Half-year Report

RNS Number : 8103D

UIL Limited

24 February 2020

 

Date:  21 February 2020

Contact:  Charles Jillings 

  ICM Investment Management Limited 

  01372 271 486 

UIL LIMITED

UNAUDITED HALF-YEARLY FINANCIAL REPORT

FOR THE SIX MONTHS TO 31 DECEMBER 2019

FINANCIAL HIGHLIGHTS

· Revenue return per ordinary share 4.25p (4.21p)

· Dividends per ordinary share 3.875p (3.75p)

· Net asset value total ("NAV") total return -4.3% (2.7%)

· Gearing* 75.1% (78.4%)

Figures in brackets are 31 December 2018

* See Alternate Performance Measures in the Half-yearly financial report for 31 December 2019  

UNAUDITED GROUP PERFORMANCE SUMMARY  

	Half-year 31 Dec 2019	Half-year 31 Dec 2018	Annual 30 Jun 2019	% change Jun-Dec 2019
NAV total return per ordinary share (1) (%)	(4.3)	2.7	29.7	n/a
Share price total return per ordinary share (1) (%)	28.5	1.8	18.8	n/a
Annual compound NAV total return (since inception (2) ) (1) (%)	12.7	12.1	13.4	n/a
NAV per ordinary share (pence)	350.00	295.85	369.57	(5.3)
Ordinary share price (pence)	252.00	174.00	199.00	26.6
Discount (1)  (%)	28.0	41.2	46.2	n/a
Returns and dividends (pence)
Revenue return per ordinary share	4.25	4.21	7.63	1.0 (4)
Capital return per ordinary share	(22.59)	3.59	75.34	(729.2) (4)
Total return per ordinary share	(18.34)	7.80	82.97	(335.1) (4)
Dividends per ordinary share	3.88	3.75	7.50	3.3 (4)
FTSE All-Share Total Return Index	7,838	6,577	7,431	5.5
Equity holders' funds (£m)
Gross assets (3)	527.0	468.1	537.2	(1.9)
Bank loans	50.9	49.6	51.0	(0.2)
ZDP shares	174.5	153.7	159.9	9.1
Equity holders' funds	301.6	264.8	326.3	(7.6)
Revenue account (£m)
Income	5.9	6.0	11.2	(1.7) (4)
Costs (management and other expenses)	1.5	1.5	2.8	0.0 (4)
Finance costs	0.7	0.7	1.6	0.0 (4)
Financial ratios of the Group (%)
Ongoing charges figure excluding performance fees (1)	1.7 (5)	2.3 (5)	2.1	n/a
Ongoing charges figure including performance fees (1)	1.8 (5)	2.3 (5)	5.1	n/a
Gearing (1)	75.1	78.4	63.7	n/a

(1)  See Alternative Performance Measures in the Half-yearly financial report for 31 December 2019

(2)  Since inception includes data relating to Utilico Investment Trust plc, UIL's predecessor, which started trading in August 2003

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

(4)  Percentage change based on comparative six month period to 31 December 2018

(5)  For comparative purposes the figures have been annualised

CHAIRMAN'S STATEMENT

Following six years of significant rising NAV, UIL's total return performance softened by 4.3% for the half-year to 31 December 2019, ending the period at 350.00p. Much of this underperformance is due to stronger Sterling, which was up 4.1% against the US Dollar and 3.9% versus the Australian Dollar. UIL underperformed the FTSE All-Share Index total return over the same period, which was up by 5.5%.

Since inception in August 2003, UIL has distributed £71.0m in dividends, invested £31.5m in ordinary share buybacks and made net gains of some £242.0m for a total return of 605.3% (adjusted for the exercise of warrants and convertibles). This represents an average annual compound NAV total return since inception of 12.7%. This is over 50.0% higher than the FTSE All-Share Index total return average annual compound total return for the same period of 8.2%.

UIL continues to suffer a discount drag on its underlying investments in Somers Limited ("Somers"), Utilico Emerging Markets Trust plc ("UEM") and Zeta Resources Limited ("Zeta"). As at 31 December 2019 discounts to published NAVs amounted to 12.3% for Somers (some £16.9m), 8.6% for UEM (some £8.1m) and 2.2% for Zeta (some £1.6m). Together this amounts to a discount on these investments of some £26.6m (30 June 2019: £21.8m). Adding these discounts back would see UIL's adjusted Shareholders' Funds increase by 8.8% to 380.76p and the UIL discount widen to 33.8%.

At the last year-end, 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. Gearing reduced from 155.2% as at 30 June 2013 to stand at a record low for UIL of 63.7% as at 30 June 2019 and absolute debt was £210.9m, well inside the target of 100.0% set in 2014.

In the six months to 31 December 2019 the net debt rose by £18.9m to £226.6m, in part due to the compounding effect of the zero dividend preference ("ZDP") shares but also due to further 2026 ZDP shares being placed in the market by UIL. Shareholders' funds reduced due to a negative performance from the portfolio mainly as a result of a loss of £17.2m in foreign exchange movements. This rise in gross debt and the reduction in shareholders' funds resulted in gearing rising to 75.1% as at 31 December 2019. This is still well below the 100% target for UIL.

As at 30 June 2019, the Board was disappointed 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 dividend payments. As with the gearing targets set six years ago the Board determined, in agreement with the Investment Managers and the major shareholder, to target a lower discount level of 20.0% in the medium term.

It is pleasing to see the discount narrow sharply to 28.0% as at 31 December 2019 and give rise to a share price total return for shareholders of 28.5%. The Board, the Investment Managers and the major shareholder all remain committed to seeing the discount narrow further towards the stated target of 20.0%. To achieve this, UIL will continue to step up its marketing, as well as continuing to buy back ordinary shares over the coming months.

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 announced 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 ("LSE"). These proposals were passed unanimously on 9 October 2019 and UIL started trading on the Specialist Fund Segment on 7 November 2019.

Once again, the discount level encouraged the Investment Managers, supported by the Board, to continue to buy back shares. During the half-year to 31 December 2019 the Company bought back 2.1m ordinary shares (2.4% of opening shares in issue) at an average price of 253.21p, which represented a discount of 27.7% to the closing NAV. These buybacks were accretive to both UIL's NAV per share and earnings per share ("EPS").

As noted in the annual report there are two opposing forces at work in global markets at the moment: populist leadership and Central Bank activity. This continued to be the case in the six months to 31 December 2019. The pursuit of populist policies, especially the trade dispute between the US and China, has seen global gross domestic product ("GDP") slow down. As a result, the central banks are now focused on reflationary policies, providing liquidity and lowering interest rates. The prolonging of negative interest rates in the developed markets is a concern. We see negative interest rates as eroding value for savers and pension funds while increasing the risk to global security.

There are two other rising challenges. First, the growing anger focused on changing the ruling political structures. This is highlighted in protests in Hong Kong, Moscow, Lebanon, London, Paris and Santiago, although each has had different drivers; for example, independence for Hong Kong, the wealth gap in Santiago and climate change in London. The focus is on a rebalance of political priorities and resources. Questions are being asked and challenges rising. Some of these have developed into riots and caused significant disruption. Others are seeing sharp policy changes.

Second is an accelerating expectation that business addresses fundamental questions around their approach to Environmental, Social and Governance ("ESG") outcomes. UIL has a good track record on ESG but more will be expected of investors and investee companies. This will no doubt produce both challenges and opportunities, and clearly the tragic fires in Australia have rightly propelled climate change to the top of ESG considerations. We are looking to better articulate our approach on this at the time of our full year results.

The Coronavirus remains a significant concern for the global economy, albeit the peak impact appears to have been reached and the number of cases reported are declining. Responses by the Chinese government in containing the virus will see a significant setback to economic activity in China and worldwide as a result of integrated global supply chains. We expect a response in the form of economic stimulus from China and the Chinese Central Bank will mitigate this impact. However, uncertainty remains as to the scale of the short-term economic impact in China and globally.

In the UK, Brexit has continued to crowd out discussions on most topics over the past half-year. However, the emphatic win by the Conservative party has seen a positive reaction by Sterling. We now know the direction of the UK, albeit we don't know the details. Over the six months to 31 December 2019, Sterling strengthened 4.1% against the US Dollar.

Sterling also strengthened by 3.9% against the Australian Dollar mainly on a falling interest rate outlook of the AUD. At USD 1,517/oz gold rose by 7.6% over the six months to 31 December 2019. It is worth noting that, in AUD terms, gold ended at AUD 2,163/oz, up 7.9% in the half-year to 31 December 2019. In response to lower interest rates globally and rising political and geopolitical tension we expect gold to go higher.

In April 2018, UIL Finance issued 25.0m 2026 ZDP shares, with a view to extending the ZDP redemption profile and lowering its cost of debt. As at 31 December 2019, the aggregate ZDP liability was £174.5m. Since this liability is across four issues it will reduce the significance of each redemption payment. UIL held 13.4m 2026 ZDP shares as at 30 June 2019 and placed 10.3m in the half-year to 31 December 2019, leaving UIL holding 3.1m as at 31 December 2019.

UIL is well placed with gearing at 75.1% as at 31 December 2019 and the ZDP debt profile extended to 2026. The Company's average funding costs as at 31 December 2019 reduced further to 5.4%.

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 over the last 6 years and as at the half-year end the 2026 ZDP cover was 2.0 times.

The Board is considering proposals in relation to the redemption of the 2020 ZDP shares on 31 October 2020. It plans to publish full details in Q2 2020 which is expected to include a rollover offer for holders of the 2020 ZDP shares into a new class of 2028 ZDP shares together with the potential issue of 2028 ZDP shares to new investors.

Revenue return for the half-year to 31 December 2019 was £3.7m, marginally behind the prior half-year of £3.8m, a decrease of 1.5%. The revenue return EPS of 4.25p versus the prior half-year's 4.21p, represents an increase of 1.0%. This positive outcome is a result of share buy backs. It should be noted that this result is after absorbing the one-off costs of migration to the Specialist Fund Segment of £232k and the delay by Resolute Mining Limited ("Resolute") of its dividend payment date resulting in income of £1.0m falling into the next half-year. Adjusting for both of these events, the revenue return would have been £4.9m, an uplift of 31.2%, and EPS would have been 5.66p, an uplift of 34.4%.

The capital loss for the half-year ended 31 December 2019 was £19.7m, reflecting both share price weakness but, in the main, Sterling strength.

After declaring a first quarter dividend of 1.875p per ordinary share, the Board is today declaring an increased second quarter dividend of 2.00p per ordinary share which, in the absence of unforeseen circumstances, it intends to maintain for the remainder of the financial year-end. This represents a yield on the closing share price of 252.00p of 3.1%. The dividend was covered by earnings in the half-year. Undistributed revenue reserves carried forward increased in the half-year from £9.1m to £9.5m equal to 11.06p per share.

In line with the announcement in June, Eric Stobart and Warren McLeland stepped down from the Board on 30 September 2019. On behalf of the Board I would again 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 Chairman of the Audit & Risk Committee; and Warren, for his insightful guidance and expertise since his appointment in 2013 and his continued support as chairman of Somers, UIL's largest investment.

The Board announced on 2 October 2019 the appointment of Stuart Bridges as a new independent non-executive Director who will Chair the Audit & Risk Committee. Stuart brings with him extensive industry experience and audit and risk capabilities. We all look forward to working with Stuart over the coming years. Following these changes, the Board comprises five Directors and there are no plans to change this.

OUTLOOK

The world's economies were expected to expand this year following the China/US trade deal and accommodative policies being followed by most central banks. The Coronavirus will impact this in the first two quarters of 2020, but the outlook remains for a firmer global economic performance. Brexit has happened and the UK is seeking a number of global trade deals which historically have taken longer to deliver. All this leaves the Board cautious about the outlook for the markets. Against the above backdrop, stock selection is of increasing importance and the Investment Managers' relentless bottom up approach to investment, should benefit UIL's portfolio.

Peter Burrows

Chairman

21 February 2020

INVESTMENT MANAGERS' REPORT

After six years of consecutive gains, UIL recorded a negative total return of 4.3% in the six months to 31 December 2019. Most of the underperformance was due to Sterling strength. Since inception, UIL's total return has been 605.3% and the annual compound NAV total return since inception was 12.7% as at 31 December 2019.

In the annual report for the year to 30 June 2019, we noted that, volatility had returned to equity, currency, debt and commodity markets. We are conscious that this volatility is impacting all asset classes, with global GDP growth softening and debt continuing to rise across the world's economies. 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.

Over the last six and a half years, UIL has seen its investment position continue to improve significantly. This has been driven by positive developments in its investee companies and reduction in UIL's leverage. 

Furthermore, a number of our portfolio of transactions are maturing. At the time of the full year results, we highlighted three significant transactions: 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's sale of Bligh Resources Limited ("Bligh"). Bligh has since completed, and the other two transactions are expected to complete shortly. To this we can now add the announced conditional sale of Optal Limited ("Optal"), UIL's largest unlisted investment representing 7.2% of UIL's portfolio. These sales will provide additional liquidity to UIL at an opportune time for new investments. BCB, Ascendant and Optal should see over £75.0m returned to UIL as cash through direct holdings realisations and loan repayments.

Given the cash to be realised from the three investments highlighted above of over £75.0m, and that gearing already remains well inside our target of 100%, we look with optimism to identifying new investment opportunities. We remain committed high conviction investors.

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 multiple jurisdictions to optimise investment opportunities and undertake corporate finance led transactions.

The platforms have been set up to provide a sharper focus, leading to identifying 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 identifying 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 relentless bottom up investors, drawing on in-depth knowledge and capability.

PORTFOLIO

The portfolio movements were mixed with Afterpay Limited's ("Afterpay") share price rising 16.6% while Zeta's share price declined 11.3% These are reviewed in the ten largest holdings section starting on page 18 of the Half-yearly financial report for 31 December 2019. Overall, the investment portfolio lost £21.5m in value mostly as a result of Sterling's strength.

As at 31 December 2019, the top ten investments accounted for 89.4% of the portfolio compared to 91.9% as at 30 June 2019. 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.

PORTFOLIO ACTIVITY

During the half-year to 31 December 2019, UIL invested £74.9m, including net loans of £8.0m to Zeta and £9.3m to Somers. UIL realised £73.4m, including £36.1m from Afterpay.

In September 2019 BFIC distributed shares in Ascendant to its shareholders by way of a special dividend. UIL as a result received a £20.8m investment in Ascendant 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 in the third quarter of 2020. Also, in June 2019, Bligh, a significant investment of Zeta, announced it had been sold to Saracen Mineral Holdings Limited.

In January 2020, UIL announced the signing of an agreement for the sale of UIL's investment in Optal. These transactions undertaken by UIL, Somers, BFIC and Zeta are expected to generate cash for UIL in excess of £75.0m.

PLATFORM INVESTMENTS

UIL currently has five individual platform investments: Somers, UEM, Zeta, BFIC and Allectus Capital Limited ("Allectus"). With the exception of BFIC these investments are all in the top ten portfolio and account for 58.0% of the total portfolio as at 31 December 2019 (prior year 58.8%). During the half-year to 31 December 2019, UIL received net withdrawals of £1.3m,

(30 June 2019: £7.7m) from its platform investments. These are reviewed under the ten largest holdings section starting on page 18 of the Half-yearly financial report for 31 December 2019.

BFIC distributed its main holding in Ascendant to its shareholders. This resulted in a significant decline in BFIC's valuation and as a result it fell out of the top ten.

DIRECT INVESTMENTS

UIL has six direct investments in its top ten holdings: Resolute, Optal, Ascendant, One Communications Limited ("OneComm"), Vix Tech Pte Limited ("VixTech"), and Afterpay. These are all reviewed under the ten largest holdings section starting on page 18 of the Half-yearly financial report for 31 December 2019 . Ascendant is the only new entrant into the top ten and joined the top ten following the distribution of its shares to shareholders by BFIC.

GEOGRAPHIC REVIEW

There were no material changes in UIL's geographical split of the portfolio. On a look-through basis, Australia increased by 2.2% to 22.8% of total investments from 20.6% as at 30 June 2019, and gold mining reduced from 15.0% as at 30 June 2019 to 12.7% as at 31 December 2019.

SECTOR REVIEWS

Infrastructure Investments - 26.6% (30 June 2019 26.5%)

UIL has amalgamated the infrastructure and utility sectors into one and this consists of the following: Airports, Renewables, Water & Waste, Infrastructure, Toll Roads, Ports, Oil & Gas, Telecoms and Electricity.

Technology - 19.1% (30 June 2019 22.7%)

UIL holds a number of investments in the technology sector, both directly and through Allectus (its eighth largest investment). Direct investments include Optal, which is UIL's fifth largest holding in the portfolio, VixTech is the ninth largest holding and Afterpay is the tenth largest holding. 

Financial Services - 23.6% (30 June 2019 21.8%)

UIL's largest investment both in financial services and in the portfolio is Somers, which accounts for 23.1% of UIL's total portfolio as at 30 June 2019 (30 June 2019 21.8%).

Gold Mining - 12.7% (30 June 2019 15.0%)

UIL's largest investment in gold mining is Resolute, which is held both directly by UIL (11.7% of the total portfolio) and indirectly through Zeta.

Resources (excl. gold mining) - 11.9% (30 June 2019 9.4%)

UIL's largest investment in resources, excluding gold mining, is Zeta, which accounts for 13.6% of the total portfolio as at 31 December 2019.

LEVEL 3 INVESTMENTS

UIL's investments in level 3 companies increased by 0.7% of the total portfolio in the period under review to 34.6% (30 June 2019: 33.9%).

BREXIT

Brexit risks for UIL are considered by the Investment Managers and the UIL Board. The strategy pursued over recent years of hedging the UIL ZDP liability in full, should provide resilience in these volatile times. 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. It should be noted that following the emphatic win by the Conservatives in the UK General Election, the FX positions have been reduced as Sterling strengthened and gains on the position were realised. As at 31 December 2019 the Sterling exposure to FX contracts was £132.8m. The maturity of the FX positions remains spread over several months. 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 from Brexit to be not material. However, this is under constant review and consideration.

DERIVATIVES

UIL was for the most part inactive in stock market derivatives during the half-year as the Investment Managers expected the markets to perform well in 2019 driven by strong corporate earnings, notwithstanding increased volatility. This position proved correct.

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. Again, this positioning proved correct resulting in gains of £6.4m (includes £0.3m loss on S&P options invested directly) on currency hedging in the half-year to 31 December 2019.

As at 31 December 2019 our positions were AUD 116.3m, USD 65.8m, EUR 19.0m and NZD 5.9m. We believe Sterling has further to gain over the next twelve months, but it will be a volatile market.

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 period. Gearing (including the ZDP shares) has reduced significantly and consistently from 155.2% in 2013 to 63.7% as at 30 June 2019. While it has risen modestly to 75.1% in the last six months as net assets have reduced, we have no active plans to reduce debt as an absolute amount below current levels of £174.5m 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 5.4% as at

31 December 2019. This should continue as next year's 2020 ZDP shares, (currently compounding at 7.25%), are expected to be refinanced in the current market at lower rates.

ZDP SHARES

As at 30 June 2019, UIL Finance had in issue four classes of ZDP shares and on a consolidated basis these amounted to £159.9m. UIL held 11.9m of the 2026 ZDP shares as at 30 June 2019 and during the period placed in the market 8.8m of the 2026 ZDP shares for £9.5m and held as at 31 December 2019 3.1m 2026 ZDP shares. As at 31 December 2019 the ZDP shares in issue on a consolidated basis amounted to £174.5m. The placings were all at a yield to maturity of less than 5.0%.

DEBT

The bank facility of £50.0m has largely been fully drawn over the six months to 31 December 2019. The facility is drawn in Australian, Canadian and US Dollars. Scotiabank has confirmed Credit Committee approval to extend the £50.0m committed senior secured multicurrency revolving facility to September 2022 and documentation is expected to be finalised shortly. Scotiabank has been and continues to be a good and supportive banker to UIL.

REVENUE RETURNS

Revenue total income for the half-year was marginally down by 0.5% from £6.0m as at 31 December 2018 to £5.9m as at 31 December 2019. However, the delay by Resolute of its annual dividend from December reduced this half-year's earnings by £1.0m. Adding this back, total income would have been up by 16.3%. Management and administration fees and other expenses remained flat for the half-year at £1.5m (31 December 2018: £1.5m). However, the current half-year included some £0.2m costs arising from the move to the Specialist Fund Segment. Adjusting for this, underlying costs reduced by 15.3% to £1.2m. Financing costs were largely unchanged at £0.7m (31 December 2018: £0.7m).

Revenue profit for the half-year was down 1.5% to £3.7m (31 December 2018: £3.8m) while EPS increased as a result of share buy backs by 1.0% to 4.25p (31 December 2018: 4.21p). However, adjusting for the timing on Resolute's dividend and for the Specialist Fund Segment costs, the EPS would increase 34.4% to 5.66p.

CAPITAL RETURNS

Total income from Capital was negative at £14.7m (31 December 2018: gain £9.7m). This represented losses on investments offset by derivative gains.

Finance costs in the half-year reduced by 21.9% to £5.0m (31 December 2018: £6.5m) reflecting lower borrowing costs on the ZDP shares.

The resultant loss for the half-year to 31 December 2019 on the capital return was £19.8m (31 December 2018: profit £3.2m) and EPS was a loss of 22.59p (31 December 2018: profit 3.59p).

There was no performance fee accrued by UIL as at 31 December 2019.

EXPENSE RATIO

Pleasingly the ongoing charges figure, excluding performance fees, decreased from 2.3% as at 31 December 2018 to 1.7% as at 31 December 2019. 

Charles Jillings
ICM Investment Management Limited
and ICM Limited
21 February 2020

HALF-YEARLY FINANCIAL REPORT AND RESPONSIBILITY STATEMENT

The Chairman's Statement and the Investment Managers' Report give details of the important events which have occurred during the period and their impact on the financial statements.

PRINCIPAL RISKS AND UNCERTAINTIES

Most of UIL's principal risks and uncertainties are market related and are similar to those of other investment companies investing mainly in listed equities in developed countries.

The principal risks and uncertainties were described in more detail under the heading "Principal Risks and Risk Mitigation" within the Business Review section of the Annual Report and Accounts for the year ended 30 June 2019 and have not changed materially since the date of that report.

The principal risks faced by UIL include not achieving long-term total returns for its shareholders, the adverse impact gearing could have, the sudden withdrawal of its bank facility, loss of key management, adverse currency movements and losses due to inadequate controls of third party service providers.

The Annual Report and Accounts is available on the Company's website, www.uil.limited

RELATED PARTY TRANSACTIONS

Details of related party transactions in the six months to 31 December 2019 are set out in note 3 to the Accounts.

DIRECTORS' RESPONSIBILITY STATEMENT

In accordance with Chapter 4 of the Disclosure Guidance and Transparency Rules, the Directors confirm that to the best of their knowledge:

• The condensed set of financial statements contained within the half-year report for the six months to 31 December 2019 has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" and gives a true and fair view of the assets, liabilities, financial position and return of the Group;

• The half-yearly financial report, together with the Chairman's Statement and Investment Managers' Report, includes a fair review of the important events that have occurred during the first six months of the financial year and their impact on the financial statements as required by DTR 4.2.7R;

• The Directors' statement of principal risks and uncertainties above is a fair review of the principal risks and uncertainties for the remainder of the year as required by DTR 4.2.7R; and

• The half-yearly report includes a fair review of the related party transactions that have taken place in the first six months of the financial year as required by DTR 4.2.8R.

On behalf of the Board

Peter Burrows

Chairman

21 February 2020

UNAUDITED CONDENSED GROUP INCOME   STATEMENT

for the six months to 31 December			2019			2018
	Revenue	Capital	Total	Revenue	Capital	Total
	return	return	return	return	return	return
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
(Losses)/gains on investments	-	(21,490)	(21,490)	-	11,668	11,668
Gains/(losses) on derivative financial instruments	-	6,403	6,403	-	(3,021)	(3,021)
Foreign exchange gains/(losses)	-	379	379	(32)	1,023	991
Investment and other income	5,935	-	5,935	5,996	-	5,996
Total income	5,935	(14,708)	(8,773)	5,964	9,670	15,634
Management and administration fees	(747)	-	(747)	(839)	-	(839)
Other expenses	(725)	(4)	(729)	(625)	-	(625)
Profit/(loss) before finance costs and taxation	4,463	(14,712)	(10,249)	4,500	9,670	14,170
Finance costs	(747)	(5,045)	(5,792)	(720)	(6,456)	(7,176)
Profit/(loss) before taxation	3,716	(19,757)	(16,041)	3,780	3,214	6,994
Taxation	-	-	-	(9)	-	(9)
Profit/(loss) for the period	3,716	(19,757)	(16,041)	3,771	3,214	6,985
Earnings per ordinary share - pence	4.25	(22.59)	(18.34)	4.21	3.59	7.80

The Group does not have any income or expense that is not included in the profit for the period, and therefore the profit for the period is also the total comprehensive income for the period, 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.

UNAUDITED CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY

for the six months to 31 December 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 2019	8,828	16,103	233,866	32,069	26,312	9,090	326,268
(Losses)/profit for the period	-	-	-	-	(19,757)	3,716	(16,041)
Ordinary dividends paid	-	-	-	-	-	(3,271)	(3,271)
Shares purchased by the Company	(210)	(5,115)	-	-	-	-	(5,325)
Balance at 31 December 2019	8,618	10,988	233,866	32,069	6,555	9,535	301,631

for the six months to 31 December 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 2018	8,949	18,167	233,866	32,069	(40,886)	8,969	261,134
Profit for the period	-	-	-	-	3,214	3,771	6,985
Ordinary dividends paid	-	-	-	-	-	(3,356)	(3,356)
Balance at 31 December 2018	8,949	18,167	233,866	32,069	(37,672)	9,384	264,763

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

UNAUDITED CONDENSED GROUP STATEMENT OF FINANCIAL POSITION

	31 Dec 2019	31 Dec 2018	30 Jun 2019
	£'000s	£'000s	£'000s
Non-current assets
Investments	523,791	468,674	543,794
Current assets
Other receivables	1,740	929	748
Derivative financial instruments	4,038	4,284	436
Cash and cash equivalents	2,057	225	3,177
	7,835	5,438	4,361
Current liabilities
Bank loans	(50,874)	-	(50,971)
Other payables	(3,988)	(5,512)	(9,491)
Derivative financial instruments	(614)	(484)	(1,483)
Zero dividend preference shares	(57,239)	-	-
	(112,715)	(5,996)	(61,945)
Net current liabilities	(104,880)	(558)	(57,584)
Total assets less current liabilities	418,911	468,116	486,210
Non-current liabilities
Bank loans	-	(49,638)	-
Zero dividend preference shares	(117,280)	(153,715)	(159,942)
Net assets	301,631	264,763	326,268
Equity attributable to equity holders
Ordinary share capital	8,618	8,949	8,828
Share premium account	10,988	18,167	16,103
Special reserve	233,866	233,866	233,866
Non-distributable reserve	32,069	32,069	32,069
Capital reserves	6,555	(37,672)	26,312
Revenue reserve	9,535	9,384	9,090
Total attributable to equity holders	301,631	264,763	326,268
Net asset value per ordinary share
Basic - pence	350.00	295.85	369.57

UNAUDITED CONDENSED GROUP STATEMENT OF CASH FLOWS

	Six months to	Six months to	Year to
	31 Dec 2019	31 Dec 2018	30 Jun 2019
	£'000s	£'000s	£'000s
Cash flows from operating activities	(7,570)	(4,043)	(831)
Investing activities:
Purchases of investments	(52,910)	(22,724)	(58,875)
Sales of investments	52,951	60,788	102,243
Purchases of derivatives	-	(7,406)	(6,410)
Sales of derivatives	1,932	-	-
Cash flows from investing activities	1,973	30,658	36,958
Cash flows before financing activities	(5,597)	26,615	36,127
Financing activities:
Equity dividends paid	(3,271)	(3,356)	(6,689)
Movement on loans	1,432	21,956	22,862
Cash flows from issue of ZDP shares	9,532	898	1,590
Cash flows from redemption of ZDP shares	-	(51,196)	(52,095)
Cost of shares purchased for cancellation	(5,235)	-	(2,185)
Cash flows from financing activities	2,368	(31,698)	(36,517)
Net decrease in cash and cash equivalents	(3,229)	(5,083)	(390)
Cash and cash equivalents at the beginning of the period	3,177	(53)	(53)
Effect of movement in foreign exchange	(1,150)	879	3,620
Cash and cash equivalents at the end of the period	(1,202)	(4,257)	3,177
Comprised of:
Cash	2,057	225	3,177
Bank overdraft	(3,259)	(4,482)	-
Total	(1,202)	(4,257)	3,177

NOTES

1. SIGNIFICANT ACCOUNTING POLICIES

The Company is an investment company incorporated in Bermuda, traded on the London Stock Exchange and listed on the Bermuda Stock Exchange.

The Group Accounts comprise the results of the Company and UIL Finance Limited.

The unaudited condensed Group Accounts have been prepared in accordance with International Financial Reporting Standards as adopted by the EU ("IFRS"), IAS 34 "Interim Financial Reporting" and the accounting policies set out in the audited statutory accounts of the Group for the year ended 30 June 2019.

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. The significant judgements made by the Directors in applying the Group's accounting policies and key sources of uncertainty were the same as those applied to the consolidated financial statements as at and for the year ended 30 June 2019.

The unaudited condensed Group Accounts do not include all of the information required for full annual accounts and should be read in conjunction with the consolidated accounts of the Group for the year ended 30 June 2019, which were prepared under full IFRS requirements.

2 DIVIDENDS

The Directors have declared a second quarterly dividend in respect of the year ending 30 June 2020 of 2.00p per ordinary share payable on 27 March 2020 to shareholders on the register at close of business on 6 March 2020. The total cost of this dividend, which has not been accrued in the results for the six months to 31 December 2019, is £1,719,000 based on 85,969,314 ordinary shares in issue at the date of this report.

3. RELATED PARTY TRANSACTIONS

The following are considered related parties of UIL: UIL's majority shareholder General Provincial Life Pension Fund Limited ("GPLPF") holds 63.7% of UIL's shares and is ultimately controlled by Somers Isles Private Trust Company Limited ("SIPTCL").

Subsidiaries of UIL:

Allectus, BFIC, Coldharbour Technology Limited ("Coldharbour"), Energy Holdings Ltd, Global Equity Risk Protection Limited ("GERP"), Newtel Holdings Limited ("Newtel"), UIL Holdings Pte Ltd and Zeta. (On consolidation, transactions between the Company and UIL Finance Limited have been eliminated).

Controlled Entities:

3DMeditech Pty Ltd ("3DMedi"), DTI Group Ltd ("DTI"), Elevate Platform Limited ("Elevate"), Orbital Corporation Limited ("Orbital"), Smilestyler Solutions Pty Ltd ("Smilestyler"), Somers and VixTech.

Subsidiaries of the above subsidiaries and controlled entities:

BCB, CHIPS AG , Homeloans Limited, Kumarina Resources Limited, Metricus Pty Ltd, Own Solutions AC Ltd, PCF Bank, Perfect Channel Limited, Resimac Group Limited, Snapper Services Ltd, Trustlink (Pty) Ltd, Unity Holdings Ltd, VixNet Africa (Pty) Ltd, Vix Net Africa (Pty) Ltd, Vix Resources Pty Ltd, Waverton, West Hamilton Holdings Limited, Zeta Energy Pte. Ltd and Zeta Investments Limited.

Key management entities and persons:

ICM and ICMIM and the board of directors of ICM, Alasdair Younie, Charles Jillings, Duncan Saville and of ICMIM, Charles Jillings and Sandra Pope. ICM Investment Research Limited and ICM Corporate Services (Pty) Ltd are wholly owned subsidiaries of ICM.

Persons exercising control of UIL:

The Board of UIL. Eric Stobart and Warren McLeland resigned as Directors on 30 September 2019 and Stuart Bridges was appointed as a Director on 2 October 2019.

Companies controlled by key management persons:

Azure Limited, Ingot Capital Management Limited, Mitre Finance Limited, Mitre Investments Limited, Permanent Investment Limited ("PIL") and Permanent Mutual Limited ("PML").

The following transactions were carried out during the half-year to 31 December 2019 between the Company and its related parties above:

GPLPF received dividends of £2.1m from UIL and there were no transactions between SIPTCL and UIL in the period.

Subsidiaries of UIL

On 1 July 2019, as part of a share capital reorganisation, UIL's debt of USD 23.2m was converted into equity of Allectus and UIL also purchased an additional 52 ordinary shares for USD 5k which increased UIL's holding from 39.8% to 50.0% of the ordinary shares. In addition to the above, pursuant to a loan agreement dated 1 September 2016 under which UIL has agreed to loan monies to Allectus, UIL advanced to Allectus a loan of USD 6.0m. As at 31 December 2019, the balance of the loan was USD 6.0m. The loan is interest free and will be converted into equity on an annual basis at 30 June each year.

BFIC paid a dividend of USD 25.5m to UIL (UIL received in specie 746,524 Ascendant shares at USD 34.20 per share in settlement of the dividend). Pursuant to a loan agreement dated 3 July 2017 under which UIL has agreed to loan monies to BFIC, UIL advanced to BFIC USD 0.4m. As at 31 December 2019, the balance of the loan and interest outstanding was USD 0.4m. The loan bears interest at an annual rate of 6.0% and is repayable on not less than 12 months' notice.

UIL exercised 4,000,000 Coldharbour warrants at a cost of £2.0m.

Newtel repaid £0.1m of its working capital loan to UIL and paid interest of £16k. As at 31 December 2019 the loan balance was £5.2m and is repayable on demand.

Pursuant to loan agreements dated 1 September 2016 (AUD loan) and 1 May 2018 (CAD loan), under which UIL has agreed to loan monies to Zeta, UIL advanced to Zeta loans of AUD 32.1m and CAD 5.9m and received from Zeta a repayment of AUD 25.0m, and capitalised interest of AUD 0.6m and CAD 0.4m. As at 31 December 2019, the balance of the loans and interest outstanding was AUD 48.5m and CAD 29.9m. The AUD loan bears interest at an annual rate of 7.5% and the CAD loan bears interest at an annual rate of 7.25%. The loans are repayable on not less than 12 months' notice.

There were no transactions with Energy Holdings Ltd, GERP and UIL Holdings Pte Ltd during the six months to 31 December 2019.

Controlled Entities

UIL increased its holding in DTI by subscribing for 30.3m shares through a rights issue and a further 16.0m shares as a result of UIL underwriting the rights issue. A further 2.4m shares were purchased on the market and as at 31 December 2019 UIL held 30.8% of the ordinary shares (25.3% as at 30 June 2019).

Pursuant to a loan agreement dated 1 January 2019 under which UIL has agreed to loan monies to Elevate, UIL advanced to Elevate £0.6m. As at 31 December 2019, the balance of the loan and interest outstanding was £1.2m. The loan bears interest at an annual rate of 6.0% and is repayable on 31 December 2023.

Pursuant to a loan agreement dated 1 March 2019 under which UIL has agreed to loan monies to Orbital, UIL advanced to Orbital USD 1.5m and capitalised interest of USD 30k. As at 31 December 2019, the balance of the loan and interest outstanding was USD 1.5m. The loan bears interest at an annual rate of USD 3 months Libor plus 6.0% and is repayable on 1 September 2020.

Somers paid a dividend of USD 1.9m to UIL and received 126,169 ordinary shares as part of a dividend reinvestment program. Pursuant to loan agreements dated 1 September 2016 (USD loan), 22 June 2018 (GBP loan), 5 September 2019 (AUD loan) and 4 December 2019 (CAD loan), under which UIL has agreed to loan monies to Somers, UIL advanced to Somers loans of USD 0.8m, £1.3m, AUD 6.1m and CAD 4.2m and received interest of USD 51k, £106k and AUD 26k. As at 31 December 2019, the balance of the loans and interest outstanding was USD 4.2m, £8.5m, AUD 6.2m and CAD 4.2m. With the exception of the CAD loan, which bears interest at an annual rate of 10.0%, the loans bear interest at an annual rate of 6.0% and are repayable on not less than 12 months' notice.

Pursuant to a loan agreement dated 1 December 2016 under which UIL has agreed to loan monies to VixTech, UIL advanced to VixTech USD 3.1m. As at 31 December 2019, the balance of the loan was USD 26.7m. The loan is interest free and is repayable on not less than 12 months' notice.

There were no transactions with 3DMedi and Smilestyler during the half-year to 31 December 2019.

Subsidiaries of the above subsidiaries and controlled entities:

There were no transactions in the half-year to 31 December 2019 with any of the subsidiaries of the above subsidiaries and controlled entities.

Key management entities and persons:

ICM and ICMIM are joint portfolio managers of UIL. Other than investment management fees, secretarial fees and performance fees as set out in note 2 in the Half-yearly report to 31 December 2019, and reimbursed expenses of £51k, there were no other transactions with ICM or ICMIM. As at 31 December 2019, £278k remained outstanding to ICM and ICMIM in respect of management and company secretarial fees. There were no transactions with ICM Investment Research Limited and ICM Corporate Services (Pty) Ltd during the half-year to 31 December 2019.

Mr Younie is a director of BCB, BFIC, GERP, OneComm, PIL, PML, SIPTCL, Somers and West Hamilton Holdings Limited. Mr Jillings is a director of Allectus, GERP, PIL, PML, SIPTCL, Somers and Waverton. Mr Jillings received dividends from UIL of £13,125. Mr Saville is a director of Allectus, BFIC, GPLPF, GERP, PIL, PML, Resimac Group Limited, SIPTCL, VixTech, West Hamilton Holdings Limited, Newtel Holdings Limited and Zeta Energy Pte. Ltd. Sandra Pope received dividends of £1,875. There were no other transactions in the half-year with Alasdair Younie, Charles Jillings, Duncan Saville and Sandra Pope and UIL.

The Board

With effect from 1 July 2019 the fees paid to Directors were increased to: Chairman £46,000 per annum; Chairman of Audit & Risk Committee £44,000 per annum and Directors £34,000 per annum. The Board received aggregate remuneration of £105,000 for services as Directors. As at 31 December 2019, £28,000 remained outstanding to the Directors. In addition to their fees, the Directors received dividends totalling £44,242. There were no other transactions in the half-year with the Board and UIL.

Companies controlled by key management persons:

Azure Limited, an entity controlled by Duncan Saville, received dividends of £22,577. Mitre Investments Limited, an entity controlled by Charles Jillings, received dividends of £94,410. PML, an entity controlled by Duncan Saville, received dividends of £251,718. UIL entered into a CFD contract to purchase the rights attaching to shares of S&C Engine Group with PML. UIL paid USD 2.2m, being the full and fair value of those shares. UIL bears the risk of the movement in fair value of the shares and is entitled to receive any dividends paid by S&C Engine Group. The CFD contract has a maturity date of 12 months after the first trade date being 3 December 2020 unless agreed by both parties to terminate the contract earlier. There were no other transactions in the half-year with the companies controlled by key management persons and UIL.

4. RESULTS

The condensed set of financial statements, forming the half-year accounts, has been neither audited nor reviewed by the Company's auditors. The latest published accounts are for the year ended 30 June 2019; the report of the auditors thereon was unqualified. The condensed financial statements shown above for the year ended 30 June 2019 are an extract from those accounts.

The half-yearly report   for the six months to 31 December 2019 will be posted to shareholders in early March 2020. A copy will shortly be available to view and download from the Company's website at   www.uil.limited .

Legal Entity Identifier: 213800CTZ7TEIE7YM468

 

END

 

 

IR MZGZZNMVGGZM