Annual Financial Report
ECOFIN GLOBAL UTILITIES AND INFRASTRUCTURE TRUST PLC (the "Company")
Annual Results Announcement for the period ended 30 September, 2017
This announcement contains regulated information.
Ecofin Global Utilities and Infrastructure Trust plc ("EGL" or the "Company") is an authorised U.K. 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.
The Board is pleased to report a successful first year of trading, both in terms of underlying performance and shareholder return.
· The Company's shares were first listed on the London Stock Exchange on 26 September, 2016 and these results are for the financial year which ended on 30 September, 2017;
· In that period, the net asset value per share increased by 7.2% on a total return basis (assuming the reinvestment of dividends) compared with a total return for the MSCI World Utilities Index of 5.8%, for the MSCI World Index of 14.9%, and for the FTSE All-Share Index of 11.8%;
· The total return from 13 September, 2016, the date of the transfer of assets following the reconstruction of Ecofin Water & Power Opportunities plc, to 30 September, 2017 was 11.1%;
· The price of an ordinary share rose by 20.9% on a total return basis in the financial period;
· Four quarterly dividends of 1.6p each, totalling 6.4p, were paid, providing a dividend yield of 4.8% on 132p, the price of the Company's ordinary shares as at 18 December, 2017;
· The current discount to net asset value at which the shares trade is 9.5% based on a net asset value per share of 145.9p at that date;
· The Investment Manager, Ecofin Limited, is confident of continuing to generate an attractive return for investors, combining a yield which is well above the market average and expected to grow over time with long-term growth in net asset value per share.
For further information please contact:
Mrs. Elspeth Dick, CFA
Investor Relations Director
Ecofin Limited
Telephone: 020 7451 2929
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 period ended 30 September, 2017 are audited but do not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The statutory accounts have not yet been delivered to the Registrar of Companies. Full statutory accounts for the period ended 30 September, 2017 included an unqualified audit report and have been filed with the Registrar of Companies.
Financial Highlights
Summary
|
Summary |
30 September 2017 |
26 September 20161 |
13 September 20161 |
|
Net assets attributable to the shareholders (£'000) |
132,070 |
129,200 |
124,528 |
|
Net asset value ("NAV") per share |
143.75p |
140.63p |
135.54p |
|
Share price (mid-market) |
129.50p |
113.00p |
|
|
Discount to NAV |
9.9% |
19.6% |
|
|
Revenue return per share |
4.75p |
|
|
|
Dividends paid per share |
6.40p |
|
|
|
Dividend yield2 |
4.9% |
|
|
|
Gearing on net assets3 |
4.9% |
|
|
|
Ongoing charges |
1.68% |
|
|
1 As at 13 September, 2016, the value of the pool of assets attributable to the Company, further to the scheme of reconstruction of Ecofin Water & Power Opportunities plc ("EWPO"), was £124,528,000 or 135.54 pence per share. This is the opening value for the Company's equity in the Statement of Changes in Equity on page 40 of the Annual Report and Accounts. By 26 September, 2016, the date of issuance and admission of the Company's shares to trading, the value of the Company's assets had increased to £129,200,000 or 140.63 pence per share. The difference of £4,672,000 is reflected within the capital return during the period on the Statement of Comprehensive Income on page 38 of the Annual Report and Accounts.
2 Dividends paid as a percentage of share price.
3 Gearing is the Company's prime brokerage borrowings (including the net amounts due from brokers) less cash divided by net assets attributable to shareholders.
|
Performance |
26 September 2016 to 30 September 2017 % change |
13 September 2016 to 30 September 2017 % change |
13 September 2016 to 26 September 2016 % change |
|
NAV per share |
+2.2 |
+6.1 |
+3.8 |
|
NAV per share total return* |
+7.2 |
+11.1 |
|
|
Share price |
+14.6 |
|
|
|
Share price total return* |
+20.9 |
|
|
|
Indices (total returns in £): FTSE All-Share Index FTSE ASX Utilities Index |
+11.8 -9.0 |
|
|
|
|
|
|
|
|
MSCI World Index |
+14.9 |
|
|
|
MSCI World Utilities Index |
+5.8 |
|
|
* Total return includes dividends paid and reinvested.
Chairman's Statement
Performance
I am pleased to report a successful first year of trading for Ecofin Global Utilities and Infrastructure Trust plc (the "Company"), both in terms of underlying performance and shareholder return.
The Company was formed out of the reorganisation by means of a scheme of reconstruction of Ecofin Water & Power Opportunities plc ("EWPO") which was approved by its shareholders on 13 September, 2016. The Company was incorporated on 27 June, 2016 and began trading on 13 September, 2016 when the liquid assets of EWPO were transferred to it. The Company's shares were then listed on the London Stock Exchange on 26 September, 2016.
These accounts cover the period from the Company's incorporation until 30 September, 2017, although the Company's investment activities did not begin until 13 September, 2016. In the period from 13 September, 2016 to 30 September, 2017, the net asset value per ordinary share rose by 6.1%. The net asset value rose by 2.2% from the listing of its shares on 26 September, 2016, the formal inception date for the measurement of the Company's performance. The net asset value total return, assuming the reinvestment of quarterly dividends, was 7.2% over this period. The price of the ordinary shares rose by 14.6% from 26 September, 2016 while the total return was 20.9% over the same period. In comparison, the U.K. FTSE ASX Utilities Index fell by 9.0%, the U.S. S&P 500 Utilities Index rose by 4.4% and the Euro Stoxx Utilities Index rose by 21.7%, all on a total return basis and in Sterling terms.
The performance of the Company was affected both by foreign exchange movements and the Company's level of gearing. Sterling gained 3.3% against the U.S. Dollar over the listing period but fell by 1.8% against a stronger Euro. Over the course of the year, 86% of the Company's investment portfolio, on average, was invested in assets denominated in currencies other than Sterling - principally in U.S. Dollars and Euros. As these positions were not hedged, currency movements had a modest negative impact on performance. Gearing varied between zero and 17.7% during the listing period, depending both on the amount of debt utilised and the volatility of the portfolio, and averaged 7%.
Dividends
The Company paid dividends totalling 6.4p per ordinary share to shareholders during the financial year since the listing of the shares. This represented a dividend yield of 4.5% based on the Company's net asset value at 30 September, 2017 and 4.9% based on the Company's share price at the same date. The dividends paid were 74% covered by net revenues with the shortfall being made up from the Company's capital reserves. The Directors expect the Company's net revenues available for distribution to increase over time as a result of a growth in income earned on the Company's portfolio, helped by the continued use of gearing. This is expected to enable the Company to increase the dividends paid to shareholders in due course.
Discount to NAV
In the financial year to 30 September, 2017, the discount to NAV at which the Company's shares traded ranged from a high of 19.6% at admission on 26 September, 2016 to a low of 7.8%, the average being 12.2%. At 30 September, 2017 the discount was 9.9% and as at 18 December it was 9.5%. The discount at which shares in the Company trade is influenced by a number of factors including the performance of the Company, its dividend yield, its size, the liquidity of its shares and the nature of its shareholder base. Research coverage and marketing efforts by the Investment Manager can also help to lower a discount.
Actions taken by your Board and the Investment Manager to address the discount have included the move to calculating the Company's net asset value on a daily basis, the engagement of Marten & Co. to publish sponsored research on the Company, and the Investment Manager's concerted effort to raise the profile of the Company, particularly with private wealth managers. While the amount of the Company's outstanding shares owned by the largest 15 shareholders remained fairly steady over the last year at approximately 60%, the proportion of those shares held by private wealth managers had more than doubled by 30 September, 2017.
The Directors appreciate the importance of the discount to shareholders. They will continue to monitor it closely and to make every effort to see that it stays at acceptable levels over the longer term.
The Board
Ian Barby, who was chairman of EWPO for eleven years and oversaw its reconstruction in 2016, has indicated he intends to retire as a Director of the Company at its first annual general meeting to be held on 6 March, 2018. The Directors would like to thank him for his long service and valuable contribution to EWPO, to its reconstruction in 2016 and to the launch of the Company.
The Board conducted a search for a new Director and was pleased to announce the appointment of Malcolm King (known as Max) as a Director of the Company with effect from 11 September, 2017. Max is a chartered accountant and has also worked in the fund management industry. He has an extensive knowledge of the investment trust sector, gained both as a fund manager of investment trusts and as a professional investor.
Outlook
The Directors are pleased with the progress the Company has made in its first year and, in particular, with its performance in 2017 to date (to 18 December), during which the total return of the NAV and share price have been 15.6% and 24.6%, respectively. In the current financial year, the Board intends to continue to work closely with the Investment Manager to raise the profile of the Company with professional and retail investors, seeking to broaden the market for its shares.
The Investment Manager is confident that the Company's investment universe - listed companies in the utilities and infrastructure sectors, primarily in developed markets - should provide the Company with good investment opportunities for the reasons described in its report. This should enable the Company to provide an attractive return for investors, combining a yield which is well above the market average and expected to grow over time with growth in the NAV over the longer term.
David Simpson
Chairman
20 December, 2017
Investment Manager's Report
The formal inception date for the measurement of the Company's performance is 26 September, 2016, the date the Company's shares were listed. Unless stated otherwise, this Report covers the period from 26 September, 2016 to 30 September, 2017.
The economy and markets
In the year to 30 September, 2017 world economic growth was stronger than expected. The U.S. Federal Reserve raised its discount rate three times over the course of the year, from 0.50% to 1.75%. Yields on long-term government bonds in most developed countries rose sharply following the U.S. elections in November 2016 as markets anticipated faster economic growth and a tightening of monetary policy, notably in the U.S. As a result, yields finished the financial year higher but still remained very low by historical standards. The price of oil and hard commodity prices rose over the course of the year in response to the improvement in the outlook for world growth. In the currency markets, the U.S. Dollar weakened against most major currencies and the U.K. Pound was volatile, driven by U.K. economic news and developments with respect to the Brexit negotiations with the European Union. As a consequence, the Pound rose by 3.3% against the U.S. Dollar while weakening by 1.8% against the Euro.
World equity markets rose steadily over the course of the Company's financial year with the broader equity markets experiencing relatively low volatility. The MSCI World Index of developed country equity markets rose by 14.9% on a total return basis and in Sterling terms.
The global utility and infrastructure sectors in which the Company invests rose over the course of the year but were, unusually, more volatile than the broader equity markets. U.S. and European utilities sold off sharply in November 2016 in reaction to the sharp rise in government bond yields and expectations that President-elect Trump's policies would lead to an acceleration of U.S. growth and higher inflation; U.S. renewable energy names also suffered as investors anticipated that the new administration might reconsider subsidies for non-CO2 emitting power generation. Broadly speaking, the global utility sector tended to come under indiscriminate selling pressure when bond yields rose and investor sentiment favoured companies expected to benefit from stronger economic growth. Long-term bond yields stabilised by the end of December 2016 and remained low by historical standards throughout the year. Economic growth and corporate earnings then exceeded expectations in 2017 and the utilities and infrastructure sectors have recovered strongly in line with the general equities markets.
Performance
From the listing of the shares on 26 September, 2016 until the Company's year-end, the NAV per share increased by 7.2% on a total return basis. In comparison, the MSCI Word Utilities Index rose by 5.8%. A distinguishing characteristic of the utilities and infrastructure sectors over the course of the financial year was the marked differences in the performance of countries and regions, as shown in the chart on page 4 of the Annual Report and Accounts. The FTSE ASX Utilities Index declined by 9.0% over the year on a total return basis while the Euro Stoxx Utilities Index of Euro-zone utilities rose by 21.7% on a total return and Sterling basis. The U.S. S&P 500 Utilities Index rose by 4.4% on the same basis.
Following the listing of the Company's shares, the NAV per share fell as yields on U.S. government bonds rose in November and December; the NAV per share reached a low in mid-December. From then until the end of the financial year, the NAV per share recovered, ending up 14.5% from its December 2016 low. This was attributable to a number of factors including favourable trends in Europe and, most importantly, the Company's asset allocation - which included a relatively high exposure to Continental Europe - and stock selection.
Sector and portfolio developments
After years of under-performance, Euro-zone equity markets were strong over the course of the year. Business activity increased and corporate earnings improved while the European Central Bank's monetary policies continued to be very accommodative. Politically, fears that far-right or populist parties would come to power proved unfounded with the victory of centrist parties in the Dutch, French and German elections. These favourable trends coincided with an increase in electric power prices - the first in many years - which delivered a clear and unexpected boost to the Continental utilities sector. By the Company's year-end, German and French forward power prices had risen by some 60% from the lows reached in the first half of 2016, driven largely by higher coal prices. In addition, the utilities sector in Europe saw a revival of take-over speculation and corporate activity; in September 2017, the Finnish utility Fortum made an unsolicited bid for Uniper, a publicly-traded affiliate of the German integrated utility E.ON. Six of the ten best performing holdings in the Company's portfolio over the course of the financial year were Continental European regulated and integrated utilities: Italgas, Uniper, E.ON, Enel, Innogy and Terna.
U.S. power prices also started to move higher during the year and the North American portfolio rose just over 7%, in line with its local sector index (in Dollars). The best contributors to the NAV's advance were the renewables companies NextEra Energy Partners and Algonquin Power & Utilities, both amongst the Company's ten largest holdings; InfraREIT, which owns transmission assets, also performed well.
U.K. utilities, to varying degrees, suffered from uncertainties of a political and regulatory nature for much of the year and especially during the second half. The uncertain political context depressed valuations as did growing pressure from regulators to cut returns, both for water and electricity retailers. During the year to 30 September, the poorest performers in the portfolio were National Grid (-11.9%) and United Utilities (-11.1%); water stocks Pennon and Severn Trent also performed poorly in the second half of the year (both c. 7% lower). Shares in SSE, a larger holding in the portfolio, declined by 5.1% over the year.
Infrastructure exposure in the portfolio is quite diversified geographically. Direct energy infrastructure exposure - in gas pipelines - has been gained through holdings such as Williams Companies in the U.S.; water infrastructure is included in both the U.S. and pan-European portfolios; and the Company invests in airports and toll roads in Europe (Vinci, ENAV, Flughafen Zuerich) and in China (Beijing Airport). While not strictly regulated per se, these infrastructure businesses are centred on long-term contracts which include a high degree of utility-type inflation pass-throughs and quasi-regulated pricing formulas.
There were no dramatic changes in strategic geographic allocations during the financial year. The portfolio began the year with a 'transatlantic balance', with approximately 45% of the portfolio invested in North America, 45% in Europe (including the U.K.) with the remainder invested in other OECD developed markets and emerging markets. As the year progressed, however, the portfolio became more heavily weighted towards Europe as the result of tactical allocations in response to market movements or regulatory and political developments and also as a result of superior performance. By year-end, approximately 53.5% of the portfolio was in pan-European equities, 37.6% in North American shares, 4.7% in other OECD markets and 4.2% in emerging markets.
At the end of 2016, we increased our exposure to companies with quality long-duration business models and to renewable energy companies. Notwithstanding the strong fundamentals and dividend paying capacity of the Company's U.S. holdings, over subsequent months our buying programme centred on European shares as the sell-off in the European utility sector had been even more pronounced than in the U.S. We concentrated buying activity in the worst affected European stocks, expecting the rapid and seemingly indiscriminate falls would reverse as the interest rate environment, in particular, stabilised. These companies included a host of regulated utilities, commodity-driven names and a number of infrastructure companies: EDF, Suez and Veolia in France, Enel, Italgas and Snam Rete Gas in Italy, EDP Renovaveis in Portugal, and Ferrovial in Spain.
In Continental Europe a large proportion of the names in the Company's portfolio are hybrid by nature, in the sense that they include both fully regulated businesses and more growth oriented segments. This is typical of the utilities and infrastructure universe in Europe. Engie, for example, invests in largely unregulated businesses and services but also controls France's fully regulated gas transportation network. As a consequence, the share prices of these conglomerates tend to be less influenced by movements in long-term interest rates than many utility companies in the United Kingdom and the United States where business models are often more focused.
Given President Trump's proposed new policies which could have a significant impact on the economics of U.S. renewables and specifically on new projects, we reduced exposure to some renewable energy developers to focus on operators that earn their returns on an existing fleet of renewable energy assets, among which are the so-called 'yieldcos' in the U.S. At the time we reiterated our view that the key driver for long-term growth in renewables installations - not just in the U.S. but worldwide - is not regulation but economics, propelled by technological change and cost reductions. U.S. wind and solar generation, for example, are now cheaper than coal-fired power generation and competitive with gas. This has led to significant growth in bilateral contracting by large corporates replacing grid-procured electricity with self-procured renewable energy.
We lightened U.K. equity exposure as the U.K. government threats to cap energy prices pressured the sector. Around the same time, we reduced exposure to French names ahead of the first round of elections and hedged, very briefly, a proportion of the Euro exposure.
The rest of the portfolio, on average 9%, was committed to other OECD markets - in this case, Australia and New Zealand - and to emerging markets, specifically Hong Kong, the Philippines, Thailand and Brazil. The number of holdings in this segment increased from five at the Company's inception to seven by the financial year-end with the additions of B Grimm Power in Thailand and Mercury in New Zealand. The percentage allocation increased from 6.4% at the beginning of the financial year to a high of 11% in May 2017 as a result of these additions and also good performance. By the summer, the weighting had retreated because we trimmed Mercury NZ and Transmissora Alianca in Brazil and tendered the Company's EDC shares into a partial bid for cash for the majority of that company's shares.
Names which merit mention are NextEra Energy Partners and Algonquin Power & Utilities, which are both amongst the portfolio's largest holdings, and B Grimm Power. NextEra Energy Partners (NEP) is a listed subsidiary of NextEra Energy Inc. which is a top quality integrated power company based in Florida and the fourth largest generator of electricity - and one of the largest operators of solar generating facilities - in the United States. NEP, a yieldco, was formed in 2014 and owns fully contracted wind power facilities. NEP's cost of (debt and equity) capital is low, on an absolute and relative basis, enabling the company to fund projects, grow, and pay growing dividends to shareholders.
Early this year, NEP decided to make a change in its 'incentive distribution rights' allocation, meaning that holders of NEP would receive 75% of incremental cash flow growth rather than 50% as previously, and this has been highly supportive for the value of NEP's shares, as it limits its need for future equity raises. NEP has been one of the strongest contributors to the Company's NAV progression since launch.
Algonquin Power & Utilities' performance has been less spectacular but steadily additive nonetheless, and the shares figure in the Company's roster of top NAV contributors for the year. Algonquin's business is described on page 8 of the Annual Report and Accounts.
B Grimm Power, which was listed by IPO in July 2017, operates green-field power plants in Thailand and Vietnam. The company is growing quickly organically and by acquisition, and appeared undervalued relative to its international peers at the time of the IPO. The shares rose c. 40% between July's IPO and the end of September 2017.
The portfolio's poor performers during the year were a shorter list and included EDP Renovaveis, which we exited on its lows
last December in favour of other European names which subsequently performed, and Plains Group Holdings, one of the
US's largest crude oil transporters whose shares dropped some 20% after its limited partnership decided to cut distributions
to unitholders in order to deleverage. Other laggards included Covanta, National Grid and SSE.
Although exposure has been pared, we continue to believe that select U.S. midstream energy infrastructure companies are well positioned for higher earnings and accelerating dividend growth given the higher oil and gas production volumes and the significant new pipeline capacity underway to accommodate it. Although we are wary of this sector's sensitivity to oil prices, some companies, like Williams Companies, are more insulated and the sector is conspicuously out of favour.
Gearing
We have used the Company's capacity to borrow quite cautiously this year. In November 2016, gearing moved from about 10% of net assets to over 17% because our sectors were under considerable pressure; the level of gearing averaged about 7% over the course of the year and by the financial year-end it was a modest 4.9% of net assets. This is unlikely to be indicative of the Company's average level of gearing over a longer time frame. As at 18 December, gearing was 8.8% of net assets.
Outlook
From the end of the Company's first financial year on 30 September to 18 December, 2017 the Company's NAV increased by 2.7% (on a total return basis). This compares to increases in the MSCI World Index and the MSCI World Utilities Index of 5.6% and 1.8%, respectively, in Sterling terms.
Although volatility has been very low in equity markets for many months, there continues to be enough movement and value in our sectors for stock selection. In equity markets where valuations are becoming more demanding, the defensiveness of utilities and infrastructure businesses and their good prospects for growth and dividend progression, usually from an existing good base, makes them attractive in our view. We recognise that significant increases in long-term interest rates in North America or Europe would impact our sectors in the short-term, especially if economic growth were meaningfully stronger, as momentum would favour other areas of the markets. The diversity of business models, however, limits the portfolio's actual correlation with bond yields, and a little inflation and growth would benefit the regulated business models and infrastructure companies in our investment universe.
We believe the growth in dividends paid by companies in the Company's portfolio should be approximately 6% per annum over the next few years, a higher rate than generally perceived by the market. This average rate hides a significant dispersion between regions. U.K. water companies, for example, enjoy inflation indexed pricing formulas and Severn Trent has shifted its annual dividend growth formula from RPI plus 2% to RPI plus 4% per annum which, in the context of rising U.K. inflation, is starting to be quite enticing. Dividend growth from utilities and infrastructure companies in Europe, however, tends to follow a more erratic growth path. The most significant annual dividend increases are typically delivered by North American utilities and renewables operators which usually commit to high single-digit and even double-digit growth rates; 8% to 15% per annum dividend progression targets are not uncommon. The combination of attractive, often superior, dividend yields and relatively steady dividend growth represents a solid base for the Company's investment strategy.
Beyond the improving fundamentals of the Company's investment universe, we see an opportunity as long as stock markets undervalue these types of long-term assets and business models. Private equity operators offer significant premiums to listed valuations in takeover transactions. In May, a consortium of investors acquired the U.K. company Affinity Water at a premium to its regulated asset value of close to 50% while its listed peers currently trade at a mere 10-15% premium to regulated asset value. The deal did serve to highlight the continuing interest in U.K. infrastructure assets and the appeal of business models with stable long-term returns based upon regulated revenues.
In our view, valuations continue to suggest there is significant value in our sectors. The spreads between dividend yields for utilities and long-term (10 year) bond yields are currently high compared with historical standards: In the U.S., the spread is 1.2% (versus a spread since 2005 which has averaged about 1.0%); in the UK the spread is currently 4.3% (versus an average of circa 2% since 2005); and on the Continent, the spread is 4.4% (versus a historical average of closer to 2.9%). Another simple valuation metric is the share price/earnings (P/E) ratio of the utilities sector relative to that of the broad market. During the last 20 years in Europe, utilities have traded at a P/E ratio relative to the market that has moved in a range between 90% and 115%; currently the relative P/E ratio is at the bottom end of that range. In the U.S., there is a similar picture with the relative P/E for the utilities sector still sitting just below the long-term average. At the same time, there is a self-help story unfolding in the Company's investment universe where complex and often highly leveraged businesses are being re-created as vastly simpler organisations with focused strategies; earnings are recovering, cash flows are growing and these companies are being rewarded with higher valuations. As a consequence, we are confident that we can produce good, risk-adjusted returns for shareholders over the longer term.
Ecofin Limited
Investment Manager
20 December, 2017
Key performance indicators
The Company's Directors meet regularly to review the performance of the Company and its shares. The key performance indicators ("KPIs") used to assess the Company's progress and its success in meeting its objectives are set out below.
|
|
|
|
KPIs |
As at or financial year to 30 September, 2017 |
|
Change in: |
|
|
NAV1 Share price1 |
7.2% |
|
Discount to NAV at year-end |
9.9% |
|
Average discount to NAV during the year |
12.2% |
|
Revenue return per share |
4.75p |
|
Dividends paid per share |
6.40p |
|
Dividend cover2 |
74.2% |
|
Ongoing charges |
1.68% |
1 Total return, assuming reinvestment of dividends.
2 The dividend cover is the proportion of the dividends paid to shareholders which was covered by net revenues.
The performance of the Company's portfolio is not measured against an equity index benchmark. The Investment Manager's asset allocation process pays little attention to the country and regional compositions of the main global utilities index, the MSCI World Utilities Index, and the global listed infrastructure indices which are typically dominated by utilities. The Directors, therefore, review portfolio performance against a number of equity market indices, including the MSCI World Index and the MSCI World Utilities Index which serve as reference points, and ratios to understand the impact of gearing, currencies, sub-sector performance, geographical allocations and stock selection decisions on the Company's overall investment performance. Stock selection is measured against relevant local and regional indices and monitored by the Board. The Directors also review the performance of the Company against other investment trusts and closed-end funds which have similar (but not the same) objectives or strategies, and the level and composition of ongoing charges incurred. The ongoing charges ratio is calculated in accordance with AIC recommended methodology using the charges for the current period and the average net asset value during the year of £127,345,826.
Principal risks associated with the Company
The Directors have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency and liquidity, and believe 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. 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 15 to the Financial Statements.
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. As the Company invests in securities which are listed on recognised stock exchanges, 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 for each Meeting, volatility measures, liquidity and currency analyses, and the Company's gearing. The Investment Manager's Risk Team also meets regularly to discuss, monitor and manage portfolio risk.
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, under which 50% of the investment management fee is currently charged to capital, could adversely affect the net income available to pay dividends.
The Board applied 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 income available to pay dividends to shareholders.
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. The Board reviews the liquidity profile of the Company's portfolio on a regular basis in order to mitigate the valuation and other risks associated with such investments. The Investment Manager's Risk Team also keeps the liquidity risk profile of the Company's portfolio under close review.
Operational risks
In common with most other investment trusts, the Company has no executive directors, no executive management and no employees. The Company delegates key operational tasks to third-party service providers which are specialists in their fields: the management of the Company's investment portfolio to the Investment Manager, Ecofin Limited; the preparation and maintenance of the Company's Financial Statements and maintenance of its records to the Administrator and Company Secretary, BNP Paribas Securities Services S.C.A and BNP Paribas Secretarial Services Limited, respectively; the worldwide custody of the Company's assets to Citigroup Global Markets Limited ("Citigroup"); and the safekeeping and oversight services to Citibank International 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.
Relationship with Ecofin Limited
The Company benefits from the fact that Ecofin specialises exclusively in the global utility (conventional and renewable energy) and infrastructure sectors. The loss of clients or key personnel by Ecofin could have a greater impact on its ability to manage the Company's assets than would be the case if Ecofin were a larger firm. The Directors monitor this risk. Ecofin, its directors and related-parties are, however, also substantial investors in the Company, together owning 5.3% of its shares and, as such, their interests are significantly aligned with those of other shareholders.
Viability Statement
The UK Financial Reporting Council ("FRC") maintains the U.K.'s Corporate Governance Code (the "Code") to promote high quality corporate governance and reporting. Under the Code, the Directors are required to state that in their opinion the Company's resources are adequate for it to continue in business for at least twelve months from the date of the Financial Statements and, therefore, it is appropriate that the Financial Statements be prepared on a going concern basis. This statement appears in the Directors' Report on page 21 of the Annual Report and Accounts.
In September 2014, the FRC published a revised version of the Code, and under provision C.2.2 of the revised Code, the Directors are also required to assess the prospects for the Company over a longer period than the twelve months referred to in the going concern guidance and statement. The Directors have elected to review the viability of the Company for a five year period up to the Annual General Meeting of the Company to be held in 2022 principally because they consider that any investment in the shares of the Company should be made on a medium to long-term basis.
In assessing the viability of the Company over the approximately five year period to the Company's Annual General Meeting in 2022, the Directors have considered a number of factors. Most importantly, they have weighed the characteristics of a closed-end fund and the investment policies of the Company against the risks the Company faces as set out in this Strategic Report on page 16 of the Annual Report and Accounts. The Directors have assumed that neither the closed-end structure of the Company, the investment policies it follows nor the risks it faces are likely to change substantially, and for the worse with respect to the viability of the Company, over the five year period they have selected for the purposes of this viability statement. The Directors have also assumed that the Company will continue to maintain relatively high levels of liquidity and to generate substantial income for the foreseeable future. As the Directors are ultimately responsible for ensuring that the investment policies of the Company are followed by the Investment Manager, they are confident in making these assumptions about the future of the Company.
The Company is an investment trust, not a trading company, and invests on a global basis in a diversified portfolio consisting principally of the liquid shares of larger, listed companies. As a closed-end fund it is not subject to redemptions by shareholders which would force it to sell assets and lead to a reduction in its size. The Company's portfolio also generates substantial levels of income to meet its expenses which are largely fixed overheads which represent a very small percentage of its net assets.
The Company was established with an unlimited life. However, the Company will hold a General Meeting to consider an ordinary resolution for the continuation of the Company no later than the end of June 2019. The Board has no reason, currently, to expect that this vote would be unsuccessful. Thereafter, a vote for the continuation of the Company will be held every five years.
Based on its assessment of the nature of the Company, its investment policy and financial resources, the Directors have a reasonable expectation that the Company will be able to continue in operation and to meet its liabilities as they fall due over the next five years.
Additional 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. 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 of the Company. These are risks that cannot be mitigated without changing the investment policy, and one risk, the risk that the price of a share might trade at a substantial discount to its NAV, reflects the demand for the Company's shares in the secondary market.
Gearing and capital structure
Whilst the use of gearing will enhance the NAV per share when the value of the Company's assets is rising, it will have the opposite effect when the underlying asset value is falling. 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.
Non-OECD or emerging markets
The Company's policy on diversification, noted on page 14 of the Annual Report and Accounts, 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 - 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.
Foreign exchange risk
As noted in the investment policy on page 13 of the Annual Report and Accounts, 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, depending on market conditions, to mitigate the Company's foreign exchange risk, the portfolio is normally unhedged (please also refer to currency exposure and hedging policy on page 14 of the Annual Report and Accounts).
Discount to NAV
While some investors may view the opportunity to purchase a share of the Company at a significant discount to its NAV as attractive, the volatility of the price of a share and the discount adds to the risks associated with an investment in the Company's shares. The Directors review the level of the discount on a regular basis.
Directors' responsibilities statement
The Directors are responsible for preparing the Strategic Report, 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). 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 www.ecofin.co.uk 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 and Accounts 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 15 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 30 of the Annual Report and Accounts.
On behalf of the Board
Malcolm King
Director
20 December, 2017
Statement of Comprehensive Income
|
|
|
|
|
|
|
|
|
|
Period ended 30 September 2017 |
|||
|
|
Notes |
Revenue £'000 |
Capital £'000 |
Total £'000 |
|
|
Gains on investments held at fair value through profit or loss |
9 |
- |
9,056 |
9,056 |
|
|
Currency gains |
|
- |
186 |
186 |
|
|
Income |
2 |
6,697 |
537 |
7,234 |
|
|
Investment management fees |
3 |
(681) |
(681) |
(1,362) |
|
|
Administrative expenses |
4 |
(837) |
- |
(837) |
|
|
Net return from ordinary activities before finance costs and taxation
|
|
5,179 |
9,098 |
14,277 |
|
|
Finance costs |
5 |
(42) |
(42) |
(84) |
|
|
Net return on ordinary activities before taxation
|
|
5,137 |
9,056 |
14,193 |
|
|
Taxation |
7 |
(771) |
- |
(771) |
|
|
Net return on ordinary activities after taxation |
|
4,366 |
9,056 |
13,422 |
|
|
|
|
|
|
|
|
|
Return per ordinary share (pence) |
8 |
4.75 |
9.86 |
14.61 |
|
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 (other than the initial roll-over pool of assets) or discontinued during the period ended 30 September, 2017.
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 period.
The accompanying notes are an integral part of the Financial Statements.
Statement of Financial Position
|
|
As at |
|
|
|
Notes |
30 September 2017 £'000 |
|
Non-current assets |
|
|
|
Equity securities |
|
137,383 |
|
Fixed-interest securities |
|
1,349 |
|
Investments at fair value through profit or loss |
9 |
138,732 |
|
|
|
|
|
Current assets |
|
|
|
Debtors and prepayments |
10 |
3,081 |
|
Cash at bank |
|
432 |
|
|
|
3,513 |
|
|
|
|
|
Creditors: amounts falling due within one year |
|
|
|
Prime brokerage borrowings |
11 |
(9,356) |
|
Other creditors |
|
(819) |
|
|
|
(10,175) |
|
Net current liabilities |
|
(6,662) |
|
Net assets |
|
132,070 |
|
|
|
|
|
Share capital and reserves |
|
|
|
Called-up share capital |
12 |
919 |
|
Special reserve |
|
122,095 |
|
Capital reserve |
13 |
9,056 |
|
Revenue reserve |
|
- |
|
Total shareholders' funds |
|
132,070 |
|
NAV per ordinary share (pence) |
14 |
143.75 |
The Financial Statements were approved by the Board of Directors and authorised for issue on 20 December, 2017 and were signed on its behalf by:
Malcolm King
Director
The accompanying notes are an integral part of the Financial Statements.
Statement of Changes in Equity
|
|
|
Period from 27 June 2016 to 30 September 2017 |
|||||
|
|
Notes |
Share capital £'000 |
Share premium account1 £'000 |
Special reserve £'000 |
Capital reserve £'000 |
Revenue reserve £'000 |
Total £'000 |
|
Balance on incorporation2 |
|
- |
- |
- |
- |
- |
- |
|
Issue of ordinary shares |
|
919 |
123,609 |
- |
- |
- |
124,528 |
|
Cancellation of share premium account |
|
- |
(123,609) |
123,609 |
- |
- |
- |
|
Return on ordinary activities after taxation |
|
- |
- |
- |
9,056 |
4,366 |
13,422 |
|
Dividends paid |
6 |
- |
- |
(1,514) |
- |
(4,366) |
(5,880) |
|
Balance at 30 September 2017 |
|
919 |
- |
122,095 |
9,056 |
- |
132,070 |
1 The share premium account was cancelled on 9 November, 2016. The resultant special reserve may be used, where the Board considers it appropriate, by the Company for the purposes of paying dividends to shareholders and, in particular, augmenting payments of dividends to shareholders.
2 The Company was incorporated on 27 June, 2016. Ordinary shares were issued on 26 September, 2016.
As at 13 September, 2016, the value of the pool of assets attributable to the Company, further to the scheme of reconstruction of EWPO, was £124,528,000 or 135.54 pence per share. By 26 September, 2016, the date of issuance and admission of the shares to trading, the opening value of the Company's assets had increased to £129,200,000 or 140.63 pence per share due to market movements. The difference of £4,672,000 is reflected within the capital return during the period on the Statement of Comprehensive Income.
The accompanying notes are an integral part of the Financial Statements.
Statement of Cash Flows
|
|
|
Notes |
Period ended 30 September 2017 £'000 |
|
Net return before finance costs and taxation |
|
|
14,277 |
|
Increase in accrued expenses |
|
|
513 |
|
Overseas withholding tax |
|
|
(732) |
|
Deposit interest income |
|
|
(5) |
|
Dividend income |
|
|
(6,617) |
|
Fixed-interest income |
|
|
(75) |
|
Realised gains on foreign exchange transactions |
|
|
(186) |
|
Dividends received |
|
|
6,355 |
|
Deposit interest received |
|
|
5 |
|
Fixed-interest received |
|
|
72 |
|
Interest paid |
|
|
(84) |
|
Gains on investments |
|
|
(9,056) |
|
Increase in other debtors |
|
|
(211) |
|
Net cash flow from operating activities |
|
|
4,256 |
|
Investing activities |
|
|
|
|
Purchases of investments |
|
|
(129,846) |
|
Sales of investments |
|
|
121,085 |
|
Net cash used in investing activities
|
|
|
(8,761) |
|
Financing activities |
|
|
|
|
Movements in prime brokerage borrowings |
|
|
9,356 |
|
Dividends paid |
|
6 |
(5,880) |
|
Share issue |
|
|
1,461 |
|
Net cash from financing activities |
|
|
4,937 |
|
Increase in cash |
|
|
432 |
|
Analysis of changes in cash during the year |
|
|
|
|
Opening balance |
|
|
- |
|
Increase in cash as above |
|
|
432 |
|
Closing balance |
|
|
432 |
The accompanying notes are an integral part of the Financial Statements.
Notes to the Financial Statements
For the period ended 30 September 2017
1. Accounting policies of the Group
(a) Basis of preparation
The Financial Statements have been prepared in accordance with Financial Reporting Standard ("FRS") 102 and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued in November 2014 and updated in January 2017 with consequential amendments. 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.
(b) Income
Income from investments, including taxes deducted at source, is included in revenue by reference to the date on which the investment is quoted ex-dividend. Special dividends are credited to capital or revenue, according to the circumstances. The fixed returns on debt securities are recognised on a time apportionment basis so as to reflect the effective yield on the debt securities. Interest receivable from cash and short-term deposits is treated on an accruals basis.
(c) Expenses
All expenses are accounted for on an accruals basis. Expenses are charged to the revenue account except where they directly relate to the acquisition or disposal of an investment, in which case they are charged to the capital account; in addition, expenses are charged to the capital account where a connection with the maintenance or enhancement of the value of the investments can be demonstrated. In this respect, the management fee and finance costs have been allocated 50% to the capital account and 50% to the revenue account.
(d) Taxation
The charge for taxation is based on the profit for the period to date and takes into account, if applicable, taxation deferred because of timing differences between the treatment of certain items for taxation and accounting purposes. Deferred taxation is provided using the liability method on all timing differences, calculated at the rate at which it is anticipated the timing differences will reverse. Deferred tax assets are recognised only when, on the basis of available evidence, it is more likely than not that there will be taxable profits in future against which the deferred tax asset can be offset.
Due to the Company's status as an investment trust company and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.
The tax effect of different items of income/gain and expenditure/loss is allocated between capital and revenue within the Statement of Comprehensive Income on the same basis as the particular item to which it relates using the Company's effective rate of tax for the period, based on the marginal basis.
(e) Valuation of investments
For the purposes of preparing the Financial Statements, the Company has applied Sections 11 and 12 of FRS 102 in respect of financial instruments. All investments are designated upon initial recognition as held at fair value through profit or loss. Investment transactions are accounted for on a trade date basis. Proceeds are measured at fair value, which is regarded as the proceeds of sale less any transaction costs. The fair values of the financial instruments in the Statement of Financial Position are based on their quoted bid price at the reporting date, without deduction of the estimated future selling costs. Changes in the fair value of investments held at fair value through profit or loss and gains and losses on disposal are recognised in the Statement of Comprehensive Income as "Gains on investments held at fair value through profit or loss". Also included within this caption are transaction costs in relation to the purchase or sale of investments, including the difference between the purchase price of an investment and its bid price at the date of purchase.
(f) Cash and cash equivalents
Cash comprises cash in hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and are subject to insignificant risk of change in value.
(g) Borrowings
Short-term borrowings, which comprise of prime brokerage borrowings, are recognised initially at the fair value of the consideration received, net of any issue expenses, and subsequently at amortised cost using the effective interest method. The finance costs, being the difference between the net proceeds of borrowings and the total amount of payments that require to be made in respect of those borrowings, accrue evenly over the life of the borrowings and are allocated 50% to revenue and 50% to capital.
(h) Segmental reporting
The Directors are of the opinion that the Company is engaged in a single segment of business activity, the investment business. Consequently, no business segmental analysis is provided.
(i) Nature and purpose of reserves
Share premium account
The balance classified as share premium includes the premium above nominal value received by the Company on issuing shares net of issue costs.
Special reserve
The special reserve arose following Court approval in November 2016 to transfer the £123,609,000 from the share premium account. This reserve is distributable and may be used, where the Board considers it appropriate, by the Company for the purposes of paying dividends to shareholders and, in particular, augmenting payments of dividends to shareholders. There is no guarantee that the Board will in fact make use of this reserve for the purpose of paying dividends to shareholders. The special reserve can also be used to fund the cost of share buy-backs.
Capital reserve
Gains and losses on disposal of investments and changes in fair values of investments are transferred to the capital reserve. Foreign exchange differences of a capital nature are also transferred to the capital reserve. The capital element of the management fee and relevant finance costs are charged to this reserve. Any associated tax relief is also credited to this reserve.
Revenue reserve
This reserve reflects all income and costs which are recognised in the revenue column of the Statement of Comprehensive Income.
The Company's special reserve, capital reserve and revenue reserve may be distributed by way of a dividend.
(j) Foreign currency
Monetary assets and liabilities and non-monetary assets held at fair value in foreign currencies are translated into Sterling at the rates of exchange ruling at the Statement of Financial Position date. Transactions involving foreign currencies are converted at the rate ruling on the date of the transaction. Gains and losses on the translation of foreign currencies are recognised in the revenue or capital account of the Statement of Comprehensive Income depending on the nature of the underlying item.
(k) Dividends payable
Dividends are recognised in the period in which they are paid.
2. Income
|
|
2017 £'000 |
|
Income from investments |
|
|
UK dividends |
993 |
|
Overseas dividends |
5,624 |
|
Overseas fixed-interest |
75 |
|
|
6,692 |
|
Other income |
|
|
Deposit interest |
5 |
|
Total income |
6,697 |
During the period to 30 September, 2017 the Company received special dividends totalling £560,000, the majority of which were recognised as capital. £23,000 was recognised as revenue and is included within the income from investments figures above, £537,000 was recognised as capital dividends and is included in the capital column of the Statement of Comprehensive Income.
3. Investment Management fee
|
|
2017 |
||
|
|
Revenue £'000 |
Capital £'000 |
Total £'000 |
|
Investment Management fee |
681 |
681 |
1,362 |
The Company has an agreement with Ecofin Limited for the provision of investment management services.
The management fee for the period ended 30 September, 2017 was calculated, on a quarterly basis, at 1.25% per annum of the net assets of the Company. The management fee is chargeable 50% to revenue and 50% to capital. During the period £1,362,000 of investment management fees were earned by the Investment Manager, of which £344,000 was payable to Ecofin Limited at the period-end.
During the financial year Ecofin Limited made a contribution of £275,000 to the costs of EWPO's reconstruction by way of an equal reduction of the first four quarterly payments of management fees payable by the Company.
4. Administrative expenses
|
|
2017 |
|
|
|
£'000 |
|
|
Administration and company secretarial services fee |
241 |
|
|
Directors' remuneration |
111 |
|
|
Auditor's remuneration: |
|
|
|
- fees payable to the Auditor for the audit of the Company's annual accounts |
25 |
|
|
- non-audit services: |
|
|
|
fees payable to the Auditor for the review of the Company's initial accounts |
14 |
|
|
fees payable to the Auditor and its associates for iXBRL tagging services |
2 |
|
|
Printing and postage fees |
70 |
|
|
Directors' liability insurance |
16 |
|
|
Depositary fees |
58 |
|
|
Regulatory fees |
20 |
|
|
Employer's National Insurance contributions |
7 |
|
|
Registrar's fees |
52 |
|
|
Legal and advisory fees |
191 |
|
|
Other expenses |
30 |
|
|
|
837 |
|
With the exception of the Auditor's remuneration for the statutory audit, all of the expenses above, including fees for non-audit services, include irrecoverable VAT where applicable. For the Auditor's remuneration for the statutory audit, irrecoverable VAT amounted to £5,000.
Legal and advisory fees include: legal fees relating to the cancellation of the share premium; fees paid to the Company's corporate broker; fees in respect of sponsored research and other marketing resources; fees in relation to the recruitment of a new Director; and a substantial accrual for the expenses related to the recovery of excess taxes withheld on foreign dividends.
|
|
|
5. Finance costs
6. Dividends on ordinary shares
The proposed fourth interim dividend for 2017 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 £4,366,000.
The amount reflected above for the cost of the proposed fourth interim dividend for 2017 is based on 91,872,247 ordinary shares, the number of ordinary shares in issue as at the date of this Report.
7. Taxation (a) Analysis of charge for the period
(b) Factors affecting the tax charge for the period The tax assessed for the period is lower than the standard rate of corporation tax rate of 19.50%. The differences are explained as follows:
(c) Factors that may affect future tax charges No provision for deferred tax was made in the accounting period. The Company has not provided for deferred tax on capital gains or losses arising on the revaluation or disposal of investments as it is exempt from tax on these items because of its status as an investment trust company.
At the period-end, the Company had, for taxation purposes only, accumulated unrelieved management expenses and loan relationship deficits of £231,000. A deferred tax asset in respect of this has not been recognised and these expenses will only be utilised if the Company has profits chargeable to corporation tax in the future. It is considered too uncertain that the Company will generate such profits and therefore no deferred tax asset has been recognised.
8. Return per ordinary share
9. Investments at fair value through profit or loss
Transaction costs During the period expenses were incurred in acquiring and disposing of investments classified at fair value through profit or loss. These were expensed through capital and are included within gains on investments in the Statement of Comprehensive Income. The total costs were as follows:
10. Other debtors and receivables
11. Creditors: amounts falling due within one year
12. Ordinary share capital
The Company was admitted to the Main Market of the London Stock Exchange on 26 September, 2016. The total number of ordinary shares in the Company in issue immediately following admission was 91,872,247, each with equal voting rights.
13. Capital reserve
14. NAV per ordinary share The NAV attributable to the ordinary shares and the NAV per ordinary share at the period-end were as follows:
15. Financial instruments and capital disclosures Risk management policies and procedures The investment objectives of the Company are to achieve a high, secure dividend yield on its investment portfolio and to realise long-term growth in the capital value of the portfolio for the benefit of shareholders, while taking care to preserve shareholders' capital.
The Company's financial instruments comprise: • equity shares held in accordance with the Company's investment objective and policies • fixed interest securities, cash and liquid resources as well as short-term receivables and payables that arise from its operations • borrowings in various currencies to finance operations
The Company may enter into derivative contracts in order to manage the risks arising from its investment activities. As at the period-end, there were no derivative contracts outstanding.
The Board sets out its investment policies, including its policies on gearing and diversification, in the Strategic Report beginning on page 13 of the Annual Report and Accounts. The Board and the Company's Investment Manager consider and review the principal risks inherent in managing the Company's assets and these are detailed overleaf.
Market price risk The Company's investment portfolio is subject to fluctuations, volatility and the vagaries of market prices. The Directors seek to mitigate this risk by ensuring proper controls exist through the IMA for maintaining a diversified portfolio of the securities of utility, utility-related and infrastructure companies and by ensuring that there are balances within the portfolio by geography, sub-sector and types of instrument. If the fair value of the Company's investments at period-end (see portfolio holdings on page 11 of the Annual Report and Accounts) had increased or decreased by 10%, then it would have had an effect on the Group's capital return and equity equal to £13,873,000.
Foreign currency risk The value of the Company's assets and the total return earned by the Company's shareholders can be significantly affected by foreign exchange movements as most of the Company's assets are denominated in currencies other than Sterling, the currency in which the Company's accounts are prepared. This risk is partially offset by the Company's foreign currency borrowings.
A 10% rise or decline of Sterling against foreign currency denominated (i.e. non-Sterling) assets held at the period-end would have decreased/increased the total return by £11,460,000. This is considered to be a reasonable illustration based on the volatility of exchange rates during the period. Consequently, the period-end NAV would also have decreased/increased by £11,460,000 or 8.7%.
Interest rate risk The Company is only exposed to significant interest rate risk through its prime brokerage borrowings with Citigroup Global Markets Limited and through the fair value of investments in fixed-interest rate securities.
Prime brokerage borrowings varied throughout the period as part of a Board endorsed policy and at period-end amounted to the equivalent of £9,356,000 in a variety of currencies. All of these borrowings were at floating rates of interest. If this level of borrowing was maintained for the period, a 1% increase/decrease in LIBOR would decrease/increase the revenue return by £47,000 and decrease/increase the capital return by £47,000.
The Company's fixed-income portfolio at the period-end was valued at £1,349,000. The weighted average effective interest rate on these investments was 5.63% and the weighted average period to maturity was 6.1 years. A 1% increase or decrease in relevant market interest rates would be expected to decrease or increase the fixed-income portfolio's value by approximately £14,000, all other factors being equal.
Liquidity risk The Company's assets mainly comprise readily realisable securities which can be easily sold to meet funding commitments if necessary. A liquidity analysis is prepared on at least a quarterly basis as part of the Investment Manager's report to the Board and the liquidity profile of all securities is reviewed. The Investment Manager reviews the liquidity profile of the investments continuously.
The remaining contractual maturities of the Company's financial liabilities at 30 September, 2017, based on the earliest date on which payment can be required, was as follows:
Credit risk Credit risk is mitigated by diversifying the counterparties with which the Investment Manager conducts investment transactions. The credit standing of all counterparties is reviewed periodically with limits set on amounts due from any one broker. The Company's exposure to its counterparty for forward currency contracts, Citigroup, at 30 September, 2017 was £nil. There were no items past due or impaired.
The maximum exposure to credit risk at 30 September, 2017 was considered to be the same as the carrying amount of the financial assets in the Statement of Financial Position.
16. Fair value hierarchy FRS 102 requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy shall have the following levels:
Level 1: unadjusted quoted prices in an active market for identical assets or liabilities that the entity can access at the measurement date;
Level 2: inputs other than quoted prices included within Level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly; and
Level 3: inputs are unobservable (i.e. for which market data is unavailable) for the asset or liability.
The financial assets and liabilities measured at fair value in the Statement of Financial Position are grouped into the fair value hierarchy at the reporting date as follows:
a) Equities and preference shares The fair value of the Company's investments in equities and preference shares has been determined by reference to their quoted bid prices at the reporting date. Equities and preference shares included in Fair Value Level 1 are actively traded on recognised stock exchanges.
b) Quoted bonds The fair value of the Company's investments in bonds has been determined by reference to their quoted bid prices at the reporting date. Bonds included in Fair Value Level 2 are traded on recognised stock exchanges.
17. Related party transactions and transactions with the Investment Manager Fees payable during the period 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 on pages 27 and 28. The balance of fees due to Directors at the period-end was £nil.
The Company has an agreement with Ecofin Limited for the provision of investment management services. Details of transactions during the period and balances outstanding at the period-end are disclosed in note 3.
18. Capital management policies and procedures The Company's investment objective is to achieve a high, secure dividend yield on its portfolio and to realise long-term growth in the capital value of the portfolio for the benefit of shareholders.
The capital of the Company consists of debt, comprising prime brokerage borrowings, and equity, comprising issued capital, reserves and retained earnings. The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance.
The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes: • the planned level of gearing which takes into account the Investment Manager's views on the market; • the level of equity shares in issue; • the extent to which revenue in excess of that which is required to be distributed should be retained.
The Company is not subject to any externally imposed capital requirements.
19. The figures and financial information for the period ended 30 September, 2017 have been extracted from the latest published Financial Statements and do not constitute the statutory accounts for that year as defined in Section 434 of the Act. Those Financial Statements have been delivered to the Registrar of Companies and included the Report of the Auditors which was unqualified and did not contain a statement under Section 498 of the Act.
This Annual Financial Report Announcement does not constitute statutory accounts for the period ended 30 September, 2017 as defined in Section 434 of the Act.
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20. The Report and Accounts for the period ended 30 September, 2017 will be posted to shareholders in January 2018 and thereafter copies will be available upon request at the Company's Registered Office: 10 Harewood Avenue, London, NW1 6AA. The Annual Report and Accounts will also be available on the Investment Manager' website, www.ecofin.co.uk, from today. A copy of the Annual Report and Accounts for the period ended 30 September, 2017 has been submitted to the National Storage Mechanism of the UK Listing Authority and will shortly be available for inspection at: www.Hemscott.com/nsm.do. The Company's AGM will be held at 12.00 pm on Tuesday, 6 March, 2018 at the Amba Hotel Charing Cross, Strand, London, WC2N 5HX.
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For further information, please contact:
Elspeth Dick, CFA
Telephone: 020 7451 2929
Ecofin Limited
Investment Manager
Susan Gledhill
Telephone: 020 7410 5971
BNP Paribas Secretarial Services Limited
Company Secretary
20 DECEMBER, 2017
This information is provided by RNS
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