Annual Financial Report

RNS Number : 3575M

UIL Limited

13 September 2019

 

Date:                      13 September 2019

Contact:                 Charles Jillings

                                ICM Investment Management Limited

                                01372 271 486

UIL LIMITED

ANNUAL FINANCIAL REPORT

for the year to 30 June 2019

UIL Limited ("UIL" or the "Company") today announced its audited financial results for the year to 30 June 2019.

FINANCIAL HIGHLIGHTS

·   Net asset value ("NAV") total return of 29.7%*

·   Dividend per ordinary share maintained at 7.50p

*See Alternate Performance Measures on page 98 of the Report and Accounts

GROUP PERFORMANCE SUMMARY

	30 June 2019	30 June 2018	Change % 2019/18
NAV total return per ordinary share(1) (for the year) (%)	29.7	18.7	n/a
Share price total return per ordinary share(1) (for the year) (%)	18.8	11.3	n/a
Annual compound NAV total return(1) (since inception(2)) (%)	13.4	12.4	n/a
NAV per ordinary share (pence)	369.57	291.79	26.7
Ordinary share price (pence)	199.00	174.50	14.0
Discount(1) (%)	46.2	40.2	n/a
Returns and dividends (pence)
Revenue return per ordinary share	7.63	6.67	14.4
Capital return per ordinary share	75.34	38.96	93.4
Total return per ordinary share	82.97	45.63	81.8
Dividends per ordinary share	7.50	7.50	0.0
FTSE All-Share total return Index	7,431	7,389	0.6
Equity holders' funds (£m)
Gross assets(3)	537.2	488.3	10.0
Bank debt	51.0	27.8	83.5
ZDP shares	159.9	199.4	(19.8)
Equity holders' funds	326.3	261.1	25.0
Revenue account (£m)
Income	11.2	10.6	5.7
Costs (management and other expenses)	2.8	2.8	0.0
Finance costs	1.6	1.6	0.0
Financial ratios of the Group (%)
Ongoing charges figure excluding performance fees(1)	2.1	2.2	n/a
Ongoing charges figure including performance fees(1)	5.1	4.4	n/a
Gearing (1)	64.6	87.3	n/a

(1) See Alternate Performance Measures on pages 98 and 99 of the Report and Accounts

(2) All performance data relating to periods prior to 20 June 2007 are in respect of Utilico Investment Trust plc, UIL's predecessor.

(3) Gross assets less current liabilities excluding loans and ZDP shares

CHAIRMAN'S STATEMENT

It is pleasing to report UIL delivered another strong NAV total return per ordinary share performance of 29.7% for the year to 30 June 2019. This once again outperformed the FTSE All-Share total return Index over the same period, which was only up by 0.6%. UIL has achieved growth in NAV over each of the last six years and has paid dividends in each of those years.

Since inception in August 2003, UIL has distributed £68.3m in dividends, invested £26.1m in ordinary share buybacks and made net gains of some £271.0m for a total return of 637.1% (adjusted for the exercise of warrants and convertibles). This represents an average annual compound NAV total return since inception of 13.4%. The FTSE All-Share total return Index average annual compound total return for the same period was 8.1%.

At the half-year, we referred to the commitment by the Board and Investment Managers in the 2014 annual report to reduce the absolute debt for UIL, which stood at £235.9m as at 30 June 2013 and improve gearing. Debt and gearing have reduced every year since this statement was made and I am pleased to note continued progress in the current full year. Gearing reduced from 160.4% as at 30 June 2013 to stand at a record low for UIL of 64.6% as at 30 June 2019 and absolute debt now stands at £210.9m. Gearing is now well inside the target of 100.0% set in 2014 and no further reduction in absolute debt is expected. In addition, in 2014 the Board resolved to pay a quarterly dividend. Pleasingly over the last six years dividends paid have been at 7.50p each year (1.875p a quarter) and as at 30 June 2019, based on a share price of 199.00p, the dividend yield was 3.8%. The sustainability of these dividends should provide shareholders with added confidence in UIL.

Once again, the discount factor encouraged the Investment Managers, supported by the Board, to continue to buy back shares. This year UIL bought back 1.2m ordinary shares (1.4%) at an average price of 180.40p, which represented a discount of 51.2% to the closing NAV. These buybacks were accretive to both UIL's NAV per share and earnings per share ("EPS").

The share price total return for the year was 18.8%. The Board is frustrated to see the ordinary shares trade at their widest ever year end discount of 46.2% - despite the strong NAV gains, the continued reduction in absolute debt, lower gearing and attractive dividends payments. As with the gearing targets set six years ago the Board has determined, in agreement with the Investment Managers and the major shareholder, to target a lower discount level of 20.0% in the medium term. To do this UIL will step up its marketing, as well as continuing to buy back ordinary shares. UIL announced on 26 July 2019 that, partly as a result of buy backs, UIL shares held in public hands reduced to 25.0%, the minimum level required to stay listed on the Premium Segment of the Main Market. To enable further buybacks the Board expects shortly to be sending proposals to shareholders to transfer the listing of UIL's ordinary shares from the Premium Segment to the Specialist Fund Segment of the Main Market of the London Stock Exchange. Further details will be set out in that circular.

As noted in the half-yearly report there are two opposing forces at work in global markets at the moment: populist leadership and Central Bank activity. Populist leaders have been elected to challenge the existing "political establishment" while Central Banks have been seeking to move policies back to a more "normal" setting. As the world's economies currently slow down, the Central Banks are in retreat. Most developed economies are seeing interest rates reducing while this should at some point result in inflationary pressures, there is little sign of this today.  The populists are looking to deliver policy changes with little regard for more traditional economic forces.

Given that the US Dollar is still the world's reserve currency, the contraction in US Dollars in circulation leads to broad global economic contraction. This has put pressure on other global economies, as has the challenge posed by the emergence of disruptive technology businesses, which dominate local and global markets. Much of the equity market growth has been driven by higher earnings, but higher debt levels across the world's economies have contributed as well. These three factors add to market volatility.

In my statement in last year's report and accounts, I noted that there had been a sharp increase in volatility, and we expect this to continue, driven by the issues outlined above. While market volatility was anticipated, the extent of the market weakness that we have seen in the first half was not. In the six months to 31 December 2018 the China A Share market was down 12.4%, the FTSE All-Share down 11.0% and the US S&P down 7.8%. Since then markets have rebounded in the second half to close largely in positive territory.

In the UK, Brexit has continued to crowd out discussions on most topics as exit concerns have risen. Unsurprisingly, over the year to 30 June 2019, Sterling weakened 3.6% against the US Dollar and 1.2% against the Euro. The Australian economy has also weakened and the Australian Dollar declined 1.5% against Sterling. In the face of weakening demand and over-supply, the oil price has seen a dramatic decrease from USD 79.44 to USD 66.55 per barrel, a decline of 16.2%. Gold rose by 12.5% over the year to 30 June 2019 ending the year at USD 1,409/oz. It is worth noting that, in AUD terms, gold ended at near all-time highs of AUD 2,005/oz, up 18.5% in the year to 30 June 2019. In response to lower interest rates globally and rising political and geopolitical tension we expect gold to go higher.

In October 2018, UIL Finance redeemed the outstanding 2018 ZDP shares in full at a redemption cost of £51.2m. In addition, UIL cancelled 20.0m 2024 ZDP shares it was holding on its balance sheet as standby for the 2018 ZDP redemption.

In April 2018, UIL Finance issued 25.0m 2026 ZDP shares, of which UIL held 13.4m, with a view to extending the ZDP redemption profile and lowering its cost of debt. As at 30 June 2019, the aggregate ZDP liability was £159.9m. Since this liability is across four issues it will reduce the significance of each redemption. 

UIL is well placed with gearing reduced to 64.6% as at 30 June 2019 from 87.3% as at 30 June 2018, the debt profile extended to 2026 and the Company's average funding costs as at 30 June 2019 reduced further to 5.5%.

It is pleasing to see our four issues of ZDP shares trading at much tighter gross redemption yields than last year and that the ZDP share market remains relatively buoyant. As a result of UIL's investment performance the cover for the ZDP shares has improved considerably and as at the year-end the 2026 ZDP cover was over 2.0 times.

The Board is considering proposals in relation to the redemption of the 2020 ZDP shares on 31 October 2020 and will publish further details in due course.

Revenue return for the year to 30 June 2019 was £6.8m, ahead of the prior year of £6.0m, an increase of 13.6%. This resulted in revenue return EPS of 7.63p versus the prior year's 6.67p, an increase of 14.4% and the dividend being covered by earnings for the first time in six years.

The capital return for the year ended 30 June 2019 was £67.2m.

The Board maintained total dividends for the year to 30 June 2019 at 7.50p per share which represents a yield on the closing share price of 199.00p of 3.8%. Looking forward, the Board expects to maintain the current dividend profile. Undistributed revenue reserves carried forward increased from £9.0m to £9.1m equal to some 10.30p per share.

With effect from 1 July 2018 the provision of administration services to UIL was moved from F&C Management Limited to JP Morgan Chase Bank N.A. (in relation to fund accounting, fund valuation and reporting administration services) and through ICMIM, to Waverton Investment Management (in relation to middle office and market dealing services). JPMorgan Chase Bank N.A remains UIL's custodian and J.P. Morgan Europe Limited remain as depositary. I am pleased to note these arrangements are operating as expected.

Finally, in line with the announcement in June, Eric Stobart and Warren McLeland will be stepping down from the Board on 30 September 2019. On behalf of the Board I would like to thank Eric, for his wise counsel and valuable contribution since his appointment as a non-executive director of the Company in 2007 and as chair of the Audit & Risk Committee; and Mr McLeland, for his insightful guidance and expertise since his appointment in 2013 and in supporting Somers Limited ("Somers") as chairman, UIL's largest investment. The Board expects to announce soon the appointment of a new non-executive director who will also chair the Audit & Risk Committee. Following that appointment, the Board will comprise five directors.

OUTLOOK

The world's economies are slowing as reported by the International Monetary Fund. In addition, trade friction is rising as America First, China 2025 and Brexit drive changes in global relationships. All this leaves the Board cautious about the outlook for the markets.

Against the above backdrop, stock selection is of increasing importance. The Investment Managers' relentless bottom up approach to investment should benefit UIL's portfolio.

Peter Burrows AO
Chairman
13 September 2019

INVESTMENT MANAGERS' REPORT

UIL's NAV total return of 29.7% for the twelve months to 30 June 2019 was a rewarding result given the market volatility in 2019. This builds on UIL's recent significant gains. Since inception, UIL's NAV total return was 637.1% resulting in an annual compound NAV total return of 13.4%.

As noted in the Chairman's statement, in the year to 30 June 2019, volatility returned to equity, currency, debt and commodity markets. We are conscious that this volatility is impacting all asset classes, with global gross domestic product ("GDP") growth softening and debt continuing to rise across the world's economies. However, regardless of the broader market environment, we remain bottom up investors looking for compelling value. This focus on the individual businesses should, over the longer term, deliver above average returns. However, markets will dictate carrying values in the shorter term.

While the issues outlined above have created a headwind for the broader markets, UIL has seen its investment position continue to improve significantly. This has been driven by positive developments in its investee companies, such as the mining automation investment by Resolute Mining Limited ("Resolute") and through to Afterpay Touch Group Limited's ("Afterpay") expansion into the US market with the addition of 7,500 new customers per day. In addition, three significant transactions have been or are in the process of being concluded: Somers' conditional sale of Bermuda Commercial Bank Limited ("BCB"), Bermuda First Investment Company Limited's ("BFIC") conditional sale of Ascendant Group Limited ("Ascendant") and Zeta Resources Limited's ("Zeta") sale of Bligh Resources Limited ("Bligh"). These sales will provide additional liquidity to UIL at an opportune time for new investments. UIL's NAV is up, gearing, including ZDP shares, is down, EPS is up and dividends are being maintained at current levels.

UIL's strong NAV performance are underpinned by these strong fundamentals.

Offsetting the benefits to shareholders of the above is the discount drag that UIL suffers on its platform investments. As at 30 June 2019 discounts to published NAVs amounted to 10.8% for Utilico Emerging Markets Trust plc ("UEM") (some £10.8m) and 9.0% for Somers (some £11.0m), and together this amounts to a discount on these investments of some £21.8m. Adding these discounts back would see UIL's shareholders' funds increase by 6.7% to 394.22p and the UIL discount widen to 49.5%.

INVESTMENT APPROACH

UIL continues to develop its core platform investments, which offer the following benefits:

·      Focused strategy. Each platform has a narrow mandate and as such is driven by the objective of finding and making attractive investments within its mandate.

·      Dedicated research analysts. The research analysts for each platform are focused on both understanding existing portfolio businesses and identifying compelling new investments.

·      Financial support. Ability to draw on UIL's support and financial backing.

·      Deep knowledge. Utilising the Investment Managers' knowledge across many jurisdictions to optimise investment opportunities and undertake corporate finance led transactions.

The platforms have been set up to provide a sharper focus, leading to better investment opportunities and decision making by analysts and managers within their defined sectors.

A key driver in shaping the current portfolio is the Investment Managers' three medium-term core views. First, that the world's financial markets are over indebted; second, that technological change offers strong investment upside and third, that emerging markets offer higher GDP growth opportunities than developed markets. UIL's Investment Managers' emphasis is on individual stock selection, remaining fully invested and focusing on finding investments at valuations that do not reflect their true long-term value, while at the same time being a supportive shareholder of investee companies. The Investment Managers are a relentless bottom up investors, drawing on in-depth knowledge and capability.

PORTFOLIO

The technology investments in UIL have been strong contributors to performance with the share price of Afterpay rising 168.1% and Optal Limited ("Optal") rising 60.9%. In addition, the Bermuda investment valuations also rose significantly with BFIC up 77.5% and One Communications Limited ("OneComm") up 51.1%. UEM's performance has been strong with its share price rising 22.8%. Somers share price was weaker, down 5.8% as was Zeta down 11.3%. Resolute was up 4.7%. These are all reviewed in the ten largest holdings section starting on page 19 of the Report and Accounts. Overall, the investment portfolio gained £90.4m in value.

As at 30 June 2019, the top ten investments accounted for 91.9% of the portfolio compared to 89.2% in the prior year. Concentration risk, however, is significantly reduced owing to each platform holding a number of underlying investments. It should be noted that for both sector and geographic analysis, we continue to present and discuss the portfolio on a look-through basis.

PLATFORM INVESTMENTS

UIL currently has five individual platform investments - Somers, UEM, Zeta, BFIC and Allectus Capital Limited ("Allectus"). These investments are all in the top ten portfolio and these five investments account for 58.8% of the total portfolio as at 30 June 2019 (prior year 55.6%). During the year to 30 June 2019, UIL made net withdrawals of £7.7m, (prior year £15.5m) from its platform investments.

These are reviewed under the ten largest holdings section starting on page 19 of the Report and Accounts.

The continuing sale of Infratil was completed in the year. Infratil has been a very successful core holding and had been held by UIL and its predecessor companies and was one of the earliest investments made by SUIT. We wish Infratil shareholders continued success.

PORTFOLIO ACTIVITY

During the year to 30 June 2019, UIL invested £78.5m, including net loans of £12.5m to Zeta, £10.3m to Allectus and £6.0m to Somers while UIL realised £118.4m, including £67.5m from Afterpay, £11.2m from Infratil and £3.7m from UEM.

In June 2019 BFIC paid a special dividend to its shareholders, with an option to take shares in OneComm in lieu of the dividend. UIL opted to receive OneComm shares and as a result received a £20.4m investment in OneComm with its investment in BFIC reduced.

On 5 February 2019, Somers announced the conditional sale of its investment in BCB and this is proceeding through the regulatory process. In June 2019, Ascendant announced it had reached agreement for Algonquin Power & Utilities Corp to acquire Ascendant, subject to regulatory and shareholders' approvals. Shareholder consent has now been received and regulatory consent is expected soon. Also, in June 2019, Bligh, a significant investment of Zeta, announced it had been sold to Saracen Mineral Holdings Limited ("Saracen"). These transactions undertaken by Somers, BFIC and Zeta are expected to generate significant cash for UIL as investee company loans are expected to be repaid by each of them to UIL.

DIRECT INVESTMENTS

UIL has five direct investments in its top ten holdings. These include: Resolute, Optal, Afterpay, Vix Tech Pte. Limited ("VixTech") and OneComm.

These are also reviewed under the ten largest holdings section starting on page 19 of the Report and Accounts.

GEOGRAPHIC REVIEW

The geographical split of the portfolio, on a look-through basis, shows Australia reducing to 20.6% of total investments (30 June 2018: 32.4%) and Bermuda increasing from 13.0% as at 30 June 2018 to 15.4% as at 30 June 2019. Europe (excluding the UK) increased over the year from 4.8% of the total investments as at 30 June 2018 to 10.9% as at 30 June 2019.

SECTOR REVIEWS

Infrastructure Investments - 26.5% (prior year 21.7%)
UIL has amalgamated the utility sectors into one and this consists of the following; Airports, Renewables, Water & waste, Infrastructure, Toll roads, Ports, Oil & Gas, Telecoms and Electricity.

Technology - 22.7% (prior year 25.9%)
UIL holds a number of investments in the technology sector, both directly and through Allectus (its ninth largest investment). Optal is UIL's fifth largest holding in the portfolio while Afterpay is the sixth largest holding and VixTech is the tenth largest holding. Technology exposure reduced as UIL exited from the Vix Verify investment for AUD 15.2m and sold down 69.9% of its holding in Afterpay. Against this, Afterpay and Optal were amongst UIL's top performers, with share prices up 168.1% and 60.9% respectively.

Financial Services - 21.8% (prior year 22.7%)
UIL's largest investment both in financial services and in the portfolio is Somers, which accounts for 21.8% of UIL's total portfolio as at 30 June 2019 (prior year 22.6%).

Gold Mining - 15.0% (prior year 15.6%)
UIL's largest investment in gold mining is in Resolute, which is held both directly by UIL (12.3% of the total portfolio) and indirectly through Zeta.

Resources (excl. gold mining) - 9.4% (prior year 9.4%)
UIL's largest investment in resources is Zeta, which accounts for 12.7% of the total portfolio as at 30 June 2019 (prior year 12.3%).

LEVEL 3 INVESTMENTS

UIL's investments in level 3 companies increased by 8.3% of the total portfolio in the year under review (2019: 33.9% - 2018: 25.6%) mainly as a result of gains in valuations by Optal, Ascendant and OneComm.

BREXIT

Brexit risks for UIL are considered by the management team and Board of UIL. The strategy pursued over recent years of hedging the UIL ZDP liability in full, should provide resilience in these volatile times. UIL has hedged £173.5m from AUD, USD and Euro into Sterling. This has resulted in a balanced position for UIL's net assets. The FX contracts are spread over six months to reduce any one-month cash call if Sterling weakened significantly. Within UIL's portfolio there are UK businesses which could see an impact from Brexit both in operations and assets. These businesses have taken steps to mitigate the day to day operating impact. We have judged the impact on UIL to be immaterial. However, this is under constant review and consideration. Details of UIL's FX position are set out below and in note 12 to the accounts.

DERIVATIVES

UIL was for the most part inactive in stock market derivatives during the year as the Investment Managers expected the markets to perform well in 2018/9 driven by strong corporate earnings, notwithstanding increased volatility.

During the year to 30 June 2019 there continued to be significant currency hedges in place in the portfolio. As at 30 June 2019, these hedges were higher than average as we aimed to increase the portfolio's exposure to Sterling following the Brexit induced weakness. These hedges included AUD 144.7m, USD 84.8m, EUR 26.0m and NZD 7.4m and in the year generated a loss on the capital account of £6.9m (30 June 2018: gain of £3.3m).

GEARING

We are pleased to highlight that UIL's initial goal set in 2014 of reducing gearing to 100.0% or below has been delivered again this year. Gearing (including the ZDP shares) has reduced significantly and consistently from 160.4% in 2013 to 64.6% as at 30 June 2019. Given this progress we have no plans to reduce debt as an absolute amount below current levels of £173.0m in ZDP shares and £50.0m bank facility.

More pleasing is the continuing reduction of financing costs with the average costs reducing from 6.3% in June 2013 to 5.5% as at 30 June 2019. This should continue as next year's 2020 ZDP shares, (currently compounding at 7.25%), are expected to be refinanced in current markets at lower rates.

ZDP SHARES

On a consolidated basis the ZDP shares reduced from £199.4m to £159.9m. UIL's wholly owned subsidiary, UIL Finance, commenced the year with £233.9m of ZDP shares in issue, of which UIL held 0.3m 2018 ZDP shares, 20.0m 2024 ZDP shares and 13.4m 2026 ZDP shares on its balance sheet. In October 2018, the outstanding £51.2m of 2018 ZDP shares were redeemed in full, with UIL realising £61.8m from investments to facilitate the redemption. In addition, UIL cancelled £20.0m of 2024 ZDP shares it was holding on its balance sheet as standby for the 2018 ZDP redemption. As at 30 June 2019, UIL Finance had in issue four classes of ZDP shares amounting to £172.6m, of which UIL held 11.9m of the 2026 ZDP shares at market value.

A new section focused on the ZDP shares is included on pages 24 and 25 of the Report and Accounts and further details on the ZDP shares are included in note 15 to the accounts.

DEBT

Bank loans of £27.8m as at 30 June 2018 were repaid in September 2018, reflecting portfolio realisations ahead of the 2018 ZDP redemption of £51.2m. The bank facility of £50.0m was then fully drawn to fund the 2018 ZDP redemption. The facility is drawn in Australian, Canadian and US Dollars.

Scotiabank's £50.0m committed senior secured multicurrency revolving facility matures in March 2020. UIL intends to commence discussions to extend this maturity to 2022, later this year.

REVENUE RETURNS

Revenue total income was up by 5.8% from £10.6m to £11.2m reflecting increased dividends. Management and administration fees and other expenses remained flat at £2.8m (30 June 2018: £2.8m). Financing costs were largely unchanged at £1.6m (30 June 2018: £1.6m). Taxes reduced to almost nil.

Revenue profit was up 13.6% to £6.8m (30 June 2018: £6.0m) and EPS increased 14.4% to 7.63p (6.67p as at 30 June 2018) driven by revenue return increases and a lower number of shares in issue following the buybacks during the financial year.

CAPITAL RETURNS

Capital total income was £86.8m (30 June 2018: £52.4m). This represented gains on investments and foreign exchange losses.

Management and administration fees and other expenses were £8.5m as performance fees increased in the year (30 June 2018: £5.3m).

Finance costs reduced by 8.2% to £11.1m (30 June 2018: £12.1m) reflecting the lower number of ZDP shares in issue and lower borrowing costs.

The resultant profit for the year to 30 June 2019 on the capital return was £67.2m (30 June 2018: £35.0m) and EPS was 75.34p (30 June 2018: 38.96p).

EXPENSE RATIO

Pleasingly the ongoing charges figure, excluding performance fees, decreased from 2.2% as at 30 June 2018 to 2.1% as at 30 June 2019. Including performance fees (accrued by UIL and by underlying investee funds) the ongoing charges figure increased from 4.4% to 5.1% reflecting UIL's stronger performance this year and consequent higher performance fee.

All expenses are borne by the ordinary shareholders.

Charles Jillings
ICM Investment Management Limited
and ICM Limited

13 September 2019

PRINCIPAL RISKS AND RISK MITIGATION

During the year ended 30 June 2019, ICMIM was the Company's AIFM and had sole responsibility for risk management subject to the overall policies, supervision, review and control of the Board.

The Board considers carefully the Company's principal risks and seeks to mitigate these risks through regular review by the Audit & Risk Committee of the Company's risk register which identifies the risks facing the Company and the likelihood and potential impact of each risk, together with the controls established for mitigation. Where produced, the Audit & Risk Committee also reviews summaries of the Service Organisation Control (SOC1) reports from the Company's service providers.

The Board applies the principles and recommendations of the UK Corporate Governance Code and the AIC Code of Corporate Governance as described on page 43 of the Report and Accounts. The Company's internal controls are described in more detail on page 44 of the Report and Accounts. As required by the AIC Code of Corporate Governance, the Board has undertaken a robust assessment of the principal risks facing the Company including those that would threaten its business model, future performance, solvency or liquidity. Most of the Company's principal risks are market-related and similar to those of other investment companies which invest globally in various currencies around the world.

UIL's business model and strategy are not time limited and, as a global investor, are unlikely to be adversely impacted as a direct result of Brexit. However, since UIL's reporting currency is Sterling, any rise or fall in Sterling will lead, respectively, to a fall or rise in the Company's reported NAV.

The principal ongoing risks and uncertainties currently faced by the Company, and the controls and actions to mitigate those risks are described below. Further details of risks and risk management policies as they relate to the financial assets and liabilities of the Company are detailed in note 32 to the accounts.

INVESTMENT RISK: The risk that the investment strategy does not achieve long-term total returns for the Company's shareholders

The Board monitors the performance of the Company and has established guidelines to ensure that the investment policy that has been approved is pursued by the Investment Managers.

The investment process employed by the Investment Managers combines assessment of economic and market conditions in the relevant countries with stock selection. Fundamental analysis forms the basis of the Company's stock selection process, with an emphasis on sound balance sheets, good cash flows, the ability to pay and sustain dividends, good asset bases and market conditions. The political risks associated with investing in these countries are also assessed. Overall, the investment process aims to achieve absolute returns through an active fund management approach.

The Company's results are reported in Sterling, whilst the majority of its assets are priced in foreign currencies. The impact of adverse movements in exchange rates can significantly affect the returns in Sterling of both capital and income. Such factors are out of the control of the Board and the Investment Managers and may give rise to distortions in the reported returns to shareholders. It can be difficult and expensive to hedge some currencies.

In addition, the ordinary shares of the Company may trade at a discount to their NAV. The Board monitors the price of the Company's shares in relation to their NAV and the premium/discount at which they trade. The Board may buy back shares if there is a significant overhang of stock in the market; it is focused on reducing the discount of the ordinary shares, targeting a discount to NAV of approximately 20% over the medium term.

The Board regularly reviews strategy in relation to a range of issues including the balance between quoted and unquoted stocks, the allocation of assets between geographic regions and sectors and gearing. Periodically the Board holds a separate meeting devoted to strategy, the most recent one being held in November 2018.

A more detailed review of economic and market conditions is included in the Investment Managers' Report.

There is no guarantee that the Company's strategy and business model will be successful in achieving its investment objective. The value of an investment in the Company and the income derived from that investment may go down as well as up and an investor may not get back the amount invested. Past performance of the Company is not necessarily indicative of future performance.

No material change in overall risk in the year.

GEARING: The risk that the use of gearing may adversely impact on the Company's performance

The ordinary shares rank behind bank debt and ZDP shares, making them a geared instrument.

The gearing level is high due to the capital structure of the balance sheet. Whilst the gearing should enhance total return where the return on the Company's underlying securities is rising and exceeds the cost of borrowing, it will have the opposite effect where the underlying return is falling. As at 30 June 2019, gearing on net assets, including bank loans, any overdrafts and ZDP shares, was 64.6% (30 June 2018: 87.3%). The Board reviews the level of gearing at each Board meeting.

No material change in overall risk in the year.

BANKING: A breach of the Company's loan covenants might lead to funding being summarily withdrawn

ICMIM monitors compliance with the banking covenants when each drawdown is made and at the end of each month. The Board reviews compliance with the banking covenants at each Board meeting.

No material change in overall risk in the year.

KEY STAFF: Loss by the Investment Managers of key staff could affect investment returns

The quality of the management team is a crucial factor in delivering good performance. There are training and development programs in place for employees of the Investment Managers and the recruitment and remuneration packages have been developed in order to retain key staff.

Any material changes to the management team are considered by the Board at its next meeting; the Board discusses succession planning with the Investment Managers at regular intervals.

No material change in overall risk in the year.

RELIANCE ON THE INVESTMENT MANAGERS AND OTHER SERVICE PROVIDERS: Inadequate controls by the Investment Managers or Administrator or other third party service providers could lead to misappropriation of assets

Failure by any service provider to carry out its obligations to the Company in accordance with the terms of its appointment could have a materially detrimental impact on the operation of the Company and could affect the ability of the Company to successfully pursue its investment policy. The Company's main service providers are listed on page 97 of the Report and Accounts. The Audit & Risk Committee monitors the performance of the service providers.

Most of UIL's investments are held in custody for the Company by JPMorgan Chase Bank N.A., Jersey with a small number of investments are held in custody by Waverton Investment Management Limited. J.P. Morgan Europe Limited, the Company's depositary services provider, also monitors the movement of cash and assets across the Company's accounts. The Audit & Risk Committee reviews the JP Morgan SOC1 reports, which are reported on by Independent Service Auditors, in relation to its administration, custodial and information technology services.

The Board reviews the overall performance of the Investment Managers and all the other service providers on a regular basis. The risk of cybercrime is high, as it is with most organisations, but the Board regularly seeks assurances from the Investment Managers and other service providers on the preventative steps that they are taking to reduce this risk.

Although there has been no change in overall risk in the year, the possibility of cybercrime continues to be a concern. The Company's assets are considered to be relatively secure, so the risk is the inability to transact investment decisions for a period of time and reputational risk.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

in respect of the Annual Report and Financial Statements

The Directors are responsible for preparing the Report and Accounts and the Group and parent Company financial statements in accordance with applicable law and regulations. 

The Directors are required to prepare Group and parent Company financial statements for each financial year. They are required to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRSs as adopted by the EU") and applicable law and have elected to prepare the parent Company financial statements on the same basis.

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 Group and parent Company and of their profit or loss for that period. In preparing each of the Group and parent Company financial statements, the Directors are required to:

·      select suitable accounting policies and then apply them consistently; 

·      make judgements and estimates that are reasonable, relevant and reliable; 

·      state whether they have been prepared in accordance with IFRS as adopted by the EU; 

·      assess the Group and parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and 

·      use the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so. 

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the parent Company and enable them to ensure that its financial statements comply with the Companies Act 1981 of Bermuda. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a, Directors' Report, and a Corporate Governance Statement that complies with that law and those regulations. The Directors have decided to prepare voluntarily a Directors' Remuneration Report as if the Company was required to comply with the requirements of schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (SI 2008 No. 410) made under the UK Companies Act 2006.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE ANNUAL FINANCIAL REPORT 

We confirm that to the best of our knowledge: 

·      the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and 

·      the annual report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. 

We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy. 

Approved by the Board on 13 September 2019 and signed on its behalf by:

Peter Burrows

Chairman

GROUP INCOME STATEMENT

for the year to 30 June			2019				2018
	Revenue	Capital	Total	Revenue	Capital		Total
	return	return	return	return	return		return
	£'000s	£'000s	£'000s	£'000s	£'000s		£'000s
Gains on investments	-	90,402	90,402	-	48,366		48,366
(Losses)/gains on derivative financial instruments	-	(6,871)	(6,871)	-	3,298		3,298
Foreign exchange gains/(losses)	-	3,306	3,306	(97)	777		680
Investment and other income	11,184	-	11,184	10,671	-		10,671
Total income	11,184	86,837	98,021	10,574	52,441		63,015
Management and administration fees	(1,587)	(8,538)	(10,125)	(1,491)	(5,337)		(6,828)
Other expenses	(1,178)	(8)	(1,186)	(1,316)	(1)		(1,317)
Profit before finance costs and taxation	8,419	78,291	86,710	7,767	47,103		54,870
Gains on transactions of ZDP shares held intra group	-	-	-	-	4		4
Finance costs	(1,600)	(11,093)	(12,693)	(1,592)	(12,083)		(13,675)
Profit before taxation	6,819	67,198	74,017	6,175	35,024		41,199
Taxation	(9)	-	(9)	(179)	-		(179)
Profit for the year	6,810	67,198	74,008	5,996	35,024		41,020
Earnings per ordinary share - pence	7.63	75.34	82.97	6.67	38.96		45.63

The Group does not have any income or expense that is not included in the profit for the year and therefore the profit for the year is also the total comprehensive income for the year, as defined in International Accounting Standard 1 (revised).

All items in the above statement derive from continuing operations.

All income is attributable to the equity holders of the Company. There are no minority interests.

COMPANY INCOME STATEMENT

for the year to 30 June			2019			2018
	Revenue	Capital	Total	Revenue	Capital	Total
	return	return	return	return	return	return
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Gains on investments	-	90,800	90,800	-	49,712	49,712
(Losses)/gains on derivative financial instruments	-	(6,871)	(6,871)	-	3,298	3,298
Foreign exchange gains/(losses)	-	3,306	3,306	(97)	777	680
Investment and other income	11,184	-	11,184	10,671	-	10,671
Total income	11,184	87,235	98,419	10,574	53,787	64,361
Management and administration fees	(1,587)	(8,538)	(10,125)	(1,491)	(5,337)	(6,828)
Other expenses	(1,178)	(8)	(1,186)	(1,316)	(1)	(1,317)
Profit before finance costs and taxation	8,419	78,689	87,108	7,767	48,449	56,216
Finance costs	(1,600)	(12,082)	(13,682)	(1,592)	(12,821)	(14,413)
Profit before taxation	6,819	66,607	73,426	6,175	35,628	41,803
Taxation	(9)	-	(9)	(179)	-	(179)
Profit for the year	6,810	66,607	73,417	5,996	35,628	41,624
Earnings per ordinary share - pence	7.63	74.68	82.31	6.67	39.63	46.30

The Company does not have any income or expense that is not included in the profit for the year and therefore the profit for the year is also the total comprehensive income for the year, as defined in International Accounting Standard 1 (revised).

All items in the above statement derive from continuing operations.

All income is attributable to the equity holders of the Company.

GROUP STATEMENT OF CHANGES IN EQUITY

for the year to 30 June 2019
	Ordinary	Share		Non-
	share	premium	Special	distributable	Capital	Revenue
	capital	account	reserve	reserve	reserves	reserve	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 30 June 2018	8,949	18,167	233,866	32,069	(40,886)	8,969	261,134
Profit for the year	-	-	-	-	67,198	6,810	74,008
Ordinary dividends paid	-	-	-	-	-	(6,689)	(6,689)
Shares purchased by the Company	(121)	(2,064)	-	-	-	-	(2,185)
Balance at 30 June 2019	8,828	16,103	233,866	32,069	26,312	9,090	326,268

for the year to 30 June 2018
	Ordinary	Share		Non-
	share	premium	Special	distributable	Capital	Revenue
	capital	account	reserve	reserve	reserves	reserve	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 30 June 2017	9,020	19,313	233,866	32,069	(75,667)	9,468	228,069
Profit for the year	-	-	-	-	35,024	5,996	41,020
Transfer for change in treatment of subsidiary	-	-	-	-	(243)	243	-
Ordinary dividends paid	-	-	-	-	-	(6,738)	(6,738)
Shares purchased by the Company	(71)	(1,146)	-	-	-	-	(1,217)
Balance at 30 June 2018	8,949	18,167	233,866	32,069	(40,886)	8,969	261,134

COMPANY STATEMENT OF CHANGES IN EQUITY

for the year to 30 June 2019
	Ordinary	Share		Non-
	share	premium	Special	distributable	Capital	Revenue
	capital	account	reserve	reserve	reserves	reserve	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 30 June 2018	8,949	18,167	233,866	32,069	(40,282)	8,969	261,738
Profit for the year	-	-	-	-	66,607	6,810	73,417
Ordinary dividends paid	-	-	-	-	-	(6,689)	(6,689)
Shares purchased by the Company	(121)	(2,064)	-	-	-	-	(2,185)
Balance at 30 June 2019	8,828	16,103	233,866	32,069	26,325	9,090	326,281

for the year to 30 June 2018
	Ordinary	Share		Non-
	share	premium	Special	distributable	Capital	Revenue
	capital	account	reserve	reserve	reserves	reserve	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 30 June 2017	9,020	19,313	233,866	32,069	(75,910)	9,711	228,069
Profit for the year	-	-	-	-	35,628	5,996	41,624
Ordinary dividends paid	-	-	-	-	-	(6,738)	(6,738)
Shares purchased by the Company	(71)	(1,146)	-	-	-	-	(1,217)
Balance at 30 June 2018	8,949	18,167	233,866	32,069	(40,282)	8,969	261,738

STATEMENTS OF FINANCIAL POSITIONS

			Group			Company
at 30 June	2019	2018		2019	2018
	£'000s	£'000s		£'000s	£'000s
Non-current assets
Investments	543,794	493,375		556,430	528,544
Current assets
Other receivables	748	1,699		748	1,699
Derivative financial instruments	436	503		436	503
Cash and cash equivalents	3,177	647		3,177	647
	4,361	2,849		4,361	2,849
Current liabilities
Bank loans	(50,971)	-		(50,971)	-
Other payables	(9,491)	(6,852)		(9,491)	(240,771)
Derivative financial instruments	(1,483)	(1,089)		(1,483)	(1,089)
Zero dividend preference shares	-	(50,858)		-	-
	(61,945)	(58,799)		(61,945)	(241,860)
Net current liabilities	(57,584)	(55,950)		(57,584)	(239,011)
Total assets less current liabilities	486,210	437,425		498,846	289,533
Non-current liabilities
Bank loans	-	(27,795)		-	(27,795)
Other payables	-	-		(172,565)	-
Zero dividend preference shares	(159,942)	(148,496)		-	-
Net assets	326,268	261,134		326,281	261,738
Equity attributable to equity holders
Ordinary share capital	8,828	8,949		8,828	8,949
Share premium account	16,103	18,167		16,103	18,167
Special reserve	233,866	233,866		233,866	233,866
Non-distributable reserve	32,069	32,069		32,069	32,069
Capital reserves	26,312	(40,886)		26,325	(40,282)
Revenue reserve	9,090	8,969		9,090	8,969
Total attributable to equity holders	326,268	261,134		326,281	261,738
Net asset value per ordinary share - pence	369.57	291.79		369.58	292.47

STATEMENTS OF CASH FLOWS

		Group		Company
for the year to 30 June	2019	2018	2019	2018
	£'000s	£'000s	£'000s	£'000s
Cash flows from operating activities	(831)	2,116	(831)	2,122
Investing activities:
Purchases of investments	(58,875)	(64,046)	(59,776)	(64,313)
Sales of investments	102,243	70,115	103,833	71,092
Purchases of derivatives	(6,410)	-	(6,410)	-
Sales of derivatives	-	2,170	-	2,170
Cash flows from investing activities	36,958	8,239	37,647	8,949
Cash flows before financing activities	36,127	10,355	36,816	11,071
Financing activities:
Equity dividends paid	(6,689)	(6,738)	(6,689)	(6,738)
Movements on loans	22,862	(18,962)	22,862	(18,962)
Cash flows from issue of ZDP shares	1,590	13,921	-	12,943
Cash flows from redemption of ZDP shares	(52,095)	(417)	(51,194)	-
Cost of ordinary shares purchased for cancellation	(2,185)	(1,381)	(2,185)	(1,381)
Cash flows from financing activities	(36,517)	(13,577)	(37,206)	(14,138)
Net decrease in cash and cash equivalents	(390)	(3,222)	(390)	(3,067)
Cash and cash equivalents at the beginning of the year	(53)	3,573	(53)	3,423
Effect of movement in foreign exchange	3,620	(404)	3,620	(409)
Cash and cash equivalents at the end of the year	3,177	(53)	3,177	(53)

Comprised of:
Cash	3,177	647	3,177	647
Bank overdraft	-	(700)	-	(700)
Total	3,177	(53)	3,177	(53)

NOTES

The Directors declared a fourth quarterly dividend in respect of the year ended 30 June 2019 of 1.875p per share which will be paid on 27 September 2019 to all ordinary shareholders on the register at close of business on 6 September 2019. The total cost of the dividend, which has not been accrued in the results for the year to 30 June 2019, is £1,655,000 based on 89,283,389 ordinary shares in issue.

This Statement of Results was approved by the Board on 13 September 2019. It is not the Group's or Company's statutory accounts. The statutory accounts for the financial year ended 30 June 2019 have been approved and audited, and received an audit report which was unqualified and did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report. The statutory accounts for the financial year ended 30 June 2018 received an audit report which was unqualified and did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report.

The Report & Accounts for the year ended 30 June 2019 will be posted to shareholders in early October 2019. A copy is available to view and download from the Company's website at www.uil.limited 

Legal Entity Identifier: 213800CTZ7TEIE7YM468

By order of the Board

ICM Limited, Secretary

13 September 2019

 

END

 

 

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