REG - Utilico Emerging Mkt - Annual Financial Report
19/06/2023 07:00
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RNS Number : 0694D Utilico Emerging Markets Trust PLC 16 June 2023
Date: 16 June 2023
UTILICO EMERGING MARKETS TRUST PLC
ANNUAL FINANCIAL REPORT
FOR THE YEAR TO 31 MARCH 2023
Utilico Emerging Markets Trust plc ("UEM" or the "Company") today announces
its audited financial results for the year to 31 March 2023.
Highlights of results
· Net asset value ("NAV") total return per share of 2.1%* (2022:
14.9%*)
· NAV per share of 250.91p* per share, down 1.3%
· Gross assets of £542.5m, a decrease of 4.8%
· Annual compound NAV total return since inception of 9.3%*
· Dividends per share totalled 8.45p for the year, an increase of
5.6%. Dividends were fully covered by earnings
· Revenue earnings per share ("EPS") increased 15.1% to 9.40p
· Total revenue income of £24.3m, an 7.5% decrease
*See Alternate Performance Measures on pages 96 and 97 of the Report and
Accounts
The Report & Accounts for the year ended 31 March 2023 will be posted to
shareholders in early July 2023. A copy will shortly be available to view and
download from the Company's website at www.uemtrust.co.uk
(http://www.uemtrust.co.uk) and the National Storage Mechanism at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .
Please click on the following link to view the document:
http://www.rns-pdf.londonstockexchange.com/rns/0694D_1-2023-6-16.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/0694D_1-2023-6-16.pdf)
John Rennocks, Chairman of UEM said: "The year to 31 March 2023 has continued
to be truly challenging for all, including investors. However, UEM turned in a
strong performance in the second half of the year and importantly delivered a
positive NAV Total return of 2.1%. This was once again significantly ahead of
the MSCI EM total return Index which was down 5.0% over the same period. UEM's
long term annual compound NAV total return since inception to 31 March 2023 of
9.3% also exceeds the MSCI EM total return Index of 7.6%.
"It is excellent to see UEM's revenue earnings per share increase by 15.1% to
9.40p given the wider market challenges as inflation and interest rates have
risen sharply. UEM has declared one quarterly dividend of 2.00p and three
quarterly dividends of 2.15p each, totalling 8.45p per share, a 5.6% increase
over the previous year, and fully covered by income. Disappointingly UEM's
share price discount widened over the year from 11.9% as at 31 March 2022 to
13.5% as at 31 March 2023 and this remains above the level that the Board
would wish to see over the medium term.
"The Board would like to re-emphasise that UEM's portfolio is predominantly
invested in relatively liquid, cash-generative companies which have
long-duration operational, infrastructure and utility assets that the
Company's Investment Managers believe are structurally undervalued and offer
the potential for excellent total returns."
Charles Jillings, Investment Manager of UEM added: "UEM's one year, three
years, five years and since inception performance is ahead of the MSCI Index.
UEM has delivered this together with a rising dividend; a low Beta (as at 31
March 2023, UEM's five year Beta was 0.76x); and with a portfolio which is
very different from the MSCI Index (UEM's active share is over 95.0%).
"This should be compelling to investors who want exposure to emerging markets,
top performance and comparatively low levels of volatility."
Contacts: Joint Portfolio Manager and Company Secretary
ICM Investment Management
Limited
+44(0)1372 271486
Charles Jillings / Alastair
Moreton
Public Relations
Montfort
Communications
+44(0)20 3770 7913
Gay Collins / Pippa Bailey
utilico@montfort.london (mailto:utilico@montfort.london)
Joint Brokers
Shore
Capital
+44(0)20 7408 4090
Rose Ramsden / Angus Murphy
Barclays
Bank
+44(0)20 7623 2323
Dion Di Miceli / Stuart Muress / Louis Reed
BarclaysInvestmentCompanies@barclays.com
(mailto:BarclaysInvestmentCompanies@barclays.com)
PERFORMANCE SUMMARY
31 March 31 March % change
2023 2022 2023/22
NAV total return per share(1) (annual) (%) 2.1 14.9 n/a
Share price total return per share(1) (annual) (%) 0.8 17.6 n/a
Annual compound NAV total return (1)
(since inception - 20 July 2005) (%) 9.3 9.7 n/a
NAV per share(1) (pence) 250.91 254.22 (1.3)
Share price (pence) 217.00 224.00 (3.1)
Discount(1) (%) (13.5) (11.9) n/a
Earnings per share (basic)
- Capital (pence) (6.61) 24.49 (127.0)
- Revenue (pence) 9.40 8.17 15.1
Total (pence) 2.79 32.66 (91.5)
Dividends per share
- 1st quarter (pence) 2.00 2.00 0.0
- 2nd quarter (pence) 2.15 2.00 7.5
- 3rd quarter (pence) 2.15 2.00 7.5
- 4th quarter (pence) 2.15(2) 2.00 7.5
Total (pence) 8.45 8.00 5.6
Gross assets(3)(£m) 542.5 569.6 (4.8)
Equity holders' funds (£m) 507.4 545.9 (7.1)
Shares bought back (£m) 27.2 13.9 95.7
Net (overdraft)/cash (£m) (1.0) 0.5 (300.0)
Bank loans (£m) (35.1) (23.7) 48.1
Net debt (£m) (36.1) (23.2) 55.6
Gearing(1) (%) (7.1) (4.3) n/a
Management and administration fees
and other expenses 7.4 7.3 1.4
Ongoing charges figure(1) 1.4 1.4 n/a
(1) See Alternative Performance Measures on pages 96 and 97 of the Report
and Accounts
(2) The fourth quarterly dividend has not been included as a liability in
the accounts
(3) Gross assets less liabilities excluding loans
CHAIRMAN'S STATEMENT
The year to 31 March 2023 has continued to be truly challenging for all,
including investors. From the war in Ukraine through to inflation and sharply
higher central bank interest rates; to rising geopolitical friction; and to
the challenges on climate change and significant natural disasters.
Understandably, volatility in most markets has been elevated as uncertainty
has dominated.
UEM turned in a strong performance in the second half of the year and
importantly delivered a positive NAV total return of 2.1% for the year to 31
March 2023. This was once again significantly ahead of the MSCI EM total
return Index which was down 5.0% over the same period.
UEM measures its performance on a total return basis over the long term and
the Investment Managers are seeking long term performance to be above 10.0%
per annum including a rising dividend. Over one, three and five years and
since inception, UEM has outperformed the MSCI EM Index. It is pleasing to
highlight the long term annual compound NAV total return since inception to
31 March 2023 of 9.3% exceeding the MSCI EM total return Index of 7.6%.
GLOBAL ECONOMY
As referred to earlier, there are numerous headwinds currently faced by the
markets, each of which is challenging in its own right. We have historically
discussed a number of these and they largely remain unresolved. We continue to
witness a significant rise in nationalism, wealth inequality and global
immigration. All of these issues and challenges no doubt tear at the fabric of
our societies and institutions.
One positive is that Covid looks to be behind us. The World Health
Organisation finally declared the Covid emergency over in May 2023. At the
time of publishing UEM's half yearly report in November 2022, we were deeply
concerned about the challenges faced by China given their zero Covid policy.
The about-turn by China on Covid was a surprise in both its timing and
approach. We had expected China to vaccinate its population and slowly lift
restrictions in the summer this year. Faced with the highly infectious Omicron
variant already penetrating the wider Chinese population and the heavy burden
of ineffective lockdowns, the decision to go from zero Covid tolerance to
total tolerance was bold. Certainly, at an investee level, it has had very
limited impact on the ability of corporates to run their businesses today.
Unfortunately the same cannot be said of the war in Ukraine. It remains
devastating on a number of levels. The harshness of the Russian army will be a
wound on liberal societies for decades to come. The need to have resilient and
diversified supply chains, energy security, green energy and increased defence
capabilities will see resources diverted and reinvested with an urgency and
scale not witnessed in our lifetime. This shift will give rise to new
opportunities for investors, including UEM.
The legacy of Covid and the West's response to it has undoubtedly led to
higher debt and higher inflation, and the Russian war in Ukraine has seen
sharply higher commodity prices and accelerating inflation. The response by
the Central Banks to higher inflation has been to rapidly raise interest rates
to bring inflation under control. The surprising part has been the resilience
in the labour market where in most Western countries, unemployment levels are
at record lows. This is good for workers but ultimately negative for the
inflation outlook if it persists, as wage demands will keep inflation high.
EMERGING MARKETS
Most EM markets were down over the year reflecting local headwinds, higher
interest rates and lower valuations. Brazil's Bovespa Index was down 15.1%,
the Philippine PSEI Index was down 9.8% and the Hong Kong Hang Seng Index was
down 7.3%. Some markets have held up, most notably India's Sensex which was up
by 0.7%. A common theme has been rising inflation in Latam and Eastern Europe
and weakening property markets in Asia. Of note is the volatility - at its low
the Hang Seng Index was down over 30.0% and the Philippine PSEI was down over
20.0%.
In comparison most currencies were up against UK Sterling although for UEM
notably the Brazilian Real, Chinese Renminbi and Indian Rupee were all down
0.2%, 1.7% and 1.8% respectively. Again, volatility was high. The Hong Kong
Dollar was at one point during the year up over 20.0% and the Indian Rupee was
up by 15.0% against Sterling.
Most commodities have moved lower during the period under review as supply
chains have adjusted, with oil down by 26.1%, wheat down by 31.2% and soybean
down by 12.6%. Although copper moved higher, up by 16.0%. But most remain
elevated compared to historic levels which is feeding through into inflation.
UNLISTED INVESTMENTS (LEVEL 3 INVESTMENTS)
UEM has over the years invested in unlisted businesses at a modest level. This
remains true today. As at 31 March 2023 the value of the unlisted portfolio
has risen to 10.8% which has been driven primarily by the revaluation of
Petalite Limited ("Petalite"). UEM is unable to invest further in unlisted
investments while the valuation of its unlisted portfolio is over 10.0% of
gross assets. Petalite is a disruptive technology start up business and gives
UEM exposure to the electric vehicles revolution through charging
infrastructure. UEM invested a modest amount, some £1.5m for an interest of
approximately 30.0%. Following external fund raising, in which UEM invested a
further £1.25m, and significant progress, our holding in Petalite was valued
upwards in the year to £28.6m.
REVENUE EARNINGS AND DIVIDEND
It is excellent to see UEM's revenue earnings per share ("EPS") increase by
15.1% to 9.40p given the wider market challenges as inflation and interest
rates have risen sharply during the year to 31 March 2023.
UEM has declared one quarterly dividend of 2.00p and three quarterly dividends
of 2.15p each, totalling 8.45p per share, a 5.6% increase over the previous
year. Dividends remain fully covered by income. The retained earnings revenue
reserves increased by £2.3m in the year to £9.6m as at 31 March 2023, equal
to 4.74p per share.
The Board would like to re-emphasise that UEM's portfolio is predominantly
invested in relatively liquid, cash-generative companies which have
long-duration operational, infrastructure and utility assets that the
Company's Investment Managers believe are structurally undervalued and offer
the potential for excellent total returns.
SHARE BUYBACKS
Disappointingly UEM's share price discount widened over the year from 11.9% as
at 31 March 2022 to 13.5% as at 31 March 2023. This remains above the level
that the Board would wish to see over the medium term. The Company has
continued buying back shares for cancellation, with 12.5m shares bought back
in the year to 31 March 2023, at an average price of 215.45p and total cost of
£27.2m.
While the Board is keen to see the discount narrow, any share buyback remains
an independent investment decision. Historically the Company has bought back
shares if the discount widens in normal market conditions to over 10.0%. Since
inception, UEM has bought back 75.1m ordinary shares totalling £138.8m. The
buybacks now represent significantly more than the initial IPO capitalisation
of UEM Limited when it came to market in July 2005. The share buybacks have
contributed 0.8% to UEM's total returns.
ONGOING CHARGES
Ongoing charges were unchanged at 1.4% for the year to 31 March 2023, a good
result especially given the wider inflationary environment.
BOARD
We announced plans for board refreshment in 2021, which included the
appointments of Mark Bridgeman and Isabel Liu later that year and after the
2022 Annual General Meeting ("AGM") Anthony Muh stepped down from the Board.
Continuing with these initiatives, Susan Hansen has confirmed her intention to
retire from the Board following the conclusion of UEM's next AGM in September
2023. Susan has brought significant insight, experience and challenge to the
Board since she joined in 2013.
As noted in the half yearly report, the Directors have reviewed the
composition of the Board and the current intention is to continue as a Board
of four Directors. This will be kept under review as part of the annual Board
evaluation process.
ADVISER AND INVESTOR COMMUNICATION
We referred to proposals for increased investor communication in the half
yearly report and the continued focus on marketing UEM to the wider investment
community. As part of these initiatives we were pleased to announce, after a
competitive pitch process, the appointments of Barclays as joint corporate
broker alongside Shore Capital, and RMS Partners to help lead investor
engagement with regional institutions and private client fund managers. We
also draw investors' attention to UEM's website which has extended its content
significantly, providing comprehensive insights from the Investment Managers
on areas such as individual EM countries and portfolio stocks.
UEM is working with its advisers to rejuvenate the marketing presentation and
draw attention to a number of megatrend tailwinds benefitting UEM, see page
19. Our drive is to improve investor knowledge and broaden its investor base,
especially retail.
OUTLOOK
The megatrends driving much of the global growth in emerging markets are
strengthening. We see UEM's portfolio as well placed to benefit from these
megatrends.
The investee company's management teams have demonstrated an enviable ability
to seize the opportunity even in these challenging markets. We remain
optimistic for UEM.
John Rennocks
Chairman
16 June 2023
INVESTMENT MANAGERS' REPORT
It is pleasing to see UEM deliver another positive NAV gain, with a NAV total
return for the year of 2.1%, building on last year's 14.9% uplift and the
prior year's 30.2% return. This performance was again significantly ahead of
the MSCI EM total return Index which was down by 5.0% during the year to 31
March 2023 and down by 6.9% in the year to 31 March 2022. As previously noted,
UEM's asset sector class was largely overlooked by the markets early in the
pandemic, which focused on the shift to working from home. This led to markets
rewarding the technology sector shares, but since the approval of the Covid-19
vaccines, the market has shifted and now the embedded value in UEM's portfolio
is being increasingly recognised.
UEM's one year, three years, five years and since inception performance is
ahead of the MSCI Index. UEM has delivered this together with a rising
dividend; a low Beta (as at 31 March 2023, UEM's five year Beta was 0.76x);
and with a portfolio which is very different from the MSCI Index (UEM's active
share is over 95.0%). This should be compelling to investors who want exposure
to emerging markets, top performance and comparatively low levels of
volatility.
We were surprised by China's decision to go from zero Covid tolerance to total
tolerance. We assumed China would vaccinate then exit their zero Covid policy
in the summer of 2023. It has been very pleasing to see that globally the
focus on Covid has evaporated and in our travels to India, Poland, Mexico,
Chile and Brazil this year, Covid was hardly mentioned.
However, the world is still faced with a number of unresolved deep-seated
challenges. As noted in the Chairman's Statement these range from inflation to
climate change. Given we have highlighted a number of these issues before we
will focus on four topics in particular that we discuss at length as an
investment team. Finding consensus on these issues has been and continues to
be challenging.
INFLATION AND INTEREST RATES
Inflation has risen sharply and remained elevated in the developed economies.
An undoubted driver of this has been tight labour markets which has led to
wage inflation as buying power shifts to the wider workforce. If left
unaddressed this will cause further inflationary pressures and may become
embedded in economies.
We have been surprised by the tightness of labour markets. Unemployment levels
are at record lows in many countries. Our view is that the combination of
workers suffering from long Covid and increased social care falling on
families, together with early retirement has all contributed to the reduction
in the available labour force.
Inflation has also been exacerbated by changes in supply chains. The drive for
food security, energy independence and the shift to nearshoring however will
all have likely added to the cost of supply chains. The lowest cost of
production is no longer the sole driver of decisions.
Commodities have also played a part in inflation reflecting an imbalance as
demand exceeds supply in certain products. This is likely to continue as
decades of under-investment cannot be redressed overnight.
Further, the response to the Ukraine war will see an increased drive for
energy security, supply chain security and military security. These three
challenges are likely to be pursued at a significant pace and will result in
heightened demand for commodities. Structurally we therefore see commodity
demand rising and pricing to remain on the upside.
To address the rising inflationary outlook in the developed world, Central
Banks have raised interest rates at a rapid pace. We expect we are at the
point where interest rates plateau before declining. The "lower for longer"
mantra has been replaced by "higher for longer".
A point to note is that Latam has seen inflationary pressures well ahead of
the developed world and its Central Banks have responded firmly and early.
Most Latam countries have Central Bank interest rates of over 10.0%.
Correspondingly we are seeing inflation in Latam firmly roll over. Our
expectation is that a number of Central Banks are now in a position to lower
interest rates.
Inflation has not been as much of a challenge in Asia. We suspect this results
from higher unemployment levels at the start of Covid. As a consequence, wage
pressures are lower, as is inflation. It is worth noting China's inflation is
running at under 2.0%.
UKRAINE
The war in Ukraine has gone on longer than we expected but has had less of a
long-term impact on energy and wheat markets than we thought. Both these
commodities have seen their prices fall significantly over the year. As such,
inflationary pressures are much reduced for these two commodities.
However, the wider global inflationary legacy is expected to persist. The
threat from energy supply and supply chain security will require significant
investment to address these two concerns and inflationary pressures will
remain.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE ("ESG")
Climate change remains at the forefront of global debate, heightened by the
increased impact of climate disasters worldwide. ICM has committed to
measuring and reducing its own carbon emissions through a range of
initiatives. As an investor who expects our investees to consider their impact
on the environment, it is therefore important to lead by example.
Energy transition is a megatrend which is the catalyst that will enable
nations to reach their net zero commitments. As the transition intensifies
attention will turn to new technologies within supply chains. Production will
face increased scrutiny from downstream industries, investors and the public
over ESG issues. The transition will need to be carefully managed to ensure
that the impact generated from clean technologies is maximised. ICM's approach
therefore encompasses the need to understand the upstream supply chains of
investees' products.
CLIMATE CHANGE
The war in Ukraine has been a true setback for the globally supported aim of
reducing carbon emissions. However, the best way to address the energy
shortfall may be to invest in green technologies and electric vehicles,
thereby achieving two ambitions at once, energy security and green energy
supply.
The past year has provided a stark reminder of the devastation that can arise
from climate change-related disasters. Climate-driven events are becoming more
frequent and severe. China featured twice in the ten most costly climate
change-related disasters in 2022. Climate change risk is monitored across the
portfolio, however predicting the likelihood and impact of events remains a
difficult task. Currently, we see geographical diversification as the best way
to mitigate the risk posed by climate-related disasters.
PORTFOLIO
UEM's gross assets (less liabilities excluding loans) decreased to £542.5m as
at 31 March 2023 from £569.6m as at 31 March 2022. This reflects valuation
uplifts offset by net realisations to fund, in part, the share buybacks of
£27.2m in the year.
At the year end the top thirty holdings accounted for 67.7% of the total
portfolio (31 March 2022: 65.6%). There have been nine new entrants into the
top thirty holdings over the year. UEM increased its investment in China Gas
Holdings Limited ("China Gas") by 42.9%, Aguas Andinas S.A. ("Aguas Andinas")
by 203.1%, Centrais Eletricas Brasileiras S.A. ("Eletrobras") by 73.6%, InPost
S.A. ("InPost") by 53.2% and Vamos Locacao de Caminhoes Macquinas e
Equipamentos S.A. ("Vamos") by 93.6%. Shanghai International Airport Co., Ltd
("SHIA") is a new investment in the year. This together with some strong share
price performances from China Gas up by 10.4%, Aguas Andinas up 38.6%, InPost
up 46.0% and SHIA up 13.3% moved them all into the top thirty holdings.
Umeme Limited saw its share price recover by 74.2% and is now in nineteenth
position in our portfolio. Grupo Traxion S.A.B. de C.V. rose into the top
thirty as we reduced other holdings.
UEM exited from PT Link Net Tbk following an offer for the business at a
premium. UEM reduced its investment in Simpar S.A., My E.G. Services Berhad,
Ocean Wilsons Holdings Limited, Corporacion Financiera Colombiana S.A., China
Everbright Greentech Limited, Societe Nationale des Telecommunications du
Senegal, Naver Corporation Limited and KT Corporation, all of which fell
outside the top thirty holdings.
Purchases in the portfolio decreased again to £108.9m in the year ended 31
March 2023 (31 March 2022: £124.5m) and realisations decreased to £126.6m
(31 March 2022: £176.9m). This reflects investment activity more in line with
long term averages. An active decision was taken to slowly increase UEM's debt
as confidence in investee companies grew. UEM ended the year with its bank
loans drawn to £35.1m, 70.2% of the available £50.0m facility.
There have been some small sector shifts during the year to 31 March 2023 and
more detail is set out on page 17. On a geographical basis there were some
small changes again and more detail is set out on page 10.
LEVEL 3 INVESTMENTS
UEM ended the year with level 3 investments totalling £58.7m (31 March 2022:
£48.1m), representing 10.8% of total investments (31 March 2022: 8.4%). UEM's
level 3 investments increased mainly as a result of the revaluation of
Petalite. UEM first invested in Petalite in March 2020, since which time the
electric vehicle charging technology company has won several UK government
innovation grants, and further developed, patented and certified its core SDC
technology. SDC, or Sinusoidal Direct Current, is a revolutionary method of
converting AC to DC more efficiently and with a higher degree of reliability
than existing "full bridge" technology used in electric vehicle chargers. In
June 2022 Petalite received investment from AM Impact Partners, a strategic
investor, in a funding round in which UEM also participated. The funding round
was completed at a premium to the carrying valuation as reported in the March
2022 annual accounts, which resulted in an uplift of £9.9m to NAV during the
period ended 31 March 2023. Attention is drawn to note 26(d) of the accounts
which provides more information on Petalite's valuation methodology and the
50% level of sensitivity to its fair value which has been applied. UEM is a
28.6% shareholder in Petalite.
BANK DEBT
UEM's net debt, being bank loans and net overdrafts, increased from £23.2m as
at 31 March 2022 to £36.1m as at 31 March 2023, as UEM actively increased its
investment positions. UEM's £50.0m committed multicurrency loan facility is
with The Bank of Nova Scotia, London Branch, and matures in March 2024.
REVENUE RETURN
Revenue income increased by 7.7% to £24.3m in the year to 31 March 2023, from
£22.6m in the prior year. This is a good outcome given the uncertain
markets.
Management fees and other expenses were flat at £3.0m in the year to 31 March
2023, unchanged from the year to 31 March 2022. This is a positive given the
inflationary pressures in the wider market. Finance costs remained modest at
£0.2m (31 March 2022: £0.1m). Taxation remained largely unchanged at £1.6m
during the year ended 31 March 2023 (31 March 2022: £1.5m).
Profit for the year increased by 8.6% to £19.5m from £17.9m for the prior
year. EPS was higher, increasing by 15.1% to 9.40p compared to the prior year
of 8.17p due to the higher earnings and reduced average number of shares in
issue following the buybacks. Dividends per share ("DPS") of 8.45p were fully
covered by earnings.
Retained revenue reserves rose to £9.6m as at 31 March 2023, equal to 4.74p
per share.
CAPITAL RETURN
The portfolio losses were £8.4m on the capital account during the year to 31
March 2023. Losses on foreign exchange were £0.5m and therefore the resultant
total income loss on the capital account was £8.9m against prior year gains
of £59.6m.
Management and administration fees were almost flat at £4.3m (31 March 2022:
£4.2m).
Finance costs increased to £0.7m from £0.5m as a result of higher interest
costs. There was a taxation gain of £0.2m (31 March 2022: loss of £1.2m)
which arose mainly from Indian capital gains tax reductions. The net effect of
the above was a loss on capital return of £13.7m (31 March 2022: a gain of
£53.7m).
Charles Jillings
ICM Investment Management Limited and ICM Limited
16 June 2023
PRINCIPAL RISKS AND RISK MITIGATION
During the year ended 31 March 2023, 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.
As required by the Association of Investment Companies ("AIC") Code of
Corporate Governance, the Board has undertaken a robust assessment of the
principal risks facing the Company. It seeks to mitigate these risks through
regular review by the Audit & Risk Committee of the Company's risk
register which identifies the risks facing the Company and the likelihood and
potential impact of each risk, together with the controls established for
mitigation.
During the year the Audit & Risk Committee also discussed and monitored a
number of emerging risks that could potentially impact the Company, the
principal ones being geopolitical risk and climate change risk. The Audit
& Risk Committee has determined that they are not currently sufficiently
material to be categorised as separate key risks and are considered within
investment risk and market risk below. The Covid-19 pandemic, which emerged in
2020, gave rise to significant challenges for businesses worldwide and this
was also taken into account as part of the assessment of risks to the Company.
The principal risks and uncertainties currently faced by the Company and the
controls and actions to mitigate those risks, are described below. There have
been no significant changes to the principal risks during the year.
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 approved investment policy 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. In addition, ESG factors are also considered when selecting and
retaining investments and political risks associated with investing in EM 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 aims to achieve absolute returns through an active fund
management approach and the Board monitors the implementation and results of
the investment process with the Investment Managers.
MARKET RISK: The Company's assets consist mainly of listed securities and its
principal risks are therefore market related and adverse market conditions
could lead to a fall in NAV.
The Company's portfolio is exposed to equity market risk and foreign currency
risk. Adverse market conditions may result from factors such as economic
conditions, political change, geopolitical confrontations, climate change,
natural disasters and health epidemics. At each Board meeting the Board
reviews the diversification of the portfolio, asset allocation, stock
selection, unquoted investments and levels of gearing and has set investment
restrictions and guidelines which are monitored and reported on by the
Investment Managers.
The Company's results are reported in Sterling, although the majority of its
assets are priced in foreign currencies and therefore any rise or fall in
Sterling will lead, respectively, to a fall or rise in the Company's reported
NAV. 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 EM currencies.
KEY STAFF RISK: Loss by the Investment Managers of key staff could affect
investment returns.
The quality of the investment management team is a crucial factor in
delivering good performance. There are training and development programmes 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.
DISCOUNT RISK: The Company's shares may trade at a discount to their NAV and a
widening discount may undermine investor confidence in the Company.
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 in normal market conditions if they are trading at a
discount in excess of 10% and the Investment Managers agree that it is a good
investment decision.
OPERATIONAL RISK: 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 95. The Audit &
Risk Committee monitors the performance and controls (including business
continuity procedures) of the service providers at regular intervals..
All listed and a number of unlisted investments are held in custody for the
Company by JPMorgan Chase Bank N.A. - London Branch. JPMEL, the Company's
depositary services provider, also monitors the movement of cash and assets
across the Company's accounts. The Audit & Risk Committee reviews the JP
Morgan SOC1 reports, which are reported on by Independent Service Auditors, in
relation to its administration, custodial and information technology services.
The Board reviews the overall performance of the Investment Managers and all
the other service providers on a regular basis. 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.
GEARING: 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.
Gearing levels may change from time to time in accordance with the Board and
Investment Managers' assessment of risk and reward. As at 31 March 2023, UEM
had net gearing on net assets of 7.1%. 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.
REGULATORY RISK: Failure to comply with applicable legal and regulatory
requirements such as the tax rules for investment companies, the FCA's Listing
Rules and the Companies Act 2006 could lead to suspension of the Company's
Stock Exchange listing, financial penalties, a qualified audit report or the
Company being subject to tax on capital gains.
The Investment Managers and the Company's professional advisers monitor
developments in relevant laws and regulations and provide regular reports to
the Board in respect of the Company's compliance.
DIRECTORS' STATEMENT OF RESPONSIBILITIES
in respect of the Annual Report and the Financial Statements
The Directors are responsible for preparing the Annual Report and financial
statements in accordance with applicable United Kingdom law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law, they are required to prepare the financial
statements in accordance with UK adopted International Accounting Standards
and the Companies Act 2006.
Under company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and of its profit or loss for that period. In preparing
these financial statements, the Directors are required to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and estimates that are reasonable, relevant and
reliable;
• state whether they have been prepared in accordance with UK
adopted International Accounting Standards and the Companies Act 2006;
• 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.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
Act 2006. 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 Company and to prevent and detect fraud and other
irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Strategic Report, Directors' Report, Directors' Remuneration
Report and Corporate Governance Statement that complies with that law and
those regulations.
In accordance with Disclosure Guidance and Transparency Rule 4.1.14R, the
financial statements will form part of the annual financial report prepared
using the single electronic reporting format under the TD ESEF Regulation. The
auditor's report on these financial statements provides no assurance over the
ESEF format.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website, which
is maintained by the Company's Investment Managers. Legislation in the UK
governing the preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
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 Company; and
· the Strategic Report and Directors' Report include a fair review
of the development and performance of the business and the position of the
Company, together with a description of the principal risks and uncertainties
that it faces.
We consider the annual report and accounts, taken as a whole, is fair,
balanced and understandable and provides the information necessary for
shareholders to assess the Company's position and performance, business model
and strategy.
Approved by the Board on 16 June 2023 and signed on its behalf by:
John Rennocks
Chairman
STATEMENT OF COMPREHENSIVE INCOME
for the year to for the year to
31 March 2023 31 March 2022
Revenue Capital Total Revenue Capital Total
return return return return return return
£'000s £'000s £'000s £'000s £'000s £'000s
(Losses)/gains on investments - (8,389) (8,389) - 58,293 58,293
Foreign exchange (losses)/gains - (515) (515) - 1,333 1,333
Investment and other income 24,326 - 24,326 22,593 - 22,593
Total income/(loss) 24,326 (8,904) 15,422 22,593 59,626 82,219
Management and administration fees (1,394) (4,336) (5,730) (1,451) (4,240) (5,691)
Other expenses (1,651) - (1,651) (1,590) - (1,590)
Profit/(loss) before finance costs and taxation 21,281 (13,240) 8,041 19,552 55,386 74,938
Finance costs (169) (674) (843) (119) (469) (588)
Profit/(loss) before taxation 21,112 (13,914) 7,198 19,433 54,917 74,350
Taxation (1,638) 212 (1,426) (1,500) (1,188) (2,688)
Profit/(loss) for the year 19,474 (13,702) 5,772 17,933 53,729 71,662
Earnings per share (basic) - pence 9.40 (6.61) 2.79 8.17 24.49 32.66
All items in the above statement derive from continuing operations.
The 'Total' column of this statement is the profit and loss account of the
Company and the 'Revenue' and 'Capital' columns represent supplementary
information prepared under guidance issued by the Association of Investment
Companies.
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 income is attributable to the equity holders of the Company.
STATEMENT OF CHANGES IN EQUITY
for the year to 31 March 2023
Ordinary Capital Retained earnings
share Merger redemption Special Capital Revenue
capital reserve reserve reserve reserves reserve Total
£'000s £'000s £'000s £'000s £'000s £'000s £'000s
Balance as at 31 March 2022 2,148 76,706 197 459,736 (139) 7,268 545,916
Shares purchased by the Company and (125) - 125 (27,159) - - (27,159)
cancelled
(Loss)/profit for the year - - - - (13,702) 19,474 5,772
Dividends paid in the year - - - - - (17,155) (17,155)
Balance as at 31 March 2023 2,023 76,706 322 432,577 (13,841) 9,587 507,374
for the year to 31 March 2022
Ordinary Capital Retained earnings
share Merger redemption Special Capital Revenue
capital reserve reserve reserve reserves reserve Total
£'000s £'000s £'000s £'000s £'000s £'000s £'000s
Balance as at 31 March 2021 2,213 76,706 132 473,634 (53,868) 6,879 505,696
Shares purchased by the Company and (65) - 65 (13,898) - - (13,898)
cancelled
Profit for the year - - - - 53,729 17,933 71,662
Dividends paid in the year - - - - - (17,544) (17,544)
Balance as at 31 March 2022 2,148 76,706 197 459,736 (139) 7,268 545,916
STATEMENT OF FINANCIAL POSITION
2023 2022
as at 31 March £'000s £'000s
Non-current assets
Investments 545,657 571,686
Current assets
Other receivables 1,444 1,477
Cash and cash equivalents 456 1,104
1,900 2,581
Current liabilities
Other payables (3,461) (2,799)
Bank loans (35,102) -
(38,563) (2,799)
Net current liabilities (36,663) (218)
Total assets less current liabilities 508,994 571,468
Non-current liabilities
Bank loans - (23,662)
Provision for capital gains tax (1,620) (1,890)
Net assets 507,374 545,916
Equity attributable to equity holders
Ordinary share capital 2,023 2,148
Merger reserve 76,706 76,706
Capital redemption reserve 322 197
Special reserve 432,577 459,736
Capital reserves (13,841) (139)
Revenue reserve 9,587 7,268
Total attributable to equity holders 507,374 545,916
Net asset value per share
Basic - pence 250.91 254.22
STATEMENT OF CASH FLOWS
2023 2022
Year to 31 March £'000s £'000s
Operating activities
Profit before taxation 7,198 74,350
Deduct investment income - dividends (22,671) (21,604)
Deduct investment income - interest (1,627) (988)
Deduct bank Interest received (28) (1)
Add back interest charged 843 588
Add back losses/(gains) on investments 8,389 (58,293)
Add back foreign exchange losses/(gains) 515 (1,333)
Increase in other receivables (31) (16)
Decrease in other payables (88) (4,701)
Net cash outflow from operating activities before dividends and interest (7,500) (11,988)
Interest paid (646) (600)
Dividends received 22,417 21,556
Investment income - interest 475 190
Bank interest received 28 1
Taxation paid (1,691) (2,465)
Net cash inflow from operating activities 13,083 6,684
Investing activities
Purchases of investments (106,821) (122,600)
Sales of investments 125,649 176,372
Net cash inflow from investing activities 18,828 53,772
Financing activities
Repurchase of shares for cancellation (27,159) (13,898)
Dividends paid (17,155) (17,544)
Drawdown of bank loans 35,385 52,101
Repayment of bank loans (24,440) (77,576)
Net cash outflow from financing activities (33,369) (56,917)
(Decrease)/increase in cash and cash equivalents (1,458) 3,539
Cash and cash equivalents at the start of the year 452 (3,184)
Effect of movement in foreign exchange (20) 97
Cash and cash equivalents as at the end of the year (1,026) 452
Comprised of:
Cash 456 1,104
Bank overdraft (1,482) (652)
Total (1,026) 452
NOTES
The Directors have declared a fourth quarterly dividend in respect of the year
ended 31 March 2023 of 2.15p per share payable on 23 June 2023 to
shareholders on the register at close of business on 2 June 2023. The total
cost of the dividend, which has not been accrued in the results for the year
to 31 March 2023, is £4,334,000 based on 201,579,356 shares in issue at the
record date.
This statement was approved by the Board on 16 June 2023. The financial
information set out above does not constitute the Company's statutory accounts
for the years ended 31 March 2023 or 2022 but is derived from those accounts.
Statutory accounts for 2022 have been delivered to the Registrar of Companies
and those for 2023 will be delivered in due course. The auditor has reported
on those accounts; their reports were (i) unqualified, (ii) did not include a
reference to any matters to which the auditor drew attention by way of
emphasis without qualifying their report and (iii) did not contain a statement
under section 498 (2) or (3) of the Companies Act 2006.
Annual General Meeting Arrangements
The Annual General Meeting of the Company will be held at The Royal Society of
Chemistry, Burlington House, Piccadilly, London W1J 0BA on Tuesday, 19
September 2023 at 10.00 a.m. and notice is set out at the end of the Report
& Accounts.
Legal Entity Identifier: 2138005TJMCWR2394O39
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