RNS Number : 1021X
Utilico Emerging Markets Limited
21 November 2017
 

Date:               21 November 2017

 

Contact:          Charles Jillings           

                        Utilico Emerging Markets Limited     

                        01372 271 486           

 

Gay Collins/Mike Foster

Montfort Communications

0203 770 7905

Utilico@montfort.london

 

 

UTILICO EMERGING MARKETS LIMITED

 

UNAUDITED STATEMENT OF RESULTS

FOR THE HALF-YEAR TO 30 SEPTEMBER 2017

 

 

Highlights of results

 

 

·    Utilico Emerging Markets Limited's ("UEM") net asset value ("NAV") total return per ordinary share was 5.7% in the six months to 30 September 2017.

·    Since inception in 2005, UEM has achieved an NAV compound total return of 12.1%.

·    Proposed increase in third and fourth quarterly dividend payments to 1.80p from 1.70p meaning the total for the year to 31 March 2018 is set to rise to 7.00p from 6.65p, an increase of 5.3%.

·    The forecast 7.00p distribution represents a yield on the closing share price of 217.50p as at 30 September 2017 of 3.2%.

 

John Rennocks, Chairman of UEM said:  "UEM is a differentiated investment proposition, offering an appealing yield in addition to growth potential through investing in listed infrastructure and utility companies in the emerging markets. The last 6 months has delivered a total return 5.7% per ordinary share and the proposed increase in dividend represents a yield of 3.2%.  Since inception, shareholders have benefited from a compound total return of 12.1% per year and notable outperformance.  Earnings per share this half year has been strong, and total revenue income well ahead of expectations. Given these factors, together with the performance of the portfolio and our attractive dividend yield, UEM's share price discount to NAV remains disappointingly and stubbornly high, averaging 10.6%.

 

Charles Jillings, Investment Manager of UEM added:  "UEM's strategy has remained unchanged over the past six months focussing on listed companies which are predominately profitable, offering long-term growth, and paying dividends. Notwithstanding the strong recent performance, valuations remain attractive as growth in profitability has largely outpaced share price appreciation in the investee companies. The encouraging prospects for underlying investee companies means the opportunity in the EM utility and infrastructure sectors remains compelling."



 

GROUP PERFORMANCE SUMMARY

 





 %Change


Half-year

Half-year

Annual

Mar -


30 Sep 17

30 Sep 16

31 Mar 17

Sep 17






Total return(1) (%)

5.7

15.5

26.2

n/a

Annual compound total return (since

inception)(2) (%)

 

12.1

 

11.8

 

12.1

 

n/a






Diluted NAV per ordinary share (pence)

250.46

226.23

241.29

3.8

Ordinary share price (pence)

217.50

206.75

214.50

1.4

Discount (%)

(13.2)

(8.6)

(11.1)

n/a

Subscription share price (pence)

28.50

21.63

27.25

4.6






Earnings per ordinary share (diluted)(pence)





- Capital

7.35

26.35

43.90

(72.1)(3)

- Revenue

6.37

5.10

7.70

24.9(3)

Total

13.72

31.45

51.60

(56.4)(3)






Dividends per ordinary share (pence)

3.40(4)

3.25

6.65

4.6(3)






Equity holders' funds (£m)

561.8

503.2

532.2

5.6

Gross assets(5) (£m)

581.8

522.8

579.0

0.5

Ordinary shares bought back (£m)

0.5

-

10.0

n/a






Cash (including overdrafts) (£m)

2.8

16.7

15.3

(81.7)

Bank debt (£m)

(20.0)

(19.7)

(46.8)

(57.3)

Net debt (£m)

(17.2)

(3.0)

(31.5)

(45.4)

Net debt gearing on gross assets (%)

3.0

0.6

5.4

n/a






Management and administration fees and

other expenses (£m)





- excluding performance fee

2.8

2.4

5.2

16.7(3)

- including performance fee

2.3(6)

8.1

14.3

(71.6)(3)






Ongoing charges figure(7) (%)





- excluding performance fee

1.0(8)

1.0(8)

1.1

n/a

- including performance fee

1.0(8)

2.2(8)

2.9

n/a

 

(1)      Total return is calculated based on NAV per ordinary share return plus dividends reinvested from the payment date and adjusted for the exercise of subscription shares

(2)      Annual compound total return is calculated based on NAV per ordinary share return, plus dividends reinvested from the payment date and adjusted for the exercise of warrants and subscription shares

(3)      Percentage change based on comparable six month period to 30 September 2016

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

(5)      Gross assets less liabilities excluding loans

(6)      See note 2 to the Half-Yearly Report regarding performance fee saving

(7)      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

(8)      For comparative purposes the figures have been annualised

 

 



 

CHAIRMAN'S STATEMENT

I am pleased to report that UEM's positive performance continued in the six months to 30 September 2017. The NAV total return for the period (adjusted for the exercise of subscription shares) was 5.7%.

 

A combination of strengthening GDP across nearly all emerging markets with weak inflation numbers has given rise to a goldilocks scenario that has been supportive of corporate earnings and valuations. These positive uplifts have been somewhat muted by Sterling's relative strength over the six months against most currencies (with the principal exception being the Euro).

 

Since inception, UEM has delivered a positive total return of 302.3% versus the MSCI Emerging Markets Index (GBP adjusted) which has returned 219.0% over the same period. This strong performance ensured that UEM has continued to receive positive industry recognition. UEM was selected as one of Money Observer's rated funds for 2017.

 

UEM started the financial year with its bank facility of £50.0m nearly fully drawn at £46.8m. This near to full utilisation reflected the strong opinion that the Investment Managers had on investment opportunities and these convictions have proven to be correct. Following a number of realisations in August and September the bank debt was reduced to £20.0m as at 30 September 2017. The major realisations include the exit of our position in China Gas Holdings Limited ("China Gas"), one of the fund's top ten holdings as at 31 March 2017. Combined with relative performance, this realisation has seen the fund's exposure to China reduce from 18.5% to 13.7% as a percentage of the total portfolio. The top twenty holdings over the six months were 57.9% of the total portfolio.

 

It should be noted that the profile of the portfolio's investee companies has remained largely unchanged. UEM continues to focus on listed companies that are profitable, predominantly offering long-term growth and are paying dividends. Notwithstanding the strong recent outperformance of UEM's portfolio, companies remain attractive as growth and profitability have largely outpaced share price appreciation. With encouraging prospects for these underlying investee companies, the long-term opportunity in the emerging markets' utility and infrastructure sectors remains positive. 

 

UEM's total revenue income was well ahead of expectations during the six months to 30 September 2017, rising 27.3% to £16.5m from £13.0m. This is a good outcome and reflects a combination of dividend increases by investee companies as a result of improved profitability, an increased portfolio weighting in companies from relatively higher dividend paying countries, such as those domiciled in Brazil and Romania, and the payment of additional special dividends by portfolio companies. It is also pleasing to see ongoing fund charges reduce to 1.0%, from a figure of 1.1% over the past two years. 

 

Earnings per share ("EPS") for the six months were 6.56p, well ahead of the prior year period of 5.14p. A dividend of 1.70p was paid for the first quarter and a dividend of 1.70p has been declared for the second quarter, an uplift of 4.6% over the prior year's first two quarters. In view of the Group's strong EPS, the Board has determined to increase dividends and, in the absence of unforeseen circumstances, intends to declare dividends of 1.80p for each of the next two quarters. This would bring the total for the year to 31 March 2018 to 7.00p, representing an uplift of 5.3% over the prior year and a yield of 3.2%.

 

Given both the performance of the portfolio for the period and our attractive dividend yield, UEM's share price discount to NAV remains disappointingly and stubbornly high, averaging 10.6%. The Board keeps this under constant review and may exercise its buyback investment policy at a discount of over 10%. However, this remains a decision for the Investment Managers. Over the ten years that the Company has exercised its investment discretion to buy back shares, 32.9m ordinary shares have been repurchased, amounting to a total of £49.9m. This includes the buyback of 5.1m shares over the 12 months to 30 September 2017, at a cost of £10.6m. This represents an average purchase price of 207.73p per share.

 

MiFID II is currently occupying considerable time and effort by all our advisors including ICM and the Board. A key aspect of MiFID II regulation is the unbundling of execution and research costs. ICM has a well-regarded research team which undertakes in-depth research and modelling that underpins the investment process. However, the Investment Managers are also reliant on a wide range of external relationships to keep them informed of changes in over 40 different markets. As such, it is important that the Investment Managers maintain these ongoing research relationships. The Board has therefore agreed with ICM that this cost, budgeted at £0.3m for next year, will continue to be borne by UEM and is therefore not expected to increase UEM's cost base.

 

Over the last 18 months UEM has paid, or accrued for, taxes of £6.8m. Given this increasing tax charge, the Board and the Investment Managers are considering options for a possible change in UEM's domicile.

 

SUBSCRIPTION SHARES

At the end of August 2017, 4.1m ordinary shares were issued following the exercise of conversion rights by subscription shareholders leaving 33.8m subscription shares in issue. The final date for exercising the subscription shares is 28 February 2018 and if the share price remains around current levels it will be significantly above the exercise price of 183.00p per share. A reminder notice will be sent to all subscription shareholders in January 2018. 

 

OUTLOOK

We have made the point for some time that markets in general remain outside normal historic parameters. From a monetary policy perspective, we remain in an environment where unconventional tools are being deployed, such as negative interest rates in several countries and quantitative easing still being implemented in both Europe and Japan.

 

From a political perspective, we continue to witness a rise in populist politics with a move away from established parties and candidates as voters seek change. Additionally, we are noting an increase in geopolitical tensions in places such as North Korea and Turkey.

These factors, individually and collectively, create uncertainty and ultimately could have negative implications for markets. These issues are a concern from an investment perspective.

 

However, despite this uncertain backdrop, it is encouraging to see that most economies are delivering positive GDP growth with low inflation and especially low wage inflation which is expected to be positive for corporates and in turn investment markets.

 

While macro and political events will influence markets, UEM's investment approach and performance is driven by individual stock selection. The Board remains confident that the Investment Managers will continue to identify attractive long-term investments in the current prevailing macroeconomic environment.

 

 

 

John Rennocks

Chairman

21 November 2017



 

 

INVESTMENT MANAGERS' REPORT

The continued robust underlying performance of emerging markets ("EM") has been translated into strengthened EM equity stock markets. While Sterling has been relatively strong over the six months, UEM shareholders have been more than compensated by rising EM. UEM's NAV total return for the six months to 30 September 2017 was 5.7%.

 

Brazil and China's investment exposure account for 39.4% of UEM's total portfolio as at 30 September 2017 (38.1% as at 31 March 2017). These two countries reflect a significant portion of EM positive performance over the past six months. The Ibovespa and Hang Seng indices were both up by 14.3% while the Brazilian Real and Hong Kong Dollar were down by 6.4% and 7.3% respectively versus Sterling. This sets UEM's NAV total return of 5.7% in context.

 

UEM's strategy has remained largely unchanged over the past six months as it continued to focus on listed companies which are profitable, predominately offering long-term growth, and paying dividends. Notwithstanding the strong recent performance, valuations remain attractive as growth in profitability has largely outpaced share price appreciation in the investee companies. The encouraging prospects for underlying investee companies means the opportunity in the EM utility and infrastructure sectors remains positive.

 

PORTFOLIO

UEM's gross assets (less liabilities excluding loans) increased from £579.0m to £581.8m over the six months to 30 September 2017. 

 

The constituents of the top twenty investments saw two changes with Energisa S.A. ("Energisa") replacing China Gas following UEM's exit from this holding and Companhia de Gas de Sao Paulo ("Comgas") replacing Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. 

 

The top ten and the top twenty percentages have largely remained the same at 35.4% (35.8% as at 31 March 2017) and 57.9% (58.2% as at 31 March 2017) respectively in the six months to 30 September 2017. Unlisted investments accounted for 3.0% (3.5% as at 31 March 2017) of the total portfolio as at 30 September 2017, again broadly unchanged over the period. The number of investments in the portfolio reduced from 92 to 83 in the six-month period. 

 

Brazil remains UEM's largest country investment and in the six months to 30 September 2017, has increased from 19.6% to 25.7% of the total portfolio, largely as a result of increased investments. 

 

UEM's top twenty holdings include five investments in Brazil and these are reviewed below. 

 

Ocean Wilsons Holdings Limited ("Ocean Wilsons") is UEM's second largest investment. In the six months to 30 June 2017, its subsidiary Wilson Sons delivered top-line growth of 14.4% as export-driven port and towage operations grew revenues by 37.0% and 7.5%, respectively. This translated to a 12.9% increase in EBITDA and a 3.0% increase in recurring net income. The investment portfolio recorded an 8.4% increase but continued to underperform the MSCI World Index, which was up by 9.4% over the same period.

 

Ocean Wilsons' share price increased by 6.9% and there was no change in UEM's shareholding in the company over the six months to 30 September 2017.

 

Rumo S.A. ("Rumo")

 

Rumo's share price increased by 41.6% over the period and UEM increased its position in Rumo by 19.5%.

 

Alupar Investimento S.A. ("Alupar") slipped one place since 31 March 2017 to fourth largest holding in UEM's portfolio. Having won several new concessions at attractive real returns in auctions held at the end of 2016 and in early 2017, Alupar is entering a new investment phase which is expected to enhance financials in the medium term. In its six months results to 30 June 2017, Alupar reported robust underlying results with revenues from energy generation up by 15.7% due to higher spot rates and ongoing inflation adjustments to its electricity transmission assets. As such, regulatory group revenue grew by 12.9% and adjusted EBITDA grew by 7.5%. Normalised earnings per unit was flat on last year as higher profit growth was offset by the higher number of units in issue following its BRL 350m capital raise in 2016 to fund growth. Dividends per unit were reduced by 59% as Alupar preserved cash for investment purposes. 

 

In the six months to 30 September 2017, UEM increased its position in Alupar by 14.0% and the share price fell by 8.1%.

 

Companhia de Gas de Sao Paulo ("Comgas") is a new entry to UEM's top twenty holdings at number eleven (although it could be considered a re-entry given it previously appeared in the top ten back in 2009). Having divested the position entirely over five years ago, UEM re-initiated a shareholding at the start of 2016 and has been steadily acquiring shares since. Comgas is the dominant gas distribution company in Sao Paulo, with 1.17m connections and a pipeline network of over 14,000km. It is regulated by the Sao Paulo State Sanitation and Energy Regulatory Agency under five-year regulatory cycles. In 2014 the planned tariff revision for 2014-2019 was postponed and subsequently Comgas has been receiving adjustments for inflation and input gas costs, whilst pursuing the formal tariff review process through the Courts.

 

In its interim results to 30 June 2017 Comgas reported piped gas volumes up by 4.1% year-on-year with strong growth evident in residential and commercial demand, partly offset by subdued industrial demand reflecting the gradual recovery in the local economy. Industrial demand accounts for over 70% of volumes delivered by Comgas. However, volume growth was offset by a 19.3% cut in effective tariffs as Comgas had accrued a net surplus in its regulatory account and this over-recovery is now being clawed back. As a result, group revenues fell by 15.2% and reported EBITDA by 41.5%. If adjusted for the over-recovery implicit in the tariff, normalised EBITDA grew 28.3% and EPS by 58.2%. Dividends per share paid in the period fell by 65% although this reflects an extraordinary dividend paid in Q1 2016, with a pay-out close to 100% of earnings. 

 

In the six months to 30 September 2017 Comgas shares appreciated by 19.0% and UEM increased its holding by 79.6%.

 

Energisa S.A. ("Energisa") is a new entrant into UEM's top twenty holdings at number nineteen, a position acquired following a public offer of new units in July 2016. Energisa is the sixth largest electricity distribution company in Brazil with 6.6m customer connections. It has 13 separate concessions across Brazil and is widely viewed as one of the highest quality operators, with a strong track record of surpassing regulatory targets and of maintaining financial discipline. Energisa's concessions are wholly regulated and two of its largest assets are set to undergo the tariff review process in 2018 which should allow a material uplift in its regulated asset base and returns. 

 

In the six months to 30 June 2017, Energisa reported volume growth of 2.3% year-on-year, driven primarily by new customer connections. However, effective tariffs increased by 9.0%, in part due to regulatory hikes implemented in July 2016 and as a result group revenues grew 11.7%. Good control of operating expenses combined with operational leverage delivered EBITDA growth of 24.1% and normalised EPS moved into profit from losses in the prior year. In addition, dividends per unit were doubled. 

 

In the six months to 30 September 2017, UEM increased its position in Energisa by 35.8% while the share price has performed well, up by 13.8%.

 

China (including Hong Kong) is UEM's second largest country investment, decreasing from 18.5% to 13.7% of the total portfolio during the period. 

 

Yuexiu Transport Infrastructure Limited ("Yuexiu") is UEM's eighth largest investment. Yuexiu delivered a solid set of interim results in the six months to 30 June 2017, despite the expiry of its Xian Expressway concession on 30 September 2016. While revenues declined by 2.7%, adjusted EBITDA and net income increased by 3.9% and 8.2% respectively, reflecting strong profitability growth in the company's underlying toll portfolio. On a like-for-like basis, toll traffic increased by 14.9% over the period. However, Yuexiu's share price decreased by 2.2% over the six months to 30 September 2017 during which UEM increased its shareholding by 17.4%.

 

Shanghai International Airport Co Ltd ("SHIA"), UEM's tenth largest holding, continued to deliver strong financial results, despite a deceleration in passenger traffic growth. In the six months to 30 June 2017, passenger throughput increased by 6.5%, led primarily by lower-yielding domestic traffic. Nevertheless, improved commercial and rental incomes contributed to a 14.7% uplift in revenue and a 20.4% increase in net income. The contribution of non-aeronautical revenues is expected to improve further as the expiry of duty-free contracts in the first half of 2018 provides an opportunity for the renegotiation of revenue sharing agreements.

 

In the period under review, SHIA's share price rose by 31.5% and there was no change in UEM's shareholding.

 

China Resources Gas Group Ltd ("CR Gas") is UEM's twelfth largest holding as at 30 September 2017, unchanged from its position as at 31 March 2017. The share price over the period has declined by 0.9%. This performance was disappointing given the backdrop of improving regulatory policy and the competitiveness of natural gas providing a boost to demand. This was evident in its interim results to 30 June 2017, as piped gas volumes grew by 21.7% year-on-year and connections were up 16.0% to 29.0m customers. Notable strong performance was seen in industrial and commercial demand, up by 29.1%. Tariff cuts partly offset the growth from gas sales, with group revenues up by 14.8% and with a shift in mix towards lower-margin gas sales versus higher-margin connections, adjusted EBITDA growth was more muted at 7.4%. Normalised EPS was up by 5.7% and the interim dividend per share was kept flat on last year. In the six months to 30 September 2017 there was no change in UEM's holding in CR Gas.

 

APT Satellite Holdings Limited ("APT"), UEM's fourteenth largest holding, reported solid interim results for the six months to 30 June 2017 when set against a backdrop of highly competitive conditions in the satellite sector. Whilst revenues were 0.8% lower than that reported in the same period last year, EBITDA grew by 1.9% and underlying net profit rose by 6.3%. APT continues to invest in two new satellites, APStar 5C and APStar 6C, both of which are expected to be launched in the first half of 2018. These will replace existing satellites nearing the end of their service life, but will also offer enhanced capacity and expanded coverage. Margins remain strong with EBITDA margins of 85.6% and net profit margins of 40.4% recorded for the six-month period to 30 June 2017. The share price however was weaker, declining by 12.3% over the six months to 30 September 2017. UEM's holding in APT was unchanged over the period.

 

Romania is UEM's third largest country investment, marginally down from 9.9% to 9.7% of the total portfolio. 

 

Transgaz S.A. ("Transgaz") moved up two places to fifth largest position in UEM's portfolio in the six months to 30 September 2017, driven predominantly by improved share price performance. The past winter weather was particularly harsh in Romania, which has resulted in a significant rise in gas demand. In the six months to 30 June 2017, transmitted gas volumes grew by 16.8% year-on-year, which was complemented by effective tariff increases of 5.0%. Whilst gas transit posted more moderate growth, overall group revenues increased by 9.9%. With good control of grid losses this translated to EBITDA growth of 33.5%. Normalised EPS grew by 42.1% and an additional RON 14.52 dividend per share has been proposed on top of the full year dividend which had equated to a 12.2% yield on the share price as at 31 March 2017. In addition to this dividend received, in the six months to 30 September 2017 Transgaz's share price appreciated by 4.5%. UEM increased its shareholding by 2.6% in the period.

 

Transelectrica S.A. ("Transelectrica") is UEM's seventh largest position as at 30 September 2017. In its interim results to 30 June 2017 billed energy volumes transmitted by the network increased by 3.5% year-on-year, driven by domestic demand. However, the Regulator has been reducing tariffs steadily to compensate for over-recovery of profits in the previous regulatory years and this was evident with effective tariffs falling by 8.6%. This resulted in group revenues, excluding balancing market services, falling by 5.0%. Operational leverage and higher unit electricity costs saw EBITDA fall by 16.9%, and normalised EPS fell by 33.6%. An additional RON 2.33 dividend per share has been proposed. In the six months to 30 September 2017, Transelectrica's share price fell by 13.6%, which was partly offset by the full year dividend which equated to a 6.8% yield on the share price as at 31 March 2017. There was no change in UEM's shareholding in Transelectrica.

 

Conpet S.A. ("Conpet")

 

In the six months to 30 September 2017 Conpet's share price decreased by 6.3% and UEM realised 1.9% of its position.

 

Argentina is UEM's fourth largest country investment, increasing from 4.8% to 7.1% of the total portfolio. 

 

Transportadora de Gas del Sur S.A. ("TGS") climbed to ninth position in the portfolio from eighteenth as at 31 March 2017 driven by strong share price performance. In the six months to 30 June 2017 natural gas volumes delivered by TGS fell by 2.9% year-on-year as higher tariffs modestly dampened demand. The effective tariffs increased by 94.6% as the company implemented regulatory adjustments necessary to achieve the allowed returns following years without any increase. Liquids production increased by 4.8%, with effective rates up 47.2% in part to reflect FX movements given this is a USD denominated operation. Combining these two business lines, group revenues increased by 64.9% and EBITDA more than doubled, up 101.8%. Normalised EPS increased by 68.2%. Although no dividends have been announced, we expect these to be re-initiated in 2018 after a long hiatus. 

 

In the six months to 30 September 2017, TGS's share price increased by 42.9% and there was no change in UEM's shareholding.

 

The Philippines represents UEM's fifth largest country investment, advancing modestly from 6.7% to 6.9% of the total portfolio. 

 

International Container Services, Inc. ("ICT") is UEM's largest holding as at 30 September 2017. In the six months to 30 June 2017, container throughput increased by 6.6%, with Asia, America and EMEA volumes recording growth rates of 5.6%, -0.4% and 30.5%, respectively. Revenues increased by 9.6% on higher yielding throughput, while cost optimisation saw EBITDA increase by 12.5%. Net income climbed 18.7%, reflecting improved profitability across new terminals and a one-off gain from the termination of a sub-concession agreement in Nigeria. With the onboarding of Victoria terminal, in Australia now complete and capex requirements diminishing, the outlook for free-cash-flow generation is positive.

 

ICT's share price increased by 15.4% over the period under review and there was no change in UEM's shareholding.

 

India is UEM's sixth largest country investment. 

 

SJVN Limited ("SJVN")

 

In the six months to 30 September 2017 SJVN's share price declined by 4.7% and UEM increased its shareholding by 6.0%.

 

Power Grid Corporation of India Limited ("Powergrid") is UEM's twentieth largest holding. In its financial year ended 31 March 2017, Powergrid continued to invest heavily in the electricity transmission network, spending over INR 300bn of capital in new lines and substations. With agreed regulated returns on these assets upon commissioning, this has resulted in revenue growth of 20.7% year-on-year and EBITDA growth of 22.2%. The business still operates with significant financial leverage and, as a result, this translated into a 22.7% increase in normalised EPS. Encouragingly, the dividend pay-out as a percentage of earnings was increased by 50% from 20% to 30% which, combined with the EPS growth, saw dividends per share increase by 88.3%. 

 

In the six months to 30 September 2017 UEM increased its shareholding in Powergrid by 12.0%. The share price experienced modest growth, increasing by 6.1% over the period.

 

Malaysia declined as a percentage of UEM's total portfolio over the six months to 30 September 2017, from 5.3% to 5.1%. 

 

Malaysia Airports Holdings Berhad ("MAHB"), UEM's sixth largest investment, continued to benefit from strong growth momentum in passenger traffic. In the six months to 30 June 2017, passenger movements across MAHB airports (excluding Turkey) increased by 12.2%, led by stronger international traffic. Meanwhile, operations in Turkey showed signs of recovery with passenger growth accelerating in the second quarter. Group revenues and EBITDA increased by 8.8% and 10.6% respectively, while net earnings recorded a five-fold increase as amortisation charges were reduced to reflect a longer concession period following the award of a 35-year extension at the start of the year. 

 

MAHB's share price increased by 22.8% and UEM sold 17.9% of its shareholding during the six months under review.

 

MyEG Services Berhad ("MyEG"), UEM's eighteenth largest holding, once again exhibited strong growth. Revenues for the financial year to 30 June 2017 grew by 32.0% compared to the prior year. EBITDA was up by 37.0% and net income rose by 39.9%. Growth continues to be driven by its foreign workers' permit renewal system as well as associated services, such as the sale of employees' health insurance and mobile telephony packages tailored for overseas workers. MyEG is looking to extend its services in the sector, including a new recruitment platform for foreign workers and the provision of hostel accommodation. MyEG also continues to grow its motor vehicle related services (driving licence issuance, car tax, insurance sales, fine payments etc.). The first phase of MyEG's long-awaited GST monitoring system is now being deployed in restaurants and bars in the Klang Valley, with the nationwide rollout expected to commence by the end of 2017. 

 

During the six months to 30 September 2017, MyEG's share price increased by 10.8%. UEM reduced its shareholding over the period by 7.5%.

 

Chile as a percentage of UEM's total portfolio was 3.9% as at 30 September 2017, increasing from 3.8% as at 31 March 2017.

 

Engie Energia Chile S.A. ("E.CL") is the sixteenth largest position in UEM. In the six months to 30 June 2017 E.CL reported electricity volumes down by 5.9% year-on-year, as a number of contracts in the unregulated sector (predominantly mining companies) ended. This was partly balanced by steady growth in the regulated market. However, this growth was more than offset by higher tariffs, mainly reflecting partial pass-through of higher commodity prices, with overall effective tariffs increasing by 18.5%. As a result, group revenues grew by 12.6%. The higher input costs were not fully factored into the regulated tariff which only adjusts every six months on a lagged basis and so adjusted EBITDA growth was limited to 4.4%. Excluding exceptional items, normalised EPS grew by 31.5% and dividends per share fell by 81.7%, as the previous year included a special pay-out on the back of a partial disposal in the TEN transmission line project. 

 

In the period under review E.CL's share price increased by 14.0% and there was no change in UEM's shareholding.

 

Thailand declined as a percentage of UEM's total portfolio over the six months to 30 September 2017, from 4.8% to 3.3%. 

 

Eastern Water Resources Development and Management PCL ("Eastwater") fell from being UEM's fourth largest holding to fifteenth on the back of relatively weak share price performance and significant shareholding realisations. One of Eastwater's largest customers, the Provincial Waterworks Authority, has greatly reduced its offtake resulting in raw water volumes falling by 7.9% year-on-year in its interim results to 30 June 2017. By comparison, tap water demand has remained steady with volumes up by 1.9%. Tariff increases were limited with effective tariffs for raw and tap water posting growth of 0.6% and -1.3% respectively. As a result, overall group revenue growth of 1.6% was sustained by the inclusion of non-operational construction revenues while EBITDA fell by 1.2%. Normalised EPS fell by 4.0%, though interim dividends per share increased by 15.0%. 

 

In the six months to 30 September 2017 UEM decreased its position in Eastwater by 37.2% while the share price increased by 6.0%.

 

PORTFOLIO GENERAL

Investment activity increased during the six months to 30 September 2017, primarily reflecting a number of significant realisations and new investments. In the period under review, investment purchases totalled £93.6m, well above the average for the UEM portfolio. Within the top twenty, UEM increased its investments in Comgas by £6.0m, Alupar by £3.3m, Energisa by £3.0m and Rumo by £2.9m contributing to the increased position in Brazil by UEM. Yuexiu was increased by £2.5m, Powergrid by £1.2m, SJVN by £0.8m and Trangaz by £0.5m. 

 

Realisations during the period totalled £102.0m, again well above the average for the UEM portfolio. Within the top twenty, UEM decreased its investments in MAHB by £4.2m and MyEG by £1.1m both contributing to the reduced UEM position in Malaysia. Eastwater was reduced by £7.9m and Conpet by £0.4m. UEM also exited China Gas for £23.1m.

 

Changes in the geographic and sector splits reflect the combination of relative market performance, currency fluctuations, investments and realisations, as outlined above. The main sector changes have seen gas and ports exposure fall from 19.4% to 17.1% and from 15.3% to 12.4% respectively. Road and rail exposure increased from 6.1% to 10.5%.

 

BANK DEBT

Bank debt decreased from £46.8m to £20.0m over the six months to 30 September 2017, reflecting net realisations in the portfolio especially in August and September. At period-end the debt facility was drawn in Hong Kong Dollars. The £50.0m multicurrency revolving facility with Scotiabank Europe is due for renewal on 27 April 2018. 

 

REVENUE RETURN

UEM's revenue income is well ahead of internal expectations for the year to 30 September 2017, rising 27.3% to £16.5m from £13.0m. This is a good result and reflects a combination of dividend increases by investee companies because of improved profitability, an increased portfolio weighting in higher dividend paying investments, such as those in Romania, an increase in the payment of special dividends by investee companies and increased leverage.

 

The management, administration and other expenses increased by 12.2% to £1.5m, mainly due to rising portfolio valuations. Finance costs rose by 40.0% to £0.1m as a result of higher average borrowings over the twelve months to 30 September 2017.

 

Taxation remains a feature of the Company and increased from £0.7m as at 30 September 2016 to £1.0m as at 30 September 2017, broadly in line with revenue increases.

 

The net result of the above was a pleasing increase in revenue profits from £10.9m at the end of the prior half year to £13.9m, up 27.7%. Similarly, revenue EPS rose by 27.6%, from 5.14p to 6.56p. 

 

CAPITAL RETURN

The portfolio gained £20.9m in the six months to 30 September 2017 reflecting the positive performance of UEM's investments. This was partly offset by losses on derivatives of £1.7m.

 

Management, administration and other expenses reduced as no performance fee was accrued during the six months. Finance costs rose by 41.1% as a result of the higher average borrowings, increasing from £0.2m as at 30 September 2016 to £0.3m as at 30 September 2017. 

 

Taxation also remains a feature on the capital account and was £1.7m, up on the prior half year's £1.3m, mainly as a continuing result of capital gains on the Brazilian portfolio.

 

The net result is a profit on the capital account of £16.1m and capital EPS of 7.57p.

 

SUBSCRIPTION SHARES

In the six months under review, the Company issued 4.1m ordinary shares following the exercise of conversion rights by subscription shareholders. As at the period end, there were 33.8m subscription shares in issue. 

 

 

Charles Jillings

ICM Investment Management Limited and ICM Limited

21 November 2017

 



 

HALF-YEARLY FINANCIAL REPORT AND RESPONSIBILITY STATEMENT

 

 

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 and Business Review section of the Annual Report and Accounts for the year ended 31 March 2017 and have not changed materially since the date of that report.

 

The principal risks faced by UEM include not achieving long-term total returns for its shareholders, the adverse impact gearing could have, the sudden withdrawal of the bank facility, loss of key management and losses due to inadequate controls of third party service providers.

 

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

 

RELATED PARTY TRANSACTIONS

Details of related party transactions in the six months to 30 September 2017 are set out in Note 14 to the Half-Yearly Report, and details of the fees paid to the Investment Managers are set out in Note 2 to the Half-Yearly Report.

 

Directors' fees were increased by approximately 2.3% with effect from 1 April 2017 to:

Chairman £44,000 per annum

Chair of Audit Committee £41,000 per annum

Directors £32,500 per annum

 

The fee entitlement of each Director is satisfied in ordinary shares of the Company, purchased in the market on behalf of, or issued to, each Director as soon as possible after each quarter end.

 

DIRECTORS' RESPONSIBILITY STATEMENT

 

 

On behalf of the Board

John Rennocks

Chairman

21 November 2017



 

UNAUDITED CONDENSED GROUP INCOME STATEMENT

 

 

 


Six months to

 30 September 2017

Six months to

 30 September 2016





Revenue

Capital

Total

Revenue

Capital

Total


return

return

return

return

return

return


£'000s

£'000s

£'000s

£'000s

£'000s

£'000s








Gains on investments

-

20,864

20,864

-

68,663

68,663

Losses on derivative instruments

-

(1,691)

(1,691)

-

(3,793)

(3,793)

Foreign exchange gains/(losses)

1

(316)

(315)

345

(437)

(92)

Investment and other income

16,545

-

16,545

12,655

-

12,655

Total income

16,546

18,857

35,403

13,000

64,433

77,433

Management and administration fees

(674)

(817)

(1,491)

(598)

(6,743)

(7,341)

Other expenses

(837)

(14)

(851)

(749)

(11)

(760)

Profit before finance costs and taxation

15,035

18,026

33,061

11,653

57,679

69,332

Finance costs

(119)

(278)

(397)

(85)

(197)

(282)

Profit before taxation

14,916

17,748

32,664

11,568

57,482

69,050

Taxation

(1,012)

(1,696)

(2,708)

(679)

(1,251)

(1,930)

Profit for the period

13,904

16,052

29,956

10,889

56,231

67,120








Earnings per ordinary share (basic) - pence

6.56

7.57

14.13

5.14

26.53

31.67

Earnings per ordinary share (diluted) - pence

6.37

7.35

13.72

5.10

26.35

31.45

 

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 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. All income is attributable to the equity holders of the Company. There are no minority interests.



UNAUDITED CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY

 

 

 

for the six months to 30 September 2017




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 2017

21,141

915

203,169

11,093

282,675

13,168

 532,161

Profit for the period

-  

-  

-  

-  

16,052

13,904

29,956

Ordinary dividends paid

-  

-  

-  

-  

-

(7,188)

(7,188)

Shares issued on exercise of subscription share rights

407

7,026

-

-

-

-

7,433

Shares purchased by the Company

(25)

(519)

-

-

-

-

(544)

Balance at 30 September 2017

21,523

7,422

203,169

11,093

298,727

19,884

 561,818

 

 

for the six months to 30 September 2016




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 2016

21,146

771

204,587

11,093

188,428

10,537

 436,562

Profit for the period

-  

-  

-  

-  

56,231

10,889

67,120

Ordinary dividends paid

-  

-  

-  

-  

-

(6,872)

(6,872)

Shares issued on exercise of subscription share rights

347

5,993

-

-

-

-

6,340

Balance at 30 September 2016

21,493

6,764

204,587

11,093

244,659

14,554

 503,150

 

 

for the year to 31 March 2017




Ordinary

Share


Other non-

Retained earnings



share

premium

Special

distributable

Capital

Revenue



capital

account

reserve

reserve

reserves

reserve

Total


£'000s

£'000s

£'000s

£'000s

£'000s

£'000s

£'000s

Balance at 31 March 2016

21,146

771

204,587

11,093

188,428

10,537

 436,562

Profit for the year

-  

 -  

 -  

 -  

94,247

16,537

110,784

Ordinary dividends paid

-  

 -  

 -  

 -  

-

(13,906)

(13,906)

Shares issued on exercise of subscription share rights

478

8,265

-

-

-

-

8,743

Shares purchased by the Company

(483)  

 (8,121)  

 (1,418)  

 -  

-

-

(10,022)

Balance at 31 March 2017

21,141

915

203,169

11,093

282,675

13,168

 532,161

 

 



 

UNAUDITED CONDENSED GROUP BALANCE SHEET

 

 

 


30 September 2017

30 September 2016

31 March 2017


£'000s

£'000s

£'000s

Non-current assets




Investments

584,717

510,065

572,264

Current assets




Other receivables

2,548

3,375

1,966

Derivative financial instruments

505

1,323

3,170

Cash and cash equivalents

7,429

16,693

15,336


10,482

21,391

20,472

Current liabilities




Bank loans

(20,031)

-

-

Other payables

(8,318)

(7,350)

(10,504)

Derivative financial instruments

(266)

-

(110)


(28,615)

(7,350)

(10,614)

Net current (liabilities)/assets

(18,133)

14,041

9,858

Total assets less current liabilities

566,584

524,106

582,122

Non-current liabilities




Bank loans

-

(19,675)

(46,816)

Deferred tax

(4,766)

(1,281)

(3,145)

Net assets

561,818

503,150

532,161





Equity attributable to equity holders




Ordinary share capital

21,523

21,493

21,141

Share premium account

7,422

6,764

915

Special reserve

203,169

204,587

203,169

Other non-distributable reserve

11,093

11,093

11,093

Capital reserves

298,727

244,659

282,675

Revenue reserve

19,884

14,554

13,168

Total attributable to equity holders

561,818

503,150

532,161





Net asset value per ordinary share




Basic - pence

261.04

234.10

251.72

Diluted - pence

250.46

226.23

241.29

 

 



 UNAUDITED CONDENSED GROUP STATEMENT OF CASH FLOWS

 


Six months to

30 September 2017

Six months to

30 September 2016

Year to

31 March 2017


£'000s

£'000s

£'000s

Cash flows from operating activities

3,346

8,734

12,487

Investing activities:




Purchases of investments

(91,732)

(70,314)

(159,338)

Sales of investments

101,572

67,058

141,232

Purchases of derivatives

(926)

(3,234)

(9,014)

Sales of derivatives

2,056

1,454

2,879

Cash flows from investing activities

10,970

(5,036)

(24,241)

Cash flows before financing

activities

14,316

3,698

(11,754)

Financing activities:




Ordinary dividends paid

(7,188)

(6,872)

(13,906)

Movements from loans

(26,400)

55

26,858

Cost of ordinary shares purchased

-

-

(10,022)

Proceeds from issue of shares

7,433

6,340

8,743

Cash flows from financing activities

(26,155)

(477)

11,673





Net movement in cash and cash

equivalents

(11,839)

3,221

(81)

Cash and cash equivalents at the

beginning of the period

15,336

12,609

12,609

Effect of movement in foreign

exchange

(682)

863

2,808

Cash and cash equivalents at

the end of the period

2,815

16,693

15,336

 

 

Comprised of:




Cash

7,429

16,693

15,336

Bank overdraft

(4,614)

-

-

Total

2,815

16,693

15,336

 

 

 

 

NOTES

The Directors have declared a second quarterly dividend in respect of the year ending 31 March 2018 of 1.700p per ordinary share payable on 20 December 2017 to shareholders on the register at close of business on 8 December 2017. The total cost of the dividend, which has not been accrued in the results for the six months to 30 September 2017, is £3,642,000 based on 214,226,276 ordinary shares in issue at the date of this report.

The half-yearly report will be posted to shareholders in late November 2017.  It will also be submitted to the National Storage Mechanism and will shortly be available for inspection at http://www.morningstar.co.uk/uk/NSM and on the Company's website www.uem.limited. Copies may be obtained during normal business hours from Exchange House, Primrose Street, London, EC2A 2NY.

Legal Entity Identifier: 213800UYZLSYB84N2H09

 

 


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