Annual Financial Report
ECOFIN GLOBAL UTILITIES AND INFRASTRUCTURE TRUST PLC (the "Company")
Annual Results Announcement for the year ended 30 September, 2019
This announcement contains regulated information.
Ecofin Global Utilities and Infrastructure Trust plc (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.
· During the year which ended on 30 September, 2019 the Company's net asset value ("NAV") per share increased by 27.4% and the price of an ordinary share increased by 32.3%, both on a total return basis (assuming the reinvestment of dividends). The discount to NAV at which the shares traded averaged 12.3% during the year and was 10.7% as at 30 September, 2019;
· Four quarterly dividends totalling 6.4p were paid, providing a dividend yield (annualised) of 4.1% on 157.00p, the price of the Company's shares as at 30 September, 2019;
· The end of the Company's financial year also marked the third anniversary since its listing on the London Stock Exchange. The Company's NAV increased by 43.1% on a total return basis from admission on 26 September, 2016 until 30 September, 2019 and on the same basis its share price increased by 61.8%;
· Since the Company's year-end on 30 September, 2019 to date (13 December), the NAV has declined by 7.1% (on a total return basis), predominantly due to the increase in the value of Sterling. The price of an ordinary share has decreased by 3.5% (also on a total return basis) and the discount to NAV has narrowed to 7.3%;
· Given the Company's strong performance and our Investment Manager's confidence in the outlook, your Board has decided to increase the quarterly dividend rate by 3.1% to 1.65p per share (6.60p per annum) with effect from the next payment on 28 February, 2020;
· We are recommending that the Company change its name to Tortoise Global Infrastructure Trust plc in order to simplify its current name and reflect our Investment Manager's change in ownership; and
· The Company's Investment Manager has positioned the portfolio to capitalise on the rapid changes underway in power markets, particularly related to environmental and sustainability issues, and on the investment spending required to upgrade and update the economic infrastructure necessary to support economic growth. This will continue to provide the prospect for higher valuations and the ongoing success of your Company.
For further information please contact:
Elspeth Dick, CFA
Investor Relations
Tortoise
Ecofin Platform
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 year ended 30 September, 2019 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, 2018 included an unqualified audit report and have been filed with the Registrar of Companies.
Financial Highlights
as at 30 September 2019
|
Summary |
As at or year to 30 September 2019 |
As at or year to 30 September 2018 |
% change |
|
Net assets attributable to shareholders (£'000) |
161,502 |
132,322 |
+22.1 |
|
NAV per share |
175.79p |
144.03p |
+22.1 |
|
Share price (mid-market) |
157.00p |
124.50p |
+26.1 |
|
Discount to NAV1 |
10.7% |
13.6% |
|
|
Revenue return per share |
5.48p |
4.82p |
|
|
Dividends paid per share |
6.40p |
6.40p |
|
|
Dividend yield1,2 |
4.1% |
5.1% |
|
|
Gearing on net assets1,3 |
6.3% |
13.4% |
|
|
Ongoing charges figure1,4 |
1.68% |
1.99% |
|
1. Please refer to Alternative Performance Measures on page 62 of the Annual Report and Accounts.
2. Dividends paid (annualised) as a percentage of share price.
3. Gearing is the Company's borrowings (including the net amounts due from/to brokers) less cash divided by net assets attributable to shareholders.
4. The ongoing charges figure 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 year.
|
Performance for periods to 30 September, 2019 |
1 year % |
3 years % |
Since admission on 26 September 20165 % |
|
NAV per share total return6 |
27.4 |
44.9 |
43.1 |
|
Share price total return6 |
32.3 |
50.8 |
61.8 |
|
Indices (total returns in £): |
|
|
|
|
FTSE All-Share Index |
2.6 |
21.5 |
21.3 |
|
FTSE ASX Utilities Index |
8.9 |
-11.8 |
-10.6 |
|
MSCI World Index |
8.7 |
43.5 |
43.4 |
|
MSCI World Utilities Index |
29.3 |
46.5 |
43.5 |
|
S&P Global Infrastructure Index |
21.4 |
32.4 |
31.6 |
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 on page 62 of the Annual Report and Accounts.
Chairman's Statement
Performance
Since the start of the Company's financial year, equity markets have risen, global growth has decelerated and yields on ten-year government bonds, which had been rising since the middle of 2016, have fallen close to historic lows in many economies. Continuing uncertainty about international trade and geo-political issues has undermined business investment, resulting in yet more easing of monetary policies in most developed markets in efforts to maintain economic expansion.
Although lower bond yields were helpful to the performance of shares in our utilities and infrastructure sector, weaker growth constituted a headwind and there were many adverse stock specific factors to be negotiated. This made careful stock selection indispensable to good performance. The companies chosen by our Investment Manager very often delivered earnings and cash flow results that exceeded expectations so the Company's NAV made excellent progress.
In the year ended 30 September, 2019, the NAV per share increased by 22.1% and, assuming the reinvestment of dividends, the total return was 27.4%. Over the same period, the price of the Company's shares rose by 26.1% and the total return on the shares, assuming the reinvestment of dividends, was 32.3%. In comparison, world equity markets (as measured by the MSCI World Index in Sterling terms) advanced a more modest 8.7%. The total return on the MSCI World Utilities Index was 29.3% and the S&P Global Infrastructure Index, which lagged the performance of its largest constituents - utilities - by a significant margin for the first part of the financial year, produced a total return of 21.4% (both in Sterling terms).
The end of the Company's financial year also marked its third anniversary since listing on the London Stock Exchange. We are pleased to report that the Investment Manager has delivered strong performance over the period, helped as much by its choice of those stocks to avoid as of those to buy. Since admission, the total return on the NAV and the Company's shares has been 12.6% per annum and 17.3% per annum, respectively: these are ahead of our target total return of 6-12% per annum over the longer term.
Discount to NAV
During the financial year, the discount to NAV averaged a disappointing 12.3% but the Investment Manager's and your Board's efforts to improve perceptions of the attractions of the Company appear to have paid off with the discount often nearer to 8% by September 2019.
Together with the Investment Manager, we are continuing our efforts to minimise the discount; our goal is to grow the capital base of the Company. In September, we appointed Stifel Nicolaus Europe Limited as the Company's broker, seeking its advice and assistance in raising the profile of the Company with a range of potential new investors, and we are pleased with this new relationship.
Dividends
Dividends paid to shareholders during the financial year totalled 6.4p per share, representing a yield of 4.1% based on the share price at year-end; the yield based on year-end NAV, however, was below 4%. Helpfully, our expectations from last year have been fulfilled and the Company's dividend cover has improved from 75.3% to 85.6%, partly from an 8% increase in investment income and partly from an even larger percentage decrease in the Company's costs which came principally from the reduction in the annual investment management fee.
Given the Company's strong performance and our Investment Manager's confidence in the outlook, your Board has decided to increase the quarterly dividend rate by 3.1% to 1.65p per share (6.60p per annum) with effect from the next payment on 28 February, 2020.
Tortoise/Ecofin
It was announced in December 2018 that the Company's Investment Manager, Ecofin Limited ("Ecofin"), had been acquired by Tortoise Investments LLC ("Tortoise"), a privately-owned firm based in Kansas City. Tortoise, a specialist investor in essential assets and an experienced manager of closed-end funds, has integrated Ecofin and Ecofin has changed its name to Tortoise Advisors UK Limited ("Tortoise UK"). Tortoise UK remains a separate legal entity which is regulated by the FCA and SEC. We welcome Tortoise's support for the Company and the resources it is providing to Tortoise UK which provide a strong base for growth. We are also encouraged by Tortoise's commitments to sustainability and active ownership, to which we attach great importance.
We are recommending that the Company change its name to Tortoise Global Infrastructure Trust plc. This both simplifies the current name and reflects our Investment Manager's change in ownership. The investment policy and universe remain unchanged and the portfolio still has a majority allocation to utilities which are the largest component of the now well-established infrastructure sector categorisations and indices. A resolution proposing the new name is included in the Notice of Annual General Meeting for shareholders' consideration. If the resolution is approved, the new corporate name will be registered with Companies House and the ticker will change to TGIT.LN.
AIC sector name change
The AIC, further to a recommendation by your Company, is renaming its Utilities sector as the Infrastructure Securities sector on 16 December, 2019. This new sector will comprise those investment companies which invest predominately (over 80%) in the listed securities of infrastructure (including utilities) companies. We are pleased with this development as the sector's new name describes clearly the breadth of the investment universe of its constituents and their focus on listed securities.
Outlook
Between the end of the financial year and 13 December, the NAV total return has been -7.1% due predominantly to the increase in the value of Sterling. The shares have returned -3.5% and the discount to NAV has narrowed to 7.3%. The Investment Manager has positioned the portfolio to capitalise on the rapid changes underway in power markets, particularly related to environmental and sustainability issues, and on the investment spending required to upgrade and update the economic infrastructure necessary to support economic growth. This will continue to provide the prospect for higher valuations and the ongoing success of your Company.
David Simpson
Chairman
17 December, 2019
Investment Manager's Report
The economy and markets
The economic and political backdrop caused considerable equity market volatility during the year ended 30 September, 2019 but these episodes, usually caused by underwhelming economic data, deepening trade disputes or fears over the outlook for global growth, tended to be followed by gains and even new all-time highs for some equity markets. After a sharp decline during the fourth quarter of 2018 (-11.3%), the MSCI World Index rallied by 22.5% between 1 January and 30 September, 2019, amplified slightly by the weakness of Sterling against the U.S. dollar. Meanwhile, economic conditions justified rate reductions for many central banks by the middle of 2019, and the 10-year U.S. Treasury yield, which in late 2018 stood at over 3% and was widely predicted to rise to 4%, fell to 1.7% by 30 September, 2019. For the Company's fiscal year, the MSCI World Index rose by 8.7% (2.4% in local currency). Unless indicated otherwise, all equity market and Company returns are stated as total returns in Sterling.
As 2018's synchronised growth morphed into a global slowdown, our sectors continued to deliver generally better than anticipated earnings and guidance and share prices benefitted as more defensive, less economically sensitive, qualities were sought by investors. With the exception of a period of underperformance in the first calendar quarter of 2019, the MSCI World Utilities Index outpaced the MSCI World Index by a significant margin during the year and so did the S&P Global Infrastructure Index which is approximately 40% comprised of utilities with the balance in other economic infrastructure sectors (energy infrastructure and transportation).
Performance
The Company's NAV increased by 27.4% over the year on a total return basis. Companies in the portfolio generally continued to deliver good results and healthy cash flows, and their share prices received a strong additional push when 'risk off' moods set in; we also managed to steer clear of several large capitalisation poor performers. The modest amount of leverage contributed positively and, as the portfolio is unhedged, the weakness of Sterling against the U.S. dollar added about 3.3 percentage points to the performance of the underlying investments. The North American and Continental European portfolios each advanced by approximately 26% while the U.K. and small 'rest of world' portions gained about 6% and 8%, respectively (total returns in local currency). By sub-sector, utilities (including renewables) were the stand-out performers while pure infrastructure names advanced more modestly.
Although there was unusually little dispersion of returns between Continental European and North American utilities averages over the year, the dispersion of returns for individual names in the space continued to be striking (for example, +/- 45% across Europe and globally between 1 January and 30 September, 2019). The holdings which provided the best contributions to NAV performance included NextEra Energy, Enel, Iberdrola, Terraform Power, RWE and Algonquin Power & Utilities - they were all amongst the highest conviction (i.e., largest) positions in the portfolio not least because they are strategically focussed on renewable energies and network infrastructure build-outs. Ferrovial, the Spanish infrastructure group and part-owner of Heathrow, also performed very well (+54%). Very few holdings saw their share prices decline and only EDF's impact was noteworthy. EDF news-flow was gloomy and included project delays and cost over-runs but we expect that EDF's impending internal restructuring - to be presented to the French government which owns 83.7% of the company - and France's potential regulatory reform of nuclear energy could yet add value. During the year, we avoided the temptations of Centrica, PG&E (California's largest utility, which filed for bankruptcy in January 2019) and infrastructure giant Atlantia (implicated, due to its toll road licenses, in the Genoa bridge collapse), and side-stepped the Spanish regulated names while retaining our confidence in Iberdrola, the Company's largest European holding.
This year's performance has helped to build a strong track record for the Company. Since the Company's listing just over three years ago on 26 September, 2016, the NAV has increased by 12.6% per annum while the Company's shares have returned 17.3% per annum. These results fortify our confidence in our ability to continue to deliver total returns of 6-12% per annum over the longer term investing in this universe.
Sector and portfolio developments
Macroeconomics and geo-political tensions helped to raise the appeal of safe-haven assets during the year. The wholehearted change in sentiment about the path for interest rates and the flattening of yield curves was also helpful to the performance of utilities globally and the Company's NAV. As a bonus, these companies were delivering on upgraded earnings forecasts in view of the improvement in power and carbon emission allowance prices. Strength was broadly based across regulated utilities, integrated names and yieldcos.
Performance was sluggish during the second half of calendar 2018 for the Company's investments in energy infrastructure (pipelines) and transportation services due to a slowdown in air traffic and heightened concern for toll road concessions businesses further to the bridge collapse in Genoa. These sub-sectors regained favour this year on a relative value basis and the recovery in the oil price has helped the pipelines businesses. The return of M&A to our sectors is also highlighting the value in listed versus private infrastructure assets (water, renewables, airports).
Geographic and sub-sector allocations did not change materially during the year. Exposure to Continental Europe hovered around 40% while the allocation in North America inched higher, at the expense of emerging markets. Emerging markets exposure declined because cash was returned to the portfolio further to a tender offer for the outstanding shares of Energy Development Corp., one of the world's largest producers of geothermal energy based in the Philippines. Furthermore, we kept a cautious stance on Asian markets due to the uncertainty surrounding U.S./China trade talks. Atlantica Yield and Clearway Energy (formerly NRG Yield) shares were sold just ahead of the bankruptcy of PG&E with which they both have contracts which could be at risk, potentially impinging on free cash flows.
PG&E merits a mention. California's utilities represent approximately 7% of the U.S. utilities universe and were among the more attractive investment opportunities, in our view, thanks to California's initiatives requiring aggressive migration to renewables supply, rapid growth in transmission capex, and a highly constructive regulatory framework. Even so, we have generally avoided Californian utilities and the Company's NAV benefitted from this caution. The first fire event in California in 2017 was the subject of a surprisingly negative ruling on cost recovery by the California Public Utilities Commission. We determined that it was either possible or likely that climate change may be creating a more inhospitable environment for fire risk in certain regions which, in our environmental, social and governance ("ESG") framework, elevates the importance of clarity in regulatory recovery of costs associated with natural disasters. In Florida, for example, there is a robust framework related to hurricane damage to utility systems. Our risk analysis with respect to California will evolve depending on our interpretation of how productive and protective the regulatory response is.
A new position was established in Evergy, one of the largest electric utilities in the Midwest of the U.S. formed by the recent merger of two regional power companies seeking to scale-up to meet the demands of 'greening the grid'. We participated in the IPO of Neoen, a French renewable developer and also included Italy's multi-utility Iren, a company whose businesses span regulated (energy and water networks and waste collection), quasi-regulated (hydro generation and waste-to-energy plants) and unregulated activities (generation from hydroelectric and thermoelectric plants). Iren's shares have been trading at a discount to its peers' valuations, its management has a strong track record, and we believe there is good visibility on the company's delivery of its business plan which includes dividend growth of 10% per annum between 2018 and 2023.
We also added significantly to the position in Portugal's EDP whose shares, notwithstanding a takeover bid by its largest shareholder China Three Gorges, had lagged. We expected the bid to fail, encouraging EDP's management to refocus on restructuring its portfolio and growing its renewables division. We fully exited E.ON, one of the largest companies in the sector, in the summer while retaining RWE, and the relative price performance of these two names over the subsequent months was rewarding.
Exposure to emerging markets averaged 6% of the portfolio and included Hong Kong-listed Beijing Capital International Airport and Huaneng Renewables throughout the year. We also held a position in Thailand's Glow Energy until a state-owned Thai company acquired a majority stake in the company from Engie and we participated in the tender offer for the minority stake. Shares in Huaneng Renewables withstood local market weakness but Beijing Airport's share price suffered as analysts took a pessimistic view about a diversion of traffic to Beijing's new Daxing Airport. A new holding in Brazil's Neoenergia, still 50%-owned by Iberdrola after its IPO in June, has been profitable to date; Neoenergia is Brazil's largest private power distributor, supplying electric power to 20% of the Brazilian population.
Not 'business as usual'
It is not 'business as usual' in the Company's sectors. As attention on the impacts of climate change on our planet intensifies, corporate strategies are changing very rapidly to meet the urgent demands for more and cleaner electricity and to prioritise the mitigation of environmental risks. Population and GDP growth and the electrification of transportation, industry and buildings are driving increasing demand for electricity. At the same time, there is a race globally for lower carbon footprints in manufacturing and this is also true of the power sector, at least in Europe and North America. As almost 80% of CO2 emissions are produced through the use of coal and oil by industry (including power generation), transport, and residential and commercial sectors (as of 2017, according to Citi Global Insights 2019), the path to serious emissions reductions necessarily includes lowering the use of these two fuels.
The majority of capital investment globally in new electricity generating capacity is, therefore, and will continue to be directed to zero-carbon renewables (predominantly solar and wind) where new technologies have driven their production costs so significantly lower since 2010. According to Bloomberg New Energy Finance data and JP Morgan, the global grid will move from 2/3 fossil-fuel based to 2/3 zero-carbon based by 2050. Climate policy and regulations are playing an important role, and we expect that current estimates for renewable capacity additions will prove too conservative; the net-zero greenhouse gas emissions by 2050 target will require significantly faster adoption of renewables as well as carbon capture technologies and a transformation in consumption habits.
Ten years ago, close to 50% of the largest integrated European utilities' operating profits stemmed from conventional power generation businesses, largely dependent on commodity prices, and this proportion has declined to less than 20% today. As clean power - renewables based on long-term contracts with highly rated counterparties - and regulated power networks replace more commodity-driven conventional generation, business models are being de-risked and there is greater predictability of earnings and cash flows. RWE is a good example: The P/E valuation of RWE has increased since its asset swap with E.ON was announced in 2018 and we expect the re-rating of its shares to persist as the company transforms itself into a renewable energy provider. At least for the foreseeable future, companies in our portfolio are able to pursue 'planet and profit'.
Investment selection criteria and stewardship
Our strategy is to provide capital to companies which are demonstrably committed to the energy transition and have fundamentally strong ESG credentials. We are keen to highlight the portfolio's orientation toward clean generators and suppliers of electricity and the investment required by these companies to accomplish targets for emissions reductions, greener grids and eventually decarbonisation.
Knowledge of these ESG factors and active ownership - engagement with corporates and voting on all resolutions at meetings - are integral to our investment approach. Companies with a comprehensive understanding of and strategy around their ESG issues are, in our view, more capable of mitigating risks and enhancing their performance for over the long-term.
Recently, Tortoise became a signatory to the Principles for Responsible Investment ("PRI"), the global network for financial industry participants committed to integrating ESG considerations into their investment practices. Our investment and engagement practices will not change but Tortoise's signing should improve the transparency of our sustainability efforts and foster alignment of Tortoise's goals with respect to sustainability.
The Company's portfolio screens well in terms of carbon emissions, i.e. tonnes of CO2 emitted per megawatt hour of electricity generation. The portfolio's electricity generators have CO2 emissions which, all tallied, as at 30 November, 2019, were 23.7% below the average emissions of the electricity grid in which the companies operate, at least partly because they have relatively little generation derived from coal (10%). In comparison, the CO2 emissions of the constituents of the MSCI World Utilities Index are only slightly (7.5%) lower than the average emissions of the relevant grid and almost twice as much of their generation is derived from coal (23.1%). Companies in which EGL is invested are planning to build c. 22GW of new renewable capacity per annum over the next 3 years, an estimated 15-20% of all new installations globally (if we exclude China, the share is closer to 25%).
Gearing and yield
The level of gearing on net assets averaged 11% during the financial year. Gearing reached a high of 16% of net assets in December 2018, when equity markets were rattled by concerns for global growth, and again in May 2019. Borrowings were reduced in June 2019 in view of the very strong rises in equity markets and the Company's NAV and the greater volatility in financial markets. As at 30 September, 2019 gearing was 6% of net assets and it has been allowed to drift slightly lower since. With the exception of Neoen, all of the holdings in the portfolio during the year paid a dividend and the historic yield on the portfolio was 4.3% as at 30 September, 2019. We forecast 5-7% per annum growth in dividends from the portfolio's current holdings.
Outlook
The investment needs for power (detailed above) are matched when we look more broadly at the network infrastructure - water, roads, airports, railways - required to support economic growth and to meet the UN's Sustainable Development Goals ("SDGs"). The yawning gap between investment requirements and current spending commitments will have to be addressed by governments and private sources and the latter will need to be adequately incentivised by regulators. The adoption of climate change targets such as 'carbon neutrality' and 'zero emission' by an increasing number of countries and companies bodes well for an acceleration in the development in clean energy, and this transformation represents a powerful growth driver for our investment universe. Unlike in the past when the power generation sector was seen as purely defensive, the clean generation universe in particular has shifted to providing predictable growth, an attractive feature in uncertain times and a strong support for stock values. Notwithstanding their strong performance over the last year, utilities and economic infrastructure shares, in our view, still look undervalued relative to the bond market, to their own solid fundamentals and growth prospects, and to the valuations that private equity operators are ready to pay for comparable assets.
Tortoise Advisors UK Limited
Investment Manager
17 December, 2019
Key performance indicators
The Company's Directors meet regularly to review the performance of the Company and its shares. Key performance indicators ("KPIs") used to assess the Company's progress and its success in meeting its objectives are set out below. Please also refer to Alternative Performance Measures on page 62 of the Annual Report and Accounts.
|
KPIs |
As at or year ended 30 September 2019 |
As at or year ended 30 September 2018 |
|
Change in: |
|
|
|
NAV1 |
27.4% |
4.8% |
|
Share price1 |
32.3% |
1.1% |
|
Discount to NAV at year-end |
10.7% |
13.6% |
|
Average discount to NAV during the year |
12.3% |
11.3% |
|
Revenue return per share |
5.48p |
4.82p |
|
Dividends paid per share |
6.40p |
6.40p |
|
Dividend yield |
4.1% |
5.1% |
|
Dividend cover2 |
85.6% |
75.3% |
|
Ongoing charges |
1.68% |
1.99% |
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 Utilities Index and the S&P Global Infrastructure 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 level of the discount and the level and composition of ongoing charges incurred.
The revenue return per share for the financial year was 5.48p, a 13.7% improvement from the previous year. Income from investments increased by 8.0% year-over-year, in line with the Investment Manager's expectations, and expenses charged to the Company's revenue account decreased during the year. The net revenue per share and the ongoing charges both, therefore, improved.
The ongoing charges figure is calculated in accordance with AIC recommended methodology using the charges for the current year and the average NAV during the year of £140,603,056.
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. 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 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.
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 monitors the net income 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 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. It is also exposed to a risk that its prime broker, 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.
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, Tortoise Advisors UK 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 the Investment Manager
During the financial year, Ecofin Limited ("Ecofin"), the Investment Manager of the Company's assets since its admission to trading, was acquired by Tortoise Investments LLC, a U.S.-based firm which owns a family of investment management companies (collectively "Tortoise"). Tortoise has in excess of U.S.$20 billion of client funds under management including six New York Stock Exchange listed closed-end funds. Tortoise invests in essential assets including energy infrastructure which complements Ecofin's broad infrastructure and energy transition expertise and research. Ecofin, which has been renamed Tortoise Advisors UK Limited, remains a separate entity that is regulated by the FCA and SEC, fully owned by Tortoise. Tortoise provides support across a variety of functions and integrated teams across the broad firm allow for collaboration and synergies.
The Directors note that there has been a continuity of service from the existing team of investment professionals managing and involved with the Company's assets and they continue to monitor the integration of the two businesses and the development of synergies, priorities and relations.
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 on page 21 in the Directors' Report 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 AGM of the Company to be held in 2025 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 this five year period, 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 pages 14 to 17 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 small percentage of its net assets.
Based on their 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, as explained on page 13 of the Annual Report and Accounts. 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 pages 12 and 13 of the Annual Report and Accounts) 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
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 will have 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 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. These risks are mitigated through diversification and fundamental analysis.
Foreign exchange risk
As noted in the investment policy on page 12, 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 for the NAV, therefore, if Sterling appreciates significantly against foreign currencies.
Political risk
The Board has considered the political uncertainties prevailing in the U.K. while the Brexit process evolves 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.
Discount to NAV
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 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 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.
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 U.K. 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 U.K. 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 Act. 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://tortoiseadvisors.com/ 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 11 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 31 of the Annual Report and Accounts.
On behalf of the Board
David Simpson
Chairman
17 December, 2019
Statement of Comprehensive Income
|
|
|
Year ended 30 September 2019 |
Year ended 30 September 2018 |
||||
|
|
Notes |
Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
|
Gains on investments held at fair value through profit or loss |
9 |
- |
30,841 |
30,841 |
- |
2,738 |
2,738 |
|
Currency gains/(losses) |
|
- |
110 |
110 |
- |
(52) |
(52) |
|
Income |
2 |
7,418 |
- |
7,418 |
6,868 |
29 |
6,897 |
|
Investment management fees |
3 |
(786) |
(786) |
(1,572) |
(807) |
(807) |
(1,614) |
|
Administrative expenses |
4 |
(686) |
- |
(686) |
(809) |
- |
(809) |
|
Research expenses |
9 |
(51) |
(51) |
(102) |
(90) |
(90) |
(180) |
|
Net return before finance costs and taxation |
|
5,895 |
30,114 |
36,009 |
5,162 |
1,818 |
6,980 |
|
Finance costs |
5 |
(90) |
(90) |
(180) |
(111) |
(111) |
(222) |
|
Net return before taxation |
|
5,805 |
30,024 |
35,829 |
5,051 |
1,707 |
6,758 |
|
Taxation |
7 |
(769) |
- |
(769) |
(626) |
- |
(626) |
|
Net return after taxation |
|
5,036 |
30,024 |
35,060 |
4,425 |
1,707 |
6,132 |
|
|
|
|
|
|
|
|
|
|
Return per ordinary share (pence) |
8 |
5.48 |
32.68 |
38.16 |
4.82 |
1.86 |
6.68 |
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, 2019.
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
|
|
Notes |
As at 30 September 2019 £'000 |
As at 30 September 2018 £'000 |
|
Non-current assets |
|
|
|
|
Equity securities |
|
168,873 |
150,099 |
|
Fixed interest securities |
|
2,425 |
- |
|
Investments at fair value through profit or loss |
9 |
171,298 |
150,099 |
|
Current assets |
|
|
|
|
Debtors and prepayments |
10 |
1,072 |
726 |
|
Cash at bank |
|
8,228 |
467 |
|
|
|
9,300 |
1,193 |
|
Creditors: amounts falling due within one year |
|
|
|
|
Prime brokerage borrowings |
|
(18,362) |
(17,542) |
|
Other creditors |
11 |
(734) |
(1,428) |
|
|
|
(19,096) |
(18,970) |
|
Net current liabilities |
|
(9,796) |
(17,777) |
|
Net assets |
|
161,502 |
132,322 |
|
Share capital and reserves |
|
|
|
|
Called-up share capital |
12 |
919 |
919 |
|
Special reserve |
|
119,796 |
120,640 |
|
Capital reserve |
13 |
40,787 |
10,763 |
|
Revenue reserve |
|
- |
- |
|
Total shareholders' funds |
|
161,502 |
132,322 |
|
NAV per ordinary share (pence) |
14 |
175.79 |
144.03 |
The Financial Statements were approved by the Board of Directors and authorised for issue on 17 December, 2019 and were signed on its behalf by:
David Simpson
Chairman
The accompanying notes are an integral part of the Financial Statements.
Statement of Changes in Equity
|
|
|
For the year ended 30 September 2019 |
|||||
|
|
Notes |
Share capital £'000 |
Share premium account1 £'000 |
Special reserve £'000 |
Capital reserve £'000 |
Revenue reserve £'000 |
Total £'000 |
|
Balance at 1 October 2018 |
|
919 |
- |
120,640 |
10,763 |
- |
132,322 |
|
Return after taxation |
|
- |
- |
- |
30,024 |
5,036 |
35,060 |
|
Dividends paid |
6 |
- |
- |
(844) |
- |
(5,036) |
(5,880) |
|
Balance at 30 September 2019 |
|
919 |
- |
119,796 |
40,787 |
- |
161,502 |
|
|
|
For the year ended 30 September 2018 |
|||||
|
|
Notes |
Share capital £'000 |
Share premium account1 £'000 |
Special reserve £'000 |
Capital reserve £'000 |
Revenue reserve £'000 |
Total £'000 |
|
Balance at 1 October 2017 |
|
919 |
- |
122,095 |
9,056 |
- |
132,070 |
|
Return after taxation |
|
- |
- |
- |
1,707 |
4,425 |
6,132 |
|
Dividends paid |
6 |
- |
- |
(1,455) |
- |
(4,425) |
(5,880) |
|
Balance at 30 September 2018 |
|
919 |
- |
120,640 |
10,763 |
- |
132,322 |
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.
The accompanying notes are an integral part of the Financial Statements.
Statement of Cash Flows
|
|
Notes |
Year ended 30 September 2019 £'000 |
Year ended 30 September 2018 £'000 |
|
Net return before finance costs and taxation |
|
36,009 |
6,980 |
|
(Decrease)/increase in accrued expenses |
|
(35) |
165 |
|
Overseas withholding tax |
|
(1,047) |
(855) |
|
Deposit interest income |
|
(101) |
(48) |
|
Dividend income |
|
(7,268) |
(6,815) |
|
Fixed interest income |
|
(49) |
(5) |
|
Realised (losses)/gains on foreign exchange transactions |
|
(110) |
52 |
|
Dividends received |
|
6,674 |
6,364 |
|
Deposit interest received |
|
101 |
48 |
|
Fixed interest received |
|
28 |
31 |
|
Interest paid |
|
(180) |
(222) |
|
Gains on investments |
|
(30,841) |
(2,738) |
|
Decrease/(increase) in other debtors |
|
11 |
(7) |
|
Net cash flow from operating activities |
|
3,192 |
2,950 |
|
Investing activities |
|
|
|
|
Purchases of investments |
|
(49,999) |
(127,125) |
|
Sales of investments |
|
59,518 |
121,956 |
|
Net cash from/(used in) investing activities |
|
9,519 |
(5,169) |
|
Financing activities |
|
|
|
|
Movement in prime brokerage borrowings |
|
820 |
8,186 |
|
Dividends paid |
6 |
(5,880) |
(5,880) |
|
Net cash effect from financing activities |
|
5,060 |
2,306 |
|
Increase in cash |
|
7,651 |
87 |
|
Analysis of changes in cash during the year |
|
|
|
|
Opening balance |
|
467 |
432 |
|
Foreign exchange movement |
|
110 |
(52) |
|
Increase in cash as above |
|
7,651 |
87 |
|
Closing balance |
|
8,228 |
467 |
The accompanying notes are an integral part of these Financial Statements.
Notes to the Financial Statements
For the year ended 30 September, 2019
1. Accounting policies
(a) Basis of preparation
The Financial Statements have been prepared in accordance with the Act, 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 November 2014 and updated in February 2018 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 by HM Revenues & Customs.
Significant accounting judgements, estimates and assumptions
The preparation of financial statements requires the use of certain significant accounting judgements, estimates and assumptions which requires management to exercise its judgement in the process of applying the accounting policies and are continually evaluated. Special dividends are assessed and credited to capital or revenue according to the circumstances and are considered to require significant judgement. The Directors do not consider there to be any significant estimates within the Financial Statements.
(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, research expenses and overdraft interest 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 year 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 year, 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 measured initially and subsequently at fair value and transaction costs are expensed immediately. Investment transactions are accounted for on a trade date basis. The fair value of the financial instruments in the Statement of Financial Position is 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 that 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 required 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, being 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 or smoothing payments of dividends to shareholders. There is no guarantee that the Board will in fact make use of this reserve for the purpose of the payment of dividends to shareholders. The special reserve can also be used to fund the cost of share buy-backs.
Capital account
Gains and losses on disposal of investments and changes in fair values of investments are transferred to the capital account. Foreign exchange differences of a capital nature are also transferred to the capital account. The capital element of the management fee and relevant finance costs are charged to this account. Any associated tax relief is also credited to this account.
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 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
|
|
Year ended 30 September 2019 £'000 |
Year ended 30 September 2018 £'000 |
|
Income from investments (revenue account) |
|
|
|
UK dividends |
824 |
1,144 |
|
Overseas dividends |
5,908 |
5,282 |
|
Overseas fixed interest |
49 |
5 |
|
Stock dividends |
536 |
389 |
|
|
7,317 |
6,820 |
|
Other income (revenue account) |
|
|
|
Deposit interest |
101 |
48 |
|
Total income |
7,418 |
6,868 |
During the year ended 30 September, 2019 the Company received special dividends totalling £177,000 (30 September, 2018: £224,000); £177,000 (30 September, 2018: £195,000) was recognised as revenue and is included within the income from investments figure above and £nil (30 September, 2018: £29,000) was recognised as capital dividends and is included in the capital column of the Statement of Comprehensive Income.
3. Investment management fee
|
|
Year ended 30 September 2019 |
Year ended 30 September 2018 |
||||
|
|
Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
|
Investment management fee |
786 |
786 |
1,572 |
807 |
807 |
1,614 |
The Company has an agreement with Tortoise Advisors UK Limited for the provision of investment management services.
The management fee for the year ended 30 September, 2019 was calculated, on a quarterly basis, at 1.25% per annum of the net assets of the Company up until 5 March, 2019; thereafter, the management fee was calculated, on a quarterly basis, at 1.00% per annum of the net assets of the Company. The management fee is chargeable 50% to revenue and 50% to capital. During the year £1,572,000 (30 September, 2018: £1,614,000) of investment management fees were earned by the Investment Manager, with a balance of £404,000 (30 September, 2018: £414,000) being payable to Tortoise Advisors UK Limited at the year-end.
4. Administrative expenses
|
|
Year ended 30 September 2019 £'000 |
Year ended 30 September 2018 £'000 |
|
Administration fee |
261 |
255 |
|
Directors' remuneration |
107 |
118 |
|
Auditor's remuneration: |
|
|
|
- fees payable for the audit of the Company's annual accounts |
26 |
26 |
|
- non-audit services: |
|
|
|
fees payable to the Company's Auditor and its associates for iXBRL tagging services |
2 |
2 |
|
Printing and postage fees |
18 |
37 |
|
Directors' liability insurance |
5 |
6 |
|
Depositary fees |
65 |
58 |
|
Regulatory fees |
35 |
22 |
|
Employer's National Insurance contributions |
12 |
10 |
|
Registrar's fees |
40 |
46 |
|
Advisory and legal fees |
104 |
196 |
|
Other expenses |
11 |
33 |
|
|
686 |
809 |
With the exception of 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 (30 September, 2018: £5,000).
Advisory and legal fees include: fees in respect of sponsored research on the Company by Marten & Co and other marketing resources, any legal fees and a substantial accrual for expenses relating to the recovery of excess taxes withheld on foreign dividends.
|
|
|
5. Finance costs
6. Dividends on ordinary shares
The proposed fourth interim dividend for 2019 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 £5,036,000 (30 September, 2018: £4,425,000).
The amount reflected above for the cost of the proposed fourth interim dividend for 2019 is based on 91,872,247 ordinary shares, being the number of ordinary shares in issue at the date of this Report.
7. Taxation
(a) Analysis of charge for the year
(b) Factors affecting the tax charge for the year The tax assessed for the year is lower than the standard rate of corporation tax of 19.00% (2018: 19.00%). The differences are explained as follows:
(c) Factors that may affect future tax charges No provision for deferred tax has been made in the accounting year. 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 year-end, the Company has, for taxation purposes only, accumulated unrelieved management expenses and loan relationship deficits of £879,000 (30 September, 2018: £634,000). 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
Transaction costs Expenses are incurred in acquiring or disposing of investments at fair value through profit or loss. Transaction costs are expensed through capital and included within gains on investments in the Statement of Comprehensive Income.
In the prior year and until the introduction of MiFID II in January 2018, the cost of research was included along with trade execution expenses in these transaction costs. Further to the introduction of MiFID II, research expenses are invoiced separately and have been charged 50% to revenue and 50% to capital, and transaction costs refer to trade execution-related expenses only.
The Company agreed with the Investment Manager that, with effect from the passing of the continuation vote at the AGM in March 2019, the Company would cease to pay a contribution to the Investment Manager's research costs.
The transaction 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 year-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; and • 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 year-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 12 of the Annual Report and Accounts. The Board and the Company's Investment Manager consider and review the financial risks inherent in managing the Company's assets and these are detailed below.
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 Investment Management Agreement for maintaining a diversified portfolio of the securities of utility and utility-related companies and 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 year-end (see portfolio holdings on page 10) had increased or decreased by 10% then it would have had an effect on the Group's capital return and equity equal to £17,130,000 (30 September, 2018: £15,010,000).
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. It is not the Company's policy to try to minimise or eliminate foreign exchange risk; over the long-term this could restrict the investment returns potentially available to Sterling-based investors in international securities. There is a risk for the NAV and shareholders, therefore, if Sterling appreciates significantly against foreign currencies. The risk is partially offset by the Company's borrowings in currencies other than Sterling.
A 10% rise or decline of Sterling against foreign currency denominated (i.e. non-Sterling) assets held at the year-end would have decreased/increased the total return and NAV by £15,617,000 or 9.7% (30 September, 2018: £12,103,000 or 9.1%). This is considered to be a reasonable illustration based on the volatility of exchange rates during the year.
Interest rate risk The Company is only exposed to significant interest rate risk through its borrowings with Citigroup Global Markets Limited and through the fair value of investments in fixed interest rate securities, if any.
Borrowings varied throughout the year as part of a Board endorsed policy and at year-end amounted to the equivalent of £18,362,000 (30 September, 2018: £17,542,000) in a variety of currencies. All of these borrowings were at floating rates of interest. If this level of borrowing was maintained for the year, a 1% increase/decrease in LIBOR would decrease/increase the revenue return by £92,000 (30 September, 2018: £88,000) and decrease/increase the capital return by £92,000 (30 September, 2018: £88,000). In the event that the prime brokerage facility were to be renegotiated or terminated, the Company may not be able to finance its borrowings on as favourable terms and this risk is monitored.
The interest rates on prime brokerage borrowings varied by currency from 0.45% to 4.82% during the year ended 30 September, 2019.
The Company's fixed-income portfolio at the year-end was valued at £2,425,000 (30 September, 2018: £nil). The weighted average effective interest rate on these investments was 6.0% (30 September, 2018: nil%) and the weighted average period to maturity was 2.6 years (30 September, 2018: zero years). A 1% increase or decrease in relevant market interest rates would be expected to decrease or increase the portfolio's value by approximately £24,000 (30 September, 2018: £nil), 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 contractual maturities of the Company's financial liabilities at 30 September, 2019 based on the earliest date on which payment can be required was as follows:
Prime brokerage borrowings are repayable on demand.
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, 2019 was £nil (30 September, 2018: £nil). There were no items past due or impaired.
The maximum exposure to credit risk at 30 September, 2019 and 30 September, 2018 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 corporate bonds. Investments categorised as Level 2 are not considered to trade in active markets.
17. 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 part transactions and are disclosed within the Directors' Remuneration Report on pages 28 and 30 of the Annual Report and Accounts. The balance of fees due to Directors at the year-end was £nil (30 September, 2018: £nil).
The Company has an agreement with Tortoise Advisors UK 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.
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; and • 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 year ended 30 September, 2019 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 year ended 30 September, 2019 as defined in Section 434 of the Act.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
20. The Annual Report and Accounts for the year ended 30 September, 2019 will be posted to shareholders in January 2020 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's website, https://uk.tortoiseadvisors.com/, from today. A copy of the Annual Report and Accounts for the year ended 30 September, 2019 has been submitted to the National Storage Mechanism of the Financial Conduct Authority and will shortly be available for inspection at: http://www.morningstar.co.uk/uk/nsm. The Company's AGM will be held at 2.30 pm on Friday, 6 March, 2020 at the Amba Hotel, Charing Cross, The Strand, London WC2N 5HX. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
For further information, please contact:
Elspeth Dick, CFA
Tortoise
Ecofin Platform
Telephone: 020 7451 2929
Susan Gledhill
BNP Paribas Secretarial Services Limited
Company Secretary
Telephone: 020 7410 5971
17 DECEMBER, 2019
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
Latest directors dealings
- 7 minutes ago Coca-Cola Europacific Partners (DI)
- 14 minutes ago Liontrust Asset Management
- 16 minutes ago Liontrust Asset Management
- 33 minutes ago Luceco
- 2 hours ago RHI Magnesita N.V. (DI)