REG - Utilico Emerging Mkt - Half-year Report
21/11/2023 11:00
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RNS Number : 1537U Utilico Emerging Markets Trust PLC 21 November 2023
Date: 21 November 2023
UTILICO EMERGING MARKETS TRUST PLC
UNAUDITED HALF-YEARLY FINANCIAL REPORT
FOR THE SIX MONTHS TO 30 SEPTEMBER 2023
Utilico Emerging Markets Trust plc ("UEM" or the "Company") today announced
its unaudited financial results for the six months to 30 September 2023.
Highlights of results for the six months to 30 September 2023:
· Net asset value ("NAV") total return per share of 6.0%*
· NAV per share of 261.58p per share, up 4.3%
· Gross assets of £529.2m, a decrease of 2.5%
· Annual compound NAV total return since inception of 9.4%*
· Dividends per share totalled 4.30p for the period, an increase of
3.6%. Dividends were fully covered by earnings
· Revenue earnings per share ("EPS") decreased 12.9% to 5.95p
· Total revenue income of £14.8m, an 12.4% decrease
*See Alternate Performance Measures on pages 43 to 45 of the Half-Yearly
Financial Report for the six months to 30 September 2023
The Half-Yearly Financial Report for the six months to 30 September 2023 will
be posted to shareholders in early December 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/1537U_1-2023-11-21.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/1537U_1-2023-11-21.pdf)
John Rennocks, Chairman of UEM said: "It is pleasing to report that UEM
exhibited a strong performance in the half year to 30 September 2023 and
delivered a positive NAV total return of 6.0%. This was once again
significantly ahead of the MSCI EM total return Index which was down 0.9% over
the same period. The long-term annual compound NAV total return since
inception to 30 September 2023 was 9.4% exceeding the MSCI EM total return
Index of 7.2%.
"UEM has declared two quarterly dividends of 2.15p each, totalling 4.30p per
share, a 3.6% increase over the previous half year. Dividends remain fully
covered by income. The retained earnings revenue reserves increased by £3.3m
to £12.9m as at 30 September 2023, equal to 6.53p per share.
"UEM's share price discount widened further over the half year from 13.5% as
at 31 March 2023 to 15.1% as at 30 September 2023. This remains well above the
level that the Board expects to see over the medium term. The Company has
continued buying back shares for cancellation, with 4.4m shares bought back in
the half year to 30 September 2023, at an average price of 222.14p. 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 strongly ahead of the
MSCI Index. UEM has delivered this together with a rising dividend; a low beta
(as at 30 September 2023, UEM's five year Sterling adjusted beta versus the
MSCI EM Index was 0.83); and with a portfolio which is very different from the
MSCI EM Index (UEM's active share is over 98.0%). This should be compelling to
investors who want exposure to infrastructure megatrends in emerging markets,
top performance and comparatively low levels of volatility.
"We have identified four megatrends that should underpin the investment
opportunities for UEM - Energy Transition, Digital Infra, Social Infra and
Global Trade. There are significant structural shifts underway which will
continue irrespective of macro or political pressures. While it is true that
urbanisation and the growth of the middle class continues to drive much of the
momentum in emerging economies, the megatrends are seeing a determined
accelerated shift in economic activity."
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
% Change
Half-year Half-year Annual Mar -
30 Sep 2023 30 Sep 2022 31 Mar 2023 Sep 2023
NAV total return per share (1) (%) 6.0 (2.8) 2.1 n/a
Share price total return per share (%) 4.3 (4.0) 0.8 n/a
Annual compound NAV total return (1) (since
inception) (%) 9.4 9.3 9.3 n/a
NAV per share (1) (pence) 261.58 243.29 250.91 4.3
Share price (pence) 222.00 211.00 217.00 2.3
Discount (1) (%) (15.1) (13.3) (13.5) n/a
Earnings per share
- Capital (pence) 8.24 (14.99) (6.61) 155.0(4)
- Revenue (pence) 5.95 6.83 9.40 (12.9)(4)
Total (pence) 14.19 (8.16) 2.79 273.9(4)
Dividends per share (pence) 4.30(2) 4.15 8.45 3.6(4)
Gross assets (3) (£m) 529.2 521.8 542.5 (2.5)
Equity holders' funds (£m) 517.3 501.6 507.4 2.0
Shares bought back (£m) 9.9 18.7 27.2 (47.1)(4)
Net overdraft (£m) (2.2) (3.5) (1.0) 120.0
Bank loans (£m) (11.8) (20.2) (35.1) (66.4)
Net debt (£m) (14.0) (23.7) (36.1) (61.2)
Gearing (1) (%) (2.7) (4.7) (7.1) n/a
Management and administration fees and 3.7 3.7 0.0(4)
other expenses (£m) 7.4
Ongoing charges figure (1) (%) 1.4(5) 1.4(5) 1.4 n/a
(1) See Alternative Performance Measures on pages 43 to 45 of the
Half-Yearly Financial Report for the six months to 30 September 2023
(2) The second quarterly dividend declared has not been included as
a liability in the accounts
(3) Gross assets less liabilities excluding loans
(4) Percentage change based on comparable six month period to 30
September 2022
(5) For comparative purposes the figures have been annualised
CHAIRMAN'S STATEMENT
The half year to 30 September 2023 has continued to be truly challenging for
all, including investors. Multiple wars 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 remain
headwinds for investors. To this we can add the tragic events in Israel and
the Middle East descending back into conflict. The anticipated recovery in the
Chinese economy post Covid-19 has not met expectations and continues to be a
drag on global GDP. Understandably, volatility in most markets has been
elevated.
Despite all these challenges, it is pleasing to report that UEM exhibited a
strong performance in the half year to 30 September 2023 and delivered a
positive NAV total return of 6.0%. This was once again significantly ahead of
the MSCI EM total return Index which was down 0.9% 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 meet or exceed
10.0% per annum including a rising dividend. Over one, three and five years
and since inception, UEM has outperformed the MSCI EM total return Index. The
long term annual compound NAV total return since inception to 30 September
2023 was 9.4%, exceeding the MSCI EM total return Index of 7.2%.
GLOBAL ECONOMY
As referred to above, 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
migration. All of these issues and challenges no doubt continue to tear at the
fabric of our societies and institutions.
While Covid-19 is behind us, the legacy of Covid-19 and the West's response to
it has undoubtedly led to higher debt and higher inflation in the developed
western economies. Furthermore, the war in Ukraine has seen sharply higher
commodity prices and accelerating inflation especially in Latin America. The
response by the central banks to higher inflation has been to rapidly raise
interest rates to bring inflation under control.
The markets are rightly concentrating on the US and the Federal Reserve in
particular, given the size of the US market and global dominance of the US
Dollar. The Federal Reserve is laser-focused on reducing inflationary
pressures by raising interest rates and has encouraged the market to adopt a
"higher for longer" outlook. The resilience of the US markets has been
unexpected. With GDP growth in the last quarter of over 4.0% and unemployment
remaining low, it is unsurprising the Federal Reserve has raised rates to
5.25%. The higher for longer expectation is starting to be seen in longer
duration treasuries. They started the half year at 3.5% and stood at 4.6% as
at 30 September 2023. This has had two outcomes: first, many central banks
reference the Federal Reserve and cannot risk currency weakness by cutting
rates in their local currency; and second, investors have been reducing
investments in equities and moving into bonds.
Again, as we have noted before, 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 previously witnessed in our lifetime. This shift will give rise to
new opportunities for investors, including UEM. There are a number of
megatrends that should provide many of UEM's investment strong tailwinds.
EMERGING MARKETS
EM were mixed over the half year reflecting local headwinds, higher interest
rates and lower valuations. Bucharest's BET Index was up 18.4%, Brazil's
Bovespa Index was up 14.4%, the Indian Sensex was up 11.6%, Chile's IPSA Index
was up 9.6% and Vietnam's Ho Chi Minh Index was up 8.4%. Meanwhile the Hong
Kong Hang Seng Index was down 12.7%, the Mexican Bolsa was down 5.6% and the
Philippine PSEI Index was down 2.7%. A common theme has been rising
inflation in Latin America and Eastern Europe and weakening consumer
confidence in Asia.
Most currencies continued to be weak against UK Sterling, although the
exceptions included the Mexican Peso, up 5.3%, the Brazilian Real, up 2.6%,
and the Hong Kong Dollar, up 1.5%. Oil rose 19.5% over the six months to 30
September 2023, in response to rising uncertainties and supply constraints.
UNLISTED INVESTMENTS (LEVEL 3 INVESTMENTS)
Over the half year to 30 September 2023, the value of the level 3 investments
reduced to £43.8m from £58.7m as at 31 March 2023. This was driven mainly by
reduced valuations on two investments Petalite Limited ("Petalite") and
Conversant Solutions Pte Ltd ("Conversant"). As at 30 September 2023 the level
3 investments represented 8.2% of the total portfolio.
Petalite is a disruptive technology start up business and gives UEM exposure
to the electric vehicle revolution through charging infrastructure. Conversant
is a Singapore based provider of internet network and edge computing services.
More details on these investments can be found in the Investment Managers'
Report.
REVENUE EARNINGS AND DIVIDEND
It was disappointing to see UEM's revenue earnings per share ("EPS") decrease
by 12.9% to 5.95p, in part due to having lower average gearing and selling
higher paying dividend investments.
UEM has declared two quarterly dividends of 2.15p each, totalling 4.30p per
share, a 3.6% increase over the previous half year. Dividends remain fully
covered by income. The retained earnings revenue reserves increased by £3.3m
to £12.9m as at 30 September 2023, equal to 6.53p 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 further over the half year
from 13.5% as at 31 March 2023 to 15.1% as at 30 September 2023. This remains
well above the level that the Board expects to see over the medium term. The
Company has continued buying back shares for cancellation, with 4.4m shares
bought back in the half year to 30 September 2023, at an average price of
222.14p.
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 79.3m ordinary shares totalling £148.7m. The
share buybacks have contributed 0.3% to UEM's total returns during the six
months ended 30 September 2023.
ONGOING CHARGES
Ongoing charges were again unchanged at 1.4% for the year to 30 September
2023, a good result especially given the wider inflationary environment.
BOARD
Your Board has consciously reduced to four Directors. This has seen our gender
diversity reduce to 25.0% which we note is below targets set by the wider
corporate governance framework. The Board will continue to have regard to
boardroom diversity during its consideration of succession planning and future
Board appointments.
ADVISER AND INVESTOR COMMUNICATION
UEM is continuing to rejuvenate its marketing presentation and draw attention
to a number of megatrend tailwinds benefitting UEM. The drive is to improve
investor knowledge and broaden UEM's investor base, especially the retail
sector. The breadth of coverage now being achieved by UEM is excellent and we
hope that once sentiment turns, there will be a rising trend of retail and
high net worth investors who will be inclined to buy into UEM.
OUTLOOK
The megatrends driving most emerging economies are expected to continue and
even accelerate over the coming year. The strong results being reported by our
investee companies combined with low valuations leads us to remain optimistic
that UEM offers significant value to its shareholders.
John Rennocks
Chairman
21 November 2023
INVESTMENT MANAGERS' REPORT
It is good to see UEM deliver another positive NAV gain, with a NAV total
return for the half year to 30 September 2023 of 6.0%, building on the 2.1%
uplift for the year ended 31 March 2023. This performance was again
substantially ahead of the MSCI EM total return Index which was down by 0.9%
during the half year to 30 September 2023.
UEM's one year, three years, five years and since inception performance is
strongly ahead of the MSCI Index. UEM has delivered this together with a
rising dividend; a low beta (as at 30 September 2023, UEM's five year Sterling
adjusted beta versus the MSCI EM Index was 0.83); and with a portfolio which
is very different from the MSCI EM Index (UEM's active share is over 98.0%).
This should be compelling to investors who want exposure to infrastructure
megatrends in EM, top performance and comparatively low levels of volatility.
We were surprised and disappointed by the slow response of China's economy to
the lifting of Covid-19 restrictions, having expected a surge in demand as
China reopened, in line with other economies. We increased our investments in
China, including a £7.5m position in Shanghai International Airport Co., Ltd
("SHIA") as at 31 March 2023 and in the half year to 30 September 2023, we
added £1.0m to this position. However, the "revenge travel" bounce seen in
other economies has been slow to materialise. Reflecting this the shares in
SHIA have declined by 32.0% over the six months.
China's continued recovery will be a key factor, not only for investments in
China but also for the wider EM given the country's high import/export led
economy. It is an undoubted global growth driver, and whilst the Chinese
government continues to support the economy, to date the stimulus policies
have had limited impact.
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. We have addressed these before, but it is worth emphasising the
inflation and interest rate outlook.
INFLATION AND INTEREST RATES
A year ago, we noted most central banks were grappling with strongly rising
inflation and the need to raise interest rates higher. Most economies had
negative real interest rates (inflation running ahead of interest rates).
Today many global economies are faced with inflation subsiding and positive
real interest rates. This should mean central banks have room to reduce rates
going forward with a number of economies having record positive real rates.
We believe that the US Federal Reserve is key to understanding the outlook for
most central banks, who do not want to reduce their local rates, risking
currency weakness and thereby imported inflation. While it is true that a
number of countries have marginally reduced rates, they will naturally temper
further cuts by reference to the Federal Reserve. The US Dollar remains the
global reserve currency and will do so for some considerable time. Given the
nature of many emerging economies they are sensitive to the US and therefore
US Dollar interest rates.
The Federal Reserve in turn is being driven by the resilience in the US
economy. GDP increased last quarter at an annual rate of 4.9%; unemployment is
under long term trends; and employment is rising. Given the speed of the
Federal Reserve interest rate rises and the fact that the rate today of 5.25%
is at a 22 year high, it is remarkable that the world's biggest economy is so
strong. It is unsurprising the Federal Reserve has encouraged a "higher for
longer" stance as it sees the need to weaken the economy. We believe the
Federal Reserve could adopt this stance well into next year. As such we see
global interest rates remaining elevated.
This is important as it will be a drag on economies, but markets are able to
look to the future and we expect many EM to price in these further
opportunities to reduce rates. EM are well placed for this gain in markets.
Inflation has not been as much of a challenge in Asia and we suspect this
results from higher unemployment levels at the start of Covid-19.
Consequently, wage pressures are lower, as is inflation. It is worth noting
that China's inflation is running at under 2.0%.
MEGATRENDS
We have identified four megatrends that should underpin the investment
opportunities for UEM. These are Energy Transition, Digital Infra, Social
Infra and Global Trade. There are significant structural shifts underway which
will continue irrespective of world macro or political pressures. While it is
true that urbanisation and the growth of the middle class continues to drive
much of the momentum in emerging economies, the megatrends are seeing a
determined accelerated shift in economic activity.
Energy transition is seeing an enormous investment in renewable energy and the
infrastructure which is needed to support it. To grow their economies EM need
to invest in energy supply. As an observation energy demand often outstrips
GDP growth as economies expand and many EM are choosing to invest in
renewables to support that growth. While the developed world is typically
shifting from fossil fuels to renewables, emerging economies have an advantage
that they can look to renewables rather than fossil fuels to develop. It is no
accident that many EM already have a higher renewables mix as a result, with
many looking to phase out existing fossil fuel capacity as well. This shift is
providing many investment opportunities for UEM including the renewable asset
owners, such as Omega Energia; the transmission grid operators connecting up
wind and solar farms, such as Power Grid Corporation of India Limited; and
legacy power generation companies which are transitioning from coal to
renewables, such as Engie Energia Chile S.A.
Digital infra is an enabler of structural change and technological innovation
globally and especially in EM. Fast, universal and affordable access to the
internet is increasingly considered a necessary utility, even in the least
developed markets. There are attractive opportunities to invest in companies
offering and improving 4G and 5G mobile connectivity and fibre broadband
direct to consumers and in passive infrastructure companies offering mobile
towers, fibre connections and data centre services to telecoms operators and
other corporate clients. EM companies can deliver IT services and software
development to global clients in a cost-effective way, such as FPT Corporation
and Telelink Business Services. The continuing rapid growth in data
consumption is driving demand for new data centres, such as Korean Internet
Neutral Exchange, which is building a new data centre in Seoul, due to
complete in 2024.
Social infra development is a critical requirement for EM. Urbanisation is
driving significant demand for the essential services which support improved
quality of life, such as water and sewerage connections, waste facilities,
electricity connections and healthcare. In many EM the social infrastructure
outside of the major cities is often under-developed, and governments are
committing significant resources towards improving this directly or through
incentivised schemes, such as public-private partnerships. Water, waste and
electricity distribution businesses are natural monopolies and are typically
highly regulated with opportunities such as Aguas Andinas and Cia de
Saneamento Basico do Estado de Sao Paulo ("Sabesp") offering predictable,
long-term returns. Solid waste operators, such as Orizon Valorizacao de
Residuos S.A. ("Orizon"), tend to be more commercial, with opportunities to
move up the value chain (e.g. biogas, carbon credits) as well as to
consolidate fragmented, nascent markets.
Global trade is continually evolving and historically has been dominated by
more developed countries. However, by 2040 EM as a percentage of global GDP is
expected to exceed that of developed markets, being driven by increases in
EM's GDP per capita, growth in consumption and improvements in productivity.
This long term shift towards EM is therefore providing investment
opportunities, such as International Container Terminal Services, Inc.
("ICT"). However, over the last two to five years there have been additional
forces changing the way in which global trade is conducted. Covid-19 caused
manufacturers to reassess their global supply chains, resulting in many now
having more than one manufacturing location, to ensure supply chains are more
diversified, resilient and stable so they can trade through supply shock
disruptions. Countries such as Mexico, India and Vietnam are benefiting from
this. Furthermore, there has been a reshaping of the competitive environment;
the geopolitical tensions and competition between the US and China has
impacted the multilateral trading systems; and the war in Ukraine has also
added another dynamic. The desire to bring production of goods closer to the
final consumer is driving near shoring and friend shoring. Mexico is one
country that is benefiting here.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE ("ESG")
ESG remains a continued focus for UEM. ICM has implemented a sound and robust
framework enabling it to engage with portfolio companies. ICM sees this as a
journey on which it expects to see changes in behaviour and outcomes over
time. While the key driver for investments by UEM is equity total returns, to
UEM the clear expectation is the need for all portfolio businesses to engage
in processes which meet global expectations. There can be no doubt that
companies will face increased scrutiny from all investors and the public over
ESG issues and UEM's portfolio needs to be on that journey.
CLIMATE CHANGE
Climate change remains at the forefront of global debate, heightened by the
increased impact of climate disasters worldwide. The past year has provided a
stark reminder of the devastation that can arise from climate change-related
disasters. We have been aware of the impacts of climate and the El Nino and La
Nina phases and have tracked for some time hydrology and the impact on rivers,
dams and agricultures in Brazil. Rainfall can and does impact energy pricing
and agriculture output.
It is obvious that climate-driven events are becoming more frequent and
severe. This can range from days lost at a port due to disruptive weather
through to flooding and the evident social impacts on clean water. 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 £529.2m as
at 30 September 2023 from £542.5m as at 31 March 2023. This reflects the
repayment of bank loans of £22.7m, the share buybacks of £9.9m and net
capital returns of £16.5m in the half year.
As at 30 September 2023 the top thirty holdings accounted for 71.5% of the
total portfolio (31 March 2023: 67.7%). There have been new entrants into the
top thirty holdings over the half year. UEM increased its investment in Sabesp
by £2.0m and Omega Energia S.A. by £1.2m. This together with some strong
share price performances from PT Pertamina Geothermal Energy Tbk. up by 108.7%
and TTS (Transport Trade Services) S.A. up by 73.6%, moved them all into the
top thirty holdings. Ocean Wilsons Holdings Limited's share price firmed by
7.9% and this moved it into thirtieth position as we reduced other holdings.
UEM halved its holdings in the Mexican Airports and they continue to perform
exceptionally well at an operating level. However, given the strong
performance and some uncertainties around the regulation of the concessions as
they come up for renewal, this resulted in a reduction of our positions by
£12.3m. Fortuitously, an element of the regulatory framework was changed by
the government, surprising the market and the shares sold off significantly in
October 2023. As noted, SHIA failed to see a strong bounce in international
passengers and muted customer spending and its share price declined by 32.0%.
Grupo Traxion S.A.B. de C.V.'s share price fell by 20.4% following a clumsy
secondary placement. These holdings all fell out of the top thirty as a
result.
Purchases in the portfolio decreased to £24.5m in the half year ended 30
September 2023 (30 September 2022: £52.6m) and realisations decreased to
£56.4m (30 September 2022: £67.3m). This reflects in part, a reluctance to
invest when uncertainties are rising over China's economic recovery, together
with the uncertainties over US interest rates. An active decision was
therefore taken to slowly decrease UEM's debt. UEM ended the half year with
its bank loans at £11.8m, 23.7 % of the available £50.0m facility
(31 March 2023: £35.1m).
LEVEL 3 INVESTMENTS
UEM ended the half year to 30 September 2023 with level 3 investments
totalling £43.8m (31 March 2023: £58.7m), representing 8.2% of total
investments (31 March 2023: 10.8%). The decrease in the half year resulted
mainly from reduced valuations for Petalite and Conversant. There were also
realisations of £4.3m mainly from the sale of an unlisted renewables company
in India which saw £3.7m returned to UEM. The sale resulted in UEM realising
an annual rate of return of 24.8% in Sterling terms after tax on the
investment.
In 2020 UEM initially invested a modest amount in Petalite and provided
additional investment in June 2022 following significant progress as part of
the introduction of a strategic partner and investor. Based on the valuation
of the June 2022 fundraise, the holding in Petalite was valued upwards to
£28.6m as at 31 March 2023. While progress continues to be made, in the wider
market comparable valuations for listed peers have softened. In line with
this, UEM reduced the Petalite carrying value by 12.9% as at 30 September
2023. Petalite signed a co-development agreement with a major UK charge point
operator and in October 2023 UEM provided a temporary £2.5m loan facility to
Petalite to support the business whilst it completes a Series A fundraise.
Conversant reported strong operating results and raised new equity at SGD 6.00
per share in 2022. However, UEM has now been more cautious on its near-term
prospects following the unexpected death of the founder in late 2022. Based on
Conversant's profit expectations for 2023, as well as peer group multiples,
UEM has conservatively marked the valuation down by 57.2% to SGD 2.57 per
share.
SHARE BUYBACKS
UEM continues to actively buy back its shares. In the half year to 30
September 2023 UEM bought back 4.4m shares at £9.9m. The average price paid
over the six months to 30 September 2023 was 222.14p per share. This was
enhancing to NAV per share which was 261.58p as at 30 September 2023.
Since inception UEM has bought back 79.3m shares at a cost of £148.7m and an
average price of 187.06p.
BANK DEBT
UEM's net debt, being bank loans and overdrafts less cash, decreased
significantly over the half year from £36.1m as at 31 March 2023 to £14.0m
as at 30 September 2023. UEM's £50.0m committed multicurrency loan facility
matures in March 2024.
REVENUE RETURN
Revenue income decreased 12.4% to £14.8m for the six months to 30 September
2023, from £16.9m for the six months to 30 September 2022. This arose from a
marginal shift in the portfolio to companies investing for the longer term in
companies such as Orizon and selling higher paying dividend investments.
Management fees and other expenses were largely unchanged at £1.6m for the
half year. While finance costs doubled, they remained modest at £0.2m.
Taxation rose by 10.0% to £1.1m for the period to 30 September 2023, prior
half year was £1.0m.
Arising from the above, profit for the half year decreased by 17.4% to £11.9m
from £14.4m at the prior half year. EPS decreased by 12.9% to 5.95p compared
to the prior half year of 6.83p with the decrease in profit being offset by a
reduced average number of shares in issue following buybacks. Dividends per
share of 4.30p were fully covered by earnings.
Retained revenue reserves rose to £12.9m as at 30 September 2023, equating to
6.53p per share.
CAPITAL RETURN
The portfolio gained £19.3m during the half year to 30 September 2023 (30
September 2022: loss of £28.6m). There were gains on foreign exchange of
£0.4m (30 September 2022: loss of £0.6m). The resultant total income gain on
the capital return was £19.7m against prior half year loss of £29.3m.
Management and administration fees were largely unchanged at £2.2m for the
half year. Finance costs remain modest at £0.7m but rose by 250.0% in the
half year as a result of higher interest rate costs from £0.2m in the prior
half year. Taxation was a cost of £0.3m in the half year versus a gain of
£0.1m in the prior half year, which arose mainly from increased Indian
deferred capital gains tax on unrealised gains in the period. The net effect
of the above was a gain on capital return of £16.5m (30 September 2022: a
loss of £31.6m).
INVESTOR COMMUNICATION
We have been increasing the marketing of UEM to the wider investment
community, including retail investors, through a number of initiatives. These
include regular publications of research notes from UEM's broker, Shore
Capital and Corporate Limited and Edison Investment Research Limited;
utilising the Investor Meet Company platform which provides an excellent
recorded video platform for communicating to individual investors; and
increasing the content on UEM's website via our 'insights' page.
Charles Jillings
ICM Investment Management Limited and ICM Limited
21 November 2023
HALF-YEARLY FINANCIAL REPORT AND RESPONSIBILITY STATEMENT
The Chairman's Statement and the Investment Managers' Report give details of
the important events which have occurred during the period and their impact on
the financial statements.
PRINCIPAL RISKS AND UNCERTAINTIES
Most of UEM's principal risks and uncertainties are market related and are
similar to those of other investment companies investing mainly in listed
equities in emerging markets.
The principal risks and uncertainties were described in more detail under the
heading "Principal Risks and Risk Mitigation" within the Strategic Report
section of the Annual Report and Accounts for the year ended 31 March 2023 and
have not changed materially since the date of that document.
The principal risks faced by UEM include not achieving long term total returns
for its shareholders, adverse market conditions leading to a fall in NAV, loss
of key management, its shares trading at a discount to NAV, losses due to
inadequate controls of third party service providers, gearing risk and
regulatory risk. In addition, the Board continues to monitor a number of
emerging risks that could potentially impact the Company, the principal ones
being geopolitical risk and climate change risk.
The Annual Report and Accounts is available on the Company's website,
www.uemtrust.co.uk
RELATED PARTY TRANSACTIONS
Details of related party transactions in the six months to 30 September 2023
are set out in note 9 to the accounts and details of the fees paid to the
Investment Managers are set out in note 2 to the accounts. Directors' fees
were increased by approximately 5.0% with effect from 1 April 2023 to:
Chairman £52,500 per annum; Chair of Audit & Risk Committee £49,100 per
annum; and other Directors £38,900 per annum.
The net fee entitlement of each Director is satisfied in shares of the
Company, purchased in the market by each Director at around each quarter end.
DIRECTORS' RESPONSIBILITY STATEMENT
In accordance with Chapter 4 of the Disclosure Guidance and Transparency
Rules, the Directors confirm that to the best of their knowledge:
• the condensed set of financial statements contained within the report
for the six months to 30 September 2023 has been prepared in accordance with
International Accounting Standard 34 "Interim Financial Reporting" on a going
concern basis and gives a true and fair view of the assets, liabilities,
financial position and return of the Company;
• the half-yearly report, together with the Chairman's Statement and
Investment Managers' Report, includes a fair review of the important events
that have occurred during the first six months of the financial year and their
impact on the financial statements as required by DTR 4.2.7R;
• the Directors' statement of principal risks and uncertainties above
is a fair review of the principal risks and uncertainties for the remainder of
the year as required by DTR 4.2.7R; and
• the half-yearly report includes a fair review of the related party
transactions that have taken place in the first six months of the financial
year as required by DTR 4.2.8R.
On behalf of the Board
John Rennocks
Chairman
21 November 2023
CONDENSED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
Six months to Six months to
30 September 2023 30 September 2022
Notes Revenue Capital Total Revenue Capital Total
return return return return return return
£'000s £'000s £'000s £'000s £'000s £'000s
Gains/(losses) on investments - 19,284 19,284 - (28,628) (28,628)
Foreign exchange gains/(losses) - 403 403 - (623) (623)
Investment and other income 14,758 - 14,758 16,887 - 16,887
Total income/(loss) 14,758 19,687 34,445 16,887 (29,251) (12,364)
2 Management and administration fees (699) (2,169) (2,868) (712) (2,216) (2,928)
Other expenses (877) - (877) (789) - (789)
Profit/(loss) before finance costs and taxation 13,182 17,518 30,700 15,386 (31,467) (16,081)
Finance costs (166) (663) (829) (50) (199) (249)
Profit/(loss) before taxation 13,016 16,855 29,871 15,336 (31,666) (16,330)
3 Taxation (1,076) (315) (1,391) (954) 85 (869)
Profit/(loss) for the period 11,940 16,540 28,480 14,382 (31,581) (17,199)
4 Earnings per share (basic) - pence 5.95 8.24 14.19 6.83 (14.99) (8.16)
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 net return on ordinary activities after taxation represents the profit for
the period and also the total comprehensive Income.
CONDENSED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
for the six months to 30 September 2023
Ordinary Capital Retained earnings
Notes 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
7 Shares purchased by the (45) - 45 (9,918) - - (9,918)
Company and cancelled
Profit for the period - - - - 16,540 11,940 28,480
5 Dividends paid in the period - - - - - (8,614) (8,614)
Balance as at 30 September 2023 1,978 76,706 367 422,659 2,699 12,913 517,322
for the six months to 30 September 2022
Ordinary Capital Retained earnings
Notes 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
7 Shares purchased by the (86) - 86 (18,674) - - (18,674)
Company and cancelled
(Loss)/profit for the period - - - - (31,581) 14,382 (17,199)
5 Dividends paid in the period - - - - - (8,414) (8,414)
Balance as at 30 September 2022 2,062 76,706 283 441,062 (31,720) 13,236 501,629
for the year ended 31 March 2023
Ordinary Capital Retained earnings
Notes 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
7 Shares purchased by the (125) - 125 (27,159) - - (27,159)
Company and cancelled
(Loss)/profit for the year - - - - (13,702) 19,474 5,772
5 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
CONDENSED STATEMENT OF FINANCIAL POSITION (UNAUDITED)
Notes as at 30 Sep 2023 30 Sep 2022 31 Mar 2023
£'000s £'000s £'000s
Non-current assets
11 Investments 533,066 528,400 545,657
Current assets
Other receivables 2,460 2,351 1,444
Cash and cash equivalents 774 907 456
3,234 3,258 1,900
Current liabilities
Other payables (5,206) (8,002) (3,461)
Bank loans (11,837) - (35,102)
(17,043) (8,002) (38,563)
Net current liabilities (13,809) (4,744) (36,663)
Total assets less current liabilities 519,257 523,656 508,994
Non-current liabilities
6 Bank loans - (20,185) -
Deferred tax (1,935) (1,842) (1,620)
Net assets 517,322 501,629 507,374
Equity attributable to equity holders
7 Ordinary share capital 1,978 2,062 2,023
Merger reserve 76,706 76,706 76,706
Capital redemption reserve 367 283 322
Special reserve 422,659 441,062 432,577
Capital reserves 2,699 (31,720) (13,841)
Revenue reserve 12,913 13,236 9,587
Total attributable to equity holders 517,322 501,629 507,374
8 Net asset value per share
Basic - pence 261.58 243.29 250.91
CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
Six months to Six months to Year to
30 Sep 2023 30 Sep 2022 31 Mar 2023
£'000s £'000s £'000s
Operating activities
Profit/(loss) before taxation 29,871 (16,330) 7,198
Deduct investment income - dividends (13,890) (16,184) (22,671)
Deduct investment income - interest (828) (702) (1,627)
Deduct bank interest received (40) (1) (28)
Add back interest charged 829 249 843
Add back (gains)/losses on investments (19,284) 28,628 8,389
Add back foreign currency (gains)/losses (403) 623 515
Increase in other receivables (31) (33) (31)
Decrease in other payables (20) (50) (88)
Net cash outflow from operating activities (3,796) (3,800) (7,500)
before dividends and interest
Interest paid (1,044) (241) (646)
Dividends received 13,444 15,069 22,417
Investment income - interest received 321 236 475
Bank interest received 40 1 28
Taxation paid (1,086) (912) (1,691)
Net cash inflow from operating activities 7,879 10,353 13,083
Investing activities
Purchases of investments (23,368) (50,888) (106,821)
Sales of investments 55,550 67,208 125,649
Net cash inflow from investing activities 32,182 16,320 18,828
Financing activities
Repurchase of shares for cancellation (9,751) (18,144) (27,159)
Dividends paid (8,614) (8,414) (17,155)
Drawdown of bank loans 1,599 4,280 35,385
Repayment of bank loans (24,283) (8,536) (24,440)
Net cash outflow from financing activities (41,049) (30,814) (33,369)
Decrease in cash and cash equivalents (988) (4,141) (1,458)
Cash and cash equivalents at the start of the period (1,026) 452 452
Effect of movement in foreign exchange (178) 157 (20)
Cash and cash equivalents at the end of the period (2,192) (3,532) (1,026)
Comprised of:
Cash 774 907 456
Bank overdraft (2,966) (4,439) (1,482)
Total (2,192) (3,532) (1,026)
NOTES TO THE ACCOUNTS (UNAUDITED)
1. ACCOUNTING POLICIES
The Company is an investment company incorporated in the United Kingdom with a
premium listing on the London Stock Exchange.
The unaudited condensed accounts have been prepared in accordance with UK
adopted International Accounting Standards, which comprise standards and
interpretations approved by the IASB and International Accounting Standards
and Standing Interpretations Committee interpretations approved by the IASC
that remain in effect and to the extent that they are in conformity with the
requirement of the Companies Act 2006 ("IFRS"), IAS 34 "Interim Financial
Reporting" and the accounting policies set out in the audited statutory
accounts for the year ended 31 March 2023.
The preparation of interim financial statements requires management to make
judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets and liabilities, income
and expense. Actual results may differ from these estimates. The significant
judgements made by the Directors in applying the accounting policies and key
sources of uncertainty were the same as those applied to the financial
statements as at and for the year ended 31 March 2023.
The condensed Accounts do not include all of the information required for full
annual accounts and should be read in conjunction with the accounts of the
Company for the year ended 31 March 2023, which were prepared under full IFRS
requirements.
2. MANAGEMENT AND ADMINISTRATION FEES
The Company has appointed ICMIM as its Alternative Investment Fund Manager and
joint portfolio manager with ICM, for which they are entitled to a management
fee. The aggregate fees payable by the Company are apportioned between the
Investment Managers as agreed by them.
The relationship between ICMIM and ICM is compliant with the requirements of
the UK version of the EU Alternative Investment Fund Managers Directive as it
forms part of UK domestic law by virtue of the European Union (Withdrawal) Act
2018, as amended, and also such other requirements applicable to ICMIM by
virtue of its regulation by the Financial Conduct Authority.
The annual management fee is a tiered structure as follows: 1.0% of NAV up to
and including £500m; 0.9% of NAV exceeding £500m up to and including £750m;
0.85% of NAV exceeding £750m up to and including £1,000m; and 0.75% of NAV
exceeding £1,000m, payable quarterly in arrears. The management fee is
allocated 80% to capital return and 20% to revenue return. The investment
management agreement may be terminated upon six months' notice.
ICMIM also provides company secretarial services to the Company, with the
Company paying £35,000 (30 September 2022: £35,000 and 31 March 2023:
£70,000) equivalent to 45% of the costs associated with this office and
recharges research fees to the Company based on a budget of £0.3m per annum,
paid quarterly in arrears. These charges are allocated 80% to capital return
and 20% to revenue return.
JPMorgan Chase Bank N.A. - London Branch has been appointed Administrator and
ICMIM has appointed Waverton to provide certain support services (including
middle office, market dealing and information technology support services).
3. TAXATION
The revenue return taxation charge of £1,076,000 (30 September 2022:
£954,000 and 31 March 2023: £1,638,000) relates to irrecoverable overseas
taxation suffered on dividend and interest income.
The capital return taxation expense of £315,000 (30 September 2022: income of
£85,000 and 31 March 2023: income of £212,000) relates to capital gains on
realised gains on sale of overseas investments and deferred tax in respect of
capital gains tax on overseas unrealised investment gains that may be subject
to taxation in future years.
4. EARNINGS PER SHARE
Earnings per share is the profit attributable to shareholders and based on the
following data:
Six months to Six months to Year to
30 Sep 2023 30 Sep 2022 31 Mar 2023
£'000s £'000s £'000s
Revenue return 11,940 14,382 19,474
Capital return 16,540 (31,581) (13,702)
Total return 28,480 (17,199) 5,772
Number Number Number
Weighted average number of ordinary shares in issue 200,672,201 210,727,891 207,220,648
during the period for basic earnings per share calculations
Pence Pence Pence
Revenue return per share 5.95 6.83 9.40
Capital return per share 8.24 (14.99) (6.61)
Total return per share 14.19 (8.16) 2.79
5. DIVIDENDS
Record date Payment date 30 Sep 30 Sep 2022 £'000s 31 Mar 2023 £'000s
2023
£'000s
2022 Fourth quarterly dividend of 2.00p per share 06-Jun-22 24-Jun-22 - 4,250 4,250
2023 First quarterly dividend of 2.00p per share 02-Sep-22 23-Sep-22 - 4,164 4,164
2023 Second quarterly dividend of 2.15p per share 02-Dec-22 16-Dec-22 - - 4,384
2023 Third quarterly dividend of 2.15p per share 03-Mar-23 24-Mar-23 - - 4,357
2023 Fourth quarterly dividend of 2.15p per share 02-Jun-23 23-Jun-23 4,334 - -
2024 First quarterly dividend of 2.15p per share 01-Sep-23 22-Sep-23 4,280 - -
8,614 8,414 17,155
The Directors have declared a second quarterly dividend in respect of the year
ending 31 March 2024 of 2.15p per share payable on 15 December 2023 to
shareholders on the register at close of business on 1 December 2023. The
total cost of the dividend, which has not been accrued in the results for the
six months to 30 September 2023, is £4,217,000 based on 196,121,375 shares in
issue as at 20 November 2023.
6. BANK LOANS
The Company has an unsecured committed senior multicurrency revolving facility
of £50,000,000 with the Bank of Nova Scotia, London Branch expiring on 15
March 2024. Commitment fees are charged on any undrawn amounts at commercial
rates. The terms of the loan facility, including those related to accelerated
repayment and costs of repayment, are typical of those normally found in
facilities of this nature. The existing loan rolls over on a periodic basis
subject to usual conditions including a covenant with which the Company is
comfortable it can ensure compliance
As at 30 September 2023 £11,837,000 (30 September 2022: £20,185,000 and 31
March 2023: £35,102,000) was drawn down.
7. ORDINARY SHARE CAPITAL
Issued, called up and fully paid
Ordinary shares of 1p each Number £'000s
Balance as at 31 March 2023 202,212,256 2,023
Purchased for cancellation by the Company (4,441,578) (45)
Balance as at 30 September 2023 197,770,678 1,978
During the period the Company bought back for cancellation 4,441,578 (30
September 2022: 8,560,692 and 31 March 2023: 12,531,811) ordinary shares at a
total cost of £9,918,000 (30 September 2022: £18,674,000 and 31 March 2023:
£27,159,000). A further 1,649,303 ordinary shares have been purchased for
cancellation at a total cost of £3,543,000 since the period end.
8. NET ASSET VALUE PER SHARE
The NAV per share is based on the net assets attributable to the equity
shareholders of £517,322,000 (30 September 2022: £501,629,000 and 31 March
2023: £507,374,000) and on 197,770,678 ordinary shares, being the number of
ordinary shares in issue at the period end (30 September 2022: 206,183,375 and
31 March 2023: 202,212,256).
9. RELATED PARTY TRANSACTIONS
The following are considered related parties of the Company: the subsidiary
undertakings (UEM (HK) Limited and UEM Mauritius Holdings Limited), the
associates of the Company (East Balkan Properties plc, Petalite Limited
("Petalite") and Pitch Hero Holdings Limited), the Board of UEM, ICM and ICMIM
(the Company's joint portfolio managers), Mr Saville, Mr Jillings (a key
management person of ICMIM) and UIL Limited.
As at 30 September 2023 the fair value of the loan held with UEM (HK) Limited
was £9,706,000 and loan interest accrued was £71,000 (30 September 2022:
£11,871,000 and £77,000 respectively and 31 March 2023: £10,118,000 and
£71,000 respectively). In the period £406,000 loan interest was capitalised.
As at 30 September 2023, the fair value of the equity holdings held in UEM(HK)
Limited was £nil (30 September 2023: £1,128,000 and 31 March 2023
£1,498,000). During the period the Company did not receive any amounts from
or make payments to UEM Mauritius Holdings Limited.
There were no transactions with East Balkan Properties plc or Petalite
Limited.
Pursuant to an extension and amendment (dated 24 August 2023) of a loan
agreement dated 1 March 2021 under which UEM has agreed to loan monies to
Pitch Hero, UEM advanced to Pitch Hero £50,000 on 25 August 2023. As at 30
September 2023, the balance of the loan and interest outstanding was £535,000
(30 September 2022: £162,000 and 31 March 2023: £470,000). The loan bears
interest at an annual rate of 10% (prior to 24 August 2023 the rate was 5%).
The first repayment date is 25 August 2024, with a final repayment date of 25
August 2027.
The Board received aggregate remuneration of £108,000 (30 September 2022:
£121,000 and 31 March 2023: £225,000) included within "Other expenses" for
services as Directors. As at the period end, £nil (30 September 2022: £nil
and 31 March 2023: £nil) remained outstanding to the Directors. In addition
to their fees, the Directors received dividends totalling £21,000 (30
September 2022: £26,000 and 31 March 2023: £45,000) during the period under
review in respect of their shareholdings in the Company. There were no further
transactions with the Board during the period.
There were no transactions with ICM, ICMIM, ICM Investment Research Limited or
ICM Corporate Services (Pty) Ltd, subsidiaries of ICM, other than investment
management, secretarial costs, research fees as set out in note 2 of
£2,701,000 (30 September 2022: £2,770,000 and 31 March 2023: £5,420,000)
and reimbursed expenses included within Other Expenses of £30,000 (30
September 2022: £2,000 and 31 March 2023: £134,000). As at the period end
£1,345,000 (30 September 2022: £1,382,000 and 31 March 2023: £1,330,000)
remained outstanding in respect of management, company secretarial and
research fees.
Mr Jillings received dividends totalling £20,000 (30 September 2022: £18,000
and 31 March 2023: £38,000) and UIL Limited received dividends totalling
£784,000 (30 September 2022: £1,178,000 and 31 March 2023: £2,051,000).
10. GOING CONCERN
Notwithstanding that the Company has reported net current liabilities of
£13,809,000 as at 30 September 2023 (30 September 2022: £4,744,000 and 31
March 2023: £36,663,000), the financial statements have been prepared on a
going concern basis which the Directors consider to be appropriate for the
following reasons. The Board's going concern assessment has focused on the
forecast liquidity of the Company for at least twelve months from the date of
approval of the financial statements. This analysis assumes that the Company
would, if necessary, be able to meet some of its short term obligations
through the sale of listed securities, which represented 91.8% of the
Company's total portfolio as at 30 September 2023. As part of this assessment
the Board has considered a severe but plausible downside that reflects the
impact of the Company's key risks and an assessment of the Company's ability
to meet its liabilities as they fall due assuming a significant reduction in
asset values and accompanying currency volatility.
The Board also considered reverse stress testing to identify the reduction in
the valuation of liquid investments that would cause the Company to be unable
to meet its net liabilities, being primarily the bank loan. The Board is
confident that the reduction in asset values implied by the reverse stress
test is not plausible even in the current volatile environment. Consequently,
the Directors believe that the Company will have sufficient funds to continue
to meet its liabilities as they fall due for at least twelve months from the
date of approval of the financial statements.
As at the period end, the Company had a £50m unsecured multicurrency loan
facility with Bank of Nova Scotia, London Branch, expiring on 15 March 2024.
The Company will either extend or replace the facility or repay the
outstanding debt when due from portfolio realisations
Accordingly, the Board considers it appropriate to continue to adopt the going
concern basis in preparing the accounts.
11. FAIR VALUE HIERARCHY
IFRS 13 'Financial Instruments: Disclosures' require an entity to classify
fair value measurements using a fair value hierarchy that reflects the
significance of the inputs used in making the measurements. The fair value
hierarchy shall have the following levels:
Level 1 reflects financial instruments quoted in an active market.
Level 2 reflects financial instruments whose fair value is evidenced by
comparison with other observable current market transactions in the same
instrument or based on a valuation technique whose variables include only data
from observable markets.
Level 3 reflects financial instruments whose fair value is determined in whole
or in part using a valuation technique based on assumptions that are not
supported by prices from observable market transactions in the same instrument
and not based on available observable market data.
The financial assets and liabilities measured at fair value in the statement
of financial position are grouped into the fair value hierarchy as follows:
Level 1 Level 2 Level 3 30 Sep 2023
£'000s £'000s £'000s Total
£'000s
Investments 481,123 8,160 43,783 533,066
Level 1 £'000s Level 2 £'000s Level 3 £'000s 30 Sep 2022
Total
£'000s
Investments 469,777 9,125 49,498 528,400
Level 1 £'000s Level 2 £'000s Level 3 £'000s 31 Mar 2023
Total
£'000s
Investments 483,146 3,818 58,693 545,657
During the period two stocks with a value of £4.6m were transferred from
level 1 to level 2 due to the investee company shares trading irregularly. The
book cost and fair value was transferred using the 31 March 2023 balances, and
all subsequent trades are therefore disclosed in the level 2 column (30
September 2023: one stock with a value of £5.5m was transferred from level 1
to level 2 due to the investee company shares trading irregularly and 31 March
2023: one stock with value of £1.7m was transferred from level 1 to level 2
due to the investee company shares trading irregularly, three stocks with
value of £8.0m were transferred from level 2 to level 1 due to the investee
companies shares resuming regular trading in the year, one stock with value of
£0.8m was transferred from level 3 to level 1 due to the investee company
shares becoming listed and one stock transferred from level 1 to level 3 at
£nil value due to the investee company shares being suspended from trading.
The book cost and fair value was transferred using the 31 March 2022 balances
except for the stock that was suspended, the book cost and fair value
transferred at the time of suspension).
A reconciliation of fair value measurements in level 3 is set out in the
following table:
Six months to Six months to Year to
30 Sep 2023 30 Sep 2022 31 Mar 2023
£'000s £'000s £'000s
Valuation brought forward 58,693 48,110 48,110
Purchases 466 2,731 3,691
Sales (4,279) (3,782) (4,423)
Gains on sale of investments 139 991 1,760
(Losses)/gains on investments held at end of period (11,236) 1,448 9,555
Valuation carried forward 43,783 49,498 58,693
Analysed
Cost of investments 25,810 28,396 29,484
Gains on investments 17,973 21,102 29,209
Valuation carried forward 43,783 49,498 58,693
12. FINANCIAL RISK MANAGEMENT - LEVEL 3 FINANCIAL INSTRUMENTS
Valuation methodology
The objective of using valuation techniques is to arrive at a fair value
measurement that reflects the price that would be received to sell the asset
or paid to transfer the liability in an orderly transaction between market
participants at the measurement date. The Company uses proprietary valuation
models, which are compliant with IPEV guidelines and IFRS 13 and which are
usually developed from recognised valuation techniques.
The Directors have satisfied themselves as to the methodology used, the
discount rates and key assumptions applied, and the valuations. The
methodologies used to determine fair value are described in the 2023 Report
and Accounts. The level 3 assets comprise of a number of unlisted investments
at various stages of development and each has been assessed based on its
industry, location and business cycle. The valuation methodologies include net
assets, discounted cash flows, cost of recent investment or last funding
round, listed peer comparison or peer group multiple, as appropriate. Where
applicable, the Directors have considered observable data and events to
underpin the valuations. A discount has been applied, where appropriate, to
reflect both the unlisted nature of the investments and business risks.
Sensitivity of level 3 financial investments measured at fair value to changes
in key assumptions
Level 3 inputs are sensitive to assumptions made when ascertaining fair value.
While the Directors believe that the estimates of fair value are appropriate,
the use of different methodologies or assumptions could lead to different
measurements of fair value. The sensitivities shown in the table below give an
indication of the effect of applying reasonable and possible alternative
assumptions.
In assessing the level of reasonably possible outcomes consideration was also
given to the impact on valuations of the increased level of volatility in
equity markets since early 2022, principally reflecting concerns about
increasing rates of inflation, tightening energy supplies, rising interest
rates and the Ukraine war. The impact on the valuations has been varied and
largely linked to their relevant sectors and this has been reflected in the
level of sensitivities applied.
The following table shows the sensitivity of the fair value of level 3
financial investments to changes in key assumptions.
As at 30 September 2023
Investment Investment Valuation Risk Sensitivity Carrying Sensitivity
type methodology weighting +/- amount £'000s
£'000s
Petalite Equity Last funding High 50% 24,916 12,458
round *
UEM (HK) Limited - Loan NAV Low 10% 9,706 971
CGN Capital Partners
Infra Fund 3
Conversant Solutions Equity Peer Medium 20% 3,324 665
Pte Ltd multiples
Other investments Equity Various Medium 20% 5,307 1,061
Other investments Loans Discounted Medium 20% 530 106
cash flows
Total 43,783 15,261
As at 30 September 2022
Investment Investment Valuation Risk Sensitivity Carrying Sensitivity
type methodology weighting +/- amount £'000s
£'000s
Petalite Equity Milestone High 40% 18,693 7,477
analysis
UEM (HK) Limited - Loan NAV Low 10% 11,871 1,187
CGN Capital Partners
Infra Fund 3
Conversant Solutions Equity Last funding Medium 20% 8,085 1,617
Pte Ltd round
Other investments Equity Various Medium 20% 5,626 1,125
Other investments Equity Various Low 10% 4,723 472
Other investments Equity Last funding High 30% 350 105
round
Other investments Loans Discounted Medium 20% 150 30
cash flows
Total 49,498 12,013
As at 31 March 2023
Investment Investment Valuation Risk Sensitivity Carrying Sensitivity
type methodology weighting +/- amount £'000s
£'000s
Petalite Equity Last funding High 50% 28,607 14,304
round
UEM (HK) Limited - Equity/Loan NAV Low 10% 11,615 1,162
CGN Capital Partners
Infra Fund 3
Conversant Solutions Equity Last funding Medium 20% 7,877 1,575
Pte Ltd round
Other investments Equity Various Medium 20% 5,956 1,191
Other investments Equity Various Low 10% 4,187 419
Other investments Loans Discounted High 20% 450 90
cash flows
Total 58,692 18,741
* Valuation of investment in Petalite
Petalite is an unlisted electric vehicle ("EV") charging infrastructure
company based in the UK that has been developing a new technology which
enables more reliable and cost effective EV chargers. UEM holds 28.6% of the
ordinary shares in Petalite and as at 31 March 2023, carried this investment
at £28.6m. Since March 2023, the EV charging sector, as measured by listed
stock prices, has weakened and private capital activity has decreased. The
Directors consider these events would also apply to Petalite and have
accordingly reduced the carrying value of Petalite by an amount equivalent to
the average reduction of Petalite's peer group comparable companies, giving a
carrying value of £24.9m as at 30 September 2023.
13. RESULTS
The financial information contained in this Half-Yearly Financial Report does
not constitute statutory accounts as defined in Sections 434 - 436 of the
Companies Act 2006. The financial information for the six months ended 30
September 2023 and 30 September 2022 have neither been audited nor reviewed by
the Company's auditors.
The information for the year ended 31 March 2023 has been extracted from the
latest published audited financial statements which have been filed with the
Registrar of Companies. The report of the auditor on those accounts contained
no qualification or statement under Section 498(2) or (3) of the Companies Act
2006.
Legal Entity Identifier: 2138005TJMCWR2394O39
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