REG - Utilico Emerging Mkt - Annual Financial Report
14/06/2024 14:30
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20240614:nRSN5578Sa&default-theme=true
RNS Number : 5578S Utilico Emerging Markets Trust PLC 14 June 2024
Date: 14 June 2024
UTILICO EMERGING MARKETS TRUST PLC
ANNUAL FINANCIAL REPORT
FOR THE YEAR TO 31 MARCH 2024
Utilico Emerging Markets Trust plc ("UEM" or the "Company") today announces
its audited financial results for the year to 31 March 2024.
Highlights of results
· Net asset value ("NAV") total return per share of 12.8%* (2023:
2.1%*)
· NAV per share of 274.01p, up 9.2%
· Gross assets of £522.9m*, a decrease of 3.6%
· Annual compound NAV total return since inception of 9.5%*
· Dividends per share totalled 8.60p for the year, an increase of
1.8%. Dividends were fully covered by earnings
· Revenue earnings per share ("EPS") decreased 6.1% to 8.83p
· Total revenue income of £23.1m, an 4.9% decrease
*See Alternate Performance Measures on pages 97 and 98 of the Report and
Accounts
The Report & Accounts for the year ended 31 March 2024 will be posted to
shareholders in early July 2024. 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/5578S_1-2024-6-14.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/5578S_1-2024-6-14.pdf)
John Rennocks, Chairman of UEM said: "UEM delivered a strong performance with
a positive NAV total return of 12.8% for the year to 31 March 2024. This was
once again significantly ahead of the MSCI Emerging Markets total return Index
which was up 5.8% over the same period. Disappointingly, over the year, UEM's
share price discount has continued to widen from 13.5% to 19.3% as at 31 March
2024. This remains well above the level that the Board would wish to see
over the medium term.
"Having joined the board in 2015 and served for a period approaching nine
years, I intend to retire from the board on 31 December 2024. I am pleased
to report that Mark Bridgeman, who is currently the Company's Senior
Independent Director, has agreed to replace me as Chairman."
Charles Jillings, Investment Manager of UEM added: "It is pleasing to see UEM
report another NAV gain this year. UEM's NAV performance over one year,
three, five and ten years and since inception are all ahead of the MSCI EM
total return Index. UEM has achieved this together with a rising dividend
payout, lower volatility and with a portfolio which is significantly different
from the MSCI Index.
"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
Gillian Martin / Sophie Collins
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
2024 2023 2024/23
NAV total return per share1 (annual) (%) 12.8 2.1 n/a
Share price total return per share1 (annual) (%) 5.8 0.8 n/a
Annual compound NAV total return1
(since inception - 20 July 20052) (%) 9.5 9.3 n/a
NAV per share (pence) 274.01 250.91 9.2
Share price (pence) 221.00 217.00 1.8
Discount1 (%) (19.3) (13.5) n/a
Earnings per share (basic)
- Capital (pence) 20.48 (6.61) 409.8
- Revenue (pence) 8.83 9.40 (6.1)
Total (pence) 29.31 2.79 950.5
Dividends per share
- 1st quarter (pence) 2.15 2.00 7.5
- 2nd quarter (pence) 2.15 2.15 0.0
- 3rd quarter (pence) 2.15 2.15 0.0
- 4th quarter (pence) 2.153 2.15 0.0
Total (pence) 8.60 8.45 1.8
Gross assets1 (£m) 522.9 542.5 (3.6)
Equity holders' funds (£m) 522.9 507.4 3.1
Shares bought back (£m) 25.4 27.2 (6.6)
Net cash/(overdraft) (£m) 5.8 (1.0) 680.0
Bank loans (£m) - (35.1) 100.0
Net cash/(debt) (£m) 5.8 (36.1) 116.1
Net cash/(gearing)1 (%) 1.1 (7.1) n/a
Management and administration fees
and other expenses (£m) 7.7 7.4 4.1
Ongoing charges figure1 (%) 1.5 1.4 n/a
(1) See Alternative Performance Measures on pages 97 and 98 of the Report
and Accounts
(2) All performance data relating to periods prior to 3 April 2018 are in
respect of Utilico Emerging Markets Limited ("UEM Limited"), UEM's predecessor
(3) The fourth quarterly dividend has not been included as a liability in
the accounts
Chairman's Statement
UEM delivered a strong performance with a positive NAV total return of 12.8%
for the year to 31 March 2024. This was once again significantly ahead of the
MSCI Emerging Markets total return Index which was up 5.8% over the same
period.
The year to 31 March 2024 has again been challenging. The eruption of the war
in Israel and Gaza has been devastating for those involved and adds to the
rising geopolitical frictions from the war in Ukraine through to the US-China
tensions. Volatility in most markets remains elevated as uncertainty has
dominated, with inflation and sharply higher central bank interest rates
adding to the challenges on climate change and natural disasters.
UEM measures its performance on a total return basis over the long term and
the Investment Managers are seeking long term outperformance. Despite
difficult markets, over one, three, five and ten years and since inception,
UEM has outperformed the MSCI EM Index and the long term annual compound NAV
total return since inception to 31 March 2024 of 9.5% exceeded the MSCI EM
total return Index of 7.5%.
Global Economy
There remain numerous challenges faced by the markets, each of which is
difficult in its own right. We have historically highlighted a number of
these, and they largely remain unresolved as we continue to see a significant
rise in nationalism, wealth inequality and global migration.
Last year we witnessed the sharply higher inflationary environment and the
response by the central banks to increase interest rates to bring inflation
under control. The year to 31 March 2024 has seen inflation fall and the
surprising part has been the continued strength of the economies, especially
in the United States, despite higher interest rates. This is evidenced by
resilience in the labour market which, in most western countries, unemployment
levels are at record lows. This is good for workers but ultimately negative
for the inflation outlook, as wage demands continue to keep inflation
elevated.
Equity markets have broadly moved to the upside as they anticipate central
banks' rate cuts, although the higher for longer interest rate expectation has
surprised many economic commentators.
Emerging Markets
Most EM stock markets recovered strongly this year, reversing last year's
weakness and reflecting global expectations of lower interest rates. Brazil's
Bovespa Index was up 25.7%, the Indian Sensex up 24.9% and the Philippine PSEI
Index up 6.2%. The two outliers were Hong Kong's Hang Seng Index which was
down 18.9% and China's Shanghai Composite Index down 7.1%.
In comparison, all currencies in the portfolio were down against Sterling
except for the Mexican Peso which was up 6.3% over the year to 31 March 2024.
The high interest rates and improved outlook for Sterling has seen it recover
strongly over the year, reversing last year's Sterling weakness. Of note was
the weak Chilean Peso, down 21.1% against Sterling.
Most commodities have moved lower during the period under review as supply
chains have adjusted, with wheat down by 19.1%, soybean down by 20.9% and
copper down by 2.1% while Brent crude oil increased by 9.7%, driven by a
number of factors from stronger economies and geopolitical pressures.
Unlisted Investments (Level 3 Investments)
UEM has, over the years, invested in unlisted businesses at a modest level. As
at 31 March 2023 the value of the unlisted portfolio had risen to 10.8% of the
total portfolio, which was driven primarily by the revaluation of Petalite
Limited ("Petalite"). In the year to 31 March 2024 the carrying value of
Petalite was reduced by 70.0% reflecting the challenges in the electric
vehicle ("EV") space which resulted in a number of listed EV companies' share
prices marked down significantly. This reduction, together with some
realisations, saw the unlisted investments reduce in value and as a percentage
of the total portfolio. As at 31 March 2024 the unlisted investments
represented 4.5% of the total portfolio.
Revenue Earnings and Dividend
While UEM's revenue earnings per share ("EPS") decreased by 6.1% to 8.83p as
at 31 March 2024, dividends remain covered by the EPS.
UEM has declared four quarterly dividends of 2.15p each, totalling 8.60p per
share, a 1.8% increase over the previous year. The retained earnings revenue
reserves increased by £0.5m in the year to £10.1m as at 31 March 2024, equal
to 5.29p per share.
Ongoing Charges
Ongoing charges were 1.5% for the year to 31 March 2024 (2023: 1.4%),
reflecting increases in marketing expenditure, audit and custody fees.
Share Buybacks
UEM's share price discount continued to widen over the year from 13.5% as at
31 March 2023 to 19.3% as at 31 March 2024. This remains well above the level
that the Board would wish to see over the medium term. The Company has
therefore continued buying back shares for cancellation, with 11.4m shares
bought back during the year to 31 March 2024, at an average price of 223.36p
and total cost of £25.4m. The share buybacks have contributed 1.0% to UEM's
total returns during the year to 31 March 2024.
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 86.2m ordinary shares totalling £164.2m. The
buybacks now represent significantly more than the initial IPO capitalisation
of UEM Limited when it came to market in July 2005.
Board
As reported last year, Susan Hansen stepped down from the Board following the
2023 Annual General Meeting ("AGM") and the Board continues to comprise four
Directors. Having joined the Board in 2015 and served for a period approaching
nine years, I intend to retire from the Board on 31 December 2024. I am
pleased to report that Mark Bridgeman, who is currently the Company's Senior
Independent Director, has agreed to replace me as Chairman with Isabel Liu
taking on the role of Senior Independent Director. As part of the Company's
succession planning, we engaged an independent search consultancy to find a
suitably qualified Director to join the Board. After a thorough selection
process, the Board is pleased to appoint Nadya Wells as a non executive
Director with effect from 1 September 2024. Nadya has over 25 years'
experience in emerging markets, having spent 13 years with the Capital Group
as a portfolio manager and prior to that was a portfolio manager at Invesco
Asset Management investing in Eastern Europe.
Outlook
The structural growth and global infrastructure megatrends in EM continue to
drive growth within EM economies. Our investee companies continue to make good
progress and we remain optimistic that UEM offers significant value to its
shareholders.
John Rennocks
Chairman
14 June 2024
Investment Managers' Report
It is pleasing to see UEM report another NAV gain, with a NAV total return for
the year to 31 March 2024 of 12.8%, building on last year's 2.1% uplift and
the prior two year's 14.9% and 30.2% returns. This performance was again
significantly ahead of the MSCI EM total return Index which increased 5.8%
during the year.
UEM's NAV performance over one year, three, five and ten years and since
inception are all ahead of the MSCI EM total return Index. UEM has achieved
this together with a rising dividend payout; lower volatility (as at 31 March
2024, UEM's five year Beta was 0.81x); and with a portfolio which is
significantly different from the MSCI Index. This should be compelling to
investors who want exposure to emerging markets, top performance and
comparatively low levels of volatility.
The world is still faced with a number of unresolved deep-seated issues. As
noted in the Chairman's Statement these range from inflation to climate
change. To this, we can add the tragic events in Israel and Gaza and the risk
that the Middle East descends further into conflict. Given that we have
highlighted a number of these issues before we will focus on two topics in
particular to discuss in more detail. Finding consensus on these concerns has
been and continues to be difficult.
Inflation and Interest Rates
As we have outlined before, inflation has risen sharply and remains elevated
in the developed economies. One of the undoubted drivers of this has been
tight labour markets which has led to wage inflation as buying power shifts to
the wider workforce. Last year we noted that to address the rising
inflationary outlook in the developed world, central banks had 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".
Over the past year many commodities have seen prices fall as supply chains
stabilise and efficiencies emerge, and this has led to much lower inflationary
pressures. However, inflation remains above levels most central banks wish to
see before cutting their rates.
We continue to be surprised by the tightness of labour markets. Unemployment
levels remain 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. In addition, we are of the view that
nearshoring (Global Trade megatrend), renewables (Energy Growth and Transition
megatrend) and other global infrastructure megatrends are driving investment
in the developed world and emerging markets at above average trends and
inflation could remain elevated for some time. This certainly looks to be the
case in the United States.
A stark point to note is most central banks reference their interest rates off
the US Federal Reserve. Decreasing rates at a time when the US is holding
rates is seen as high risk for smaller economies. It is not surprising
therefore to see the Chilean Peso fall by 21.1% given its central bank cut
rates from 11.25% to 7.25% in the year to 31 March 2024. Certainly, the
emerging economies have more room to cut rates, but are looking for the US
Federal Reserve to move first.
Despite elevated central bank rates, UEM's portfolio of investments exceeded
our expectations. The strength of the businesses and management teams'
discipline is admirable. The portfolio investee gearing remains modest at
under 2.0x and we believe valuations continue to be attractive.
Emerging Markets Structural Growth Drivers and Megatrends
The ICM team travels a significant amount to EM countries and it is very
evident to us that EM offers huge opportunities.
i. Structural growth drivers remain fundamental: the key drivers of
positive demographics, increase in urbanisation, rise of the middle class and
strong GDP growth remain. Typically, EM have a young, growing, increasingly
better educated working age population. This coupled with increasing rates of
urbanisation, is resulting in the need for EM countries to invest in robust
infrastructure such as energy, water and transportation to support this urban
growth, providing UEM with numerous interesting and attractive opportunities.
Further, the rise of the middle class that has growing discretionary income is
driving an increase in consumption of goods and services but also demands for
better quality of life assets such as road connectivity, air travel and faster
data connectivity. EM are also witnessing on average stronger GDP growth than
developed markets, with EM becoming more important within the global economy.
ii. The emergence of global infrastructure megatrends: the structural
growth drivers are being accelerated by global infrastructure megatrends that
we are witnessing. Within "Energy Growth and Transition" significant energy
investment is required to help support the strong GDP growth within EM with a
focus on cleaner energy solution as countries drive to achieve lower or net
zero emission targets. As EM countries are also witnessing higher urbanisation
and a rise of the middle class, demand for better "Social Infra" is also
required, providing UEM with a number of investment opportunities in the
energy, transportation and communication sectors. Further, new and affordable
digital technology is driving rapid digital adoption and is increasing demand
for digital infrastructure. Digital Infra is becoming increasingly essential
in all markets driving economic and social change. UEM is focused on
infrastructure investments that are helping to deliver this digital
transformation. As EM global GDP increases, EM importance in "Global Trade"
increases. This, alongside supply chain disruptions, geopolitical tensions and
increasing exports restrictions is changing the global trade environment
providing again more compelling investment opportunities.
iii. Government support: Nearly all governments in emerging markets have
extensive infrastructure plans. From Brazil, to India, The Philippines,
Indonesia and Mexico, the level of ambition is significant. Again providing
investment opportunities.
iv. Country attributes: Many emerging economies have additional
individual strengths. For example, Mexico with its more affordable and hard
working labour force, Brazil with its rich commodities base and Vietnam with
its proximity to China. These economies are starting to reach a tipping point.
Taking Brazil as an example, its trade surplus in 2022 was USD 62bn and in
2023 it rose to USD 99bn - no wonder investments in UEM's portfolio such as
Santos Brasil Porticipacoes S.A. ("Santos") are outperforming. It is hard to
convey just how high we see the levels of energy, drive and momentum underway
in the emerging markets.
I would urge readers to follow us, on LinkedIn and on the UEM website, to see
more about these trends we are witnessing and hear the opportunity which UEM
offers.
Portfolio
UEM's gross assets (less liabilities excluding loans) decreased to £522.9m as
at 31 March 2024 from £542.5m as at 31 March 2023. This reflects portfolio
valuation uplifts of £46.8m offset by net realisations to fund, in part, both
the share buybacks of £25.4m and the reduction in bank debt of £35.1m in the
year.
At the year end the top thirty holdings accounted for 70.9% of the total
portfolio (31 March 2023: 67.7%). As with last year there have been nine new
entrants into the top thirty over the year. UEM purchased £8.4m of shares in
Manila Water Company, Inc. UEM nearly doubled its investment in Serena Energia
S.A. (£5.4m), increased its investment in Cia de Saneamento Basico do Estado
de Sao Paulo (£2.0m) which also benefitted from its share price rise of 67.8%
and increased its investment in JSL S.A. (£4.3m) by 137.3%, its share price
rise was also impressive at 88.8%. Holding Bursatil Regional S.A. was an
investment from the merger of Bolsa de Valores de Colombia with the Peru and
Chile stock exchanges. TTS (Transport Trade Services) S.A.'s ("TTS") share
price rose 126.1% and UEM reduced its holding by 40.6%, receiving £5.3m. TAV
Havalimanlari Holding A.S.'s investment increased by 49.7% (£1.8m) and its
share price rose 140.7%. Finally, UEM's holding in Societe Nationale des
Telecommunications du Senegal ("Sonatel") was unchanged, but its share price
rose 13.1% and Ocean Wilsons Holdings Limited's share price rose 55.3% during
the year to 31 March 2024.
UEM exited from Vamos Locacao de Caminhoes Maquinas e Equipamentos S.A.
("Vamos"), receiving £5.9m and Grupo Aeroportuario del Pacifico, S.A.B de
C.V., realising £7.5m. UEM also reduced its investment in Gujarat State
Petronet Limited, Grupo Aeroportuario del Centro Norte, S.A.B de C.V. and
Engie Energia Chile S.A., all of which fell outside the top thirty holdings
giving a total realisation of £29.6m. China Datang Corporation Renewable
Power Co., Limited ("China Datang") and Telelink Business Services Group both
fell out of the top thirty due to relative performance.
On a total return contribution basis, the top performer in the portfolio was
International Container Terminal Services, Inc. ("ICT") which contributed to
2.2% of UEM's performance as its share price over the period appreciated 49.2%
and ICT continues to deliver strong financial and operational results. Power
Grid Corporation of India Limited ("Power Grid") and Santos both added 1.7% to
UEM's performance, Power Grid sustaining strong operational results in a
buoyant Indian stock market, whilst Santos also benefitted from the positive
Brazilian market momentum as well as improved market position of its main
asset Tecon Santos within the Port of Santos. FPT Corporation ("FPT")
contributed 1.6% due to strong growth in net profits of 21.2% and improved
investor confidence in Vietnam. TTS contributed 1.5% witnessing an improvement
in pricing with volumes helping to drive it share price up 126.1% over the
period.
The bottom performers over the twelve months to 31 March 2024 were Vamos with
a negative 0.7% contribution, affected by market concerns relating to its
dealership business. China Gas Holdings Limited also contributed a minus 0.7%
as its share price fell 36.2% over the year, reflecting weakness in the
Chinese property market driving concerns around new gas connections and
demand. China Datang also contributed a negative return of 0.9% as there have
been concerns over China Datang's investment in new projects offering lower
returns, with its share price falling 42.7% over the year. Conversant
Solutions Pte Ltd and Petalite, two unlisted investments also reduced UEM's
performance by 1.1% and 4.1% respectively.
Purchases in the portfolio decreased to £80.2m in the year ended 31 March
2024 (31 March 2023: £108.9m) and realisations increased to £155.5m (31
March 2023: £126.6m). This reflects both the reduction in debt by £35.1m as
UEM repaid its loan facility and the decision to maintain a high level of
buybacks to take advantage of the wide discount.
There have been some small sector shifts during the year to 31 March 2024 and
more detail is set out on page 20. On a geographical basis, again there were
modest changes and more detail is set out on page 9. It is worth noting that
Brazil remains our top country exposure and grew to 25.8% from 20.9% in the
prior year, mainly due to valuation uplifts. China remains the second biggest
country exposure, but it reduced to 11.0% from 15.8% in the prior year on
realisations and valuation weakness.
Level 3 Investments
UEM ended the year with level 3 investments totalling £23.1m (31 March 2023:
£58.7m), representing 4.5% of total investments (31 March 2023: 10.8%). UEM's
level 3 investments reduced mainly as a result of the devaluation of Petalite
by £20.0m and the £5.0m realisation from CGN Capital Partners Infra Fund 3
("CGN").
Pleasingly we realised the majority of our holding in CGN, a private Chinese
onshore wind developer and received 40% of the proceeds during the year to 31
March 2024. We are expecting to realise the balance of this investment and
make a positive return. Further we exited from an Indian solar farm developer
and operator at an internal rate of return of close to 28%.
UEM's investment in Petalite continues to make progress on its product
development path and it is seeking to raise up to £20.0m in a Series A fund
raising. However, the comparable listed entities in this space have had a
difficult time and many have seen their valuations reduce by over 70%. UEM has
reduced its investment valuation in line with this and as at 31 March 2024 its
equity was valued at £8.6m. Since then, Petalite has continued its Series A
fund raising efforts but market conditions have continued to be weak and UEM
reduced Petalite's equity valuation to £3.5m as at 12 June 2024. Attention is
drawn to note 26(d) of the accounts which provides more information on
Petalite's valuation methodology.
Bank Debt
UEM's net debt, being bank loans and net overdrafts, decreased from £36.1m as
at 31 March 2023 to nil as at 31 March 2024. UEM repaid its bank debt in March
2024 when the loan facility matured. The Company is currently in discussions
regarding a replacement revolving facility and a further announcement will be
made in due course.
Revenue Return
Revenue income decreased to £23.1m in the year to 31 March 2024, from £24.3m
in the prior year, reflecting the fewer dividends received from investee
companies due to the changes in the portfolio. The revenue yield on the
closing portfolio was unchanged at 4.5% for both years.
Management fees and other expenses having been flat in 2023 rose to £3.4m in
the year to 31 March 2024, (31 March 2023: £3.0m). While disappointing, this
reflects the increases in marketing expenditure, audit and custody fees.
Finance costs rose to £0.3m reflecting the higher interest rate environment
(31 March 2023: £0.2m). Taxation rose to £2.0m during the year ended 31
March 2024 (31 March 2023: £1.6m) reflecting increased dividends received
from countries with higher withholding tax rates.
As a result of the above, profit for the year decreased by 10.3% to £17.5m
from £19.5m for 31 March 2023. EPS decreased by 6.1% to 8.83p compared to the
prior year of 9.40p, reflecting the decrease in profit and the reduced average
number of shares in issue following the buybacks. Dividends per share ("DPS")
of 8.60p were fully covered by earnings.
Retained revenue reserves rose to £10.1m as at 31 March 2024, equal to 5.29p
per share.
Capital Return
The portfolio gains were £46.8m on the capital account during the year to 31
March 2024 (31 March 2023: losses of £8.4m). The highest returns were from
ICT with £9.5m, and Power Grid and FPT at £7.5m each. Gains on foreign
exchange were £0.6m and the resultant total income on the capital account was
£47.4m against prior year losses of £8.9m.
Management and administration fees were almost flat for the second year in a
row at £4.4m (31 March 2023: £4.3m).
Finance costs increased to £1.3m from £0.7m as a result of higher interest
rates. There was a taxation charge of £1.4m (31 March 2023: credit of £0.2m)
which arose from Indian capital gains tax. The net effect of the above was a
gain on capital return of £40.4m compared to a loss of £13.7m for 31 March
2023.
Charles Jillings
ICM Investment Management Limited and ICM Limited
14 June 2024
Principal Risks And Risk Mitigation
During the year ended 31 March 2024, 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 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. Insufficient
consideration of ESG factors could lead to poor performance and/or a reduction
in demand for the Company's shares.
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, geo-political 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 96. 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 system and organisation controls 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 Risk: 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 2024, since
the Company's bank facility has been repaid, UEM had net cash. In the event of
a new facility being put in place, ICMIM will continue to monitor compliance
with the banking covenants when each drawdown is made and at the end of each
month. The Board will review 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 controls as they determine
are 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 14 June 2024 and signed on its behalf by:
John Rennocks
Chairman
Statement Of Comprehensive Income
for the year to for the year to
31 March 2024 31 March 2023
Revenue Capital Total Revenue Capital Total
return return return return return return
£'000s £'000s £'000s £'000s £'000s £'000s
Gains/(losses) on investments - 46,836 46,836 - (8,389) (8,389)
Foreign exchange gains/(losses) - 610 610 - (515) (515)
Investment and other income 23,079 - 23,079 24,326 - 24,326
Total income/(loss) 23,079 47,446 70,525 24,326 (8,904) 15,422
Management and administration fees (1,445) (4,368) (5,813) (1,394) (4,336) (5,730)
Other expenses (1,911) - (1,911) (1,651) - (1,651)
Profit/(loss) before finance costs and taxation 19,723 43,078 62,081 21,281 (13,240) 8,041
Finance costs (318) (1,274) (1,592) (169) (674) (843)
Profit/(loss) before taxation 19,405 41,804 61,209 21,112 (13,914) 7,198
Taxation (1,958) (1,360) (3,318) (1,638) 212 (1,426)
Profit/(loss) for the year 17,447 40,444 57,891 19,474 (13,702) 5,772
Earnings per share (basic) - pence 8.83 20.48 29.31 9.40 (6.61) 2.79
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 2024
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 2023 2,023 76,706 322 432,577 (13,841) 9,587 507,374
Shares purchased by the Company and (114) - 114 (25,397) - - (25,397)
cancelled
Profit for the year - - - - 40,444 17,447 57,891
Dividends paid in the year - - - - - (16,935) (16,935)
Balance as at 31 March 2024 1,909 76,706 436 407,180 26,603 10,099 522,933
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
STATEMENT OF FINANCIAL POSITION
2024 2023
as at 31 March £'000s £'000s
Non-current assets
Investments 517,195 545,657
Current assets
Other receivables 6,078 1,444
Cash and cash equivalents 5,751 456
11,829 1,900
Current liabilities
Other payables (4,573) (3,461)
Bank loans - (35,102)
(4,573) (38,563)
Net current assets/(liabilities) 7,256 (36,663)
Total assets less current liabilities 524,451 508,994
Non-current liabilities
Provision for capital gains tax (1,518) (1,620)
Net assets 522,933 507,374
Equity attributable to equity holders
Ordinary share capital 1,909 2,023
Merger reserve 76,706 76,706
Capital redemption reserve 436 322
Special reserve 407,180 432,577
Capital reserves 26,603 (13,841)
Revenue reserve 10,099 9,587
Total attributable to equity holders 522,933 507,374
Net asset value per share
Basic - pence 274.01 250.91
STATEMENT OF CASH FLOWS
2024 2023
Year to 31 March £'000s £'000s
Operating activities
Profit before taxation 61,209 7,198
Deduct investment income - dividends (21,100) (22,671)
Deduct investment income - interest (1,932) (1,627)
Deduct bank Interest received (47) (28)
Add back interest charged 1,592 843
Add back (gains)/losses on investments (46,836) 8,389
Add back foreign exchange (gains)/losses (610) 515
Increase in other receivables (30) (31)
Decrease in other payables (683) (88)
Net cash outflow from operating activities before dividends and interest (8,437) (7,500)
Interest paid (1,813) (646)
Dividends received 20,212 22,417
Investment income - interest 1,125 475
Bank interest received 47 28
Taxation paid (3,431) (1,691)
Net cash inflow from operating activities 7,703 13,083
Investing activities
Purchases of investments (75,544) (106,821)
Sales of investments 151,442 125,649
Net cash inflow from investing activities 75,898 18,828
Financing activities
Repurchase of shares for cancellation (25,397) (27,159)
Dividends paid (16,935) (17,155)
Drawdown of bank loans 19,821 35,385
Repayment of bank loans (53,943) (24,440)
Net cash outflow from financing activities (76,454) (33,369)
Increase/(decrease) in cash and cash equivalents 7,147 (1,458)
Cash and cash equivalents at the start of the year (1,026) 452
Effect of movement in foreign exchange (370) (20)
Cash and cash equivalents as at the end of the year 5,751 (1,026)
Comprised of:
Cash 5,751 456
Bank overdraft - (1,482)
Total 5,751 (1,026)
NOTES
The Directors have declared a fourth quarterly dividend in respect of the year
ended 31 March 2024 of 2.15p per share payable on 28 June 2024 to
shareholders on the register at close of business on 7 June 2024. The total
cost of the dividend, which has not been accrued in the results for the year
to 31 March 2024, is £4,072,000 based on 189,405,062 shares in issue at the
record date.
This statement was approved by the Board on 14 June 2024. The financial
information set out above does not constitute the Company's statutory accounts
for the years ended 31 March 2024 or 2023 but is derived from those accounts.
Statutory accounts for 2023 have been delivered to the Registrar of Companies
and those for 2024 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, 17
September 2024 at 10.30 a.m. and notice is set out at the end of the Report
& Accounts.
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 (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR FLFLVRAISLISRecent news on Utilico Emerging Markets Trust
See all newsREG - Utilico Emerging Mkt - Transaction in Own Shares & Total Voting Rights
AnnouncementREG - Utilico Emerging Mkt - Net Asset Value(s)
AnnouncementREG - Utilico Emerging Mkt - Net Asset Value(s)
AnnouncementREG - Utilico Emerging Mkt - Transaction in Own Shares & Total Voting Rights
AnnouncementREG - Utilico Emerging Mkt - Holding(s) in Company - 1607
Announcement