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Hirco plc (HRCO)

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Wednesday 29 February, 2012

Hirco plc

Annual Report & Accounts 2011 and Notice of AGM

RNS Number : 3229Y
Hirco plc
29 February 2012

29 February 2012


Hirco plc


Publication of 2011 Annual Report & Accounts and Notice of AGM


London - Hirco plc (AIM: HRCO), announces the publication of its 2011 Annual Report & Accounts (the "Annual Report") for the year ended 30 September 2011 and Notice of AGM. 


The Chairman's Letter, as set out within the Annual Report, is reproduced below.  To view the full Annual Report (including the financial statements and notes to the accounts), please paste the following URL into the address bar of your browser. 


Chairman's Letter


The year ended 30 September 2011 has been transitional following significant Board changes. Three Company directors have stepped down since our last annual report and two new directors, John Chapman and Eitan Milgram, have joined the Board. John is a New York based lawyer with extensive experience in both the offshore closed end fund universe and the property sector while Eitan is a representative of one of our largest shareholders. We have appointed new valuers and have retained a respected development consultant to advise the Board on the progress of the developments. In June, we completed a placing raising approximately £11m after expenses so the Company could continue to pursue its strategic objective of realizing shareholder value.


As we have previously reported, the overall development timelines for the projects have lengthened considerably and the upstreaming of cash is unlikely for the foreseeable future. Given this economic reality, the Board has focused on the Company's cost structure. We have terminated all Company employees, renegotiated contracts where possible, closed our US office, and centralised Company administrative functions in the Isle of Man. It is expected that this cost cutting will save the Company about £2m annually.


During the full year ended 30 September 2011 we reported an after-tax loss of £273.3m, representing a loss per share of £3.30 based on a weighted average of 82.8m shares outstanding. This loss is primarily non-cash and represents the Board's decision to write down the Company's investments based on CBRE's new valuation. Administrative expenses were £3.3m and included £0.9m of exceptional restructuring costs and £1.1m of operating costs for subsidiary companies that are no longer active. Consequently the Company's net asset value declined to £251.3m, or £2.50 per share as compared with 2010's NAV of £513.5m or £6.71 per share. The Company continues to accrue the 12% return on the participating preference share interests in the Burke Companies; however, there is no clear visibility as to when that accrual will be paid in cash.


This past August we retained CBRE's Mumbai office in place of Jones Laing LaSalle ("JLL"), who had been the Company's valuers since its inception. The CBRE valuation of the Company's assets as at 30 September 2011 was £342m as compared with the JLL valuation as at 30 September 2010 of £824m (restated at 2011 exchange rates). The primary reasons for this considerable difference are: (i) a general decline in the Indian economy; (ii) different assumptions regarding the cost of capital (CBRE used a blended rate of 27% across the two schemes while JLL had used 13%); (iii) delays in key infrastructure investments; and (iv) a substantially longer time horizon. Consequently, the Directors have made an impairment provision against the investments as detailed in note 12 to the accounts. Note 12 has also been expanded to provide additional information regarding the underlying net assets of the Burke companies.


CBRE's valuation of £342m is based on the developments' current anticipated product mix. But, given changes in the Indian property market since Hirco was admitted to trading, CBRE believes that the current development plan should be reassessed, in some areas radically, to optimise likely returns. Under this "best use" scenario, CBRE is of the view that the developments would be valued at £501m. The developer, Hiranandani Developments Private Limited, "HDPL", retained Cushman Wakefield International to conduct their own valuation based on the developer's current plans. Cushman Wakefield has valued the assets based on the developer's current plans at £550 million. Given this discrepancy, the Board asked the developer to comment on the CBRE valuation, but never received any detailed commentary. Consequently, the Board has considered it prudent to accept CBRE's lower valuation figure of £342m, which assumes the current development mix is maintained. Shareholders should keep in mind, however, that although third party valuations are useful (and required by the accounting standards we have adopted) they are all to some degree speculative especially given the projects' long time horizons and concomitant sensitivity to discount rates.


Project Progress


We track the projects' progress primarily by analysing monthly and quarterly reports HDPL provides. In addition, this past June the Board visited both Panvel and Chennai to assess for itself the progress that HDPL has made on these two developments. While in Mumbai, Panvel and Chennai, we met with HDPL representatives and Mr. Niranjan Hiranandani to discuss construction progress and other issues. We have also retained an experienced London-based construction and development firm to review and analyse the progression of the projects. They (assisted by their Indian associates) have spent substantial time both on site in Panvel and Chennai and meeting with development personnel. They along with the Board carefully review and analyse the periodic reports HDPL provides and are in communication with HDPL and its representatives.


According to the information HDPL has provided, progress on construction has been substantial while progress on sales has been modest. Progress on Phase One of the residential components of Panvel and Chennai may be summarized as follows:




No. Units


Sept 2010


Sept 2011


Dec 2011


at Dec



At Dec 2011








4244 rupees







4947 rupees



Whilst there have been a net reduction at Chennai of 82 units, the overall average sales price has held firm at 4244 rupees per square foot ("sqft") with new sales.


Progress continues to be reported at Panvel with 242 new sales and the average price of sales is up from 4710 rupees per sqft at September 2010 to 4947 rupees per sqft currently.


Chennai has seen 152 completed units handed over to buyers and full completion of phase 1 is scheduled for June 2014. At Panvel, first completions are scheduled in November 2012 and final completion of phase 1 is scheduled for November 2014.


This year the developer decided to commence construction in February 2011 of two office buildings at Panvel. The basic details of these buildings are as follows:




Commence Date

Completion Date

No. of Storeys

Gross Floor Area



Feb 2011

May 2013


1.1m ft2


Feb 2011

Feb 2013


0.8m ft2



These buildings are being constructed on a speculative basis and we understand an active letting campaign will commence in the latter part of 2012.


To give these numbers some context, shareholders should note the massive size of the two township developments. The overall zoning that has been achieved comprises over one hundred million square feet of developable area. By way of reference, London's Canary Wharf comprises approximately 15 million square feet of developed space. Currently about eight million square feet is under development - representing about eight per cent of the total developable area. Especially with respect to Panvel, the rate of development, product mix, and the take up are highly dependent on the development of needed infrastructure, including an International Airport and better connections with south Mumbai. Resolution of these issues is difficult to predict.


The economic outlook in India over the last year has been disappointing and growth in the economy has been below consensus forecast. The Reserve Bank of India has used successive interest rate rises to reduce the high levels of inflation, though without conspicuous success, and the Rupee over the period of this report has depreciated against most major currencies. There has also been something of a political impasse, which has resulted in a distinct lack of progress on economic reforms and on major infrastructure projects, including those key to the projects in which the Company has invested. With national elections due in 2014 and against the very uncertain global economic outlook, it is hard to see a rapid recovery and progress in all these areas.


The result of this uncertain outlook means that the timelines for the projects in which the Company is invested will be extended further and, given that currently less than ten per cent of the total planned development is currently under construction, it is clear that Panvel and Chennai will not be completed for at least another decade. Of more tangible and immediate importance is the likely financial result of the eight million square feet of construction that is currently underway and due for total completion in 2014. Given the advanced rates of residential sales and data provided in the monthly reports the Board believes that a sensible projection should be possible as to the likely surplus (profit and cash) arising from the Phase 1 works. Based on advice we have received from our development consultant, we have provided HDPL with an indicative assessment of a likely surplus for comment.


The Board continues to communicate where possible with the Hiranandani Family notwithstanding an opaque interfamilial legal dispute currently under arbitration. Because the arbitration by its nature is private, we have limited visibility into either its substance or current procedural posture - though we have been informed that it may be resolved this year. We are hopeful that resolution of this dispute will improve communication with our partners. We are also hopeful that surplus cash, as noted above, can be disbursed from the project companies. At the same time we are considering other ways of protecting our shareholders' investment, including enforcing our contractual rights in an appropriate forum.


I look forward to writing next when we release our mid-year results.


David Burton


The Annual Report will shortly be available on the Company's website in accordance with Rule 26 of the AIM Rules for Companies at:


Hirco also announces that its Annual General Meeting will be held at 11.30 a.m. on 28th March at the offices of Cains Advocates Limited, Fort Anne, South Quay, Douglas, Isle of Man, IM1 5PD.  Notice of the Annual General Meeting and proxy forms have been sent to all registered shareholders and will also shortly be available on the Hirco website (as set out above).




Nigel McGowan

Company Secretary

[email protected]


Singer Capital Markets Limited

James Maxwell/Nick Donovan (Nominated Adviser)

James Waterlow (Sales)

+44 (0) 20 3205 7500


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