RNS Number : 4336X
Utilico Emerging Markets Limited
19 November 2014
 



Date:              19 November 2014

 

Contact:        Charles Jillings         

                        Utilico Emerging Markets Limited 

                        01372 271 486        

 

Alastair Moreton

Westhouse Securities Limited

0207 601 6100

 

 

 

Utilico Emerging Markets Limited

 

Unaudited Statement of Results

for the six months to 30 September 2014

 

 

Highlights of results

 

 

·    Utilico Emerging Markets Limited's ("UEM") net asset value ("NAV") total return per ordinary share was 5.9% in the six months to 30 September 2014, in line with the MSCI Emerging Markets Total Return Index (GBP adjusted) which was up 6.0%.

·    Since inception in 2005, UEM has achieved an average annual compound total return of 12.4%.

 

 



CHAIRMAN'S STATEMENT

 

UEM's NAV total return per ordinary share was 5.9% in the six months to 30 September 2014, in line with the MSCI Emerging Markets Total Return Index (GBP adjusted) which was up 6.0%.

Since inception in 2005, UEM has achieved an average annual compound total return of 12.4% including the return on warrants exercised on 2 August 2010. UEM's total return since inception to 30 September 2014 was 159.3%, ahead of the MSCI Emerging Markets Total Return Index (GBP adjusted) by 25.6%.

A feature of the six months has been a recovery in the emerging equity markets, offset in some markets by the strength of Sterling. For instance, the Brazilian Bovespa rose by 7.3% while the Brazilian Real weakened by 5.3%.

UEM investee companies on the whole continued to report strong operational performances.

Revenue earnings per share ("EPS") increased by 12.3% over the same period in 2013 to 4.19p. This has been driven by a strong increase in total income, which rose by £1.3m to £11.1m, up 13.6%. It should be noted that historically the earnings have been skewed to the first half year and UEM anticipates this will remain the case and may be more pronounced this year.

The Board has declared a first quarterly dividend of 1.525p, which was paid in September 2014 and is declaring a second quarterly dividend of 1.525p, payable on 17 December 2014. This amounts to a total dividend in the half year of 3.05p (2013: 3.05p). This dividend is covered 1.37x by the interim EPS and represents a yield of 3.2% on an annualised basis on the 30 September 2014 share price of 189.00p.

Kevin O'Connor retired from the Board on 17 November 2014 and Garth Milne was reappointed to the Board with effect from the same date.  On behalf of the Board, I would like to thank Kevin for his support, enthusiasm and guidance as a director of the Company and we will miss his wise counsel and contribution at the Board meetings. Garth has been involved in the investment company sector for over 40 years, and has been a consultant to the Board for the last four years.

Outlook

The end of quantitative easing in the US has resulted in a significant increase in volatility in global markets. A key challenge facing the western economies is weak growth. High levels of debt together with weak inflation has seen the world's GDP weaken. Emerging markets on the whole are achieving reasonable GDP growth and their outlook remains positive. The performance from UEM's stock selection has rewarded investors and the Investment Manager expects to be able to continue to identify attractive investments.

 

 

 



 

INVESTMENT MANAGER'S REPORT

 

The six months to 30 September 2014 have seen encouraging developments and performance in emerging markets. UEM's total return was 5.9% and gross assets rose to £442.1m. There was significant positive political change in the Far East with elections in India and Indonesia, which both resulted in more market friendly candidates being elected and promising significant reforms.  Chilean political change has negatively impacted our investments.

PORTFOLIO

UEM's net assets increased by £17.7m over the six months to £427.9m, with the investment portfolio in Sterling terms increasing by £4.9m to £438.8m.

Investee companies have again reported good operational results and this looks set to continue.

UEM's list of top ten investments has seen one change as Gasco S.A.'s ("Gasco") share price weakened, resulting in it falling outside the top ten and Alupar Investimento SA ("Alupar") entered the top ten as a result of purchases by UEM and relative performance.

In the six months to 30 September 2014 Gasco's share price fell by 29.6% as the incoming Bachelet government announced energy reforms that included proposals to regulate the gas distribution market in Chile. Gasco's main asset is a 51.8% holding in Metrogas, the monopoly gas distribution company in Santiago. The National Energy Commission (CNE) has questioned Gasco's returns and this has heightened uncertainty over the sustainability of profits at Metrogas. After the period end CNE published a study which claimed Metrogas had exceeded allowable returns, directly conflicting with an independent report by energy consultants Systep, which had concluded that it had remained within the limits. The case is being referred to the Competition Court for determination.

Malaysia Airport Holdings Berhad ("MAHB") reported results for the six months to 30 June 2014, showing passenger and revenue growth was 10.5% and 11.2% respectively, with EBITDA flat for the period due to the higher operating costs relating to the opening of KLIA2. KLIA2 was opened successfully in May 2014 and is widely recognised as a world class regional low cost terminal. However, the short term outlook for MAHB is challenging given the tragic events of MH370 and MH17. These events resulted in Malaysia Airlines System Berhad (one of MAHB's main airline customers) being nationalised and restructured. Short term there will be negative headwinds as capacity is cut. Longer term we expect this to reverse as passenger demand is typically resilient. MAHB's share price over the period to 30 September 2014 was down 4.6%.

International Container Terminal Services, Inc. ("ICT") once again reported strong operational results for the six months to 30 June 2014. Gross revenues and volumes increased by 23.4% and 17.8% respectively, helped by new port operations located in Honduras and Mexico coming on line.  EBITDA over the period increased by 12.9%, with EBITDA margins squeezed by 3.9ppt to 41.6% due to the start-up cost of the new terminals. As volumes within the new terminals increase, EBITDA margin is expected to improve. The outlook for ICT remains favourable. By 2017 ICT's management expect capacity to increase by 41.5% from 12.3m TEUs to 17.4m TEUs, as ICT's prime asset, the terminal in Manila, is expanded and investments in port operations in Melbourne and Nigeria become operational. ICT's share price over the period to 30 September 2014 was up 1.9%. UEM sold 22.8% of its holding over the period, realising £8.6m.

MyEG Services Berhad ("MYEG") reported exceptional operational numbers for the year to 30 June 2014. Revenues and EBITDA were up by 43.7% and 38.6% respectively. The company continues to report strong growth in its online road tax renewal, traffic fine payment and immigration permit renewal services. New services, such as vehicle registration administration, add further potential for future growth. MYEG is part of a consortium implementing a cash register monitoring system in Malaysia, initially for restaurants, bars and nightclubs. This is due to be extended to retailers in 2015, following the introduction of GST. MYEG's share price was up 32.9% over the six months to 30 September 2014. UEM sold 11.9% of its investment over the period, realising £3.0m.

China Gas Holdings Ltd ("China Gas") continues to deliver exceptional operational and financial results. In its financial year to 31 March 2014 China Gas reported gas sales volumes up 17.9% and expanded its connected base by 22.1% to over 10m households. Revenues increased by 22.4% and underlying EBITDA was up by 32.5%. The dividend per share increased significantly, up 42.2% year on year. Chinese government policy continues to be highly supportive for the expansion of the natural gas distribution industry, with recent increases in tariffs to move prices towards import parity.

China Gas has continued to perform well, with its shares up by 6.4% in the six months to September 2014. During the period UEM sold 11.6% of its shareholding in China Gas after the shares reached all-time highs in June, realising £4.2m. With strong prospects we remain positive on China Gas' potential over the coming years. 

Ocean Wilsons Holdings Limited's ("Ocean Wilsons") share price over the six months period was up by 0.9%. Its major investment, Wilson Sons', share price rose by 17.1% resulting in Ocean Wilsons' discount to the sum of its parts valuation widening to 27.0%. This is disappointing and highlights the discount arising from the corporate structure.

Wilson Sons' performance over the six months ended 30 June 2014 has been mixed with net revenues and EBITDA down 2.4% and 1.5% respectively. The container terminal revenues were down 1.4% despite a 15.1% increase in TEU volumes as the ports benefitted from Argentina banning transhipment via Uruguay. Brasco's revenues remained flat for the period. Towage continues to perform steadily, posting a 12.5% increase in net revenues with a 7.7% increase in the number of harbour movements. Ocean Wilsons' investment portfolio over the period was up marginally to £250.6m.

Eastern Water Resources Development and Management PCL's ("Eastwater")operational performance in the six months to 30 June 2014 was mixed, with declines in raw water demand partly offset by strong demand in tap water. The weakness in raw water volumes was mainly due to poor demand from the Provincial Waterworks Authority, one of Eastwater's larger customers and a major shareholder in the company. By comparison, demand from industrial estates continued to grow, and attracted a higher tariff. As such underlying revenue growth increased 2.0%, although higher administration costs meant EBITDA fell 0.4%.

Reflecting the lacklustre financial performance, Eastwater's share price performance has been weak, falling by 5.3% during the period. UEM has continued to reduce its shareholding in Eastwater, selling a further 13.9% in the six months to 30 September 2014, realising £1.8m.

APT Satellite Holdings Limited ("APT") reported good results during the half year to 30 June 2014. With good utilisation rates on its three operational satellites, the company decided to take a short term lease on a fourth satellite, with a view to launching its own satellite in late 2015 to replace this. Demand for the new satellite has been strong, with utilisation reaching 78.5% at the end of June. Revenues in the half year to 30 June 2014 were up by 12.3% compared to the same period last year and underlying net profit was up 13.0%. The company expects a stronger second half of the year. APT's share price increased by 21.4% over the six months and UEM increased its shareholding by 10.7%, investing £1.8m.

In contrast, Asia Satellite Telecommunications Holdings Limited ("Asiasat") reported disappointing results, with a 9.7% decline in revenues for the half year to 30 June 2014. EBITDA was down 13.6%. This was caused primarily by a rate reduction agreed with a major customer on a long term contract renewal and lower demand associated with the withdrawal of foreign troops from Afghanistan. During the period, the company successfully launched two new satellites, Asiasat 6 and Asiasat 8, and signed a number of new contracts with broadcasters, which should help to drive a recovery in 2015. Asiasat's share price was down 19.4% over the period under review.

China Everbright International Limited ("China Everbright") reported exceptional operational results in the six months to 30 June 2014. An active project pipeline saw revenues increase by 19.8% and EBITDA by 19.5%, with the interim dividend increased by 42.9%. During the period China Everbright has announced several new contracts, some of which are in new provinces where previously the company had no presence. With the project pipeline accelerating and major facilities coming online since period end, the company looks well placed to continue achieving rapid growth in the medium term. In the six months to 30 September 2014 China Everbright's shares dipped by 2.3%.

Alupar Investimento SA ("Alupar") is a new entry into the top ten holdings. Alupar is a Brazilian-listed energy company which operates electricity transmission line concessions in Brazil. These concessions provide annual revenue streams linked to local inflation, offering stable returns. The company also has a small but rapidly growing electricity generation business, which is expected to quadruple in size by the end of 2014 with the commissioning of the 252MW Ferreira Gomes hydro plant. The robust operating profile of the company is evident in its results for the six months to end June 2014, in which revenues and EBITDA increased by 17.3% and 9.1% respectively.

In the six months to 30 September 2014 Alupar's share price decreased by 2.7%. However Alupar offers an attractive dividend yield and adjusted for annual dividends the total return was 6.7%. UEM increased its shareholding in Alupar by 34.3% during the period, investing £3.2m.

Portfolio General

Over the six months UEM invested £45.6m and realised £57.9m. In the top ten UEM invested £5.3m in APT and Alupar and realised £19.6m from ICT, MYEG, China Gas and Eastwater.

The amount invested in China reduced to 31.5% mainly as a result of disposals. Malaysia increased to 17.3% mainly as a result of the strong performance by MYEG. Brazil reduced to 14.9% due to currency weakness, while the Philippines fell to 7.9% mainly due to realisations.

Ports, gas and water reduced mainly as a result of realisations. Electricity increased as a result of investments in Brazil.

Market Hedging

There has been little change in the market hedged position over the six months. However, the continued performance of the US S&P Index has undermined the carrying value of the hedged position and resulted in a loss of £2.1m in the six months.

Bank Debt

Bank debt as at 30 September 2014 was £14.2m, down from £23.1m at the year end. UEM has a £50.0m facility with Scotiabank Europe which expires in April 2016. At the half year, gross debt was drawn £2.5m in Sterling and £11.7m in Euros.

Capital returns

Positive capital returns of £15.3m were recorded in the six months, mainly as a result of gains on investments of £17.1m, which were principally attributed to emerging market recovery.

Management and administration fees rose to £1.0m (2013: £0.6m) reflecting an increase in assets and change in management fee from 0.5% of gross assets to 0.65% of net assets and the prior period being reduced by £0.2m on settling the 2013 performance fee in shares bought at a discount. Finance costs rose to £0.6m (2013 £0.2m), mainly as a result of one off costs incurred from the retail bond proposal which was discontinued. Taxation was £0.02m compared with income of £1.0m for the same period in 2013, as a result of gains within the portfolio.

The Capital EPS gain for the six months was 7.16p (2013: loss of 17.15p).

Revenue returns

Revenue income was up 13.6% at £11.1m (2013: £9.8m). Earnings have historically been skewed to the first half year and UEM anticipates this will remain the case and may be more pronounced this year. Expenses are ahead of last year at £1.3m (September 2013 £1.1m) mainly as a result of higher marketing spend, including the retention of Bell Pottinger as UEM's PR adviser, and higher custody charges. As noted above finance costs rose as a result of one off costs incurred from the retail bond proposal. Taxation remained broadly in line with the previous period.

The net effect was an increase in profit before tax to £8.9m versus £8.0m last year. The Revenue EPS increased 12.3% to 4.19p (2013: 3.73p).

Buybacks

There were no buybacks in the six months under review.

 



 

GROUP PERFORMANCE SUMMARY

 

 

 

 

 

 

 

 

(1)

(2)

(3)

(4)

(3)

(5)

(3)

(3)

(6)

 

(1)     Total return is calculated based on NAV per ordinary share return plus dividends reinvested from the payment date

(2)     Annual compound total return based on diluted NAV per ordinary share return, plus dividends reinvested from the payment date and return on warrants converted on 2 August 2010

(3)     Percentage change based on comparable six month period to 30 September 2013

(4)     The second quarterly dividend declared has not been included as a liability in the accounts

(5)     Gross assets less liabilities excluding loans

(6)     Expressed as a percentage of average net assets, ongoing charges comprise all operational, recurring costs that are payable by the Company or suffered within underlying investee funds, in the absence of any purchases or sales of investments

 

 

 

 



 

INTERIM MANAGEMENT REPORT AND RESPONSIBILITY STATEMENT

 

The Chairman's Statement and the Investment Manager's 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 the 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 Board reported on the principal risks and uncertainties faced by UEM and the way they are mitigated are described in more detail under the heading "Principal Risks and Risk Mitigation" on pages 17 to 19 of the Business Review section of the Annual Report and Accounts for the year ended 31 March 2014 and have not changed materially since the date of that report.

The principal risks faced by UEM include pursuing inappropriate long-term investment strategy, inappropriate asset allocation, poor stock selection, currency risk, and loss of management personnel.

The Annual Report and Accounts is available on the Company's website, www.uem.bm

RELATED PARTY TRANSACTIONS

Details of related party transactions in the six months to 30 September 2014 are set out in Note 12 to the Accounts, and details of the fees paid to the Investment Manager are set out in Note 2 to the Accounts. Directors' fees were increased with effect from 1 April 2014 to:

Chairman £40,500 per annum

Chair of Audit £37,500 per annum

Directors £30,000 per annum

In accordance with Chapter 4 of the Disclosure 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 2014 has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" and gives a true and fair view of the assets, liabilities, financial position and return of the Group;

• The half-yearly financial report, together with the Chairman's Statement and Investment Manager's 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;

• 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;

• 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; and

• The controls and monitoring processes confirm that the Company has adequate resources and arrangements to continue operating within its stated objective and policy for the foreseeable future. Accordingly the accounts continue to be drawn up on the basis that the Company is a going concern.



 

UNAUDITED CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME

 

                                                                                                                             

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The total column of this statement represents the Group's Condensed Income Statement and the Group's Condensed Statement of Comprehensive Income, prepared in accordance with IFRS.

 

The supplementary revenue return and capital return columns are both prepared under guidance published by the Association of Investment Companies in the UK.

 

The Group does not have any income or expense that is not included in the profit/(loss) for the period and therefore the 'profit/(loss) for the period' is also the 'total comprehensive income/(expense) for the period', as defined in International Accounting Standard 1 (revised).

 

All items in the above statement derive from continuing operations. There are no minority interests.



UNAUDITED CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY

 

 

for the six months to 30 September 2014




Ordinary

Share


Other non-

Retained earnings



share

premium

Special

distributable

Capital

Revenue



capital

account

reserve

reserve

reserves

reserve

Total


£'000s

£'000s

£'000s

£'000s

£'000s

£'000s

£'000s

Balance at 31 March 2014

21,324

3,796

204,587

11,093

  167,117

2,318

  410,235

Profit for the period

-  

-  

-  

-  

15,272

8,934

24,206

Ordinary dividends paid

-  

-  

-  

-  

           (3,252)

(3,252)

(6,504)

Balance at 30 September 2014

21,324

3,796

204,587

11,093

  179,137

8,000

  427,937

 

 

for the six months to 30 September 2013




Ordinary

Share


Other non-

Retained earnings



share

premium

Special

distributable

Capital

Revenue



capital

account

reserve

reserve

reserves

reserve

Total


£'000s

£'000s

£'000s

£'000s

£'000s

£'000s

£'000s

Balance at 31 March 2013

21,553

    7,510

204,587

11,093

  196,325

1,819

  442,887

(Loss)/profit for the period

-  

-  

-  

-  

(36,773)

7,998

 (28,775)

Ordinary dividends paid

-  

-  

-  

-  

(3,287)

(3,252)

(6,539)

Shares purchased by the Company

(229)

(3,714)

-

-

-

-

(3,943)

Balance at 30 September 2013

21,324

3,796

204,587

11,093

  156,265

6,565

  403,630

 

 

for the year to 31 March 2014




Ordinary

Share


Other non-

Retained earnings



share

premium

Special

distributable

Capital

Revenue



capital

account

reserve

reserve

reserves

reserve

Total


£'000s

£'000s

£'000s

£'000s

£'000s

£'000s

£'000s

Balance at 31 March 2013

21,553

7,510

204,587

11,093

196,325

1,819

  442,887

(Loss)/profit for the year

-  

 -  

 -  

 -  

(25,921)

10,255

(15,666)

Ordinary dividends paid

-  

 -  

 -  

 -  

(3,287)

(9,756)

(13,043)

Shares purchased by the Company

(229)

(3,714)

-

-

-

-

(3,943)

Balance at 31 March 2014

21,324

3,796

204,587

11,093

167,117

2,318

  410,235

 

 



 

 

 

 

 

UNAUDITED CONDENSED GROUP BALANCE SHEET

 

 

 

 

 



 UNAUDITED CONDENSED GROUP STATEMENT OF CASH FLOWS

 

 

the end of the period

 

 

 

 

 

 

 

 

 

The Directors have declared a second quarterly dividend in respect of the year ending 31 March 2015 of 1.525p per ordinary share payable on 17 December 2014 to shareholders on the register at close of business on 5 December 2014. The total cost of the dividend, which has not been accrued in the results for the six months to 30 September 2014, is £3,252,000 based on 213,243,793 ordinary shares in issue at the date of this report.

The half-yearly report will be posted to shareholders in early December 2014 and made available on the website www.uem.bm shortly. Copies may be obtained during normal business hours from Exchange House, Primrose Street, London, EC2A 2NY.

 

 

 


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