Date:
14 June 2024
UTILICO EMERGING MARKETS
TRUST PLC
ANNUAL FINANCIAL
REPORT
FOR THE YEAR TO 31 MARCH
2024
Utilico Emerging Markets Trust plc
("UEM" or the "Company") today announces its audited financial
results for the year to 31 March 2024.
Highlights of results
· Net
asset value ("NAV") total return per share of 12.8%* (2023:
2.1%*)
· NAV
per share of 274.01p, up 9.2%
· Gross
assets of £522.9m*, a decrease of 3.6%
· Annual
compound NAV total return since inception of 9.5%*
· Dividends per share totalled 8.60p for the year, an increase
of 1.8%. Dividends were fully covered by earnings
· Revenue earnings per share ("EPS") decreased 6.1% to
8.83p
· Total
revenue income of £23.1m, an 4.9% decrease
*See Alternate Performance Measures
on pages 97 and 98 of the Report and Accounts
The Report & Accounts for the
year ended 31 March 2024 will be posted to shareholders in early
July 2024. A copy will shortly be available to view and download
from the Company's website at www.uemtrust.co.uk
and the National Storage Mechanism at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
Please click on the following link
to view the document: http://www.rns-pdf.londonstockexchange.com/rns/5578S_1-2024-6-14.pdf
John Rennocks, Chairman of UEM said: "UEM delivered a
strong performance with a positive NAV total return of 12.8% for
the year to 31 March 2024. This was once again significantly
ahead of the MSCI Emerging Markets total return Index which was up
5.8% over the same period. Disappointingly, over the year, UEM's
share price discount has continued to widen from 13.5% to 19.3% as
at 31 March 2024. This remains well above the level that the
Board would wish to see over the medium term.
"Having joined the board in 2015 and
served for a period approaching nine years, I intend to retire from
the board on 31 December 2024. I am pleased to report
that Mark Bridgeman, who is currently the Company's Senior
Independent Director, has agreed to replace me as
Chairman."
Charles Jillings, Investment Manager of UEM
added: "It
is pleasing to see UEM report another NAV gain this year.
UEM's NAV performance over one year, three, five and ten years and
since inception are all ahead of the MSCI EM total return Index.
UEM has achieved this together with a rising dividend payout, lower
volatility and with a portfolio which is significantly different
from the MSCI Index.
"This should be compelling to
investors who want exposure to emerging markets, top performance
and comparatively low levels of volatility."
Contacts: Joint Portfolio Manager and
Company Secretary
ICM Investment Management
Limited
+44(0)1372 271486
Charles Jillings / Alastair Moreton
Public Relations
Montfort
Communications
+44(0)20 3770 7913
Gay Collins / Pippa
Bailey
utilico@montfort.london
Joint Brokers
Shore
Capital
+44(0)20 7408 4090
Gillian Martin / Sophie
Collins
Barclays
Bank
+44(0)20 7623 2323
Dion Di Miceli / Stuart Muress /
Louis Reed
BarclaysInvestmentCompanies@barclays.com
Performance Summary
|
|
|
|
|
31 March
2024
|
31 March
2023
|
%
change
2024/23
|
NAV total return per
share1 (annual) (%)
|
12.8
|
2.1
|
n/a
|
Share price total return per
share1 (annual) (%)
|
5.8
|
0.8
|
n/a
|
Annual compound NAV total
return1
(since inception - 20 July
20052)
(%)
|
9.5
|
9.3
|
n/a
|
|
|
|
|
NAV per share (pence)
|
274.01
|
250.91
|
9.2
|
Share price (pence)
|
221.00
|
217.00
|
1.8
|
Discount1 (%)
|
(19.3)
|
(13.5)
|
n/a
|
|
|
|
|
Earnings per share (basic)
|
|
|
|
- Capital (pence)
|
20.48
|
(6.61)
|
409.8
|
- Revenue (pence)
|
8.83
|
9.40
|
(6.1)
|
Total (pence)
|
29.31
|
2.79
|
950.5
|
|
|
|
|
Dividends per share
|
|
|
|
- 1st quarter (pence)
|
2.15
|
2.00
|
7.5
|
- 2nd quarter (pence)
|
2.15
|
2.15
|
0.0
|
- 3rd quarter (pence)
|
2.15
|
2.15
|
0.0
|
- 4th quarter (pence)
|
2.153
|
2.15
|
0.0
|
Total (pence)
|
8.60
|
8.45
|
1.8
|
|
|
|
|
Gross assets1 (£m)
|
522.9
|
542.5
|
(3.6)
|
Equity holders' funds
(£m)
|
522.9
|
507.4
|
3.1
|
Shares bought back (£m)
|
25.4
|
27.2
|
(6.6)
|
|
|
|
|
Net cash/(overdraft) (£m)
|
5.8
|
(1.0)
|
680.0
|
Bank loans (£m)
|
-
|
(35.1)
|
100.0
|
Net cash/(debt) (£m)
|
5.8
|
(36.1)
|
116.1
|
Net
cash/(gearing)1 (%)
|
1.1
|
(7.1)
|
n/a
|
|
|
|
|
Management and administration
fees
and other expenses (£m)
|
7.7
|
7.4
|
4.1
|
|
|
|
|
Ongoing charges
figure1 (%)
|
1.5
|
1.4
|
n/a
|
(1) See Alternative
Performance Measures on pages 97 and 98 of the Report and
Accounts
(2) All performance data
relating to periods prior to 3 April 2018 are in respect of Utilico
Emerging Markets Limited ("UEM Limited"), UEM's
predecessor
(3) The fourth quarterly
dividend has not been included as a liability in the
accounts
Chairman's Statement
UEM delivered a strong performance
with a positive NAV total return of 12.8% for the year to 31 March
2024. This was once again significantly ahead of the MSCI Emerging
Markets total return Index which was up 5.8% over the same
period.
The year to 31 March 2024 has again
been challenging. The eruption of the war in Israel and Gaza has
been devastating for those involved and adds to the rising
geopolitical frictions from the war in Ukraine through to the
US-China tensions. Volatility in most markets remains elevated as
uncertainty has dominated, with inflation and sharply higher
central bank interest rates adding to the challenges on climate
change and natural disasters.
UEM measures its performance on a
total return basis over the long term and the Investment Managers
are seeking long term outperformance. Despite difficult markets,
over one, three, five and ten years and since inception, UEM has
outperformed the MSCI EM Index and the long term annual compound
NAV total return since inception to 31 March 2024 of 9.5% exceeded
the MSCI EM total return Index of 7.5%.
Global Economy
There remain numerous challenges
faced by the markets, each of which is difficult in its own right.
We have historically highlighted a number of these, and they
largely remain unresolved as we continue to see a significant rise
in nationalism, wealth inequality and global migration.
Last year we witnessed the sharply
higher inflationary environment and the response by the central
banks to increase interest rates to bring inflation under control.
The year to 31 March 2024 has seen inflation fall and the
surprising part has been the continued strength of the economies,
especially in the United States, despite higher interest rates.
This is evidenced by resilience in the labour market which, in most
western countries, unemployment levels are at record lows. This is
good for workers but ultimately negative for the inflation outlook,
as wage demands continue to keep inflation
elevated.
Equity markets have broadly moved to
the upside as they anticipate central banks' rate cuts, although
the higher for longer interest rate expectation has surprised many
economic commentators.
Emerging Markets
Most EM stock markets recovered
strongly this year, reversing last year's weakness and reflecting
global expectations of lower interest rates. Brazil's Bovespa Index
was up 25.7%, the Indian Sensex up 24.9% and the Philippine PSEI
Index up 6.2%. The two outliers were Hong Kong's Hang Seng Index
which was down 18.9% and China's Shanghai Composite Index down
7.1%.
In comparison, all currencies in the
portfolio were down against Sterling except for the Mexican Peso
which was up 6.3% over the year to 31 March 2024. The high interest
rates and improved outlook for Sterling has seen it recover
strongly over the year, reversing last year's Sterling weakness. Of
note was the weak Chilean Peso, down 21.1% against
Sterling.
Most commodities have moved lower
during the period under review as supply chains have adjusted, with
wheat down by 19.1%, soybean down by 20.9% and copper down by 2.1%
while Brent crude oil increased by 9.7%, driven by a number of
factors from stronger economies and geopolitical
pressures.
Unlisted Investments (Level 3 Investments)
UEM has, over the years, invested in
unlisted businesses at a modest level. As at 31 March 2023 the
value of the unlisted portfolio had risen to 10.8% of the total
portfolio, which was driven primarily by the revaluation of
Petalite Limited ("Petalite"). In the year to 31 March 2024 the
carrying value of Petalite was reduced by 70.0% reflecting the
challenges in the electric vehicle ("EV") space which resulted in a
number of listed EV companies' share prices marked down
significantly. This reduction, together with some realisations, saw
the unlisted investments reduce in value and as a percentage of the
total portfolio. As at 31 March 2024 the unlisted investments
represented 4.5% of the total portfolio.
Revenue Earnings and Dividend
While UEM's revenue earnings per
share ("EPS") decreased by 6.1% to 8.83p as at 31 March 2024,
dividends remain covered by the EPS.
UEM has declared four quarterly
dividends of 2.15p each, totalling 8.60p per share, a 1.8% increase
over the previous year. The retained earnings revenue reserves
increased by £0.5m in the year to £10.1m as at 31 March 2024, equal
to 5.29p per share.
Ongoing Charges
Ongoing charges were 1.5% for the
year to 31 March 2024 (2023: 1.4%), reflecting increases in
marketing expenditure, audit and custody fees.
Share Buybacks
UEM's share price discount continued
to widen over the year from 13.5% as at 31 March 2023 to 19.3% as
at 31 March 2024. This remains well above the level that the Board
would wish to see over the medium term. The Company has therefore
continued buying back shares for cancellation, with 11.4m shares
bought back during the year to 31 March 2024, at an average price
of 223.36p and total cost of £25.4m. The share buybacks have
contributed 1.0% to UEM's total returns during the year to 31 March
2024.
While the Board is keen to see the
discount narrow, any share buyback remains an independent
investment decision. Historically the Company has bought back
shares if the discount widens in normal market conditions to over
10.0%. Since inception, UEM has bought back 86.2m ordinary shares
totalling £164.2m. The buybacks now represent significantly more
than the initial IPO capitalisation of UEM Limited when it came to
market in July 2005.
Board
As reported last year, Susan Hansen
stepped down from the Board following the 2023 Annual General
Meeting ("AGM") and the Board continues to comprise four Directors.
Having joined the Board in 2015 and served for a period approaching
nine years, I intend to retire from the Board on 31 December 2024.
I am pleased to report that Mark Bridgeman, who is currently the
Company's Senior Independent Director, has agreed to replace me as
Chairman with Isabel Liu taking on the role of Senior Independent
Director. As part of the Company's succession planning, we engaged
an independent search consultancy to find a suitably qualified
Director to join the Board. After a thorough selection process, the
Board is pleased to appoint Nadya Wells as a non executive Director
with effect from 1 September 2024. Nadya has over 25 years'
experience in emerging markets, having spent 13 years with the
Capital Group as a portfolio manager and prior to that was a
portfolio manager at Invesco Asset Management investing in Eastern
Europe.
Outlook
The structural growth and global
infrastructure megatrends in EM continue to drive growth within EM
economies. Our investee companies continue to make good progress
and we remain optimistic that UEM offers significant value to its
shareholders.
John Rennocks
Chairman
14 June 2024
Investment Managers' Report
It is pleasing to see UEM report
another NAV gain, with a NAV total return for the year to 31 March
2024 of 12.8%, building on last year's 2.1% uplift and the prior
two year's 14.9% and 30.2% returns. This performance was again
significantly ahead of the MSCI EM total return Index which
increased 5.8% during the year.
UEM's NAV performance over one year,
three, five and ten years and since inception are all ahead of the
MSCI EM total return Index. UEM has achieved this together with a
rising dividend payout; lower volatility (as at 31 March 2024,
UEM's five year Beta was 0.81x); and with a portfolio which is
significantly different from the MSCI Index. This should be
compelling to investors who want exposure to emerging markets, top
performance and comparatively low levels of volatility.
The world is still faced with a
number of unresolved deep-seated issues. As noted in the Chairman's
Statement these range from inflation to climate change. To this, we
can add the tragic events in Israel and Gaza and the risk that the
Middle East descends further into conflict. Given that we have
highlighted a number of these issues before we will focus on two
topics in particular to discuss in more detail. Finding consensus
on these concerns has been and continues to be
difficult.
Inflation and Interest Rates
As we have outlined before,
inflation has risen sharply and remains elevated in the developed
economies. One of the undoubted drivers of this has been tight
labour markets which has led to wage inflation as buying power
shifts to the wider workforce. Last year we noted that to address
the rising inflationary outlook in the developed world, central
banks had raised interest rates at a rapid pace. We expect we are
at the point where interest rates plateau before declining. The
"lower for longer" mantra has been replaced by "higher for
longer".
Over the past year many commodities
have seen prices fall as supply chains stabilise and efficiencies
emerge, and this has led to much lower inflationary pressures.
However, inflation remains above levels most central banks wish to
see before cutting their rates.
We continue to be surprised by the
tightness of labour markets. Unemployment levels remain at record
lows in many countries. Our view is that the combination of workers
suffering from long Covid and increased social care falling on
families, together with early retirement has all contributed to the
reduction in the available labour force. In addition, we are of the
view that nearshoring (Global Trade megatrend), renewables (Energy
Growth and Transition megatrend) and other global infrastructure
megatrends are driving investment in the developed world and
emerging markets at above average trends and inflation could remain
elevated for some time. This certainly looks to be the case in the
United States.
A stark point to note is most
central banks reference their interest rates off the US Federal
Reserve. Decreasing rates at a time when the US is holding rates is
seen as high risk for smaller economies. It is not surprising
therefore to see the Chilean Peso fall by 21.1% given its central
bank cut rates from 11.25% to 7.25% in the year to 31 March 2024.
Certainly, the emerging economies have more room to cut rates, but
are looking for the US Federal Reserve to move first.
Despite elevated central bank rates,
UEM's portfolio of investments exceeded our expectations. The
strength of the businesses and management teams' discipline is
admirable. The portfolio investee gearing remains modest at under
2.0x and we believe valuations continue to be
attractive.
Emerging Markets Structural Growth Drivers and
Megatrends
The ICM team travels a significant
amount to EM countries and it is very evident to us that EM offers
huge opportunities.
i.
Structural growth drivers remain fundamental: the key drivers of
positive demographics, increase in urbanisation, rise of the middle
class and strong GDP growth remain. Typically, EM have a young,
growing, increasingly better educated working age population. This
coupled with increasing rates of urbanisation, is resulting in the
need for EM countries to invest in robust infrastructure such as
energy, water and transportation to support this urban growth,
providing UEM with numerous interesting and attractive
opportunities. Further, the rise of the middle class that has
growing discretionary income is driving an increase in consumption
of goods and services but also demands for better quality of life
assets such as road connectivity, air travel and faster data
connectivity. EM are also witnessing on average stronger GDP growth
than developed markets, with EM becoming more important within the
global economy.
ii. The
emergence of global infrastructure megatrends: the structural
growth drivers are being accelerated by global infrastructure
megatrends that we are witnessing. Within "Energy Growth and
Transition" significant energy investment is required to help
support the strong GDP growth within EM with a focus on cleaner
energy solution as countries drive to achieve lower or net zero
emission targets. As EM countries are also witnessing higher
urbanisation and a rise of the middle class, demand for better
"Social Infra" is also required, providing UEM with a number of
investment opportunities in the energy, transportation and
communication sectors. Further, new and affordable digital
technology is driving rapid digital adoption and is increasing
demand for digital infrastructure. Digital Infra is becoming
increasingly essential in all markets driving economic and social
change. UEM is focused on infrastructure investments that are
helping to deliver this digital transformation. As EM global GDP
increases, EM importance in "Global Trade" increases. This,
alongside supply chain disruptions, geopolitical tensions and
increasing exports restrictions is changing the global trade
environment providing again more compelling investment
opportunities.
iii. Government
support: Nearly all governments in emerging markets have extensive
infrastructure plans. From Brazil, to India, The Philippines,
Indonesia and Mexico, the level of ambition is significant. Again
providing investment opportunities.
iv. Country
attributes: Many emerging economies have additional individual
strengths. For example, Mexico with its more affordable and hard
working labour force, Brazil with its rich commodities base and
Vietnam with its proximity to China. These economies are starting
to reach a tipping point. Taking Brazil as an example, its trade
surplus in 2022 was USD 62bn and in 2023 it rose to USD 99bn - no
wonder investments in UEM's portfolio such as Santos Brasil
Porticipacoes S.A. ("Santos") are outperforming. It is hard to
convey just how high we see the levels of energy, drive and
momentum underway in the emerging markets.
I would urge readers to follow us,
on LinkedIn and on the UEM website, to see more about these trends
we are witnessing and hear the opportunity which UEM
offers.
Portfolio
UEM's gross assets (less liabilities
excluding loans) decreased to £522.9m as at 31 March 2024 from
£542.5m as at 31 March 2023. This reflects portfolio valuation
uplifts of £46.8m offset by net realisations to fund, in part, both
the share buybacks of £25.4m and the reduction in bank debt of
£35.1m in the year.
At the year end the top thirty
holdings accounted for 70.9% of the total portfolio (31 March 2023:
67.7%). As with last year there have been nine new entrants into
the top thirty over the year. UEM purchased £8.4m of shares in
Manila Water Company, Inc. UEM nearly doubled its investment in
Serena Energia S.A. (£5.4m), increased its investment in Cia de
Saneamento Basico do Estado de Sao Paulo (£2.0m) which also
benefitted from its share price rise of 67.8% and increased its
investment in JSL S.A. (£4.3m) by 137.3%, its share price rise was
also impressive at 88.8%. Holding Bursatil Regional S.A. was an
investment from the merger of Bolsa de Valores de Colombia with the
Peru and Chile stock exchanges. TTS (Transport Trade Services)
S.A.'s ("TTS") share price rose 126.1% and UEM reduced its holding
by 40.6%, receiving £5.3m. TAV Havalimanlari Holding A.S.'s
investment increased by 49.7% (£1.8m) and its share price rose
140.7%. Finally, UEM's holding in Societe Nationale des
Telecommunications du Senegal ("Sonatel") was unchanged, but its
share price rose 13.1% and Ocean Wilsons Holdings Limited's share
price rose 55.3% during the year to 31 March 2024.
UEM exited from Vamos Locacao de
Caminhoes Maquinas e Equipamentos S.A. ("Vamos"), receiving £5.9m
and Grupo Aeroportuario del Pacifico, S.A.B de C.V., realising
£7.5m. UEM also reduced its investment in Gujarat State Petronet
Limited, Grupo Aeroportuario del Centro Norte, S.A.B de C.V. and
Engie Energia Chile S.A., all of which fell outside the top thirty
holdings giving a total realisation of £29.6m. China Datang
Corporation Renewable Power Co., Limited ("China Datang") and
Telelink Business Services Group both fell out of the top thirty
due to relative performance.
On a total return contribution
basis, the top performer in the portfolio was International
Container Terminal Services, Inc. ("ICT") which contributed to 2.2%
of UEM's performance as its share price over the period appreciated
49.2% and ICT continues to deliver strong financial and operational
results. Power Grid Corporation of India Limited ("Power Grid") and
Santos both added 1.7% to UEM's performance, Power Grid sustaining
strong operational results in a buoyant Indian stock market, whilst
Santos also benefitted from the positive Brazilian market momentum
as well as improved market position of its main asset Tecon Santos
within the Port of Santos. FPT Corporation ("FPT") contributed 1.6%
due to strong growth in net profits of 21.2% and improved investor
confidence in Vietnam. TTS contributed 1.5% witnessing an
improvement in pricing with volumes helping to drive it share price
up 126.1% over the period.
The bottom performers over the
twelve months to 31 March 2024 were Vamos with a negative 0.7%
contribution, affected by market concerns relating to its
dealership business. China Gas Holdings Limited also contributed a
minus 0.7% as its share price fell 36.2% over the year, reflecting
weakness in the Chinese property market driving concerns around new
gas connections and demand. China Datang also contributed a
negative return of 0.9% as there have been concerns over China
Datang's investment in new projects offering lower returns, with
its share price falling 42.7% over the year. Conversant Solutions
Pte Ltd and Petalite, two unlisted investments also reduced UEM's
performance by 1.1% and 4.1% respectively.
Purchases in the portfolio decreased
to £80.2m in the year ended 31 March 2024 (31 March 2023: £108.9m)
and realisations increased to £155.5m (31 March 2023: £126.6m).
This reflects both the reduction in debt by £35.1m as UEM repaid
its loan facility and the decision to maintain a high level of
buybacks to take advantage of the wide discount.
There have been some small sector
shifts during the year to 31 March 2024 and more detail is set out
on page 20. On a geographical basis, again there were modest
changes and more detail is set out on page 9. It is worth noting
that Brazil remains our top country exposure and grew to 25.8% from
20.9% in the prior year, mainly due to valuation uplifts. China
remains the second biggest country exposure, but it reduced to
11.0% from 15.8% in the prior year on realisations and valuation
weakness.
Level 3 Investments
UEM ended the year with level 3
investments totalling £23.1m (31 March 2023: £58.7m), representing
4.5% of total investments (31 March 2023: 10.8%). UEM's level 3
investments reduced mainly as a result of the devaluation of
Petalite by £20.0m and the £5.0m realisation from CGN Capital
Partners Infra Fund 3 ("CGN").
Pleasingly we realised the majority
of our holding in CGN, a private Chinese onshore wind developer and
received 40% of the proceeds during the year to 31 March 2024. We
are expecting to realise the balance of this investment and make a
positive return. Further we exited from an Indian solar farm
developer and operator at an internal rate of return of close to
28%.
UEM's investment in Petalite
continues to make progress on its product development path and it
is seeking to raise up to £20.0m in a Series A fund raising.
However, the comparable listed entities in this space have had a
difficult time and many have seen their valuations reduce by over
70%. UEM has reduced its investment valuation in line with this and
as at 31 March 2024 its equity was valued at £8.6m. Since then,
Petalite has continued its Series A fund raising efforts but market
conditions have continued to be weak and UEM reduced Petalite's
equity valuation to £3.5m as at 12 June 2024. Attention is drawn to
note 26(d) of the accounts which provides more information on
Petalite's valuation methodology.
Bank Debt
UEM's net debt, being bank loans and
net overdrafts, decreased from £36.1m as at 31 March 2023 to nil as
at 31 March 2024. UEM repaid its bank debt in March 2024 when the
loan facility matured. The Company is currently in discussions
regarding a replacement revolving facility and a further
announcement will be made in due course.
Revenue Return
Revenue income decreased to £23.1m
in the year to 31 March 2024, from £24.3m in the prior year,
reflecting the fewer dividends received from investee companies due
to the changes in the portfolio. The revenue yield on the closing
portfolio was unchanged at 4.5% for both years.
Management fees and other expenses
having been flat in 2023 rose to £3.4m in the year to 31 March
2024, (31 March 2023: £3.0m). While disappointing, this reflects
the increases in marketing expenditure, audit and custody fees.
Finance costs rose to £0.3m reflecting the higher interest rate
environment (31 March 2023: £0.2m). Taxation rose to £2.0m during
the year ended 31 March 2024 (31 March 2023: £1.6m) reflecting
increased dividends received from countries with higher withholding
tax rates.
As a result of the above, profit for
the year decreased by 10.3% to £17.5m from £19.5m for 31 March
2023. EPS decreased by 6.1% to 8.83p compared to the prior year of
9.40p, reflecting the decrease in profit and the reduced average
number of shares in issue following the buybacks. Dividends per
share ("DPS") of 8.60p were fully covered by earnings.
Retained revenue reserves rose to
£10.1m as at 31 March 2024, equal to 5.29p per share.
Capital Return
The portfolio gains were £46.8m on
the capital account during the year to 31 March 2024 (31 March
2023: losses of £8.4m). The highest returns were from ICT with
£9.5m, and Power Grid and FPT at £7.5m each. Gains on foreign
exchange were £0.6m and the resultant total income on the capital
account was £47.4m against prior year losses of £8.9m.
Management and administration fees
were almost flat for the second year in a row at £4.4m (31 March
2023: £4.3m).
Finance costs increased to £1.3m
from £0.7m as a result of higher interest rates. There was a
taxation charge of £1.4m (31 March 2023: credit of £0.2m) which
arose from Indian capital gains tax. The net effect of the above
was a gain on capital return of £40.4m compared to a loss of £13.7m
for 31 March 2023.
Charles Jillings
ICM Investment Management Limited
and ICM Limited
14 June 2024
Principal Risks And Risk Mitigation
During the year ended 31 March 2024,
ICMIM was the Company's AIFM and had sole responsibility for risk
management, subject to the overall policies, supervision, review
and control of the Board.
As required by the Association of
Investment Companies ("AIC") Code of Corporate Governance, the
Board has undertaken a robust assessment of the principal risks
facing the Company. It seeks to mitigate these risks through
regular review by the Audit & Risk Committee of the Company's
risk register which identifies the risks facing the Company and the
likelihood and potential impact of each risk, together with the
controls established for mitigation.
During the year the Audit & Risk
Committee also discussed and monitored a number of emerging risks
that could potentially impact the Company, the principal ones being
geopolitical risk and climate change risk. The Audit & Risk
Committee has determined that they are not currently sufficiently
material to be categorised as separate key risks and are considered
within investment risk and market risk below.
The principal risks and
uncertainties currently faced by the Company and the controls and
actions to mitigate those risks, are described below. There have
been no significant changes to the principal risks during the
year.
Investment Risk: The risk that the investment strategy does
not achieve long-term positive total returns for the Company's
shareholders. Insufficient consideration of
ESG factors could lead to poor performance and/or a reduction in
demand for the Company's shares.
The Board monitors the performance
of the Company and has established guidelines to ensure that the
approved investment policy 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. In addition, ESG factors are also
considered when selecting and retaining investments, and political
risks associated with investing in EM 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 aims to achieve absolute returns through an
active fund management approach and the Board monitors the
implementation and results of the investment process with the
Investment Managers.
Market Risk: The Company's assets consist mainly of listed
securities and its principal risks are therefore market related and
adverse market conditions could lead to a fall in
NAV.
The Company's portfolio is exposed
to equity market risk and foreign currency risk. Adverse market
conditions may result from factors such as economic conditions,
political change, geo-political confrontations, climate change,
natural disasters and health epidemics. At each Board meeting the
Board reviews the diversification of the portfolio, asset
allocation, stock selection, unquoted investments and levels of
gearing and has set investment restrictions and guidelines which
are monitored and reported on by the Investment
Managers.
The Company's results are reported
in Sterling, although the majority of its assets are priced in
foreign currencies and therefore any rise or fall in Sterling will
lead, respectively, to a fall or rise in the Company's reported
NAV. 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 EM currencies.
Key
Staff Risk: Loss by the Investment Managers of key staff could
affect investment returns.
The quality of the investment
management team is a crucial factor in delivering good performance.
There are training and development programmes in place for
employees and the 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.
Discount Risk: The Company's shares may trade at a discount to
their NAV and a widening discount may undermine investor confidence
in the Company.
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 in normal market conditions if they are trading at a
discount in excess of 10% and the Investment Managers agree that it
is a good investment decision.
Operational Risk: 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 96. The Audit & Risk Committee monitors the
performance and controls (including business continuity procedures)
of the service providers at regular intervals..
All listed and a number of unlisted
investments are held in custody for the Company by JPMorgan Chase
Bank N.A. - London Branch. JPMEL, the Company's depositary services
provider, also monitors the movement of cash and assets across the
Company's accounts. The Audit & Risk Committee reviews the JP
Morgan system and organisation controls reports, which are reported
on by Independent Service Auditors, in relation to its
administration, custodial and information technology
services.
The Board reviews the overall
performance of the Investment Managers and all the other service
providers on a regular basis. 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.
Gearing Risk: 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.
Gearing levels may change from time
to time in accordance with the Board and Investment Managers'
assessment of risk and reward. As at 31 March 2024, since the
Company's bank facility has been repaid, UEM had net cash. In the
event of a new facility being put in place, ICMIM will continue to
monitor compliance with the banking covenants when each drawdown is
made and at the end of each month. The Board will review compliance
with the banking covenants at each Board meeting.
Regulatory Risk: Failure to comply with applicable legal and
regulatory requirements such as the tax rules for investment
companies, the FCA's Listing Rules and the Companies Act 2006 could
lead to suspension of the Company's Stock Exchange listing,
financial penalties, a qualified audit report or the Company being
subject to tax on capital gains.
The Investment Managers and the
Company's professional advisers monitor developments in relevant
laws and regulations and provide regular reports to the Board in
respect of the Company's compliance.
Directors' Statement Of Responsibilities
in
respect of the Annual Report and the Financial
Statements
The Directors are responsible for
preparing the Annual Report and financial statements in accordance
with applicable United Kingdom law and regulations.
Company law requires the Directors
to prepare financial statements for each financial year. Under that
law, they are required to prepare the financial statements in
accordance with UK adopted International Accounting Standards and
the Companies Act 2006.
Under company law the Directors must
not approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the
Company and of its profit or loss for that period. In preparing
these financial statements, the Directors are required
to:
·
select suitable accounting policies and then apply
them consistently;
·
make judgements and estimates that are reasonable,
relevant and reliable;
• state whether
they have been prepared in accordance with UK adopted International
Accounting Standards and the Companies Act 2006;
• assess the
Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern; and
• use the going
concern basis of accounting unless they either intend to liquidate
the Company or to cease operations, or have no realistic
alternative but to do so.
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 the financial statements comply with the
Companies Act 2006. They are responsible for such internal controls
as they determine are necessary to enable the preparation of
financial statements that are free from material misstatement,
whether due to fraud or error, and have general responsibility for
taking such steps as are reasonably open to them to safeguard the
assets of the Company and to prevent and detect fraud and other
irregularities.
Under applicable law and
regulations, the Directors are also responsible for preparing a
Strategic Report, Directors' Report, Directors' Remuneration Report
and Corporate Governance Statement that complies with that law and
those regulations.
In accordance with Disclosure
Guidance and Transparency Rule 4.1.14R, the financial statements
will form part of the annual financial report prepared using the
single electronic reporting format under the TD ESEF Regulation.
The auditor's report on these financial statements provides no
assurance over the ESEF format.
The Directors are responsible for
the maintenance and integrity of the corporate and financial
information included on the Company's website, which is maintained
by the Company's Investment Managers. Legislation in the UK
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
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 Strategic Report and Directors' Report include
a fair review of the development and performance of the business
and the position of the Company, together with a description of the
principal risks and uncertainties that it faces.
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 Company's position and performance, business model and
strategy.
Approved by the Board on 14 June
2024 and signed on its behalf by:
John Rennocks
Chairman
Statement Of Comprehensive Income
|
|
for the year
to
|
for the
year to
|
|
|
31 March
2024
|
31 March
2023
|
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
|
return
|
return
|
return
|
return
|
return
|
return
|
|
|
£'000s
|
£'000s
|
£'000s
|
£'000s
|
£'000s
|
£'000s
|
|
|
|
|
|
|
|
|
Gains/(losses) on
investments
|
|
-
|
46,836
|
46,836
|
-
|
(8,389)
|
(8,389)
|
Foreign exchange
gains/(losses)
|
|
-
|
610
|
610
|
-
|
(515)
|
(515)
|
Investment and other
income
|
|
23,079
|
-
|
23,079
|
24,326
|
-
|
24,326
|
Total income/(loss)
|
|
23,079
|
47,446
|
70,525
|
24,326
|
(8,904)
|
15,422
|
Management and administration
fees
|
|
(1,445)
|
(4,368)
|
(5,813)
|
(1,394)
|
(4,336)
|
(5,730)
|
Other expenses
|
|
(1,911)
|
-
|
(1,911)
|
(1,651)
|
-
|
(1,651)
|
Profit/(loss) before finance costs and
taxation
|
|
19,723
|
43,078
|
62,081
|
21,281
|
(13,240)
|
8,041
|
Finance costs
|
|
(318)
|
(1,274)
|
(1,592)
|
(169)
|
(674)
|
(843)
|
Profit/(loss) before taxation
|
|
19,405
|
41,804
|
61,209
|
21,112
|
(13,914)
|
7,198
|
Taxation
|
|
(1,958)
|
(1,360)
|
(3,318)
|
(1,638)
|
212
|
(1,426)
|
Profit/(loss) for the year
|
|
17,447
|
40,444
|
57,891
|
19,474
|
(13,702)
|
5,772
|
|
|
|
|
|
|
|
|
Earnings per share (basic) - pence
|
|
8.83
|
20.48
|
29.31
|
9.40
|
(6.61)
|
2.79
|
All items in the above statement
derive from continuing operations.
The 'Total' column of this statement
is the profit and loss account of the Company and the 'Revenue' and
'Capital' columns represent supplementary information prepared
under guidance issued by the Association of Investment
Companies.
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 income is attributable to the
equity holders of the Company.
STATEMENT OF CHANGES IN EQUITY
for
the year to 31 March 2024
|
|
|
|
Ordinary
|
|
Capital
|
|
Retained
earnings
|
|
|
share
|
Merger
|
redemption
|
Special
|
Capital
|
Revenue
|
|
|
capital
|
reserve
|
reserve
|
reserve
|
reserves
|
reserve
|
Total
|
|
£'000s
|
£'000s
|
£'000s
|
£'000s
|
£'000s
|
£'000s
|
£'000s
|
Balance as at 31 March
2023
|
2,023
|
76,706
|
322
|
432,577
|
(13,841)
|
9,587
|
507,374
|
Shares purchased by the Company
and
cancelled
|
(114)
|
-
|
114
|
(25,397)
|
-
|
-
|
(25,397)
|
Profit for the year
|
-
|
-
|
-
|
-
|
40,444
|
17,447
|
57,891
|
Dividends paid in the year
|
-
|
-
|
-
|
-
|
-
|
(16,935)
|
(16,935)
|
Balance as at 31 March 2024
|
1,909
|
76,706
|
436
|
407,180
|
26,603
|
10,099
|
522,933
|
for the year to 31 March
2023
|
|
|
|
Ordinary
|
|
Capital
|
|
Retained
earnings
|
|
|
share
|
Merger
|
redemption
|
Special
|
Capital
|
Revenue
|
|
|
capital
|
reserve
|
reserve
|
reserve
|
reserves
|
reserve
|
Total
|
|
£'000s
|
£'000s
|
£'000s
|
£'000s
|
£'000s
|
£'000s
|
£'000s
|
Balance as at 31 March
2022
|
2,148
|
76,706
|
197
|
459,736
|
(139)
|
7,268
|
545,916
|
Shares purchased by the Company
and
cancelled
|
(125)
|
-
|
125
|
(27,159)
|
-
|
-
|
(27,159)
|
(Loss)/profit for the year
|
-
|
-
|
-
|
-
|
(13,702)
|
19,474
|
5,772
|
Dividends paid in the year
|
-
|
-
|
-
|
-
|
-
|
(17,155)
|
(17,155)
|
Balance as at 31
March 2023
|
2,023
|
76,706
|
322
|
432,577
|
(13,841)
|
9,587
|
507,374
|
STATEMENT OF FINANCIAL POSITION
|
|
|
2024
|
2023
|
as
at 31 March
|
|
|
£'000s
|
£'000s
|
Non-current assets
|
|
|
|
|
Investments
|
|
|
517,195
|
545,657
|
Current assets
|
|
|
|
|
Other receivables
|
|
|
6,078
|
1,444
|
Cash and cash equivalents
|
|
|
5,751
|
456
|
|
|
|
11,829
|
1,900
|
Current liabilities
|
|
|
|
|
Other payables
|
|
|
(4,573)
|
(3,461)
|
Bank loans
|
|
|
-
|
(35,102)
|
|
|
|
(4,573)
|
(38,563)
|
|
|
|
|
|
Net
current assets/(liabilities)
|
|
|
7,256
|
(36,663)
|
Total assets less current liabilities
|
|
|
524,451
|
508,994
|
Non-current liabilities
|
|
|
|
|
Provision for capital gains
tax
|
|
|
(1,518)
|
(1,620)
|
Net
assets
|
|
|
522,933
|
507,374
|
|
|
|
|
|
Equity attributable to equity holders
|
|
|
|
|
Ordinary share capital
|
|
|
1,909
|
2,023
|
Merger reserve
|
|
|
76,706
|
76,706
|
Capital redemption reserve
|
|
|
436
|
322
|
Special reserve
|
|
|
407,180
|
432,577
|
Capital reserves
|
|
|
26,603
|
(13,841)
|
Revenue reserve
|
|
|
10,099
|
9,587
|
Total attributable to equity holders
|
|
|
522,933
|
507,374
|
|
|
|
|
|
Net
asset value per share
|
|
|
|
|
Basic - pence
|
|
|
274.01
|
250.91
|
STATEMENT OF CASH FLOWS
|
|
2024
|
2023
|
Year
to 31 March
|
|
£'000s
|
£'000s
|
Operating activities
|
|
|
|
Profit before taxation
|
|
61,209
|
7,198
|
Deduct investment income -
dividends
|
|
(21,100)
|
(22,671)
|
Deduct investment income -
interest
|
|
(1,932)
|
(1,627)
|
Deduct bank Interest
received
|
|
(47)
|
(28)
|
Add back interest charged
|
|
1,592
|
843
|
Add back (gains)/losses on
investments
|
|
(46,836)
|
8,389
|
Add back foreign exchange
(gains)/losses
|
|
(610)
|
515
|
Increase in other
receivables
|
|
(30)
|
(31)
|
Decrease in other
payables
|
|
(683)
|
(88)
|
Net
cash outflow from operating activities before dividends and
interest
|
(8,437)
|
(7,500)
|
Interest paid
|
|
(1,813)
|
(646)
|
Dividends received
|
|
20,212
|
22,417
|
Investment income -
interest
|
|
1,125
|
475
|
Bank interest received
|
|
47
|
28
|
Taxation paid
|
|
(3,431)
|
(1,691)
|
Net
cash inflow from operating activities
|
|
7,703
|
13,083
|
Investing activities
|
|
|
|
Purchases of investments
|
|
(75,544)
|
(106,821)
|
Sales of investments
|
|
151,442
|
125,649
|
Net
cash inflow from investing activities
|
|
75,898
|
18,828
|
Financing activities
|
|
|
|
Repurchase of shares for
cancellation
|
|
(25,397)
|
(27,159)
|
Dividends paid
|
|
(16,935)
|
(17,155)
|
Drawdown of bank loans
|
|
19,821
|
35,385
|
Repayment of bank loans
|
|
(53,943)
|
(24,440)
|
Net
cash outflow from financing activities
|
|
(76,454)
|
(33,369)
|
Increase/(decrease) in cash and cash
equivalents
|
|
7,147
|
(1,458)
|
Cash and cash equivalents at the
start of the year
|
|
(1,026)
|
452
|
Effect of movement in foreign
exchange
|
|
(370)
|
(20)
|
Cash and cash equivalents as at the end of the
year
|
|
5,751
|
(1,026)
|
Comprised of:
|
|
|
|
Cash
|
|
5,751
|
456
|
Bank overdraft
|
|
-
|
(1,482)
|
Total
|
|
5,751
|
(1,026)
|
NOTES
The Directors have declared a fourth
quarterly dividend in respect of the year ended 31 March 2024 of
2.15p per share payable on 28 June 2024 to shareholders on the
register at close of business on 7 June 2024. The total cost of the
dividend, which has not been accrued in the results for the year to
31 March 2024, is £4,072,000 based on 189,405,062 shares in issue
at the record date.
This statement was approved by the
Board on 14 June 2024. The financial information set out above does
not constitute the Company's statutory accounts for the years ended
31 March 2024 or 2023 but is derived from those accounts. Statutory
accounts for 2023 have been delivered to the Registrar of Companies
and those for 2024 will be delivered in due course. The auditor has
reported on those accounts; their reports were (i) unqualified,
(ii) did not include a reference to any matters to which the
auditor drew attention by way of emphasis without qualifying their
report and (iii) did not contain a statement under section 498 (2)
or (3) of the Companies Act 2006.
Annual General Meeting Arrangements
The Annual General Meeting of the
Company will be held at The Royal Society of Chemistry, Burlington
House, Piccadilly, London W1J 0BA on Tuesday, 17 September 2024 at
10.30 a.m. and notice is set out at the end of the Report &
Accounts.
Legal Entity Identifier:
2138005TJMCWR2394O39