TIDMUEM
RNS Number : 4669R
Utilico Emerging Markets Trust PLC
14 June 2018
Date: 14 June 2018
Contact: Charles Jillings
ICM Investment Management Limited
01372 271 486
Gay Collins/Mike Foster
Montfort Communications
0203 770 7905
Utilico@montfort.london
Utilico Emerging Markets Trust plc
Utilico Emerging Markets Limited
Statement of Results
for the year to 31 March 2018
HIGHLIGHTS OF RESULTS
-- Net asset value ("NAV") total return per ordinary share of 6.6%
-- NAV of 247.22p per ordinary share, up 2.5%
-- Revenue earnings (diluted) per ordinary share of 9.04p, up 17.4%
-- Dividends per ordinary share increased to 7.00p, up 5.3%
NOTABLE DEVELOPMENTS
-- Ongoing charges reduced to 1.0%, of average net assets (no performance fee)
-- Subscription shares raised net proceeds of GBP51.6m
-- Invested GBP187.1m and realised GBP198.6
-- Bank debt repaid in full
Charles Jillings, Investment Manager of UEM commented:
"UEM's performance continues to be driven by bottom-up stock
selection. The portfolio is predominantly invested in relatively
liquid, cash-generative companies with long-duration assets that we
believe are structurally undervalued and offer excellent total
returns. Since inception over 10 years ago, UEM's track record of
performance is proven and we have every confidence that we will
continue to find investments offering attractive, long-term returns
for UEM in its new UK-domiciled home as Utilico Emerging Markets
Trust plc."
-- GROUP PERFORMANCE SUMMARY
31 March 31 March Change %
2018 2017 2018/17
------------------------------------------------ ----------- ------------ -----------
Total return(1) (annual) (%) 6.6 26.2 n/a
Annual compound total return(2)
(since inception) (%) 11.7 12.1 n/a
------------------------------------------------ ----------- ------------ -----------
NAV per ordinary share (pence) 247.22 241.29(3) 2.5
Ordinary share price (pence) 212.00 214.50 (1.2)
Discount (%) (14.2) (11.1) n/a
Earnings per ordinary share (diluted)(pence)
- Capital 4.53 43.90 (89.7)
- Revenue 9.04 7.70 17.4
------------------------------------------------ ----------- ------------ -----------
Total 13.57 51.60 (73.7)
------------------------------------------------ ----------- ------------ -----------
Dividends per ordinary share (pence)
- 1st Quarter 1.700 1.625 4.6
- 2nd Quarter 1.700 1.625 4.6
- 3rd Quarter 1.800 1.700 5.9
- 4th Quarter 1.800 1.700 5.9
------------------------------------------------ ----------- ------------ -----------
Total 7.000 6.650 5.3
------------------------------------------------ ----------- ------------ -----------
Equity holders' funds (GBPm) 579.8 532.2 8.9
Gross assets(4)(GBPm) 579.8 579.0 0.1
Ordinary shares bought back (GBPm) 21.9 10.0 119.0
------------------------------------------------ ----------- ------------ -----------
Cash (GBPm) 8.1 15.3 (47.1)
Bank debt (GBPm) - (46.8) (100.0)
------------------------------------------------ ----------- ------------ -----------
Net cash/(debt) (GBPm) 8.1 (31.5) (125.7)
Net cash/(debt) gearing on gross assets (%) (1.4) 5.4 n/a
------------------------------------------------ ----------- ------------ -----------
Management and administration fees
and other expenses (GBPm)
- excluding performance fee 5.7 5.2 9.6
- including performance fee 5.7 14.3 (60.1)
------------------------------------------------ ----------- ------------ -----------
Ongoing charges figure(5)(%)
- excluding performance fee 1.0 1.1 n/a
- including performance fee 1.0 2.9 n/a
------------------------------------------------ ----------- ------------ -----------
(1) Total return is calculated based on NAV per ordinary share
plus dividends reinvested from the payment date and adjusted for
the exercise of subscription shares
(2) Annual compound total return is calculated based on NAV per
ordinary share plus dividends reinvested from the payment date and
adjusted for the exercise of warrants and subscription shares
(3) Diluted NAV per ordinary share
(4) Gross assets less liabilities excluding loans
(5) Expressed as 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
CHAIRMAN'S STATEMENT
I am pleased to report that UEM has continued to deliver a
positive performance in the second half of the financial year,
achieving an NAV total return per ordinary share (adjusted for the
exercise of subscription shares) of 6.6% for the full year to 31
March 2018.
The past year has presented a challenging investment climate for
UK domestic emerging markets investors. Although most emerging
markets were strong over the past twelve months, this was partly
offset by a relative weakening of emerging market currencies
against Sterling which accelerated in the second half of the year.
At the same time, volatility, which had been at unprecedentedly low
levels for most of 2017, picked up significantly at the start of
2018. This was triggered by geopolitical concerns and trade
skirmishes initiated by the USA (Trump administration), which
heightened market risk. In this context the relatively stable
positive performance at UEM is a good achievement.
While the current year's performance of 6.6% is behind the MSCI
Emerging Markets Total Return Index (GBP adjusted) ("MSCI") of
11.6%, over a three-year period, UEM's return of 36.8% is
marginally ahead of the MSCI return of 36.3%. The short-term
relative performance mainly reflects the sectoral bias of UEM's
portfolio, which is predominantly invested in defensive
infrastructure and utility companies, whereas the MSCI is dominated
by more cyclical sectors such as information technology, financials
and consumer related companies. Indeed, as at 31 March 2018, the
four largest constituents of the index were technology companies:
Tencent Holdings, Samsung Electronics, Alibaba Group and TSMC,
accounting for 17.1% of the MSCI Index. Over five and ten years,
UEM's total return has been 48.5% and 125.0% respectively,
comfortably ahead of the MSCI, at 38.1% and 90.6%. UEM continues to
receive strong industry recognition, including being selected again
as one of Money Observer's rated funds for 2018.
Emerging market economies have been encouragingly strong in the
year to 31 December 2017. After a two-year recession, Brazil's GDP
growth returned to positive territory at 1.0%. China's reported GDP
growth accelerated to 6.9% driven by external trade and household
consumption. The Romanian economy grew at 6.8%, the fastest in the
EU, as a result of higher private consumption. India's GDP growth
of 6.4% reflected a strong pick-up in fixed investment, which
offset the impact of demonetisation. Argentina's GDP growth of 2.9%
belies the positive impact of the structural reforms being
implemented by the Macri government in an effort to normalise the
economy. Across most geographies in which UEM invests, the strong
economic growth has translated into major market indices moving
higher.
While GDP growth has been robust, inflation has remained
relatively subdued. This environment is highly supportive for
corporate earnings and valuations, and was evident in the
financials of UEM's investee companies. The profile of UEM's
investments remains largely the same, i.e. businesses that are
predominantly profitable, dividend-paying, cash generative and
offering attractive long-term total returns. These investee
companies continued to deliver steady growth in income and revenue
earnings per share for UEM, increasing by 17.4% to 9.04p. This is
particularly pleasing given that this is after the combined impact
of the increased number of shares in issue (following the exercise
of subscription shares) and also the currency headwinds from
Sterling's appreciation. The Board has declared four quarterly
dividends totalling 7.00p, an uplift of 5.3% in the year, with
dividends remaining fully covered by income. Ongoing charges were
1.0%, slightly lower than each of the previous three years and
there was no performance fee.
In September 2015 UEM announced (and the shareholders approved)
a one-for-five bonus issue of subscription shares. In February 2018
the final tranche of the subscription shares were exercised, with a
net total of 24.1m ordinary shares issued. Combined with the 4.1m
subscription shares exercised in August 2017, a net total of 28.2m
subscription shares were exercised, raising net proceeds of
GBP51.6m for UEM.
Despite the steady performance of the portfolio for the period
and an attractive dividend yield of 3.3%, UEM's share price
discount to NAV remains persistently high at 14.2%. The Board keeps
this under constant review. As a newly incorporated company,
Utilico Emerging Markets Trust plc ("UEM Trust") is currently
unable to buy back shares. UEM Trust expects to complete the
requirements to create distributable reserves to enable the buy
back of shares during the next quarter. Traditionally the managers
have bought back shares if the discount widens over 10.0%. Since
inception, the Company has bought back 42.8m ordinary shares
totalling GBP71.5m. This includes 9.8m ordinary shares and 4.9m
subscription shares at a total cost of GBP23.8m in the year to 31
March 2018, with an average price of 222.80p for the ordinary
shares and 38.62p for the subscription shares.
In November 2017 the Board announced that it was considering
options for a possible change in the Company's domicile. Following
a review, the Board concluded that it was in the Company's best
interests to re-domicile to the United Kingdom from Bermuda via a
scheme of arrangement. This was approved by shareholders at a
subsequent Scheme meeting. On 3 April 2018, 234,508,636 ordinary
shares of Utilico Emerging Markets Trust plc were admitted to
listing on the premium listing segment of the Official List of the
London Stock Exchange.
UEM Trust is hopeful, as a UK based investment trust with the
premium listing (seen as the 'gold standard' for investment
companies), that this move has the potential to improve investor
perception and accordingly narrow the discount.
OUTLOOK
In recent years, markets and economies have continued to benefit
from unconventional monetary policies such as quantitative easing
and negative real interest rates. However, this pro-cyclical stance
is fuelling a rise in inflation, a situation exacerbated by the
timing of the Trump administration's tax plan which sees material
cuts to US corporate and individual tax rates. At the same time,
Trump's announcement of trade tariffs has triggered concerns over
protectionism and a potential trade war and the recent G7 Summit
has seen a further deterioration in US trade relations. In
response, the Fed has started to raise interest rates in the US,
with global consequences for the US dollar and cross-border
investment flows. And while the improving relationship between
North and South Korea seems to have diminished local geopolitical
risks, the West continues to be engaged in a worsening diplomatic
confrontation with Russia as well as on the ground in Syria.
This backdrop creates market uncertainty, but should be weighed
against the significant economic reforms that are being implemented
in countries such as Brazil, China, India and Argentina. Labour,
Energy and Tax reforms should help unlock productivity growth,
bolstering both public finances and company profitability.
Corruption is increasingly being confronted - most notably
following the "Carwash" scandal in Brazil which has seen one
President impeached and the previous President jailed. Corporate
governance is improving, ultimately benefitting emerging markets
investors such as UEM. However, the market uncertainty has seen
significant currency pressures for several emerging markets and
particularly Argentina, resulting in Argentina putting in place a
favourable facility with the IMF.
It is worth re-emphasising that UEM's performance continues to
be driven by bottom-up stock selection. The portfolio is
predominantly invested in relatively liquid, cash-generative
companies with long-duration assets that the Investment Managers
believe are structurally undervalued and offer excellent total
returns. Since inception over 10 years ago, UEM's track record of
performance is proven and UEM has every confidence that the
Investment Managers will continue to find investments offering
attractive, long-term returns for UEM in its new UK-domiciled home
as Utilico Emerging Markets Trust plc.
John Rennocks
Chairman
14 June 2018
INVESTMENT MANAGER'S REPORT
The year to 31 March 2018 was positive for emerging markets with
most indices ending the year higher, such as the Ibovespa Index by
31.4% and the Hang Seng Index by 24.8%. However, this was offset by
weaker currencies, with the Brazilian Real and the Hong Kong
Dollar, down by 14.8% and 11.7% respectively against Sterling.
UEM was active during the year, exiting a number of top twenty
positions and increasing investments particularly in Latin America.
Over the past two years the Company's Latin American exposure has
increased from 20.2% to 41.3%. Latin America typically offers
investments trading on more attractive valuation metrics. It is
also worth noting that UEM's portfolio breadth increased with the
concentration of investments in the top ten reducing again. Over
the last two years the percentage of investments by value in the
top ten has reduced from 47.2% to 32.3%.
In the full year to 31 March 2018, UEM raised net proceeds of
GBP51.6m from subscription shares being exercised. This was mainly
used to repay the bank debt of GBP46.2m. UEM ended the year
ungeared partially reflecting rising concerns about the wider
markets in which UEM invests.
UEM's portfolio is well positioned with its shift to a broader
portfolio spread and no UEM balance sheet gearing. The management
team continue to travel extensively in order to seek out compelling
investments offering excellent returns. As such, it is notable that
UEM's portfolio consists of a diverse range of companies which are
often under-represented in the MSCI. Our focus remains on
delivering positive long-term absolute returns.
PORTFOLIO
UEM's gross assets (less liabilities excluding loans) increased
marginally from GBP579.0m to GBP579.8m in the year to 31 March
2018, reflecting gains offset by dividends paid and bank debt
repaid.
There have been six new entries into the top twenty holdings of
the portfolio over the year. Bolsas Y Mercados Argentinos ("BYMA"),
the Argentine stock exchange, is the fifth largest holding in the
portfolio. Companhia de Gas de Sao Paolo ("Comgas"), a Brazilian
gas distribution company, is the seventh largest position as at 31
March 2018. Energisa S.A. ("Energisa"), a Brazilian electricity
distribution company, is the eighth largest position. Enel
Americas, a Brazilian electricity company with assets across Latin
America is in eighteenth position in the portfolio. Pampa Energia
S.A. ("Pampa"), an Argentine integrated energy company is in
nineteenth position in the portfolio and Enel Chile, a Chilean
electricity company is in twentieth position.
Dropping out of the top twenty and exiting the portfolio in its
entirety were Eastern Water Resources Development and Management
PCL ("Eastwater") which was the fourth largest position in the
portfolio last year; China Gas Holdings Limited ("China Gas") which
was the fifth largest position and MyEG Services Berhad ("MyEG")
which was the sixteenth position, and have all been outstanding
performers. The following investments were scaled back and are no
longer top twenty holdings; SJVN Limited which was fourteenth;
Power Grid Corporation of India Limited was nineteenth; and Grupo
Aeroportuario del Centro Norte, S.A.B. de C.V. which was
twentieth.
Brazil remains UEM's largest country exposure, increasing from
19.6% to 23.1% of the portfolio.
Ocean Wilsons Holdings Limited ("Ocean Wilsons") had a
lacklustre share price performance for 2017, up only by 5.9%
despite a sound performance by its operating subsidiary Wilson
Sons. Wilson Sons, the Brazilian port and shipping service
provider, saw combined revenues at its two container terminals
Tecon Rio Grande and Tecon Salvador increase by 26.3% benefiting
from a 3.7% increase in volumes along with a more favourable sales
mix arising from an increase in import and cabotage flows. The
towage business saw revenues for the period stay relatively flat
with harbour manoeuvres increasing marginally by 2.4%, which given
the downturn evident in the Brazilian offshore sector is a
respectable result. Nevertheless, the shipyard continues to suffer
on the back of weakness in the offshore oil and gas markets whilst
the logistics sector benefited from increased demand for bonded
warehousing space. The wholly owned investment portfolio, Ocean
Wilsons Investment Limited ("OWIL") saw an improvement during 2017
as funds under management increased by 14.2% with a net return of
16.5%. However, performance still lagged global and emerging market
performance for the year. Consolidated revenue for the period rose
by 8.6%, EBITDA grew 10.7% and normalised net income was up 24.0%.
The improvement in OWIL and the operating cash flow from Wilson
Sons led to an 11.1% increase in the dividend to USD 0.70 per
share. During the period, UEM decreased its holding in Ocean Wilson
by 10.3%. As at 31 March 2018, Ocean Wilsons' discount to NAV was
29.8%. UEM are discussing with management how the narrowing of this
discount is being addressed.
Alupar Investimento S.A.'s ("Alupar") share price declined by
12.7% in the year to 31 March 2018. After a particularly active
year winning BRL 4.1bn of new transmission line projects in
calendar 2016, this past year has been comparatively quiet with
Alupar winning only one auction with an investment of BRL 894m.
This reflects Alupar's strong capital discipline as it declined to
chase lower return projects in a very competitive bidding
environment. The combination of lower inflation in Brazil - to
which Alupar's regulated revenues are directly linked - and some of
its concessions approaching 15 years of operation, at which point
regulated revenues are halved, resulted in group revenues in its
financial year ended 31 December 2017 declining by 1.0%. EBITDA
also posted a decrease of 7.3%, but lower interest costs on
inflation-linked debt and the impact of tax benefits resulted in
normalised earnings growing 36.6%. Dividends per share fell 32.7%
as Alupar is keen to preserve cash to fund the material investments
being made in new concessions which will see Alupar increase its
network kilometres by 50% by 2021. In the year to 31 March 2018 UEM
increased its position in Alupar by 9.7%.
Comgas is a new entry to the top twenty, although it could be
considered a re-entry given it previously appeared in the top ten
back in 2009. Having divested the position entirely over five years
ago, UEM re-initiated a shareholding at the start of 2016 and has
been steadily accruing shares since. Comgas is the dominant gas
distribution company in Sao Paulo, with 1.2m connections and a
pipeline network of over 14,000km. It is regulated by the Sao Paulo
State Sanitation and Energy Regulatory Agency (ARSESP) under
five-year regulatory cycles. In 2014 the planned tariff revision
for 2014-19 was postponed and subsequently Comgas has been
receiving adjustments for inflation and input gas costs, whilst
pursuing the formal tariff review process through the Courts.
In its financial year to 31 December 2017 Comgas reported piped
gas volumes up 4.2% year-on-year, with stronger growth evident in
residential and commercial demand partly offset by more subdued
industrial demand. Industrial demand accounts for almost 80% of
volumes delivered by Comgas. This volume growth was fully offset by
a 6.8% decline in effective tariffs as Comgas had accrued a net
surplus in its regulatory account in previous periods and this
over-recovery is now being drawn back down. As a result, group
revenues fell 2.1% and reported EBITDA by 22.7%. If one were to
adjust for the over-recovery implicit in the tariff, normalised
EBITDA grew 18.6% and normalised earnings 38.3%. Dividends per
share paid in the period fell 18.6% though this in part reflects an
extraordinary dividend paid in Q1 2016. In the twelve months under
review Comgas' share price increased by 26.3% and UEM increased its
position by 103.0%.
Energisa is also a new entrant into the top twenty, with UEM
initiating a position in the company following a public offer of
new units in July 2016. Energisa is the sixth-largest electricity
distribution company in Brazil with 6.7m customer connections. It
has 13 separate concessions spread across nine states in Brazil and
is widely viewed as one of the highest-quality operators with a
strong track record of financial discipline and surpassing
regulatory targets. Its concessions are wholly regulated, and its
two largest assets are set to undergo the tariff review process in
2018 which should see a material uplift in its Regulated Asset Base
(RAB) and returns.
In its financial year to 31 December 2017, Energisa reported
electricity volume growth of 4.0% year-on-year, driven by a
combination of new customer connections and increased consumption
per household. At the same time, effective tariffs increased by
11.3% as approximately half of its concessions by RAB completed
their fourth cycle regulatory reviews, in many cases resulting in
double-digit tariff increases. The combination of volume growth and
tariff increases meant that group revenues grew 17.9% and EBITDA
increased 12.8% and normalised earnings more than doubled, up by
171%. Dividends per unit were materially higher, increasing by over
260%. In the twelve months to 31 March 2018 UEM increased its
position in Energisa by 48.4%. Meanwhile the share price has
performed well, up by 54.5% during the period under review.
Rumo is Brazil's largest independent rail-based logistics
operator. The share price has performed strongly, increasing by
54.0% in the year to 31 March 2018 as the company continues to
successfully execute its BRL 8.5bn capex plan and deliver on EBITDA
expectations. During the year to 31 December 2017 revenues were up
by 18.6% driven by volume growth of 23.4% which when coupled with
operating leverage saw EBITDA growth of 36.0%. EBITDA margin
subsequently improved to 46.4% from 40.5% in 2016, clearly
indicating the improvement in operational efficiency arising from
the investments being made in the rail network. Management is still
confident that it can reach BRL4.5bn EBITDA in 2020 from the
current BRL 2.8bn reported in 2017 and have a number of investment
projects underway to ensure that this target can be met. For the
year ending 31 December 2017, net income was still negative, given
higher depreciation and financial costs due to the implementation
of its capex plan. In addition, UEM has an investment in Cosan
Logistica which owns 28.5% of Rumo. As at 31 March 2018, Cosan
Logistica trades at a 21.5% discount to Rumo.
Enel Americas, a new entrant into the top twenty, is one of the
largest privately-owned integrated electricity companies in Latin
America with generation, transmission and distribution assets in
Argentina, Brazil, Colombia and Peru. UEM has been invested in Enel
Americas since 2013 in their pre-demerger guise as Enersis. Italian
multinational Enel SpA previously had a complicated
cross-shareholding in Enersis, Endesa Chile and Chilectra and in
2016 it completed a wholesale restructuring of the corporate entity
resulting in two main Santiago-listed vehicles: Enel Americas and
Enel Chile. It has 11.2GW of installed generation capacity, over
half of which is hydropower-based and its distribution concessions
serve over 17m connections. By geography approximately 44% of
revenues are generated in Brazil, 24% in Colombia, 19% in Argentina
and 13% in Peru. By business line, 78.1% of revenue is from
distribution and 21.9% is from generation. With a range of currency
exposures Enel Americas reports in USD. In its financial year ended
31 December 2017, Enel Americas reported electricity generation
volume growth of 10.8% with effective tariffs up 1.4%, and
distribution volume growth of 18.5% with effective tariffs up
21.2%. Distribution results were boosted by the acquisition of CELG
in Brazil, with underlying volumes slightly declining year-on-year.
Overall, group financials were strong, with revenues up 37.1%,
EBITDA up 19.0%, and normalised EPS up 39.3%. Dividends per share
declined 23.1% as pay-out was reduced to accommodate M&A
activity. In the year to 31 March 2018 Enel Americas' share price
increased by 2.8% and UEM increased its shareholding in the company
by 52.5%.
China (including Hong Kong) is UEM's second largest country
exposure at 17.2% of the portfolio, slightly decreasing during the
year from 18.5% at 31 March 2017.
Yuexiu Transport Infrastructure Limited ("Yuexiu") had a
marginal increase of 0.7% in its share price for the year to 31
March 2018 despite a solid financial performance for the year
ending 31 December 2017. Yuexiu's 2017 results were slightly
distorted due to one of its road concessions, Xian Expressway,
expiring on 30 September 2016 and being transferred to the local
government. Excluding this road, toll revenues increased by 17.0%
and traffic by 15.6%. Including Xian Expressway, total revenues
increased by 9.2% and traffic increased by 1.1%. Adjusted EBITDA
growth outpaced revenue growth at 14.9% as stringent cost control
was evident, while JV income continues to expand from the five
associate toll roads held. Normalised net income, excluding the
gain from a port disposal asset in 2016, increased by 17.1% and
excluding profit generated from Xian Expressway, net income would
have increased by 32.4%. Disappointingly for the year, management
failed to increase the dividend pay-out, despite the strong cash
flow generated by the business. This is due to the company
continuing to look for acquisition opportunities. UEM increased its
shareholding in Yuexiu by 32.3% in the period under review.
Shanghai International Airport Co Ltd ("Shanghai Airport") saw a
78.4% increase in its share price over the year to 31 March 2018,
driven in part by good results. For the financial year to 31
December 2017, Shanghai Airport saw revenues increase by 16.0%.
This was partly driven by a 6.1% increase in passenger numbers, but
more encouragingly also due to solid non-aeronautical revenues
which over the period increased by 26.1%. This was aided by the
expansion of commercial space at Terminal One which completed
renovations in Q316. Adjusted EBITDA for the year increased by
26.2% as Shanghai Airport began to benefit from operational
leverage as well as management enforcing cost controls. Net income
for the period was up by 31.2%. In May 2016, due to an on-time
departure rate of below 70%, The Civil Aviation Administration of
China enforced the restriction on ad-hoc flights, chartered flights
and additional routes. Given that the Shanghai Airport continues to
operate with flight restrictions, this was a good performance. In
the year under review UEM decreased its holding in Shanghai Airport
by 26.1%.
China Resources Gas Group Ltd's ("CR Gas") share price weakened
by 0.9% in the year to 31 March 2018. From an operational
perspective, CR Gas continues to deliver a very strong performance
from its 238 concession areas. In its financial year to 31 December
2017 it grew its customer base by 16.3% to 30.8m connections, with
gas volumes delivered increasing 20.9% year-on-year. This volume
growth was dominated by strong commercial and industrial demand at
27.9%, while residential demand was also robust posting 10.5%
growth. Effective tariffs were only slightly higher than last year
and as a result, group revenues increased by 21.0%. Unfortunately,
in the critical winter months of the final quarter of 2017, China
experienced a gas supply shortage which meant that it had to rely
on more expensive LNG supplies. The higher fuel costs were not
fully passed through in tariffs, and consequently adjusted EBITDA
growth was more modest at 9.0% with normalised net income up 11.1%.
CR Gas has been steadily increasing its dividend pay-out ratio and
dividends per share grew 22.2%. In the year ended 31 March 2018 UEM
increased its position in CR Gas by 7.8%.
APT Satellite Holdings Limited's ("APT") share price decreased
by 13.0% in the period under review, echoing the poor share price
performances seen in the satellite sector globally due to concerns
about excess capacity and the potential impact of technological
changes. APT reported a decline in revenues of 1.8% in 2017, but
reduced costs to limit its EBITDA decline to 0.3%. APT posted a
2.2% increase in net profit. APT more than doubled its final
dividend with respect to the financial year to 31 December 2017.
Including the interim dividend, distributions for the year were up
by 58.8%. APT successfully launched an upgraded replacement
satellites in May 2018, with the launch of a second replacement
satellite expected in the next few months. APT should then enter a
period of lower capital expenditure. APT remained ungeared (on a
net debt basis) at 31 December 2017. APT is also helping to develop
a high through-put satellite system to provide maritime and
aviation connectivity, to support China's One Belt and One Road
Initiative. It has reduced risk on this project by partnering with
Chinese partners and limiting its stake to 30% of the joint
venture. In the twelve months to 31 March 2018 UEM increased its
holding in APT by 3.9%.
Romania remained the third largest country exposure, increasing
from 9.9% to 10.8% of the portfolio.
Transgaz S.A.'s ("Transgaz") share price increased by 7.4% in
the year to 31 March 2018. During the year under review the
Romanian government (Transgaz's major shareholder) gave the green
light for the commencement of works on the new 480km pipeline
connecting Bulgaria and Hungary. This is a significant investment
scheduled for commissioning by end-2019 which should materially
increase Transgaz's regulated asset base and boost longer-term
returns for the company. In its financial year to 31 December 2017
a severe winter season meant that domestic gas volumes transmitted
grew by 6.6%, while losses remained low at just 0.73%. Tariffs
continue to see an increased fixed component versus volumetric
component, reducing seasonality, though effective tariffs for
Transgaz fell by 7.7% as the regulator sought to claw back excess
profits made in the previous regulatory year. As such, domestic
transport revenues declined 1.6%, more than offsetting gas transit
revenues which were up 1.4%. Overall, group revenues fell by 3.7%,
but good cost control meant EBITDA and normalised earnings were
broadly sustained, down 0.9% and up 1.3% respectively. Dividends
per share were slightly lower, down 2.1% year-on-year. In the year
to 31 March 2018 UEM increased its position in Transgaz by
2.6%.
Conpet S.A.'s ("Conpet") share price increased by 10.2% in the
year to 31 March 2018. Ongoing field depletion has meant that
Romania's main oil producer OMV Petrom continues to see declining
production. Meanwhile, in the 31 March 2017 quarter, one of the
major refineries underwent a six-week shutdown. As a result, in its
financial year to 31 December 2017 Conpet reported a 3.7% decline
in domestic oil transport volumes and a 3.6% fall in import
volumes, bringing total volume growth to -3.6%. While domestic
tariffs stayed broadly flat, import tariffs grew 10.0%, and overall
effective tariffs increased 2.1%. Thus, group revenues softened
very slightly by 0.4%, However, good cost discipline enabled EBITDA
to grow 9.0% and normalised earnings by 14.5%. Conpet continues to
pay out excess net cash reserves, with dividends up 7.7% and
pay-out at over 200% of earnings. At 31 December 2017 Conpet
reported net cash balances equivalent to c.30% of the market
capitalisation of the company. In the year to 31 March 2018 UEM
increased its position by 1.9%.
Transelectrica S.A.'s ("Transelectrica") share price performed
poorly in the period under review, falling by 28.6% as the impact
of regulatory tariff cuts and higher wholesale energy costs hit
financials. In Transelectrica's financial year ended 31 December
2017 domestic electricity demand improved modestly, achieving
growth of 2.3%, and operationally, delivering a solid performance,
with grid losses at just 2.2%. However, domestic production fell
1.4% and net exports dropped 16.7% in a market that saw material
increases in the day-ahead and balancing market prices. At the same
time, financials continue to be impacted by cuts in tariffs in an
effort to claw back prior period profits which exceeded that
allowed in its regulatory returns calculation. As such, effective
tariffs fell by an average of 10.5%, and revenues fell 8.0%
excluding balancing market services (which are profit-neutral to
the company). The higher energy costs exacerbated operational
gearing, with EBITDA falling 44.9% and normalised earnings dropping
by 90.7%. More encouragingly, dividends per share were increased by
47.5% as the company sought to pay out excess accrued cash
reserves. In the year to 31 March 2018 UEM increased its position
in Transelectrica by 10.5%.
UEM's exposure in Argentina increased from 4.8% to 10.2% of the
portfolio and is now the fourth largest country exposure.
Bolsa y Mercados Argentinos ("BYMA") is a new company in UEM's
top twenty holdings and is the portfolio's largest investment in
Argentina. BYMA is Argentina's local stock exchange and delivered
the strongest performance out of all UEM holdings. UEM initiated a
position in December 2016, when UEM acquired one share of Merval
(Mercado de Valores de Buenos Aires) out of the 183 shares
available at that time, all of which were unlisted. In May 2017,
BYMA was listed on the local stock exchange after the merger of
Merval and Bolsa de Comercio de Buenos Aires (BCBA). This merger
allowed for the formation of one common and an integrated capital
market, including the unification of the Argentina National
Depository (Caja de Valores). In the last two years, trading
volumes on the exchange have more than tripled, driven by the
strong interest from domestic and foreign investors in the local
equity market and companies raising new funds on the market. This
trend is expected to continue boosted by the potential upgrade of
Argentina to EM status by MSCI and the approval of the Capital
Markets bill in Congress, which will look to introduce incentives
in equities, facilitate the IPO process, increase market
transparency and facilitate the creation of mutual funds. During
the IPO, UEM was entitled to shares in BYMA and Banco de Valores.
In its financial year to 31 December 2017 BYMA reported revenues up
36.8% and EBITDA up 35.2%. Normalised net income increased 20.1%
and no dividends have yet been announced, although dividends are
expected to be reinstated for year end 2018. BYMA's share price
increased by 163.7% over the period under review.
Transportadora de Gas del Sur S.A.'s ("TGS") share price
continued to perform well, with the US-listed ADRs, in which UEM is
invested, increasing by 42.7% in the year under review. Structural
reforms implemented by President Macri's government in Argentina
continue to benefit companies operating in the energy sector, and
this was very evident in TGS' improving financial health. In its
financial year ended 31 December 2017, gas volumes transmitted by
TGS' 9,000km network fell 1.1% but this was completely offset by
effective tariffs increasing by 120.9% following the implementation
of rate increases in April and December. Meanwhile, liquids
production grew 5.4% year-on-year with pricing firming up 36.8%
reflecting the rise in global commodity prices, particularly
hydrocarbon-based products such as butane and ethane, and the
depreciation of the Argentine Peso against the US Dollar. With gas
transport and liquids production revenues up 118.5% and 44.2%,
group revenues increased 65.4% and EBITDA grew 100.3%, while
normalised net income grew 111.1%. No dividends were announced,
although with a balance sheet that was effectively unleveraged at
end-2017, payouts are expected for 2018. In the year to 31 March
2018 UEM's shareholding in TGS was unchanged.
Pampa Energia is a new entrant to the top twenty and a relative
newcomer to the portfolio. UEM has been invested since January
2017. Pampa Energia is the largest integrated electricity company
in Argentina, with generation, transmission and distribution
assets, as well as the fourth largest oil and gas producer in the
country. In the generation sector it has 3.8GW of generation
capacity, of which 75.0% is thermal-fired (mainly natural gas) and
25.0% is from hydro power plants. In electricity distribution it
has a 51.4% stake in Edenor, which has the exclusive concession
rights to serve 2.9m customers in the northern area of Buenos
Aires. It also has a 26.3% stake in the national electricity grid
operator Transener, and a 25.5% stake in gas pipeline operator TGS.
In the oil and gas sector it is present in the upstream, midstream,
downstream and petrochemical sectors, and in calendar 2017 produced
over 70,000boepd from 16 blocks in Neuquen, San Jorge and Noroeste.
Pampa Energia estimates it has an interest
in approximately 12% of the total shale acreage in the
country.
In the financial year to 31 December 2017 Pampa Energia's energy
generation volumes sold increased by 29.9% due to the combination
of 200MW new capacity and higher utilisation of existing plants.
Effective tariffs increased 59.8% due to the new pricing scheme for
legacy capacity and as a result of the Argentine Peso depreciation
against US Dollar. In distribution, electricity volumes fell 3.4%
as the impact from tariff increases dampened demand, with effective
tariffs increasing 92.6%. In the upstream business, oil and gas
output fell 9.8% due to asset disposals, but this was similarly
more than offset by pricing reforms and US Dollar appreciation
against the Peso, with effective prices up 47.3% in Peso terms.
Combining the reporting lines, group revenues grew 60.9%
year-on-year and EBITDA increased by 173.9%, while normalised
earnings moved into positive territory from a negative position in
2016. No dividends were announced. In the year to 31 March 2018 UEM
increased its stake in Pampa Energia's US-listed ADRs by 22.5% and
the ADR share price increased by 9.9%.
UEM's exposure in the Philippines decreased from 6.7% to 5.6% of
the portfolio and is now the seventh largest country exposure.
International Container Terminal Services, Inc's ("ICT") share
price for the year to 31 March 2018 increased by 11.2%. During the
financial year to 31 December 2017, ICT had yet another solid year
of performance with revenue growth of 11.6%. This was driven by
total volumes increasing by 5.3% and an improvement in volume mix
with yield per container box up by 4.7% to USD 136.00. EBITDA
growth for the period was marginally lower than revenue growth at
10.1% due to new container terminals coming on line during 2017
such as Victoria International Container Terminal in Melbourne,
Australia and Matadi Gateway Terminal in Matadi, Democratic
Republic of Congo. As these new terminals see a ramp up in volume,
operational leverage should start to take effect and EBITDA margins
should once again improve. Net income was up for 2017 by only 1.2%
due to higher financing costs as well as elevated depreciation and
amortisation expenses from the new terminals. Management has
indicated that future investments will be brownfield and dividends
should improve beyond 2018 as capex should sharply decline,
improving cashflow. UEM's shareholding decreased by 6.3% during the
year to 31 March 2018.
Chile's country exposure increased slightly from 3.8% to 4.0% of
the portfolio.
Engie Energia Chile's ("ECL") share price increased by 8.3% in
the year to 31 March 2018. The past year marked a major milestone
for Chile as ECL completed the TEN transmission line project. This
600km line finally connects the northern and central electricity
grids, enabling ECL's power plants in the north to supply new
contracts in the south. Meanwhile the company's USD 1.1bn 375MW
coal-fired project ("IEM") remains on track for commissioning in
2018. In its financial year to 31 December 2017, ECL reported
electricity sales volumes down 7.0% as some contracts from the
unregulated sector (predominantly mining companies) rolled off. By
comparison demand from regulated customers remained stable at
+0.4%. However, higher commodity prices and inflation adjustments
saw effective tariffs increase by 16.7%, and as a result, group
revenues grew 16.6%. With tariff hikes yet to fully reflect higher
fuel costs, EBITDA declined 3.8% and normalised net earnings fell
4.0%. Dividends per share fell 81.7% as last year included an
extraordinary dividend following its disposal of a 50% stake in the
TEN project. There was no change in UEM's shareholding in ECL in
the period under review.
Enel Chile is the largest integrated electricity company in
Chile with 34% market share in generation and over 40% market share
in distribution. It has 8.6GW of installed generation capacity of
which 63.0% is based on renewable and hydro resources. This
proportion is expected to grow to over 70% by 2020 following the
integration of Enel Green Power which merged with Enel Chile in
April 2018. In distribution Enel Chile has a concession area
covering 2,000km2 of the Santiago metropolitan area with a total of
1.9m customer connections. Revenues are broadly even from the two
business lines. In its financial year to 31 December 2017 Enel
Chile's generation volumes sold fell by 1.4% while electricity
distributed grew 3.2%. In constant USD terms and adjusting for a
full 12-month period in 2016, group revenues fell 0.5% and EBITDA
declined by 3.4%, while normalised earnings fell 9.1%. Dividends
increased by 54.5% as Enel Chile lifted pay-out materially and
committed to continued increases to a 70% pay-out level by 2020. In
the year to 31 March 2018, Enel Chile's share price increased by
6.8% and UEM increased its shareholding in the company by 38.7%. As
previously mentioned, UEM has been invested in Enel Chile and Enel
Americas since 2013 in their pre-demerger guise as Enersis. In 2016
it completed a wholesale restructuring of the corporate entity
resulting in two main Santiago-listed vehicles: Enel Americas and
Enel Chile.
Malaysia's exposure decreased from 5.3% to 3.2% of the
portfolio.
Malaysia Airports Holdings Berhad's ("Malaysia Airports") share
price increased by 27.9% in the year to 31 March 2018. During its
financial year to 31 December 2017, performance at its Malaysian
airports improved with revenues up 11.0% driven by an 8.1% increase
in passenger numbers. The 100% owned Turkish airport operations of
Sabiha Gokcen Airport ("ISG") saw revenues increase by 13.2% driven
by 5.6% passenger growth which were still subdued due to the
political unrest witnessed during 2016 still affecting the first
half of 2017. Consolidated revenues increased 11.5% and group
EBITDA was up 13.0%. EBITDA margins at the Malaysian airport
operations remain low, albeit slowly improving as operational
leverage is failing to ramp up as fast as anticipated. ISG's EBITDA
margin at 70.1% remains amongst the best in the industry. Net
income increased 236.5%, although this was helped by a reduction in
amortisation due to the concession extension and an improvement in
the effective tax rate. Malaysia Airports continues to have several
key issues overhanging the stock, particularly in relation to the
terms of the operating concession extension. These are yet to be
agreed as the regulator, MAVCOM, is looking to implement a new
regulatory asset based model and terms remain unclear. With regards
to Malaysia Airports' holding in ISG, the operator continues to
look for an appropriate buyer of a minority stake. Post year end,
Malaysia Airports sold its 11% stake in Hyderabad's Rajiv Gandhi
International Airport. UEM decreased its shareholding in Malaysia
Airports by 34.2% during the year to 31 March 2018.
PORTFOLIO GENERAL
Investments in the portfolio increased from GBP161.2m to
GBP187.1m in the year ended 31 March 2018, which is above long-term
trends. This was driven by high-level realisations of GBP198.6m
(prior year: GBP142.2m). This reflects a number of investments
achieving full valuations, resulting in a decision to exit several
significant investments in full.
UEM exited last year's top twenty investments, Eastwater, China
Gas and MyEG, realising GBP61.3m. In addition, UEM reduced three
investments in the top twenty holdings and exited a number of
investments in the wider portfolio. An outcome from this has been
an increase in the depth of the portfolio with the top twenty
holdings reducing for the fourth year in a row to 54.9% and a more
even distribution of holdings throughout the portfolio. This is
reflected in the portfolio progression and number of holdings bar
chart on page 5 of this report. Changes in the portfolio's
geographic allocation reflects new investments plus the relative
market performance as outlined above.
BANK DEBT
Bank debt reduced from GBP46.8m to nil in the year ended 31
March 2018. UEM used most of the GBP60.3m raised from the
subscription share exercise to repay the bank debt in full.
Pleasingly Scotiabank have entered into a new three year unsecured
GBP50.0m multicurrency revolving bank facility for Utilico Emerging
Markets Trust plc.
MARKET HEDGING
UEM started the year with net derivatives of GBP3.0m and ended
the year with a nil-hedged position on the S&P Index. The
expiry of the hedged positions resulted in a GBP3.4m loss in
S&P and GBP1.1m gain in forward fx's in the Group Income
Statement.
REVENUE RETURN
Revenue income increased to GBP24.8m, from GBP20.6m, up 20.4%.
This reflects a combination of dividend increases, including
special dividends, by investee companies due to growth in
profitability and the full year effects of the increased portfolio
weighting in high dividend paying regions such as Latin
America.
Management fees and other expenses increased from GBP2.9m to
GBP3.2m as a result of higher fees arising from higher average
gross assets year on year. Finance costs were largely unchanged at
GBP0.2m. Taxation was GBP1.4m versus GBP0.9m from last year, mainly
reflecting the higher dividend withholding taxes.
The uplift in the profit for the year at GBP19.9m, from GBP16.5m
was significant, an increase of 20.6%. Earnings per share growth
was marginally lower as a result of the subscription share issuance
at 9.27p from 7.80p, up 18.8%.
CAPITAL RETURN
The portfolio gained GBP19.1m on the capital account during the
year to 31 March 2018, reflecting strong equity performance and
reduced in part by a stronger Sterling. Offsetting this were net
losses on derivatives and gains in foreign exchange. The total
income gains on the capital return was GBP15.6m (2017: a gain of
GBP109.3m).
Management and administration fees were lower at GBP2.1m (2017:
GBP11.4m), mainly as a result of no performance fee arising in the
year to 31 March 2018. Finance costs were unchanged at GBP0.5m.
Taxation decreased to GBP2.6m from GBP3.2m, reflecting, in the
main, reducing capital gains taxes on profits made in the
portfolio. The net effect of the above was a gain on the capital
return of GBP10.0m (2017: a gain of GBP94.2m).
Charles Jillings
ICM Investment Management Limited and ICM Limited
14 June 2018
INVESTMENT OBJECTIVE AND POLICY
INVESTMENT OBJECTIVE
The Company's objective is to provide long-term total return
through a flexible investment policy that permits it to make
investments predominantly in infrastructure, utility and related
sectors, mainly in emerging markets.
INVESTMENT POLICY AND RISK
The Company's investment policy is flexible and its investments
include (but are not limited to) water, sewerage, waste,
electricity, gas, telecommunications, ports, airports, service
companies, rail, roads, any business with essential service or
monopolistic characteristics and any new infrastructure or
utilities which may arise mainly in emerging markets. The Company
may also invest in businesses which supply services to, or
otherwise support, the infrastructure, utility and related
sectors.
The Company focuses on the under-developed and developing
markets of Asia, Latin America, Emerging Europe and Africa but has
the flexibility to invest in markets worldwide. The Company
generally seeks to invest in emerging market countries where the
Directors believe that there are attributes such as political
stability, economic development, an acceptable legal framework and
an encouraging attitude to foreign investment.
The Board and Investment Managers review the risk profile of the
Company every six months. Agreed risk parameters are established
and compliance is reviewed at quarterly board meetings.
The Company has the flexibility to invest in shares, bonds,
convertibles and other types of securities, including
non-investment grade bonds and to invest in unlisted
securities.
The Company may also use derivative instruments such as American
Depository Receipts, promissory notes, foreign currency hedges,
interest rate hedges, contracts for difference, financial futures,
call and put options, warrants and similar instruments for
investment purposes and efficient portfolio management, including
protecting the Company's portfolio and balance sheet from major
corrections and reducing, transferring or eliminating investment
risks in its investments. These investments will be long term in
nature.
UEM seeks to identify and invest in undervalued investments
predominantly in the infrastructure and utility sectors, mainly in
emerging markets. The Investment Managers aim to identify
securities where underlying value and growth prospects are not
reflected in the market price. This is often as a result of strong
growth drivers, but can include changes in regulation, technology,
market motivation, potential for financial engineering, competition
or shareholder indifference.
The Company seeks to minimise risk by investing mainly in
companies and sectors displaying the characteristics of essential
services or monopolies such as utilities, transportation
infrastructure, communications or companies with a unique product
or market position. Most investee companies are asset backed, have
good cash flows and offer good dividend yields. UEM generally seeks
to invest in companies with strong management who have the
potential to grow their business and who have an appreciation of,
and ability to manage, risk.
UEM believes it is generally appropriate to support investee
companies with their capital requirements while at the same time
maintaining an active and constructive shareholder approach through
encouraging a review of capital structures and business
efficiencies. The Investment Managers maintain regular contact with
the investee companies and UEM is often among the largest
international shareholders.
The Company aims to maximise value for shareholders by holding a
relatively concentrated portfolio of securities and invests through
instruments appropriate to the particular situation. UEM is
prepared to hold investments in unlisted securities when the
attractiveness of the investment justifies the risks and lower
liquidity associated with unlisted investments. ICMIM, as the
Company's AIFM, controls stock-specific and sector and geographic
risk by continuously monitoring the exposures in the portfolio. In
depth continual analysis of the fundamentals of investee companies
allows ICMIM to assess the financial risks associated with any
particular stock. The portfolio is typically made up of 60 to 90
stocks.
PRINCIPAL RISKS AND RISK MITIGATION
During the year ended 31 March 2018, ICMIM was the Company's
AIFM and had sole responsibility for risk management
subject to the overall policies, supervision, review and control
of the Board.
The Board considers carefully the Company's principal risks and
seeks to mitigate these risks through continual and regular review,
policy setting, compliance with and enforcement of contractual
obligations and active communication with both the Investment
Managers and the Company's Administrator.
The Board applies the principles and recommendations of the UK
Code on Corporate Governance and the AIC's Code on Corporate
Governance as described on page 55 of the Report & Accounts.
The Company's internal controls are described in more detail on
page 50 of the Report and Accounts. Through these procedures, and
in accordance with Internal Control: Revised Guidance for Directors
on the Combined Code (the "FRC guidance"), the Board has
established an on-going process for identifying, evaluating and
managing the significant risks faced by the Company and has
regularly reviewed the effectiveness of the internal control
systems for the year. This process has been in place throughout the
year under review and to the date hereof and will continue to be
regularly reviewed by the Board going forward.
Most of the Company's principal risks are market-related and
similar to those of other investment companies which invest
primarily in listed investments. The principal ongoing risks and
uncertainties currently faced by the Company, and the controls and
actions to mitigate those risks, are described below. Further
details of risks and risk management policies as they relate to the
financial assets and liabilities of the Company are detailed in
note 28 to the accounts.
Investment risk: the risk that the investment strategy does not
achieve long-term positive total returns for the Company's
shareholders
The Board monitors the performance of the Company and has
established guidelines to ensure that the investment policy that
has been approved is pursued by the Investment Managers. These
guidelines include sector and market exposure limits.
The investment process employed by the Investment Managers
combines assessment of economic and market conditions in the
relevant countries with stock selection. Fundamental analysis forms
the basis of the Company's stock selection process, with an
emphasis on sound balance sheets, good cash flows, the ability to
pay and sustain dividends, good asset bases and market conditions.
The political risks associated with investing in these countries
are also assessed. The Investment Managers try to reduce risk by
ensuring that the Company's portfolio is always appropriately
diversified. Overall, the investment process is aiming to achieve
absolute returns through an active fund management approach.
The Company's results are reported in Sterling, whilst the
majority of its assets are priced in foreign currencies. The impact
of adverse movements in exchange rates can significantly affect the
returns in Sterling of both capital and income. Such factors are
out of the control of the Board and the Investment Managers and may
give rise to distortions in the reported returns to shareholders.
It is difficult and expensive to hedge emerging markets'
currencies.
In addition, the ordinary shares of the Company may trade at a
discount to their NAV. The Board monitors the price of the
Company's shares in relation to their NAV and the premium/discount
at which they trade. The Board generally buys back shares for
cancellation if they are trading at a discount in excess of 10% and
the Investment Managers agree that it is a good investment
decision.
The Board regularly reviews strategy in relation to a range of
issues including the balance between quoted and unquoted stocks,
the allocation of assets between geographic regions and sectors and
gearing. Periodically the Board holds a separate meeting devoted to
strategy, the most recent one having been held in November
2017.
A more detailed review of economic and market conditions is
included in the Investment Managers' Report section of the
Strategic Report in the Report and Accounts.
There is no guarantee that the Company's strategy and business
model will be successful in achieving its investment objective. The
value of an investment in the Company and the income derived from
that investment may go down as well as up and an investor may not
get back the amount invested. Past performance of the Company is
not necessarily indicative of future performance.
No material change in overall risk in year.
Gearing: the risk that the use of gearing may adversely impact
on the Company's performance
Gearing levels may change from time to time in accordance with
the Board and Investment Managers' assessment of risk and reward.
Whilst the use of borrowings should enhance total return where the
return on the Company's underlying securities is rising and exceeds
the cost of borrowing, it will have the opposite effect where the
underlying return is falling. As at 31 March 2018, net debt gearing
on gross assets was (1.4)%.
No material change in overall risk in year.
Banking: a breach of the Company's loan covenants might lead to
funding being summarily withdrawn
ICMIM monitors compliance with the banking covenants when each
drawdown is made and at the end of each month. The Board reviews
compliance with the banking covenants at each Board meeting.
No material change in overall risk in year.
Key staff: loss by the Investment Managers of key staff could
affect investment returns
The quality of the management team is a crucial factor in
delivering good performance. There are training and development
programs in place for employees and the remuneration packages have
been developed in order to retain key staff.
Any material changes to the management team are considered by
the Board at its next meeting; the Board discusses succession
planning with the Investment Managers at regular intervals.
No material change in overall risk in year.
Reliance on the Investment Managers and other service providers:
inadequate controls by the Investment Managers or Administrator or
third party service providers could lead to misappropriation of
assets
Failure by any service provider to carry out its obligations to
the Company in accordance with the terms of its appointment could
have a materially detrimental impact on the operation of the
Company and could affect the ability of the Company to successfully
pursue its investment policy. The Company's main service providers
are listed on page 101 of the Report and Accounts. The Audit
Committee monitors the performance of the service providers.
All listed investments are held in custody for the Company by
JPMorgan Chase Bank NA, Jersey; the unlisted investments are held
in custody by Bermuda Commercial Bank Limited (together, the
"Custodians").
J.P.Morgan Europe Limited ("JPMEL"), the Company's depositary
services provider, also monitors the movement of cash and assets
across the Company's accounts.
The Audit Committee reviews the Administrator's annual internal
control report which details the controls around the reconciliation
of the Administrator's records to those of the Custodians. The
Administrator reviews the control reports published by JPMorgan
Chase and draws any issues to the attention of the Board.
The Board reviews operational issues at each Board meeting and
the Audit Committee receives reports on the operation of internal
controls and the risk of cybercrime, as explained in more detail
within Internal Controls on page 50. The risk of cybercrime is
high, as it is with most organisations, but the Board regularly
seeks assurances from the Investment Managers and other service
providers on the preventative steps that they are taking to reduce
this risk.
Although there has been no change in overall risk in the year,
the possibility of cybercrime continues to be a concern. The
Company's assets are considered to be relatively secure, so the
risks are the inability to transact investment decisions for a
period of time and reputational risk.
DIRECTORS' STATEMENT OF RESPONSIBILITIES
in respect of the Annual Report and the Financial Statements
The Directors are responsible for preparing the annual report
and the Group and Company financial statements in accordance with
applicable law and regulations. The Group financial statements are
required to be prepared in accordance with IFRSs as adopted by the
EU and applicable law and the Directors have elected to prepare the
Company financial statements on the same basis. In preparing each
of the Group and Company financial statements, the Directors are
required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether they have been prepared in accordance with
IFRSs as adopted by the EU; and subject to any material departures
disclosed and explained in the financial statements;
-- assess the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern;
and
-- use the going concern basis of accounting unless they either
intend to liquidate the Company or to cease operations, or have no
realistic alternative but to do so. As explained in note 1 to the
financial statements, the Director's do not believe that it is
appropriate to prepare the financial statements on a going concern
basis.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group's
transactions and disclose with reasonable accuracy at any time the
financial position of the Group and enable them to ensure that its
financial statements comply with the Bermuda Companies Act (1981).
They are responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error,
and have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Group and to
prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Directors' Report and Corporate
Governance Statement that complies with that law and those
regulations. The Directors have additionally elected to prepare a
Directors' Remuneration Report as if the Group were required to
comply with the requirements of Schedule 8 to The Large and
Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008 (SI 2008 No. 410) made under the UK Companies Act
2006.
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE
ANNUAL FINANCIAL REPORT
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the group; and
-- the annual report includes a fair review of the development
and performance of the business and the position of the issuer,
together with a description of the principal risks and
uncertainties that they face.
We consider the annual report and financial statements, taken as
a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group's
position and performance, business model and strategy.
Approved by the Board on 14 June 2018 and signed on its behalf
by:
John Rennocks
Chairman
GROUP INCOME STATEMENT
for the year to 31 March 2018 2017
Revenue Capital Total Revenue Capital Total
return return return return return return
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
------------------------------------------ --------- --------- --------- --------- --------- ---------
Gains investments - 19,082 19,082 - 114,638 114,638
Losses on derivative instruments - (2,300) (2,300) - (6,411) (6,411)
Foreign exchange (losses)/gains (64) (1,149) (1,213) 449 1,058 1,507
Investment and other income 24,866 - 24,866 20,153 - 20,153
------------------------------------------- --------- --------- --------- --------- --------- ---------
Total income 24,802 15,633 40,435 20,602 109,285 129,887
Management and administration fees (1,382) (2,101) (3,483) (1,234) (11,374) (12,608)
Other expenses (1,801) (425) (2,226) (1,701) (22) (1,723)
------------------------------------------- --------- --------- --------- --------- --------- ---------
Profit before finance costs and taxation 21,619 13,107 34,726 17,667 97,889 115,556
Finance costs (228) (532) (760) (195) (454) (649)
------------------------------------------- --------- --------- --------- --------- --------- ---------
Profit before taxation 21,391 12,575 33,966 17,472 97,435 114,907
Taxation (1,442) (2,565) (4,007) (935) (3,188) (4,123)
------------------------------------------- --------- --------- --------- --------- --------- ---------
Profit for the year 19,949 10,010 29,959 16,537 94,247 110,784
------------------------------------------- --------- --------- --------- --------- --------- ---------
Earnings per ordinary share (basic)
- pence 9.27 4.66 13.93 7.80 44.46 52.26
------------------------------------------- --------- --------- --------- --------- --------- ---------
Earnings per ordinary share (diluted)
- pence 9.04 4.53 13.57 7.70 43.90 51.60
------------------------------------------- --------- --------- --------- --------- --------- ---------
The total column of this statement represents the Group's Income
Statement and the Group's Statement of Comprehensive Income,
prepared in accordance with International Financial Reporting
Standards ("IFRS"). The supplementary revenue return and capital
return columns are both prepared under guidance published by the
Association of Investment Companies ("AIC") in the UK.
The Group 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.
There are no minority interests.
COMPANY INCOME STATEMENT
for the year to 31 March 2018 2017
Revenue Capital Total Revenue Capital Total
return return return return return return
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
------------------------------------------ --------- --------- --------- --------- --------- ---------
Gains on investments - 16,047 16,047 - 107,848 107,848
Gains on derivative instruments - 1,053 1,053 - 239 239
Foreign exchange gains/(losses) 2 (345) (343) 320 737 1,057
Investment and other income 23,472 - 23,472 20,619 - 20,619
------------------------------------------- --------- --------- --------- --------- --------- ---------
Total income 23,474 16,755 40,229 20,939 108,824 129,763
Management and administration fees (1,349) (2,101) (3,450) (1,201) (11,374) (12,575)
Other expenses (1,704) (425) (2,129) (1,610) (22) (1,632)
------------------------------------------- --------- --------- --------- --------- --------- ---------
Profit before finance costs and taxation 20,421 14,229 34,650 18,128 97,428 115,556
Finance costs (228) (532) (760) (195) (454) (649)
------------------------------------------- --------- --------- --------- --------- --------- ---------
Profit before taxation 20,193 13,697 33,890 17,933 96,974 114,907
Taxation (1,366) (2,565) (3,931) (935) (3,188) (4,123)
------------------------------------------- --------- --------- --------- --------- --------- ---------
Profit for the year 18,827 11,132 29,959 16,998 93,786 110,784
------------------------------------------- --------- --------- --------- --------- --------- ---------
Earnings per ordinary share (basic)
- pence 8.75 5.18 13.93 8.02 44.24 52.26
------------------------------------------- --------- --------- --------- --------- --------- ---------
Earnings per ordinary share (diluted)
- pence 8.53 5.04 13.57 7.92 43.68 51.60
------------------------------------------- --------- --------- --------- --------- --------- ---------
The total column of this statement represents the Company's
Income Statement and the Company's Statement of Comprehensive
Income, prepared in accordance with IFRS. The supplementary revenue
return and capital return columns are both prepared under guidance
published by the AIC in the UK.
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 STATEMENT OF CHANGES IN EQUITY
for the year to 31 March 2018
Ordinary Share Other non- Retained earnings
share premium Special distributable Capital Revenue
capital account reserve reserve reserves reserve Total
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
-------------------------- --------- ----------- ---------- -------------- ---------- ----------- -----------
Balance at
31 March 2017 21,141 915 203,169 11,093 282,675 13,168 532,161
Profit for the year - - - - 10,010 19,949 29,959
Ordinary
dividends paid - - - - - (18,803) (18,803)
Shares issued on
exercise of
subscription share
rights 3,293 56,963 - - - - 60,256
Shares purchased by the
Company (983) (22,829) - - - - (23,812)
Balance at
31 March 2018 23,451 35,049 203,169 11,093 292,685 14,314 579,761
-------------------------- --------- ----------- ---------- -------------- ---------- ----------- -----------
for the year to 31 March 2017
Ordinary Share Other non- Retained earnings
share premium Special distributable Capital Revenue
capital account reserve reserve reserves reserve Total
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
-------------------------- --------- ---------- ---------- -------------- ---------- ----------- -----------
Balance at
31 March 2016 21,146 771 204,587 11,093 188,428 10,537 436,562
Profit for the year - - - - 94,247 16,537 110,784
Ordinary
dividends paid - - - - - (13,906) (13,906)
Shares issued on
exercise of
subscription share
rights 478 8,265 - - - - 8,743
Shares purchased by the
Company (483) (8,121) (1,418) - - - (10,022)
Balance at
31 March 2017 21,141 915 203,169 11,093 282,675 13,168 532,161
-------------------------- --------- ---------- ---------- -------------- ---------- ----------- -----------
COMPANY STATEMENT OF CHANGES IN EQUITY
for the year to 31 March 2018
Ordinary Share Other non- Retained earnings
share premium Special distributable Capital Revenue
capital account reserve reserve reserves reserve Total
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
-------------------------- --------- ----------- ---------- -------------- ---------- ----------- -----------
Balance at
31 March 2017 21,141 915 203,169 11,093 282,487 13,356 532,161
Profit for the year - - - - 11,132 18,827 29,959
Ordinary
dividends paid - - - - - (18,803) (18,803)
Shares issued on
exercise of
subscription share
rights 3,293 56,963 - - - - 60,256
Shares purchased by the
Company (983) (22,829) - - - - (23,812)
Balance at
31 March 2018 23,451 35,049 203,169 11,093 293,619 13,380 579,761
-------------------------- --------- ----------- ---------- -------------- ---------- ----------- -----------
for the year to 31 March 2017
Ordinary Share Other non- Retained earnings
share premium Special distributable Capital Revenue
capital account reserve reserve reserves reserve Total
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
-------------------------- --------- ---------- ---------- -------------- ---------- ----------- -----------
Balance at
31 March 2016 21,146 771 204,587 11,093 188,701 10,264 436,562
Profit for the year - - - - 93,786 16,998 110,784
Ordinary
dividends paid - - - - - (13,906) (13,906)
Shares issued on
exercise of
subscription share
rights 478 8,265 - - - - 8,743
Shares purchased by the
Company (483) (8,121) (1,418) - - - (10,022)
Balance at
31 March 2017 21,141 915 203,169 11,093 282,487 13,356 532,161
-------------------------- --------- ---------- ---------- -------------- ---------- ----------- -----------
BALANCE SHEETS
GROUP COMPANY
at 31 March 2018 2017 2018 2017
GBP'000s GBP'000s GBP'000s GBP'000s
--------------------------------------- --------- --------- --------- ---------
Non-current assets
Investments - 572,264 - 579,471
--------------------------------------- --------- --------- --------- ---------
Current assets
Investments 579,884 - 581,155 -
Other receivables 1,601 1,966 1,532 1,715
Derivative financial instruments - 3,170 - 633
Cash and cash equivalents 8,071 15,336 6,841 10,785
--------------------------------------- --------- --------- --------- ---------
589,556 20,472 589,528 13,133
--------------------------------------- --------- --------- --------- ---------
Current liabilities
Other payables (5,932) (10,504) (5,904) (10,482)
Derivative financial instruments - (110) - -
Deferred tax (3,863) - (3,863) -
(9,795) (10,614) (9,767) (10,482)
--------------------------------------- --------- --------- --------- ---------
Net current assets 579,761 9,858 579,761 2,651
--------------------------------------- --------- --------- --------- ---------
Total assets less current liabilities 579,761 582,122 579,761 582,122
Non-current liabilities
Bank loans - (46,816) - (46,816)
Deferred tax - (3,145) - (3,145)
--------------------------------------- --------- --------- --------- ---------
Net assets 579,761 532,161 579,761 532,161
--------------------------------------- --------- --------- --------- ---------
Equity attributable to equity holders
Share capital 23,451 21,141 23,451 21,141
Share premium account 35,049 915 35,049 915
Special reserve 203,169 203,169 203,169 203,169
Other non-distributable reserve 11,093 11,093 11,093 11,093
Capital reserves 292,685 282,675 293,619 282,487
Revenue reserve 14,314 13,168 13,380 13,356
--------------------------------------- --------- --------- --------- ---------
Total attributable to equity holders 579,761 532,161 579,761 532,161
--------------------------------------- --------- --------- --------- ---------
Net asset value per ordinary share
Basic - pence 247.22 251.72 247.22 251.72
Diluted - pence n/a 241.29 n/a 241.29
--------------------------------------- --------- --------- --------- ---------
n/a = not applicable
STATEMENTS OF CASH FLOWS
GROUP COMPANY
for the year to 31 March 2018 2017 2018 2017
GBP'000s GBP'000s GBP'000s GBP'000s
---------------------------------------- ----------- ----------- ----------- -----------
Cash flows from operating activities 5,766 12,487 4,404 13,321
---------------------------------------- ----------- ----------- ----------- -----------
Investing activities:
Purchases of investments (186,991) (159,338) (182,163) (165,550)
Sales of investments 199,328 141,232 197,350 137,748
Purchases of derivatives (926) (9,014) - (394)
Settlement of derivatives 1,686 2,879 1,686 -
---------------------------------------- ----------- ----------- ----------- -----------
Cash flows from investing activities 13,097 (24,241) 16,873 (28,196)
---------------------------------------- ----------- ----------- ----------- -----------
Cash flows before financing activities 18,863 (11,754) 21,277 (14,875)
---------------------------------------- ----------- ----------- ----------- -----------
Financing activities:
Ordinary dividends paid (14,582) (13,906) (14,582) (13,906)
Movements from loans (46,162) 26,858 (46,162) 26,858
Proceeds from issue of shares 60,256 8,743 60,256 8,743
Cost of ordinary shares purchased (23,812) (10,022) (23,812) (10,022)
Cash flows from financing activities (24,300) 11,673 (24,300) 11,673
---------------------------------------- ----------- ----------- ----------- -----------
Net movement in cash and cash
equivalents (5,437) (81) (3,023) (3,202)
Cash and cash equivalents at the
beginning of the year 15,336 12,609 10,785 11,629
Effect of movement in foreign exchange (1,904) 2,808 (997) 2,358
---------------------------------------- ----------- ----------- ----------- -----------
Cash and cash equivalents at the
end of the year 7,995 15,336 6,765 10,785
---------------------------------------- ----------- ----------- ----------- -----------
Comprised of:
Cash 8,071 15,336 6,841 10,785
Bank overdraft (76) - (76) -
---------------- ------ ------- ------ -------
7,995 15,336 6,765 10,785
---------------- ------ ------- ------ -------
NOTES
The 2018 fourth dividend would typically have been paid in June
2018. However, in light of the re-domicile of the Company to the
United Kingdom and the expected timeframe for Utilico Emerging
Markets Trust plc to complete the proposed capital reduction to
create a distributable reserve, the Board decided to bring the
payment of the fourth quarterly interim dividend forward (see note
26 of the 2018 Report and Accounts).
This statement was approved by the Board on 14 June 2018. It is
not the Group's or Company's statutory accounts. The statutory
accounts for the financial year ended 31 March 2018 have been
approved and audited, and received an audit report which was
unqualified. The audit report includes a reference drawing
attention to the emphasis of matter relating to the disclosure of
the non-going concern basis of preparation. The statutory accounts
for the financial year ended 31 March 2017 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 for the year ended 31 March 2018 will
be posted to shareholders in early July 2018. A copy is available
to view and download from UEM Trust's website at
www.uemtrust.co.uk.
Legal Entity Identifier: 2138005TJMCWR2394O39
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR LLFFERLISLIT
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