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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Utilico Emerging Markets Trust Plc | LSE:UEM | London | Ordinary Share | GB00BD45S967 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 225.00 | 224.00 | 228.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Unit Inv Tr, Closed-end Mgmt | 15.94M | 5.77M | 0.0292 | 76.71 | 443.01M |
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
Hot Features
Premium
%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
IR OKDDNKBDDPDB
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November 21, 2017 06:00 ET (11:00 GMT)
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