square feet for a net increase of 180,764.  The cumulative average price per square foot was INR 4,873.  Sales consideration has been accepted on 2,691,595 square feet and sales consideration  collected of INR 1,685,527,000 (approximately £23.2 million) on total sales contracts on INR 13,116,225,000 (approximately £180.7 million)  (12.85% of total contract value).  The total number of units available is currently 2.788 of which 2,394 are under contract (85.9%).  Of the 2.394 units sold, 1.223 are bulk sales (51.1%).  The first building is scheduled to be completed in December 2012.


As previously reported, as at 30 November 2010, sales consideration had been accepted on approximately 2.5 million square feet of buildable area at an average price of INR 4,755 (approximately £67) per square foot. The value of sales contracts in the Panvel township at 30 November 2010 was approximately £169 million.


The government authority responsible for the cross harbour expressway implementation has been vested in the Mumbai Metropolitan Region Development Authority (MMRDA) The development for the airport has received environmental clearance and a new expressway is being planned from Mumbai city center to Panvel.  These events have resulted in an increased interest in the Panvel township and are very welcome.



David Burton

Chairman of Hirco PLC






Hirco                                                                           Gutenberg Communications

David Burton, Peter Barge and Nigel McGowan           US - Hugh Burnham / Michael Gallo

+44 1624 647069                                                        +1 212 239 8595 / +1 212 239 8594

[email protected]                                                         [email protected]
[email protected]

HSBC Bank plc (nominated adviser)                                    

Nic Hellyer                                                                  

+44 20 7991 8888


Please see the attached PDF for the full release including financials:




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