Final Results

RNS Number : 4110W

Utilico Emerging Markets Limited

11 June 2008

Date: 10 June 2008

Contact: Charles Jillings

Utilico Emerging Markets Limited

01372 271 486

Alastair Moreton

Arbuthnot Securities Limited

020 7012 2000

Utilico Emerging Markets Limited

Preliminary Statement of Results

for the year to 31 March 2008

Financial Highlights

Profit for the year £38.9m
Revenue account earnings per ordinary share of 5.24p up 28.4%(1)
Dividends per ordinary share of 4.80p (final 1.30p) up 77.8%
Gross assets (less liabilities excluding loans) increased to £439.4m, up 53.3%
Net asset value increased to 168.39p up 15.0%
Total return of 26.14p (including dividends paid) represented a gain of 17.8%
Increased capital by £85.0m in December 2007
Increased bank facility to £80.0m from £60.0m
Gains on options £17.1m

(1) Based on pro forma March 2007 revenue earnings per ordinary share of 4.08p as set out in note 1 to the Performance Summary table.

CHAIRMAN'S STATEMENT

I am pleased to report that Utilico Emerging Markets Limited's ('UEM') undiluted NAV per ordinary share recorded a gain of 15.0% from 146.45p to 168.39p in the full year. Adding back dividends paid during the year of 4.2p the gain was 17.8%. The average annual compound return per ordinary share including dividends since inception stood at 24.5% at the end of the year.

There was a deepening of the issues facing the markets, including the emerging markets, in the second half of the year. As a result, markets retreated and volatility increased sharply. UEM was not immune from this and its undiluted NAV per ordinary share declined from 187.80p at the half year to 168.39p at year end.

Over the year the MSCI Emerging Markets Index gained 17.3% ahead of UEM's 15.0%. Since inception UEM's NAV per ordinary share has gained 71.2% while the MSCI Emerging Markets Index has gained 64.7%.

UEM raised £85.0m in December 2007 by way of a C share and Subscription share issue and these funds were fully invested shortly after the year end. At this time the Company listed on the Channel Islands Stock Exchange to permit the ordinary shares, C shares and S shares to qualify for inclusion in PEP/ISAs in the UK. At the end of February 2008 the C shares were converted into ordinary shares on the basis of 55.46 ordinary shares for every 100 C shares. The Subscription shares were converted into S shares on the basis of 54.23 S shares for every 100 Subscription shares.

During the year the bank facility was increased from £60.0m to £80.0m. Having started the year with £45.0m drawn, UEM ended the year with £79.9m drawn, an increase of £34.9m. UEM started the year with a net contracts for difference ('CFD') position of £14.1m. Towards the end of March 2008, UEM took the majority of the position onto its balance sheet using its cash balances.

The gross assets less liabilities excluding loans increased by 53.3% from £286.6m to £439.4m, as a result of the gains in the year, the C share issue and increased bank debt offset by the reduction in the CFD positions. This represents a significant step change in UEM's size, and improves the Company's strategic position.

Once again UEM's revenue earnings per share remained strong at 5.24p for the year. The second half was again lower than the first half as a result of the higher weighting of dividends received in the first half of the year. At 5.24p this represents an increase of 28.4% over the 2007 pro forma revenue earnings per share of 4.08p and is ahead of expectations.

The Board declared an interim dividend of 3.50p in the first half (2.00p in 2007) and is declaring a final dividend of 1.30p (0.70p in 2007) bringing the total dividends to 4.80p (2.70p in 2007). The board is introducing a Dividend Reinvestment Plan and this will be in place for the interim dividend payable in December 2008.

The income statement for the year to 31 March 2008 is based on the changed allocation policy previously advised to shareholders to capitalise 70.0% of finance costs and management fees. Total management fees (excluding the performance fee) and administration costs were £3.1m for the year giving rise to a TER ratio of 0.8%, slightly lower than last year.

A key feature for the year has been the strong net gains on derivative instruments. These contributed £15.2m to total income up from £2.5m in the prior period. This represents in the main, gains from the net put option positions held by UEM. This hedge has been actively managed and gave rise to gains of £17.1m. Currently these positions are being moved closer to a market neutral position.

A performance fee of £2.8m was payable to the investment manager, Ingot Capital Management Pty Limited ('ICM'). In prior years this has been paid after the publication of the Report and Accounts. However, as half of the fee is payable in shares this gives rise to a premium or discount at the time of issue depending on the share price at the time. To reduce this risk going forward, the board have resolved to settle the performance fee as soon as practicable following the year end.

UEM's shares have seen their discount widen marginally as a result of market uncertainty, from 1.1% at the start of the year to 2.2% at the end of the year. On a combined basis the market capitalisation of UEM's ordinary shares, S shares and warrants was £357.0m at the year end, a discount of 0.6% to UEM's net assets.

Since the year end, UEM has seen its portfolio valuations strengthen. As at 31 May 2008 the undiluted NAV per ordinary share stood at 181.05p up 7.5% on the year end value.

Markets remain unsettled. The majority of our investee companies are reporting good results. However, the difficulties which continue in the main to face credit markets are expected to reduce levels of economic activity for this year. Rising inflation is a factor for economies and distortions in the commodity markets, especially soft commodities, are a concern, more so if political stability is challenged as a result. Longer term we continue to expect sound economic progress in the emerging markets and UEM's portfolio is positioned to benefit from this.

Alexander Zagoreos
June 2008

INVESTMENT manager's REPORT

The Company's objective of absolute return was achieved once again with undiluted NAV per ordinary share increasing by 15.0% to 168.39p. Total returns of 26.14p (including dividends paid) represented a gain of 17.8%.

Taking into account dividends paid, the annual compound return for UEM's shareholders since inception has been 24.5%. Since inception UEM's NAV per ordinary share has gained 71.2% while the MSCI EMF Index (sterling adjusted) has gained 64.7%.

Strategy

UEM is running a long equity market portfolio, predominantly invested in local companies in emerging markets with strong domestic economies. Investments are predominantly in countries which offer sound economic fundamentals and, on the whole, strengthening currencies. UEM has bank debt and CFDs, both of which are used to increase leverage and diversify risk. Further, UEM's put options offer both a level of protection and liquidity. The portfolio, on balance, offers both capital and earnings growth potential and the costs of UEM are controlled.

The above has led to a balanced and positive outcome in capital, revenue and cost level.

Portfolio

UEM raised £85.0m by way of a C share issue in December 2007 and also increased its bank facilities from £60.0m to £80.0m during the year. UEM invested all but £5.8m of the C share issue by year end and increased its bank drawings from £45.0m to £79.9m, an increase of £34.9m. UEM increased its CFD position during the year but then significantly reduced it at year end due to increasing concerns about counter-party risk. Having started with a gross CFD position of £14.1m, UEM ended the year with a gross position of £4.7m.

The above, together with the profit for the year, resulted in the value of the investments increasing sharply from £273.7m to £441.4m. At the time of raising the £85.0m and increasing the bank facility, it was anticipated that the portfolio concentration would reduce further. This has happened with the top ten now accounting for 42.7%, down from 47.7% at the half year and 48.3% at the end of last year. The number of investments, having peaked at 80, has been reduced to 76.

The portfolio itself has seen changes driven by both investments made and market values. This is amply reflected by Datang International Power Generation Co Ltd which was the fifth largest holding last year at £15.5m, rose to first at the half year at £31.0m and ended the year at ninth position with a value of £12.7m. The gain reflects a strong upward swing in valuations; the decline reflects a downward revision coupled with realisations. During the year £10.1m of the position was realised for cash. As such, the overall gain was £7.3m or 47.1% on the opening position. This reflects some of the stresses and changes UEM faced in the portfolio.

Within the top ten we have seen the inclusion of Malaysia Airports Holdings at number three. Malaysia Airports was number twelve last year and has moved up as a result of investment. Malaysia Airports benefited from the strong regional growth in air travel and has both the capacity and location to continue to provide long-term sustainable growth. Malaysia Airports entered the top ten at the half year.

Equest Balkan Properties plc, a recent investment for UEM entered the top ten at number four. Equest Balkan is a property company operating in the Balkans, principally Romania and Bulgaria. The reported NAV at 31 December 2007 was 110.00p. UEM purchased a 19.9% stake at an average cost of 73.02p; this represents a discount of 33.6% to the recently reported NAV and a diversity in asset class and region for UEM. Charles Jillings has been appointed to the board of Equest Balkan.

Eastern Water Resources has risen to number ten from number fifteen last year. Eastern Water Resources principal business is the supply of untreated water in Thailand on the Eastern Seaboard south of Bangkok.

Companhia de Concessoes de Rodoviarias ('CCR') and Beijing Capital International Airport are both no longer in the top ten as a result of selling down and lower valuations. CCR and Beijing Capital were one and ten as at 31 March 2007 respectively.

POS Malaysia and Services Holdings ('POSM') which was third last year has been a disappointment in the short term. Following the Malaysian elections, the local market significantly reduced the value of those investments which are seen as political. POSM clearly falls in this category. Its shares are down from MYR 316.0 to MYR 188.0 over the last twelve months, a loss of 40.5%. POSM has both the opportunity and the stated objective of improving its performance. Whether it has the political support to become an efficient, well managed, profitable service to the public will remain an issue and overhang the shares in the short term.

While companies in the portfolio have differing year ends, it is interesting to note the operating companies' growth in earnings before interest, tax, depreciation and amortisation ('EBITDA') at the last reported year-end for each as a yardstick. Looking at the top 10, Companhia de Gas de Sao Paulo ('Comgas') gained 7.6%, Ocean Wilsons 1.4%, Malaysia Airport 42.6%, Saneamento Basico do Estado de Sao Paulo ('SABESP') 11.2%, International Container Terminals 25.7%, Puncak Niaga 16.3%, AES Tiete 0.2%, Datang Power 25.5% and Eastern Water 3.6%. As a quick comment, the majority obviously reflect strong progress. Comgas is modest as expected, due to the fact that gas supplies are currently limited. However, as Brazil brings its new fields on line we expect Comgas to show strong growth. Eastern Water was held back by poor results from its pipeline business, which has now been sold. Equest Balkan is excluded as it is an expanding property company to which EBITDA is not an appropriate measure.

UEM invested £232.6m during the year with disposals amounting to £88.5m. Within the top ten, UEM invested £18.9m in Equest Balkan, £14.8m in Comgas, £7.2m in Malaysia Airport, £4.6m in Puncak Niaga and £3.2m in Ocean Wilsons. Within the top ten, UEM disposed of £12.0m in Beijing Airport, £10.9m in CCR and £10.1m in Datang Power.

Following this activity there was some movement in the portfolio both by sector and geography. Moves of note by sector were water up 3.8% and now the biggest sector; gas up 3.4%; other up 6.5% with electricity down 3.6%; road and rail down 5.4% and postal down 3.7%.

By geography, the major moves were Brazil down from 37.1% to 31.5%; Eastern Europe up from 7.3% to 12.4% and the Philippines up from 5.5% to 8.8%.

UEM has four unlisted and untraded investments with a combined value of £13.8m representing 3.1% of its investment portfolio (excluding Global Equity Risk Protection Ltd ('GERP'), the vehicle through which the company's derivative position is traded). During the year UEM increased its investments in unlisted securities by investing in a convertible loan note in an Indian Energy project and also increased its investment in Comanche Clean Energy, a Brazilian fuel ethanol and biodiesel business.

Hedging

UEM has established over the past 24 months a net long equity index put option position. Initially the capital commitment was small to take advantage of low premiums for long dated equity index put options. In a rising market these put options were partially funded by selling short dated put options. As the markets fell and volatility increased the long dated positions were converted into put spread positions. UEM started the year with £6.7m invested in options and ended the year with £27.4m invested. This additional increase represents further investments of £3.6m together with gains of £17.1m. The S&P Index was chosen for the put option position owing to liquidity of the market. In addition, the S&P Index also offers UEM protection in the event the US headed into a deep recession. This has been an excellent hedging strategy.

As an effective hedge it has delivered a profit of £17.1m. This arose quarterly with a loss of £0.4m and gains of £4.0m, £5.1m and £8.4m, in the first, second, third and fourth quarters respectively. The portfolio gained £47.2m, £29.4m and £10.2m in the first, second and third quarters and then lost £58.1m in the last quarter. This is a very credible performance as the hedge delivered gains even at times when the portfolio was strong but these gains were sharply higher when the portfolio declined in value. In the final quarter the hedge covered 14.4% of the losses in the final quarter.

In March 2008 ICM sponsored a new Bermuda segregated account company, GERP with the sole purpose being the holding of derivative positions. UEM is a shareholder in GERP and has funded a segregated account within GERP into which all the UEM market option positions have been transferred. This segregated account is solely the asset or liability of UEM and is, under the structure, protected from the rest of the segregated accounts within GERP. This step has allowed ICM to better manage the option positions for all its clients.

At the year end UEM's segregated account in GERP was valued at £27.4m. This has not been included in the top ten holdings as it is not reflective of the investments but rather a hedge. For accounting purposes the investment in GERP is regarded as a portfolio investment and is included in investments in the balance sheet. Last year the market options positions now held by GERP were held by the Company and included in derivative financial instruments. Gains and losses in GERP are now included in 'Gains and Losses on investments' in the Capital account. Within those gains and losses is £1.6m which would have been included in 'Gains and Losses on derivative instruments' had the positions continued to be held directly by UEM and not transferred to GERP.

UEM has used CFD's as a tax efficient method of investing. As noted above, UEM reduced its CFD position over the year from a gross position of £14.1m to £4.7m.

Bank debt

UEM increased its bank facility with Halifax Bank of Scotland from £60.0m to £80.0m during the year. Drawings under the facility rose from £45.0m to £79.9m at year end.

This facility was drawn principally in UK sterling at the start of the year. This was switched fully into US dollars in the first half. The US dollar rapidly depreciated in early November, with the exchange rate exceeding 2.10 for a period. Against this background, UEM bought currency options giving the option to sell £42.0m and buy US$85.3m at an average rate of 2.03, therefore offering currency downside protection. Subsequently the US dollar has strengthened and these positions have now been closed out at attractive rates.

In October 2007 UEM fixed its US dollar interest rate forward using an interest rate swap agreement until April 2012 at 4.965%. With hindsight better rates are available today but a cost of long-term capital at this rate was seen as attractive at the time. This swap is marked to market and has resulted in a loss in the period of £3.2m.

Revenue Account

Total income increased sharply from £8.5m to £12.8m. This represents a revenue yield of 3.5% on the average gross assets. However, it should be noted that the equity issue during the second half when dividend payments are historically lower would mean the 3.5% is understated. The portfolio continues to generate healthy and growing dividend flows.

The Revenue Account fees and expenses now include only 30% of the management fee. Adding back the portion of the management fee capitalised the total fees and expenses were £3.1m (£2.1m for 2007), representing a TER of 0.8% based on average gross assets less liabilities excluding loans. This is slightly lower than last year and in line with expectations.

Finance costs rose as a result of increased bank debt. Again, 70.0% was allocated to the Capital Account. Adding this back the total finance costs were £5.6m.

After allowing for taxation, the Revenue Account profit for the period was £8.8m. The resultant EPS of 5.24p was ahead of our expectations and well ahead of last year's comparable figure of 4.08p.

Capital return

The portfolio gained £23.5m to which is added gains on derivatives (including options) of £15.2m and exchange gains of £0.8m resulting in total income of £39.6m.

The fees reflect both a performance fee plus 70.0% of the allocated management fee. The finance costs represent 70.0% of the allocated interest costs.

Profit for the year of £30.1m represents a NAV gain per share of 17.89p on the Capital Account.

Outlook

Markets remain unstable and the impact of restricted credit will slow economic progress. This fact coupled with rising inflation will challenge the World's central banks and ultimately markets. As before, the majority of our investee companies continue to deliver strong top line growth, rising earnings and increasing dividend payments.

PERFORMANCE SUMMARY

	31 March 2008	31 March 2007	Change %

Undiluted net asset value per ordinary share	168.39p	146.45p	15.0
Diluted net asset value per ordinary share	157.20p	138.80p	13.3
Ordinary share price	153.75p	137.25p	12.0
Discount/(Premium) - based on diluted NAV	(2.2%)	(1.1%)

Earnings per ordinary share (basic)
- Capital	17.89p	34.19p	(47.7)
- Revenue (1)	5.24p	2.96p	77.0
- Total	23.13p	37.15p	(37.7)

Dividend per ordinary share
- Interim dividend per ordinary share paid	3.50p	2.00p	75.0
- Final dividend per ordinary share declared (2) (2007: paid)	1.30p	0.70p	85.7
- Total	4.80p	2.70p	77.8

Equity holders' funds (£m)	359.5 (3)	241.6	48.8
Gross assets (£m) (4)	439.4 (3)	286.6	53.3

Bank debt (£m)	79.9	45.0	77.5

Gearing on gross assets	18.2%	15.7%	n/a

Management and administration fees (£m) (5)	3.1	2.1	47.6

Total expense ratio(6)	0.8%	0.9%	n/a

(1) With effect from 1 April 2007, the management fee and finance costs are allocated 70% to capital return and 30% to revenue return. Previously these costs were fully charged to revenue return.

(2) The dividends declared have not been included as a liability in these accounts.

(3) Includes £85.0m fund raising in December 2007.

(4) Gross assets less liabilities excluding loans.

(5) Excluding performance fee, including other expenses.

(6) Management and administration fees over monthly average gross assets.

INCOME STATEMENT

for the year to 31 March	2008			2007
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s

Gains and losses on investments	-	23,504	23,504	-	58,094	58,094
Gains and losses on derivative instruments	-	15,245	15,245	-	2,450	2,450
Exchange gains and losses	-	808	808	-	1,830	1,830
Investment and other income	12,780	-	12,780	8,457	-	8,457
Total income	12,780	39,557	52,337	8,457	62,374	70,831
Management and administration fees	(802)	(4,743)	(5,545)	(1,275)	(7,102)	(8,377)
Other expenses	(852)	(55)	(907)	(709)	(77)	(786)
Profit before finance costs and taxation	11,126	34,759	45,885	6,473	55,195	61,668
Finance costs	(1,676)	(3,912)	(5,588)	(1,417)	-	(1,417)
Profit before tax	9,450	30,847	40,297	5,056	55,195	60,251
Taxation	(636)	(787)	(1,423)	(488)	(2,421)	(2,909)
Profit for the year	8,814	30,060	38,874	4,568	52,774	57,342

Earnings per ordinary share (basic) - pence	5.24	17.89	23.13	2.96	34.19	37.15
Earnings per ordinary share (diluted) - pence	4.88	16.64	21.52	2.87	33.14	36.01

The total column of this statement represents the Company's income statement, prepared in accordance with IFRS. The supplementary revenue

return and capital return columns are both prepared under guidance published by the Association of Investment Companies in the UK. All items in the

above statement derive from continuing operations.

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

STATEMENT OF CHANGES IN EQUITY

for the year to 31 March 2008

	Ordinary	Share			Other non-	Retained earnings
	share	premium	Warrant	S share	distributable	Capital	Revenue
	capital	account	reserve	reserve	reserve	reserves	reserves	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s

Balance at 31 March 2007	16,498	147,194	9,050	-	101	67,408	1,365	241,616
Profit for the year	-	-	-	-	-	30,060	8,814	38,874
Ordinary dividends paid	-	-	-	-	-	-	(6,977)	(6,977)
Issue of ordinary shares, S shares and warrants	4,853	73,074	(2)	9,350	2	-	-	87,277
Cost of issuing ordinary share capital	-	(1,260)	-	-	-	-	-	(1,260)
Balance at 31 March 2008	21,351	219,008	9,048	9,350	103	97,468	3,202	359,530

for the year to 31 March 2007

	Ordinary	Share			Other non-	Retained earnings
	share	premium	Warrant	S share	distributable	Capital	Revenue
	capital	account	reserve	reserve	reserve	reserves	reserves	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s

Balance at 31 March 2006	7,507	62,284	4,050	-	1	14,634	1,215	89,691
Profit for the year	-	-	-	-	-	52,774	4,568	57,342
Ordinary dividends paid	-	-	-	-	-	-	(4,418)	(4,418)
Issue of ordinary shares and warrants	8,991	86,308	5,000	-	100	-	-	100,399
Cost of issuing ordinary share capital	-	(1,398)	-	-	-	-	-	(1,398)
Balance at 31 March 2007	16,498	147,194	9,050	-	101	67,408	1,365	241,616

BALANCE SHEET

At 31 March	2008	2007
	£'000s	£'000s
Non current assets
Investments	441,360	273,708
Current assets
Other receivables	3,171	2,229
Derivative financial instruments	458	7,605
Cash and cash equivalents	11,236	19,904
	14,865	29,738
Current liabilities
Bank loans	(29,962)	(20,000)
Other payables	(11,732)	(14,335)
Derivative financial instruments	(3,163)	(482)
	(44,857)	(34,817)
Net current liabilities	(29,992)	(5,079)
Total assets less current liabilities	411,368	268,629
Non-current liabilities
Bank loans	(49,937)	(25,014)
Deferred tax	(1,901)	(1,999)
Net assets	359,530	241,616
Equity attributable to equity holders
Ordinary share capital	21,351	16,498
Share premium account	219,008	147,194
Warrant reserve	9,048	9,050
S share reserve	9,350	-
Other non-distributable reserve	103	101
Capital reserves	97,468	67,408
Revenue reserve	3,202	1,365
Total attributable to equity holders	359,530	241,616
Net asset value per ordinary share
Basic - pence	168.39	146.45
Diluted - pence	157.20	138.80

CASH FLOW STATEMENT

for the year to 31 March	2008	2007
	£'000s	£'000s
Cash flows from operating activities	(121,146)	(105,201)
Cash flows from investing activities	-	-
Cash flows before financing activities	(121,146)	(105,201)
Financing activities
Ordinary dividends paid	(6,977)	(4,418)
Proceeds from borrowings	35,626	29,839
Proceeds from warrants exercised	6	361
Proceeds from issue of ordinary share capital	83,756	98,608
Cash flows from financing activities	112,411	124,390
Net movements in cash and cash equivalents	(8,735)	19,189
Cash and cash equivalents at the beginning of the year	19,904	1,238
Effect of movement in foreign exchange	67	(523)
Cash and cash equivalents at the end of the year	11,236	19,904

NOTES

A final dividend in respect of the year ended 31 March 2008 of 1.30p per ordinary share will be paid on

4 July 2008 to shareholders on the register at close of business on 20 June 2008. The total cost of the dividend which has not been accrued in the results for the year ended 31 March 2008, is £2,776,000 based on 213,508,303 ordinary shares in issue at the date of this report.

This preliminary statement, which has been agreed with the auditors, was approved by the Board on 10 June 2008. It is not the company's statutory accounts. The statutory accounts for the financial year ended 31 March 2008 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 2007 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 will be posted to shareholders in the middle of June 2008. Copies may be obtained during normal business hours from Exchange House, Primrose Street, London, EC2A 2NY.