Share Name Share Symbol Market Type Share ISIN Share Description
Utilico Emerging Markets LSE:UEM London Ordinary Share BMG931151069 ORD 10P (DI)
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  -1.25p -0.57% 218.25p 218.00p 220.75p 219.25p 218.00p 219.25p 167,324 14:53:12
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Equity Investment Instruments 20.6 17.5 7.8 28.0 463.67

Utilico Emerging Markets Limited Annual Financial Report

19/06/2017 7:00am

UK Regulatory (RNS & others)


TIDMUEM

RNS Number : 3709I

Utilico Emerging Markets Limited

19 June 2017

   Date:                      19 June 2017 
   Contact:                 Charles Jillings 

ICM Investment Management Limited

01372 271 486

Robert Finlay

Stockdale Securities

0207 601 6100

Utilico Emerging Markets Limited

Statement of Results

for the year to 31 March 2017

HIGHLIGHTS OF RESULTS

   --      Net asset value ("NAV") total return of 26.2% 
   --      Diluted NAV of 241.29p per ordinary share, up 19.1% 
   --      Revenue earnings per ordinary share (diluted) of 7.70p 
   --      Dividends per ordinary share increased to 6.65p 

GROUP PERFORMANCE SUMMARY

 
 
                                                     31 March     31 March     Change % 
                                                         2017         2016      2017/16 
------------------------------------------------  -----------  -----------  ----------- 
   Total return(1) (annual) (%)                          26.2          1.7          n/a 
   Annual compound total return(2) 
    (since inception) (%)                                12.1         10.9          n/a 
------------------------------------------------  -----------  -----------  ----------- 
 
   Diluted NAV per ordinary share (pence)              241.29       202.52         19.1 
   Ordinary share price (pence)                        214.50       178.50         20.2 
   Discount (%)                                        (11.1)       (11.9)          n/a 
   Subscription share price (pence)                     27.25        17.25         58.0 
------------------------------------------------  -----------  -----------  ----------- 
 
   Earnings per ordinary share (diluted)(pence) 
   - Capital                                            43.90       (5.50)          n/a 
   - Revenue                                             7.70         8.23        (6.4) 
------------------------------------------------  -----------  -----------  ----------- 
   Total (pence)                                        51.60         2.73          n/a 
------------------------------------------------  -----------  -----------  ----------- 
 
   Dividends per ordinary share (pence) 
   - 1st Quarter                                        1.625        1.525          6.6 
   - 2nd Quarter                                        1.625        1.625          0.0 
   - 3rd Quarter                                        1.700        1.625          4.6 
   - 4th Quarter(3)                                     1.700        1.625          4.6 
------------------------------------------------  -----------  -----------  ----------- 
   Total (pence)                                        6.650        6.400          3.9 
------------------------------------------------  -----------  -----------  ----------- 
 
   Equity holders' funds (GBPm)                         532.2        436.6         21.9 
   Gross assets(4)(GBPm)                                579.0        455.2         27.2 
   Ordinary shares bought back (GBPm)                    10.0          3.0        233.3 
------------------------------------------------  -----------  -----------  ----------- 
 
   Cash (GBPm)                                           15.3         12.6         21.4 
   Bank debt (GBPm)                                    (46.8)       (18.7)        150.3 
------------------------------------------------  -----------  -----------  ----------- 
   Net debt (GBPm)                                     (31.5)        (6.1)        416.4 
   Net debt gearing on gross assets (%)                   5.4          1.3          n/a 
------------------------------------------------  -----------  -----------  ----------- 
 
   Management and administration fees 
    and other expenses (GBPm) 
   - excluding performance fee                            5.2          4.5         15.6 
   - including performance fee                           14.3          4.5        217.8 
------------------------------------------------  -----------  -----------  ----------- 
 
   Ongoing charges figure(5)(%) 
   - excluding performance fee                            1.1          1.1          n/a 
   - including performance fee                            2.9          1.1          n/a 
------------------------------------------------  -----------  -----------  ----------- 
 

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

   (3)         The fourth quarterly dividend has not been included as a liability in the accounts 
   (4)         Gross assets less liabilities excluding loans 

(5) Expressed as 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

CHAIRMAN'S STATEMENT

I am pleased to report that UEM's positive performance continued in the second half of the financial year, resulting in a NAV total return (adjusted for the exercise of subscription shares) of 26.2% for the full year to 31 March 2017.

The combination of robust underlying share prices and relative strengthening of emerging market currencies continued in the second half of the year and has resulted in a strong performance in UEM's investments. The impact of the Brexit vote and consequent negative effect on Sterling in the first half year has been positive for UK domestic emerging market investors, including UK based UEM shareholders.

UEM's NAV performance over the past five years was well ahead of the MSCI Emerging Markets Total Return Index (GBP adjusted), achieving a positive total return (adjusted for the exercise of warrants and subscription shares) of 68.5% versus the Index of 32.7%. Since inception, UEM has delivered a positive total return of 280.8% versus the Index which saw a positive total return of 194.8% over the same period. This strong performance continues to ensure that UEM receives strong industry recognition. UEM was selected as one of Money Observer's rated funds for 2017.

UEM's portfolio allocation shifted somewhat in the second half of the year due to several factors. Net debt was largely unchanged in the six months to 30 September 2016, decreasing from GBP6.1m to GBP3.0m. In the second half of the year, net debt increased to GBP31.5m. Adding back cash at year end, which was short term in nature, UEM was nearly fully drawn on its GBP50.0m bank facilities at GBP46.8m. This drawdown reflected the strong conviction the Investment Managers had on investment opportunities. As a result of increasing investments in Romania, Latam and India, the profile of UEM's portfolio has seen a shift. The portfolio weightings of several of UEM's top twenty positions have been reduced as new investments outside the top twenty were made. The new investments, together with strong portfolio gains, have resulted in UEM's overall Latam exposure increasing to 34.8% of the portfolio from 20.2% as at 31 March 2016 and an overall decrease in the top ten holdings weighting from 47.2% of the portfolio to 35.8% over the year to 31 March 2017.

It should be noted that the profile of the portfolio's investee companies remains largely unchanged. UEM continues to focus on listed companies that are predominantly offering long-term growth, are profitable and are paying dividends. Notwithstanding the strong recent performance, valuations of these companies remain attractive as growth and profitability has often 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 undimmed.

Emerging market economies in general sustained relatively robust growth in the year to 31 December 2016. China's economy expanded by 6.7%. India's economy, driven in part by the reform process being pursued by the Modi led government, saw its GDP expand by 6.8%. Brazil remains a laggard, although its economy looks set to recover modestly in 2017. The indices and currencies of most major markets in which UEM invests were in positive territory for the period, with the Brazil Ibovespa Index being the outstanding contributor, up by 69.7% in Sterling terms.

UEM's revenue income decreased by 3.2% during the twelve months to 31 March 2017 to GBP20.6m from GBP21.3m. However, this is a very good result, as the prior year had benefitted from Asia Satellite Telecommunications Holdings Limited ("Asiasat") distributing a significant portion of its revenue reserves by way of a special dividend, with UEM receiving a payment of GBP7.4m. Excluding the impact of Asiasat's special dividend in both years, revenue income increased by 48.2%. This reflects a combination of dividend increases by investee companies due to improved profitability, the increased portfolio weighting in higher dividend paying investments such as those in Romania and Brazil, as well as Sterling weakness. Ongoing charges, excluding the performance fee, were 1.1%, in line with the last two years. As a result of the strong NAV growth over the period of GBP95.6m, a performance fee arose and total charges including the performance fee increased to 2.9%.

It is pleasing to report, earlier than we had expected, a return to normal covered dividends for the year, excluding Asiasat's special dividend. Group revenue earnings per share ("EPS") for the year of 7.70p comfortably covered the dividends of 6.65p. The Group's cumulative retained revenue reserves increased to GBP13.2m (31 March 2016: GBP10.5m), equivalent to 6.23p per share. The dividends of 6.65p represent an uplift of 3.9% on the prior year.

Given both the strong performance of the portfolio for the period and attractive dividend yield of 3.1%, UEM's share price discount to NAV remains disappointingly and stubbornly high, averaging 11.0% over the year. The Board keeps this under constant review and may exercise a buyback policy at a discount of over 10%. However, this remains an investment decision for the Investment Managers. Over the ten years the Company has exercised its investment discretion to buyback shares from time to time and has bought back 20.1m ordinary shares amounting to GBP33.3m. This includes 4.8m shares bought back in the past year at a cost of GBP10.0m, representing an average price of 207.72p per share.

In September 2015 UEM announced and the shareholders approved a one-for-five bonus issue of subscription shares. This resulted in 42.6m subscription shares being issued on 24 September 2015. In the year to 31 March 2017 4.8m of the subscription shares were exercised, raising GBP8.7m for UEM.

Amanda Marsh has retired as our company secretary. Amanda brought both efficiency and attention to detail but also a wry humour that we will all miss. On behalf of the Board and shareholders, I would like to thank Amanda for her strong input as company secretary. I am pleased to note Alastair Moreton has joined ICM as the new company secretary. Alastair was at Stockdale Securities where he was head of the Investment Trust Corporate Finance team and had been responsible for our corporate account. He brings a wealth of experience and we look forward to his contribution to UEM.

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 deployed, such as negative interest rates in a number of countries and Quantitative Easing ("QE") is 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. We are also witnessing an increase in geopolitical tensions in places such as North Korea and Turkey.

All of these factors individually and collectively create uncertainty and ultimately could lead to negative implications for markets. As such these issues are a concern from an investment perspective.

However, despite this uncertain backdrop, it is encouraging to see that most economies, including those in emerging markets, are still delivering positive GDP growth with low inflation which should be positive for markets. Furthermore, we continue to see positive reform policies being implemented in many emerging markets, including India, Argentina and Brazil.

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 find attractive long term investments in the prevailing macroeconomic environment.

John Rennocks

Chairman

16 June 2017

INVESTMENT MANAGER'S REPORT

The year to 31 March 2017, particularly in the second half, was positive for emerging markets ("EM"). Most EM indices and currencies showed positive returns versus Sterling. Brazil in particular had strong returns with the Ibovespa Index up by 29.8% and the Brazilian Real up by 31.7% against Sterling.

UEM's portfolio allocation shifted somewhat in the second half of the year due to several factors. Net debt was largely unchanged in the six months to 30 September 2016, decreasing from GBP6.1m to GBP3.0m. But in the second half of the year, net debt increased to GBP31.5m. Excluding cash at year end, which was short term in nature, UEM was nearly fully drawn on its GBP50.0m bank facilities at GBP46.8m. This reflected our strong conviction in a number of investment opportunities, particularly in Romania, Latam and India. The portfolio weightings of several of UEM's top twenty positions were reduced as new investments, outside the top twenty, were made. The new investments, together with strong portfolio gains, have resulted in UEM's overall Latam exposure increasing to 34.8% from 20.2% and an overall decrease in the top ten holdings weighting from 47.2% of the portfolio to 35.8% over the year to 31 March 2017.

PORTFOLIO

UEM's gross assets less liabilities (excluding loans) increased by GBP123.8m, from GBP455.2m to GBP579.0m over the year to 31 March 2017. This was mainly due to gains of GBP94.2m on the capital account and increased bank borrowings of GBP28.1m.

Some of the constituents of the top twenty portfolio positions have changed over the year. Rumo S.A. ("Rumo"), a Brazilian rail transport operator and a new investment for UEM, is now the ninth largest individual position in the portfolio. Transportadora de Gas del Sur S.A. ("TGS"), an Argentinian gas distribution company, also a new investment, is the eighteenth largest position as at 31 March 2017. Power Grid Corporation of India Limited ("Powergrid"), India's biggest grid operator, an existing investment, is now the nineteenth largest position and Grupo Aeroportuario del Centro Norte, S.A.B de C.V ("OMA"), a Mexican regional airport operator, an existing investment, climbed to twentieth position in the portfolio.

Gasco S.A., which was the eighth largest position in the portfolio last year, was subject to a tender offer during the year at a premium and the Investment Managers took the decision to exit the holding. The Egyptian Satellite Company's share price decreased by 41.2% over the year; as a result, the investment fell from seventeenth to thirty-fifth position in the portfolio. Metro Pacific Investments Corporation's share price rose by 2.9%, but not enough to remain in the top twenty, falling from eighteenth to twenty-second position in the portfolio. Asiasat's share price fell by 9.0% and, as a result, the investment fell from nineteenth to twenty-seventh position in the portfolio.

Brazil is now UEM's largest country exposure, increasing from 9.8% to 19.6% of the portfolio.

Ocean Wilsons Holdings Limited ("Ocean Wilsons") had a solid share price performance, up by 36.5% over the period, reflecting the general positive sentiment of the Brazilian equity market. Ocean Wilsons owns 58.3% of Wilson Sons, a Brazilian port and shipping service provider. Wilson Sons continued to see a challenging operating environment, given the difficult macro environment in which it is operating. Volumes at its two container terminals, Tecon Rio Grande and Tecon Salvador, were marginally down in 2016 by 0.5%. The company's towage business was down, with the number of harbour manoeuvres flat at 0.4%. Trading at the shipyard, logistics and in the offshore oil and gas business remained weak given the downturn in the Brazilian oil and gas sector and the weak import environment. Ocean Wilson Investment Limited ("OWIL"), Ocean Wilsons' 100% owned investment portfolio, saw funds under management fall by 2.3% to USD238.9m, with a modest return of 0.3% for the year to 31 December 2016. Given that global equity markets have risen by 7.9% and emerging markets by 11.2%, this result was disappointing. Over the year to 31 December 2016, revenues at Ocean Wilsons were down by 10.1%, with adjusted EBITDA down by 7.1% and normalised net income down by 66.7%. Dividends per share remained constant at USD0.63 per share.

There was no change to UEM's holding in Ocean Wilsons during the year to 31 March 2017.

Alupar Investimento S.A.'s ("Alupar") share price increased by 48.0% in the year to 31 March 2017. The past twelve months have been a particularly active period for Alupar as the regulator improved the rates of return on offer for new transmission line concessions. Alupar won five new 30-year concessions at auction, with a total investment requirement of BRL2.5bn at estimated real returns of over 12%, as well as one additional new concession in Colombia. To help fund these new projects, Alupar undertook a BRL350m capital increase at BRL12.30 per unit and disposed of its 51% stake in Transchile for USD58.9m. The lagged effect of inflation adjustments applied to its operating transmission asset revenues, combined with a 30.1% growth in energy volumes following the commissioning of the Energia dos Ventos wind farm and the Risaralda hydro plant, resulted in group revenues increasing by 4.0% in its financial year ended 31 December 2016. EBITDA growth was steady, posting a 9.6% increase, while normalised earnings grew by 15.8%. Dividends per share fell by 34.8%, reflecting both the circa 20% increase in the number of shares outstanding, as well as the company's desire to retain cash to fund investment in the new concessions. In the year to 31 March 2017 UEM increased its position in the company by 27.1%.

Rumo is a new investment for UEM and is Brazil's largest independent rail-based logistics operator. Rumo's share price increased by 155.4% in the year to 31 March 2017, partly driven by the positive equity market sentiment in Brazil during 2016, but mainly due to a successful BRL2.6bn equity raise in April 2016 which has refinanced its balance sheet and enabled new management to start executing its BRL8.5bn capex plan. With the new funding, the company has been able to improve the operational efficiency of the railway network to ensure that it is able to expand capacity. On the back of the capital raise, the new management team set out clear financial targets, indicating that EBITDA by 2020 will be BRL4.5bn. To date, management has delivered on its plans, which is helping the stock price rerate. Financial performance for the year to 31 December 2016 saw revenues increase by 4.4% despite a 10.3% decline in rail volumes and a 20.2% decline in container volumes, due to lower than expected corn volumes. EBITDA was up by 5.8%, with normalised net income still negative given higher depreciation and financial costs due to the implementation of its capex plan. UEM also has a GBP4.6m investment in Cosan Logistics, which owns 26.6% of Rumo. As at 31 March 2017, Cosan Logistics traded at a 25.7% discount to Rumo.

China (including Hong Kong) is UEM's second largest country exposure at 18.5%, decreasing during the year from 26.3% of the portfolio.

China Gas Holdings Limited's ("China Gas") share price increased by 9.6% in the year to 31 March 2017. Chinese gas distribution companies have continued to suffer from an uncertain regulatory backdrop as the market stutters towards liberalisation. A key issue has been the setting of the input gas price by the oil majors at levels which, for much of the year, were uncompetitive against fuel oil. This was surprising as it runs contrary to the Chinese government's commitment to increase the proportion of natural gas in the energy matrix in order to reduce pollution. Nevertheless, China Gas has proven resilient, growing its customer base by 18.1% to 16.2m connections in the six months to 30 September 2016. This helped to deliver piped gas volume growth of 13.3%, while LPG volumes also grew by 25.7%. The financial impact of these strong operational figures was dampened by the lower tariffs reflecting the drop in commodity prices, resulting in group revenues falling by 6.9%. Lower cost of goods sold helped mitigate this decline with EBITDA increasing by 2.9%, though normalised net income still fell by 3.8%. Interim dividends were unchanged on the previous year. In the year ended 31 March 2017 UEM decreased its position in China Gas by 42.0%.

APT Satellite Holdings Limited's ("APT") share price decreased by 32.1% in the period, echoing the poor share price performances seen in the satellite sector globally due to concerns about excess capacity and technological changes. The pricing of bandwidth for data connectivity has fallen significantly in the past couple of years due to an increase in the number and capacity capabilities of satellites, lower government demand due to reductions in overseas troop deployments and competition from 3G and 4G mobile services as they reach more remote areas. In contrast, the television broadcast market remains stable and demand is growing from new applications such as in-flight Wi-Fi and connectivity to mobile towers.

For the year to 31 December 2016, the company yielded a modest growth with revenues advancing by 3.0%. The company launched a new satellite, Apstar 9, late in 2015 and migrated customers from a satellite that had been temporarily leased. The absence of rental costs in 2016 increased the company's EBITDA margin from 77.2% in 2015 to 82.5% in 2016, resulting in a rise in EBITDA of 11.1%. However, the depreciation on the new satellite and lower interest income resulted in a 4.0% decline in reported net profit. During the year, UEM increased its shareholding in APT by 2.5%.

Yuexiu Transport Infrastructure Limited ("Yuexiu") had a 14.8% increase in its share price for the year to 31 March 2017. During its financial year to 31 December 2016, Yuexiu saw continued momentum in traffic on its toll road operations, despite the concession on one of its roads, Xian Expressway, expiring on 30 September 2016 and being transferred to the local government. Total consolidated traffic growth for the period, excluding Xian Expressway, was up by 13.8%, with toll revenues increasing by 13.4%. Adjusted EBITDA increased ahead of revenues by 18.2%, whilst adjusted net income increased by 10.5%. Yuexiu remains a pure toll road operator having completed the disposal of its 51% stake in Wuzhou Chishui Port in Guangxi. At the end of 2016, Yuexiu announced that it had signed an agreement to subscribe for up to RMB340m in shares in Yuexiu Financial, which is engaged in financial services.

UEM increased its shareholding in Yuexiu by 41.7% in the period under review.

Although exposed to the same wider sector dynamics of the Chinese gas market as China Gas, China Resources Gas Group Ltd ("CR Gas") delivered a relatively strong performance, with its share price up by 24.2% in the year to 31 March 2017. As at 31 December 2016 CR Gas had 227 city gas concessions and over the financial period ended 31 December 2016 the company grew its customer base by 11.4% to 26.5m connections. In comparison to China Gas, residential piped gas penetration in its concession areas remains lower at 46.0% (China Gas at 51.8% as at 30 September 2016). In its financial year ended 31 December 2016 CR Gas reported natural gas volume growth of 9.1%, which was fully offset by price declines, resulting in group revenue growth of just 0.3%. However, CR Gas demonstrated excellent cost control, which helped adjusted EBITDA to grow by 17.1% and normalised net income to increase by 15.9%. With the company delivering on its target to increase payout to 30% of earnings, dividends per share were increased by 36.4%. In the year ended 31 March 2017 UEM increased its holding in CR Gas by 0.7%.

Shanghai International Airport Co Ltd ("Shanghai Airport") saw a marginal decrease in its share price of 0.4% over the year to 31 March 2017 despite solid 2016 financial and operational results. Over its financial year to 31 December 2016, Shanghai Airport saw passenger numbers increase by 9.8%, which continues to be driven by the increase in average Chinese incomes, additional flights being offered by low cost carriers, as well as the growing appetite for travel from the Chinese population. However, the current flight restrictions at Shanghai Airport on ad hoc flights, chartered flights and additional routes issued by The Civil Aviation Administration of China in May 2016 due to an on-time departure rate of below 70% has hindered the airport from fully capturing its total passenger growth potential. For the financial year to 31 December 2016, revenues increased in line with passenger growth at 10.6%, adjusted EBITDA increased by 12.1% and net income was up by 13.3%.

In the year under review UEM increased its shareholding in Shanghai Airport by 14.6%.

Romania climbed from the fourth to third largest country exposure in the portfolio, increasing from 8.8% to 9.9%.

Transelectrica S.A.'s ("Transelectrica") shares increased by 13.4% in the year to 31 March 2017. In its financial year to 31 December 2016, domestic demand for electricity remained steady with growth at 1.2%, but with net exports falling by 25%, domestic production fell by 1.7%. With grid losses slightly improved at 2.3%, total volume billed by Transelectrica increased by 2.0%. As the company had over-recovered profits allowed by the regulatory regime in the previous year, tariffs were cut again in mid-2016 by an average of 9.0% and as a result effective tariffs fell by 9.4%. As such, group revenues fell by 7.4%, excluding balancing market services which are profit-neutral to the company. Wage pressures and operating leverage resulted in EBITDA falling by 10.9% and, with a higher effective tax rate, normalised earnings fell by 23.7%.

Similar to other Romanian companies that UEM has invested in, Transelectrica maintains a net cash position and continues to accrue excess cash reserves on its balance sheet. The Investment Managers have for several years sought a higher payout of retained earnings from these companies. It is pleasing to report that the new Romanian government has now proposed that all state-owned entities should pay higher dividends to support its budgetary process. As such, Transelectrica increased its payout to 90% of distributable earnings. This has meant that the impact of the decline in earnings was tempered modestly, with dividends per share down by 15%. In the year to 31 March 2017 UEM increased its position in Transelectrica by 16.8%.

Transgaz S.A.'s ("Transgaz") share price increased by 41.9% in the year to 31 March 2017. During the year Transgaz secured a financing agreement with the EU for a new 480km pipeline connecting Bulgaria and Hungary, which is scheduled to be commissioned in 2019. This is an important step towards increasing the regulated asset base and boosting longer-term returns for the company, which could be further enhanced if the Black Sea gas field discoveries are developed into producing assets. In its financial year to 31 December 2016 domestic gas volumes transmitted fell by 1.8%, while losses remained steady at just 0.7%. With the regulator increasing the fixed component of the tariff to 60%, reducing the volumetric (i.e. seasonality) component to 40%, effective tariffs for Transgaz increased by 10.0%. As a result, domestic transport revenues grew by 8.0% which, combined with gas transit revenues which were up by 3.1%, delivered group revenue growth of 8.6%. With high operating leverage, EBITDA increased by 16.4% and normalised earnings by 21.9%. Dividends per share increased by 67.8% as the company's main shareholder sought to increase the dividend payout to 90% of earnings. In the year to 31 March 2017 UEM increased its position in Transgaz by 11.4%.

Conpet S.A.'s ("Conpet") share price increased by 28.5% in the year to 31 March 2017. As a consequence of the lower oil price, Romania's main producer, OMV Petrom, has significantly reduced investments in new wells causing a decline in oil production over the past year. As a result, in its financial year to 31 December 2016, Conpet reported a 5.6% decline in domestic oil transport volume growth, which was more than offset by a 10.0% increase in imports, bringing total volume growth to 1.3%. Following the implementation of relatively small adjustments to domestic tariffs and more significant hikes in the lower import tariffs, overall effective tariffs only fell by 1.3%, resulting in group revenues being broadly unchanged on last year. Lower transport costs enabled EBITDA to grow by 3.4%, which was accentuated at the bottom line by reduced depreciation, with normalised earnings growth of 18.5%. With no debt and cash amounting to over 40% of the market capitalisation accruing on the balance sheet, the company finally looks set to return some of this excess cash to shareholders. It announced a 10.5% increase in its ordinary dividend, as well as a special dividend, taking the total dividend increase to 127%. In the year to 31 March 2017 UEM increased its holding in Conpet by 8.3%.

UEM's exposure in The Philippines increased from 6.3% to 6.7% of the portfolio and is now the fifth largest country exposure.

International Container Terminal Services, Inc's ("ICT") share price increased by 34.5% in the year to 31 March 2017. For its financial year to 31 December 2016, ICT had a solid performance with consolidated volumes up by 11.7%. This was driven by an 11.2% increase in Asian volumes due to the ramp-up of its Pakistan terminals and improved trading activity in Manila; a 20.0% increase in volumes from EMEA due to the contribution from a newly acquired terminal in Iraq; and a 9.7% increase in volumes from the Americas boosted by new terminals in Mexico and Honduras. Total revenue growth for the period was up by 7.1%, not fully reflecting the growth in container volumes as yield per container box was down by USD5 to USD130. Of this, USD3 was due to foreign exchange weakness and USD2 due to less favourable volume mix. Adjusted EBITDA was up by 16.3% due to stringent cost control by management and lower start-up costs as new terminals came online. As a result, operational leverage is beginning to flow through. Normalised net income was up by 16.7%. ICT's management has indicated that it is slowly changing its investment philosophy from 'growth' to 'growth with dividends' as it looks to fully utilise its existing operations and to invest only in brownfield projects.

UEM's shareholding in ICT increased by 1.5% in the year to 31 March 2017.

Other Latin America exposure (which includes Mexico) increased from 3.9% to 6.6% of the portfolio and is now the portfolio's sixth largest geographic exposure.

OMA's share price over the period only increased by 1.6% despite the Mexican airport operator reporting solid 2016 financial results. In line with the wider Mexican markets, OMA's share price was unfortunately affected by the election in the US of Donald Trump whose threats of 'ripping up' NAFTA negatively impacted investors' sentiment. Operationally, its financial year ended 31 December 2016 was robust, with total revenues for OMA up 23.1%, with aeronautical revenues increasing by 27.7%, driven by a 10.9% increase in passengers in addition to a tariff increase in 2Q16. Non-aeronautical revenues over the period increased by 19.7%, benefiting from the growth in passenger numbers as well as from commercial diversification by the company. Adjusted EBITDA was up by 35.7%, with EBITDA margin expanding by 470bps to 63.8%. Normalised net income was up by 48.1%. Given the increase in average wages in Mexico, along with the increased airline capacity provided by the low-cost carriers, flight penetration is expected to continue to rise from its low base over the short term, providing a positive outlook for the sector.

In the period under review UEM increased its shareholding in OMA by 38.8%.

India's country exposure increased from 4.6% to 6.1% of the portfolio over the year to 31 March 2017.

SJVN Limited's ("SJVN") share price increased by 17.5% in the year to 31 March 2017. Following a period of growth subsequent to the commissioning of the Rampur hydro project, the past year has been one of more stable performance for SJVN. In the six months to 30 September 2016, SJVN reported that energy generation from its hydro facilities declined by 2.6%, as hydrology normalised downwards following the very strong prior year. Indeed, it is notable that with a load factor of 83.9%, production efficiency remains at excellent levels. By comparison the wind farm assets performed poorly, with output falling by 27.5% due to outages caused by turbine issues. That said, the wind assets are insignificant when compared to the scale of SJVN's hydro assets and overall output fell by just 2.7%. With minimal change in effective tariffs, this resulted in revenue and EBITDA falling by 2.5% and 3.5% respectively, while normalised earnings increased by 4.7%. SJVN has retained a very strong net cash balance sheet for many years, whilst maintaining a modest dividend payout policy of c.30% of earnings. However, this year the government has sought to address this situation in part by announcing an increase in the interim dividend of 257% (equivalent to an almost 100% payout of earnings). In the year to 31 March 2017, UEM increased its position in SJVN by 26.3%.

Powergrid is a new company in UEM's top twenty holdings and is the portfolio's second largest investment in India. This position was initiated towards the end of 2013. Powergrid is a "Navaratna" Central Public Sector Enterprise which has been listed since 2007 and is the dominant electricity transmission utility in India. The company operates a grid totalling c.140,000km of transmission lines and 219 substations, accounting for approximately 90% of the country's inter-state and inter-regional network. The company is 57.9% controlled by the Government of India and its assets are fully regulated by the Central Electricity Regulatory Commission under a regime which allows a 15.5% return on equity, though the company can often exceed this via performance incentives and efficiency gains. In addition to the transmission operations, Powergrid also offers some telecoms and consultancy services, although these are much less significant to overall financials, accounting for less than 5% of group revenues.

In recent years, there has been a rapid expansion of the transmission grid in India, which historically provided limited interconnections between regions and was divided into five separate zones. However, these zones have now been synchronised and the Modi government is pushing a flagship policy to ensure all villages in India are connected to the grid by the end of 2019. At the same time, there has been a marked increase in the construction and commission of new conventional and renewable electricity generation plants, all of which require improved grid connections. As a result, Powergrid has had to invest heavily in its network, delivering strong financial growth under its regulatory return model. In the six months to 30 September 2016, Powergrid's revenues grew by 28.6% and with EBITDA margins of 90%, this translated to EBITDA growth of 30.6% and normalised earnings growth of 32.0%. As the company has robust assets that support a high degree of financial leverage and with investment requirements still elevated, Powergrid's dividend payout is relatively modest at circa 20% of earnings, although it increased its interim dividend by 25%. In the year to 31 March 2017, Powergrid's share price increased by 41.8%. UEM increased its shareholding in Powergrid by 10.7% during the year ended 31 March 2017.

Malaysian investments decreased from 13.7% to 5.3% of the portfolio and fell from second to the eighth largest country exposure.

Malaysia Airports Holdings Berhad's ("Malaysia Airports") share price increased by 2.8% in the year to 31 March 2017. Performance at the Malaysia-based airports improved during its financial year to 31 December 2016 with passenger growth for the year at 5.5%, up from the muted 0.6% passenger growth seen in 2015. Management has indicated that passenger growth for 2017 is expected to be up by 6.5% as traveller sentiment has improved since the tragic events of 2014. In addition, capacity has been added to the market through low-cost carriers, as well as by Malaysia Airlines following its restructuring in 2014/2015. The drag on Malaysia Airports' share price has come from its 100% investment in Sabiha Gokcen International Airport ("ISG") in Istanbul. ISG only saw 4.6% growth in passengers in 2016, compared to the highs of 19.7% growth that was seen in 2015. Passenger growth was deflated due to the political events that rocked Turkey throughout 2016. Management is hoping for traffic growth to improve in 2017 to around 7.2%. Financial performance for its financial year ended 31 December 2016 saw group revenues up by 7.8% and adjusted EBITDA up by 7.7%. Normalised net income was down for the period by 41.0%. Post full year results, Malaysia Airports reported that it has finally received government approval for the extension of its concession for its Malaysian airports until 2069.

UEM decreased its shareholding in Malaysia Airports by 55.6% during the year to 31 March 2017.

MyEG Services Berhad ("MyEG") continued to see strong upward momentum in its business during the period, with its share price advancing by 30.3% during the year to 31 March 2017, adjusted for a 1-for-2 bonus issue in December 2016.

For the six months to 31 December 2016, the company reported revenue growth of 39.0%, EBITDA growth of 44.5% and net profit growth of 49.8%, which were well ahead of expectations. The company continues to benefit from its exclusive contracts with the Immigration Department of Malaysia, which have widened in scope during the year.

UEM continued to take profits on its MyEG position during the year, selling 58.1% of the shares held as at 31 March 2016.

Argentina's exposure increased significantly from 0.3% to 4.8% of the portfolio in the year to 31 March 2017.

For many years, we had avoided investing in Argentina, which under the Peronist administration of Kirchner saw the abandonment of fiscal prudence, state interference, diminished rule of law and, of particular importance in UEM's target investment space, the failure to honour contracted returns in concession agreements. However, in December 2015, the Peronists were ousted by a slim margin and a new market-friendly government was voted into power under President Mauricio Macri. Immediately the new government set about reforming the country, from a social, political and economic standpoint. Of great significance was the decision to seek a cut in the ballooning energy subsidies which had resulted in many consumer households paying less than USD4 a month on electricity bills, allowing no profits (if not losses) for the utility companies.

We visited Argentina both before and after the elections and identified target companies for investment in the event that the Peronists were defeated. As such, TGS is one of the portfolio's most recent investments, having only been initiated in spring 2016 and is a new entry in the top twenty. TGS is the largest natural gas transmission company in Argentina. It transports almost two-thirds of the country's gas, predominantly to Buenos Aires from gas fields in the south of the country. It owns a pipeline network totalling over 9,000km in length and has an operating license through to 2027, with a ten-year extension beyond this. TGS also owns a hydrocarbon liquids processing plant which produces propane, butane and ethane. This is sold on commercial terms to its major client, Dow Chemical. Under the Kirchner administration, tariff increases for the gas transmission network significantly lagged inflation, failing to provide agreed regulatory returns. However, under the new government, regulation is being reapplied in steps. As a result, TGS saw effective tariffs hiked by over 100% in the year to 31 December 2016, with further hikes of 30% and 40% being implemented in April and December 2017.

In its financial year to 31 December 2016, TGS' gas transport and USD-based liquid productions business delivered revenue growth of 105.8% and 64.0% respectively, in Argentinian Pesos. Overall group revenues increased by 75.1% and EBITDA grew by 97.3%. Below this line, financials were modestly impacted by exchange rate effects on its USD-denominated debt. Nonetheless, normalised net income still grew by 57.3%. Given the constraints on international financing over the past decade, TGS has relatively low leverage and strong cash balances, which are expected to translate to strong dividend returns in future years. In the year to 31 March 2017 TGS' share price increased by 143.5% and in Sterling terms, TGS delivered a positive 112% return on funds invested by UEM during the year.

Thailand exposure has decreased from 6.8% to 4.8% of the portfolio.

Eastern Water Resources Development and Management PCL's ("Eastwater") shares performed poorly in the year to 31 March 2017, falling by 10.1% over the period. Eastwater continues to suffer from the lack of a proper regulatory framework. This has led to a failure by management to sustain returns through the implementation of tariff increases. This was reflected in operational figures, with raw water volumes falling by 7.4% in its financial year ended 31 December 2016. It is notable that while demand from industrial estates was relatively robust, up by 7.9%, demand from its largest customer (state-owned Provincial Waterworks Authority) fell by 17.7%. With no tariff increases, resulting raw water revenues fell by 7.0%. Meanwhile tap water demand has remained strong, boosted by recent corporate activity, with volumes up by 11.0% and effective tariffs up by 8.2%. As a result, group revenues were flat on last year; EBITDA growth was just 0.4% and normalised earnings fell by 4.6%. Dividends per share were unchanged on last year. In the period under review UEM decreased its holding in Eastwater by 19.3%.

Chilean exposure reduced from 6.2% to 3.8% of the portfolio in the year to 31 March 2017.

Engie Energia Chile S.A.'s ("E.CL") shares increased by 9.7% in the year to 31 March 2017. Over the past year, E.CL has continued construction of its USD1.1bn 375MW coal-fired facility, as well as its USD780m transmission line project ("TEN") to connect the central and northern grids, which are due to be connected in 2017 and 2018 respectively. In its financial year to 31 December 2016 E.CL reported electricity sales volumes down by 2.3%, as some smaller contracts from the unregulated sector (predominantly mining companies) rolled off and were not replaced. By comparison demand from regulated customers was stable at 0.9%, though revenues from these customers were impacted by the lagged effect of bi-annual indexation to Henry Hub prices and US CPI. As a result, revenues from energy sales fell by 7.2%. After a strong year for gas distribution sales in 2015, revenues from this business line fell by 90%, reflecting the volatile nature of these sales, which are dependent on E.CL's contracting of LNG cargos and third-party demand. As a result, overall group revenues fell by 15.3% and EBITDA declined by 8.8%. Reported net profits were boosted by the sale of a 50% stake in the TEN project, however, after adjusting for the gain on disposal, normalised earnings fell by 11.4%. E.CL increased its dividends per share by 227%, demonstrating good capital discipline following the disposal. UEM increased its shareholding in E.CL by 32.9% in the period under review.

PORTFOLIO GENERAL

Investments into the portfolio were GBP161.2m, compared to the prior year's GBP96.1m, funded by bank debt of GBP28.1m and in part due to the reinvestment of realisations, which were GBP142.2m and were broadly in line with the prior year's GBP130.5m. GBP56.4m was realised from the top twenty holdings, of which the most significant were GBP20.4m from Malaysia Airports, GBP12.3m from MyEG and GBP12.2m from China Gas. Investments in the top twenty were GBP36.6m and included GBP8.7m in Rumo and GBP5.5m in TGS.

Changes in the portfolio's geographic allocation reflect new investments plus the relative market performance as outlined above. The main change in the sector allocation has been an increase in weighting in electricity (mainly power transmission) from 16.3% to 24.3%, offset by airports which reduced from 13.1% to 8.5% and satellites which reduced from 9.4% to 5.7%.

BANK DEBT

Bank debt increased from GBP18.7m to GBP46.8m owing to investments made in the second half of the year to 31 March 2017. At the year end, debt was drawn in Hong Kong Dollars, HKD209.9m (GBP21.6m) and Euros, EUR29.5m (GBP25.2m). The two-year bank facility of GBP50.0m is due for renewal on 27 April 2018.

MARKET HEDGING

UEM started the year with net derivatives of GBP3.3m and ended the year almost unchanged at GBP3.1m. The loss on derivatives of GBP6.4m for the year to 31 March 2017 was primarily due to the continuing performance of the US S&P Index and has undermined the carrying value of the hedged position. UEM ended the year with net 350 S&P 500 put contracts at approximately 2325 versus the market S&P Index of 2363, giving UEM USD35.0m protection against any fall in the S&P Index below this level.

REVENUE RETURN

Revenue income decreased by 3.2% during the twelve months to 31 March 2017 to GBP20.6m from GBP21.3m. This is a very good result, as the prior year benefitted from the distribution by Asiasat of a significant portion of its revenue reserves by way of a special dividend, with UEM receiving a payment of GBP7.4m. Excluding the impact of Asiasat's special dividend in both years, revenue income increased by 48.2%. This reflects a combination of dividend increases by investee companies due to growth in profitability, the increased portfolio weighting in higher dividend paying investments such as in Romania and Brazil, as well as Sterling's weakness.

Management fees and other expenses increased from GBP2.6m to GBP2.9m as a result of increased custody fees. Finance costs increased from GBP0.1m to GBP0.2m as a result of increased bank debt in the second half of the year to 31 March 2017. Taxation was almost unchanged at GBP0.9m versus GBP1.1m last year.

CAPITAL RETURN

The portfolio recorded a capital return of GBP114.6m during the year, reflecting strong equity markets and weak Sterling. Offsetting this were net losses on derivatives and gains on foreign exchange of GBP5.4m, to give a capital return before costs of GBP109.2m (2015: a loss of GBP9.5m).

Management and administration fees were higher at GBP11.4m (prior year: GBP1.9m), mainly as a result of the performance fee payable in respect of the year to 31 March 2017. Finance costs increased from GBP0.3m to GBP0.5m as a result of increased bank debt in the second half of the year. Taxation rose to GBP3.2m and is in respect of capital gains tax on portfolio gains. The net effect of the above was a net capital return of GBP94.2m (2015: a loss of GBP11.7m).

Charles Jillings

ICM Investment Management Limited and ICM Limited

16 June 2017

INVESTMENT OBJECTIVE AND POLICY

INVESTMENT OBJECTIVE

The Company's objective is to provide long-term total return through a flexible investment policy that permits it to make investments predominantly in infrastructure, utility and related sectors, mainly in emerging markets.

INVESTMENT POLICY AND RISK

The Company's investment policy is flexible and its investments include (but are not limited to) water, sewerage, waste, electricity, gas, telecommunications, ports, airports, service companies, rail, roads, any business with essential service or monopolistic characteristics and any new infrastructure or utilities which may arise mainly in emerging markets. The Company may also invest in businesses which supply services to, or otherwise support, the infrastructure, utility and related sectors.

The Company focuses on the under-developed and developing markets of Asia, Latin America, Emerging Europe and Africa but has the flexibility to invest in markets worldwide. The Company generally seeks to invest in emerging market countries where the Directors believe that there are attributes such as political stability, economic development, an acceptable legal framework and an encouraging attitude to foreign investment.

The Board and Investment Managers review the risk profile of the Company every six months. Agreed risk parameters are established and compliance is reviewed at quarterly board meetings.

The Company has the flexibility to invest in shares, bonds, convertibles and other types of securities, including non-investment grade bonds and to invest in unlisted securities.

The Company may also use derivative instruments such as American Depository Receipts, promissory notes, foreign currency hedges, interest rate hedges, contracts for difference, financial futures, call and put options, warrants and similar instruments for investment purposes and efficient portfolio management, including protecting the Company's portfolio and balance sheet from major corrections and reducing, transferring or eliminating investment risks in its investments. These investments will be long term in nature.

UEM seeks to identify and invest in undervalued investments predominantly in the infrastructure and utility sectors, mainly in emerging markets. The Investment Managers aim to identify securities where underlying value and growth prospects are not reflected in the market price. This is often as a result of strong growth drivers, but can include changes in regulation, technology, market motivation, potential for financial engineering, competition or shareholder indifference.

The Company seeks to minimise risk by investing mainly in companies and sectors displaying the characteristics of essential services or monopolies such as utilities, transportation infrastructure, communications or companies with a unique product or market position. Most investee companies are asset backed, have good cash flows and offer good dividend yields. UEM generally seeks to invest in companies with strong management who have the potential to grow their business and who have an appreciation of, and ability to manage, risk.

UEM believes it is generally appropriate to support investee companies with their capital requirements while at the same time maintaining an active and constructive shareholder approach through encouraging a review of capital structures and business efficiencies. The Investment Managers maintain regular contact with the investee companies and UEM is often among the largest international shareholders.

The Company aims to maximise value for shareholders by holding a relatively concentrated portfolio of securities and invests through instruments appropriate to the particular situation. UEM is prepared to hold investments in unlisted securities when the attractiveness of the investment justifies the risks and lower liquidity associated with unlisted investments. ICMIM, as the Company's AIFM, controls stock-specific and sector and geographic risk by continuously monitoring the exposures in the portfolio. In-depth continual analysis of the fundamentals of investee companies allows ICMIM to assess the financial risks associated with any particular stock. The portfolio is typically made up of 60 to 90 stocks.

As required by the Listing Rules, there will be no material change to the investment policy without prior approval of the FCA and shareholders.

PRINCIPAL RISKS AND RISK MITIGATION

ICMIM is the Company's AIFM and has sole responsibility for risk management subject to the overall policies, supervision, review and control of the Board.

The Board considers carefully the Company's principal risks and seeks to mitigate these risks through continual and regular review, policy setting, compliance with and enforcement of contractual obligations and active communication with both the Investment Managers and the Company's Administrator.

The Board applies the principles and recommendations of the UK Code on Corporate Governance and the AIC's Code on Corporate Governance as described on page 57 of the Report & Accounts. The Company's internal controls are described in more detail on page 50 of the Report and Accounts. Through these procedures, and in accordance with Internal Control: Revised Guidance for Directors on the Combined Code (the "FRC guidance"), the Board has established an on-going process for identifying, evaluating and managing the significant risks faced by the Company and has regularly reviewed the effectiveness of the internal control systems for the year. This process has been in place throughout the year under review and to the date hereof and will continue to be regularly reviewed by the Board going forward.

Most of the Company's principal risks are market-related and similar to those of other investment companies which invest primarily in listed investments. The principal ongoing risks and uncertainties currently faced by the Company, and the controls and actions to mitigate those risks, are described below. Further details of risks and risk management policies as they relate to the financial assets and liabilities of the Company are detailed in note 28 to the accounts.

Investment risk: the risk that the investment strategy does not achieve long-term positive total returns for the Company's shareholders

The Board monitors the performance of the Company and has established guidelines to ensure that the investment policy that has been approved is pursued by the Investment Managers. These guidelines include sector and market exposure limits.

The investment process employed by the Investment Managers combines assessment of economic and market conditions in the relevant countries with stock selection. Fundamental analysis forms the basis of the Company's stock selection process, with an emphasis on sound balance sheets, good cash flows, the ability to pay and sustain dividends, good asset bases and market conditions. The political risks associated with investing in these countries are also assessed. The Investment Managers try to reduce risk by ensuring that the Company's portfolio is always appropriately diversified. Overall, the investment process is aiming to achieve absolute returns through an active fund management approach.

The Company's results are reported in Sterling, whilst the majority of its assets are priced in foreign currencies. The impact of adverse movements in exchange rates can significantly affect the returns in Sterling of both capital and income. Such factors are out of the control of the Board and the Investment Managers and may give rise to distortions in the reported returns to shareholders. It is difficult and expensive to hedge emerging markets' currencies.

In addition, the ordinary shares of the Company may trade at a discount to their NAV. The Board monitors the price of the Company's shares in relation to their NAV and the premium/discount at which they trade. The Board generally buys back shares for cancellation if they are trading at a discount in excess of 10% and the Investment Managers agree that it is a good investment decision.

The Board regularly reviews strategy in relation to a range of issues including the balance between quoted and unquoted stocks, the allocation of assets between geographic regions and sectors and gearing. Periodically the Board holds a separate meeting devoted to strategy, the most recent one having been held in November 2016.

A more detailed review of economic and market conditions is included in the Investment Managers' Report section of the Strategic Report in the Report and Accounts.

There is no guarantee that the Company's strategy and business model will be successful in achieving its investment objective. The value of an investment in the Company and the income derived from that investment may go down as well as up and an investor may not get back the amount invested. Past performance of the Company is not necessarily indicative of future performance.

No material change in overall risk in year.

Gearing: the risk that the use of gearing may adversely impact on the Company's performance

Gearing levels may change from time to time in accordance with the Board and Investment Managers' assessment of risk and reward. Whilst the use of borrowings should enhance total return where the return on the Company's underlying securities is rising and exceeds the cost of borrowing, it will have the opposite effect where the underlying return is falling. As at 31 March 2017, net debt gearing on gross assets was 5.4%.

No material change in overall risk in year.

Banking: a breach of the Company's loan covenants might lead to funding being summarily withdrawn

ICMIM monitors compliance with the banking covenants when each drawdown is made and at the end of each month. The Board reviews compliance with the banking covenants at each Board meeting.

No material change in overall risk in year.

Key staff: loss by the Investment Managers of key staff could affect investment returns

The quality of the management team is a crucial factor in delivering good performance. There are training and development programs in place for employees and the recruitment and remuneration packages have been developed in order to retain key staff.

Any material changes to the management team are considered by the Board at its next meeting; the Board discusses succession planning with the Investment Managers at regular intervals.

No material change in overall risk in year.

Reliance on the Investment Managers and other service providers: inadequate controls by the Investment Managers or Administrator or third party service providers could lead to misappropriation of assets

Failure by any service provider to carry out its obligations to the Company in accordance with the terms of its appointment could have a materially detrimental impact on the operation of the Company and could affect the ability of the Company to successfully pursue its investment policy. The Company's main service providers are listed on page 106 of the Report and Accounts. The Audit Committee monitors the performance of the service providers.

All listed investments are held in custody for the Company by JPMorgan Chase Bank NA, Jersey; the unlisted investments are held in custody by Bermuda Commercial Bank Limited (together, the "Custodians").

J.P.Morgan Europe Limited ("JPMEL"), the Company's depositary services provider, also monitors the movement of cash and assets across the Company's accounts.

The Audit Committee reviews the Administrator's annual internal control report which details the controls around the reconciliation of the Administrator's records to those of the Custodians. The Administrator reviews the control reports published by JPMorgan Chase and draws any issues to the attention of the Board.

The Board reviews operational issues at each Board meeting and the Audit Committee receives reports on the operation of internal controls and the risk of cybercrime, as explained in more detail within Internal Controls on page 50. The risk of cybercrime is high, as it is with most organisations, but the Board regularly seeks assurances from the Investment Managers and other service providers on the preventative steps that they are taking to reduce this risk.

Although there has been no change in overall risk in the year, the possibility of cybercrime continues to be a concern. The Company's assets are considered to be relatively secure, so the risks are the inability to transact investment decisions for a period of time and reputational risk.

VIABILITY STATEMENT

In accordance with the provisions of the UK Corporate Governance Code, published by the Financial Reporting Council in April 2016 (the "Code"), the Directors have assessed the prospects of the Company over the next three years. The Board has determined that a three year period is a reasonable time horizon to consider the continuing viability of the Company, given the current regulatory environment, as they do not expect there to be any significant change to the current principal risks and to the mitigating controls in place over this period.

In its assessment of the viability of the Company, the Board has considered each of the Company's principal risks and uncertainties detailed above, as well as the impact of a significant fall in the emerging market equity markets on the value of the Company's investment portfolio. All of the key operations required by the Company are outsourced to third party providers and alternative providers could be engaged at relatively short notice if necessary. The Directors have also considered the Company's income and expenditure projections and the fact that the majority of the Company's investments comprise readily realisable securities which can be sold to meet funding requirements if necessary.

Based on the Company's processes for monitoring operating costs, share price discount, the Investment Managers' compliance with the investment objective and policy, asset allocation, the portfolio risk profile, gearing, counterparty exposure, liquidity risk and financial controls, the Board has concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next three years.

DIRECTORS' STATEMENT OF RESPONSIBILITIES

in respect of the Annual Report and the Financial Statements

The Directors are responsible for preparing the annual report and the Group and Company financial statements in accordance with applicable law and regulations. The Group financial statements are required to be prepared in accordance with IFRSs as adopted by the EU and applicable law and the Directors have elected to prepare the Company financial statements on the same basis. In preparing each of the Group and Company financial statements, the Directors are required to:

-- select suitable accounting policies and then apply them consistently;

-- make judgements and estimates that are reasonable and prudent;

-- state whether they have been prepared in accordance with IFRSs as adopted by the EU; and

-- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Bermuda Companies Act (1981). They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report and Corporate Governance Statement that complies with that law and those regulations. The Directors have additionally elected to prepare a Directors' Remuneration Report as if the Company were required to comply with the requirements of Schedule 8 to The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (SI 2008 No. 410) made under the UK Companies Act 2006.

RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE ANNUAL FINANCIAL REPORT

We confirm that to the best of our knowledge:

-- the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

-- the annual report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy.

Approved by the Board on 16 June 2017 and signed on its behalf by:

John Rennocks

Chairman

GROUP INCOME STATEMENT

 
 for the year to 31 March                                               2017                               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/(losses) investments                         -    114,638     114,638          -      (8,213)    (8,213) 
 Losses on derivative instruments                   -    (6,411)     (6,411)          -        (896)      (896) 
 Foreign exchange gains/(losses)                  449      1,058       1,507      (136)        (404)      (540) 
 Investment and other income                   20,153          -      20,153     21,418            -     21,418 
------------------------------------------  ---------  ---------  ----------  ---------  -----------  --------- 
 Total income                                  20,602    109,285     129,887     21,282      (9,513)     11,769 
 Management and administration fees           (1,234)   (11,374)    (12,608)    (1,102)      (1,870)    (2,972) 
 Other expenses                               (1,701)       (22)     (1,723)    (1,496)         (19)    (1,515) 
------------------------------------------  ---------  ---------  ----------  ---------  -----------  --------- 
  Profit/(loss) before finance costs and 
   taxation                                    17,667     97,889     115,556     18,684     (11,402)      7,282 
 Finance costs                                  (195)      (454)       (649)      (118)        (274)      (392) 
------------------------------------------  ---------  ---------  ----------  ---------  -----------  --------- 
 Profit/(loss) before taxation                 17,472     97,435     114,907     18,566     (11,676)      6,890 
 Taxation                                       (935)    (3,188)     (4,123)    (1,056)         (24)    (1,080) 
------------------------------------------  ---------  ---------  ----------  ---------  -----------  --------- 
 Profit/(loss) for the year                    16,537     94,247     110,784     17,510     (11,700)      5,810 
------------------------------------------  ---------  ---------  ----------  ---------  -----------  --------- 
 
 Earnings per ordinary share (basic) 
  - pence                                        7.80      44.46       52.26       8.23       (5.50)       2.73 
------------------------------------------  ---------  ---------  ----------  ---------  -----------  --------- 
 
 Earnings per ordinary share (diluted) 
  - pence                                        7.70      43.90       51.60       8.23       (5.50)       2.73 
------------------------------------------  ---------  ---------  ----------  ---------  -----------  --------- 
 

The total column of this statement represents the Group's Income Statement and the Group's Statement of Comprehensive Income, prepared in accordance with International Financial Reporting Standards ("IFRS"). The supplementary revenue return and capital return columns are both prepared under guidance published by the Association of Investment Companies ("AIC") in the UK.

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

All 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.

COMPANY INCOME STATEMENT

 
 for the year to 31 March                                               2017                               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/(losses) on investments                      -    107,848     107,848          -      (8,776)    (8,776) 
 Gains on derivative instruments                    -        239         239          -            -          - 
 Foreign exchange gains/(losses)                  320        737       1,057      (156)        (369)      (525) 
 Investment and other income                   20,619          -      20,619     20,944            -     20,944 
------------------------------------------  ---------  ---------  ----------  ---------  -----------  --------- 
 Total income                                  20,939    108,824     129,763     20,788      (9,145)     11,643 
 Management and administration fees           (1,201)   (11,374)    (12,575)    (1,071)      (1,870)    (2,941) 
 Other expenses                               (1,610)       (22)     (1,632)    (1,413)         (19)    (1,432) 
------------------------------------------  ---------  ---------  ----------  ---------  -----------  --------- 
  Profit/(loss) before finance costs and 
   taxation                                    18,128     97,428     115,556     18,304     (11,034)      7,270 
 Finance costs                                  (195)      (454)       (649)      (118)        (274)      (392) 
------------------------------------------  ---------  ---------  ----------  ---------  -----------  --------- 
 Profit/(loss) before taxation                 17,933     96,974     114,907     18,186     (11,308)      6,878 
 Taxation                                       (935)    (3,188)     (4,123)    (1,044)         (24)    (1,068) 
------------------------------------------  ---------  ---------  ----------  ---------  -----------  --------- 
 Profit/(loss) for the year                    16,998     93,786     110,784     17,142     (11,332)      5,810 
------------------------------------------  ---------  ---------  ----------  ---------  -----------  --------- 
 
 Earnings per ordinary share (basic) 
  - pence                                        8.02      44.24       52.26       8.05       (5.32)       2.73 
------------------------------------------  ---------  ---------  ----------  ---------  -----------  --------- 
 
 Earnings per ordinary share (diluted) 
  - pence                                        7.92      43.68       51.60       8.05       (5.32)       2.73 
------------------------------------------  ---------  ---------  ----------  ---------  -----------  --------- 
 

The total column of this statement represents the Company's Income Statement and the Company's Statement of Comprehensive Income, prepared in accordance with IFRS. The supplementary revenue return and capital return columns are both prepared under guidance published by the AIC in the UK.

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

All items in the above statement derive from continuing operations.

All income is attributable to the equity holders of the Company.

GROUP STATEMENT OF CHANGES IN EQUITY

 
 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 
--------------------------  ---------  ----------  ----------  --------------  ----------  -----------  ----------- 
 
 
 for the year to 31 March 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 2015                 21,324       3,796     204,587          11,093     203,380        3,181      447,361 
 (Loss)/profit for the year            -           -           -               -    (11,700)       17,510        5,810 
   Ordinary 
    dividends paid                     -           -           -               -     (3,252)     (10,154)     (13,406) 
  Shares issued on 
   exercise of 
   subscription share 
   rights                              4          74           -               -           -            -           78 
  Shares purchased by the 
   Company                         (182)     (2,800)           -               -           -            -      (2,982) 
  Issue cost of subscription 
   shares                              -       (299)           -               -           -            -        (299) 
   Balance at 
    31 March 2016                 21,146         771     204,587          11,093     188,428       10,537      436,562 
-----------------------------  ---------  ----------  ----------  --------------  ----------  -----------  ----------- 
 

COMPANY STATEMENT OF CHANGES IN EQUITY

 
 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     188,701       10,264      436,562 
 Profit for the year                -           -           -               -      93,786       16,998      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     282,487       13,356      532,161 
--------------------------  ---------  ----------  ----------  --------------  ----------  -----------  ----------- 
 
 
 for the year to 31 March 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 2015                 21,324       3,796     204,587          11,093     203,285        3,276      447,361 
 (Loss)/profit for the year            -           -           -               -    (11,332)       17,142        5,810 
   Ordinary 
    dividends paid                     -           -           -               -     (3,252)     (10,154)     (13,406) 
  Shares issued on 
   exercise of 
   subscription share 
   rights                              4          74           -               -           -            -           78 
  Shares purchased by the 
   Company                         (182)     (2,800)           -               -           -            -      (2,982) 
  Issue cost of subscription 
   shares                              -       (299)           -               -           -            -        (299) 
   Balance at 
    31 March 2016                 21,146         771     204,587          11,093     188,701       10,264      436,562 
-----------------------------  ---------  ----------  ----------  --------------  ----------  -----------  ----------- 
 

BALANCE SHEETS

 
                                                 GROUP                COMPANY 
 at 31 March                                  2017       2016       2017       2016 
                                          GBP'000s   GBP'000s   GBP'000s   GBP'000s 
---------------------------------------  ---------  ---------  ---------  --------- 
 Non-current assets 
 Investments                               572,264    438,639    579,471    442,941 
---------------------------------------  ---------  ---------  ---------  --------- 
 Current assets 
 Other receivables                           1,966      2,686      1,715      2,676 
 Derivative financial instruments            3,170      3,636        633          - 
 Cash and cash equivalents                  15,336     12,609     10,785     11,629 
---------------------------------------  ---------  ---------  ---------  --------- 
                                            20,472     18,931     13,133     14,305 
---------------------------------------  ---------  ---------  ---------  --------- 
 Current liabilities 
 Bank loans                                      -   (18,657)          -   (18,657) 
 Other payables                           (10,504)    (1,787)   (10,482)    (1,763) 
 Derivative financial instruments            (110)      (300)          -          - 
                                          (10,614)   (20,744)   (10,482)   (20,420) 
---------------------------------------  ---------  ---------  ---------  --------- 
 Net current assets/(liabilities)            9,858    (1,813)      2,651    (6,115) 
---------------------------------------  ---------  ---------  ---------  --------- 
 Total assets less current liabilities     582,122    436,826    582,122    436,826 
 Non-current liabilities 
 Bank loans                               (46,816)          -   (46,816)          - 
 Deferred tax                              (3,145)      (264)    (3,145)      (264) 
---------------------------------------  ---------  ---------  ---------  --------- 
 Net assets                                532,161    436,562    532,161    436,562 
---------------------------------------  ---------  ---------  ---------  --------- 
 
 Equity attributable to equity holders 
 Share capital                              21,141     21,146     21,141     21,146 
 Share premium account                         915        771        915        771 
 Special reserve                           203,169    204,587    203,169    204,587 
 Other non-distributable reserve            11,093     11,093     11,093     11,093 
 Capital reserves                          282,675    188,428    282,487    188,701 
 Revenue reserve                            13,168     10,537     13,356     10,264 
---------------------------------------  ---------  ---------  ---------  --------- 
 Total attributable to equity holders      532,161    436,562    532,161    436,562 
---------------------------------------  ---------  ---------  ---------  --------- 
 
 Net asset value per ordinary share 
 Basic - pence                              251.72     206.45     251.72     206.45 
 Diluted - pence                            241.29     202.52     241.29     202.52 
---------------------------------------  ---------  ---------  ---------  --------- 
 

STATEMENTS OF CASH FLOWS

 
                                                    GROUP                    COMPANY 
 for the year to 31 March                        2017         2016         2017         2016 
                                             GBP'000s     GBP'000s     GBP'000s     GBP'000s 
----------------------------------------  -----------  -----------  -----------  ----------- 
 Cash flows from operating activities          12,487       12,048       13,321       11,703 
----------------------------------------  -----------  -----------  -----------  ----------- 
 Investing activities: 
 Purchases of investments                   (159,338)     (97,303)    (165,550)     (99,017) 
 Sales of investments                         141,232      130,611      137,748      129,087 
 Purchases of derivatives                     (9,014)     (14,912)        (394)            - 
 Sales of derivatives                           2,879       11,995            -            - 
----------------------------------------  -----------  -----------  -----------  ----------- 
 Cash flows from investing activities        (24,241)       30,391     (28,196)       30,070 
----------------------------------------  -----------  -----------  -----------  ----------- 
 Cash flows before financing activities      (11,754)       42,439     (14,875)       41,773 
----------------------------------------  -----------  -----------  -----------  ----------- 
 Financing activities: 
  Ordinary dividends paid                    (13,906)     (13,406)     (13,906)     (13,406) 
 Movements from loans                          26,858     (14,133)       26,858     (14,133) 
 Proceeds from issue of shares                  8,743           78        8,743           78 
 Cost of ordinary shares purchased           (10,022)      (2,982)     (10,022)      (2,982) 
 Issue cost of subscription shares                  -        (299)            -        (299) 
 Cash flows from financing activities          11,673     (30,742)       11,673     (30,742) 
----------------------------------------  -----------  -----------  -----------  ----------- 
   Net movement in cash and cash 
    equivalents                                  (81)       11,697      (3,202)       11,031 
  Cash and cash equivalents at the 
   beginning of the year                       12,609          526       11,629          195 
 Effect of movement in foreign exchange         2,808          386        2,358          403 
----------------------------------------  -----------  -----------  -----------  ----------- 
  Cash and cash equivalents at the 
   end of the year                             15,336       12,609       10,785       11,629 
----------------------------------------  -----------  -----------  -----------  ----------- 
 
 
 Comprised of: 
 Cash             15,336   12,609   10,785   11,629 
---------------  -------  -------  -------  ------- 
 

NOTES

The Directors paid a fourth quarterly interim dividend in respect of the year ended 31 March 2017 of 1.700p per ordinary share on 16 June 2017 to shareholders on the register at close of business on 2 June 2017. The total cost of the dividend, which has not been accrued in the results for the year to 31 March 2017, was GBP3,594,000 and will be paid from the Revenue Reserve.

This statement was approved by the Board on 16 June 2016. It is not the Group's or Company's statutory accounts. The statutory accounts for the financial year ended 31 March 2017 have been approved and audited, and received an audit report which was unqualified and did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report. The statutory accounts for the financial year ended 31 March 2016 received an audit report which was unqualified and did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report.

The Report & Accounts for the year ended 31 March 2017 will be posted to shareholders in early July 2017. A copy is available to view and download from the Company's website at www.uem.bm. Copies may also be obtained during normal business hours from Exchange House, Primrose Street, London, EC2A 2NY.

By order of the Board

ICM Investment Management Limited, Secretary

16 June 2017

This information is provided by RNS

The company news service from the London Stock Exchange

END

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