Annual Financial Report

RNS Number : 1501R

Utilico Emerging Markets Limited

25 June 2015

 



Date:                24 June 2015

Contact:           Charles Jillings

                        Utilico Emerging Markets Limited

                        01372 271 486  

                        Alastair Moreton

                        Westhouse Securities Limited

                        0207 601 6100

Utilico Emerging Markets Limited

Statement of Results

for the year to 31 March 2015

Highlights of results

·      Net asset value ("NAV") total return of 12.2%

·      Dividend per share maintained at 6.10p

·      NAV annual compound return since inception of 12.4%

·      Dividends per ordinary share have increased from 1.50p to 6.10p over

the last ten years

 

 

Utilico Emerging Markets Limited

Statement of Results for the year to 31 March 2015

 

Chairman's Statement

I am pleased to report continued progress in the Company's tenth year since flotation UEM achieved a net asset value ("NAV") total return of 12.2% for the year to 31 March 2015 and over the last three, five and ten years UEM has delivered a total return of 29.8%, 60.4% and 159.8% respectively. This is an outstanding performance in turbulent times.

While the current year performance of 12.2% is marginally behind the MSCI Emerging Markets Index Total Return (GBP adjusted) of 13.2%, UEM's performance over three and five years has been significantly ahead of the Index. Over three and five years, UEM achieved a total return of 29.8% and 60.4% versus the MSCI Emerging Markets Index Total Return (GBP adjusted) of 9.8% and 13.3% respectively. Over 10 years UEM's total return has been 159.8%, ahead of the MSCI Emerging Markets Index Total Return (GBP adjusted) of 149.5%. This strong performance continues to ensure UEM receives industry recognition. UEM won the Moneywise Investment Trust Awards 2015 for the Global Emerging Markets category for the second year running and was highly commended at the Money Observer Trust Awards 2015 for the Best Diversified Emerging Markets Trust. UEM was also one of Money Observer's rated funds for 2015.

The revenue earnings per share strengthened over the year to 4.98p, up 3.8%. The Board has declared four quarterly dividends of 1.525p, amounting to 6.10p for the year to 31 March 2015. No increase was considered given the dividend is partly uncovered again this year. The fourth quarterly dividend has been paid out of capital reserves and as a result income of 0.405p per share has been retained. The cumulative retained revenue reserves are £3.2m, some 1.5p per share. The 6.10p distributed represents a yield on the opening share price of 180.00p of 3.4%. Over the ten years since inception UEM has paid out 47.30p per share in dividends amounting to £96.3m.

Management and administration fees were higher mainly as a result of the £3.1m performance fee.

Our share price discount to NAV remains stubbornly high, given both the performance and the yield offered by UEM shares. The Board keeps this under constant review and exercises a buyback investment policy at over a 10% discount, but this is an investment decision and will remain so. Over the ten years the Investment Managers have exercised their investment discretion and have bought back 26.0m shares amounting to £36.4m.

Following the year end, UEM has appointed ICMIM as its Alternative Investment Fund Manager ("AIFM"), with ICMIM becoming joint portfolio manager with ICM (together referred to as the "Investment Managers"), as explained in the Report of the Directors on pages 28 and 29 of the Annual Report and Accounts. ICMIM is a UK regulated investment manager controlled by Charles Jillings. The existing Investment Management Agreement ("IMA") with ICM was terminated and replaced with a new agreement (the "AIFM Agreement") on 13 April 2015. The aggregate fees payable by the Company under the AIFM Agreement are the same as those previously payable under the IMA, with such fees to be apportioned between ICMIM and ICM as agreed by them. There is no change in the individuals responsible for managing the Company as a consequence of the new arrangements.

UEM also has appointed J.P. Morgan Europe Limited as the Company's depositary services provider for the purposes of Article 36 of the EU Alternative Investment Fund Manager Directive ("AIFMD") and JPMorgan Chase Bank, N.A. - Jersey Branch was appointed as the Company's custodian, in place of JPMorgan Chase Bank, NA - London Branch, both with effect from 13 April 2015.

As mentioned in the interim report, Kevin O'Connor retired from the Board on 17 November 2014 and Garth Milne was reappointed to the Board with effect from the same date. On behalf of the Board, I would like to thank Kevin for his support, enthusiasm and guidance as a director of the Company. Garth has been involved in the investment company sector for over 40 years, and has been a consultant to the Board for the last four years.

I very much want to take this opportunity, on our tenth anniversary, to thank all those who have been involved with UEM. The performance has been outstanding and the experience and interaction between the Board, the managers, the administrators and the advisors has made the last ten years so positive for all those involved, particularly the shareholders. I thank them all for their significant contributions.

Outlook

The USA is looking to exit Quantitative Easing ("QE") and edge towards normalisation. Japan is expected to continue QE, whilst Europe has just started QE and is expected to continue to do so for some years. These combined initiatives are expected to be positive for asset classes and equity markets. The liberalisation of the Chinese financial markets may deliver a positive impact on Chinese and Asian equities. Given this backdrop, most emerging market economies continue to achieve positive GDP growth and their outlook is positive. UEM's performance is driven by stock selection and the Investment Managers remain confident that attractive investments can be made.

Alexander Zagoreos
Chairman
24 June 2015

Investment Manager's Report

The year to 31 March 2015 was positive for emerging markets, with most key emerging market indices up both in local currency and sterling terms.

Over the year the emerging market currencies reversed most of the weakness in the previous twelve months to 31 March 2014. For example, the Philippine Peso gained 12.7% (2014: lost 17.1%) and the Thai Baht gained 12.0% (2014: lost 17.8%). The key exceptions were Brazil, where the Real was down 20.7% adding to the 18.6% loss in the prior period, and Malaysia, where the Ringgit lost 1.0% adding to the 13.6% fall in the prior year. Emerging market indices were also on balance stronger.

UEM returned a good performance with a total return of 12.2% for the twelve months to 31 March 2015 and in line with the ten year average annual compound total return of 12.4%. UEM remains focused on listed companies which are for the most part offering long-term growth, profitable and paying dividends.

Portfolio

UEM's gross assets (less liabilities excluding loans) increased from £433.4m to £479.2m over the twelve months to 31 March 2015.

The constituents of the top ten remained unchanged but the total, as a percentage of the portfolio, reduced from 56.3% to 53.7%. This arose in part as a result of net disposals in the top ten and stronger performance from the rest of the portfolio. Unlisted investments remain at 2.3% of the gross assets.

China (including Hong Kong) continues to be UEM's biggest country investment, decreasing from 32.1% to 30.9% of the portfolio. This reflects a mix of realisations and investments plus market movements. The Shanghai Composite Index was a strong performer up 84.3% and the Hang Seng Index was up 12.4%. This combined with a stronger Renminbi and Hong Kong Dollar, which were up 12.6% and 12.4% respectively, reversed the declines the year before of 9.0% and 8.9% respectively. These circumstances presented a positive background for UEM. It should be noted UEM is predominantly invested in China through the Hong Kong "H share" market.

China Gas Holdings Limited's ("China Gas") share price increased by 4.5% in the year to 31 March 2015. Share price performances of Chinese gas distribution companies were relatively subdued in the latter half of the year, as the fall in oil prices meant that natural gas was not as competitive an energy source for industrial customers. However, at the start of March 2015 the National Development and Reform Commission announced gas price cuts for non-residential customers which, combined with refined oil price hikes, restored natural gas' discount to oil-based fuels. This re-affirmed the Chinese government's commitment to incentivise the use of cleaner energy sources, with its stated target to double natural gas usage as a percentage of primary energy to 10% between 2012 and 2020.

As at 30 September 2014 China Gas had expanded its total number of city gas concessions to 243, covering an urban population of 85m. Within its concession areas, just 44% of households (11.3m customers) are connected to the gas network (an increase of 17.4% on the previous year), emphasising the significant growth opportunity remaining. In the six months to 30 September 2014 China Gas reported total piped gas volume growth of 16.8% and LPG volume growth of 49.8%. Revenues grew by 49.0%, EBITDA by 26.5% and normalised net income by 29.3%. The dividend per share was flat on the previous year. Shares hit an all-time high of HK$16.04 at end-June 2014, following which UEM reduced its position in China Gas by 11.6%.

China Everbright International Limited's ("China Everbright") share price continued to appreciate strongly, increasing by 21.9% over the period under review. China Everbright's business activities accelerated, winning an additional 27 new environmental protection and alternative energy projects in the year to December 2014, more than double than in the previous year. This included some very significant projects, such as the Hangzhou Yuhan Waste-to-Energy ("WTE") plant, which in aggregate resulted in the company's total planned investment increasing by approximately 50% to RMB30.0bn. Corporate activity also picked up during the year, with China Everbright completing a reverse takeover of Singapore-listed HanKore Environment Tech Group in December 2014, which was subsequently renamed China Everbright Water Limited.

Several new projects were commissioned in the calendar year 2014, with total WTE electricity generated by China Everbright increasing by 57.2% to 1,650GWh from 5.4m tonnes of municipal waste handled. Electricity generation from biomass and solar facilities grew 26.4% to 325GWh, while 585m cubic meters of wastewater was treated, up 11.1%. This exceptionally strong growth in operating assets, combined with the construction of new projects, resulted in China Everbright's revenues increasing by 19.5% in the year to December 2014. EBITDA grew by 23.0%, normalised net income by 26.1% and dividends per share were raised by 29.4%. There was no change to UEM's shareholding in the period.

APT Satellite Holdings Limited's ("APT") share price declined by 3.6% in the year to 31 March 2015. Operationally, the company had a good year, reporting a 9.6% increase in revenues and a 15.5% increase in underlying net profit. However, performance in the second half of the year was a little weaker than in the first six months and the company was cautious in its outlook for 2015. The company is planning to launch a new satellite before the end of 2015. UEM increased its holding by 21.7% during the year.

Asia Satellite Telecommunications Holdings Limited's ("Asiasat") share price declined by 10.9% during the year to 31 March 2015. Adjusting for dividends of HK$2.48 paid during the period, the total decline was equivalent to 3.5%. The company successfully launched two new satellites in August and September 2014, although this was several months later than originally anticipated. The new satellites have undergone a successful period of testing with commercial operations commencing in 2015.

Asiasat's performance in 2014 was disappointing, with a 9.1% decline in reported revenues and a 25.2% decline in net profit. The decline in revenue was attributable to a combination of a major long-term broadcasting contract being renewed at a lower price than the original contract and lower demand for data services following the reduction of US military activities in the Middle East and Afghanistan.

In December 2014, GE, a major shareholder in Asiasat, announced that it had agreed to sell its stake to a fund managed by Carlyle Group for the equivalent of HK$26.00 per share, a discount to the market price. The transaction closed on 12 May 2015. Asiasat has proposed a special dividend of up to US$600m, or HK$11.89 per share, to be paid in the next few months. A HK$11.89 dividend would represent 41.7% of Asiasat's market price at the end of March 2015 and would result in a more efficient balance sheet than the current net cash position. UEM's holding in Asiasat was unchanged during the year under review.

Malaysia continues to be UEM's second largest country investment and rose from 16.3% to 17.8% of the portfolio. This is due mainly to market movements. Malaysia, as a producer of oil, has seen its economy negatively impacted by oil's weakness. This has affected both the market and the currency with the FTSE Bursa Malaysia KLCI Index and the Ringgit both down by 1.0%.

Malaysia Airports Holding Berhad's ("Malaysia Airports") share price declined 11.1% in the year to 31 March 2015 as the tragic events of MH370 and MH17 weighed heavily on operations. Passenger growth fell short of initial expectations at 4.7% but showed resilience in the face of depressed demand from China and Europe and the subsequent nationalisation of Malaysia Airlines. Despite the challenging operating environment, Malaysia Airports was able to deliver on ambitious expansion targets. The successful inauguration of Kuala Lumpur International Airport 2 ("KLIA 2") in May 2014 marked a key milestone for the company, accommodating a further 45m passengers and securing additional capacity for expanding low-cost carriers.

Investment in international operations accompanied domestic expansion, as Malaysia Airports successfully acquired the remaining 80% stake in Turkey's Istanbul Sabiha Gokcen Airport ("ISG") in the period under review, financed through a discounted equity rights issue. ISG has seen exceptional growth in recent years, with passenger traffic rising 25.4% in the year to December 2014. Malaysia Airport's financial results were impacted by higher operating costs and interest expenses relating to the commissioning of KLIA 2. Revenue (excluding construction) and EBITDA increased by 8.9% and 4.1% respectively, while normalised net income declined by 48.5%.

Malaysia Airports was the largest holding at year end as a result of the reduction in other top ten investments and UEM's subscription to the Malaysia Airports' rights issue.

MyEG Services Berhad's ("MYEG") share price was once again very strong, gaining 96.5% in the year to 31 March 2015. MYEG grew revenues and profits substantially, with revenues having increased by 43.7% and net profit up 43.8% for its financial year to June 2014. In the six months to December 2014, MYEG reported revenue growth of 31.0% and net profits up 32.2% compared to the same period in 2013.

MYEG reported increased growth in transaction volumes related to motor vehicle services, such as vehicle ownership transfers, road taxes, fine payments and insurance. Immigration Department related services, primarily the online renewal of foreign workers' permits, are also growing strongly.

As a result of the strong share price performance, MYEG moved from sixth to second position in UEM's portfolio, despite sales during the year amounting to 18.3% of UEM's holding as at 31 March 2014.

Brazil remains the third largest country investment but exposure reduced significantly from 15.7% to 11.2% of the portfolio. This is due to disposals but also a particularly weak currency. The Brazilian Real declined a further 20.7% over the year on top of the 18.6% decline the year before. The Brazil Ibovespa Index was up 1.5%. Short term concerns are overshadowing the longer term outlook, with the investment environment remaining challenging.

Ocean Wilsons Holdings Limited's ("Ocean Wilsons") share price was down 22.8% in the year to 31 March 2015. Operations at 58.3%-owned subsidiary, Wilson Sons, were severely impacted by the weaker macroeconomic backdrop. In particular, the container terminal business saw falling tariffs accompany volume declines as both Tecon Rio Grande and Tecon Salvador saw key import and export volumes contract. Towage was more resilient but suffered the loss of higher-margin operations, while logistics continued to undergo restructuring. The offshore joint venture with Ultratug was one of the few business lines to post a strong performance, buoyed by growth in the platform supplies vessels fleet and improved daily rates.

In the financial year to 31 December 2014, the investment portfolio of wholly-owned subsidiary Ocean Wilsons Investment Limited recorded a time-weighted return of 4.7%. On a consolidated basis, Ocean Wilsons saw revenue and EBITDA decline by 4.1% and 5.2% respectively while normalised net income fell by 41.2%. Dividends per share were increased by 5.0% following an increased pay-out from Wilson Sons. There was no change to UEM's shareholding in the year to 31 March 2015.

The Philippines remains the fourth largest country investment but has decreased from 9.5% to 7.9% of the portfolio, mainly as a result of disposals. The country continues to see strong economic growth, which was reflected in the Philippine PSEi Index and the Philippine Peso, up 23.5% and 12.7% respectively in the year to 31 March 2015.

International Container Terminal Services, Inc's ("ICT") share price was unchanged in the year to 31 March 2015. ICT continued to target portfolio expansion, with new acquisitions including container facilities in the Port of Umm Qasr in Iraq, the Port of Melbourne in Australia, and the Port of Yantai in China. Meanwhile, ICT took the decision to cancel its contract for the Kattupalli Container Terminal in India and sold its interest in the Yantai Rising Dragon terminal back to the Chinese government as part of a plan to consolidate the new Yantai International Container Terminal ("YICT").

In the financial year to 31 December 2014, ICT recorded container growth of 17.9%, due principally to the contribution of new terminals in Mexico, Honduras and Iraq and the consolidation of YICT in China. Yields benefitted from a favourable volume mix, driving strong top-line growth of 24.5%. EBITDA growth was less pronounced at 17.4% as higher operating expenses at new terminals resulted in margin contraction. Similarly, a 3.8% decline in normalised net income was largely attributable to financing costs associated with recent acquisitions. Dividends per share were increased by 5.9%. In the year to 31 March 2015 UEM decreased its position in ICT by 22.8%.

Thailand has remained largely unchanged at 6.4%, down from 6.9%. The Thailand SET Index was up 9.4% and the Thai Baht was up 12.0%, reversing some of the prior year losses of 11.8% for the Index and 17.8% for the currency. The small reduction in the weighting reflects net realisations.

Eastern Water Resources Development and Management PCL ("Eastwater") shares were down 4.4% in the period under review. Following the change in management during the previous year and the subsequent tariff cuts to the Provincial Waterworks Authority ("PWA"), a major customer and Eastwater's main shareholder with a 40.2% stake, profit growth has stagnated. Meanwhile it is notable that Eastwater has started a significant investment program in backup pipeline infrastructure without the commensurate regulatory certainty on the potential returns of these projects.

In its financial year to 31 December 2014 raw water volumes were flat with just 0.1% growth recorded. By comparison, tap water demand has been robust with volumes increasing by 10.6%. It is notable that the offtake of raw water by PWA fell by 7.6%, notwithstanding its favourable tariff treatment. The increased proportion of sales to higher-tariff industrial estate customers resulted in effective tariff growth for raw water of 2.6%, while tap water tariffs increased by a more modest 2.1%. With a step-up in construction activities, this resulted in group revenues growing by 13.0%, though much of this was offset by higher costs with EBITDA up 5.0% and normalised profits growth of 1.4%. Dividends per share were increased by 7.1%. In the period under review UEM decreased its position in Eastwater by 13.9%.

Chile remained broadly unchanged in the portfolio. The Chile IPSA index was up 3.8% and the Chilean Peso was down 0.8%.

Gasco S.A's ("Gasco") share price fell by 11.7% in the year to 31 March 2015. Gasco faced a particularly challenging political and regulatory environment during the year, following the announcements of several major reforms to the energy sector by the newly elected President Michelle Bachelet. These included proposals to regulate the gas distribution market and triggered an investigation into the profitability at Metrogas, Gasco's primary subsidiary. Following several months of great uncertainty over the form of regulation, returns and potential clawbacks of excess profits, the Chilean government has drafted a new law which provides clarity on measurement of the asset base and allowable returns. While stricter than its previous regulatory parameters, the eventual solution looks to be a fair compromise for customers and shareholders.

The other major news item for Gasco in the period under review was the acquisition of CGE by Gas Natural Fenosa at a premium of over 60% to the undisturbed share price. CGE is the parent company of Gasco with a 56.6% stake. In the year to 31 December 2014 natural gas volumes sold in Chile increased by 8.6%, mainly due to a recovery in demand from gas-fired thermal plants as well as a 6.3% increase in residential demand. LPG volumes sold fell 2.3% due to an increasingly competitive market in Columbia. However higher tariffs saw group revenues increase 10.9%, though these failed to match the higher input pricing, such that EBITDA fell 8.2% and normalised earnings fell 25.8%. Gasco increased its dividends per share by 7.8% on an underlying basis, in addition to which it paid a special dividend of CLP182.00 per share, more than doubling cash returns to shareholders. In the period under review UEM increased its position in Gasco by 8.0%.

Portfolio General

Investment activity continued at similar levels to recent years, with investment purchases of £89.3m (2014: £101.9m) and realisations of £87.3m (2014: £104.1m). Within the top ten investments, UEM invested £5.6m in Malaysia Airports' rights issue, £3.8m in APT and £1.1m in Gasco. Partial realisations in the top ten included MYEG £5.8m, ICT £8.6m, China Gas £4.2m and Eastwater £3.8m.

Changes in the geographic split reflect the realisations plus relative market performance. Europe increased from 4.0% to 7.6%, as a result of investments and gains on the portfolio valuations. The main sector change has been a reduction in ports from 20.4% to 14.7% mainly as a result of realisations, including ICT.

Bank Debt

Bank debt increased from £23.1m to £31.9m over the twelve months to 31 March 2015. At the year end this was drawn as £9.0m in Sterling and £22.9m in Euro. The Scotiabank facility of £50.0m matures on 30 April 2016.

Market Hedging

There has been little change in the market hedging position which has been at relatively low levels. The continuing performance of the US S&P Index has undermined the carrying value of the hedged position and resulted in a loss of £2.7m in the twelve months to 31 March 2015.

Revenue Return

Revenue income increased over the year by 6.5% from £13.7m to £14.6m. This reflects a yield on the opening investment portfolio of 3.4% (prior year: 3.0%).

Management fees and administration expenses were higher reflecting in the main the higher asset value and the change in basis of calculation from the previous year. The other expenses were 15.8% higher at £1.5m mainly as a result of increased marketing costs and higher professional fees.

Finance costs were higher at £0.3m from £0.2m the year before, reflecting higher borrowings over the year and one off costs incurred from the aborted retail bond proposal.

The net impact of the increased income and higher costs was an increased revenue return of £10.6m, up from £10.3m, an increase of 3.5% on last year.

Capital Return

The portfolio gained £45.4m in the year reflecting strong stock selection and the good performance of the existing holdings. The total income on the capital return was £45.3m (2014: a loss of £25.8m).

Management and administration fees were higher as a result of the performance fee of £3.1m payable to ICM.

The higher borrowings and the one-off costs incurred from the aborted retail bond proposal resulted in finance costs increasing from £0.5m to £0.7m. Taxation was positive last year as deferred tax decreased as the value in a number of Brazilian holdings reduced; this year tax was a small negative.

The net effect of the above was a profit on the capital return of £39.5m (2014: a loss of £25.9m).

CDO Jillings
ICM Limited
(sole investment manager at year end)
24 June 2015

Group Performance Summary

	31 March 2015	31 March 2014	Change % 2015/14
Total return(1) (annual) (%)	12.2	(3.4)	n/a
Annual compound total return (since inception)(2) (%)	12.4	12.4	n/a
Net asset value per ordinary share (pence)	209.79	192.38	9.0
Ordinary share price (pence)	188.50	180.00	4.7
Discount (%)	(10.1)	(6.4)	n/a
Earnings per ordinary share
- Capital (pence)	18.53	(12.13)	n/a
- Revenue (pence)	4.98	4.80	3.8
- Total (pence)	23.51	(7.33)	n/a
Dividends per ordinary share
- 1st Quarter - paid in September (pence)	1.525	1.525	0.0
- 2nd Quarter - paid in December (pence)	1.525	1.525	0.0
- 3rd Quarter - paid in March (pence)	1.525	1.525	0.0
- 4th Quarter(3) - paid in June (pence)	1.525	1.525	0.0
- Total (pence)	6.100	6.100	0.0
Equity holders' funds (£m)	447.4	410.2	9.1
Gross assets (£m)(4)	479.2	433.4	10.6
Ordinary shares bought back (£m)	-	3.9	n/a
Cash/(overdraft) (£m)	0.5	(0.9)	n/a
Bank debt (£m)	(31.9)	(23.1)	38.1
Net debt (£m)	(31.4)	(24.0)	30.8
Net debt gearing on gross assets (%)	6.6	5.5	n/a
Management and administration fees and other expenses(5)
- excluding performance fee (£m)	4.6	3.7	24.3
- including performance fee (£m)	7.7	3.7	108.1
Ongoing charges figure(5)(6)
- excluding performance fee (%)	1.1	0.9	n/a
- including performance fee (%)	1.8	0.9	n/a

(1)     Total return is calculated based on NAV per share return plus dividends reinvested from the payment date

(2)     Annual total return based on NAV per ordinary share return, plus dividends reinvested from the payment date and return on warrants

converted on 2 August 2010

(3)     The fourth quarterly interim dividend (2014, fourth quarter interim) declared on 20 April 2015 and paid on 9 June 2015 has not been

included as a liability in the accounts

(4)     Gross assets less liabilities excluding loans

(5)     The management fee was changed from 0.50% of gross assets to 0.65% of net assets with effect from 1 April 2014. At the same time

 a minimum hurdle of 8.0% on the performance fee benchmark and a cap on performance fees in any financial year of 1.85% of average

 adjusted equity funds were introduced

(6)      Expressed as percentage of average net assets, ongoing charges comprise all operational, recurring costs that are payable by the

 Company or suffered within underlying investee funds, in the absence of any purchases or sales of investments

Investment Objective and Policy

INVESTMENT OBJECTIVE

The Company's objective is to provide long-term total return through a flexible investment policy that permits it to make investments predominantly in infrastructure, utility and related sectors, mainly in emerging markets.

INVESTMENT POLICY AND RISK

The Company's investment policy is flexible and its investments include (but are not limited to) water, sewerage, waste, electricity, gas, telecommunications, ports, airports, service companies, rail, roads, any business with essential service or monopolistic characteristics and in any new infrastructure or utilities which may arise mainly in emerging markets. The Company may also invest in businesses which supply services to, or otherwise support, the infrastructure, utilities and related sectors.

The Company focuses on the under-developed and developing markets of Asia, Latin America, Emerging Europe and Africa but has the flexibility to invest in markets worldwide. The Company generally seeks to invest in emerging market countries where the Directors believe that there are attributes such as political stability, economic development, an acceptable legal framework and an encouraging attitude to foreign investment.

The Board and Investment Managers review the risk profile of the Company every six months. Agreed risk parameters are established and compliance is reviewed at quarterly board meetings.

The Company has the flexibility to invest in shares, bonds, convertibles and other types of securities, including noninvestment grade bonds and to invest in unlisted securities. The Company may also use derivative instruments such as American Depository Receipts, promissory notes, contracts for difference, financial futures, call and put options, and warrants for the purpose of efficient portfolio management.

The Company may, from time to time, actively seek to protect the Company's portfolio and balance sheet from major corrections. This would include foreign currency hedges, interest rate hedges, stock market index put and call options, and similar instruments.

UEM seeks to identify and invest in undervalued investments predominantly in the infrastructure and utility sectors, mainly in emerging markets. The Investment Managers aim to identify securities where underlying values and growth prospects are not reflected in the market price. This is often as a result of strong growth drivers, but can include changes in regulation, technology, market motivation, potential for financial engineering, competition or shareholder indifference.

The Company seeks to minimise risk by investing mainly in companies and sectors displaying the characteristics of essential services or monopolies such as utilities, transportation infrastructure, communications or companies with a unique product or market position. Most investee companies are asset backed, have good cash flows and offer good dividend yields. UEM generally seeks to invest in companies with strong management who have the potential to grow their business and who have an appreciation of, and ability to manage, risk.

UEM believes it is generally appropriate to support investee companies with their capital requirements while at the same time maintaining an active and constructive shareholder approach, including encouraging the optimisation of capital structures and business efficiencies. The investment team maintains regular contact with investee companies and UEM is often among its investee companies' largest international shareholders.

The Company aims to maximise value for shareholders by holding a relatively concentrated portfolio of securities and invests through instruments appropriate to the particular situation. UEM is prepared to hold investments in unlisted securities when the attractiveness of the investment justifies the risks and lower liquidity associated with unlisted investments. ICMIM, as the Company's AIFM, controls stock-specific and sector and geographic risk by continuously monitoring the exposures in the portfolio. In depth continual analysis of the fundamentals of investee companies allows ICMIM to assess the financial risks associated with any particular stock. The portfolio is typically made up of 60 to 90 stocks.

There will be no material change to the Company's investment policy (including the investment limits) without prior shareholder approval.

Principal Risks and Risk Mitigation

ICMIM has been appointed as the Company's alternative investment fund manager with effect from 13 April 2015 and has sole responsibility for risk management subject to the overall policies, supervision, review and control of the Board.

The Board carefully considers the Company's principal risks and seeks to mitigate these risks through continual and regular review, policy setting, compliance with and enforcement of contractual obligations and active communication with both the Investment Managers and the Company's Administrator.

The Board applies the principles and recommendations of the UK Code on Corporate Governance and the AIC's Code on Corporate Governance. The Company's internal controls are described in more detail on page 41 of the Report and Accounts for the year to 31 March 2015. The Company's internal controls are described in more detail on page 35 of the Annual Report and Accounts. Through these procedures, and in accordance with Internal Control: Revised Guidance for Directors on the Combined Code (the "FRC guidance"), the Board has established an on-going process for identifying, evaluating and managing the significant risks faced by the Company and has regularly reviewed the effectiveness of the internal control systems for the year. This process has been in place throughout the year under review and to the date hereof and will continue to be regularly reviewed by the Board going forward.

Most of the Company's principal risks are market-related and similar to those of other investment companies which invest primarily in listed investments. 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 26 to the financial statements in the Annual Report and 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. These guidelines include sector and market exposure limits.

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. The Investment Managers try to reduce risk by ensuring that the Company's portfolio is always appropriately diversified. Overall, the investment process is aiming 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 is difficult and expensive to hedge emerging markets' 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 generally will buy back shares for cancellation if they are trading at a discount in excess of 10% and the Investment Managers agree it is a good investment decision.

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 having been held in November 2014.

A fuller review of economic and market conditions is included in the Investment Manager's Report section of the Strategic Report in the Annual Report and Accounts.

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 change in overall risk in year.

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

Gearing levels may change from time to time in accordance with the Investment Managers' and the Board's assessment of risk and reward. Whilst the use of borrowings by the Company 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 31 March 2015, net gearing from borrowings stood at 6.6%.

No change in overall risk in year.

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

ICMIM, the Company's alternative investment fund manager, monitors compliance with the banking covenants when each draw down is made and at each month end. The Board reviews compliance with the banking covenants at each Board meeting.

No change in overall risk in 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 and the recruitment and remuneration package has been developed in order to retain key staff.

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

No change in overall risk in 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 80 of the Annual Report and Accounts. The Audit Committee monitors the performance of the service providers.

All listed investments are held in custody for the Company by JPMorgan Chase; the unlisted investments are held in custody by Bermuda Commercial Bank Limited (together "the Custodians").

The Audit Committee reviews the Administrator's annual internal control report which details the controls around the reconciliation of the Administrator's records to those of the Custodians. The Administrator reviews the control reports published by JPMorgan Chase and draws any issues to the attention of the Board.

The Board reviews operational issues at each Board meeting and the Audit Committee receives reports on the operation of internal controls, and the risk of cybercrime, as explained in more detail within Internal Controls on page 35 of the Annual Report and Accounts. 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.

Directors' Statement of Responsibilities

The Directors are responsible for preparing the annual report and accounts, which is required to include a Strategic Report, a Corporate Governance Statement, a Directors' Remuneration Report and a Report of the Directors.

The Directors must not approve the Group financial statements unless in their opinion they give a true and fair view of the state of affairs of the Company and Group as at 31 March 2015 and of the results for the year then ended. The Directors are also responsible for ensuring that the annual report and accounts is fair, balanced and understandable and that the accounting records are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and Group and enable them to ensure that the financial statements and the Directors' annual report on remuneration comply with IFRS. They have a general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

In preparing these financial statements, the Directors are required to:

·              select suitable accounting policies and then apply them consistently;

·              present information, including accounting policies, in a manner that provides relevant, reliable, comparable and

 understandable information;

·              make judgements and estimates that are reasonable and prudent;

·              provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users

 to understand the impact of particular transactions, other events and conditions on the entity's financial position and

 financial performance; and

·              state that the Company has complied with IFRS, subject to any material departures disclosed and explained in the

 financial statements.

The Directors of the Company each confirm to the best of their knowledge that:

·              the financial statements, which have been prepared in accordance with applicable Bermuda law and IFRS, as

 adopted by the European Union, on a going concern basis, give a true and fair view of the assets, liabilities,

 financial position and net return of the Company and Group;

·              the annual financial report includes a fair review of the development and performance of the Company and the

 important events that have occurred during the financial year and their impact on the financial statements,

 including a description of the principal risks and uncertainties that it faces; and

·              the financial statements and the Report of the Directors' include details of any related party transactions.

Approved by the Board on 24 June 2015 and signed on its behalf by:

Alexander Zagoreos

Chairman

Group Income Statement

for the year to 31 March	2015				2014
		Revenue	Capital	Total	Revenue	Capital	Total
		return	return	return	return	return	return
		£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Gains/(losses) on investments		-	45,390	45,390	-	(19,767)	(19,767)
Losses on derivative instruments		-	(2,721)	(2,721)	-	(5,821)	(5,821)
Exchange gains/(losses)		38	2,623	2,661	(59)	(202)	(261)
Investment and other income		14,531	-	14,531	13,742	-	13,742
Total income		14,569	45,292	59,861	13,683	(25,790)	(12,107)
Management and administration fees		(1,117)	(5,014)	(6,131)	(925)	(1,328)	(2,253)
Other expenses		(1,534)	(23)	(1,557)	(1,324)	(25)	(1,349)
Profit/(loss) before finance costs and taxation		11,918	40,255	52,173	11,434	(27,143)	(15,709)
Finance costs		(299)	(698)	(997)	(197)	(461)	(658)
Profit/(loss) before taxation		11,619	39,557	51,176	11,237	(27,604)	(16,367)
Taxation		(1,000)	(42)	(1,042)	(982)	1,683	701
Profit/(loss) for the year		10,619	39,515	50,134	10,255	(25,921)	(15,666)
Earnings per ordinary share - pence		4.98	18.53	23.51	4.80	(12.13)	(7.33)

The total column of this statement represents the Group's Income Statement and the Group's Statement of Comprehensive Income, prepared in accordance with International Financial Reporting Standards ("IFRS"). The supplementary revenue return and capital return columns are both prepared under guidance published by the Association of Investment Companies ("AIC") in the UK.

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 31 March	2015				2014
		Revenue	Capital	Total	Revenue	Capital	Total
		return	return	return	return	return	return
		£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Gains/(losses) on investments		-	42,887	42,887	-	(25,597)	(25,597)
Exchange gains/(losses)		2	2,539	2,541	(63)	(211)	(274)
Investment and other income		14,324	-	14,324	13,667	-	13,667
Total income		14,326	45,426	59,752	13,604	(25,808)	(12,204)
Management and administration fees		(1,104)	(5,014)	(6,118)	(925)	(1,328)	(2,253)
Other expenses		(1,438)	(23)	(1,461)	(1,227)	(25)	(1,252)
Profit/(loss) before finance costs and taxation		11,784	40,389	52,173	11,452	(27,161)	(15,709)
Finance costs		(299)	(698)	(997)	(197)	(461)	(658)
Profit/(loss) before taxation		11,485	39,691	51,176	11,255	(27,622)	(16,367)
Taxation		(1,000)	(42)	(1,042)	(982)	1,683	701
Profit/(loss) for the year		10,485	39,649	50,134	10,273	(25,939)	(15,666)
Earnings per ordinary share - pence		4.92	18.59	23.51	4.80	(12.13)	(7.33)

The total column of this statement represents the Company's Income Statement and the Company's Statement of Comprehensive Income, prepared in accordance with IFRS. The supplementary revenue return and capital return columns are both prepared under guidance published by the AIC in the UK.

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 31 March 2015
	Ordinary	Share		Other non-	Retained earnings
	share	premium	Special	distributable	Capital	Revenue
	capital	account	reserve	reserve	reserves	reserve	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 31 March 2014	21,324	3,796	204,587	11,093	167,117	2,318	410,235
Profit for the year	-	-	-	-	39,515	10,619	50,134
Ordinary dividends paid	-	-	-	-	(3,252)	(9,756)	(13,008)
Balance at 31 March 2015	21,324	3,796	204,587	11,093	203,380	3,181	447,361

for the year to 31 March 2014
	Ordinary	Share		Other non-	Retained earnings
	share	premium	Special	distributable	Capital	Revenue
	capital	account	reserve	reserve	reserves	reserve	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 31 March 2013	21,553	7,510	204,587	11,093	196,325	1,819	442,887
(Loss)/profit for the year	-	-	-	-	(25,921)	10,255	(15,666)
Ordinary dividends paid	-	-	-	-	(3,287)	(9,756)	(13,043)
Shares purchased by the Company	(229)	(3,714)	-	-	-	-	(3,943)
Balance at 31 March 2014	21,324	3,796	204,587	11,093	167,117	2,318	410,235

Company Statement of Changes in Equity

for the year to 31 March 2015
	Ordinary	Share		Other non-	Retained earnings
	share	premium	Special	distributable	Capital	Revenue
	capital	account	reserve	reserve	reserves	reserve	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 31 March 2014	21,324	3,796	204,587	11,093	166,888	2,547	410,235
(Loss)/profit for the year	-	-	-	-	39,649	10,485	50,134
Ordinary dividends paid	-	-	-	-	(3,252)	(9,756)	(13,008)
Balance at 31 March 2015	21,324	3,796	204,587	11,093	203,285	3,276	447,361

for the year to 31 March 2014
	Ordinary	Share		Other non-	Retained earnings
	share	premium	Special	distributable	Capital	Revenue
	capital	account	reserve	reserve	reserves	reserve	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 31 March 2013	21,553	7,510	204,587	11,093	196,114	2,030	442,887
(Loss)/profit for the year	-	-	-	-	(25,939)	10,273	(15,666)
Ordinary dividends paid	-	-	-	-	(3,287)	(9,756)	(13,043)
Shares purchased by the Company	(229)	(3,714)	-	-	-	-	(3,943)
Balance at 31 March 2014	21,324	3,796	204,587	11,093	166,888	2,547	410,235

Balance Sheets

	GROUP		COMPANY
at 31 March	2015	2014	2015	2014
	£'000s	£'000s	£'000s	£'000s
Non-current assets
Investments	481,268	433,955	482,895	436,724
Current assets
Other receivables	3,082	880	3,082	879
Derivative financial instruments	1,839	1,857	-	-
Cash and cash equivalents	1,804	1,574	195	489
	6,725	4,311	3,277	1,368
Current liabilities
Bank loans	-	(23,132)	-	(23,132)
Other payables	(7,313)	(3,916)	(6,016)	(3,742)
Derivative financial instruments	(524)	-	-	-
	(7,837)	(27,048)	(6,016)	(26,874)
Net current liabilities	(1,112)	(22,737)	(2,739)	(25,506)
Total assets less current liabilities	480,156	411,218	480,156	411,218
Non-current liabilities
Bank loans	(31,862)	-	(31,862)	-
Deferred tax	(933)	(983)	(933)	(983)
Net assets	447,361	410,235	447,361	410,235
Equity attributable to equity holders
Ordinary share capital	21,324	21,324	21,324	21,324
Share premium account	3,796	3,796	3,796	3,796
Special reserve	204,587	204,587	204,587	204,587
Other non-distributable reserve	11,093	11,093	11,093	11,093
Capital reserves	203,380	167,117	203,285	166,888
Revenue reserve	3,181	2,318	3,276	2,547
Total attributable to equity holders	447,361	410,235	447,361	410,235
Net asset value per ordinary share
Basic - pence	209.79	192.38	209.79	192.38

Statements of Cash Flows

	GROUP		COMPANY
for the year to 31 March	2015	2014	2015	2014
	£'000s	£'000s	£'000s	£'000s
Cash flows from operating activities	7,718	(665)	7,609	(661)
Investing activities:
Purchases of investments	(87,749)	(101,081)	(88,972)	(104,773)
Sales of investments	85,255	104,628	85,255	104,628
Purchases of derivatives	(3,004)	(8,725)	-	-
Sales of derivatives	825	5,749	-	-
Cash flows from investing activities	(4,673)	571	(3,717)	(145)
Cash flows before financing activities	3,045	(94)	3,892	(806)
Financing activities: Ordinary dividends paid	(13,008)	(13,043)	(13,008)	(13,043)
Movements from loans	10,973	14,215	10,973	14,215
Cost of ordinary shares purchased	-	(3,942)	-	(3,942)
Cash flows from financing activities	(2,035)	(2,770)	(2,035)	(2,770)
Net movement in cash and cash equivalents	1,010	(2,864)	1,857	(3,576)
Cash and cash equivalents at the beginning of the year	(875)	2,569	(1,960)	2,201
Effect of movement in foreign exchange	391	(580)	298	(585)
Cash and cash equivalents at the end of the year	526	(875)	195	(1,960)

Comprised of:
Cash	1,804	1,574	195	489
Bank overdraft	(1,278)	(2,449)	-	(2,449)
Total	526	(875)	195	(1,960)

Notes

The Directors have paid a fourth quarterly interim dividend in respect of the year ended 31 March 2015 of 1.525p per ordinary share on 9 June 2015 to shareholders on the register at close of business on 15 May 2015. The total cost of the dividend, which has not been accrued in the results for the year to 31 March 2015, was £3,252,000.

This statement was approved by the Board on 24 June 2015. It is not the Group's or Company's statutory accounts. The statutory accounts for the financial year ended 31 March 2015 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 31 March 2014 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 31 March 2015 will be posted to shareholders in early July 2015. A copy is available to view and download from the Company's website at www.uem.bm. Copies may also be obtained during normal business hours from Exchange House, Primrose Street, London, EC2A 2NY.

By order of the Board

ICM Investment Management Limited, Secretary

24 June 2015

 

END

 

 

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