Annual Financial Report

Ecofin Global Utilities Inf Tst PLC

18 December 2023

 

ECOFIN GLOBAL UTILITIES AND INFRASTRUCTURE TRUST PLC (the "Company")

Annual Results Announcement for the year ended 30 September 2023

LEI: 2138005JQTYKU92QOF30

This announcement contains regulated information.

Ecofin Global Utilities and Infrastructure Trust plc (the "Company" or "EGL") is an authorised UK investment trust whose objectives are to achieve a high, secure dividend yield on a portfolio invested primarily in the equities of utility and infrastructure companies in developed countries and long-term growth in the capital value of the portfolio while preserving shareholders' capital in adverse market conditions.

·      During the year ended 30 September 2023, the Company's net asset value ("NAV") per share total return was -8.6%. The Company's share price total return was -21.9%;

·      Four quarterly dividends were paid during the year totalling 7.70p per share;

·      The Company's revenue return per share increased by 9.2% year-over-year as a result of continuing strong growth in investment income. Due to this, and to reflect your board's confidence in the growth prospects of EGL, we have decided to increase the quarterly dividend to 2.05p per share (8.20p per annum) with effect from the dividend to be paid in February 2024. At the current share price and increased dividend rate, the Company's shares yield 4.7%;

·      The portfolio is exposed to the broader return opportunities in the infrastructure and utilities sectors which are at least in line with EGL's target total return of 6-12% p.a. over the longer term.

Summary	As at or year to 30 September 2023	As at or year to 30 September 2022
Net assets attributable to shareholders (£'000)	211,977	233,052
Net asset value ("NAV") per share1	183.54p	208.14p
Share price (mid-market)	164.00p	218.00p
(Discount)Premium to NAV1	(10.6)%	4.7%
Revenue return per share	7.01p	6.42p
Dividends paid per share	7.70p	7.20p
Dividend yield 1,2	4.7%	3.3%
Gearing on net assets 1,3	11.2%	11.0%
Ongoing charges ratio 1,4	1.27%	1.35%

1. Please refer to Alternative Performance Measures in the annual report.

2. Dividends paid (annualised) as a percentage of share price.

3. Gearing is the Company's borrowings (including the net amounts due from brokers) less cash divided by net assets attributable to shareholders.

4. The ongoing charges ratio is calculated in accordance with guidance issued by the Association of Investment Companies ("AIC") as the operating costs (annualised) divided by the average NAV (with income) throughout the period.

Performance for periods to 30 September 2023 (total returns in £)	1 year %	3 years %	5 years	Since admission5 %	Since admission % per annum
NAV per share 6	-8.6	24.1	53.9	72.9	8.1
Share price 6	-21.9	14.7	60.2	95.9	10.1
Indices 6,7
S&P Global Infrastructure Index	-3.1	27.8	24.9	33.2	4.2
MSCI World Utilities Index	-8.2	9.8	30.9	42.4	5.2
MSCI World Index	11.8	35.4	55.5	105.1	10.8
FTSE All-Share Index	13.6	39.3	19.4	41.2	5.0
FTSE ASX Utilities Index	14.8	40.8	60.3	31.5	4.0

Source: Bloomberg, Ecofin

5. The Company was incorporated on 27 June 2016 and its investment activities began on 13 September 2016 when the liquid assets of Ecofin Water & Power Opportunities plc ("EWPO") were transferred to it. The formal inception date for the measurement of the Company's performance is 26 September 2016, the date its shares were listed on the London Stock Exchange.

6. Total return includes dividends paid and reinvested immediately. Please also refer to the Alternative Performance Measures in the Annual Report.

7. The Company does not have a formal benchmark index. For comparison purposes the S&P Global Infrastructure Index and MSCI World Utilities Index are the global sector indices deemed the most appropriate. The other indices are provided for general interest.

Chairman's Statement

Performance

The last few months of your Company's financial year proved challenging and resulted in a poor year for shareholder returns. The net asset value (NAV) total return was -8.6% over the year to 30 September, including the reinvestment of dividends. The share price total return was -21.9%, reflecting a share price discount which emerged during the summer. The MSCI World Utilities Index and the S&P Global Infrastructure Index produced total returns of -8.2% and -3.1% respectively in sterling terms. In comparison, global equities, measured by the MSCI World Index, returned 11.8%.

As our investment manager explains on the following pages, share prices of renewables-focussed developers in particular, whose long life assets vital to the energy transition require large upfront investment commitments, came under substantial pressure, especially in the second part of the year in the US. This was because increased long term interest rates created a drop in the present value of these businesses' long term cash flows, exacerbated by shareholders becoming more risk-averse and uncertainty about the course of energy prices. Companies in the portfolio with more diversified and inflation protected business models, such as European integrated utilities, environmental services and transportation infrastructure, performed better but listed infrastructure overall underperformed rising global equity markets by a significant margin. Sterling's strength, particularly against the US dollar (+9%), also contributed to the NAV's decline, as did our use of debt which contributed -0.1%.

From inception in September 2016 to the financial year-end, the NAV total return has averaged 8.1% per annum and the share price total return 10.1% per annum, in line with our expectations for companies in the portfolio whose core assets respond to essential needs, operate within solid regulatory frameworks and have predictable and sustainable cash flows.

Dividends

The Company's revenue return per share increased by 9.2% year-over-year as a result of continuing strong growth in investment income even though higher rates increased borrowing costs. Due to this, and to reflect your board's confidence in the growth prospects of EGL, we have decided to increase the quarterly dividend to 2.05p per share (8.20p per annum) with effect from the dividend to be paid in February 2024. At the current share price and increased dividend rate, the Company's shares yield 4.7%.

Share price, issuances and buybacks

During the first eight months of the financial year, the Company was issuing new shares in response to daily demand when the share price traded at a small premium to NAV (4.6 million shares were issued). During the summer, as the NAV fell, the share price declined faster, resulting in a discount of 10.6% at the financial year end.

The infrastructure investment trust sector has seen discounts widen to unprecedented levels. The wider investment trust universe has also shown significant share price weakness. We know that we cannot expect our actions to be wholly successful to bring our own discount down until investor confidence returns. That said, we firmly believe in the continuing ability of your Company to prosper and we began to repurchase shares on 31 July. By year-end, 1.1 million shares had been repurchased with an additional 380,000 shares repurchased thereafter.

Your board

On 12 September 2023 the board was pleased to appoint Joanna Santinon as a non-executive director of the Company. Joanna, an experienced accountant and financial professional, will become the chair of the audit committee when Iain McLaren retires from the board at the AGM in March 2024.

Continuation vote

Pursuant to the Company's Articles of Association, the board is required to put a continuation vote to shareholders every five years. As the last time such a vote occurred was in 2019, a continuation vote will be put to shareholders at the Annual General Meeting to be held on 6 March 2024. Given the performance of the Company since inception and the strong growth outlook for its investment universe, your board has no hesitation recommending to shareholders that they vote in favour of the Company continuing as an investment company for a further five year period.

Outlook

Since 30 September (to 14 December), the Company's NAV has increased by 7.3% and the share price by 7.8% (both on a total return basis).

Although geopolitical tensions are unnerving investors and interest rates are likely to remain much higher than in recent years, there are reasons to feel optimistic that the performance of the Company's investment sectors and portfolio will improve. Your investment manager is confident that the energy transition will continue, aided by further policy support and improvements in technology. Global investment in renewable energy and power transmission is driven by the need for energy security, by the continuing cost and reliability improvement of renewables, and by growing customer demand.

Share prices have mostly decoupled from the underlying prospects for growth in demand for electricity, from the outlook for pricing and from the drivers for infrastructure renewal. Utilities should deliver predictable non-cyclical earnings growth amidst the uncertainty of the global economic outlook. The portfolio's exposure to companies operating and investing to upgrade water, waste and transportation infrastructure reflects the broader return opportunities in the infrastructure sector which are at least in line with EGL's target total return of 6-12%p.a. over the longer term. Although the cost of our borrowings has escalated, we retain a modest level of gearing because our investment manager believes that it will continue to enhance returns over the medium term given current share prices.

We believe that your Company is well placed to resume the achievement of its performance objectives.

David Simpson  

Chairman

18 December 2023

Investment Manager's Report

  Markets and our sectors

During EGL's fiscal year to 30 September 2023, equity markets were driven higher by cyclical and technology stocks, while the portfolio's more defensive ones were out of favour and underperformed. Global economic growth exceeded most expectations (except in China), inflation moderated but remained well above target, and interest rates were rising. The MSCI World Utilities Index total return was -8.2% and the total return on the S&P Global Infrastructure Index, which has a significant energy infrastructure component, was -3.1%.

EGL's investment universe was already underperforming when, from mid-summer 2023, longer term bond yields accelerated their move higher, were sold off aggressively and between August and September EGL's NAV declined by 10%. For the year, EGL's NAV total return was -8.6%, of which approximately one-half was attributable to the significant strength of sterling while leverage contributed around -0.1%.

Over the 12 months, pan-European diversified utilities performed well. For these large integrated utilities, power prices were declining from 2022's crisis levels but power retail and trading businesses were thriving. European transportation and environmental services, which offer sound pricing models with contractual inflation hedges, performed relatively well too.

North American utilities, on the other hand, especially renewables developers, saw their valuations grind lower. Issues around cost inflation, supply chains and permit delays for renewables were rarely out of the headlines. Wildfires were a constant reminder of climate risks but the main adverse factor for renewables, utilities and infrastructure was rising interest rates. These sectors are big users of capital and the higher cost of capital weighs on the present value of future cash flows while also raising concerns about future returns. This is especially so in the US where there can be insufficient cost hedging or inflation indexation in contracts. The impact on share prices was more dramatic than its financial impact, leaving valuations for many fast-growing renewables developers at very depressed levels.

Compounding these issues were summertime profit warnings from Siemens Energy and Orsted (not held in the portfolio) who cited cost pressures and technological difficulties for US offshore wind, and also by NextEra Energy Partners. It halved its aggressive renewables growth targets in September due to funding costs - the benchmark 10-year US government bond yield had increased from 3.8% to 4.8% since 30 June. These profit warnings came at a time when confidence that policy and operating environments were supportive of ambitious global renewables targets was already shaky. By 30 September, the underperformance of US utilities versus the S&P 500 index year-to-date was close to 30%, a divergence unprecedented over the prior 3 decades.

This underperformance of utilities contrasted with the earnings progress of most portfolio companies, their outlook, dividend paying abilities and capital investment plans in what are often highly regulated businesses. Earnings per share expectations have generally been increasing, particularly for European integrated utilities but also, though to a lesser extent, for US peers. Companies are benefitting from power prices which, although lower than 2022, remain well above pre-Ukraine crisis levels. Meanwhile, Power Purchase Agreement (PPA) data shows that renewables operators overall are able to pass through the effects of cost inflation to customers while contracted power prices for new projects are adjusting upward to reflect the higher cost of capital and overall equipment costs to maintain project returns.

Performance summary

Disappointingly, the share price performance of some of the portfolio's large holdings was poor. The second half of EGL's financial year was especially challenging (NAV -11.9% total return) because increases in bond yield created a severe headwind to the perceived value of long term cash flows and growth.

NextEra Energy and its high-yield subsidiary NextEra Energy Partners (NEP) together pulled the NAV lower by c. 5% over the year, mostly in the last days of September. Other North American holdings, including regulated utilities Dominion Energy and American Electric Power and the higher growth renewables specialists AES and Brookfield Renewables, were also very weak. Chinese shares in the portfolio spanning wind, solar and water supply underperformed all year.

NextEra and NEP deserve further explanation. NextEra has been one of the most successful transformation stories in EGL's global investment universe over the past several years, from a traditional low-growth Florida-based utility into a growth engine, thanks to successful investments in renewable energy. It has gained exposure to what we consider to be some of the highest quality and return wind development projects in the US. Given its size (market capitalisation of over $130bn) and stature in the energy transition, it has been widely held by specialist and generalist investors. NextEra remains one of the most significant contributors to EGL's NAV since inception.

Amongst other things, NextEra develops greenfield renewable energy projects and, once operating, some of these are 'dropped down' to NEP, its $5bn market cap, part-owned and listed subsidiary. These operating assets produce cashflows through long-term contracts which are paid to investors. Late September, in view of the latest jump higher in funding costs, NEP halved its expected dividend growth rate from 12% to 6% p.a. for the next few years, generating significant distress in the share prices of renewables companies worldwide. NextEra's shares fell 30% on the news, removing its premium valuation. The market questioned NextEra's ability to finance its usual pace of development and the new management's communication skill. Over 50% of NextEra's earnings still comes from its regulated utility and guidance has been reconfirmed for 6-8% p.a. earnings growth and 10% p.a. dividend per share growth until 2026. NextEra must now prove its ability to generate and finance growth but, in our view, Q3 results were a good start.

AES reported additions to its already strong renewables development pipeline but a slightly reduced EPS growth rate of 6-8% p.a. for 2023-2027 due to the dilutive effect of its coal phase-out. Its shares were under constant pressure as rates rose.

Xinyi Energy's shares (pure solar operator in China) were punished because the company cut its dividend citing keenness to take advantage of higher returns on solar projects (solar panel costs have declined sharply) to accelerate growth. Drax, Europe's largest biomass power generator, which supplies 5% of the UK's electricity, suffered from a lack of clarity on subsidies and the timing of approval of its BECCS project.

The ten best contributors to NAV included several pan-European utilities (Enel, Engie, Endesa, E.ON, SSE). These companies are amongst the largest renewables developers globally too, and they have exposure to retail power markets which recovered well since last year and/or significant transmission and distribution businesses where returns are sustained by regulators. The list also included environmental (Veolia) and transportation services (Vinci and Ferrovial) businesses, plus the US's largest nuclear fleet owner, Constellation Energy, which has a strong free cash flow profile and continued to raise guidance. Over the 6 months since 31 March, this list was almost identical except Williams Companies (US energy infrastructure) replaced SSE amongst the better performers.

Purchases and sales

Since the half-year report, we have reallocated some funds from Europe to the US due to the striking dispersion of returns in the year-to-date and to relative valuations. In the process, we further diversified the North American exposure. We added to the portfolio Southern Company, a diversified energy producer set for above average earnings and dividend growth driven by its long-term contracts, and Edison International, a 'wires-focused' utility with expected growth of 7-9% p.a., in step with California's demanding clean energy goals. We increased holdings in Exelon, American Electric Power, AES and Xcel Energy, as well as in NextEra Energy Partners, whose shares we expect to rebound strongly as the interest rate cycle turns.

We also added Hong Kong-listed Chinese solar operator Xinyi Energy to the portfolio and increased holdings significantly in Iren (Italian networks, power and water infrastructure and environmental services) and Vinci (transportation infrastructure and construction worldwide), funded by profit taking in several of the European portfolio's stronger performers (Veolia, Engie, Endesa) and in Constellation Energy. At the same time, we reduced gearing.

Income and gearing

Portfolio companies continued to deliver solid growth in income from investments, despite the poor share price performance of many utilities. Dividend receipts increased by 20% reflecting the larger size of the portfolio (weighted average number of shares +10.7%) and underlying growth. This rate of increase, along with cost controls, meant that net revenue return per share increased by 9.2% despite the increased cost of borrowings.

Gearing averaged 12% during the first half of the fiscal year and was 13.4% at 31 March 2023 but we significantly reduced borrowings thereafter because the positive spread between dividend yields and the cost of borrowings was being eroded. Due to NAV weakness, the gearing ratio declined less notably.

Despite the cost of borrowings, we expect to continue to take advantage of gearing offers when individual shares or sub-sectors are excessively undervalued. We have, however, adjusted higher the expected total return hurdle to determine whether to use borrowings.

Strategy

At present, long term interest rates are driving equity markets and there is plenty of uncertainty on the medium-term global growth and geopolitical outlook. Many pure renewables and some utility share valuations have de-rated so significantly that they ascribe little value to growth; scepticism regarding both growth and yield at the same time is overly pessimistic. These sectors need a peak in interest rates and bond yields to stabilise the net present value of operating cash flows, the value of growth and to rekindle investor optimism. Nonetheless, with the earnings outlook we're observing, there are compelling investment opportunities at current levels.

Decarbonisation and electrification trends have strong momentum with key drivers such as increasing renewables, manufacturing re-shoring and energy efficiency driving investment. Corporates and consumers will continue to replace carbon-emitting energy sources with renewables, ensuring renewables growth at a reasonable rate of return. Power purchase agreement (PPA) prices have been increasing in Europe and the US to reflect, and more than offset, higher capital expenditure and financing costs, according to LevelTen Energy. This implies better pricing power and higher internal rates of return today than in 2020. Utilities are forward selling power for the next few years at prices which are significantly higher than those embedded in brokers' forecasts which mostly assume that power prices will revert to historical levels.

We continue to take advantage of the diversity in EGL's investment universe. The portfolio now has more exposure to electric transmission and distribution with, for example, SSE, National Grid, Terna-Rete Ellectrica Naziona, a Rome-based pure play high-voltage transmission owner/operator, and Edison International, one of the largest pure electric transmission and distribution companies in the world. These businesses are highly regulated, have some upside protection to inflation and interest rates via their regulated return on capital models and are key enablers of the decarbonising of the grid. They are spending capital on interconnections to newly built renewables assets and to manage the consequent loads on grids. Environmental services and transportation infrastructure services add some economic sensitivity but debt costs are generally well hedged, revenues (tolls, for example) are mostly inflation-linked, changes to allowed returns on capital effectively offset rising bond yields, and valuations are low.

Ecofin Advisors Limited

Investment Manager

18 December 2023

Principal and emerging risks associated with the Company

Principal and emerging risks associated with the Company The directors have carried out a robust assessment of the principal and emerging risks facing the Company, including those which could threaten its business model, future performance, solvency and liquidity. The specific financial risks associated with foreign currencies, interest rates, market prices, liquidity, credit, valuations and the use of derivatives - which may or may not be material to the Company - are described in note 16 to the Financial Statements. The board conducts this assessment by reviewing a detailed risk matrix on a regular basis. A full analysis of the directors' review of internal controls is set out in the Corporate Governance Statement on page 28.

The principal risks facing the Company are summarised below along with, where appropriate, the steps taken by the board to monitor and mitigate such risks.

Performance and market risk

The performance of the Company depends primarily on the investment strategy, asset allocation and stock selection decisions taken by the Investment Manager within the parameters and constraints imposed by the Company's investment policy. The investment policy guidelines can only be materially changed by proposing an ordinary resolution at a General Meeting for shareholders' approval. The Company invests in securities which are listed on recognised stock exchanges so it is regularly exposed to market risk and the value of the Company's portfolio can fluctuate, particularly over the short term, in response to developments in financial markets.

The board has put in place limits on the Company's gearing, portfolio concentration, and the use of derivatives which it believes to be appropriate to ensure that the Company's investment portfolio is adequately diversified and to manage risk. The board meets formally at least four times a year with the Investment Manager to review the Company's strategy and performance, the composition of the investment portfolio and the management of risk. The board examines the sources of investment performance, which are described in attribution analyses prepared by the Investment Manager's head of risk for each meeting, volatility measures, liquidity and currency exposure, and the Company's gearing. The Investment Manager's head of risk monitors and helps to manage portfolio risk. Investment performance could be adversely affected by changes within the investment management team at Ecofin. The board monitors these through regular dialogue with the Investment Manager. The Investment Manager takes steps to reduce the likelihood of such an event by ensuring appropriate succession planning and the adoption of a team-based approach.

Protracted separation of NAV and share price

While some investors may view the opportunity to purchase a share of the Company at a discount to its NAV as attractive, the volatility of the price of a share and the premium/discount adds to the risks associated with an investment in the Company's shares. The directors review the level of the premium/discount on a regular basis and will use their ability as granted by shareholders to address any sustained or significant discount or premium to NAV, as and when it is appropriate, through the repurchase or issuance of stock. The repurchase of stock will be subject to, but not limited to, market conditions and availability of cash resources.

Income risk

The Company is committed to paying its shareholders regular quarterly dividends and to increasing the level of dividends paid over time. The dividends that the Company can pay depend on the income it receives on its investment portfolio, the extent of its distributable reserves and, to a lesser extent, its level of gearing and accounting policies. Cuts in dividend rates by portfolio companies, a change in the tax treatment of the dividends received by the Company, a significant reduction in the Company's level of gearing or a change to its accounting policies could adversely affect the net income available to pay dividends.

The board monitors the net revenue forecast, including each component revenue and expense line item, prepared by the Administrator for quarterly board meetings. These are discussed in some detail to assess the Investment Manager's level of confidence in the income growth profile of the portfolio and to mitigate any risk of revenue shortfall relative to expectations.

The board applied successfully to cancel the Company's share premium account in November 2016 and the resulting special reserve is available, when the board considers it appropriate, to augment the net revenue available to pay dividends to shareholders.

Environmental, social and governance ("ESG") considerations

ESG considerations and policies have become some of the most critical issues confronting companies and their shareholders and can have a significant impact on the business models, sustainability and even viability of individual companies. These sustainability issues are a key area of focus for the board, and the board maintains a regular oversight of the Investment Manager in this area.

ESG factor analysis is undertaken on all portfolio holdings and prospective investments by the Investment Manager, a specialist investor in sustainable infrastructure and the energy transition. In a rapidly changing environment surrounding sustainability and ESG, Ecofin works to determine the best practices to incorporate into investment criteria and to make reporting available to the market. As a long-standing specialist in the Company's sectors, Ecofin actively engages with portfolio companies and investments in an effort to drive continuous improvement in their sustainability practices and metrics. The board regularly reviews the way ESG considerations are integrated into the decision making process by the Investment Manager to mitigate risk at the stock selection and portfolio levels.

Liquidity risk

While the Company invests principally in highly liquid securities listed on recognised stock exchanges in developed economies, it also invests to a limited extent in securities traded in emerging markets and in securities which are more thinly traded. As the Company is a closed-end investment company it does not run the risk of having to liquidate investments on unattractive terms to meet redemptions by investors although it is exposed to price risk; that is, that it will be unable to liquidate a position in a thinly traded security at the valuation at which it is carried in the Company's accounts. It is also exposed to a risk that its prime broker, Citigroup Global Markets Limited ("Citigroup"), which provides a flexible borrowing facility, could request that borrowings be repaid with three days' notice. The board reviews the liquidity profile of the Company's portfolio on a regular basis. The Investment Manager's head of risk also keeps the liquidity risk profile of the Company's portfolio under close review. The liquidity analysis regularly shows that, if required, 98% of the portfolio could be liquidated within five business days assuming trades to accomplish this accounted for up to 30% of average daily trading volumes.

Cyber security risk

The threat of cyber-attack, in all guises, is regarded as at least as important as more traditional physical threats to business continuity and security. The Company's third-party service providers (including Ecofin, BNP Paribas, Apex (formerly Maitland), Citibank and Computershare) have confirmed the policies and procedures they have in place and their commitment to alert the board to any breaches. The Investment Manager has procedures in place to maintain the best practices in the fight against cybercrime. TortoiseEcofin has a cyber security insurance policy in place.

Operational risks

Disruption to, or failure of, the Investment Manager's dealing system, the Depositary's or Custodian's records or BNP Paribas' accounting systems may prevent accurate reporting and monitoring of the Company's financial position. The risk of fraud or other control failures or weakness within these service providers could result in losses to the Company.

In common with most other investment trusts, the Company has no executive directors, executive management or employees. The Company delegates key operational tasks to third-party service providers which are specialists in their fields: the management of the investment portfolio to the Investment Manager, Ecofin Advisors Limited; the preparation and maintenance of the financial statements and maintenance of its records to the Administrator and Company Secretary, BNP Paribas S.A. and Apex Fund Administration Services (UK) Limited (formerly Maitland Administration Services Limited), respectively; the worldwide custody of the assets to Citigroup; and the safekeeping and oversight services to Citibank UK Limited ("Citibank") as Depositary. The board reviews the performance of these third-party service providers and their risk control procedures on a regular basis as well as the terms on which they provide services to the Company.

Legal, regulatory and compliance risks

To qualify as an investment trust, the Company must comply with Section 1158 of the Corporation Tax Act 2010 ('Section 1158'). Details of the Company's approval are given under Status on page 20. Were the Company to breach Section 1158, it may lose investment trust status and, consequently, gains within the Company's portfolio would be subject to capital gains tax. The Section 1158 qualification criteria are continually monitored by the Administrator and the results reported to the board regularly. The Company must also comply with the provisions of the Companies Act 2006 and, since its shares are listed on the London Stock Exchange, the FCA Listing Rules, Market Abuse Regulation ('MAR'), Disclosure Guidance and Transparency ('DTRs'), and, as an investment trust, the Alternative Investment Fund Managers Directive ('AIFMD'). A breach of the Companies Act could result in the Company and/or directors being fined or the subject of criminal proceedings. Breach of the FCA Listing Rules or DTRs could result in the Company's shares being suspended from listing, which in turn would breach Section 1158. The board relies on the services of its Company Secretary, the Investment Manager and its professional advisers to ensure compliance with the Companies Act 2006, the FCA Listing Rules, DTRs, MAR and AIFMD.

The following risks, although not viewed as critical, have also been identified as important in our risk assessment.

Other risks

In the opinion of the directors, an investment in the shares of the Company entails a greater than average degree of risk, in the context of the investment trust industry, because the Company employs gearing, as explained on page 14 of the annual report. In addition to the risks borne by the Company described above, investors in the shares of the Company are exposed to risks due to the investment policy (described on page 13 of the annual report) of the Company. These are risks that cannot be mitigated without changing the investment policy.

Gearing and capital structure

The board has authorised the Investment Manager to utilise gearing, in the form of borrowings under the Company's prime brokerage facility, although the gearing is not structural in nature and can be reduced at any time. Whilst the use of gearing will enhance the NAV per share when the value of the Company's assets is rising, it has the opposite effect when the underlying asset value is falling. In the event that the prime brokerage facility were to be renegotiated or terminated, the Company might not be able to finance its borrowings on as favourable terms.

Non-OECD or emerging markets

The Company's policy on diversification, noted on page 13 of the annual report, permits the Investment Manager to invest up to 10% of its investments, measured at the time of acquisition, in the securities of companies incorporated in countries which are not members of the OECD - such as emerging markets - and quoted on stock exchanges in such countries. Investment in emerging markets may involve a higher degree of risk and expose the Company to, among other things, less well developed legal and corporate governance systems, a greater threat of unilateral government action with respect to regulation and taxation, and a higher risk of political, social and economic instability than an investment in developed, OECD markets. These risks are mitigated through diversification and fundamental analysis.

Foreign exchange risk

As noted in the investment policy on page 13 of the annual report, the Company's Financial Statements are prepared in sterling and its shares are denominated in sterling. Many of the Company's investments, however, are denominated in currencies other than sterling and, as a result, the value of the Company's investment portfolio is exposed to fluctuations in exchange rates. Although the Company may hedge non-sterling exposure from time to time, it is not the Company's policy to try to minimise or eliminate foreign exchange risk as over the long term this could restrict the investment returns potentially available to sterling-based investors in international securities. There is a risk that the NAV will be depressed, therefore, if sterling appreciates significantly against foreign currencies.

Political risk

The board has considered the political uncertainties prevailing in the UK and the rest of the world and the risks associated with potential changes to regulations, laws and/or taxes. The board continues to believe that the Company's strategy of investing in an internationally diversified portfolio of companies is the correct model to achieve its investment objectives.

On behalf of the Board

Apex Fund Administration Services (UK) Limited

Company Secretary

18 December 2023

Management Report and Directors' Responsibilities Statement

Management report

Listed companies are required by the FCA's Disclosure Guidance and Transparency Rules (the "Rules") to include a Management Report in their Financial Statements. This information is included in the Strategic Report on pages 13 to 19 of the annual report inclusive (together with the sections of the annual report and accounts incorporated by reference) and the Directors' Report on pages 20 to 24 of the annual report. Therefore, a separate Management Report has not been included.

Directors' responsibilities statement

The directors are responsible for preparing the Strategic Report, the Directors' Report and the Financial Statements in accordance with applicable law and regulations.

Company law requires the directors to prepare Financial Statements for each financial year. Under that law the directors have elected to prepare the Financial Statements in accordance with United Kingdom Accounting Standards, comprising FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland", and applicable law (United Kingdom Generally Accepted Accounting Practice ("UK GAAP")). 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 the profit or loss of the Company for that period.

In preparing those Financial Statements, the directors are required to:

•  select suitable accounting policies and then apply them consistently;

•  make judgements and estimates that are reasonable and prudent;

•  state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Financial Statements; and

•  prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Financial Statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The annual report and accounts is published on the Investment Manager's website https://ecofininvest.com/egl and the directors are responsible for the maintenance and integrity of the corporate and financial information about the Company included on this website. The work carried out by the Auditor does not involve consideration of the maintenance and integrity of this website and, accordingly, the Auditor accepts no responsibility for any changes that may have occurred to the annual report and accounts since it was initially presented on the website.

Directors' confirmation statement

The directors listed on page 12 of the annual report as the persons responsible within the Company hereby confirm that, to the best of their knowledge:

a)  the Financial Statements within the annual report and accounts of which this statement forms a part have been prepared in accordance with applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

b)  the Management Report, which comprises the Chairman's Statement, Investment Manager's Report, Strategic Report (including risk factors) and note 16 to the Financial Statements, includes a fair review of the development and performance of the business and position of the Company, together with the principal risks and uncertainties that it faces.

Having taken advice from the audit committee, the directors consider that 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.

The directors have reached these conclusions through a process which is described in the Report of the Audit Committee on page 32 of the annual report.

On behalf of the Board

David Simpson

Chairman

18 December 2023

Statement of Comprehensive Income

		Year ended 30 September 2023			Year ended 30 September 2022
	Notes	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
(Losses)gains on investments held at fair value through profit or loss		-	(28,012)	(28,012)	-	16,129	16,129
Foreign exchange gains/(losses)		-	1,774	1,774	-	(3,076)	(3,076)
Investment income	2	11,822	-	11,822	9,835	-	9,835
Investment management fees		(904)	(1,355)	(2,259)	(1,089)	(1,089)	(2,178)
Administrative expenses		(835)	-	(835)	(885)	-	(885)
Net return before finance costs and taxation		10,083	(27,593)	(17,510)	7,861	11,964	19,825
Finance costs		(458)	(686)	(1,144)	(118)	(118)	(236)
Net return before taxation		9,625	(28,279)	(18,654)	7,743	11,846	19,589
Taxation		(1,606)	-	(1,606)	(1,104)	-	(1,104)
Net return after taxation		8,019	(28,279)	(20,260)	6,639	11,846	18,485
Return per ordinary share (pence)		7.01	(24.72)	(17.71)	6.42	11.46	17.88

The total column of the Statement of Comprehensive Income is the profit and loss account of the Company.

The revenue and capital columns are supplementary to this and are published under guidance from the AIC.

All revenue and capital returns in the above statement derive from continuing operations. No operations were acquired or discontinued during the year ended 30 September 2023.

The Company has no other comprehensive income and therefore the net return on ordinary activities after taxation is also the total comprehensive income for the year.

Statement of Financial Position

	Notes	As at 30 September 2023 £'000	As at 30 September 2022 £'000
Non-current assets
Equity securities valued at fair value through profit or loss		227,513	258,334
Current assets
Debtors and prepayments		8,432	1,409
Creditors: amounts falling due within one year
Prime brokerage borrowings		(20,002)	(25,613)
Other creditors		(3,966)	(1,078)
		(23,968)	(26,691)
Net current liabilities		(15,536)	(25,282)
Net assets		211,977	233,052
Share capital and reserves
Called-up share capital		1,154	1,119
Share premium account		50,548	40,801
Special reserve		114,398	116,976
Capital reserve		45,877	74,156
Revenue reserve		-	-
Total shareholders' funds		211,977	233,052
Net asset value per ordinary share (pence)		183.54	208.14

The Financial Statements were approved by the Board of Directors and authorised for issue on 18 December 2023 and were signed on its behalf by:

David Simpson

Chairman

Statement of Changes in Equity

		For the year ended 30 September 2023
	Notes	Share capital £'000	Share premium account £'000	Special reserve * £'000	Capital reserve* £'000	Revenue reserve* £'000	Total £'000
Balance at 1 October 2022		1,119	40,801	116,976	74,156	-	233,052
Return after taxation		-	-	-	(28,279)	8,019	(20,260)
Issue of ordinary shares		46	9,747	-	-	-	9,793
Buyback of ordinary shares		(11)	-	(1,808)	-	-	(1,819)
Dividends paid	3	-	-	(770)	-	(8,019)	(8,789)
Balance at 30 September 2023		1,154	50,548	114,398	45,877	-	211,977

		For the year ended 30 September 2022
	Notes	Share capital £'000	Share premium account £'000	Special reserve * £'000	Capital reserve* £'000	Revenue reserve* £'000	Total £'000
Balance at 1 October 2021		1,007	15,500	117,730	62,310	-	196,547
Return after taxation		-	-	-	11,846	6,639	18,485
Issue of ordinary shares		112	25,301	-	-	-	25,413
Dividends paid		-	-	(754)	-	(6,639)	(7,393)
Balance at 30 September 2022		1,119	40,801	116,976	74,156	-	233,052

*These reserves are available for distribution.

Statement of Cash Flows

	Notes	Year ended 30 September 2023 £'000	Year ended 30 September 2022 £'000
Net return before finance costs and taxation		(17,510)	19,825
(Decrease)/inrease in accrued expenses		(134)	228
Overseas withholding tax		(1,417)	(786)
Deposit interest income		(4)	(37)
Dividend income		(11,818)	(9,798)
Realised (gains)/losses on foreign exchange transactions		(1,774)	3,076
Dividends received		11,307	9,462
Deposit interest received		4	37
Interest paid		(1,055)	(236)
Losses/(gains) on investments		28,012	(16,129)
(Decrease)/increase in other debtors		(8)	1
Net cash flow from operating activities		5,603	5,643
Investing activities
Purchases of investments		(88,966)	(76,989)
Sales of investments		88,153	56,277
Net cash used in investing activities		(813)	(20,712)
Financing activities
Movement in prime brokerage borrowings		(5,611)	(10,260)
Dividends paid		(8,789)	(7,393)
Share issue proceeds		9,793	25,413
Share buyback costs		(1,659)	-
Net cash (outflow)/inflow from financing activities		(6,266)	7,760
Decrease in cash		(1,476)	(7,309)
Analysis of changes in cash during the year
Opening balance		-	11,251
Foreign exchange movement		1,476	(3,942)
Decrease in cash		(1,476)	(7,309)
Closing balance		-	-

Notes to the Financial Statements

For the year ended 30 September 2023

1. Accounting policies

(a) Basis of preparation

The Financial Statements have been prepared in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ("UK GAAP"), including the Financial Reporting Standard applicable in the U.K. and Republic of Ireland ("FRS 102") and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued in April 2021. The Financial Statements are prepared in Sterling which is the functional currency of the Company and rounded to the nearest £'000. They have also been prepared on a going concern basis and approval as an investment trust has been granted by HMRC.

The Company's assets consist substantially of equity shares in companies listed on recognised stock exchanges and in most circumstances are realisable within a short timescale. The board has set limits for borrowing and regularly reviews actual exposures and cash flow projections. The Company has prime broker borrowings to draw upon, and these borrowings are repayable on demand.

Having taken these factors into account as well as the impact of Covid-19 and having assessed the principal risks and other matters set out in the Viability Statement in the annual report the directors believe that, after making enquiries, the Company has adequate resources to continue in operational existence for the foreseeable future and has the ability to meet its financial obligations as they fall due for a period of at least twelve months from the date of approval of this Report. Accordingly, they continue to adopt the going concern basis of accounting in preparing the financial statements.

Further detail is included in the Directors' Report (unaudited) in the annual report.

2. Income

	Year ended 30 September 2023 £'000	Year ended 30 September 2022 £'000
Income from investments (revenue account)
UK dividends	1,715	1,254
Overseas dividends	9,991	7,966
Stock dividends	112	578
	11,818	9,798
Other income (revenue account)
Deposit interest	4	37
Total income	11,822	9,835

During the year to 30 September 2023 the Company received special dividends totalling £83,000 (30 September 2022: £416,000), all of which was recognised as capital and is included in the capital column of the Statement of Comprehensive Income.

3. Dividends on ordinary shares

	Year ended 30 September 2023 £'000	Year ended 30 September 2022 £'000
Fourth interim for 2021 of 1.65p (paid 30 November 2021)	-	1,666
First interim for 2022 of 1.85p (paid 28 February 2022)	-	1,874
Second interim for 2022 of 1.85p (paid 31 May 202)	-	1,893
Third interim for 2022 of 1.85p (paid 31 August 2022)	-	1,960
Fourth interim for 2022 of 1.85p (paid 30 November 2022)	2,082	-
First interim for 2023 of 1.95p (paid 28 February 2023)	2,200	-
Second interim for 2023 of 1.95p (paid 31 May 2023)	2,234	-
Third interim for 2023 of 1.95p (paid 31 August 2023)	2,273	-
	8,789	7,393

The proposed fourth interim dividend for 2023 has not been included as a liability in these Financial Statements as it was not payable until after the reporting date.

Set out below are the total dividends paid and proposed in respect of the financial period, which is the basis on which the requirements of Section 1158-1159 of the Corporation Tax Act 2010 are considered. The revenue available for distribution by way of dividend for the year was £8,019,000 (30 September 2022: £6,639,000).

	Year ended 30 September 2023 £'000	Year ended 30 September 2022 £'000
Three interim dividends of 1.95p each (2022: three interim dividends of 1.85p each)	6,707	5,727
Fourth interim dividend 1.95p (2022: 1.85p)	2,247	2,082
	8,954	7,809

The amount reflected above for the cost of the fourth interim dividend for 2023 is based on 115,245,663 ordinary shares, being the number of ordinary shares in issue on the ex-dividend date 26 October 2023.

4. Return per ordinary share

	Year ended 30 September 2023		Year ended 30 September 2022
	£'000	p	£'000	p
Returns are based on the following figures:
Revenue return	8,019	7.01	6,638	6.42
Capital return	(28,279)	(24.72)	11,846	11.46
Total return	(20,260)	(17.71)	18,485	17.88
Weighted average number of ordinary shares in issue		114,418,153		103,375,349

5. NAV per ordinary share

The NAV attributable to the ordinary shares and the NAV per ordinary share at the year-end were as follows:

	As at 30 September 2023	As at 30 September 2022
Net asset value attributable (£'000)	211,977	233,052
Number of ordinary shares in issue	115,495,663	111,968,423
Net asset value per share (p)	183.54	208.14

6. Related party transactions and transactions with the Investment Manager

Fees payable during the year to the directors and their interests in shares of the Company are considered to be related party transactions and are disclosed within the Directors' Remuneration Report in the annual report. The balance of fees due to directors at the year-end was £nil (30 September 2022: £nil).

The Company has an agreement with Ecofin Advisors Limited for the provision of investment management services. Details of fees earned during the year and balances outstanding at the year-end are disclosed in note 3 to the Financial Statements in the annual report.

The information contained in this Annual Financial Report Announcement has been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and as applied in accordance with the provisions of the Companies Act 2006 (the "Act"). These comprise standards and interpretations of the International Accounting Standards ("IAS") and Standing Interpretations Committee as approved by the International Accounting Standards Committee ("IASC") that remain in effect, to the extent that IFRS have been adopted by the EU.  The results for the year ended 30 September 2023 are audited but do not constitute statutory accounts as defined in Section 434 of the Act.  The statutory accounts have not yet been delivered to the Registrar of Companies. Full statutory accounts for the year ended 30 September 2022 included an unqualified audit report and have been filed with the Registrar of Companies.

		The Annual Report and Financial Statements will be posted to shareholders and will shortly be available on the Investment Manager's website (www.ecofininvest.com/egl) or in hard copy format from the Company's Registered Office. A copy of the Annual Report will be submitted to the FCA's National Storage Mechanism and will be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism. The Annual Report will also be available on the Investment Manager's website at www.ecofininvest.com/egl.

For further information, please contact:

Elspeth Dick, CFA

Ecofin Advisors Limited

Telephone: [phone]

Faith Pengelly

Apex Fund Administration Services (UK) Limited

Company Secretary

01245 398 950

18 DECEMBER 2023

 

 

END