TIDMUEM
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 (GBPm) 561.8 503.2 532.2 5.6
Gross assets(5) (GBPm) 581.8 522.8 579.0 0.5
Ordinary shares bought back (GBPm) 0.5 - 10.0 n/a
------------
Cash (including overdrafts) (GBPm) 2.8 16.7 15.3 (81.7)
Bank debt (GBPm) (20.0) (19.7) (46.8) (57.3)
------------------------------------------------ ------------ ------------ ------------ ------------
Net debt (GBPm) (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 (GBPm)
- 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
GBP50.0m nearly fully drawn at GBP46.8m. 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 GBP20.0m 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 GBP16.5m from
GBP13.0m. 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 GBP49.9m. This includes the buyback of 5.1m shares over the 12
months to 30 September 2017, at a cost of GBP10.6m. 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 GBP0.3m
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
GBP6.8m. 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 GBP579.0m to GBP581.8m 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"), UEM's third largest investment, posted a
strong set of results for the six months to 30 June 2017. Transport
volumes increased by 6.8%, benefitting from 7.6% growth in
agricultural products. While port loading volumes declined by 9.0%,
mainly due to sugar transportation and commercialisation down from
the previous year, the pace of decline decelerated in the second
quarter. Net revenues over the period increased by 5.6%, reflecting
higher average yields, while EBITDA growth measured a pleasing
18.1% as good cost management resulted in margins expanding 4.8pp
to 45.3%. While overall leverage saw some improvement at 4.3 times
net debt/EBITDA as at 30 June 2017, the company initiated a circa.
BRL 2.6bn (USD 800m) equity raise towards the end of September 2017
in order to accelerate the transition to a more optimal capital
structure.
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") remained in thirteenth position in UEM's
portfolio. In the six months to 30 June 2017 Conpet reported oil
transport volume declines of 7.1%. This was driven by two notable
factors, a 3.8% decline in domestic volumes, reflecting ongoing
reductions in output from Romanian oil fields due to falling
investment, and an 11.1% drop in imports following major
maintenance at the Petrotel refinery. This decline was mostly
offset by effective tariffs increasing by 6.3%, such that group
revenues were flat with growth of just 0.2%. Nonetheless, the
company continued to demonstrate strong cost control such that
EBITDA grew by 8.1% and normalised EPS 9.0%. Conpet continues to
accumulate excess cash on its balance sheet, but following the
payment of dividends amounting to a 15.9% yield on the share price
as at 31 March 2017, an additional dividend of RON 9.819 per share
has been proposed.
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") is UEM's seventeenth largest holding. In
its financial year to 31 March 2017 SJVN reported a decline in
energy generation of 3.2% year-on-year as hydrology normalised
following an exceptionally strong prior year. Of note, SJVN's
flagship 1.5GW Nathpa Jhakri hydro plant saw output fall by 3.6% as
plant load factor eased back to 53.7% from record levels. This was
only partly offset by an overall effective tariff increase of 1.1%
and including other operating income, group revenues fell by 2.3%.
With this decline exacerbated by increases to wages resulting in
higher costs, EBITDA fell by 4.6%, although normalised EPS
increased by 23.5%, in part due to the recognition of additional
income from late payment charges. With a strong net cash balance
sheet, SJVN increased dividends per share by 257%, the majority of
which was received by UEM in its prior financial year.
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 GBP93.6m, well above the average for
the UEM portfolio. Within the top twenty, UEM increased its
investments in Comgas by GBP6.0m, Alupar by GBP3.3m, Energisa by
GBP3.0m and Rumo by GBP2.9m contributing to the increased position
in Brazil by UEM. Yuexiu was increased by GBP2.5m, Powergrid by
GBP1.2m, SJVN by GBP0.8m and Trangaz by GBP0.5m.
Realisations during the period totalled GBP102.0m, again well
above the average for the UEM portfolio. Within the top twenty, UEM
decreased its investments in MAHB by GBP4.2m and MyEG by GBP1.1m
both contributing to the reduced UEM position in Malaysia.
Eastwater was reduced by GBP7.9m and Conpet by GBP0.4m. UEM also
exited China Gas for GBP23.1m.
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 GBP46.8m to GBP20.0m 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 GBP50.0m
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 GBP16.5m from
GBP13.0m. 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 GBP1.5m, mainly due to rising portfolio valuations.
Finance costs rose by 40.0% to GBP0.1m 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
GBP0.7m as at 30 September 2016 to GBP1.0m 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 GBP10.9m at the end of the prior half year to
GBP13.9m, up 27.7%. Similarly, revenue EPS rose by 27.6%, from
5.14p to 6.56p.
CAPITAL RETURN
The portfolio gained GBP20.9m 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 GBP1.7m.
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 GBP0.2m as at 30 September 2016 to GBP0.3m as at 30
September 2017.
Taxation also remains a feature on the capital account and was
GBP1.7m, up on the prior half year's GBP1.3m, mainly as a
continuing result of capital gains on the Brazilian portfolio.
The net result is a profit on the capital account of GBP16.1m
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
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 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 GBP44,000 per annum
Chair of Audit Committee GBP41,000 per annum
Directors GBP32,500 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
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 2017 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 Group;
-- The half-yearly financial 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 2017
UNAUDITED CONDENSED GROUP INCOME STATEMENT
Six months to Six months to
30 September 2017 30 September 2016
Revenue Capital Total Revenue Capital Total
return return return return return return
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'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
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'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
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'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
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'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
GBP'000s GBP'000s GBP'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 Six months to Year to
30 September 2017 30 September 2016 31 March 2017
GBP'000s GBP'000s GBP'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 GBP3,642,000 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
This information is provided by RNS
The company news service from the London Stock Exchange
END
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