UIL achieved a NAV total return per ordinary share of 47.1% over the year to 30 June 2016, outperforming the FTSE All Share Total Return Index by an impressive 44.9%. The Board maintained total dividends at 7.50p per share which represents a yield on the closing share price of 130.75p of 5.7%. Looking forward the Board expects to maintain the current dividend profile. Undistributed revenue reserves carried forward rose, due to the buybacks, to some 11.56p per share.
Over the year Sterling fell against the US Dollar, Euro, Australian Dollar and New Zealand Dollar by 15.0%, 14.8%, 12.3% and 19.3% respectively. This clearly benefited UIL’s predominantly long non-Sterling investment portfolio. UEM’s share price on 30 June 2016 was 192.00p, a discount of 9.9% to the diluted NAV for UEM of 213.10p. A look-through valuation of UEM, Somers, Zeta and BFIC would increase UIL’s NAV by 13.4% to 273.50p per share. If the brokers’ look-through valuation for Infratil of some NZ$4.00 per share was reflected in UIL’s NAV, this would increase the look-through valuation by a further 2.5% to 279.50p.
The stand out performers, especially in the last six months, have been gold mining companies. Resolute’s share price rose by 326.7% and was the top ASX 300 performer in the year to 30 June 2016. The other stand out sector in these markets continues to be technology and FinTech companies. UIL has benefited from its exposure to both the gold and technology sectors. During the year to 30 June 2016, UIL made net withdrawals of GBP22.4m from its platform investments. Key realisations included GBP31.3m from Infratil, GBP6.1m from UEM and GBP1.1m from BFIC. Key investments were GBP6.6m into Somers, GBP6.1m into Zeta and GBP3.3m into Vix Investments Limited (“Vix Investments”).
UEM is UIL’s second largest investment accounting for 17.7% of the portfolio at the year end. In the year to 30 June 2016, UEM delivered another solid result, achieving a total return of 7.9% significantly, ahead of the MSCI Emerging Markets Total Return Index (Sterling adjusted) which grew by 3.9%. UEM’s performance over three and five years to 31 March 2016 has again been significantly ahead of the Index, with it achieving positive total returns of 7.6% and 32.5% respectively versus the MSCI Emerging Markets Total Return Index (Sterling adjusted) which had negative returns of 7.0% and 8.1% respectively over these time periods. The market environment continues to be challenging with most key emerging market indices negative over the twelve months to 30 June 2016, with China a notable underperformer with Hong Kong’s Hang Seng Index down by 20.8% and the Shanghai SE Composite Index down by 31.5%. Emerging market currencies also continue to be difficult, although much of UEM’s strong performance in June 2016 was due to the sharp decline in the value of Sterling following the largely unexpected result of the UK’s EU membership referendum at the end of June. Over the year to 30 June 2016, Sterling fell by 15.2% and 9.4% against the Hong Kong Dollar and Chinese Renminbi. In the year to 30 June 2016 UIL reduced its holding in UEM by 7.9% with the sale of 3.5m shares, realising GBP6.1m.
Somers’ reported NAV per share decreased to US$17.03 as at 31 March 2016 from US$17.56 as at 31 March 2015, a decrease of 3.0%. Adding back dividends over the 12 months to 31 March 2016 the Somers total loss was 0.6%. Somers, a financial services investment company, is listed on the Bermuda Stock Exchange (“BSX”) and its share price has remained virtually unchanged in the 12 months to 30 June 2016, decreasing slightly from US$14.00 to US$13.75 and the discount to the NAV has reduced to 17.7% from 25.4% last year. Somers is classified as an investment company under IFRS 10 and, accordingly, values its investments at fair value. Somers’ two biggest investments remain Bermuda Commercial Bank Limited (“BCB”) and Waverton Investment Management Limited (“Waverton”). BCB reported total revenue of US$13.5m for the six months ended 31 March 2016 (31 March 2015: US$13.9m). Following the acquisition of a majority interest in Private & Commercial Finance Group plc (“PCFG”) in September 2015, consolidated core earnings have improved with net interest income of US$14.1m for the six months (2015: US$6.1m). This improvement was offset by a reduction in BCB’s investment portfolio, leaving an overall net loss of US$3.9m for the six month period (2015: net income US$2.1m). As at 31 March 2016, the value of BCB’s holding in PCFG, on a mark to market basis, has increased by US$5.0m since acquisition and this unrealised gain is not included in the foregoing results.
PCFG’s portfolio performance and profitability in the 12 months to 31 March 2016 has outperformed management’s objectives. New business originations were GBP63m, up from GBP56m last year, while the car and commercial finance portfolio of finance receivables grew by 12% to GBP112m. The quality of PCFG’s loan book improved again over the period, while loan loss provisioning continued to reduce.
Waverton’s assets under management (“AuM”) were GBP4.5bn as at 31 March 2016 (30 September 2015: GBP4.3bn). For the six months ended 31 March 2016, Waverton earned revenue of GBP15.8m (March 2015: GBP16.0m), EBITDA of GBP3.8m (March 2015: GBP5.2m) and profit before tax of GBP3.7m (March 2015: GBP4.8m). The year on year financial results were impacted by a lower average AuM driven by weaker capital markets and increased property costs due to Waverton moving into new premises in September 2015.
Ascot Lloyd Holdings Limited (“Ascot Lloyd”), one of Somers’ strongest performing investments, had assets under administration at 30 June 2016 of approximately GBP2.5bn. Importantly for an independent financial advisory business, Ascot Lloyd’s recurring income has grown to approximately GBP14m on an annualised basis. For the six months ended 30 June 2016, Ascot Lloyd reported unaudited revenue of GBP9.6m, profit before tax of GBP0.4m and underlying EBITDA of GBP2.4m.
Zeta’s net tangible assets (“NTA”) per share fell by 27.8% in the year to 30 June 2016. Over this same period, Zeta’s share price fell by 55.0%, from A$0.40 to A$0.18. The share price discount to NTA at the end of June 2016 was 41.6%. Zeta’s investments in oil and nickel were affected by falls in those commodity prices, which were down over the year by 21.9% and 21.2% respectively. In contrast, the price of gold on a US Dollar basis was up by 12.8%. As Zeta employs debt capital, changes in the share prices of its underlying investments have a magnified effect on Zeta’s NTA.
Aside from Resolute (discussed below), Zeta’s three largest investments are an oil and gas producer, New Zealand Oil and Gas Limited (“NZOG”), Australian-based oil junior Pan Pacific Petroleum NL (“PPP”), and Australian nickel company Panoramic Resources Limited (“Panoramic”). In the wake of lower oil prices, NZOG has curtailed exploration and moved to reduce costs; in the year to 30 June 2016, NZOG’s share price fell by 15.5%. Similarly, PPP has also cut back on exploration and reduced costs; PPP’s shares fell by 19.4%. At the end of 2015, Panoramic decided to put its operations on care and maintenance rather than continue to produce nickel uneconomically; its share price closed the financial year down by 72.8%.
Infratil had, what its managment deemed to be, a “satisfactory” year, continuing to deliver on a commitment to realise value through asset sales. In the year to March 2016, Infratil completed sales of Z Energy and iSite Limited, disposing of its remaining 20% stake in the former for NZ$480.0m and its 100% holding in the latter for NZ$49.0m. The investment returns on these sales were particularly impressive, with the NZ$392.3m net gain realised on Z Energy equating to a 48.4% annualised IRR over 5.5 years and the NZ$27.0m net gain recorded for iSite Limited equating to a 30.0% annualised IRR over 6.5 years. As a consequence, Infratil’s net surplus reached a record NZ$438.3m, up from NZ$383.5m in the prior year.
Infratil’s underlying EBIDAF registered a 2.5% year-on-year increase in the financial year to 31 March 2016. Strong growth at NZ Bus and RetireAustralia offset a flat result at Trustpower, which remains challenged by low wholesale pricing and generation-overcapacity. While NZ Bus has benefited considerably from productivity-focused investment, RetireAustralia has seen strong momentum in both sales and pricing, which has lifted profitability. Meanwhile, Wellington Airport delivered another consistent performance, with growth of 4.9% in earnings before interest, tax, depreciation, amortisation and fair value adjustments (“EBITDAF”) benefiting from a strong uplift in passenger numbers (domestic +4.6%; international +16.0%). Going forward, growth should reflect new investment in route development – with the airport now part way through a NZ$300m investment upgrade programme – and scheduled increases in aeronautical charges.
The divestment of assets over the past several years has left Infratil with significant capacity for capital deployment, with over NZ$1bn in cash and undrawn bank facilities available. Investments across a number of sectors, including renewable energy, retirement & elderly care, waste and telecoms infrastructure, are currently being considered. Moreover, the demerger of Trustpower gives Infratil the opportunity to deploy significant capital for the expansion of wind farm developments. In the year to 30 June 2016, Infratil’s share price increased by 1.3%. UIL reduced its holding in Infratil by 60.6% with the sale of 21.5m shares at an average price of NZ$3.22, realising GBP31.3m.
BFIC’s share price was unchanged over the year to 30 June 2016. BFIC’s investee companies are beginning to reflect the improvement in Bermuda’s economy over the last 12 months as infrastructure projects in advance of the 2017 America’s Cup start to benefit the island. Bermuda’s GDP grew in 2015 for the first time in a number of years and, with increased tourism and business investment, the outlook is benign.
BFIC’s two major investments remain KeyTech Limited (“KeyTech”) and Ascendant Group Limited (“Ascendant”). During the year KeyTech completed a significant transaction with the acquisition of the 58% of Cellone (one of Bermuda’s two mobile networks) it didn’t already own and the investment in KeyTech by ATN International Inc (“ATN”) of BM$42m, which has resulted in ATN becoming a 51% shareholder in KeyTech. As a result of this investment, KeyTech was able to pay a special dividend of BM$0.75 per share, to reduce its net debt and to bring forward some of its capital expenditure plans in both Bermuda and the Cayman Islands. Ascendant reported much improved results in 2015 with operating profit doubling. This was the result of stronger sales driven by the improving Bermuda economy and reduced operating costs. Ascendant has been working with the Bermuda Government and recently submitted an integrated resource plan which focuses on the energy future of Bermuda, including the potential conversion of generation facilities to liquefied natural gas.
As at 30 June 2016, BFIC had total assets of BM$25.2m and reported a net profit for the twelve months of BM$1.9m. BFIC shares were untraded on the BSX in the year, but remained quoted at a bid price of BM$10.00. As a result, the holding in BFIC has been moved from level one to level two. As support for the bid price UIL has looked through to fair value of both Ascendant and Keytech, its two significant investments.
Vix Investments is an unlisted investment company holding a number of unlisted investments in technology companies, primarily related to FinTech. The largest holding in Vix Investment is Optal, which provides payment solutions to travel agents, principally as an issuer of single use Mastercard numbers. This allows agents to secure and pay for bookings through the Mastercard system, using a virtual card number linked to an individual transaction. In the year to 31 December 2015, Optal’s revenue was up to EUR81.3m and excluding disposals the profit before tax was up to EUR10.5m. Two former holdings of Vix Investments, Touchcorp and DTI Group, listed last year and UIL now holds its share of these investments directly.
UIL has four direct investments in the top ten: Resolute, Vix Technology Limited (“VixTech”), Touchcorp and Augean plc (“Augean”).
Resolute is UIL’s largest investment, accounting for 20.0% of the portfolio as at 30 June 2016 and is an Australian gold mining company. Resolute was the top performer on the ASX 300 in the twelve months to 30 June 2016. Its share price in the year to 30 June 2016 rose by 326.7% to A$1.28. This was a reflection of increased gold prices, a decline in the Australian Dollar/US Dollar exchange rate, and cost reductions by the company. A change in management has seen a shift in culture towards a lower risk, cost conscious business. This is evident in the move to underground from open pit mining at Syama and the early pre-payment of all of its longer duration debts, leaving the company with a much stronger balance sheet and a net cash position.
Production in the year to 30 June 2016 of 315,169oz of gold was down on the previous year’s production of 328,684oz. Resolute’s principal producing assets include the Syama gold mine in Mali and Ravenswood in Australia. Gold ounces produced at Syama decreased by 6.8% to 209,617oz while the company focused on processing ore stockpiles ahead of development of underground mining, while cash costs rose by 3.8% to A$830/oz. At Ravenswood gold ounces produced rose by 1.7% to 105,552oz, largely in line with the previous year. Cash costs per ounce at Ravenswood increased by 9.9% to A$1,033/oz, in part due to the processing of larger volumes of lower grade ore.
In the year to 30 June 2016 Resolute reported revenues up by 21% year-on-year, gross profits up by 135% and net profit after tax at A$213m versus a loss of A$569m in the prior year. At end-June, Resolute had cash and bullion on hand of A$102m compared to total borrowings of just A$27m. The A$15m convertible note offering which was completed in December 2014, partially sub-underwritten by UIL was converted and redeemed in June 2016. Net cash inflows for the year totalled A$139m and Resolute used a significant portion of that to repay debt.
Suring the year Resolute completed a definitive feasibility study for underground mining in Syama, with work expected to commence on development in September 2016. Successful development of underground mining in Syama is expected to extend the life of the mine by at least 10 years. Resolute has also completed a feasibility study to commence mining at the Bibiani gold project in Ghana. The results were positive, and Resolute proposes to undertake additional drilling in order to extend the study’s projected five-year mine life. Meanwhile at Ravenswood, Resolute is drilling with the aim of pursuing underground mining at Buck Reef West.Resolute has provided guidance for gold production of 300,000oz at an all-in-sustaining-cost of A$1,280/oz (US$934/oz) for the year to 30 June 2017.
VixTech is an unlisted company in which UIL has a 39.8% holding. VixTech is a global leader in smart booking, ticketing, payments, real-time information and data management solutions for large-scale transport networks, with a customer base of more than 200 customers worldwide. VixTech leverages more than 25 years of industry experience designing, operating and maintaining proven next-generation ticketing, payment and loyalty platforms to help governments and businesses manage around five billion transactions a year and create new ways to connect with their customers. Harnessing the latest technologies, VixTech now also works with major sporting clubs, mining communities and event venues to boost engagement, save resources and enable powerful data-driven loyalty and reward schemes through simple solutions that achieve measurable growth and increase customer satisfaction. VixTech has a long history of successful transit ticketing and payment solutions in regions including Singapore, Hong Kong, USA, UK, Sweden and France. VixTech developed the world’s largest payment central clearing house in Beijing before the 2008 Olympics, capable of processing more than 10 million passenger journeys per day.
Over the year to 30 June 2016, VixTech continued to deliver on its short term objectives to improve the quality of the order book, which resulted in a 29.6% increase in revenues. However, following management changes, VixTech is at the start of a transitional period to ensure that going forward it can operate more efficiently as a global, unified player. As a result, VixTech has incurred an increase in operating costs, resulting in EBITDA for the period falling by 68.0%.
Management’s drive to expand geographically and increase its product offering continued throughout the year as it managed to secure a second contract with the Malaysian government authority, SPAD, to introduce a second transit ticketing system, enabling Malaysians in the near future to travel on bus, rail and monorail networks with one single smartcard. In addition, VixTech secured a contract with STIB, the Brussels’ transport authority, to implement a new transit ticketing back office system, integrating multiple bus, tram and rail operators and operating systems into a single core platform. VixTech’s pipeline remains robust as a number of opportunities are arising from major clients which should in the near future provide a solid sustainable uplift in revenue. The transitional period of making VixTech a more unified global player should result in the medium term in additional margin expansion which, if delivered and sustained, will result in a significant positive revaluation of the company.
Touchcorp is an Australian headquartered FinTech company, operating in Scandinavia, Europe, South-East Asia and the Australia Pacific regions. Touchcorp provides value-added products and services, including payment services, to retailers and to the providers of prepaid mobile phones, prepaid cards and to health and government organisations, through channels including the internet, mobile devices and retail agents (e.g. convenience stores, newsagents and petrol stations), as well as directly to consumers on behalf of product and service owners.
Touchcorp continued to exhibit strong growth with reported revenue for the year to 31 December 2015 up by 70.8% and pre-tax profits up by 27.0%. During the year, Touchcorp developed a solution for Afterpay Holdings Limited (“Afterpay”), a company that allows e-commerce website operators to offer their customers the facility to pay for their purchases in instalments. Touchcorp owns 30% of Afterpay.
Afterpay successfully listed on the Australian Stock Exchange in April 2016, with its shares advancing strongly ahead of the A$1.00 IPO price. Afterpay is currently benefiting from strong growth, with the number of customers, end users, transaction values and revenues more than doubling in the quarter to 30 June 2016 compared with the quarter to 31 March 2016.
Augean is a UK-based company providing specialist waste management services across a variety of industries. Augean’s share price declined by 13.2% in the twelve months to 30 June 2016, despite Augean’s good financial progress. In its financial year to December 2015, revenues increased by 10.9% and EBITDA increased by 20.2%, underpinned by strong growth in the core energy & construction business. However, reported net income registered a decline of 66.8%, impacted by a one-off asset impairment. Adjusted profit before tax was up by 12.1% and dividends increased by 30.0% on the previous year.
Landfill volumes handled by the energy & construction unit recorded an impressive 30.8% year-on-year increase, buoyed by increased activity in the construction sector. However, a decline in higher-margin air pollution control activities acted as a drag on the segment’s EBITDA growth, which, at 15.0%, nonetheless exceeded expectations. In contrast, Radioactive Waste Services recorded a sharp 26.3% drop in volumes and 13.0% EBITDA growth as it is dependent on waste material from nuclear decommissioning. The Nuclear Decommissioning Authority reduced the release rate through 2015 but management anticipate a strong recovery from late-2016 to 2017.
Augean North Sea Services proved resilient in the year to December 2015, recording 34.0% EBITDA growth, albeit on relatively weak 2014 base-year figures. It is, however, worth mentioning that results in the second half of the year were significantly weaker than those in the first half, but new contracts relating to production platforms, onshore waste management and decommissioning, as opposed to exploration drilling waste management, are in line with management objectives to diversify the business away from oil-price dependent services. While the outlook for this segment is challenging, management are confident they can maintain profitability.
Unlisted investments were valued at GBP65.5m, 14.5% of the portfolio, as at 30 June 2016, up from GBP56.6m (15.5% of the portfolio), as at 30 June 2015. In addition, UIL has made loans to listed platform companies totalling GBP30.6m, some 6.8% of the portfolio, up from GBP25.8m, 7.0% at the previous year end. As these companies are listed, these loans are not regarded as an investment in an unlisted company.
UTL : UIL NAV soars